Trade Negotiations Insights • Volume 7 • Number 9 • November 2008

Development friendliness of dispute settlement mechanisms in the EPAs

by Mehmet Karli (1)

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The analysis of the dispute settlement (DS) systems provided for in the (interim) EPAs indicates that these new mechanisms are representative of a fundamental shift in the EU’s DS policies towards a judicial model largely inspired by the WTO DS mechanism. (2) This shift fi rst started with the EU free trade agreements (FTAs) with Mexico and Chile. (3) It is thus logical to examine the EPA DS mechanisms in comparison with the WTO Dispute Settlement Understanding (DSU).

The ACP proposals put forth during the negotiations for the review of the WTO DSU could be used to define the criteria against which to assess the development friendliness of a DS system. Considering that ACP countries face similar difficulties with respect to DS activity, proposals that carry the signature of one or more ACP country are deemed to represent global ACP views. Since the EPA DS mechanisms are similar to the WTO DS system, the problems that the ACP countries face at the WTO and the proposals they put forth to cure these problems become highly relevant for this analysis. As such, detailed examination of the ACP proposals reveals that these countries have five main political demands with regard to DS activity: (4)

1) The DS system should address the ACP’s human and financial resource constraints in the form of legal aid;
2) The remedies and retaliatory measures should be strengthened;
3) The multilateral character of the DS mechanism should be strengthened;
4) The special and differential treatment (SDT) provisions of the system should be made mandatory, precise and operational, and there should be more SDT especially with regard to the DS timeframes;
5) The inter-governmental character of the DSU should be preserved. An examination of the (interim) EPA’s DS provisions in light of these policy demands would help assess the development friendliness of these mechanisms and would also provide guidance for the follow-up negotiations between the ACP and the EU.

Human and financial resource constraints and the EPAs(5)

The EPAs do not provide for any sort of legal aid. No mechanism is established to replace even the much criticised and minor assistance that the Secretariat gives to the developing countries under the WTO. Bearing in mind that the scarce resources of NGOs, academia, pro bono lawyers etc. will most probably focus on the multilateral level, ACPs will lack this type of assistance as well. Therefore, in terms of legal aid matters, the EPAs seem to aggravate the situation compared with the WTO. The ACP-EU parties should consider the possibility of setting up regional trade law centres that would assist the ACP countries. These centres would have positive spill-over effects for the ACP’s representation and participation at the WTO as well.

Remedies and retaliatory measures under the EPAs

Moreover, the agreements do nothing to address the long criticised ‘lack of effective remedy’ problem. (6) Most of the agreements reproduce the WTO remedy of ‘bringing the measure into compliance’, although with slightly different language. While the differences in language between the WTO and EPA texts may be used to push for some ACP friendly remedies, it may be preferable for the ACP countries not to have any provision on remedies at all. This is the case, for instance, under the Pacific EPA. Not having an explicit remedy clause may open the door for future developments and negotiations on this matter. The system of retaliation provided for in the EPAs, while taking some positive steps, nevertheless falls short of meeting the ACP’s demands. As a positive development, some EPAs recognise the possibility of ‘financial compensation’. However, as the financial compensation is made subject to the agreement of parties, in effect, it does not go substantially beyond the WTO. That said, such an explicit reference to financial recompense would provide the ACP countries with a better hand in compensation negotiations. Hence, they must be preserved and, if possible, strengthened. In that regard, the SADC interim EPA includes a more permissive financial compensation clause that may be drawn upon by the others. Another positive development under the EPAs with respect to retaliatory measures is that the agreements provide for ‘appropriate measures’ in addition to compensation. ‘Appropriate measures’ under the EPAs replace the ‘suspension of concessions and other obligations’ under the WTO. As this new term provides the ACP countries with a larger array of measures it may be considered as a positive step. However, given that the same measure is also available for the EU and that there are no proper judicial checks to control its use, this positive change carries a large risk as well. In terms of necessary disciplines to control the use of these measures by the EU, the relationship between ‘appropriate measures’ and development assistance is of crucial importance, even though development assistance is not provided for as part of an EPA. Other ACP countries should draw upon the Ghana interim EPA clause, which explicitly proscribes the appropriate measures from affecting the development assistance. In fact, a more general provision stating that the ACP’s use of the EPA DS mechanisms will not affect the development assistance to be given to them would also be an important guarantee for the ACP.

The case for an all ACP approach

Another important shortcoming of the EPA retaliation system, which has long been a subject of complaint for ACP countries under the WTO, is its bilateral nature. That is to say, the DS mechanisms allow only the winning party to retaliate, not any other country. The demand for the right to retaliate collectively has long been aired under the WTO by developing countries, including the ACP. Although it may be maintained that the bilateral character of the EPAs, as opposed to the multilateral WTO, necessitates such a structure, the possibility of making use of quasi-multilateral Cotonou institutions should not be discarded.

Strengthening multilateralism and the EPAs

The possibility of using and benefiting from the quasimultilateral institutions and character of the Cotonou Agreement should also be considered for stages such as the surveillance of the implementation of arbitral awards. In the same vein, there is also a good case to allow EPA signatory states to become third parties in other EPA disputes. Considering the similarities between the substantive obligations of different EPAs, ACP countries have a systemic interest in participating in each other’s cases.

SDT provisions in the EPAs

Most of the requirements of a development friendly DS system necessitate the special and differential treatment of ACP countries. Not only should the DS provisions include SDT, but also the SDT provisions should be mandatory, precise and operational. While the (interim) EPAs provide for some SDT clauses, they are very few and - in particular - they do not meet preciseness and operationality criteria. One of the prime examples of the lack of SDT is seen in the regulation of timeframes. Although the capacity differences between the ACP countries and the EU are well known, the treaty text does not entail any reference to SDT with respect to panel timeframes. While some fl exibility and SDT may be injected with the Rules of Procedures to be adopted once the agreements start functioning, without amending the text of the treaty the flexibilities would be limited. With regard to timeframes, the EPAs contain an implicit SDT in respect of the reasonable period of time that the losing party would be allowed to implement the arbitral award. However, this SDT provision also fails to meet the preciseness criterion. Moreover, the SDT provision only regulates the situation where an ACP country is a defendant. The situation where the EU is the losing party is also, if not more, important for the ACP countries. It would be worth considering an SDT provision stating that the EU must make use of expedited legislative and administrative means to implement arbitral decisions, in cases where a delay in implementation may have serious effects for ACP economies.

Preserving the inter-governmentality: amicus curiae and the government officials as panellists

The agreements reflect the EU’s positions with regard to the amicus curiae briefs and the selection of government officials as panellists. (7) Contrary to the position they have taken in the WTO, the ACP countries accepted the admission of amicus curiae briefs by the EPA arbitral panels. In order to attenuate the risks of such a position, ACP countries should insist on imposition of strict criteria on the submission of amicus briefs. The conditions laid out in the Chile FTA may be inspirational in that regard. In the same vein as the amicus briefs, the EU’s position with regard to the selection of panellists seems to have prevailed over the ACP’s. The EPAs require the panellists not to be government officials. This provision should be clarified to the effect that the condition must only be met during the time the person actually serves as a panellist; not during the whole time while he/she is on the roster of panellists. Otherwise, the ACP countries may find it difficult to come up with nominations.

Failing the development test

In conclusion, analysis of the (interim) EPA DS provisions indicates that the deal reached in ACP-EU negotiations has serious shortcomings in terms of its developmental credentials. It seems to be diffi cult to give a pass mark to the EPA DS mechanisms with respect to their performance on development friendliness. EPA DS mechanisms are a modifi ed version of the WTO DS. The important point is that most of the modifi cations are refl ections of the proposals that the EU put forth for the reform of the WTO DSU. Things like the establishment of a post-retaliation compliance review panel, acceleration of panel timeframes and admission of amicus briefs all point to the fact that the (interim) EPA DS mechanisms are formed under the EU’s vision. Very few ACP demands seem to have been accommodated. Even those that are accommodated lack the necessary preciseness and operability. If the EPA DS systems remain in their current form, it may be plausible to say that the incentives for the ACP countries to use them would be even less than the incentives that these countries have to use the WTO DS mechanism. Therefore, it would not be wrong to conclude that, unless some serious changes are introduced, only the EU could make use of the new EPA DS mechanisms. For the ACP they will remain inaccessible and represent just another pompous legalese with no real word effect.

1 Mehmet Karli is a D.Phil candidate in international law at the University of Oxford and a researcher for the Global Trade Ethics Programme. He can be contacted at mehmet.karli@law.ox.ac.uk
2 This article is based on a larger report prepared for the Global Trade Ethics Programme of the European Studies Centre and the Centre for International Studies of the University of Oxford. The research has been made possible thanks to the fi nancial support of OXFAM. The main report could be found at: http://ssrn.com/author=822083 and www.sant.ox.ac.uk/esc/pwtor.html
3 The agreements examined in this study are the EPA signed with the CARIFORUM states and the interim EPAs concluded with, SADC, Pacifi c States, Côte d’Ivoire, Ghana and Cameroon.
4 IG Bercero ‘Dispute Settlement in European Union Free Trade Agreements: Lessons Learned?’ in L Bartels, F Ortino (eds) Regional Trade Agreements and the WTO Legal System (OUP 2006) 383; see also Szepesi, S. (2004), Comparing EU free trade agreements: Dispute Settlement, ECDPM InBrief 6G, www.ecdpm.org/inbrief6g
5 A detailed comparative summary of the ACP and the EU positions with respect to the reform of the WTO DS mechanism can be found in Appendix B of the main report (see endnote 1).
6 Detailed comparative and analytical tables of the DS provisions of the EPAs can be found in Appendix D of the main report. These tables are designed to help ACP negotiators make comparisons as between different EPAs, WTO DS mechanism and the FTAs with Chile and Mexico.
7 Literally translated as “friend of the court,” the amicus curiae briefs are unsolicited submissions that an arbitral panel receives from someone not a party or third party to the dispute to assist it in deciding the matter in hand.