Jeanne J. Grimmett
The U.S.-Peru Trade Promotion Agreement (PTPA) follows current U.S. free trade agreement (FTA) practice in containing two types of formal dispute settlement: (1) State-State, applicable to disputes between the Parties to the PTPA, and (2) investor-State, applicable to claims by an investor of one State Party against the other State Party for breach of a PTPA investment obligation. A defending Party in a State-State dispute found to be in violation of a PTPA obligation is generally expected to remove the complained-of measure; remedies for noncompliance include compensation and the suspension of PTPA concessions or obligations (e.g., the imposition of a tariff surcharge on the defending Party’s products), with the defending Party having the alternative of paying a fine to the prevailing Party or, in some cases, into a fund that may be used to assist the defending Party in complying with its obligations in the case. An investor-State tribunal may only make monetary awards to the claimant and thus may not direct a PTPA Party to withdraw or modify a violative measure. If the defending State Party does not comply with an award, the investor may seek to enforce it under one of the international conventions for the recognition and enforcement of arbitral awards to which the United States and Peru are party. State-State dispute settlement may also be initiated against the non-complying Party.
The PTPA State-State dispute settlement mechanism differs from earlier U.S. FTAs in that it applies to all obligations contained in the labor and environmental chapters of the PTPA instead of only domestic labor or environmental law enforcement obligations. In addition, in the event a Party is found to be in breach of one of these obligations and has not complied in the dispute, the prevailing Party may impose trade sanctions instead of, as under earlier agreements, being limited to requesting that a fine be imposed on the non-complying Party with the funds to be expended for labor or environmental initiatives in that Party’s territory. The changes stem from a bipartisan agreement on trade policy between Congress and the Administration finalized on May 10, 2007 (May 10 agreement), setting out various provisions to be added to completed or substantially completed FTAs pending at the time. Among the aims of the agreement was to expand and further integrate labor and environmental obligations into the U.S. free trade agreement structure. The same approach to labor and environmental disputes is found in FTAs entered into with Colombia, Korea, and Panama, each of which continue to await congressional approval.
Implementing legislation approving the PTPA and providing legislative authorities needed to carry it out was signed into law on December 14, 2007 (P.L. 110-138). The agreement entered into force on February 1, 2009. A protocol of amendment revising the PTPA to incorporate provisions involving labor, the environment, intellectual property, port services, and investment, as set out in the May 10 agreement, entered into force on the same day.
To date, there have not been any disputes brought under the PTPA State-State dispute settlement mechanism. In general, resort to panels under FTA State-State dispute settlement has been uncommon, and thus there has been relatively little experience with the operation of this mechanism over a range of agreements and issues. FTA Investor-State disputes have occurred more frequently. A notice of intent to initiate an arbitration was submitted by a U.S. firm under the PTPA in late December 2010; the investor is reportedly pursuing the claim further. Claims have also been brought under the North American Free Trade Agreement (NAFTA) against each of the three agreement Parties. In addition, five claims have been filed by U.S. investors under the Dominican Republic-Central America-United States Free Trade Agreement (DR-CAFTA): one against the Dominican Republic, two against El Salvador, and two against Guatemala.
Date of Report: May 18, 2011
Number of Pages: 16
Order Number: RS22752
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