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Tuesday, August 30, 2011

Dispute Settlement Under the U.S.-Peru Trade Promotion Agreement: An Overview

Jeanne J. Grimmett
Legislative Attorney

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 PTPA Parties, and (2) investor-State, applicable to claims by an investor of one State Party against other State Party for breach of a PTPA investment obligation. A Party in a State-State dispute found to have violated a PTPA obligation is generally expected to remove the complained-of measure; remedies for non-compliance include compensation and the suspension of PTPA concessions or obligations (e.g., imposition of a tariff surcharge on the defending Party’s products), with the defending Party having the option 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 in the case. An investor-State tribunal may only make monetary awards and thus may not direct a PTPA Party to withdraw or modify the offending measure. If the defending State Party does not comply, the investor may seek to enforce the award 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, no disputes have been initiated under the PTPA State-State dispute settlement chapter. On July 19, 2011, however, the U.S. Department of Labor agreed to review a petition filed by a Peruvian labor union alleging that Peru had failed to effectively recognize collective bargaining rights in violation of the PTPA labor chapter. The fact-finding review could possibly lead to a State-State dispute proceeding if the United States considers that Peru has acted inconsistently with the agreement and efforts to settle the dispute through consultations are unsuccessful. To establish a PTPA violation, the United States must demonstrate that Peru has failed to adopt or maintain a law, regulation, or practice in a manner that affects trade or investment between the Parties. In addition, one case has been brought under the PTPA investor-State dispute settlement mechanism. In April 2011, a U.S. firm filed an arbitral claim alleging that Peru had violated its PTPA investment obligations in its treatment of a metallurgical smeltering and refining operation run by the claimant’s affiliate in Peru.

Date of Report: August 12, 2011
Number of Pages: 17
Order Number: RS22752
Price: $29.95

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