Dispute Settlement in the World Trade Organization (WTO): An Overview

Jeanne J. Grimmett
Legislative Attorney

The World Trade Organization (WTO) Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) provides a means for WTO Members to resolve disputes arising under WTO agreements. WTO Members must first attempt to settle their dispute through consultations, but if these fail the Member initiating the dispute may request that a panel examine and report on its complaint. The DSU provides for Appellate Body (AB) review of panel reports, panels to determine if a defending Member has complied with an adverse WTO decision by the established deadline in a case, and possible retaliation if the defending Member has failed to do so. Automatic establishment of panels, adoption of panel and appellate reports, and authorization of a Member’s request to retaliate, along with deadlines and improved multilateral oversight of compliance, are aimed at producing a more expeditious and effective system than had existed under the General Agreement on Tariffs and Trade (GATT). To date, 424 complaints have been filed under the DSU, approximately one-half resulting in panels. Nearly one-half of the 424 complaints involve the United States as a complainant or defendant. The Office of the United States Trade Representative (USTR) represents the United States in WTO disputes.

Use of the DSU has revealed procedural gaps, particularly in the compliance phase of a dispute. These include a failure to coordinate DSU procedures for requesting retaliation with procedures for requesting a compliance panel and the absence of a specific procedure aimed at the removal of trade sanctions in the event the defending Member believes it has fulfilled its WTO obligations in a case. To overcome these gaps, disputing Members have entered into bilateral agreements permitting retaliation and compliance panel procedures to advance in sequence and have initiated new dispute proceedings seeking the removal of retaliatory measures believed to have outlived their legal foundation. Expressing dissatisfaction with WTO dispute settlement results involving U.S. trade remedies, Congress, in the Trade Act of 2002, directed the executive branch to address dispute settlement in WTO negotiations. WTO Members have been negotiating DSU revisions in the currently stalled Doha Development Round.

Section 301 of the Trade Act of 1974 provides a mechanism for the USTR, either by petition of an “interested party” or on its own accord, to address restrictive foreign trade practices through the initiation of a WTO dispute and authorizes the USTR to take retaliatory action in the event the defending WTO Member has not complied with the resulting WTO decision. While the European Union challenged Section 301 in the WTO on the ground that it requires the USTR to act unilaterally in WTO-related disputes in violation of DSU requirements, the United States was ultimately found to be in compliance with its DSU obligations. Where a U.S. law or regulation is at issue in a WTO case, the WTO’s adoption of a panel and, if appealed, AB report finding that the U.S. measure violates a WTO agreement does not give the WTO decision direct legal effect in this country. Thus, federal law is not affected until Congress or the executive branch, as the case may be, takes action to remove the offending measure.

S. 239 (Klobuchar), the Innovate America Act, would, inter alia, authorize to be appropriated to the USTR $2 million for each of FY2011, FY2012, and FY2013 for the purpose of initiating any proceeding to resolve a dispute relating to market access barriers with WTO member countries. S. 708 (Brown, Ohio) would establish mechanisms under the Trade Act of 1974 to require the USTR annually to identify particularly harmful foreign trade practices and, where appropriate, to initiate WTO dispute settlement proceedings to remedy these practices.


Date of Report: May 12, 2011
Number of Pages: 17
Order Number: RS20088
Price: $29.95

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Dispute Settlement in the Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA)

Jeanne J. Grimmett
Legislative Attorney

The proposed U.S.-South Korea Free Trade Agreement (KORUS FTA) 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 KORUS FTA Parties, and (2) investor-State, applicable to claims by an investor of one KORUS FTA Party against the other Party for breach of an agreement investment obligation. An unsuccessful defendant in a State-State dispute would generally be expected to remove the complained-of measure; remedies for non-compliance include compensation and the suspension of KORUS FTA obligations (e.g., the imposition of a tariff surcharge on the defending Party’s products) and, as an alternative, payment of 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. The KORUS FTA also contains special procedures for State-State disputes relating to motor vehicles that would grant the prevailing complainant an automatic right to increase tariffs on motor vehicles of the other Party to most-favored-nation (MFN) rates. If a Party were found to have violated an investment obligation in an investor-State dispute, the tribunal would be authorized only to make a monetary award to the claimant and thus could not direct the State defendant to withdraw the violative measure. If the defending Party did not comply with the award, the investor might seek to enforce it under one of the international arbitral conventions to which the United States and South Korea are party.

The KORUS FTA State-State dispute settlement mechanism differs from most earlier U.S. FTAs in that it applies to all obligations contained in the labor and environmental chapters of the KORUS FTA 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, 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 understanding on trade policy between congressional leaders and the George W. Bush Administration finalized on May 10, 2007, setting out provisions that were to be added to completed or substantially completed FTAs pending at the time. Among the aims of the understanding was to expand and further integrate labor and environmental obligations into the U.S. FTA structure. The same approach to labor and environmental disputes is found in FTAs entered into with Colombia and Panama, each of which continue to await congressional approval, and in the U.S.-Peru Trade Promotion Agreement, which entered into force in 2009.

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 claims have been filed under the North American Free Trade Agreement (NAFTA), the Dominican Republic-Central America-U.S. Free Trade Agreement, and the U.S.-Peru Trade Promotion Agreement. As is the case with its NAFTA partners, particularly Canada, the United States imports capital from South Korea to a greater degree than it does from parties to other U.S. investment agreements, and South Korean investment in the United States may indeed grow over time. While this situation may create a greater potential for investor-State disputes than exists under most other U.S. investment agreements, the extent to which disputes involving South Korean investors will in fact arise would seemingly depend upon a variety of factors and interests unique to an investor’s individual situation and thus for now remains only a matter for conjecture. To date, the United States has prevailed in all investor-State cases brought against it. Implementing legislation to approve the KORUS FTA and to provide legislative authorities needed to carry it out has not yet been introduced.


Date of Report: May 11, 2011
Number of Pages: 24
Order Number: R41779
Price: $29.95

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Proposed U.S.-Colombia Free Trade Agreement: Background and Issues

M. Angeles Villarreal
Specialist in International Trade and Finance

The proposed U.S.-Colombia Trade Promotion Agreement, also called the U.S.-Colombia Free Trade Agreement (CFTA), was signed by the United States and Colombia on November 22, 2006. The agreement must be approved by the U.S. Congress before it can enter into force. The Colombian Congress approved the agreement in June 2007 and again in October 2007, after it was modified to include new provisions after the May 10, 2007, understanding between congressional leaders and the Bush Administration. If approved by the U.S. Congress, the agreement would immediately eliminate duties on 80% of U.S. exports of consumer and industrial products to Colombia. Most remaining tariffs would be eliminated within 10 years of implementation. The agreement also contains other provisions in services, investment, intellectual property rights protection, labor, and the environment. About 90% of U.S. imports from Colombia enter the United States duty-free under trade preference programs or through normal trade relations, while U.S. exports to Colombia face duties of 20% or more.

The 112th Congress may consider implementing legislation for the proposed CFTA. Negotiations for the agreement were conducted under the trade promotion authority (TPA). Implementing legislation for the CFTA (H.R. 5724/S. 2830) was introduced in the 110th Congress on April 8, 2008, under TPA. The House leadership took the position that the President had submitted the implementing legislation without adequately fulfilling the TPA requirement for consultation with Congress. On April 10, 2008, the House voted 224-195 to make the provisions establishing expedited procedures inapplicable to the CFTA implementing legislation (H.Res. 1092).

The congressional debate surrounding the agreement has mostly centered on violence, labor, and human rights issues in Colombia. Numerous Members of Congress oppose the agreement because of concerns about violence against union members and other terrorist activity in Colombia. However, other Members of Congress support the CFTA and take issue with these charges, stating that Colombia has made progress in recent years to curb the violence in the country. They also contend that the agreement would open the Colombian market for U.S. exporters. Other policymakers argue that Colombia is a crucial ally of the United States in Latin America and that if the trade agreement is not passed, it may lead to further violence in the region. For Colombia, a free trade agreement with the United States is part of its overall economic development strategy.

President Barack Obama has expressed the importance of strengthening U.S. trade relations with Colombia. On April 6, 2011, the Obama Administration announced an agreement between the United States and Colombia to address the concerns related to labor rights and violence in Colombia. The announcement states that the agreement would “clear the way” for the U.S.- Colombia FTA to move forward to Congress. The agreed upon “Action Plan Related to Labor Rights” includes a number of specific and concrete steps that the Colombian government agreed upon to address issues related to violence against union members, impunity, and worker rights. The Obama Administration’s announcement states that the successful implementation of key elements of the plan will be a precondition for the agreement to enter into force.

The United States is Colombia’s leading trade partner. Colombia accounts for a very small percentage of U.S. trade (0.9% in 2010), ranking 20th among U.S. export markets and 25th as a source of U.S. imports. Economic studies on the impact of a U.S.-Colombia free trade agreement (FTA) have found that, upon full implementation of an agreement, the impact on the United States would be positive but very small due to the small size of the Colombian economy when compared to that of the United States (about 1.9%).


Date of Report: May 3, 2011
Number of Pages: 40
Order Number: RL34470
Price: $29.95

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The Proposed U.S.-South Korea Free Trade Agreement (KORUS FTA): Provisions and Implications

William H. Cooper, Coordinator
Specialist in International Trade and Finance

Mark E. Manyin
Specialist in Asian Affairs

Remy Jurenas
Specialist in Agricultural Policy

Michaela D. Platzer
Specialist in Industrial Organization and Business

On June 30, 2007, U.S. and South Korean trade officials signed the proposed U.S.-South Korean Free Trade Agreement (KORUS FTA) for their respective countries. If approved, the KORUS FTA would be the second-largest FTA that South Korea has signed to date, after the agreement with the European Union (EU). It would be the second-largest (next to North American Free Trade Agreement, NAFTA) in which the United States participates. South Korea is the seventhlargest trading partner of the United States and the United States is South Korea’s third-largest trading partner.

Various studies conclude that the agreement would increase bilateral trade and investment flows. The final text of the proposed KORUS FTA covers a wide range of trade and investment issues and, therefore, could have substantial economic implications for both the United States and South Korea. The agreement will not enter into force unless Congress approves implementation legislation. The negotiations were conducted under the trade promotion authority (TPA), also called fast-track trade authority, that Congress granted the President under the Bipartisan Trade Promotion Act of 2002 (P.L. 107-210).

Under TPA the President has the discretion on when to submit the implementing legislation to Congress. President Bush did not submit the legislation because of differences with the Democratic leadership over treatment of autos and beef, among other issues. Early in his Administration, President Obama indicated the need to resolve those issues before he would submit the implementing legislation. On December 3, 2010, after a series of arduous negotiations and missed deadlines, President Obama and President Lee announced that their negotiators reached agreement on modifications in the KORUS FTA, and that they were prepared to move ahead to getting the agreement approved by the respective legislatures. The White House is expected to send implementing legislation to the 112th Congress and has indicated that it would like to see Congress approve the agreement by July 1 of this year.

The modifications are in the form of changes in phase-out periods for tariffs on autos, a new safeguard provision on autos, and concessions by South Korea on allowing a larger number of U.S. cars into South Korea under U.S. safety standards than was the case under the original KORUS FTA provisions. The issue of full U.S. beef access was not resolved because of the political sensitivity of the issue in South Korea. In 2008, when President Lee reached a separate agreement with the United States to lift South Korea’s ban on U.S. beef imports, massive anti- South Korean government protests forced the two governments to renegotiate its terms. The U.S. beef sector has largely supported the KORUS FTA.

A broad swath of the U.S. business community supports the KORUS FTA . With the modifications in the agreement reached in December, this group also includes the three Detroitbased auto manufacturers and the United Auto Workers (UAW) union. It still faces opposition from some labor unions and other groups, including Public Citizen. Many U.S. supporters view passage of the KORUS FTA as important to secure new opportunities in the South Korean market, while opponents claim that the KORUS FTA does not go far enough to break down South Korean trade barriers or that the agreement will encourage U.S. companies to move their production offshore at the expense of U.S. workers. Other observers have suggested the outcome of the KORUS FTA could have implications for the U.S.-South Korean alliance as a whole, as well as on U.S. Asia policy and U.S. trade policy, particularly in light of an FTA signed in by South Korea and the EU that is expected to go into effect on July 1, 2011.


Date of Report: May 2, 2011
Number of Pages: 58
Order Number: RL34330
Price: $29.95

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The Proposed U.S.-Panama Free Trade Agreement

J. F. Hornbeck
Specialist in International Trade and Finance

On June 28, 2007, the United States and Panama signed a reciprocal free trade agreement (FTA). Negotiations were formally concluded on December 16, 2006, with an understanding that further changes to labor, environment, investment, and intellectual property rights (IPR) chapters would be made pursuant to future detailed congressional input. These changes were agreed to in late June 2007, in time for the FTA to be considered under Trade Promotion Authority (TPA) legislation before it expired on July 1, 2007. TPA allows Congress to consider trade implementing bills under expedited procedures. Panama’s legislature approved the FTA 58 to 4 on July 11, 2007. Neither the 110th nor the 111th Congress took up the agreement.

The proposed U.S.-Panama FTA is a comprehensive agreement. Some 88% of U.S. commercial and industrial exports would become duty-free upon implementation, with remaining tariffs phased out over a 10-year period. Over 50% of U.S. farm exports to Panama also would achieve immediate duty-free status, with tariffs and tariff rate quotas (TRQs) on select farm products to be phased out by year 17 of the agreement (year 20 for rice). Panama and the United States signed a separate bilateral agreement on sanitary and phytosanitary (SPS) issues that would recognize U.S. food safety inspection as equivalent to Panamanian standards, which will expedite entry of U.S. meat and poultry exports. The FTA also consummates understandings on telecommunications, services trade, government procurement, investment, and intellectual property rights.

The circumstances framing the proposed U.S.-Panama FTA differ considerably from those of two other signed FTAs that are being considered by the 112th Congress. The concerns that Congress has expressed over Colombia’s violence have not been an issue in the Panama FTA debate, which is framed more by the positive image of a long-standing strategic bilateral relationship based on Panama’s canal. Nor does Panama compare well with the continuing debate over the proposed FTA with South Korea, which as a major U.S. trading partner, can affect key industries such as automobile and beef production. To the contrary, Panama trades little with the United States, even by Latin American standards, and most exports already enter the United States duty free, so although particular industries could be affected to some degree, and U.S. investment is relatively important in Panama, the FTA cannot have a major effect on the U.S. economy as a whole.

The final text of the proposed U.S.-Panama FTA incorporates changes based on the bipartisan agreement of May 10, 2007 crafted by the Bush Administration and leadership in the 110th Congress. These include adoption of enforceable labor standards, compulsory membership in multilateral environmental agreements, and an easing of restrictions on developing country access to generic drugs, provisions that go beyond those in existing bilateral FTAs and multilateral trade rules. Two other concerns raised in Congress were recently addressed: labor and tax transparency. All labor concerns but one were addressed with enactment of two laws in April 2011. The minimum workers needed to form a union has not been addressed for the lack of support even among Panamanian labor groups. Panama also enacted legislation implementing the U.S.-Panama Tax Information and Exchange Agreement (TIEA), which provides greater tax transparency in support of curbing illicit financial transactions associated with money laundering activities. The Obama Administration has signaled its willingness to begin technical discussions on drafting an implementing bill. It remains to be seen if these final changes will be sufficient for the FTA to be approved by a majority in the U.S. Congress.

For more on Panama, see CRS Report RL30981, Panama: Political and Economic Conditions and U.S. Relations, by Mark P. Sullivan.


Date of Report: May 3, 2011
Number of Pages: 36
Order Number: RL32540
Price: $29.95

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