Which makes the use of the dispute system in the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) all the more surprising. Last year, New Zealand challenged Canada over the proper implementation and allocation of tariff rate quotas for dairy products. CPTPP members established the first-ever panel to review the case in March 2023. The public hearing for the case is taking place this week in Ottawa, with a decision expected in a matter of weeks afterward. The case is expected to be publicly released in September. This will give observers a first glimpse into how well or poorly the dispute system embedded in the CPTPP works. It could also provide an important impetus to future use of the dispute mechanism as a tool to prod members towards improved enforcement of various provisions. Frankly, none of the current CPTPP members is likely to have fully implemented all their commitments. As a simple example, the agreement requires all members to update their government procurement thresholds at least every two years. This is necessary because the limits were written as Special Drawing Rights (SDRs) which are not typically top of mind for firms looking to compete for construction contracts. The SDR conversion rates and the adjustments to procurement are supposed to be published regularly but (as far as I know) not a single government has done so. These sorts of implementation gaps appear across the agreement. Some may be relevant to businesses and others may be less so. But the basic point here is that, by relying on a dispute settlement mechanism built into an FTA to manage effective implementation, it requires such a mechanism to actually be used by participants. Otherwise, enforcement and compliance will always be weak. The use of the dispute settlement provisions for the first time in the CPTPP, then, represents a potentially significant boost to the overall implementation incentives for this agreement. For companies that may be waiting for improved delivery of various CPTPP promises, stepped up attention to implementation cannot come soon enough.

Trade policy, like many other arenas, has developed a complicated language that can be impenetrable or, at best, opaque to outsiders. Some aspects, especially those touching on law, have extra layers of jargon. While trade dispute settlement systems can be quite important and have been frequently in the news over the past few years, it can be hard to follow the arguments. Talking Trade will be running a multi-part set of blog posts to help unravel the situation and make it easier for you to follow evolving developments. Let’s dive in with some background to help set the context…The international trading system has had to overcome multiple challenges to function and remain effective. Governments have strong incentives to cheat or, as they would put it, to strongly prioritize their own economy and companies over the affairs of others. But if everyone is busy protecting their own, the net result is much worse for everyone. This basic tension between keeping markets open despite individual incentives for closure has been a key element of the system for decades. Now, the long-standing the consensus in favor of freer trade has started to fray with far more serious trade disputes ahead.

Enforcement in Free Trade Agreements

Managing Disputes Over Trade: Part I