The Regional Comprehensive Economic Partnership (RCEP)’s Chapter 19 Dispute Settlement Procedures

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Over this past weekend during the 37th Association of Southeast Asian Nations (ASEAN) Summit hosted by Viet Nam, the ten ASEAN Member States (Brunei Darussalam, Indonesia, Malaysia, Thailand, Singapore, the Philippines, Cambodia, Myanmar, Laos, Viet Nam) finally signed, together with five other trading partners – Japan, the People’s Republic of China, South Korea, Australia, and New Zealand – the Regional Comprehensive Economic Partnership (RCEP), which creates the world’s largest trading bloc (comprising around 30% of global GDP).  RCEP was finally concluded after eight years of negotiations, which initially saw participation from India until it withdrew in November 2019.  

I had written extensively in 2018 about what had been substantive negotiation points on market access, investment, and other features of RCEP, leaving out the provisions on dispute settlement that were still thorny points for negotiation among RCEP negotiators.  In this post, I discuss the features of RCEP’s Chapter 19 on Dispute Settlement, and what this new structure bodes for the future of dispute on international trade, investment, intellectual property, e-commerce, competition, and government procurement, economic and technical cooperation, in the broader Southeast Asia-East Asia-Australasian region.  On balance, RCEP appears thinner on environmental and social safeguards and regulatory freedoms, unlike many of ASEAN’s regional investment and trade agreements. RCEP’s Chapter 19 reflects an emphasis on bilateral, regional, or plurilateral consultations [Chapter 19, Article 19.4(4)], before resorting to adversarial dispute settlement mechanisms.

Applicability and Scope of Chapter 19 Dispute Settlement

Chapter 19 applies to “the settlement of disputes between Parties regarding the interpretation and application” of RCEP [Chapter 19, Article 19.3(1)(a)], as well as to situations where “a Party considers that a measure of another Party is not in conformity with the obligations under this Agreement, or that another Party has otherwise failed to carry out its obligations under this Agreement” [Chapter 19, Article 19.3(1)(b)].  It does not apply to other chapters that specifically rule out Chapter 19, such as measures of corruption which are supposed to be dealt with domestically under Chapter 17 (General Exceptions), Article 17.9.  RCEP does not have extensive environmental, labor, cultural, or public health exceptions analogous to the WTO Agreements and related jurisprudence, although it reaffirms Parties’ specific obligations to one multilateral environmental treaty (e.g. the Convention on Biological Diversity) in Chapter 17, Article 17.10.  Where RCEP does incorporate any World Trade Organization (WTO) agreement as part of its integrated text, the RCEP dispute settlement panel can take into account the relevant jurisprudence from the WTO dispute settlement system. [Chapter 19, Article 19.2].

Chapter 19 avoids the possibility of parallel proceedings by ensuring that a complaining Party – which has a choice of dispute settlement mechanisms under multiple agreements including RCEP – chooses a forum to the exclusion of all others in other agreements.  [Chapter 19, Article 19.5(1)].

Consultations, Good Offices, Conciliation, Mediation

RCEP Parties can seek consultations or other alternative forms of dispute resolution, in lieu of or before actually triggering the establishment of a dispute settlement panel.  Consultations are supposed to be confidential [Chapter 19, Article 19.6(8)], and should be entered into in good faith and making every effort to reach a “mutually solution through consultations” [Chapter 19, Article 19.6(7)].  Good offices, conciliation, and mediation are likewise confidential and can be triggered at any time and terminated at any time. [Chapter 19, Article 19.7(1) to (3)].

RCEP Dispute Settlement Panels: Determination of Facts and Liability, but Not Reparation

Should consultations or other alternative forms of dispute resolution fail or Parties simply choose not to avail of these methods, Parties can request the establishment of a dispute settlement Panel [Chapter 19, Article 19.8].  There could be multiple complainants to a dispute [Chapter 19, Article 19.9], as well as Third Parties with substantial interest in a matter before a panel [Chapter 19, Article 19.10].

Unless otherwise agreed upon, there will be three Panel members.  The complaining Party nominates one Panel member, and the respondent Party nominates another.  The third Panel member who is also the Chair of the Panel shall be appointed upon agreement by both Parties.  If the Parties cannot agree, then any Party to the dispute may request the WTO Director-General to make the appointment.  If the latter cannot make the appointment, then any of the Parties can request the Secretary-General of the Permanent Court of Arbitration to make the appointment.  All of these appointments should be made under specified time periods in Article 19.11 of Chapter 19.  At a minimum, Panelists are expected to: “a) have expertise or experience in law, international trade, other matters covered by this Agreement, or the resolution of disputes arising under international agreements; b) be chosen strictly on the basis of objectivity, reliability, and sound judgment; c) be independent of, not be affiliated with, or not take instructions from any Party; d) not have dealt with the matter in any capacity; e) disclose, to the Parties in dispute, information which may give rise to justifiable doubts as to his or her independence or impartiality; and f) comply with the Code of Conduct as annexed to the Rules of Procedures.” [Chapter 19, Article 19.10].  Panel Chairs are additionally expected to have, as far as possible, served on a WTO panel or the WTO Appellate Body, and have expertise or experience relevant to the subject matter of the dispute.

Panels are tasked with the responsibility of making “an objective assessment of the matter before it, including an objective assessment of: a) the facts of the case; b) the applicability of the provisions of [RCEP] cited by Parties to the dispute; and c) whether the measure in issue is not in conformity with the obligations under [RCEP] or the responding Party has otherwise failed to carry out its obligations under [RCEP].”  [Chapter 19, Article 19.12].  Crucially, it is not altogether clear if the Panel is permitted to make reparative orders or decisions to address the non-conformity or violation of RCEP obligations by the responding Party, since a Panel “shall only make findings, determinations, and suggestions provided for in [RCEP].” [Chapter 19, Article 19.12(6)]  

Instead, upon receipt of the Panel’s Final Report, it is up to the responding Party to “notify the Complaining Party of its intentions with respect to implementation”, including the period of time and nature of measures required to achieve compliance with RCEP. [Chapter 19, Article 19.15(2)]

Compliance Review Panels: Fact-Finding on Non-Compliance with Panel Reports

If Parties disagree on the implementation of the Panel’s Final Report, a Compliance Review Panel can be convened for this purpose. [Chapter 19, Article 19.16].  The Compliance Review Panel is tasked with making an objective assessment of: “a) the factual aspects of any action taken by the Responding Party to comply with the obligation under paragraph 1 of Article 19.15 (Implementation of the Final Report; and b) the existence or consistency with [RCEP] of any measure taken by the Responding Party to comply with the obligation under paragraph 1 of Article 19.15 (Implementation of Final Report)”.  [Chapter 19, Article 19.16(3)]  Similar to the Panel, the Compliance Review Panel simply makes determinations of the above questions relating to the implementation of the Final Report, and is not entrusted with any authority to issue orders or decisions for enforcement of the Final Report.

Limited Self-Help: Negotiated Compensation and Suspension of Concessions and Other Obligations

Complaining Parties have limited recourse to self-help in the form of temporary measures such as negotiated compensation (with the non-complying Responding Party) and/or suspension of concessions and other obligations.  These measures are temporary and “available in the event that the Responding Party does not comply with the obligation under paragraph 1 of Article 19.15 (Implementation of the Final Report) within the reasonable period of time.  However, neither compensation or the suspension of concessions or other obligations is preferred to compliance with the obligation under paragraph 1 of Article 19.15 (Implementation of the Final Report).  Compensation is voluntary and, if granted, shall be consistent with this Agreement.”  [Chapter 19, Article 19.17(1)].  If Parties cannot agree on compensation, or an agreement on compensation was made but the Responding Party continues to fail to observe the terms and conditions of that agreement, then “the Complaining Party may at any time thereafter notify the Responding Party and the other Parties that it intends to suspend the application to the Responding Party of concessions or other obligations equivalent to the level of nullification or impairment, and shall have the right to begin suspending concessions or other obligations 30 days after the date of the receipt of the notification.” [Chapter 19, Article 19.17(3)].

Significantly, in considering what concessions or other obligations to suspend, the Complaining Party shall apply the following principles: “(a) the Complaining Party should first seek to suspend concessions or other obligations in the same sector or sectors in which the panel has determined that there is non-conformity with, or failure to carry out an obligation under this Agreement; and (b) if the Complaining Party considers that it is not practicable or effective to suspend concessions or other obligations in the same sector or sectors, it may suspend concessions or other obligations in other sectors.” [Chapter 19, Article 19.6]  Similar to the compliance system in world trade law, the level of the suspension of concessions “shall be equivalent to the level of nullification or impairment”. [Chapter 19, Article 19.7]  The Responding Party has recourse to further fact-finding determinations or procedures if it objects to the level of the suspension proposed, or insists that it has observed the terms and conditions of the compensation agreement, or considers that the Complaining Party did not apply the required principles in suspending concessions or obligations. [Chapter 19, Article 19.8 to Article 19.15]

Due Restraint Against Least Developed Countries: Special and Differentiated Treatment (SDT) for Dispute Settlement

Interestingly, RCEP Chapter 19, Article 19.18 exhorts Parties to “exercise due restraint in raising matters under these procedures involving a Least Developed Country Party”.  This provision ensures some insulation or protection from the above procedures for relatively newer ASEAN Member States Cambodia, Myanmar, and Laos. (Viet Nam has long been out of the UN’s Least Developed Country list.) RCEP does not indicate or define what “due restraint” means, and how it will be deployed in each and every circumstance.  Neither does it indicate if a Panel can rightfully decline jurisdiction if the Responding Party is any of the Least Developed Countries Cambodia, Myanmar, and Laos that resists the establishment of a Panel over any given dispute with other RCEP Members.  The effect of the SDT principle for RCEP dispute settlement appears more about inhibiting the impulses of Complaining Parties, rather than being an outright tool to object against the applicability of Chapter 19 dispute settlement procedures.

Conclusion

The bureaucratically thinner, more ad hoc, and less institutionalized dispute settlement mechanisms in RCEP Chapter 19 presage a different degree of economic partnership cooperation and dispute settlement than current existing paradigms.  WTO agreements provided for a standing Appellate Body through the Dispute Settlement Understanding, which has found itself in its own state of paralysis over the past years from United States actions under the Trump Administration.  Investment chapters in economic agreements still largely provide for investor-State arbitration – and even the possibility of a multilateral investment court – which has also found itself the focal point of efforts at reform especially through UNCITRAL Working Group III.  What is most astonishing, perhaps, from RCEP’s Chapter 19 is not its deeply consensual and less adversarial frame, but rather its emphasis on confidentiality and the lack of any full commitments to transparency in any of the Parties’ chosen dispute settlement mechanisms – whether consultations, good offices, conciliation, mediation, or the establishment of Panels.  There is hardly any conceivably significant space for non-State, local community, or civil society participation, input, or monitoring of these dispute settlement procedures.  The procedures are exclusively State-driven, and accountable only to States Parties to RCEP.  Where the rest of the world is trying to achieve greater transparency, greater openness to third parties and civil society, and address more environmental and social safeguards to impacts of economic activities such as trade, foreign investment, intellectual property, electronic commerce, among others, RCEP appears to head for the opposite direction.

Considering the dearth of any significant environmental, social, and human rights safeguards in RCEP, the absence of counterpart spaces for human rights in dispute settlement procedures in RCEP takes us back to an archair revival of commercial, trade, investment, and other economic interests being construed so narrowly, as to exclude supposedly “non-trade” concerns such as human rights.  This sharp separation neglects ASEAN’s Socio-Community Blueprint, the ASEAN Human Rights Declaration, and other legal commitments of ASEAN and its Members to human rights. It makes it far more difficult for ASEAN to fully realize its objective of becoming a “people-centered” international organization premised on international law and human rights law under the ASEAN Charter.  As my co-editor David Cohen and I emphasized in our new book (ASEAN Law and Regional Integration: Governance and the Rule of Law in Southeast Asia’s Single Market, Routledge, 2020), Southeast Asia’s meaningful development cannot afford to dichotomize between economic growth concerns and the enduring impacts and challenges of globalization on the rule of law, human rights, and democracy.  At the very least, if one takes ASEAN’s Charter and 50 years of lawmaking thus far seriously on its face, those commitments to rule of law, human rights, and democracy must also be reflected today, even in external agreements that ASEAN enters into with trading partners as in the case of RCEP.  Otherwise, the world’s largest trading bloc could also end up being the world’s largest hub of challenges to human rights.

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Mona Paulsen says

November 19, 2020

Thanks so much for this comprehensive post, Diane. I had a question, please. I noticed that Article 19.3 has a footnote explaining that non-violation complaints shall not be permitted under this Agreement. Do other ASEAN trade in goods agreements have this? I took a look online at other ASEAN legal instruments and did not see it, but I wanted to check with you.

Diane Desierto says

November 20, 2020

Many thanks Mona. There are no other ASEAN treaties that rule out non-violation complaints the way RCEP does. Yet another example of the much narrower sense of dispute settlement within RCEP.