By Steven Specht, Journal of Transnational Law & Policy Member

In the pursuit of an intergovernmental free-trade regime, a strong judiciary is crucial for both endurance and possible expansion.

Any supranational body can be viewed as an intent to integrate, even for the most minimal of purposes. Political bodies ceding some level of sovereignty for any purpose, whether it be economic integration or a defense pact means international egos bumping into each other from time to time. As such, it is hard to imagine not having at least a bare minimum method of dispute resolution. However, when entering the realm of business, the conflicts go far beyond the realm of intergovernmental relations and touch on the contention between multiple corporations, multiple states, and even corporations in disputes with states. Though a system of dispute resolution need not be mighty or Byzantine, it must have certain factors present to provide a bare minimum of stability within any sort of integration, whether it be an ever closer union in the European Union (EU), something far weaker in NAFTA, or a middle ground in Mercosur. The rise of successful integration is dependent on neo-functionalism, an “institution-based political process theory.”[1] Paramount in this formation of institutions is the use of supranational judicial bodies. As no foundation of law is complete in its inception, a judicial body is necessary to establish the meaning and scope of laws in a manner similar to that of the US Supreme Court in Marbury v. Madison.[2]

In the realm of strong judicial bodies presiding over international economic organizations, the EU has the strongest institution thus far. This has helped create subsequent political integration that, if enduring, could change the face of geopolitics in a manner not seen since the dominance of the nation state emerging after the Peace of Westphalia. While the nation state remains the dominant regime for now, an exploration of the successes and failures of the EU when compared with other attempts at integration can provide a litmus of what can be done, what should be done, and what will be done in other supranational bodies. If the EU is a model for the way forward, then what other attempts at integration, if any, are useful models? Are groups like NAFTA and Mercosur copycats of the early EU failures or something else entirely? The EU’s success with arguably effective governance goes far beyond a mere trade agreement or cartel and actively undermines many aspects sought to be solely within the purview of sovereign nations.

International dispute resolution can be organized in four ways: (1) Independent negotiation between individual states in the treaty body; (2) A nonbinding arbitration body; (3) A third-party dispute resolution body; and (4) A full-fledged court system. The first method allows for a dispute to be left to independent negotiation among sets of individual states or among all states within a treaty body. The pitfalls of this could be analogized to the pitfalls of direct democracy. Beyond the problem of deadlock created by a failure to even establish a quorum, the idea that each miniscule problem must be decided at a diplomatic level would make the management of any supranational body difficult, if not impossible.

The second method creates a simple arbitration body that is not binding and performs on an ad hoc basis. The problem with this is that rulings form no precedent. This was a major problem of the General Agreement on Tariffs and Trade (GATT) Panels which preceded the WTO. For a hypothetical binding policy taken from ad-hoc arbitration panels, each ruling would require an amendment to the existing treaty body. This amounts to a continual reinventing of the wheel as each case might differentiate from the last. An ad hoc dispute resolution system that has any lasting effect would create an ad hoc administration system that would be notably capricious.

The third method of deferring to a third-party dispute resolution might mean using the WTO for conflicts. It can also be used in conjunction with the first two methods. However, if we are to merely cede dispute resolution to the WTO, then why even push for a new treaty body? With binding decisions by the WTO, and a commitment to policies of the WTO, arguably the existing framework can support the needs of most nations for dispute resolution.

The final method is a functioning court system. This is an incredibly dicey proposition in that a binding judicial authority means the inherent subordination of national sovereignty to a supranational body. So far, the EU is the only such attempt at this. Though the Court of Justice functioned only as an economic tribunal in early stages, the Court gradually took on greater responsibility that might historically have been within the realm of national courts. As such, the Court of Justice serves as both a beacon and a warning for the benefits and ramifications of future integration. While NAFTA has opted for some combination of options one, two, and three, Mercosur has demonstrated a proclivity to follow in the footsteps of the EU.

Dispute resolution in treaty bodies made up of states with varying economic power runs into a problem when dealing with states that do not have equal bargaining power. A weaker state wants more clearly established norms as well as protectionist policies, whereas a more powerful state is prone to desire a more liberal system with greater flexibility. The EU has been able to deal with the many Eastern European countries facing the ramifications of Cold War era economic policies, because there was already a strong political body and political institutions in place prior to their admission. However, it is unclear how Mexico in NAFTA and Paraguay or Uruguay in Mercosur have affected this regime.

[1] Karen J. Alter, Laurence R. Helfer, & Osvaldo Saldias, Transplanting the European Court of Justice: The Experience of the Andean Tribunal of Justice, 60 Am. J. Comp. L. 629, 636 (2012).

[2] 5 U.S. 137 (1803).