Comparative Analysis and Suggestions for Improvement

Pilot Clinic: University of São Paulo, Spring 2021

Beneficiary: Confederação Nacional da Indústria (National Confederation of Industry

Executive Summary

Read the full report here

The resolution of disputes is a central pillar of any trading system. Without an effective mechanism for settling disputes, the effectiveness of the applicable rules could be reduced, which could negatively affect the commercial integration process. In its 30 years, the MERCOSUR’s Dispute Resolution System (DRS) has been rarely used.

The purpose of this report is to analyze possible reasons for the relatively limited use of MERCOSUR’s DRS, as well as to propose potential solutions or tools to encourage its use when necessary. The report highlights how MERCOSUR countries have had a historical preference for solving their disputes through diplomatic negotiations rather than by means of legal procedures within the bloc or at the World Trade Organization (WTO). The report also shows that the limited use of dispute settlement in MERCOSUR, alongside questionable decisions incertain cases, have resulted in a vicious cycle: inasmuch as reliable case law is not developed, trust in the system remains limited and it is not used by member States.

The research points to a culture of fostering diplomatic consultations within the region, reflecting a view that political solutions are preferable for the relationship between neighbors than legal discussions. Although MERCOSUR’s DRS does not present major structural flaws, there are specific reforms that could potentially improve its effectiveness and provide member States and stakeholders with greater confidence in the system, paving the way for its reactivation.

In that light, this report proposes ten suggestions that could strengthen the MERCOSUR’s DRS, both institutionally and procedurally. While some suggestions may seem ambitious, they would tend to develop and legitimize case law, improving the confidence of stakeholders in the available mechanisms to resolve disputes in MERCOSUR and ultimately increasing the effectiveness of the system.

The proposals elaborated in the report are summarized as follows:

Enhancing awareness of the DRS

● Develop national practices that could contribute to the proactivity of the Brazilian government within the MERCOSUR’s dispute settlement mechanisms, such as by encouraging the use of the ‘Sem Barreiras’ (No Barriers) system as a means of justifying the initiation of bilateral consultations and trade disputes;

● Increase the awareness of Brazilian stakeholders, including the private sector and national judges, about the possibilities of use of the MERCOSUR dispute settlement mechanisms to deal with trade barriers, such as promoting seminar sand other capacity-building initiatives.

Improving procedures

● Reform the arbitral procedure in order to select arbitrators on an ad hoc basis, allowing the choice of arbitrators on the basis of their expertise to deal with specific matters;

● Create a mechanism to allow the choice of arbitrators in consultation with the private sector; ● Establish clearer deadlines for each stage of the MERCOSUR’s DRS;

● Improve the DRS’ transparency, establishing a mechanism to require the Secretariat of the Permanent Court of Revision (PCR) to track complaints and publish information on any bilateral consultations initiated;

● Expand the authority of the PCR to issue Advisory Opinions beyond “ongoing cases”;

● Eliminate the necessity of approval of the highest courts (in Brazil, the Supreme Court) of requests for Advisory Opinions, thus allowing lower courts (e.g. Federal Courts in Brazil) to directly request them;

● Consider the establishment of a “Private Claims Instrument”, which could allow private sector entities to directly access and present their complaints to the Common Market Group (GMC);

● Create a mechanism similar to the binational panels of the USMCA Chapter 10, with authority to review antidumping decisions of the authorities of each member State.

Read the full report here.