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Three Scenarios in which arbitration arises in the AfCFTA Dispute Settlement Mechanism by ALN Academy*

23 Feb 2022 4:34 PM | Anonymous

Abstract

The Protocol on Rules and Procedures on the Settlement of Disputes is one of the three Protocols that have been finalized under the Agreement Establishing the Africa Continental Free Trade Area. The Protocol shall administer the settlement of disputes between State Parties where the disputes arise from the provisions of the AfCFTA Agreement. In so doing, the Protocol provides for three avenues for the resolution of disputes between State Parties: panel and appellate body proceedings overseen by the Dispute Settlement Body, good offices conciliation and mediation, and arbitration. This article discusses the three scenarios in which arbitration arises in the AfCFTA framework as a means of dispute settlement. The three scenarios include: (i) the use of arbitration as a form of dispute adjudication, (ii) arbitration to determine a reasonable time period for implementation of panel decisions, and (iii) arbitration as a means of determining proportionality of the suspension of concessions.

Introduction

The Article 20 of the Agreement Establishing the Africa Continental Free Trade Area (AfCFTA Agreement) establishes a Dispute Settlement Mechanism (the DSM) that will be administered in accordance with the Protocol on Rules and Procedures on the Settlement of Disputes (the Protocol). The Protocol entered into force on 20 May 2019, together with the AfCFTA Agreement, the Protocol on Trade in Goods, and the Protocol on Trade in Services. Notably, the wording of the Protocol borrows heavily from the World Trade Organisation (WTO) Dispute Settlement Understanding.

The DSM is central to providing security and predictability to the African regional trading system.It is limited to disputes between State Parties to the AfCFTA Agreement (State Parties) concerning rights and obligations emanating from the provisions of the AfCFTA Agreement. It is important to note that the AfCFTA Agreement is a single undertaking; therefore, the definition of ‘Agreement’ is construed to include the AfCFTA Agreement, its protocols, its annexes, and its appendices. The significance of this construction is that disputes can arise from an impairment or nullification of the rights and obligations captured in any of these instruments and not just the AfCFTA Agreement. In this way, the DSM aims to preserve the rights and obligations of the State Parties under the AfCFTA Agreement, its protocols, its annexes, and its appendices.

The DSM provides for three avenues for the resolution of disputes between State Parties: (i) the panels and appellate body established and overseen by the Dispute Settlement Body (the DSB) (the Panels and Appellate Body, respectively), (ii) good offices conciliation and mediation, and (iii) arbitration.

Arbitration as a form of dispute adjudication

The Protocol envisages the use of arbitration to adjudicate disputes, determine a reasonable time period for implementation of panel rulings and recommendations, and determine whether the level of suspension of concessions is commensurate with the nullification and impairment caused, respectively. Additionally, the Protocol sets out arbitration as an alternative to dispute resolution proceedings by the Panels and the Appellate Body. Arbitration in this case requires the mutual consent of the State Parties involved in the dispute. This mutual consent differentiates arbitration from the Panel and Appellate Body proceedings which are compulsory once initiated. Furthermore, arbitration appears to be a more flexible form of dispute resolution under the DSM because the State Parties are allowed to select the procedures to be followed during the arbitration. Once State Parties have chosen to refer a dispute to arbitration, they are barred from resorting to the other avenues of dispute resolution.

The agreement to resort to arbitration must be notified to the DSB which comprises representatives of the State Parties. In this way, the notification will serve to inform all AfCFTA State Parties of the decision to arbitrate the dispute. The State Parties have autonomy throughout the arbitration process and third parties may only become party to the proceedings through the mutual agreement of the parties.

The Protocol requires that State Parties that are party to the arbitration abide by the resulting arbitral award. The award will be notified to the DSB for enforcement. Notably, the DSB is not required to approve the arbitral award for it to be effective. This differs from Panel proceedings whereby the recommendations and rulings of the Panels or Appellate Body which are contained in the Panel and Appellate Body reports must be approved by the DSB through adoption. It would also appear that there is no appeal against the arbitral award because appeals to the Appellate Body are restricted to issues of law covered in Panel reports and legal interpretations developed by the Panel. This scope excludes the arbitral awards which implies that these awards are final.

Arbitration to determine a reasonable time period for implementation of Panel rulings and recommendations

The Protocol appears to state that the arbitral award shall be enforced in the same manner as the recommendations and rulings issued by the Panels and Appellate Body. State Parties are required to promptly comply with these recommendations and rulings. The defaulting State Parties may seek an extension on the time required for implementation in cases where it is impracticable to comply immediately. The extension shall represent a reasonable time period to allow for compliance. Such a reasonable time period may be determined through mutual agreement of the parties to the dispute, through a time period proposed by the defaulting State Party that is approved by the DSB, or through binding arbitration within ninety (90) days after the date of adoption of the recommendations and ruling. The third option is the second time arbitration is provided for in the DSM.

Arbitration to determine whether the level of suspension of concessions is commensurate with the nullification and impairment

The Protocol sets out the measures to be taken when a State Party fails to comply with the rulings and recommendations either immediately or within the reasonable period granted when immediate compliance is impracticable. Additionally, the Protocol states that the above will apply to the enforcement of arbitral awards. Consequently, a State Party that fails to comply may provide voluntary compensation to the aggrieved State Party or the aggrieved State Party may seek consent from the DSB to suspend concessions or other obligations towards the defaulting State Party. These measures envisaged are temporary remedies until the defaulting State Party complies with the rulings and recommendations.

A key condition for initiating the suspension of concessions is that the suspension should be commensurate to the negative effects of the nullification or impairment caused by the defaulting State Party. Where a State Party is aggrieved by the level of suspension, it may refer the matter to arbitration. The arbitration proceedings will be limited to determining whether the level of such suspension is equivalent to the level of nullification or impairment. This is the third scenario in which arbitration may be used in the DSM.

Conclusion

The DSM foresees the use of arbitration in three different scenarios: to adjudicate disputes between State Parties, to determine a reasonable time period for implementation of Panel rulings and recommendations, and to determine whether the level of suspension of concessions is commensurate with the nullification and impairment caused. These three uses are interrelated. The result is that arbitral awards issued from arbitral proceedings arising from the mutual agreement of State Parties shall be enforced in a manner similar to the rulings and recommendations of the Panels and the Appellate Body. 

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Luisa H. Cetina, Director, ALN Kenya | Anjarwalla & Khanna; Kelly Nyaga, Trainee Lawyer, ALN Kenya | Anjarwalla & Khanna; and Jade Makory, Associate, ALN Kenya | Anjarwalla &  Khanna




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