Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

DISPUTE SETTLEMENT IN THE ANDEAN COMMUNITY (CAN) 1

The principal legal instruments that govern the Andean Community’s dispute settlement system are the Cartagena Agreement,2 its protocols and additional instruments, the Treaty Creating the Court of Justice of the Andean Community, the Cochabamba Protocol, the decisions of the Commission and the resolutions of the General Secretariat. The Cartagena Agreement assigns the jurisdictional function within the process of integration to the Court of Justice of the Andean Community, and entrusts the General Secretariat with the task of administrative investigation (also referred to as the prelitigious phase) to determine whether States parties have been responsible for non-compliance and with the task of monitoring consistency within the Andean legal regime. Forum

Member countries may not submit trade disputes that arise in connection with the application of the rules of the legal regime of the Andean Community to any other court, arbitration system or procedure other than those contemplated in the Treaty Creating the Court of Justice of the Andean Community (article 42). Bodies

The General Secretariat and the Court of Justice of the Andean Community are the competent bodies for administering and settling disputes arising from the application of the legal system of the Andean Community. I- General Secretariat (executive body of the Ande an Community) Composition: The chief officer is the Secretary General, who is supported by the directors in the performance of his duties. The General Secretariat expresses itself through resolutions, which do not require ratification by national government bodies and enter into force on the date of their publication in the Official Gazette. Functions: The General Secretariat is the executive body of the Andean Community, which, starting on 1 August 1997, took on, among other things, the functions of the Board of the Cartagena Agreement. They are: (1)To ensure respect for the community legal order governing the issues provided for in the Cartagena Agreement, such as specific requirements relating to origin, determination of restrictions and duties, tariff deferrals, safeguards, dumping, subsidies and trade competition in accordance with the provisions of decision 425; (2) To use its dispute-settling power in matters delegated to it by the Commission of the Andean Community or the Andean Council of Foreign Ministers, which may be of a normative or administrative character; (3) To apply the Rules relating to the pre-judicial phase of actions for non-compliance (decision 623).

1 This note is based on information taken from the official website of the Andean Community: http://www.comunidadandina.org/canprocedimientosinternet/procedimientos.aspx 2 Article 47 states that the settlement of disputes arising from the application of the legal regime of the Andean Community shall be subject to the rules of the Treaty Creating the Court of Justice of the Andean Community.

Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

II- Court of Justice of the Andean Community (juris dictional body) Composition: The Court consists of five judges (one from each member country of the Community), appointed for six-year periods, with a maximum of two mandates. The headquarters of the Court is located in Quito, Ecuador. Functions: The Court is responsible for settling definitively disputes arising from the application and interpretation of the community legal regime. Its areas of jurisdiction are set out in the Treaty Creating the Court of Justice of the Andean Community and described in its Statutes (decision 500). Dispute settlement by the General Secretariat (reso lutions/ administrative rulings)

Applicable principles: In proceedings brought before the General Secretariat, the latter shall act in accordance with principles of legality, economy of legal process, swiftness, effectiveness, equal treatment of parties, transparency, use of procedures and formalities in order to achieve compliance with the objectives of the rule and rationalization of the administrative activity.3 Phase 1: Administrative research Member States, may not adopt corrective measures without prior authorization by the General Secretariat. In this regard, the General Secretariat, acting on its own initiative or at the request of the party concerned, must conduct the investigations in order to ascertain whether restrictive trade practices have been carried out. Thus, it has decision-making power in the following cases4:

1. investigative procedures aimed at determining whether or not duties or restrictions have been applied by member countries to intrasubregional trade in goods;

2. investigative procedures aimed at determining whether there has been non-compliance with obligations arising from rules that make up the legal regime of the Andean Community;

3. investigative procedures aimed at determining whether practices that can distort competition, such as dumping , subsidies or other restrictive practices of “free competition” , have taken place;

4. procedures aimed at authorizing, modifying or suspending safeguards applied by member countries.

(1) Duties or restrictions This type of procedure may be launched by the General Secretariat on its own initiative or at the request of a member country or private individual, and culminates in a resolution that states whether the measure or omission by a member country constitutes a restriction or duty on intrasubregional trade.5 Deadlines: Five days after the requirements for presentation of an application have been met,6 the General Secretariat will start the investigation. Within 10 working days from the start of the investigation, the General Secretariat must communicate in writing with the member country advising it of the duties or

3 Article 5 of the Rules of Procedure of the General Secretariat of the Andean Community. 4 Article 1 of the Rules of Procedure of the General Secretariat of the Andean Community. 5 The procedure for restrictions and duties is governed by articles 73 and 74 of the Cartagena Agreement and by the Rules of Procedure of the General Secretariat. 6 Within five working days of receiving an application for determination of duties or restrictions, the General Secretariat must examine the documentation submitted to determine whether the legal requirements have been met. If an application has omissions or is incomplete, the General Secretariat shall grant a period of 15 working days within which the omissions or incompleteness must be rectified (article 48 of the Rules of procedure of the General Secretariat).

Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

restrictions that are the subject of the dispute and indicating a period of no more than 20 working days months within which the country must submit its reply.7 Resolution: Within 10 working days following the expiry of the deadline for the response of the member country in question, the General Secretariat must issue the resolution which determines whether or not the measure constitutes a duty or restriction on intrasubregional trade. In the case of an affirmative resolution, the member country must cancel the domestic measure. In case of non-compliance with the resolution, the pre-judicial phase for a non-compliance action may be initiated. (2) Non-compliance The action for non-compliance consists of two phases: a preliminary phase in which the matter is brought before the General Secretariat and another, strictly judicial, phase in which it is brought before the Andean Court of Justice. The procedure for non-compliance in its pre-judicial phase may be initiated by the General Secretariat or may be launched in response to claims presented by member countries or private individuals whose rights have been infringed. Deadlines: Five days after the requirements for presentation of an application have been met,8 the General Secretariat will start the investigation. The General Secretariat may also initiate investigations of its own accord. Within 10 working days of the start of the investigation, the General Secretariat must communicate in writing with the member country advising it of the non-compliance with the regulations (and of other legal provisions) and shall indicate a deadline of no more than two months within which the country must submit its reply. 9 Resolution: Within five working days of the expiry of the deadline for response by the member country in question, the General Secretariat must issue the resolution which determines whether or not the measure or situation that has given rise to the claim constitutes non-compliance with the obligations arising from rules that make up the legal regime of the Andean Community. This resolution will set a deadline of no more than one month within which the member country must start to comply with the regulation.10

(3) Dumping11/ Subsidies12 Member countries or companies that have a legitimate interest can request the General Secretariat to authorize the application of measures to prevent or correct distortions in competition arising within the subregional market as a result of dumping or subsidies.13 When subsidized imports originate in a member country of the Andean Community, decision 457 is applied (in this case, the period of investigation is six months extendible for two additional months). When the products originate in a third country and affect the exports from one member country to another member country, or when two or more member

7 Article 50 of the Rules of Procedure of the General Secretariat. 8 Within five working days of receiving a request for determination of duties or restrictions, the General Secretariat must examine the documentation submitted to determine whether the legal requirements have been met. If an application contains omissions or is incomplete, the General Secretariat will grant a period of 15 working days within which the omissions or in insufficiencies must be rectified (article 59 of the Rules of Procedure of the General Secretariat). 9 Article 61 of the Rules of Procedure of the General Secretariat. 10 Article 65 of the Rules of Procedure of the General Secretariat. 11 An import is said to be dumped when the export price is less than the normal price of a product of that kind intended for consumption or use in the country of origin or export under normal trade operations (article 3 of decision 283). 12 An import is deemed to be subsidized when a direct or indirect premium, aid or subsidy has been received in the country of origin or export for the production, manufacture, transport or export of the product or its raw materials or inputs (article 8 of decision 283). A State subsidy is deemed to exist when a benefit is given in the form of a financial contribution by the Government or any government agency within the territory of the country of origin or export, or when any form of income or price support such as those described in article XVI of the 1994 General Agreement on Tariffs and Trade (GATT) is granted (article 8 of decision 457). 13 When a company makes the application, the General Secretariat is requested to authorize the importing country to apply countervailing measures (article 2 of decision 283).

Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

countries are affected by the subsidy or dumping practices and the product is subject to the common external tariff, decision 283 applies (the investigation period is four months extendible for a further two months). Start of the investigation: If the application for the start-up of the investigation is considered to be sufficient, the General Secretariat (which has replaced the Board of the Cartagena Agreement) will, within twenty working days from the date of submission of the application, make a pronouncement in the form of a resolution with statement of grounds indicating whether or not the investigation will begin. The General Secretariat will have four months from the date of publication of the resolution within which to carry out the investigation; when the subsidized imports originate in a third country that is not a member of the Andean Community, this period may be extended for two additional months.14 When the imports come from a member country of the Andean Community, the General Secretariat will dispose of a period of six months extendible for two additional months.15 If it is proven that trade is being distorted by the practice of dumping or the use of subsidies, the General Secretariat may authorize the application of the following measures:

(a) antidumping duties: on the imports that are the subject of the dumping practice (in an amount equivalent to the dumping margin determined or lower values, when they are sufficient to resolve the threat of loss or the actual loss that may have been proven).

(b) countervailing duties: in the case of subsidies (in an amount equivalent to the subsidy or lower amounts, when they are sufficient to resolve the threat of loss or the actual loss that may have been proven). Temporary measures: At the request of the concerned party, the General Secretariat may approve the application of temporary measures to prevent any damage that might be difficult to repair from occurring during the period of the investigation. If the General Secretariat considers the application admissible, it may authorize or determine the establishment of temporary measures that may take the form of antidumping or countervailing duties. In the course of the investigation, the General Secretariat may suspend the application of temporary measures and if no definitive duties are established, the total amount of temporary duties paid will be reimbursed.16 Definitive measures: Once it has been definitively ascertained that there are elements indicative of the practice of illicit subsidies (subsidy, loss and causal relationship), the General Secretariat shall, by a resolution with statement of grounds, apply a definitive countervailing measure, the amount of which shall not exceed that of the subsidy, and must be lower if that lower amount is sufficient to make good the loss or threat of loss to the affected national production branch.17 Definitive countervailing measures will only be valid for the time necessary to counter the detrimental effects of the subsidy. Moreover, such measures will lapse three years after the date of publication of the resolution authorizing the application of definitive countervailing measures.18 Derogation /modification of the decision: Once the General Secretariat has verified, at the request of the liaison institutions or the interested parties, or on its own initiative, that causes that gave grounds for the resolution referred to in the previous article have been changed or eliminated, it shall revoke that resolution partially or totally, by amending or annulling it.19

14 Article 11 and 15 of decision 283. 15 Article 44 of decision 457. 16 Article 45 of decision 283 and article 45 of decision 457. 17 Article 70 of decision 457. 18Article 75 of decision 457. 19 Article 19 of decision 283 and article 76 of decision 457.

Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

(4) Practices that restrict free competition:

Decision 608 prohibits and penalizes practices that restrict free competition20 affecting countries of the Andean Community, whether they have been adopted in the territory of one or more of the member countries, or in the territory of a non-member country, whose real effects are felt in one or more of the member countries. The Andean Community for the Defence of Free Competition, which includes one representative from the national competent authority in free competition from each of the member countries, acts in this procedure. Its role includes the analysis of the arguments put forward by the parties and the issue of recommendations and technical reports.

Start of the investigation: The General Secretariat of the Andean Community can initiate an investigation of its own accord or at the request of the parties concerned, which may be natural or legal persons, subjects of public or private law, consumer organizations or other entities.21 The first part of the investigation is conducted jointly with the competent national authorities responsible for free competition of member countries.22 Hearings may be held, commitments made and precautionary measures adopted. The General Secretariat must prepare the report on the results of the investigation, which will be sent to the parties concerned and to the Andean Committee for the Defence of Free Competition. Following this phase, the Secretariat will receive the pleadings of the parties and submit them to the Committee to enable the latter to issue its recommendation. In addition, it will give the parties the opportunity to meet face-to-face at a public hearing in order to compare their pleadings. In its final decision, the General Secretariat must hand down a ruling with respect to the recommendation made. Resolution: As a result of the resolution, corrective measures and sanctions may be imposed. Such measures will be enforced by the Governments of the member countries where the main business centre in the subregion of the companies targeted by the measure is located or where the effects of the practices reported occur, in accordance with their national regulations. Voluntary undertaking: The economic agent targeted by the claim may offer to make a voluntary undertaking to cease the conduct that is the subject of the investigation. The General Secretariat shall make a decision with statement of grounds, accepting or disregarding the undertaking. If the undertaking is accepted, the investigation will be deemed to have been concluded without the establishment of measures; if not, the investigation will proceed (article 27 and 28 of decision 608). Precautionary measures: At any time during the procedure or the investigation, the complainant will be entitled to request the General Secretariat to apply precautionary measures which may consist, among other things, in the provisional suspension of the allegedly restrictive conduct. The General Secretariat may demand the establishment of a security, bond or guarantee for the granting of such measures. To this end, it must fulfil the following requirements: demonstrate legitimate interest and the imminence of damage or harm that is irreparable or difficult to repair (article 31 of decision 608). (5) Safeguards

20 Restrictive practices that limit free competition are practices such as abuse of dominant market power by an economic agent or agreements between agents with the object or effect of substantially restricting, affecting or distorting the interaction of supply and demand on the market. 21 Article 10 of decision 608. 22 National authorities that participate with the General Secretariat in investigations are: the Office of the Superintendant of Industry and Commerce (Colombia); the Free Trade Commission of the National Institute for the Defence of Competition and Intellectual Property (Peru); and the Office of the Superintendant for Competition Promotion and Protection (PROCOMPETENCIA) (Bolivarian Republic of Venezuela).

Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

When imports originating in the subregion arrive on the market in such quantities or conditions as to cause disruptions in the national production of specific products of a member country, the Government of that country may apply corrective measures (safeguards) on a provisional basis, subject to the subsequent ruling of the General Secretariat. The Government of that country must request the prior authorization of the General Secretariat to apply the safeguards. The General Secretariat shall, within a period of 60 days from the date of receipt of the report in question, issue its decision to suspend, modify or authorize such measures.23 In cases where immediate action is warranted, however, the member country concerned may, as an emergency measure, apply the safeguards, provided that it reports them immediately to the General Secretariat, which will make a pronouncement within the 30 following days, either to authorize them, modify them or suspend them. Phase 2: Review of the resolutions of the General S ecretariat 24 Review at the initiative of the General Secretariat : The General Secretariat may, on its own initiative or at the request of the parties, revoke its resolutions provided they do not affect the acquired rights of member countries or private individuals. A decision may be revoked under the following conditions:

• if the decisions are void ab initio, 25 • if the decisions contain some flaw.26

Appeal for reconsideration: The parties concerned may request that the General Secretariat reconsider any resolution, as well as any act that puts an end to a procedure, renders its continuation impossible, causes defencelessness or prejudges the substance of the matter at issue. Similarly, they may request the reconsideration of the decisions of the General Secretariat that impose precautionary measures. Deadlines: The appeal for reconsideration may only be lodged within 45 days following the notification or publication (in the Official Gazette) of the act being challenged. The Secretary-General must resolve the appeal within 30 days of its receipt, and no new appeal for reconsideration may be lodged against the decision in question.27 Effects: The submission of the appeal will not suspend the execution of the decision being challenged. The Secretary-General may, however, give it suspensive effect when the execution of the decision can cause the party concerned irreparable harm or harm that is difficult to repair. 28 Under articles 17 and 44 of the Rules of Procedure of the General Secretariat, no new appeal for reconsideration may be lodged against the existing resolution, although the parties maintain the right to appeal before the Court of Justice of the Andean Community through the exercice of an action for annulment within two years of the entry into force of the resolution. Dispute settlement before the Court of Justice (jud gments)

The Treaty Creating the Court of Justice gives it authority to resolve the following actions:

23 Article 97 of the Cartagena Agreement. 24 Heading IV of the Rules of Procedure of the General Secretariat of the Andean Community. 25 Resolutions are void ab initio: if they contravene the legal regime of the Andean Community; if their content is impossible to implement or illegal or if they have been issued by persons who are unqualified or who ignore the essential rules of the process (article 12 of the Rules of Procedure of the General Secretariat). 26 The presence of a flaw in a resolution makes the latter rescindable when such resolutions are not void ab initio under article 12 (article 13 of the Rules of Procedure of the General Secretariat). 27 Article 44 of the Rules of Procedure of the General Secretariat of the Andean Community. 28 Article 41 of the Rules of Procedure of the General Secretariat of the Andean Community.

Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

(1) Nullity Action: This action seeks to annul decisions of the Andean Council of Foreign Ministers or the Commission of the Andean Community or resolutions of the General Secretariat and agreements that may have been handed down or concluded in breach of the rules that make up the legal regime of the Andean Community or as a result of the misuse of powers, when such decisions or resolutions are challenged by a member country, the Andean Council of Foreign Ministers, the Commission of the Andean Community, the General Secretariat or natural or legal persons whose subjective rights or legitimate interests have been infringed (article 17, Treaty Creating the Court of Justice). Deadline: The Nullity Action must be presented before the Court within two days of the date of entry into force of the measure challenged (article 20, Treaty Creating the Court of Justice). Effects: The presentation of the Nullity Action will not affect the efficacy or validity of the rule or agreement being challenged. The Court may, however, order the provisional suspension of the measure challenged or establish other precautionary measures, if it ascertains that the measure could cause irreparable harm or harm that is difficult to repair (article 21, Treaty Creating the Court of Justice). (2) Action to declare Noncompliance: This consists in a claim in which it is alleged that a member country is in breach of its obligations arising from the rules that make up the Andean legal regime. This is made up of two phases: a preliminary phase which entails bringing an action before the General Secretariat and another, specifically judicial, action before the Andean Court of Justice. 1. Prelitigious phase: When the General Secretariat or a member country considers that another member country has failed to comply with its obligations arising from the rules that make up the legal regime of the Andean Community, it will bring the case before the General Secretariat, which will formulate its observations in writing. The member country must respond by the deadline set by the General Secretariat. After receiving the response or once the deadline has expired, the General Secretariat, shall, within the following 15 days, issue an opinion with statement of grounds (administrative ruling) on the status of compliance with the obligations in question (article 23 of the Treaty Creating the Court of Justice and Rules of the Pre-judicial Phase of the Action for Non-Compliance, established by decision 623).29 There is no appeal against the opinion with statement of grounds.

� If the opinion indicates that there is non-compliance and the member country persists in the conduct that has been the subject of observations, the General Secretariat must request a ruling by the Court (failing which, the complainant country may appeal directly to the Court).

� If the opinion does not indicate that there has been non-compliance, the complainant country may bring the matter directly before the Court.

2. Litigious phase: Irrespective of the opinion handed down, once it has been issued (or in the absence of such an opinion), the complainant country has the option of resorting to the Court. Ruling: If the Court rules that there is non-compliance, the member country is under the obligation to adopt the necessary measures within a period not exceeding 90 days of its notification (article 27 of the Treaty Creating the Court of Justice). These rulings are not reviewable except by the Court itself, if it is apprised of some fact that could have had a decisive influence on the outcome of the process and if this fact was unknown at the date of issue of the ruling by the entity requesting the review (article 29 of the Treaty Creating the Court of Justice). 30 29 The pre-judicial phase ends with the issue of an opinion with statement of grounds in which the General Secretariat presents its view on the status of non-compliance with community obligations, and, if appropriate, sets a deadline for the member country to remedy the situation. 30 The request for review must be presented within 90 days of the date when the fact was discovered and, in any case, within one year of the date of the ruling.

Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

Non-compliance: If the member country does not comply with the ruling of the Court, the latter will, following the opinion of the General Secretariat, determine the limits within which the complainant country or any other member country may restrict or suspend, totally or partially, the advantages of the Cartagena Agreement that benefit the member country (article 27 of the Treaty Creating the Court of Justice). Effects: The ruling of non-compliance handed down by the Court in the disputes initiated by natural or legal persons whose rights have been infringed by non-compliance by a member country will constitute legal and sufficient grounds for that person to request from the national judge compensation for the losses and harm resulting therefrom (article 30 of the Treaty Creating the Court of Justice). (3) Prejudgment Interpretation: National judges who try a case in which a rule of the Andean legal regime must be applied are bound to request the interpretation of the Andean Court of Justice concerning the content and scope of those rules and, on the basis of that interpretation, must take note of the facts and make a ruling in the dispute. The objective of this mechanism is to ensure the uniform application of Andean rules within the member countries. If the opportunity to make a ruling arises without having received the interpretation of the Court, the judge must decide on the process. However, in all processes in which the judgment is not liable to appeal under domestic law, the judge shall suspend the procedure and, on his/her own initiative or at the request of one of the parties, request the interpretation of the Court before making a pronouncement. Effect: The judge trying the case must adopt the Court’s interpretation in his ruling (article 35 of the Treaty Creating the Court of Justice). (4) Action due to Omission or Inactivity: The Council of Foreign Ministers, the Commission, the General Secretariat and natural or legal persons may request the judgment of the Court when any of the community bodies abstain from fulfilling an activity which they are expressly obliged to perform under the legal regime of the Andean Community. Deadlines: First, the party concerned must directly request the competent body to fulfill the obligations. If this request is not satisfied within 30 days, the claimant may bring the case before the Court of Justice of the Andean Community for its ruling. Once the case has been admitted, the Court must make a ruling within 30 days, indicating the form and modality in which the body that is the subject of the suit must comply with its obligation and the relevant deadline article 37 of the Treaty Creating the Court of Justice).

(5) Arbitration function: The Court has the jurisdiction to settle through arbitration the disputes that arise as a result of the application or interpretation of contracts or agreements concluded between the bodies and institutions of the Andean Integration System or between these and third parties, when the parties so agree (article 38 of the Treaty Creating the Court of Justice). Individuals may, however, also agree to submit to arbitration through the Court any disputes arising from the application or interpretation of specific points contained in private contracts governed by the legal regime of the Andean Community. Effects: The award issued is binding and unappealable and constitutes legal and sufficient grounds for requesting its execution in accordance with the domestic provisions of each member country. The General Secretariat is competent to settle by administrative arbitration disputes submitted to it by individuals concerning the application or interpretation of specific points contained in private contracts governed by the legal regime of the Andean Community (article 39 of the Treaty Creating the Court of Justice). Effects: Unless otherwise agreed by the parties, the award is binding and, in principle, unappealable and establishes legal and sufficient grounds for requesting its execution, in accordance with the domestic provisions of each member country.

Division of International Trade and Integration Address: Av. Dag Hammarskjöld # 3477 Vitacura – Santiago Chile

(6) Labor Jurisdiction: The Court is competent to hear such labor disputes as may arise within the bodies and institutions of the Andean Integration System. Note: This database presents information on trade d isputes only. Thus, in the sphere of the Court of Justice, only actions of “non-compliance” are to be found in the database. Observations : (1) The rulings and judgments of the tribunal and the resolutions/administrative rulings of the General Secretariat will not require ratification or exequatur in any of the member countries. (2)The member countries will not bring any dispute that may arise as a result of the application of the rules of the legal regime of the Andean Community before any court, arbitration system or procedure other that those provided for in the Cartagena Agreement.