Dispute settlement is an essential element of free trade agreements

Free trade agreements (FTAs) are permitted by the covered agreements of the World Trade Organization (WTO). Pursuant to Article XXIV of the General Agreement on Tariffs and Trade (GATT) 1994, the formation of free trade areas by means of voluntary agreements between WTO Members is permissible, as long as such integration meets the following main requirements: (i) the duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent territories in products originating in such territories; (ii) the purpose of such integration is to facilitate trade between the constituent territories and not to raise barriers to the trade of other Members with such territories; and (iii) the duties and other regulations of commerce maintained in each of the constituent territories are not higher or more restrictive than the corresponding duties and other regulations of commerce existing in the same constituent territories prior to the formation of the free trade area.

Article V of the General Agreement on Trade in Services (GATS) has similar provisions, which state in part that the GATS is not to prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement (i) has substantial sectoral coverage, and (ii) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII of the GATS, between or among the parties, in the sectors covered under subparagraph (a), through (i) elimination of existing discriminatory measures, and/or (ii) prohibition of new or more discriminatory measures.