Liberalizing International Trade after Doha : Multilateral, Plurilateral, Regional, and Unilateral Initiatives 9781107420571, 9781107034204

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Liberalizing International Trade after Doha After ten years, the Doha Development Round is effectively dead. A broadly comprehensive round of trade negotiations reminiscent of the Doha agenda or the Uruguay Round will not likely be attempted again in the foreseeable future. Although some have suggested that Doha’s demise threatens the continued existence of the GATT/WTO system, even with some risks of increasing protectionism, the United States, the European Union, Japan, Brazil, China, and India, among others, have far too much to lose to make abandoning the WTO a rational option. If there is reason for cautious optimism post-Doha, it is because there are alternatives to a comprehensive package of new or amended multilateral agreements. In addition to likely consensus on a few noncontroversial multilateral elements of Doha, the alternatives include existing and future plurilateral trade agreements, new or revised regional trade agreements covering both goods and services, and liberalized national trade laws and regulations in the WTO member nations. This book discusses the alternatives, which, although less than ideal, may provide an impetus for continuing trade liberalization both among willing members and, in some instances, worldwide. David A. Gantz is Samuel M. Fegtly Professor of Law and Director of the International Trade and Business Law Program at the University of Arizona, James E. Rogers College of Law. He also serves as a member of the affiliated faculty of the Latin American Studies Department. After two years with the U.S. Agency for International Development law reform project in Costa Rica and a year as a law clerk with Judge Charles M. Merrill of the U.S. Court of Appeals for the 9th Circuit, he spent seven years with the Office of the Legal Adviser, U.S. Department of State. Professor Gantz has served as a binational panelist under the trade dispute resolution provisions of Chapter 19 of NAFTA and the U.S.-Canada FTA and Chapter 20 of NAFTA; as a NAFTA Chapter 11 arbitrator; and as an expert witness in other trade and investment disputes. He is the author of a textbook, NAFTA and Western Hemisphere Free Trade (2005, with Ralph Folsom and Michael Gordon); a treatise, Regional Trade Agreements: Law, Policy and Practice (2009); and Trade Remedies in North America (2010, with Gregory Bowman, Nick Covelli, and I. H. Ihm).

Cambridge International Trade and Economic Law As the processes of regionalization and globalization have intensified, there have been accompanying increases in the regulations of international trade and economic law at the levels of international, regional, and national laws. The subject matter of this series is international economic law. Its core is the regulation of international trade, investment, and cognate areas such as intellectual property and competition policy. The series publishes books on related regulatory areas, in particular human rights, labor, environment, and culture, as well as sustainable development. These areas are vertically linked at the international, regional, and national levels, and the series extends to the implementation of these rules at these different levels. The series also includes works on governance, dealing with the structure and operation of related international organizations in the field of international economic law, and the way they interact with other subjects of international and national law. Series Editors Dr. Lorand Bartels, University of Cambridge Professor Thomas Cottier, University of Berne Professor William Davey, University of Illinois Books in the Series Trade Policy Flexibility and Enforcement in the WTO: A Law and Economics Analysis Simon A. B. Schropp The Multilaterization of International Investment Law Stephan W. Schill The Law, Economics and Politics of Retaliation in WTO Dispute Settlement Edited by Chad P. Bown and Joost Pauwelyn Non-Discrimination in International Trade in Services: ‘Likeness’ in WTO/ GATS Nicolas Diebold

(Continued after Index)

This volume is dedicated to my children, Julie and Steve; their spouses, Chris and Renée; and to my grandchildren, Claire, Gillian, Graham, Henry, and Lena. May they all thrive in an increasingly interdependent world!

Liberalizing International Trade after Doha Multilateral, Plurilateral, Regional, and Unilateral Initiatives David A. Gantz University of Arizona, James E. Rogers College of Law

32 Avenue of the Americas, New York, NY 10013-2473, USA Cambridge University Press is part of the University of Cambridge. It furthers the University’s mission by disseminating knowledge in the pursuit of education, learning and research at the highest international levels of excellence. www.cambridge.org Information on this title: www.cambridge.org/9781107034204 © David A. Gantz 2013 This publication is in copyright. Subject to statutory exception and to the provisions of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published 2013 Printed in the United States of America A catalog record for this publication is available from the British Library. Library of Congress Cataloging in Publication data Gantz, David A. Liberalizing international trade after Doha : multilateral, plurilateral, regional, and unilateral initiatives / David A. Gantz, University of Arizona, James E. Rogers College of Law. pages  cm Includes bibliographical references and index. ISBN 978-1-107-03420-4 (hardback) 1.  Foreign trade regulation.  2.  Free trade.  3.  International trade.  4.  Commercial treaties.  5.  General Agreement on Tariffs and Trade (1947)  6.  World Trade Organization.  I.  Title. K4600.G36  2013 382′.9–dc23    2013007199 ISBN 978-1-107-03420-4 Hardback Additional resources for this publication at www.law.arizona.edu/tradelaw/ World_Trade_After_Doha.cfm Cambridge University Press has no responsibility for the persistence or accuracy of URLs for external or third-party Internet Web sites referred to in this publication, and does not guarantee that any content on such Web sites is, or will remain, accurate or appropriate.

Contents

Preface and Acknowledgments List of Abbreviations

1 Introduction: Pursuing Trade Liberalization in a Post-Doha World 2 The World Trading System under GATT and the WTO, 1947–2012 I. The Creation of the GATT II. The Evolution and Implementation Processes III. The Uruguay Round Negotiations IV. Debacle in Seattle and the Rise of the BRICs and Other MICs 3 The Doha Round Failure and the Likely Demise of the “Single Undertaking” I. Events Leading to the Doha Round Failure II. Exploring the Reasons for the Failure A. Rise in MIC Economic Power B. Divergence in Developing Member Objectives and Concerns C. Fear of Increased Chinese Source Imports D. Lack of Political Will

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E. Lack of Strong Support from Business Stakeholders F. Expansion of Government Industrial Policies G. Increased Use of Non-Tariff Barriers H. The WTO’s Consensus Requirement III. Reduced Prospects for Future Single-Undertaking Rounds

4 Assisting Developing Nations with Duty-Free, Quota-Free Market Access, Trade Facilitation, and Related Initiatives I. Tariff and Quota Barriers for LDCs II. Developing Nations and Rules of Origin III. Trade Facilitation IV. Reducing or Eliminating Cotton Subsidies V. Expanding and Improving GSP and Similar Programs VI. Tariff Rate Quotas, Food Security, and Related Aspects of Agricultural Trade 5 Preserving the Environment: Fisheries Subsidies and Trade in Environmental Goods I. Fishing Subsidies and Related Measures A. Importance of Fisheries B. Status of the Negotiations in Geneva C. Alternative Approaches II. Encouraging Freer Trade in “Green” Technology Goods and Services: A Sustainable Energy Trade Agreement? A. General Considerations B. Addressing Subsidies and Unfair Trade Actions C. A Plurilateral Initiative at APEC 6 New and Expanded Plurilateral Agreements (Part I) I. Expanding the Government Procurement Agreement A. History and Significance B. Updating the GPA – 2011 C. Further Expansion of the GPA

41 43 44 45 46

50 51 54 57 61 64 69

72 74 74 75 76 78 78 81 84 87 89 89 91 93

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Revision and Expansion of the Information Technology Agreement A. History and Significance B. Conclusion of a Revised ITA and Expanded Country Participation III. Other Possible Plurilateral Agreements Affecting Trade in Goods A. Health Care Products and Services B. Electronic Commerce C. Investment Protection Agreements D. Competition Law E. Anti-Counterfeiting Trade Agreement

7 New and Expanded Plurilateral Agreements (Part II): An International Services Agreement I. Introduction and Background II. Reasons for Pursuing Additional Services Market Access III. Creation of the GATS IV. Alternative Routes to an International Services Agreement A. Continued Negotiations under Doha B. Plurilateral Agreement with WTO Waiver C. Economic Integration Agreement under GATS, Article V V. Shaping the ISA A. General Approach B. Expansion of Sector Coverage C. Foreign Direct Investment, Government Procurement, and Competition D. SOE and Other Desirable Provisions E. Dispute Settlement F. Institutions VI. Conclusions

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8 Continued Proliferation of Regional Trade Agreements I. Historical Background II. GATT/WTO Legal Structure III. Exploring the Pros and Cons A. Traditional Considerations B. Dealing with Twenty-First-Century Issues C. Seeing RTAs as the Preferred Approach

158 159 184 190 190 192 196

9 Widening and Deepening (or Disregarding) Existing RTAs I. European Union A. Overview of the EU and Eurozone B. The Eurozone Crisis C. Further EU Expansion D. British Euroskepticism II. Mercosur A. Overview B. Mercosur’s Implementation Challenges C. Admission of Venezuela and Bolivia III. ASEAN FTA A. Overview B. ASEAN’s Implementation and Fragmentation Challenges IV. North American Free Trade Agreement A. Overview B. Implementation without Amendment V. Asia-Pacific Economic Cooperation Forum A. Standstill, Environmental Goods, and Trade Facilitation B. Supply Chain Support C. Free Trade Area of the Asia-Pacific?

201 202 202 204 209 210 212 212 214 216 218 218

10 Concluding New and Pending RTAs (Part I) I. European Union Initiatives A. Free Trade Agreements B. Economic Partnership Agreements

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A Transatlantic Trade and Investment Partnership? A. The Pros and Cons B. Will They or Won’t They? III. Pacific Alliance IV. All-Asian FTA Initiatives A. China–Japan–South Korea FTA B. Regional Comprehensive Economic Partnership V. All African Regional Initiatives VI. Prospects for Chinese Trade Arrangements with Africa

11 Concluding New and Pending RTAs (Part II): The Trans-Pacific Partnership I. Introduction II. The General Approach III. Potential Expansion of Membership A. Canada and Mexico B. Japan C. Other Possible TPP Members IV. Progress and Challenges A. Investment B. State-Owned Enterprises C. Tobacco Products D. Intellectual Property E. Labor and Environment F. Market Access G. Regulatory Coherence and Supply Chain Support V. Domestic Political Factors in the United States A. Political Support and Opposition B. The Obama Administration’s Catch-22 VI. Other Legal and Economic Challenges A. The “Spaghetti Bowl” B. Addressing Variations in Level of Economic Development C. Putting the TPP into Force

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VII. “Backdoor” Modification of NAFTA? VIII. The Prognosis

12 Unilateral Approaches to Trade and Market Liberalization I. Individual Developing Nation Market and Trade Liberalization A. The “Four Tigers” B. The Latin American “Jaguars”: Chile, Colombia, Mexico, and Peru C. Concluding Observations on Unilateralism II. The “Washington Consensus” as an Incentive to Unilateral Actions III. Model Corporate and Commercial Laws A. Secured Transactions B. Simplified Stock Corporation IV. Reduction of Agricultural Subsidies in the EU and United States? 13 Conclusions and the Crystal Ball Selected Bibliography Table of Cases Index

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312 314 314 324 334 335 338 338 341 343 347 351 365 367

Preface and Acknowledgments

This has been both an exciting and challenging book to write, reflecting the article from which the idea arose, “World Trade Law after Doha: Multilateral, Regional and National Approaches,” published as part of a tribute to Professor Ved Nanda by the Denver Journal of International Law and Policy in April 2012.1 Denver’s concept of “Perspectives on International Law in a Time of Change” seemed ideally suited to a forward-looking analysis of the future of international trade negotiations in the aftermath of the Doha Round’s demise. Excitement comes from reviewing and analyzing dozens of creative ideas from academics, trade lawyers, and government officials concerning how more than sixty years of world trade liberalization can continue without the WTO Members’ political will to complete the Doha Round of WTO negotiations. Although I have disagreed with some of the suggestions of experts, and have added many of my own ideas and conclusions, I have nevertheless felt free to borrow (with proper attribution) and build on what others are urging and in many instances governments are already actively pursuing. Whatever the utility of the volume in exploring the options, originality will not be its strongest point.

Denv. J. Int’l L. & Pol’y 40 (2012), 321; also available in book chapter form under the same title in Perspectives on International Law in an Era of Change, Anjali Nanda & Alissa Mundt eds. (Denver: Denver Journal of International Law and Policy, 2012), 321–367.

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The challenges are also obvious. First and most significant, this is essentially a snapshot of a rapidly moving target of negotiations and proposals for new negotiations as of the time this book was submitted to the publisher (January 2013). It is inevitable, despite a few minor updates in March 2013, that by the time the book is published it will be at least partially out of date, although this deficiency will be mitigated by the availability of online periodic updates.2 Of more concern for me as an author is that even in the months between submission and publication it will be obvious that some of my analysis and predictions are wrong. If these risks had been controlling, there would have been no point in attempting to complete the project. I take some comfort from the fact that the fixes for the demise of Doha are short, medium, and long term. Some of the proposals that do not catch on in the short term may be more attractive to policy makers in the future and revisited after the passage of two years or five years or more. The nature of the project is reflected in my use of sources. Although I have drawn from the large collection of excellent books and law review articles in the international trade literature and from the international trade agreement texts themselves, by necessity I have relied heavily on various contemporary sources and the trade press, including Bloomberg/ BNA’s International Trade Reporter and World Trade Online as well as the Financial Times and The Economist. For this year-long project I have had the strong support of my wife, Cate Fagan, who has cheerfully tolerated (most of the time) my day, evening, and weekend research and writing, all of which has made it possible to complete the volume sooner than would have otherwise been the case. I am also very grateful to John Berger of Cambridge University Press in New York (a fellow sailor) for his counsel throughout this book project, and to Jayashree Prabhu, the production manager at Newgen Knowledge

Updates will be available at at ­http://www.law.arizona.edu/tradelaw/World_Trade_ After_Doha.cfm, beginning shortly after publication.

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Works in Chennai, for her supervision of the production process. Finally, the book has benefited from the work of my legal assistants, Alexandra Felchlin and Lara Sandhu of the Rogers College of Law Class of 2013, whose assistance both with sources and editing has been invaluable. Notwithstanding this assistance, I am fully responsible for any errors or omissions. A research grant for summer 2012 from the Rogers College of Law facilitated the more or less prompt completion of this volume.

Abbreviations

AANZ ACP ACTA AEC AGOA ALBA APEC ASEAN ASEAN+6

ASEAN, Australian and New Zealand FTA African, Caribbean and Pacific States Anti-Counterfeiting Trade Agreement ASEAN Economic Community African Growth and Opportunity Act Bolivarian Alliance for the Peoples of Our America Asia-Pacific Economic Cooperation Forum Association of South-East Asian Nations ASEAN, China, Japan, Korea, Australia, New Zealand and India BDC Beneficiary developing country/ies BIT Bilateral Investment Treaty BRICS Brazil, Russia, India, China, and South Africa CAFTA-DR Central America–Dominican Republic–United States Free Trade Agreement CAP Common Agricultural Policy (EU) CARICOM Caribbean Community CARIFORUM Caribbean group for trade negotiations CBP Customs and Border Protection (U.S.) CCP Common Commercial Policy (EU) CET Common External Tariff CFP Common Fisheries Policy

xvii

xviii

CFTA CGP CIA CIDIP CJKFTA COMESA CP CRS CRTA CTE CTS CVD DDA DFQF DJP DSB DSU EC ECB ECFA ECJ EEZ EFTA EIA EIF EMS EPA EU FAO FCN FDI

Abbreviations

United States–Canada Free Trade Agreement Committee on Government Procurement Central Intelligence Agency Committee on Private International Law (OAS) China, Japan and Korea FTA Common Market for Eastern and Southern Africa Contracting Parties (GATT) Congressional Research Service (U.S.) Committee on Regional Trade Agreements (WTO) Committee on Trade and the Environment (WTO) Council on Trade in Services (WTO) Countervailing duty Doha Development Agenda Duty Free, Quota Free (treatment of imports) Democratic Party of Japan Dispute Settlement Body (WTO) Understanding on Rules and Procedures Governing the Settlement of Disputes (WTO) European Communities European Central Bank Economic Cooperation Framework Agreement (China/Taiwan) European Court of Justice (EU) Exclusive Economic Zone (Law of the Sea) European Free Trade Association Economic Integration Agreement (GATS) Enhanced Integrated Framework (WTO) European Monetary System Economic Partnership Agreement European Union Food and Agricultural Organization (U.N.) Friendship, Commerce and Navigation (treaty) foreign direct investment

Abbreviations

FTA FTAA FTAAP FTC G-20 GATS GATT GDP GNP GPA GPC GSP ICSID ICTSD ILO IMF IP ISA IT ITA ITAC ITC ITO KORUS LDC LDP MAI MEAs Mercosur MFN MICs

xix

Free Trade Agreement Free Trade Area of the Americas Free Trade Area of the Asia-Pacific Free Trade Commission (NAFTA) group of 20 developed and developing nations General Agreement on Trade in Services (WTO) General Agreement on Tariffs and Trade gross domestic product gross national product Government Procurement Agreement (WTO) Government Procurement Code (GATT) Generalized System of Preferences International Center for the Settlement of Investment Disputes International Centre for Trade and Sustainable Development International Labor Organization International Monetary Fund Intellectual Property International Services Agreement Information Technology Information Technology Agreement ITA Committee International Trade Centre (WTO, U.N.) International Trade Organization United States–Korea Free Trade Agreement Least-Developed Country Liberal Democratic Party (Japan) Multilateral Agreement on Investment Multilateral Environmental Agreements Common Market of the Southern Cone most favored nation (treatment) middle income countries

xx

MNCs MNEs NAALC NAFTA NAMA NGO NICs NME NTBs OAS OECD OEM PAN PNTR PPP PQ PRI PTA RCEP REC RTA SACU SADC SAR SCMA SETA SOEs SPS TBT TFQF

Abbreviations

multinational corporations multinational enterprises North American Agreement on Labor Cooperation North American Free Trade Agreement Non-Agricultural Market Access non-governmental organization newly industrializing countries non-market economy non-tariff barriers Organization of American States Organization for Economic Cooperation and Development original equipment manufacturer Partido Acción Nacional (Mexico) permanent normal trade relations (U.S.) purchasing power parity Parti Québécois (Canada) Partido Revolucionario Institucional (Mexico) preferential trade agreement Regional Comprehensive Economic Partnership Regional Economic Community (Africa) Regional Trade Agreement Southern African Customs Union South African Development Community Special Administrative Region (Hong Kong) Agreement on Subsidies and Countervailing Measures (WTO) Sustainable Energy Trade Agreement state-owned enterprises Agreement on Sanitary and Phytosanitary Measures (WTO) Agreement on Technical Barriers to Trade (WTO) tariff-free, quota-free (market access)

Abbreviations

TPA TPP TRIPS TRQ TTIP UNCITRAL UNCTAD UNDP UNECA USTR VCLT WCO WTO

xxi

Trade Promotion Authority (U.S.) Trans-Pacific Partnership Agreement on Trade-Related Aspects of Intellectual Property Rights (WTO) tariff-rate quota Transatlantic Trade and Investment Partnership U.N. Commission on International Trade Law U.N. Conference on Trade and Development U.N. Development Programme U.N. Economic Commission for Africa Office of the United States Trade Representative Vienna Convention on the Law of Treaties World Customs Organization World Trade Organization

1

Introduction Pursuing Trade Liberalization in a Post-Doha World

More than ten years after it began, the Doha Development Round is effectively in a deep coma or dead, at least in its present form, even if no one seems willing to affirm its passing for fear of being blamed for its demise.1 As Stuart Harbinson has observed, with the exception of dispute settlement, “the WTO scene is characterized largely by drift and neglect, with no apparent light at the end of the tunnel.”2 At best, the Doha Round seems likely to lapse into an indefinite period of hibernation – with uncertainty as to when, if ever, it could be revived. Director-General Lamy admitted in July 2012, after four years of paralysis, that “all agree that the harvest [progress] from the first half of this year has been meager.”3 Doha will not likely again be a comprehensive “single-undertaking” approach, and it is improbable that a broadly comprehensive round of trade negotiations reminiscent of Doha at its outset or the Uruguay Round will be attempted in the foreseeable future, certainly not by the time of the WTO’s 9th Ministerial Meeting in Bali in late 2013. Some have suggested



Alan, Beattie, “WTO: World Waits to Move on after Doha,” Financial Times, September 22, 2011, 1. 2 See Stuart Harbinson, “The WTO Must Bounce Back,” ECIPE Policy Briefs, no. 09/2012, 1, accessed September 28, 2012, http://www.ecipe.org/media/publication_pdfs/ PB201209.pdf. 3 WTO, “Lamy Reports to General Council on Doha Round and Urges Negotiators to ‘Change Gears,’” July 25, 2012, accessed July 25, 2012, http://www.wto.org/english/ news_e/news12_e/gc_rpt_25jul12_e.htm. 1

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a “time out”4 with resumption only after reaffirmation or changes in the political leadership of United States and China in November 2012, but those events have had no apparent impact on the Doha Round. Although there appeared as of late 2012 some limited optimism for progress on certain “deliverables” such as trade facilitation, an expanded Information Technology Agreement (ITA) and improved tariff rate quota (TRQ) administration,5 the prospects for a more ambitious package are dim. Nor is there much reason a year after the Ministers at the WTO’s 8th Ministerial Meeting in December 2011 demonstrated their inability to resurrect the Doha Round,6 to believe that a delay of a few years would make a major breakthrough possible. For example, since President Obama has been reelected, it appears that his highest trade negotiating priorities at least through 2013 will be a Transatlantic Trade and Investment Partnership (TTIP; Chapter 10:2), the Trans-Pacific Partnership (TPP; Chapter 11) and an International Services Agreement (ISA; Chapter 7). The Government of India, another key participant in any completion of the Doha Round, relies on a “wobbly” coalition and will soon be preparing for a general election in mid-2014.7 Despite increasingly anemic growth in international trade  – only 2.5  percent (instead of the earlier predicted 3.7 percent) for 2012 and 4.5  percent for 2013 according to downward-revised WTO forecasts  – there is no evidence of any significant enthusiasm, other than among

Jeffrey J. Schott, “What Should the United States do About Doha?,” June 2011, 3, accessed July 31, 2012, http://www.iie.com/publications/pb/pb11-08.pdf. 5 See Pascal Lamy, “Lamy Urges Focus on Deliverables,” October 3–4, 2012, 2, accessed October 18, 2012, http://www.wto.org/english/news_e/news12_e/gc_rpt_03oct12_e.htm. Lamy is reporting to the WTO General Council. 6 See Chairman’s Concluding Statement, December 17, 2011, accessed July 31, 2012, http://www.wto.org/english/thewto_e/minist_e/min11_e/min11_11_e.doc, which reaffirms the Members’ commitment to WTO principles but reflects no progress on the Doha agenda, or other achievements other than approving Membership for Vanatu, Russia, Samoa, and Montenegro. 7 See “Shuffled, Not Stirred: A Tough Period Looms for India’s New Look Government,” The Economist, November 3, 2012. This article discusses the challenges, including corruption, facing a newly shaken-up national government. 4

Introduction

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WTO officials, to “revitalize the multilateral trading system” restoring “economic certainty,” particularly at a time when the Eurozone crisis remains unresolved.8 Nor is there doubt that a combination of inaction in Geneva, plus the lingering effects of the 2008–2009 economic crisis, in addition to slower growth in Brazil, China, the European Union (EU), India, and the United States, among others, raises the risk of increasing protectionism. As Director-General Lamy has noted, “[t]he sluggish pace of recovery raises concerns that a steady trickle of restrictive trade measures could gradually undermine the benefits of trade openness.”9 (Brazilian and Argentine protectionism are discussed under Mercosur in Chapter 9.) Other developing countries, such as Ukraine, have sought to escape from certain tariff concessions agreed to as part of the accession process just four years ago, generating vehement objections from more than sixty WTO Members.10 Still, although some observers have suggested that Doha’s demise threatens the continued existence of the GATT/WTO system,11 many more see continued strength in the system as developed over the past sixty-five years. That system, with its extensive body of rules and a mandatory dispute settlement system works reasonably well, and many believe it unlikely that the binding rules that have been negotiated in prior GATT rounds will atrophy.12 Even with serious risks of backsliding and increasing protectionism in many nations, the United States, the EU, Japan, Brazil,







WTO, “Slow Global Growth to Hit Trade in 2012 and 2013, WTO Says,” Press Release, September 21, 2012, accessed September 28, 2012, http://www.wto.org/english/news_e/ pres12_e/pr676_e.htm. 9 Pascal Lamy, “Multilateralism is at a Crossroads,” Speech at the Humboldt-Viadrina School of Governance in Berlin, June 26, 2012, accessed June 27, 2012, http://www.wto. org/english/news_e/sppl_e/spp1239_e.htm. 10 Daniel Pruzin,“Ukraine Defends Push to Modify Hundreds of WTO Tariff Concessions,” Int’l Trade Daily (BNA), October 17, 2012. 11 “Failure of the Doha Round will create a dangerous situation in the WTO . . .” according to Peter Sutherland, quoted in Viv Davies, “The Future of Doha and the WTO: a CEPR Trade Seminar,” April 27, 2011, 7, accessed July 31, 2012, http://www.voxeu.org/ index.php?q=node/6431. 12 See Sandra Polaski, “What Future for the WTO?,” Le Economie Politique, July 2007, 3. Polaski argues that existing WTO rules will still set trade rules for major players. 8

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China, and India, among others, have far too much to lose by abandoning the WTO rules or even departing substantially from them. Additionally, non-Members continue to press forward for WTO Membership. For example, Vanuatu became the 157th Member in August 2012,13 and Kazakhstan, among others, completed long-standing efforts toward accession in 2012.14 Therefore, it seems highly likely that the WTO system with its inefficiencies and deficiencies (of which there are many15) is here to stay. Views suggesting that the WTO is resilient even in the light of a Doha failure reflect some obvious facts. Over the past twenty-five years, international trade has expanded in a robust manner, outpacing world population growth by about 5 percent, compared to 1 percent from 1870 to 1950.16 Between 1994 and 2006, world merchandise trade increased each year (except for 2001) at rates ranging from approximately 10 percent in 1997, 2000, and 2004, to only 3.5 percent in 2002.17 Although world trade rules undoubtedly facilitated this growth, other factors, including









See WTO, “Members and Observers,” accessed November 17, 2012, http://www.wto. org/english/thewto_e/whatis_e/tif_e/org6_e.htm, which confirms Vanuatu’s accession August 24. Laos and Tajikistan were approved for Membership in October 2012. 14 Sergei Blagov, “Kazakhstan Hopes to Finish WTO Entry Talks by Year’s End; Farm Subsidies Still a Hurdle.” Int’l Trade Rep. (BNA) 29 (August 16, 2012): 1339; WTO, “Kazakhstan Paves Way to Becoming WTO Member in 2013,” December 10, 2012, accessed December 15, 2012, http://www.wto.org/english/news_e/news12_e/acc_kaz_ 10dec12_e.htm. 15 Various Members have complained, inter alia, about alleged U.S. abuse of the antidumping laws; unfairness of the dispute settlement mechanism for small developing countries; U.S. and EU agricultural subsidies; barriers in major developing country markets (particularly China, India, and Brazil to imports of both agricultural and manufactured products from other Members); extraordinarily high tariffs imposed by many countries on a variety of agricultural and nonagricultural products); insufficiently “special and differential treatment” of imports from developing countries, particularly the least developed countries; continued tariff and non-tariff restrictions to textile, apparel, and footwear imports from developing country Members; and other deficiencies. 16 See Uri Dadush, “The Future of the World Trading System” Int’l Economic Bulletin, July. 14, 2010, 3, accessed July 31, 2012, http://www.carnegieendowment.org/2010/07/14/ future-of-world-trading-system/45b. 17 See Sandra Polaski, “What Future for the WTO?,” 4.

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increased commerce in parts and components as a result of “just-in-time” manufacturing processes and the revolution in shipping brought about by the containerization phenomenon,18 as well as some of the more successful regional trade agreements (RTAs) such as the EU and NAFTA, have also made major contributions. Perhaps Doha has been, in part, a victim of the success of the Uruguay Round. After the extensive trade liberalization that took place in the Uruguay Round, even with regard to agricultural subsidies and manufactured product market access,19 the challenges to further liberalize in a new round were even more daunting. As discussed in greater detail in Chapter 2, the last several decades have also been a time of fundamental change to the global trading system. The “Quad” countries (the United States, EU, Japan, and Canada) no longer dominate the negotiations. China (since November 2001), Brazil, India, Indonesia, and South Africa in particular are major players without whose concurrence little can be accomplished in Geneva. This trend will likely continue. It is estimated that in twenty years or so ten of the largest economies will be what we currently regard as developing countries and China will likely be almost every WTO Member’s largest trading partner.20 Peter Sutherland, the last secretary general of GATT, states bluntly that because China is the “world’s most successful trading nation and will remain so for a long while . . . China [is] the key player in the World Trade Organization.”21 Less significant change is likely for most other developing countries, which – despite increasing their share of world trade – are likely to remain poor.22







Marc Levinson, For consistency with other chapters book titles are italicized, as here: The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (Princeton: Princeton University Press, 2006). 19 Jeffrey J. Schott, “The Doha Dilemma: Implications for Korea and the Multilateral Trading System” (2011), 2, accessed July 31, 2012, http://www.piie.com/publications/ papers/schott20110926.pdf. 20 See Dadush, “The Future,” 3. 21 Peter Sutherland, “A Future for the World Trade Organization,” The 2010 Jan Tumlir Lecture, no. 01/2010, September 2010, 9, accessed March 8, 2013, http://www.ecipe.org/ media/publication_pdfs/a-future-for-the-world-trade-organisation.pdf. 22 Ibid. 18

6

Liberalizing International Trade after Doha

The Doha process has also been plagued by a confluence of ­negative political factors in the United States, the EU, India, and elsewhere. The expiry of Trade Promotion Authority (TPA) in the United States in mid-2007 and divided government since 2010 has made continued negotiations more difficult. Most nations are reluctant to conclude negotiations with the United States unless they are assured (as TPA provides) that Congress cannot unilaterally change the agreement or indefinitely delay its consideration.23 Observers such as former U.S. Trade Representative Robert Zoellick also point out that the United States needs a fiscal policy that “rebuilds the fundamentals of long-term growth” as well as limits government spending, encourages private sector innovation and “[empowers] all its citizens to fulfill their potential.”24 As of early 2013, there is no assurance that the Democratic and Republican Parties have the political will to work together to adopt such policies, either in 3013 or in the foreseeable future. Elsewhere, elections in India in 2009 likely contributed to the lack of progress in the negotiations in 2008 (and may do so again by or before the end of 2013), as did Brazil’s defensive approach to rapidly increasing imports from China and currency appreciation at home.25 For those and other developing nations, reducing poverty remains a major focus of government policy and actions, and inhibits negotiations in Geneva.26 If one adds to these challenges Japan’s on-going economic stagnation, the EU’s focus on the survival of the Eurozone and the EU itself, and China’s reluctance to accept the full responsibilities of WTO Membership and world economic power status (in part as a result of the leadership

19 U.S.C. § 3803–3805 (2002, expired 2007). Robert B. Zoellick, “American Exceptionalism: Time for New Thinking on Economics and Security,” July 25, 2012, 10, accessed August 1, 2012, http://www.piie.com/ publications/papers/zoellick20120725.pdf. 25 Susan Schwab, “After Doha: Why the Negotiations are Doomed and What we Should do About It,” Foreign Affairs 90 (May 1, 2011), 104. The former U.S. Trade Representative catalogs the political challenges. 26 See Dadush, “The Future,” 3. Dadush argues that reducing income gaps are much more important than a free trade offensive. 23 24

Introduction

7

transition),27 there has arguably been a perfect storm of extreme political caution among the major negotiating players. If there is reason for cautious optimism post-Doha it is because there are alternatives to a broad package of new or amended WTO Agreements. These, although they are not the ideal solutions, may nevertheless provide an impetus for continuing trade liberalization both among specific countries and in some instances worldwide. Such possibilities include adoption by the WTO Membership of a few consensus elements of the Doha package, existing and future “plurilateral” trade agreements,28 dozens of regional trade agreements (RTAs) and various trade-liberalizing national laws and regulations being adopted in many of the WTO Member states. As U.S. Trade Representative Ron Kirk has observed, “I think the reality, given the current global macroeconomic environment [is that] countries’ leaders have a responsibility to use all of the tools in their economic tool box.” He also suggested that bilateral agreements represent a “fairly efficient way to use trade to help spur economic growth and grow jobs.”29 The substantive discussions in this volume begin (in Chapters 2 and 3) with a brief review of the evolution of the world trading system since 1947, along with the major reasons for Doha’s failure and for the widespread belief that a broad agenda of single-undertaking negotiations cannot be re-created in the foreseeable future. Chapters 4 and 5 discuss the specific areas in which it is reasonable to expect that relatively widespread international agreement could be reached at the multilateral level, including trade facilitation, tariff-free, quota-free treatment of goods from least-developed Members, subsidies to fisheries, and some other aspects of special and differential treatment of developing Members. Chapters 6 and 7 address plurilateral agreements, with emphasis on government



Drawing in part on Schwab, “After Doha.” Specialized agreements among willing Members but not the entire Membership, such as the WTO’s Government Procurement Agreement and Information Technology Agreement. 29 “USTR Sees Proliferation of Bilateral, Regional Deals due to Doha Impasse,” World Trade Online, January 31, 2012 (quoting Ambassador Kirk). 27 28

8

Liberalizing International Trade after Doha

procurement, information technology, and services. Chapters 8 through 11 focus on the historical development, current state, and likely future expansion of RTAs. Chapter 12 addresses the importance of national, largely unilateral trade liberalization through tariff and non-tariff barrier reduction such as that which has recently taken place in the Four “Asian Tigers,” and a handful of Latin American nations (which I term the “Four Jaguars”). This process may become more widespread through pressures arising in the Asia Pacific Economic Cooperation Forum (APEC; Chapter 9) and perhaps even with some unilateral reduction of agricultural subsidies in United States and the EU (Chapter 12).30 The short, final Chapter 13 speculates on the success of the various negotiations that are now moving forward or are likely to be begun in 2013, and when closure – if at all – might be achieved. When trying to assess the future, I focus on the short and medium term, primarily the coming three to five years. Predictions of any kind are fraught with peril; longer term predictions will make even the wisest crystal ball gazer (and I am not one of those) appear overly optimistic (or pessimistic) about the future of world trade. Several obvious caveats for a project of this type should be kept in mind. First, it is difficult to know whether the EU and the United States will continue to provide a high level of political leadership as they have in the past or whether others such as the BRICS (Brazil, Russia, India, China, and South Africa) will step in to take their places, or whether no Member will be willing to do so in the future, as is the discouraging situation at the end of 2012. Second, and perhaps more important, it is only in the past several years that most WTO Members have fully accepted the demise of the Doha Round. Many of the alternatives discussed herein are still at early stages of development, allowing only for speculation on their likely success or failure and the timing of the same. Finally, it is impossible to assess the impact of unexpected events, ranging from a nuclear bomb or other catastrophic attack in a developed

See “Agricultural Committees Devising Proposal to cut $23 Billion in Spending,” World Trade Online, October 17, 2011, accessed July 25, 2012, (discussing plans because of budgetary pressures to reduce agricultural subsidies).

30

Introduction

9

country by a terrorist group (or North Korea) to a major war in the Middle East, to the economic and social dislocation resulting from much more rapid climate change than experts currently anticipate, to a drastic decline in Chinese economic growth or an accelerated economic decline of Europe and/or the United States. For example, three years ago, who would have suggested that the demise of the Eurozone as we know it was a reasonable possibility? Most of the approaches to continuing trade liberalization post-Doha discussed in this book are not original to me. Instead, I have consulted the writings of various experts on the subjects covered, as well the major trade periodicals, as is evident from the footnotes and the bibliography. My hope is that I add coherence and analysis to these various proposals, and collect them in a single volume in a useful manner for further review and debate. In those chapters discussing the history of the GATT/WTO system, the reasons for the failure of the Doha Round, and the nature of regional trade agreements, I try to strike a balance between over-discussing issues that have been exhaustively detailed in the literature elsewhere and providing the non-expert reader with sufficient information to permit understanding of the later chapters. I have tried to be reasonably comprehensive, but have made no effort to devote equal space to the various proposals for new or expanded trade agreements, whether multilateral, plurilateral, or regional. Instead, those agreements under negotiation or in pre-negotiation stage that have major economic importance such as the ITA, the ISA, and the TPP have been analyzed in greater detail than others that are much less likely to move forward in the foreseeable future, such as the China-Japan-Korea Free Trade Agreement or the Regional Comprehensive Economic Partnership (formerly “ASEAN Plus 6”). Hopefully, this balance is reasonable under the circumstances. As others have pointed out, “the WTO is an integral part of the world trading system, but it is only one part.”31 There is insufficient political

Dadush, “The Future,” 1.

31

10

Liberalizing International Trade after Doha

will to conclude the Doha Round. It remains to be seen whether among even the more willing trading nations there exists the necessary political foresight to assure that the process of expanding world trade through the reduction of trade and non-trade barriers will continue well into the twenty-first century utilizing alternative routes. If such will exists, multiple avenues other than a major WTO negotiating round exist to achieve much trade liberalization. Exploration of those avenues is the purpose of this book.

2

The World Trading System under GATT and the WTO, 1947–2012

I.  The Creation of the GATT The General Agreement on Tariffs and Trade (GATT) was in many respects a reaction to the protectionist binge of the early 1930s and to the horrors of World War II After the New York stock market crashed in October 1929, the Hoover Administration and the Republican Congress, despite the vehement protests of more than a thousand economists,1 reacted by enacting the infamous Smoot–Hawley Tariff Act in 1930.2 The Act raised U.S. import duties on nearly a thousand items. Twenty-three U.S. trading partners protested the Act and predictably most, beginning with the United Kingdom, responded in kind. As a result of this mercantilist approach (and other factors such as deflation and the reduced buying power resulting from a declining GDP in the United States and elsewhere) world trade fell by more than half,3 exacerbating the Great Depression and helping to create the dire economic conditions throughout the 1930s that may well have contributed to the rise of Hitler and thus



See “The Battle of Smoot Hawley: A Cautionary Tale about How a Protection Measure Opposed by all Right–thinking People was Passed,” The Economist, December 8, 2008, 4, which notes that 1,028 economists petitioned President Hoover not to sign the Act. 2 See Judith Goldstein, “Ideas, Institutions and American Trade Policy,” Int’l Org. 42 (1988), 79. 3 “The Battle of Smoot–Hawley,” 6. 1

11

12

Liberalizing International Trade after Doha

to World War II.4 By 1932, the average U.S. tariff on dutiable imports was 59 percent, the highest since 1830.5 It is, therefore, no surprise that the major focus of the GATT twelve years later was on tariff reduction and limiting the Contracting Parties’ ability to increase tariffs unilaterally in the future. In the aftermath of World War II, the allies, led by the United States and the United Kingdom, sought to provide a legal and economic framework to govern international trade, investment, and finance through the Bretton Woods Agreements, which created the International Bank for Reconstruction and Development (World Bank), the International Monetary Fund (IMF), and the Havana Charter creating the International Trade Organization (ITO). The Bank and IMF charters entered into force but the ITO died when President Truman and his State Department decided not to submit it to the Senate for ratification. In addition to opposition from many in Congress that believed the Havana Charter was too favorably inclined to state intervention in the economy, some officials in the Truman Administration felt that support for the Charter might detract from other priorities such as the Marshall Plan to reconstruct Europe.6 As a result, the GATT 1947, incorporating extensive rules governing trade in goods but no secretariat or mechanism for application and enforcement, served as a somewhat makeshift framework for governing the international trading system from 1947 to 1995.7 The original GATT “Contracting Parties” (CPs) consisted of thirteen developed countries (excluding Germany and Japan) and ten developing countries. Middle Income Countries (MICs) were not well represented,

See Sungjoon Cho & Claire R. Kelly, “Are Global Trading Rules Passé?: Trade Anachronism and its Discontents,” Society of International Economic Law, Working Paper No. 2012/18, June 20, 2012, 8, accessed September 28, 2012, http://papers.ssrn .com/sol3/papers.cfm?abstract_id=2088368. Cho and Kelly discuss the Hawley–Smoot Tariff and its impact on the world economy. 5 “The Battle of Smoot Hawley,” 5. 6 See, e.g., Andreas F. Lowenfeld, International Economic Law (Oxford: Oxford University Press, 2002), 25–26. 7 Ibid., 26. 4

The World Trading System under GATT and the WTO

13

although both Brazil and India (and pre–Communist China) were among the founders. Robert Hudec suggests that the most significant accomplishment of the 1947 GATT was the “binding” of individual CP tariff levels,8 typically agreed upon on a reciprocal basis, along with commitments not to impose or increase other tariff barriers on the products that were subject to negotiated tariff reductions.9 Nondiscrimination in tariffs (MFN treatment) and with respect to internal measures was to be required and quantitative restraints were heavily restricted.10 Many exceptions existed for balance of payment protection and addressing so-called unfair trade practices such as dumping and government subsidization, as well as more generally those designed for protecting public morals and national security.11 A loose framework for dispute settlement was provided but at the outset no functioning mechanism was created.12

II.  The Evolution and Implementation Processes Decision-making was by consensus from the start, even though the GATT provided for majority voting.13 Hudec observes that there are constraints for the CPs on the use of objections to consensus because of “strong pressures” against blocking panel reports except for the most serious reasons. Whereas consensus may delay decision-making, it “keeps GATT decision-making in line with political reality.” Many governments, Hudec notes, simply will not accept “direction of their foreign trade







Tariffs that are “bound” under GATT, art. II and the individual Members’ tariff schedules may not (with a few exceptions) be increased above the bound levels. The GATT parties were referred to as Contracting Parties because the GATT did not create a formal international organization; that occurred only in 1995 with the WTO. 9 See Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT System (Salem, N.H.: Butterworths, 1993), 5. Hudec discusses the original GATT. 10 GATT, arts. I, III, and XI, respectively. 11 GATT, arts. XII, VI, XV, XX, and XXI. 12 GATT, arts. XXII and XXIII. 13 GATT, art. XXV 8

14

Liberalizing International Trade after Doha

policies by majority votes of international organizations.”14 In any event, the ­consensus requirement has survived in practice to this day despite the majority voting provisions set out in the WTO Agreement15 and remains a continuing obstacle to be dealt with in the operations of the WTO, particularly in the area of multilateral trade negotiations. This bare-bones framework of GATT 1947 was modified, tariffs were reduced, and the membership expanded through various meetings of the CPs, including eight major multilateral negotiating “rounds” during nearly four decades. The 1950s saw an increase in membership from twenty-three to thirty-seven CPs, the creation of a small secretariat in Geneva (including in the staff many of the original negotiators), and more than fifty legal complaints that required the development of a “panel procedure.” In the 1960s, the membership expanded from thirty-seven to seventy-seven, with developing countries accounting for fifty-two of the total.16 Changes were made in the system to make it friendlier to developing countries with the addition of Part IV in 1966 (“trade and development”), indicating that developed CPs did not expect full reciprocity from developing country CPs on tariff reductions or the reduction of other trade barriers.17 Despite the new language in Part IV dealing with “objectives” and “commitments,” these provisions were hortatory and non-binding, essentially soft law. For example, the section on “commitments” begins as follows: “The developed contracting parties shall to the fullest extent possible – that is, except when compelling reasons, which may include legal reasons, make it impossible – give effect to the following provisions.”18 Interestingly, the use of the dispute settlement mechanism almost disappeared during the decade of the 1960s, with the EU and the United



Hudec, Enforcing International Trade Law, 8. WTO Agreement, art. IX. 16 See Hudec, Enforcing International Trade Law, 11–13, which explains the decade-to-decade changes. 17 See Robert E. Hudec & J. Michael Finger, Developing Countries in the GATT Legal System (Cambridge: Cambridge University Press, 2011), 39–40. 18 GATT 1947, art. XXXVIII(1). 14 15

The World Trading System under GATT and the WTO

15

States both criticizing the claims process as legalistic and the filing of claims treated as unfriendly actions by the respondents.19 Until the Tokyo Round (1973–1979), the major focus of GATT negotiations was on tariff concessions, initially on a product-by-product basis but later with an emphasis on overall percentage tariff reductions.20 In 1971, the GATT CPs agreed to the inclusion of an MFN exception for the Generalized System of Preferences, ultimately made permanent with the “Enabling Clause” in 1979.21 In retrospect, this was much more significant for the developing country CPs than the addition of Part IV. Additionally, the CPs agreed to somewhat relaxed requirements for RTAs among developing countries, again made permanent by the “Enabling Clause” in 1979.22 Dispute settlement was addressed once again in the 1970s and the 1980s (and in much more comprehensive negotiations when the Uruguay Round negotiations began in 1986). Some 115 complaints were filed in the 1980s with 47 of those producing reports, more than in all of the previous thirty years combined.23 This led to the creation of a legal office within the GATT Secretariat along with improvements in the legal skills that were applied by the Secretariat to resolving the disputes.24 It was during the Tokyo Round, with what Hudec calls a “legal rebuilding,” that dispute settlement took a “central place” in GATT affairs, with thirty-two new cases brought during the decade.25 The United States, in particular, embraced the need for stronger enforcement of GATT obligations; and





Hudec, Enforcing International Trade Law, 13. Raj Bhala, International Trade Law: Interdisciplinary Theory and Practice,(3rd. ed. (New York: LexisNexis, 2008), 12–23. 21 See WTO, “Preferential Trade Agreements,” accessed July 14, 2012, http://ptadb.wto .org/ptaList.aspx. 22 “Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries,” Decision of 28 November 1979 (L/4903) (Enabling Clause), accessed July 14, 2012, http://www.wto.org/english/docs_e/legal_e/enabling_e.pdf. 23 Hudec, Enforcing International Trade Law, 14. 24 Ibid. 25 Ibid., 13. 19

20

16

Liberalizing International Trade after Doha

non-tariff measures became a major focus of the negotiations. With the completion of the Round in 1978, rules relating to a number of non-tariff areas  – such as dumping, subsidies, government procurement, and customs valuation – were added as “codes,” albeit on a plurilateral basis.26 This was likely made possible by the fact that the rounds through Tokyo were characterized, as William A. Lovett suggests, by “asymmetrical or unequal openness, with the United States offering more openness and tariff reductions than most other nations.”27 In hindsight, it is difficult to understand how the Tokyo Round would have succeeded without this flexibility on the part of the United States. Considering the expansion of membership over the decades, along with the increase in trade competitiveness of many developing country members’ the incorporation of MICs into the GATT system ultimately changed the nature of trade negotiations. As Hudec noted, “[t]he volume of exports from the more advanced developing countries was beginning to cause discomfort to producers in the United States. Those producers had begun to complain about the one-sided nature of the GATT legal relationship with developing countries.”28 This sentiment inevitably meant that the non-reciprocity undertaking would be eroded, particularly during the Doha Round with respect to the most highly competitive MICs – Brazil, China, and India.

III.  The Uruguay Round Negotiations What in retrospect became the most expansionist and far-reaching multilateral trade negotiations ever, the Uruguay Round, was initiated in 1986, in significant part as a result of concerns of a global economic breakdown and a resurgence of protectionist policies. That decision in Montevideo

See WTO, “The Tokyo Round Codes,” accessed August 7, 2012, http://www.wto.org/ english/thewto_e/minist_e/min98_e/slide_e/tokyo.htm. 27 William A. Lovett, “Beyond Doha: Multipolar Challenges for a Globalized World,” Tul. J. Int’l & Comp. L. 17 (2008), 3, 6. 28 Hudec & Finger, Developing Countries, 76–77. 26

The World Trading System under GATT and the WTO

17

took place in a context in which the coming dissolution of the Soviet Union was not yet evident to anyone and the Soviet Union and China (both non-parties) were seeking to reform and improve their own economic performance.29 After the completion of seven and a half difficult years of negotiations (including a two-year period in the early 1990s when the negotiations were effectively suspended), the Uruguay Round culminated with the Marrakesh Agreement Establishing the World Trade Organization in April 1994;30 the Agreement became effective for the GATT CPs and a number of new entrants in 1995. Despite concerns expressed by some observers that the increase in GATT membership among developing countries and the ambitious nature of the negotiations might prevent success,31 the Uruguay Round resulted in a massive expansion in content and scope of the rules governing the international trading system. The WTO Agreements further lowered tariffs among the members, with developed country CPs agreeing to reduce their tariffs by at least 33.33 percent and developing countries increasing the number of industrial tariff lines subject to bound rates from 21 to 73 percent.32 Added to the system were subsidy reductions and greatly expanded disciplines for agricultural trade; inclusion of textiles and clothing in the GATT prohibition against quantitative restraints; incorporation of disciplines governing trade in services, trade-related intellectual property, and sanitary and phytosanitary measures and standards; and revamping entirely and making more legalistic and obligatory the dispute settlement system.33

Lovett, “Beyond Doha,” 8. “Marrakesh Agreement Establishing the World Trade Organization” (“WTO Agreement”), April 15, 1994, accessed August 7, 2012, http://www.wto.org/english/ docs_e/legal_e/legal_e.htm. 31 See Hudec, Enforcing International Trade Law, 15 in which Hudec remarks on “negative trends” emerging at the end of the 1980s that “made observers wonder whether the very ambitious Uruguay Round reform proposals were not out of touch with the realities of government behavior”. 32 Bhala, International Trade Law, 33–34. 33 WTO, “The Uruguay Round,” accessed July 14, 2012, http://www.wto.org/english/ thewto_e/whatis_e/tif_e/fact5_e.htm. 29 30

18

Liberalizing International Trade after Doha

Moreover, obligations that had been optional under the Tokyo Round “Codes,” such as those relating to dumping, subsidies, and customs valuation, became mandatory after the Uruguay Round. Many of these disciplines, particularly those relating to dumping and subsidies, along with totally new agreements on services and intellectual property, could not have been incorporated had the non-reciprocity understandings of past rounds survived into the Uruguay Round. Also, plurilateral agreements applicable to government procurement, civil aviation, dairy products, and bovine meat were included in the package.34 The concept of the “single-undertaking” approach, where all aspects of the package must be agreed upon before any part is finally accepted by the Members, is largely a creature of the Uruguay Round. Such limitations were never fully applied to earlier rounds; all CPs benefitted from the tariff concessions achieved through the unconditional MFN clause. The Tokyo Round complicated the MFN approach as a result of the adoption of a series of “codes” that were effectively plurilateral agreements dealing with non-tariff barriers such as anti-dumping and subsidies actions, and customs valuation.35 The result was a fracturing of the multilateral trading system.36 Through the use of the single-undertaking limitation, the Uruguay Round saw a successful effort to largely avoid such fracturing by giving similar (non-optional) treatment to issues of interest to both developed and developing countries.37 But, as Chapter 3 suggests, requiring all Members to agree to virtually all disciplines has, eighteen years later, created an impasse, a “straight jacket” in Mendoza’s words that shows no signs of being resolved. Among other things, the single-undertaking requirement has blocked long overdue measures to

WTO Agreement, annex 4. WTO, “Pre–WTO Legal Texts,” accessed July 14, 21012, http://www.wto.org/english/ docs_e/legal_e/prewto_legal_e.htm. 36 See Michael Rodriguez Mendoza, “Towards ‘Plurilateral Plus’ Agreements,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 13, 2012, http://ictsd.org/downloads/2012/02/miguel–rod riguez–mendoza–towards–plurilateral–plus–agreements.pdf. 37 Ibid. 34 35

The World Trading System under GATT and the WTO

19

address cotton subsidies and duty-free, quota-free market access for the least developed countries. Although the Uruguay Round’s expansion of the scope of mandatory international trading rules has proven relatively straightforward to digest for developed countries, the additional obligations, particularly in the areas of intellectual property and services, imposed enormous burdens on the administrative agencies, courts, and other institutions of developing nations. Still, even with long grace periods – for example, India and other least developed WTO Members were not required to fully implement the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) for ten years after January 1, 1995 (periodically extended to July 2013 and likely to be extended further)38 – the burdens of full compliance were, and are, substantial factors which have clearly increased the reluctance of some developing countries to move forward again under Doha. Overall, the results of tariff concessions between 1947 and 2000 (when the Uruguay Round tariff concessions were fully implemented) were impressive: an aggregate reduction of tariffs imposed by developed countries of approximately 40 percent and 20 percent for developing countries compared to pre–Uruguay Round levels.39 With very minor exceptions, world trade has grown annually at a higher rate than the world GDP. (See Table 2.1) On an index basis, unadjusted for inflation, the value of world trade in 2005 was 100 times what it was in 1950; and between 2005 and the end of 2011, it increased by an additional 74 percent. (See Table 2.2) It should be kept in mind, however, that today’s world trading system is not one of truly “free” trade. If it were, the WTO documents of 25,000 or so pages including the individual Members’ annexes could be reduced



TRIPS, WTO Agreement, Annex 1C, art. 66.1; see WTO, “Intellectual Property: Formal Council Meeting,” November 6–7, 2012, 1, accessed November 17, 2012, http://insidetrade.com//index.php?option=com_iwpfile&file=nov2012/wto2012_2413.pdf. This report notes a proposal by LDCs for extension of their obligation to fully protect intellectual property under TRIPs beyond July 1, 2013. 39 Mark R. Sandstrom, Julia M. Cheung & Michelle D. Lynch, “Market Access,” in The World Trade Organization, ed. Terrence P. Stewart (Chicago: ABA, 1996), 122–123. 38

Table 2.1.  World merchandise exports, production and gross domestic product, 1950–2011 Value

Volume

Exports

1950–63 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

Total a

Agri­ cultural products

7 12 8 9 5 11 14 15 12 18 38 45 4 13 14 16 27 22

4 7 4 4 0 4 7 11 7 20 46 22 1 11 13 13 24 14

Exports

Fuels and Manu­ mining factures products 8 12 7 10 6 14 9 14 11 14 47 123 –4 16 11 4 47 42

GDP

10 15 11 11 8 15 16 15 14 19 34 31 9 13 15 22 21 16

Production

Fuels and Manu­ Total Agri­ Total a Agri­ Mining Manu­ cultural mining factures culture factu­ products products ring 8 11 7 8 6 11 12 9 7 8 12 5 –7 12 4 5 5 2

4 5 5 4 2 6 5 3 2 7 1 –5 1 8 4 7 5 7

7 9 3 6 10 12 6 12 1 7 10 –2 –12 7 3 5 6 –6

9 15 7 10 5 18 16 9 9 10 14 9 –4 13 5 6 5 6

5 9 6 7 5 6 6 5 5 5 8 3 –2 7 4 5 4 –1

3 5 0 3 3 3 0 3 3 0 5 2 4 1 3 3 1 1

5 9 4 5 2 7 2 8 4 3 7 2 –6 8 3 1 9 –3

7 10 9 8 5 7 8 5 5 7 10 3 –4 8 5 5 4 1

5 7 4 6 4 6 7 5 4 6 7 2 1 5 4 5 4 3

1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

–1 –6 –2 6 0 9 17 14 8 13 1 7 0 14 19 5 3 –1 4 13 –4 5 17 22

–2 –7 –1 5 –6 11 15 13 4 5 1 7 –4 16 18 3 –1 –5 –4 1 0 6 17 15

–3 –11 –8 –1 –3 –24 11 1 15 16 –6 –1 –4 5 15 14 3 –21 16 46 –9 1 24 35

–1 –4 1 8 4 20 20 16 7 14 3 8 0 16 20 4 5 2 3 10 –4 5 16 20

–1 –2 3 8 3 4 6 9 6 4 4 5 4 9 7 5 10 5 5 11 0 3 6 10

5 –2 0 3 –1 –2 6 3 3 1 3 6 1 9 5 4 6 1 1 4 2 3 4 3

–10 –6 –1 5 –1 9 2 6 4 6 3 4 4 7 4 4 7 3 –1 4 0 2 6 6

4 –2 5 11 5 4 6 9 8 6 4 5 4 11 9 5 11 5 5 14 –1 4 6 11

0 –1 2 7 3 3 3 5 3 1 0 0 0 3 5 4 5 2 3 5 –1 1 4 5

4 3 0 5 2 2 1 2 3 2 0 2 1 3 2 4 2 2 3 2 2 1 3 5

–8 –7 –1 4 –1 3 1 5 4 1 –1 1 2 2 2 3 3 1 –1 4 0 0 4 4

0 –1 3 7 3 3 4 6 3 1 –1 –1 –1 3 6 3 6 2 4 6 –2 2 4 6

2 1 3 5 4 3 4 5 4 3 1 1 1 2 2 3 3 2 3 4 2 2 3 4

(continued)

Table 2.1. (continued) Value

Volume

Exports Total a

Agri­ cultural products

GDP

Exports

Fuels and Manu­ mining factures products

Production

Fuels and Manu­ Total Agri­ Total a Agri­ Mining Manu­ cultural mining factures culture factu­ products products ring

2005 2006 2007 2008 2009 2010

14 16 16 15 –23 22

9 11 20 19 –12 16

38 28 15 33 –36 33

10 13 15 10 –20 20

7 9 6 2 –12 14

6 6 5 2 –2 8

4 4 3 1 –5 5

8 11 8 2 –15 18

3 4 4 1 –5 4

2 2 3 4 1 0

2 1 0 2 –2 2

4 5 6 0 –7 6

3 4 4 1 –2 4

2011

20

21

34

15

5

4

1

6

2

2

1

3

2

Annual Percentage Change. a Includes unspecified products Note: See the Metadata for the estimation of world aggregates of merchandise exports, production, and GDP. Source: WTO, http://www.wto.org/english/res_e/statis_e/its2012_e/its12_appendix_e.htm

Table 2.2.  World merchandise exports, production and gross domestic product, 1950–2011 Value

Volume

Exports

Exports

Total a Agri­ Fuels and Manu­ Total a cultural mining factures products products 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 1966 1967 1968

1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2

3 4 4 4 4 4 4 4 4 5 5 5 5 5 6 6 6 6 6

1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2

GDP

0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2

4 4 4 4 5 5 6 6 6 7 8 8 8 9 11 11 12 13 14

Production

Agri­ Fuels and Manu­ Total Agri­ Mining Manu­ cultural mining factures culture facturing products products 15 15 15 16 16 17 18 19 20 22 24 25 25 26 27 28 29 30 32

10 11 12 13 14 15 16 18 17 18 22 23 24 25 27 28 30 33 37

2 2 2 2 3 3 3 3 3 4 4 4 5 5 6 6 7 8 9

13 14 14 15 15 17 17 18 18 19 21 21 23 24 27 28 30 31 33

26 27 28 29 29 30 31 31 34 34 35 36 37 38 40 40 41 43 44

22 25 25 26 26 29 31 31 31 32 35 37 40 41 45 47 49 50 54

9 9 10 11 11 12 13 13 13 15 16 17 19 20 22 24 26 27 29

13 14 14 15 16 17 17 18 18 19 20 21 22 23 25 26 28 29 30

(continued)

Table 2.2. (continued) Value

Volume

Exports

Exports

Total a Agri­ Fuels and Manu­ Total a cultural mining factures products products 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

3 3 3 4 6 8 8 10 11 13 16 20 19 18 18 19 19 21 24 27

7 8 8 10 14 17 17 19 22 25 31 35 34 32 31 33 31 35 40 45

3 3 3 4 5 12 11 13 15 15 22 32 31 27 25 25 24 18 20 21

GDP

2 3 3 4 5 6 7 8 9 11 13 15 15 14 14 16 16 19 23 27

16 17 18 20 22 24 22 24 26 27 28 29 29 28 29 31 32 33 35 38

Production

Agri­ Fuels and Manu­ Total Agri­ Mining Manu­ cultural mining factures culture facturing products products 34 35 35 38 38 36 37 40 41 44 46 49 51 50 50 52 51 50 53 55

39 44 45 48 53 52 46 49 50 53 56 52 47 44 44 46 46 50 51 53

10 11 12 13 15 17 16 18 19 20 21 22 23 23 24 26 28 29 31 34

35 37 39 41 44 45 44 47 49 51 53 53 53 52 54 57 59 60 62 65

44 45 47 47 49 50 52 52 53 55 56 56 58 60 60 63 65 66 67 68

55 59 62 63 67 69 65 70 72 73 79 77 71 66 66 68 67 69 70 74

31 33 34 37 40 42 40 43 45 47 49 50 50 49 51 54 56 58 60 64

32 34 36 38 40 41 42 44 46 48 50 51 52 52 54 56 58 60 63 66

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

30 33 34 36 36 41 49 51 53 52 54 61 59 62 72 88 100 116 134 154 120 146

47 49 50 53 51 59 69 71 70 67 64 65 65 69 80 92 100 111 133 158 139 160

24 28 26 26 25 26 30 34 35 28 32 47 43 43 54 72 100 128 147 195 125 166

29 33 34 37 37 42 51 53 55 56 58 64 62 65 75 91 100 113 130 143 115 137

40 42 44 46 48 52 56 59 65 68 71 79 78 81 86 94 100 109 116 118 104 118

56 57 59 62 63 68 71 74 79 80 80 83 85 88 91 94 100 106 111 114 111 121

56 59 61 63 66 70 73 75 81 83 82 84 84 86 91 96 100 104 107 108 102 108

36 38 40 41 43 48 52 55 61 64 67 76 76 79 83 93 100 111 119 122 103 122

68 69 68 68 68 70 74 76 80 82 84 88 88 89 92 97 100 104 109 110 104 109

70 72 72 74 74 76 78 81 83 85 87 89 90 91 94 98 100 102 105 109 109 109

77 78 78 78 80 81 83 85 88 89 88 91 91 91 94 98 100 101 101 103 101 103

66 67 66 66 66 68 71 74 78 80 83 88 86 88 91 96 100 105 112 112 104 110

68 70 70 71 72 73 75 77 80 82 84 88 89 91 93 97 100 104 108 110 107 111

2011

174

195

222

158

124

125

109

130

111

112

104

113

113

Index: 2005=100 a Includes unspecified products. Note: See the Metadata for the estimation of world aggregates of merchandise exports, production and GDP. Source: WTO, http://www.wto.org/english/res_e/statis_e/its2012_e/its12_appendix_e.htm

26

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to a few paragraphs. Instead, although trade is far more open than it was immediately after World War II, “a full transition to free trade has never been completed.” The system remains a managed trade system in which negotiations are largely based on reciprocity.40

IV.  Debacle in Seattle and the Rise of the BRICs and Other MICs At a WTO Ministerial Meeting in Seattle in 1999, the United States and the EU, very unwisely in retrospect, sought to obtain consensus for the initiation of yet another negotiating round. The effort was a miserable failure that went well beyond street demonstrations by environmental and labor groups (in part because the majority of the Members were still experiencing grave difficulties in implementing the obligations they had accepted in the Marrakesh Agreement and its annexes). Moreover, neither the United States nor the EU had in the preliminary sessions shown much willingness to include on the agenda issues of importance to developing country Members, such as alleged U.S. abuses of the Anti-dumping Agreement.41 The Seattle meeting also followed one of the early signs that all would not be harmonious under the WTO system – the failure of the Members to meet the six-month deadline for the first post–1995 effort to select a new director general, a process that emphasized the North–South divide.42 The bitter, extended disagreement over the choice of a new secretary general, along with the Seattle fiasco, confirmed that world trade negotiations would no longer be dominated by

See Cho & Kelly, “Are Global Trading Rules Passé?,” 8. Agreement on the Interpretation of Article VI of GATT 1994, WTO Agreement, Annex 1A, art. 66. For a discussion of the Seattle meeting and the reasons for its failure see David A. Gantz, “Failed Efforts to Initiate the ‘Millennium Round’ in Seattle: Lessons for Future World Trade Negotiations,” Arizona J. Int’l & Comp. L. 17 (2000), 349. 42 See Roderick Abbott, “The Future of the Multilateral Trading System and the WTO,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 14, http://ictsd.org/downloads/2012/02/ roderick–abbott–the–future–of–the–multilateral–trading–system–and–the–wto.pdf. 40

41

The World Trading System under GATT and the WTO

27

the United States, the EU, Japan, and Canada, and that major developing nations (­particularly Brazil, India, and South Africa) would play a pivotal role.43 The increasing influence of the MICs (especially Brazil, India, and China) is likely the most significant economic and political change affecting international trade negotiations since 1995. Despite the fact that the WTO system is a system of laws and regulations, economic power leads to relatively greater influence if not domination. Between 1990 and 2010 the United States’ and the European Union’s share of world GDP declined from 49.7 percent to 37.8 percent. By the end of 2010, the global GDP share of the BRICS (Brazil, Russia, India, China and South Africa) had reached 18 percent of global GDP, up from 8 percent in 1990.44 Equally important, the significance to all MICs of trade, and thus the importance of integration into the global trading system, increased. In 1990, international trade was 38 percent of aggregate MIC GDP; by 2010 it had increased to 56 percent, an increase of almost 50 percent over the twenty-year period.45 As Sheila Page has suggested, during the Uruguay Round MIC positions were more reactive to suggestions from the European Union and the United States than proactive.46 This approach changed substantially beginning with the 1999 Seattle Ministerial and evolved further during the Doha Round. Gregory Shaffer and Charles Sutton note that while the MICs do not yet have the economic power to shape U.S. and EU decision-making, they are “relatively more autonomous and less influenced by US and EU demands.”47 Therefore,





China did not become a Member until December 11, 2001. See WTO, “China and the WTO,” accessed August 7, 2012, http://www.wto.org/english/thewto_e/countries_e/ china_e.htm. 44 Gregory Shaffer & Charles Sutton, “Middle-Income Countries in the International Trading System,” in Middle Income Countries, eds. Randall Peerenboom & Thomas Ginsberg (Cambridge: Cambridge University Press, 2014) 6–7), which cites World Bank data. 45 Ibid., 6. 46 Sheila Page, “Developing Countries in GATT/WTO Negotiations,” 14, Working Paper, Overseas Development Institute (2002). 47 Shaffer & Sutton, “Middle Income Countries,” 7. 43

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[i]n broad terms, the economic policies of today’s MICs shifted from a focus on insulating the economy from international trade pressures to a greater focus on integrating into the global economy through enhancing trade, while still aiming to retain (for many countries) the ability to use industrial policies to develop the manufacturing sector.48

It seems inevitable with Russia finally a Member of the WTO that this phenomenon of independence from U.S. and EU pressure will only become more pronounced, even if BRICS interests are not always parallel. As is already evident from the participation of Brazil, China, and India in more than a decade of unsuccessful Doha Round negotiations, these and other MICs are no longer subject to a high level of influence from the United States and the European Union except for situations in which all their interests are parallel. As long as what are perceived as basic objectives for the international trading system differ in major respects between the United States and the European Union on the one hand and the BRICS on the other, earlier approaches to international trade negotiations, including the single-undertaking approach, simply will not be successful. As of late 2012, with no prospects for broad multilateral negotiations in the foreseeable future, no group of WTO Members appears to be satisfied. The least-developed country Members (LDCs) have not seen expansion of tariff-free, quota-free access to developed country markets beyond the European Union, or achieved success in addressing U.S. cotton subsidies.49 Developed countries have little prospect of improving access to MIC markets for either agricultural or industrial products. Even if an International Services Agreement (ISA) can be negotiated over the next few years (Chapter 7), it will be of limited efficacy if the BRICS do not ultimately adhere. Nor are the MICs in an enviable position. As Shaffer and Sutton have observed,



Ibid., 6. See discussion in Chapter 4, Section I.

48 49

The World Trading System under GATT and the WTO

29

[g]iven the development of global supply chains involving US and EU-based multinationals, MICs sometimes have powerful private sector allies in retaining access to US and EU markets. Nonetheless, to the extent their industrial policies harm US and EU commercial interests (and possibly those of each other), they will be pressed to engage in reciprocal bargaining to avoid trade retaliation.50

The Doha Round (2001–2012) and the reasons for its demise are discussed in Chapter 3.



Shaffer & Sutton, “Middle Income Countries,” 14.

50

3

The Doha Round Failure and the Likely Demise of the “Single Undertaking”

The latter part of Chapter 2 describes many of the changes in the nature of international trade negotiations during and after the Uruguay Round negotiations, 1986–1994. Chapter 3 explicitly addresses the causes of Doha’s demise. At the outset, there was never much doubt from an economic and world trade point of view that a successful Doha Round would have produced substantial economic benefits. In 2010, a group of economists convened by the WTO, World Bank, and other organizations estimated that, with a package in which the Members reached market access in all goods (agricultural and manufactured) and in which there was a reduction of agricultural subsidies, $121 billion to $202 billion could be added to the world economy, depending on the extent to which Members use the flexibilities available to them to reduce, rather than maintain, market ­barriers.1 Were this basic agreement to be accompanied by a “trade facilitation” deal, the costs of trading would be reduced by more than the “impact of geographical distance” between trading partners.2 OECD data suggest that reducing worldwide transaction costs through trade facilitation by just 1 percent would generate $43 billion in worldwide welfare gains, of

See WTO, “Red Tape at Port Costlier than Shipping between Ports: Economists Mull Doha’s Value,” November 2, 2010, WTO, Workshop on Recent Analyses of the Doha Round, accessed July 15, 2012, http://www.wto.org/english/news_e/news10_e/ dda_02nov10_e.htm. 2 Ibid. 1

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31

which about two-thirds would accrue to developing nations.3 According to a somewhat optimistic study by the Peterson Institute (a Washington, DC, think tank), if the major trading nations improved market access offers across the board, made reasonable improvements in their customs and regulatory environments to facilitate trade, and reduced barriers to services by 10 percent, the results could be nearly $280 billion in additional world output.4 The downside risks of not completing the Doha Round have also been estimated to be severe. David Laborde suggests that [i]f we assess the “insurance” value of the [Doha Development Round] by comparing the implementation of the protectionist policies with and without post-DDA [Doha Development Agenda] bound tariffs, we find that it represents between US$ 800 billion and US$ 570 billion in world trade, and US$ 180 billion and US$ 108 billion in world real income. These values are two to three times more significant than the value of the DDA under “normal” conditions.5

In other words, the downside costs of failure would likely be greater than the more modest predictions of the benefits of a successful conclusion. Unfortunately, these data have not yet been persuasive to the WTO Membership.

I.  Events Leading to the Doha Round Failure The timing of the initiation of the Doha Round in November 2001 was no coincidence. Built-in incentives to initiate the Round came in part from several of the Uruguay Round Agreements, including the General



Evdokia Möisé, “Assessing the Benefits of Trade Facilitation,” WTO/World Bank/ ICTSD, Workshop on Recent Analyses of the Doha Round, 16 (referring to the OECD study). 4 Gary Clyde Hufbauer, Jeffrey J. Schott & Woan Foong Wong, Figuring Out the Doha Round (Washington: Peterson Institute, 2010), 6, 91. 5 David Laborde “Assessing the Potential Costs of a Failed Doha Round,” WTO et al., Workshop, 12. 3

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Agreement on Trade in Services and the Agreement on Agriculture. Both Agreements incorporated obligations (beginning in 2000) to continue expanding the disciplines in those fields. A spirit of unity briefly following 9/11, the negotiating skills of U.S. Trade Representative Robert Zoellick and WTO Secretary General Mike Moore, and the labeling of the Round as the “Doha Development Round” probably helped effectuate the accord. The labeling reflected reality; developing Members are a substantial majority of the WTO Members and thus could determine in 2001 whether an effort to fashion new and improved trade rules would be attempted by the WTO Membership.6 Nevertheless, many of the developing country Members expressed misgivings. After operating for seven years under the WTO Agreements, their governments (and often their citizens as well) felt that they had not received the benefits they expected from the package.7 In retrospect, the Doha declaration, with fifty-two paragraphs covering a broad variety of procedural and substantive areas, was overly optimistic and perhaps naive.8 From the inception there were signs that the negotiations would be difficult. The developing world was skeptical about the willingness of the major developed countries to offer substantial concessions in areas such as reducing or eliminating agricultural subsidies without asking for painful concessions in return. The “Singapore Issues” of investment, anti-competition rules, trade facilitation, and transparency in government procurement (the latter shorthand for addressing corruption) were included in the Doha Declaration but were never accepted by a majority of the Members; and (except for trade facilitation) they were dropped  completely from the negotiations less than two years later at



See Sandra Polaski, “What Future for the WTO?,” L’Economie Politique (July 1, 2007), 3. 7 Raj Bhala, International Trade Law: Interdisciplinary Theory and Practice (3rd ed., Newark: Lexis Nexis, 2008), 61–63. 8 Doha Ministerial Declaration, November 14, 2001, accessed August 7, 2012, http://www .wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm. 6

The Doha Round Failure

33

Cancun.9 The emphasis on agricultural subsidies and agricultural ­market access – the area in which, from the outset, the Doha Round divide was greatest – revealed itself early on as a potential deal-breaker. The Cancun Ministerial meeting, which ended in an acrimonious failure in September 2003, reflected negotiating blunders and brinkmanship by virtually everyone involved. It was characterized by posturing rather than negotiation by the EU, India, and others; backtracking by the EU and the United States on reductions of agricultural subsidies, particularly those on cotton; questionable advice to poor countries by some NGOs; and a flawed WTO decision-making system, among others.10 In-depth studies are available for those who are interested in analyzing the negotiations of major issues, such as agriculture tariffs and subsidies, nonagricultural market access, trade remedies, and trade facilitation.11 Despite the many issues under discussion as part of the Doha Round, including intellectual property, rules governing the regulation of dumping and subsidies, fisheries, standards, intellectual property, and other thorny issues, the essence of the deadlock related to a relatively few matters on which the substantive negotiations had focused from the outset: improved developed country access to developing Member agricultural and manufactured goods markets, reduction of developed Member agricultural subsidies, and improved market access to be afforded by major developing country Members for services. It became apparent by July 2008 that, after almost seven years of negotiations, disagreements between key developed nations (Australia, Canada, the EU, Japan, and the United States) on the one hand and the

See WTO, “The Doha Declaration Explained, Relationship between Trade and Investment, Relationship between Trade and Competition Policy,” accessed August 7, 2012, http://www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm#investment. 10 “The Doha Round: The WTO Under Fire,” The Economist, September 18, 2003. 11 See, e.g., Raj Bhala, “Resurrecting the Doha Round: Devilish Details, Grand Themes, and China Too,” Tex. Int’l L. J. 45 (2009), 1. Bhala argues that the pursuit of narrow commercial issues by the United States, EU, Brazil, China, and India caused the Round to lose “nearly all links to its original purpose  – trade liberalization to spur development.” 9

34

Liberalizing International Trade after Doha

major developing country Members (Brazil, China, India, and Indonesia) on the other had become virtually impossible to bridge. Although the negotiations were carried on primarily among the “Group of 20” nations (G-20) that included both developed and developing Members,12 it was these nine Members that ultimately dominated the negotiations throughout the process (with, of course, input from other WTO Members on issues of critical importance to their particular interests). The collapse was precipitated by a demand by India, on behalf of the G-33 countries whose agricultural sectors were dominated by small ­farmers, that it be permitted to shield up to 20 percent of its agricultural tariffs on “sensitive products.”13 This surprise demand for an open-ended special safeguard allowing the users to increase agricultural tariffs beyond bound rates was considered a major step backward by the developed nations’ group. At that time, a number of officials, including U.S. Trade Representative Susan Schwab, “expressed disbelief that an issue related to the imposition of barriers on farm imports in poor countries could scuttle the negotiations at the same time poor countries were slashing their import tariffs to stem the surging food prices.”14 India had earlier rejected a compromise put forth by the EU that would have limited the importing Member’s discretion in imposing the special safeguards. The EU proposal would have, inter alia, limited high tariffs to a duration of one year when it could be shown that the imports caused “demonstrable harm” to the livelihoods of the farmers and to rural development needs. Bound tariff rates, however, could have been exceeded only if imports had increased by more than 40 percent over the most recent three years, and the tariffs could not exceed bound rates

The G-20 consist of Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, South Korea, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States, and the EU. See G-20 Members, accessed July 24, 2012, http://www.g20.org/index.php/en/members. 13 Polaski, “What Future,” 5. 14 Daniel Pruzin & Eric J. Lyman, “Doha Talks Collapse over U.S.-India Dispute on Ag Safeguards; Future of Round in Doubt,” Int’l Trade Rep. (BNA) 25 (July 31, 2008), 1134. 12

The Doha Round Failure

35

by more than 15 percent. The remedy was to be limited to 2.5 percent of total agricultural tariff lines in any particular year.15 Developed Member agricultural subsidies were also a significant factor in the collapse because of the extreme reluctance by both the United States and the EU to agree to the level of subsidy reduction demanded by Brazil, India, China, and their many developing country supporters. In July 2008, the United States offered to reduce its trade-distorting agricultural subsidies by approximately $15 billion annually. but the offer was conditioned on a satisfactory outcome with regard to developing country reductions of agricultural and manufactured goods tariffs since access to MIC markets was from the outset a key objective of the United States in the Doha Round. U.S. subsidies reductions, including those on cotton, were also conditioned on reductions by China of its import tariffs on cotton, sugar, rice, wheat, and corn. This condition was rejected by China. The United States had not accepted WTO Secretary General Lamy’s request that the United States reduce agricultural subsidies overall by 70 percent to $14.46 billion (a relatively small gap in the overall scheme) from the then-current permitted level of $48.2 billion. The EU in Lamy’s proposal would have reduced annual farm subsidies by 80 percent, bringing the EU cap to $34.6 billion. Agricultural tariff peaks (tariffs above 75 percent) would have been reduced by 70 percent from current bound (not actually applied16) rates.17 As a result of the Indian special safeguards proposal, these subsidy reduction proposals were effectively withdrawn. At the Hong Kong Ministerial meeting in December 2005, the United States had proposed, under pressure from sub-Saharan African cotton producers (e.g., Benin, Burkina Faso, Chad, and Mali) to eliminate U.S. tariffs

Pruzin & Lyman, “Doha Talks Collapse.” The bound rates are ceilings agreed to by Members under GATT, Article II. In practice, many Members actually charge much lower “applied” rates which are subject to increase to bound levels without notice or penalty. 17 Pruzin & Lyman, “Doha Talks Collapse.” 15 16

36

Liberalizing International Trade after Doha

on cotton imports.18 The United States had also signaled its willingness to eliminate export subsidies on cotton and reduce other trade distorting subsidies. These changes were the matters of primary interest in the Doha Round to cotton producers. The United States was prepared to do so only as part of a broader agreement on agricultural issues.19 There would be no “early harvest” on cotton subsidies. No progress was made in resolving this impasse between December 2005 and July 2008, but in 2008 the United States reiterated its 2005 commitments. It had been contended by international aid agency Oxfam that African cotton growers lost more than $350 million in potential export revenue in 2004–2005 because of the subsidization of cotton by developed countries, primarily the United States.20 Manufactured goods tariffs applied by developing countries, particularly Brazil, China, and India, have been similarly controversial, with the United States and the EU asking that tariffs regulating nonagricultural market access or “NAMA” be no more than 10 percent for developed countries and no more than 15 percent for developing countries.21 Developed country Members believed (correctly in my view) that better market access for both agricultural and manufactured exports, and for key services such as those in the financial and telecommunications areas, were the only means to securing domestic political support for further concessions in a new series of WTO Agreements on agricultural subsidies and additional tariff reductions. Argentina, Brazil, China, India, South Africa, and other developing nations adamantly refused.22

II.  Exploring the Reasons for the Failure What were the reasons for this very unfortunate situation? As Deputy U.S. Trade Representative Michael Punke noted at that time, “For the first

Daniel Pruzin, “U.S. Rejects Africans’ Cotton Proposal, Calls for Same ‘Ambition’ on Other Issues,” Int’l Trade Rep. (BNA) 23 (April 6, 2006), 525. 19 Ibid. 20 Ibid. 21 Ibid. 22 Polaski, “What Future,” 5. 18

The Doha Round Failure

37

time in the history of multilateral trade negotiations, the major players are not like-minded. . . . Systematically, we have not absorbed the implications of what that means.”23 What are the root causes of this disagreement? Why have the WTO Members failed to grasp the implications, which this book suggests are effective abandonment of the Doha Round and a shift to plurilateral agreements, RTAs, and unilateral national steps to liberalize trade? A non-inclusive list of causes, not necessarily in order of importance, follows.

A.  Rise in MIC Economic Power As Chapter 2 suggests, the rise of the economic power and negotiating authority of the MICs, initially Brazil and India and later China, changed the nature of the Doha Round negotiations compared to earlier rounds. This was particularly true with respect to the key agricultural issues. As Shaffer and Sutton have explained, [T]he larger MICs created a new coalition that upset the traditional negotiating dynamics within the multilateral trading system. Brazil and India were instrumental in creating a new G-20 negotiating group at Cancun in response to a US-EU proposal on agriculture.24 That proposal took account of US and EU interests, but failed to account for those of India and Brazil, even though, until then, India had interests that were more aligned to those of the EU, and Brazil with those of the US, on agricultural trade liberalization. In response, India and Brazil created comprehensive new modalities that accounted for each other’s interests, garnered the support of the new G-20 block, and reoriented the negotiations.25



See Daniel Pruzin, “Punke Calls for Rebuilding WTO Consensus, Citing Absence of ‘Like-Minded’ Membership,” Int’l Trade Daily (BNA), September 13, 2012 (quoting Ambassador Punke’s statement). 24 Amrita Narlikar & Diana Tussie, “The G20 at the Cancun Ministerial: Developing Countries and Their Evolving Coalitions in the WTO,” World Economy 27 (2004), 947. 25 Gregory Shaffer & Charles Sutton, “Middle-Income Countries in the International Trading System,” in Middle Income Countries, Randall Peerenboom & Thomas 23

38

Liberalizing International Trade after Doha

Because of their own economic problems, it seems to me very unlikely that these leading MICs, now including Russia, will become more willing to negotiate compromises at the WTO in the foreseeable future. Among the BRICS, Brazil’s growth rate was (in 2012) under 1 percent, Russia is struggling, and growth rates in India and China – while healthy by world standards – have slowed. In all four countries, governments interfere in markets and allow state companies to discourage innovation, and the result is that none are sufficiently equipped to address what is likely to be a period of several years or more of weak global demand.26 With India in particular, some suggest that the country “has declined into a state of paralysis,” with an inability to govern and corruption becoming overwhelming problems.27

B.  Divergence in Developing Member Objectives and Concerns The negotiations were complicated by the fact that, despite common positions in public, the developing country Members’ interests were hardly monolithic. Not only would the United States and the EU have benefited from greater market access for both agricultural and manufactured goods to these major developing country markets, but other MICs as well as poorer developing countries will suffer economically, probably much more than the United States and the EU, from the intransigence of China, Brazil, and India.28 It was only late in the process that a few middle-income or high-income developing countries such as Chile,

Ginsberg, eds. (Cambridge: Cambridge University Press, 2014); see also Narlikar & Tussie, “The G20,” 947. 26 See Sebastian Mallaby, “Beware Membership of this Elite Club,” Financial Times, December 4, 2012, 1. Mallaby discusses the reasons for economic problems in the BRICs. 27 See Victor Mallet, “Can India Be Governed as a Democracy?,” Financial Times, November 22, 2012 (quoting Gurcharan Das, former ECO of Procter & Gamble India). 28 Susan Schwab, “After Doha: Why the Negotiations are Doomed and What We Should Do About It,” Foreign Affairs 90 (2011), 104, 107–108.

The Doha Round Failure

39

Colombia, Costa Rica, Hong Kong, Malaysia, Pakistan, and Singapore advocated for more market-opening measures by the dominant developing countries, with harsh criticism from them as the result.29 In particular, the insistence by such economic heavyweights as Brazil and India that they should still qualify for special and differential treatment because of their large numbers of poor people,30 and perhaps for less humanitarian and more protectionist reasons, such as simply insulating their domestic markets from foreign competition, detracted from the legitimate claims of most of the developing nations for such treatment to permit them to participate more effectively in the world trading system. Nor were the United States and the EU in full agreement on key issues, such as the extent of the mutual reductions of agricultural subsidies and high tariffs levied on certain agricultural imports. Additionally, the United States provided at best lukewarm support for EU proposals for new WTO disciplines on competition law and investment by suggesting, inter alia, at the Cancun Ministerial Meeting in 2003 that those items be decoupled from the other so-called Singapore Issues.31

C.  Fear of Increased Chinese Source Imports Although the criticism may not be articulated by most Member governments in public, concerns in such countries as Argentina, Brazil, and the members of Mercosur generally over rapidly increasing imports from China alone may well have contributed to their own and other developing Members’ reluctance to reduce tariffs on a most-favored-nation

Ibid. See Robert B. Zoellick, former U.S. Trade Representative and President of the World Bank, “American Exceptionalism: Time for New Thinking on Economics and Security,” July 25, 2012, 9, accessed August 1, 2012, http://www.piie.com/publications/papers/ zoellick20120725.pdf. 31 See Daniel Pruzin & Gary S. Yerkey, “WTO Talks Crashed When Developing Nations Balked at Taking Up Some ‘Singapore Issues,’ ” Int’l Trade Rep. (BNA) 20 (September 18, 2003), 1522. Pruzin and Yerkey discuss the reasons for the failure at Cancun. 29 30

40

Liberalizing International Trade after Doha

basis.32 This conclusion is reinforced by a series of highly ­protectionist, if understandable from a domestic political point of view, actions by Argentina and Brazil intended primarily to reduce Chinese source imports.33 Also, because of concerns with the increasing value of the Brazilian real against the Chinese renminbi, Brazil has asked the WTO’s Working Group on Trade, Debt, and Finance to organize meetings to address the various challenges and implications of the alleged currency misalignments.34 Therefore, viewing China simply as part of the Brazil-China-India-South Africa group in the Doha Round negotiations today ignores these frictions as well as the obvious fact that China is far more economically powerful than India, Brazil or South Africa. Observers suggest that, for the most part, China has taken a very cautious approach to the negotiations, both because of a lack of WTO negotiating experience until relatively late in the process and because of having made major concessions in its November 2001 WTO Accession Agreement. China was not disposed to make major additional concessions less than a decade later.35 Henry Gao points out that while China is a developing country and thus shares many concerns of other developing nations, particularly MIC nations (and does not want to be differentiated from other developing nations in the negotiations), it also shares a strong interest with developed nations in market



See Adyta Mattoo, Francis Ng & Arvind Subramanin, “The Elephant in the ‘Green Room’: China and the Doha Round,” May 1, 2011, accessed August 7, 2012, http://www. iie.com/publications/pb/pb11-03.pdf. 33 “Keep Out: South America’s Two Biggest Economies Are Imposing Heavy-Handed Trade Restrictions,” The Economist, September 24, 2011, 47–48; see also David Haskell, “Mercosur Plans to Raise Import Duties to Counter ‘Avalanche of Predatory Exports,’ ” Int’l Trade Rep. (BNA) 29 (Jan. 5, 2012), 25. 34 Daniel Pruzin, “WTO Exchange Rate Seminar Ends with Agreement to Continue Discussions,” Int’l Trade Rep. (BNA) 29 (April 5, 2012), 534. 35 See Henry Gao, “The Shifting Stars: The Rise of China, Emerging Economies and the Future of World Trade Governance,” 2, ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 14, 2012, http://ictsd.org/downloads/2012/02/henry-gao-the-shifting-stars-the-rise-of-china-emer ging-economies-and-the-future-of-world-trade-governance.pdf. 32

The Doha Round Failure

41

access and trade facilitation, among others.36 It is also notable that Brazil’s and India’s tariffs are 30–40 percent higher than those of China.37

D.  Lack of Political Will Perhaps most important of all, political will has been lacking both by governments and their stakeholders. As WTO Director General Lamy observed: Contrary to conventional wisdom, international agreements necessitate a high quantum of political energy at home. They require strong political leadership because they are about bringing domestic constituencies on board. They are about crafting compromises which benefit some but also hurt others. This will remain true as long as the legitimacy of international systems remains weak as compared to national systems.38

Some Members of the WTO had hoped that a new combination of the most important developed and developing country Members, the G-20, could play a positive role in bridging the chasm, but this grouping has done little more than pay lip service to Doha, recognizing the need for “fresh, credible approaches” but providing none. According to Stuart Harbinson, this inability to move the Doha Round forward occurred in part because the G-20 forum simply was not “sufficiently well developed to provide any coordinated follow-up.”39

E.  Lack of Strong Support from Business Stakeholders Business interest on the whole has been lukewarm, in significant part because most international business groups saw little chance for progress

Ibid., 2. Ibid., 3. 38 Pascal Lamy, “Multilateralism Is at a Crossroads,” Speech at the Humboldt-Viadrina School of Governance in Berlin, June 26, 2012, accessed June 27, 2012, http://www.wto. org/english/news_e/sppl_e/spp1239_e.htm. 39 See Stuart Harbinson, “The WTO Must Bounce Back,” ECIPE Policy Briefs, no. 09/2012, 3, accessed September 28, 2012, http://www.ecipe.org/media/publication_pdfs/ PB201209.pdf 36 37

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Liberalizing International Trade after Doha

in the Doha negotiations on their highest-priority issues, services and improved nonagricultural market access. Because of this lack of interest and pressure on political leaders it is, therefore, no coincidence that the Doha Round was barely mentioned in the 2012 U.S. presidential campaign. Also, as Andrew Stoler has suggested, whereas the Doha Round has generally focused on traditional tariff and non-tariff barrier reduction, global business is more interested in other issues, such as investment, competition policy, trade facilitation to support global supply chain management, and electronic commerce.40 The latter is particularly significant to the private sector. The expansion of the Internet and various types of electronic data transfer and payments systems have fundamentally changed business and trading patterns,41 and a large portion of merchandise trade, probably about 50 percent in developed countries such as the United States (particularly in trade with other OECD Member nations), is intra-firm commerce.42 These issues are more likely to be addressed more effectively in reg­ ional trade agreements than at the WTO, particularly after the Singapore Issues were eliminated from the negotiations in 2004. As National Association of Manufacturers’ Vice President of International Economic Affairs (and former U.S. government official) Frank Vargo suggested presciently after the collapse of the Cancun Ministerial in September 2003,

Andrew L. Stoler, “WTO Plus Issues in the Multilateral Trading System,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 13, 2012, http://ictsd.org/downloads/2012/02/ andrew-stoler-wtoplus-issues-in-the-multilateral-trading-system.pdf. 41 See Roderick Abbott, “The Future of the Multilateral Trading System and the WTO,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 14, 2012, http://ictsd.org/downloads/2012/02/ roderick-abbott-the-future-of-the-multilateral-trading-system-and-the-wto.pdf. 42 See Ranier Lanz & Sebastien Moroudot, “Intra-Firm Trade: Patterns, Determinants and Policy Implications,” OECD Trade Policy Papers No. 114, 2011, 6, accessed November 11, 2012, http://www.oecd-ilibrary.org/docserver/download/fulltext/5kg9p39lrwnn.pdf? expires=1352764934&id=id&accname=guest&checksum=08F94AD7B52A8148D75B C8C521210A68. Lanz and Moroudot indicate that 59% of U.S. goods exported from OECD countries were intra-firm in 2009 while only 29% of imports from the BRICS were intra-firm. 40

The Doha Round Failure

43

“I wouldn’t be surprised if [the United States] puts much more emphasis on bilateral trade talks without giving up on the WTO.”43 Under such circumstances, one can reasonably expect that the private sector will continue to be more supportive of major regional initiatives (such as the TPP and a possible Transatlantic Trade and Investment Partnership between the United States and the EU). Moreover, given the many major achievements of the Uruguay Round from the view of the private sector, including not only the reduction or elimination of many tariffs but also the inclusion of intellectual property and services, among others, in WTO disciplines for the first time, the Uruguay Round was difficult to match in terms of generating enthusiasm under any circumstances.

F.  Expansion of Government Industrial Policies Another factor that may have contributed to the difficulties in completing the negotiations is a noticeable rise in government industrial policies, not simply among developing countries such as Brazil, China, and Vietnam but also in developed countries such as the United States and many EU nations. As Tu and Lin have suggested, industrial policy has gained credibility in the developing world because “the rise of China seemingly proves that state-led industrial development might be a workable and even preferable model.”44 Even though industrial policy was not likely a direct factor in the July 2008 collapse, the 2008 global financial crisis also appears to have encouraged an increased role for government regulation to deal with alternative energy, competitiveness issues, and perceptions of the lack of balance in exchange rates. It seems unlikely that major developing countries, including China, Brazil, India, Russia,



See Pruzin & Yerkey, “WTO Talks Crashed” (quoting Mr. Vargo’s remarks). Tu Xinquan & Lin Guijun, “The Revival of Industrial Policy: How Should the WTO Address It?,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, December 2011, accessed July 14, 2012, http://ictsd.org/ downloads/2012/02/lin-guijin-the-revival-of-industrial-policy-how-should-the-wto-adr ess-it.pdf.

43 44

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Liberalizing International Trade after Doha

and South Africa, will give up much of the policy flexibility they may exercise today under current WTO rules;45 and they are not alone. In the United States, the 2009 Economic Stimulus Plan and other legislation, including subsidies for alternative energy goods and services and the bailout of Chrysler and General Motors, demonstrated a willingness to make “strategic decisions about strategic industries.”46 To the extent that industrial policy contemplates subsidies, the WTO already deals with the problem through the Agreement on Subsidies and Countervailing Measures, prohibitions on raising tariffs above “bound” levels and prohibitions on imposing quantitative restrictions in most circumstances.47 Thus, efforts at the WTO to improve disciplines on industrial subsidies, including those on “green” energy goods production, would have further restrained the use of a key industrial policy tool at a particularly inopportune time.

G.  Increased Use of Non-Tariff Barriers Related to industrial policy is the proliferation of non-tariff barriers, but NTBs often of a different kind. Although NTBs designed simply to protect domestic constituencies are still utilized, the focus has shifted to using such NTBs as a means of serving other public policy objectives. This may be seen in measures imposed by national governments under the Technical Barriers to Trade and Sanitary and Phytosanitary Agreements or those allegedly designed to protect public health or consumers (even if in some instances they exhibit the characteristics of traditional NTBs to keep out foreign competition).48 Even though not all such measures have

See Kevin P. Gallagher, “The Challenging Opportunities for the Multilateral Trade Regime,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, December 2011, 2–3, accessed July 14, 2012, http://ictsd.org/downloads/2012/02/kevin-gallagher-the-challenging-opportunities-for-the-multilateral-trad e-regime.pdf. 46 Ibid. 47 GATT, arts. II, XI. 48 See WTO, “Increased Use of Regulatory Measure Creates New Challenges for the WTO,” Press Release, July 16, 2012, accessed July 18, 2012, http://wto.org/english/ news_e/pres12_e/pr667_e.htm. The press release discusses a report on NTBs. 45

The Doha Round Failure

45

negative trade impacts, their presence has caused some concern. Despite calls for the WTO to deal more effectively with the use of TBT and SPS measures,49 one cannot be optimistic that they could be addressed effectively either as part of a broad round or separately.

H.  The WTO’s Consensus Requirement The fundamental problem of the consensus requirement also remains; although voting is contemplated in the WTO Agreement for situations in which consensus cannot be reached, voting has seldom been used for any important decisions.50 Because the GATT/WTO (for reasons discussed in Chapter 2) has never functioned in the manner of the U.N. General Assembly with its voting by majority approach, it seems increasingly unlikely that approximately 160 WTO Members will be able to agree, now or in the foreseeable future, on major changes and additions to the WTO Agreements  – whether the changes relate to improving market access or reforming governance procedures – and particularly when the all-or-nothing single undertaking approach is mandatory. Many businessmen, among others, are perplexed about an all-or-nothing approach where there may be agreement on more modest initiatives.51 Even in the Uruguay Round the number of Contracting Parties involved in the negotiations was far smaller, and the “Quad” countries (United States, EU, Canada, and Japan) along with Brazil, India, and a few others were able to hammer out a bargain. Still, the number of Members is probably a less important reason than the lack of agreement among the dominant players – the United States, EU, China, India, and Brazil – to bridge their



Ibid. See WTO Agreement, art. IX(1), which provides in pertinent part: “The WTO shall continue the practice of decision-making by consensus followed under GATT  1947. Except as otherwise provided, where a decision cannot be arrived at by consensus, the matter at issue shall be decided by voting.” 51 See WTO Public Forum, “Day 3: Experts Say Trade Is Part of the Answer in the Fight against Record Unemployment,” September 26, 2012, 1, accessed September 28, 2012, http://www.wto.org/english/news_e/news12_e/pfor_26sep12_e.htm. 49 50

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Liberalizing International Trade after Doha

differences,52 even though any Member that is sufficiently determined to protect its perceived interests by blocking consensus can derail the process. The lack of broad motivation for completing the Doha Round is reflected in the relative lack of enthusiasm for completing one of the very few achievements of Doha – the agreement at the Hong Kong Ministerial Meeting in 2005 on a formal amendment to the TRIPS agreement. This amendment will hopefully facilitate trade in pharmaceutical products that are essential to deal with public health emergencies such as HIV/AIDS and malaria. The agreement on a new Article 31bis to TRIPS, the only amendment to any of the WTO Agreements since their adoption in 1995,53 requires ratification by two-thirds of the WTO Members before it can formally enter into force (although it has been applied provisionally since 2005).54 As of mid-November 2012, nearly seven years after the Ministers’ approval, less than half of the WTO Members had approved the amendment.55

III.  Reduced Prospects for Future Single-Undertaking Rounds Ultimately, the divergent interests of developed countries, major developing countries, and the least developed countries could not adequately be bridged. It seems unlikely that this central impasse can be resolved in the foreseeable future, or perhaps even within a decade or two.56 Adding to this the consensus requirement, the leadership vacuum among ­developed nations, the multipolar system divide noted earlier, the developed country

See Harbinson, “The WTO Must Bounce Back,” 2. See WTO, “How to Accept the Protocol Amending the TRIPS Agreement,” accessed July 11, 2012, http://www.wto.org/english/tratop_e/trips_e/accept_e.htm. This document explains the process leading to the adoption of the TRIPS amendment. 54 Ibid. 55 That is, seventy-two Members, including the members of the EU. See WTO, “Members accepting amendment of the TRIPS Agreement,” accessed November 17, 2012, http:// www.wto.org/english/tratop_e/trips_e/amendment_e.htm. 56 See Uri Dadush, “The Future of the World Trading System,” Int’l Economic Bulletin, July 14, 2010, accessed July 15, 2012, http://www.carnegieendowment.org/2010/07/14/ future-of-world-trading-system/45b. Dadush suggests that this could take twenty-five years or more. 52 53

The Doha Round Failure

47

view of the new economic powerhouses as more economic rivals than export destinations, and the sheer complexities of addressing issues of services, investment, and agricultural subsidies, the probabilities for future success under the current single-undertaking and consensus-based WTO system seems slight indeed.57 While the WTO will continue to play a vital role both in enforcing current international trading rules and in a relatively few select areas where consensus or broad, if not universal, agreement is possible, the WTO’s status as the focal point for trade liberalization is likely to further erode as it has for much of the past decade. From a political economy point of view, the prospects seem equally dire. William Lovett has suggested that most countries want to preserve the gains they have realized through the Uruguay Round and other developments, with “mutual gains . . . more readily negotiable in bilateral trade agreements.”58 There is, he suggests, “a widely held view [among] most NICs [newly industrialized countries] and LDCs that they would suffer significantly from going the full distance to complete openness.”59 Other developing nations feel that they have made too many concessions to multinational enterprises (MNEs) and wealthy nations in such areas as high-priced pharmaceuticals, banking, and other services. At the same time, having opened their manufactured goods markets, advanced nations are resisting similar openness for agricultural markets. Bilateral trade deals are easier to negotiate and the results may be more predictable. For the United States, because of earlier market opening, another “grand multilateral bargain” could make it even more difficult to reduce trade and current account deficits60 in the absence of achieving substantial additional foreign market access as part of the deal. It is telling that while both the Republican and Democratic Party platforms, issued in August and September 2012, called for completing the

Ibid. William A. Lovett, “Beyond Doha: Multipolar Challenges for a Globalized World,” Tul. J. Int’l & Comp. L. 17 (2008), 3, 18–19. 59 Ibid., 19. 60 Ibid. 57 58

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Liberalizing International Trade after Doha

TPP negotiations, neither mentioned the WTO or the Doha Round by name. The Republicans rather optimistically called for a “worldwide multilateral agreement among nations committed to the principles of open markets . . . in which free trade will truly be fair trade for all concerned.”61 The Democrats supported expanding trade with Latin American and the Caribbean, but focused on the TPP and “working with our partners in the Asia-Pacific Economic Cooperation Forum to create a seamless regional economy, promote green growth and coordinate regulatory reform.”62 While there may be ways of moving Doha or a Doha-like comprehensive round forward in the future, the feasible options are limited. Robert Bouzas suggests that there are three alternative paths: (1) “business as usual”; (2) embracing the “trade agenda of the future”; and (3) a “damage control” approach, refocusing on core WTO functions and taking account of political constraints.63 Unfortunately, it is obvious that business as usual will simply prolong, perhaps indefinitely, the current absence of progress. Embracing the “trade agenda of the future” would be a bold and welcome approach as suggested in Section I of this chapter, but there are relatively few Members who seem attracted to this approach. Where pursued, it is almost certainly to be most frequently in the context of plurilateral agreements or RTAs. Bouzas’s approach to refocusing would entail concentrating on the WTO’s regulatory and deliberative roles, where such negotiations would be de-linked from negotiations on TRIPS and services, moving the former outside the WTO umbrella.64 This seems highly unlikely to occur in the foreseeable future given the lack of enthusiasm for that approach by most Members.

See “Official Republican Platform Ramps up Criticism of China; Supports TPP, Magnitsky,” World Trade Online, August 28, 2012 (quoting the trade provisions of the platform). 62 See “Democratic Platform Touts Administration’s China Record; Vows to Open New Markets,” World Trade Online, September 4, 2012 (quoting from the platform). 63 Robert Bouzas, “Towards ‘Plurilateral Plus’ Agreements,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 13, 2012, http://ictsd.org/downloads/2012/02/roberto-bouzas-towar ds-plurilateral-plus-agreements.pdf. 64 Ibid. 61

The Doha Round Failure

49

Others, such as the editors of The Economist, in the process of ­dismissing any further progress with Doha, have urged WTO Director-General Lamy to close Doha and replace it with a quick “Global Recovery Round” in which the single-undertaking approach would be formally terminated. The focus would be on manufacturing and services, effectively abandoning agricultural trade reform (which makes up only about 7 percent of world trade),65 with the target completion date being the WTO Ministerial Meeting in Bali in late 2013. The negotiations would be open in the sense that WTO Members could participate or not as they chose, but the MFN clause would apply to all agreements reached by a subset of the membership.66 The abandonment of the single-undertaking approach and acceptance of much more modest objectives in Geneva, possibly along the lines that The Economist suggests, may well be the only way in which WTO negotiations can be accomplished in the future, other than spinning off a few elements of Doha as suggested in Chapters 4 and 5. However, there is no apparent broad support among the WTO Members for continuing even on such a limited basis, let alone formally initiating a new round, particularly in the areas of nonagricultural market access and services, the focus of The Economist’s approach. In my view, this approach seems equally impractical. As discussed in Chapters 6 and 7, in areas such as the enhancement of government procurement and services market opening, most of the participating Members, mindful of the “free rider” problem, have no intention of concluding agreements that would be subject to MFN obligations. Therefore, the most feasible approach to trade liberalization for now seems most likely to be a combination of seeking modest agreements in Geneva (Chapters 4 and 5), plurilateral agreements on various subjects (Chapters 6 and 7), RTAs (Chapters 8 through 11), and unilateral actions by national governments (Chapter 12).



“Goodbye Doha, Hello Bali,” The Economist, September 8, 2012. Ibid.

65 66

4

Assisting Developing Nations with Duty-Free, Quota-Free Market Access, Trade Facilitation, and Related Initiatives

Despite the inability of the WTO Membership to conclude the Doha Round, Members agreed in principle that steps should be taken to assist developing country Members and particularly least developed country Members in their efforts to participate more effectively in the world trading system. These areas include duty-free, quota-free (DFQF) access for LDCs to developed country markets and the reduction or elimination of developed country subsidies on cotton. Trade facilitation, the other area considered necessary to allow developing countries to participate more effectively in the world trading system, is broadly supported despite some developing country Member concerns.1 Many steps included in trade facilitation are uncontroversial and improvements in this area would likely have an enormous impact on facilitating world trade. Trade facilitation remains one of the more likely “deliverables” in ongoing international trade negotiations in Geneva (along with expanded coverage of the plurilateral Information Technology Agreement).2 It is uncertain whether agreements in the areas discussed in this chapter (and in Chapter 5) can be achieved, particularly by the time of the 9th WTO Ministerial Meeting now scheduled for Bali, Indonesia in December



Daniel Pruzin, “Trade Officials Express Growing Hope for WTO Agreement on Trade Facilitation,” Int’l Trade Rep. (BNA) 29 (October 11, 2012), 1613. 2 Ibid. 1

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Assisting Developing Nations

51

2013.3 Under optimum circumstances agreement might be reached on a package that includes one or several elements of the ­following: DFQF market access (Section I), changes in rules of origin, particularly for textiles and apparel (Section II), trade facilitation (Section III), reduction in cotton subsidies (primarily benefitting LDCs; Section IV) expanded preference programs (Section V), and improved agricultural TRQ administration and food security (Section VI).

I.  Tariff and Quota Barriers for LDCs DFQF access could be provided to developed Member markets for most, if not all, manufactured goods from the LDC Members, generally all Members with annual per-capita GDPs of less than $1,000 with a few possible exceptions such as Vietnam. These proposals have been under discussion at least since the 2005 Hong Kong WTO Ministerial meeting,4 when “developed-country Members, and developing-country Members declaring themselves in a position to do so, agreed to implement duty-free and quota-free market access for manufactured products originating from LDCs.”5 They have not yet been implemented except unilaterally to some extent by the EU in its expanded Generalized System of Preferences (GSP) based “everything but arms” commitment.6 China, India, Morocco, the Kyrgyz Republic, and Taiwan all provide duty-free treatment for some products from LDCs, whereas Korea provides



WTO General Counsel, “Bali Ministerial to be Held 3–6 December 2013,” December 11, 2012, accessed December 12, 2012, http://www.wto.org/english/news_e/news12_e/ gc_11dec12_e.htm. 4 WTO Ministerial Declaration, December 18, 2005, para. 47, Annex F (listing the covered goods), accessed August 7, 2012, http://www.wto.org/english/thewto_e/minist_e/ min05_e/final_text_e.htm#ldc. 5 Ibid. 6 See EU Commission, “Generalized System of Preferences: Everything but Arms,” accessed July 19, 2012, http://ec.europa.eu/trade/wider-agenda/development/generalis ed-system-of-preferences/everything-but-arms/. 3

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reduced tariff treatment for LDCs.7 Ten additional Members – Australia, Canada, the EU, Iceland, Japan, New Zealand, Norway, Switzerland, Turkey, and the United States – provide in their national legislation for GSP.8 All of these programs may restrict country eligibility and currently exclude certain tariff lines, particularly with regard to textiles and apparel and footwear, but these sixteen Members, if sufficiently committed, could provide the critical mass for an agreement. The United States has taken the position that it will implement DFQF only in the context of a Doha Round agreement.9 Support for the plan is not universal even among developing country Members. Some unfairness would inevitably result for lower middle-income countries that do not qualify as LDCs but compete with LDCs for access in developed country markets, and the practical lines between so-called middle income and lower middle-income developing countries and LDCs may be blurred. This is a serious problem if the implementation of the plan were to be followed by a reduction of the availability of benefits now available to all developing countries under the GSP and similar regional programs.10 The dilemma is likely of particular importance for U.S. trade policy, which (as discussed in more detail in Section V of this chapter) provides specific benefits in addition to GSP to the Caribbean Basin nations, the Andean Group (with some exceptions), and to most sub-Saharan African countries,11 the last program reaching a majority of the WTO’s LDCs.





See WTO, “Preferential Trade Agreements,” accessed August 6, 2012, http://ptadb.wto. org/ptaList.aspx. 8 Ibid. 9 See Kimberly Ann Elliott, “Breaking the Deadlock on Market Access for Least Developed Countries,” in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, December 2011, 3, accessed July 19, 2012, http://ictsd. org/downloads/2012/02/kimberly-ann-elliot-breaking-the-deadlock-on-market-accessfor-least-developed-countries.pdf. 10 U.S. Generalized System of Preferences (19 U.S.C. §§ 2462(b)(2)(D). See also Andean Trade Preference and Drug Eradication Act (“ATPDEA”), 19 U.S.C. §§ 3201 et seq.; the Caribbean Basin Initiative (“CBI”), 19 U.S.C. §§ 2701–2707; and the African Growth and Opportunity Act (AGOA), 19 USC §3701. 11 Ibid. 7

Assisting Developing Nations

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Whether Members such as the United States and the EU would allow expanded U.S. and EU market access, even for LDCs, for sensitive products such as textiles, apparel, and footwear is also problematic,12 particularly when the program would be seen by domestic political interests as unilateral, without any corresponding benefits accruing to developed country exporters. Should exceptions be incorporated for apparel and footwear tariff lines, for example, the economic benefits of the plan for LDCs would be substantially eroded. The Hong Kong communique specified that 97 percent of all tariff lines would be covered, but the effectiveness of the program depends to a great extent on how the 3 percent (several hundred in all) that are excluded are selected.13 Given that LDC exports to developed Members and many MICs are heavily concentrated in labor-intensive footwear, apparel, and certain agricultural products, if the excluded lines are chosen by U.S. and other policymakers so as to protect those items as well as sugar, peanuts, and tobacco, among others, the potential benefits of DFQF treatment would be substantially reduced.14 For maximum benefit, an accord on DFQF access requires commitments by the MICs.15 A United Nations study determined that, whereas LDC exports to the United States and the EU increased by one-third from 2005 to 2010, LDC exports to Brazil, China, and Turkey increased by a factor of 4:1 over the same period.16 Turkey has implemented a more limited version of the EU program, whereas China has committed







See Jeffrey J. Schott, “The Doha Dilemma: Implications for Korea and the Multilateral Trading System” (2011), 8, accessed July 19, 2012, http://www.piie.com/publications/ papers/schott20110926.pdf, which notes that legislation would be required to avoid blocking access by such barriers as restrictive rules of origin. 13 WTO Ministerial Declaration, Decision on Measures in Favour of Least-Developed Countries, December 18, 2005, Annex F, para. 36(a), accessed November 15, 2012, http://www.wto.org/english/thewto_e/minist_e/min05_e/final_annex_e.htm#annexf. 14 See Antoine Bouet, David Laborde, Elisa Dienesch, and Kimberly Ann Elliott, 2010, “The Costs and Benefits of Duty-Free, Quota-Free Market Access for Poor Countries: Who and What Matters,” CGD Working Paper 206 (2010), accessed July 19, 2012, http:// www.cgdev.org/content/publications/detail/1423986/. 15 See Elliott, “Breaking the Deadlock,” 2. 16 Ibid, 3 (citing U.N. data). 12

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generally to establishing a program that would cover 95 ­percent of tariff lines. India has committed to 85 percent and Brazil to 80 percent, the latter by 2013.17 The likelihood that these commitments would be implemented increases if the WTO Membership could reach agreement on implementing the DFQF program separately from the single-undertaking approach. This would require, inter alia, a change in U.S. policy to accept either the concept of an “early harvest” or, if that is considered implausible for lack of the likelihood of a “later harvest” under Doha, some other approach.

II.  Developing Nations and Rules of Origin Although the current focus for developing nations is on textile and apparel rules of origin, anyone who doubts the difficulties of dealing with the complexities of rules of origin need only consider WTO efforts since 1995 to agree on non-preferential rules of origin, a goal that remains outstanding in 2012 despite a three-year completion target.18 Overly strict rules of origin could also drastically reduce the effectiveness of a DFQF accord as discussed earlier. With apparel, the key issues relate to the sourcing of the fabric that is used to produce the garments. Even if the EU, the United States, and other developed nations reduce or eliminate tariffs on imported apparel, many LDCs will have difficulty benefitting from such changes if apparel manufactured in those countries enjoys the benefits of reduced or zero tariffs only if it uses fabric that is woven from yarn (or dyed or finished) in the developed nations or in the country of origin of the apparel.19 The extent to which this is required under the applicable rule of origin depends on the balance between the benefits the importing country wishes to provide

Elliott, “Breaking the Deadlock,” 3. WTO Agreement on Rules of Origin, art. 9.2. 19 See, generally, Bernard A. Gelb, “Textile and Apparel Rules of Origin in International Trade,” May 23, 2003, CRS-5-8, accessed November 12, 2012, http://www.policyarchive. org/handle/10207/bitstreams/1737.pdf. 17

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Assisting Developing Nations

55

to developing country trading partners and the degree to which it decides to protect domestic producers, particularly those ­producing yarn and fabric.20 (In some instances the fabric may originate in other Member states of an RTA to which the exporting state belongs, but availability of many fabrics is limited within Africa and Central America, among others.) Many African apparel producers can be competitive in the world market only if they are able to obtain their materials from the lowest cost sources possible, usually China or other Asian fabric producers, and qualify under rules of origin that require only assembly of the apparel in the affected country.21 The African LDCs commonly suffer from various factors (such as poor infrastructure) that put their products at a disadvantage compared to those from China, Bangladesh, Cambodia, Vietnam, and other major textile and apparel producers in Asia. Realistically, the preferential rules found in almost all free trade agreements cannot be addressed or harmonized in the global context. They are mentioned briefly in this chapter because, if one is serious about DFQF, expanded GSP availability, or trade facilitation, complex rules of origin (global or regional) cannot be ignored and the technical assistance required for trade facilitation generally relates to rules of origin issues as well. Therefore, in the event that the DFQF market access arrangements are concluded, either many textile and apparel lines will be excluded or the included apparel lines are likely to be subject to rules of origin similar to those in many RTAs.

Ibid, CRS-2. See Aaditya Mattoo, Devesh Roy & Arvind Subramanian, “The Africa Growth and Opportunity Act and Its Rules of Origin: Generosity Undermined?,” IMF Working Paper, December 2002, 3, accessed November 12, 2012, http://info.worldbank.org/ etools/docs/voddocs/201/393/africa-ver2.pdf, which concludes that if apparel assembled in Africa without the requirement that the yarn as well as the fabric were of African rather than third country origin, the positive impact on exports to the United States would have been five times greater. AGOA rules have been relaxed somewhat more recently. See USTR, AGOA: Summary of AGOA I,” accessed November 12, 2012, http://www.agoa.gov/agoalegislation/index.asp, which discusses the various extensions of the “third country fabric provision,” allowing limited use of non-African fabrics for apparel exports to the United States.

20 21

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For example, under NAFTA, textile and clothing products follow the “yarn forward” rule, meaning that all materials used to make the product, from the “yarn forward,” must be of North American origin if the product is to enjoy duty-free treatment as an “originating” good.22 The objective was to assure that the NAFTA benefits for apparel trade would benefit Mexican and U.S. producers of apparel and fabric, not Asian producers of fabric. For countries such as the United States with multiple FTAs (each with its own rules of origin for textiles and apparel as well as other products), the challenges even for the relatively sophisticated U.S. Customs and Border Protection service (CBP) and importers are significant. As of July 2012, for example, CBP was required to apply eighteen preferential tariff rates under the various FTAs and unilateral programs such as GSP.23 As Heydon and Woolcott observe, rules of origin (primarily those in RTAs) “contribute to the proliferation of different rules among preferential groupings and hence hinder trade and complicate the process of any eventual harmonization.”24 In addition, “they create a disincentive on the part of those who benefit from preferential treatment to engage in multilateral tariff reduction that would see the value of those preferences eroded.”25 Should they be included in DFQF arrangements, they will have a similar negative impact. The other major shortcoming of complex rules of origin, whether in textiles and apparel, footwear or otherwise, is that they may increase the cost of the import transaction as exporters in developing countries and customs officials in the importing state seek to demonstrate or determine whether a particular good qualifies for the special treatment specified



NAFTA, annex 401, chs. 50–63 (textile and textile articles). See USITC, “Harmonized Tariff Schedules of the United States,” accessed July 25, 2012, http://www.usitc.gov/tata/hts/bychapter/index.htm (Column1, “special” rates). 24 Kenneth Heydon & Stephen Woolcock, The Rise of Bilateralism: Comparing American, European and Asian Approaches to Preferential Trade Agreements (New York: United Nations University Press, 2009), 18. 25 Ibid. 22 23

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in a particular agreement or program. It may be reasonably possible for U.S., Canadian, or EU exporters and customs officials to deal efficiently with complex rules of origin; but for developing country exporters, or customs officials in those MICs that offer such programs to LDCs, the challenge is far greater.26

III.  Trade Facilitation Few Members openly oppose so-called trade facilitation measures, reducing the transaction costs and speeding up the process of physically moving goods across national borders, which some experts estimate could increase global GDP by more than $100 billion annually.27 Despite the broad title, the scope of trade facilitation negotiations has been limited primarily to areas related to three GATT articles: Article V

Freedom of Transit (calling for transit using the most convenient routes)

Article VIII

Fees and formalities relating to exporting and importing

Article X

Transparency (publication and administration of trade regulations)

The dozens of proposals for reform include encouraging the use of international standards on customs documents, limiting the amount of import and export fees, and online publication of customs procedures and policies.28 Among those that have gained traction elsewhere is the idea

See, e.g., David A. Gantz, “Implementing the NAFTA Rules of Origin: Are the Parties Helping or Hurting Free Trade?,” Arizona J. Int’l & Comp. L. 12 (1995), 367, which discusses the burdens for developing country exporters and importers and Mexican customs officials in addressing NAFTA’s nearly 200 pages of rules of origin. 27 Susan Schwab, “After Doha: “Why the Negotiations are Doomed and What we Should do About It,” Foreign Affairs 90 (2011), 104, 111” (quoting the Peterson Institute). 28 Gary Clyde Hufbauer, Jeffrey J. Schott & Woan Foong Wong, Figuring Out the Doha Round (Washington: Peterson Institute, 2010), 101. 26

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of a “single window” system for harmonizing and simplifying ­customs procedures, where all of the approvals required for a transaction can be obtained at a single government location. This concept fits loosely within GATT, Article VIII (mentioned previously). In APEC, for example, some thirteen Members have already taken this step and five others are in the process of doing so.29 The reasons for lack of major opposition to concluding an agreement on trade facilitation are clear. The increased level of interest in making trade flow more smoothly reflects in large part the success of the GATT/ WTO system in reducing tariff levels and non-tariff barriers since 1947; in many markets trade is likely more restricted by border delays, infrastructure limitations, and excessive regulation than by tariff levels. Exports as well as imports would be simplified and speeded by reducing non-tariff barriers that cause delays, a factor that for the most part reduces opposition by national business groups. As The Economist reported in 2003, “[a] ccording to the World Bank, the costs of transporting African exports to foreign markets are five times higher, on average, than the tariffs paid on those goods. Complex, inefficient and corrupt customs procedures make up a big share of these transport costs.”30 In the United States, the charges relating to importation (completing documentation, customs clearance, port handling and inland transport) are valued at 5 to 6 percent of product value and thus exceed most import duties. For the most efficient importer and exporter, Singapore, the costs are only $439 and $456 per container.31 It also seems evident that the types of improvements contemplated in an agreement on trade facilitation would lead to more efficient customs administration and thus increased revenue collections and, in some instances, encouragement of foreign direct investment.

See Pash L. Hsieh, “APEC as a Trans-Regional Economic Governance Architecture: A Critical Assessment with Reform Proposals,” Society of Int’l Economic Law, Working Paper no. 2012/45, July 6, 2012, 10, accessed September 16, 2012, http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=2101759. 30 “The Doha Round: The WTO under Fire,” The Economist, September 18, 2003. 31 Hufbauer, Schott & Wong, Figuring Out the Doha Round, 102 (citing World bank data). 29

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In addition, export-related charges must also be effectively paid by the importer; although bribes are not often part of the costs in the United States, this is not the case in many other countries. WTO Director General Pascal Lamy has noted that in a recent study, “implementation of the WTO Trade Facilitation Agreement would halve the total trade costs which today amount to 10 per cent of world trade, and which is a bigger handicap for small countries and small traders.”32 OECD studies confirm these assertions, concluding that trade facilitation measures that have been under discussion could reduce total trade costs by 9 percent, which is often more significant than the impact of geographical distances.33 Despite initial developing country opposition because trade facilitation was associated with the disliked Singapore Issues (competition, investment, and corruption in government procurement), much of the reluctance to move forward appears to have dissipated as a broader Doha accord became increasingly improbable. Because any agreement is likely to be coupled with strong commitments of financial and technical assistance toward such “capacity building” of developing countries to participate more economically in international trade by achieving the objectives of the agreement (as has been the case with some regional trade agreements),34 trade facilitation is likely to receive support from the developing Members who would receive the assistance and from major donor agencies including the WTO, IMF, UNDP, and UNCTAD, as it has in the past. The WTO’s Enhanced Integrated Framework (EIF), created in 1997 and devoted in part to trade facilitation by 2011 had available funds totaling about $120 million with total pledges of $182

WTO, “Lamy Underlines Need to Continue Building Trade Capacity of Developing Countries,” May 21, 2012, accessed July 25, 2012, http://www.wto.org/english/news_e/ sppl_e/sppl230_e.htm. 33 See Möisé, “Assessing the Benefits of Trade Facilitation,” 16–17. 34 For example, CAFTA-DR Chapter 5, “customs administration and trade facilitation” incorporates a statement in art. 5.12: “The Parties recognize the importance of trade capacity building activities in facilitating the implementation of this Chapter.” The United States-Central America-Dominican Republic Free Trade Agreement, U.S.-CAFTA-DR, Aug. 5, 2004, accessed August 7, 2012, http://www.ustr.gov/Trade_ Agreements/Bilateral/CAFTA/CAFTA-DR_Final_Texts/Section_Index.html. 32

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­ illion for a five-year period.35 Should an agreement on trade facilitation m be concluded, it is reasonable to expect that funding for the EIF would be increased by individual Members and its institutional sponsors (WTO, IMF, UNDP, UNCTAD, and the ITC). Also, one of the strongest arguments in favor of addressing trade facilitation at the multilateral level is the increasing importance of global supply chains and “just in time” manufacturing.36 After the Japanese earthquake and tsunami in March 2011, producers in many industries worldwide learned that the temporary loss of access to supplies of a few key parts and components could affect manufacturers worldwide, particularly in such highly globalized industries as automobiles and electronics in which “critical weak points” were exposed and assembly lines were shut down.37 Pascal Lamy, reporting to the WTO General Council in a speech in July 2012, effectively linked such global supply chain issues to progress in trade facilitation. He stated that “[many Members have realized] the role and relevance of regional and global value chains in fostering economic growth, employment and development,” referring to statements by others at the June 2012 G-20 summit in Los Cabos, Mexico.38 For nations that wish to benefit from a global business model increasingly reliant on efficient global supply chain management, trade facilitation measures are essential. Given the multiple elements of trade facilitation, some are likely to be easier to accomplish than others. In APEC, for example, there appears to be unanimous support among both developed and developing ­country

See WTO, “Enhanced Integrated Framework,” accessed December 23, 2012, http:// www.wto.org/english/tratop_e/devel_e/teccop_e/if_e.htm. 36 The term reflects modern manufacturing practices in which the manufacturer does not hold large inventories of parts and components on hand but arranges for the delivery of each part and component shortly before it is scheduled to be used in the manufacturing process. 37 James Hookway & Aries Poon, “Crisis Tests Supply Chain’s Weak Links,” Wall St. J., March 18, 2011. 38 WTO News, “Lamy Cites Progress on Trade Facilitation and Development Issues,” July 17, 2012, accessed July 19, 2012, http://www.wto.org/english/news_e/news12_e/ gc_17jul12_e.htm. 35

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Members for exempting low-value shipments from customs duties, addressing trade barriers of particular importance to small and medium sized enterprises, liberalizing air cargo service barriers, and dealing generally with “behind-the-border” barriers to trade.39 Implementing transparency and administrative and regulatory reforms is likely more difficult in many countries, perhaps even in the United States and the EU.

IV.  Reducing or Eliminating Cotton Subsidies Cotton subsidies, even though they are only one of many kinds of agricultural subsidies, have been for almost a decade among the most controversial agricultural subsidies because of their adverse impact on Sub-Saharan African producers. As Mali President Amadou Toumani Toure observed in 2005: Cotton is by no means the only issue at stake in the agricultural sector in the Doha Round negotiations. But it must be recognized that, between the Cancun [ministerial meeting] and Hong Kong [ministerial meeting], cotton has become the symbol of the African fight for fair and equitable trade, a fight that is supported by various non-government organizations. A few years ago cotton was a source of wealth for us. Now it has become a burden, and a factor in increasing poverty. . . . Although a number of factors have led to this situation, agricultural subsidies are the main cause of market disruption, which has serious consequences for our economies. . . . Rich country subsidies for production and exports deprive our States of the necessary resources to build schools and health centres, and add to the increasing poverty amongst the poorest of our people, especially in rural areas. All those involved today in the debate on cotton, and fair trade in general, are clearly in agreement on the analysis of the problems; we simply need to have the courage to adopt the appropriate solutions.40



APEC, 2011 Leaders’ Declaration, November 13, 2011, 1, accessed July 8, 2012, http:// www.apec.oeg/Meeting-Papers/Leaders-declarations/2011/2011_aelm.aspx?p=1. 40 Amadou Tomani Toure, Introduction to International Trade Negotiations and Poverty Reduction: The White Paper on Cotton, ed. Eric Hazard (Senegal: Enda Prospectives Dialoggues Politiques, 2005). 39

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Subsidies are not the only reason that African exporters face competitive problems in the global markets for cotton and other agricultural commodities. For example, U.S. officials, while conceding that subsidies are a factor, suggest that bribery, bottlenecks at the borders, and delays in processing shipments at ports are the major reasons for poor agricultural sales.41 Here, as elsewhere, technical assistance and political will to implement such measures as computerized shipment tracking and harmonized customs documentation could result in significant improvements in competitiveness.42 It was hoped by many that the WTO Ministers at Hong Kong in 2005 would commit to reducing or eliminating cotton subsidies, but that did not occur. More recently, in July 2011, the Members sought unsuccessfully to agree on a list of “deliverables,” including a “step forward” on cotton subsidies for the anticipated December 2011 ministerial conference.43 (The others included DFQF, related rules of origin, and a waiver of services market-opening commitments for LDCs.) For the United States, the adverse political consequences of sending this and the DFQF proposal to Congress without items that would benefit U.S. exporters were apparently too great.44 The United States had also insisted on a package to address other closely related trade distortions, such as the 40 percent tariff on cotton imposed by China. These concerns are not limited to the United States and Sub-Saharan African nations. Brazil, a major cotton producer, successfully argued in the WTO’s Dispute Settlement Body that U.S. cotton subsidies were inconsistent with U.S. obligations under the Agreement on Agriculture.45







See “Froman Downplays Effect of U.S. Farm Policies on African Agricultural Exports,”  World Trade Online, August 6, 2012 (quoting Deputy National Security Adviser Michael Froman). 42 Ibid. 43 Daniel Pruzin, “WTO Members Give Up on Deliverables Pact, to Push for Work Program to Advance Doha,” Int’l Trade Rep. (BNA) 28 (July 28, 2011), 1228. Many Members hoped that addressing cotton subsidies would move forward on its own. 44 Ibid. 45 See Appellate Body Report, United States – Subsidies on Upland Cotton, WT/DS267/ AB/R, adopted March 21, 2005. 41

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Brazil was authorized to impose trade sanctions in retaliation, which were avoided only after the United States agreed to make an annual payment of $147 million to Brazil, to be used to pay for technical assistance to Brazilian cotton farmers.46 China has also inserted itself into the cotton debate by pledging $20 million worth of technical and financial assistance over a three-year period to Benin, Burkina Faso, Chad, and Mali, whereas the United States promised DFQF imports of upland cotton from LDCs and a new cotton assistance program (amounts unspecified) for these four African countries.47 For much of 2012, the U.S. Congress was engaged in a debate over a new farm bill, which Brazil charged would “substantially” increase U.S. government support for cotton if adopted in its current form,48 but comprehensive farm legislation, which might have reduced some subsidies, was not enacted in 2012. New farm legislation might also have included some reductions in support levels, but the $16 billion proposed over ten years was considered too small by some and too large by others.49 Whereas dairy supports were mentioned, cotton was not.50 Instead, at the beginning of January 2013 the Congress enacted a nine-month extension of the 2008 farm bill, providing some protection to U.S. dairy prices but failing to reduce direct commodity subsidies, including those for cotton.51 This situation suggests that any movement by the United States toward dealing with cotton subsidies alone in the WTO, or in reducing subsidies overall, is not likely in the near term. However, in light of on-going



Daniel Pruzin & Ed Taylor, “New Farm Bill Set to Trigger Continuation of U.S.-Brazil Dispute over Cotton Subsidies,” Int’l Trade Rep. (BNA) 29 (July 26, 2012), 1212. 47 Daniel Pruzin, “China Announces Initiative to Aid African Cotton Growers,” Int’l Trade Rep. (BNA) 28 (December 22, 2011), 2047. 48 Pruzin & Taylor, “New Farm Bill.” 49 See “Farm Bureau Chief Predicts Short-Term Farm Bill Extension to Spring 2013,” World Trade Online, November 16, 2012 (discussing the options discussed in Congress for addressing the expiring farm bill). No such extension occurred. 50 Ibid. 51 See David Rogers, “Fiscal Cliff Deal Includes Farm Bill Extension,” Politico, January 2, 2013, accessed March 8, 2013, http://www.politico.com/story/2013/01/fiscal-cliff-deal-in clude-farm-bill-extension-85641.html. 46

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pressure from the Sub-Saharan African producers and Brazil, one could reasonably hope that if China were to agree to consider reduction of cotton tariffs the basis for a multilateral agreement might exist. Given the unilateral assistance and market access the United States is providing to African LDC producers under the AGOA,52 the incremental political and economic cost of an agreement would not seem to be excessive and would dovetail nicely with companion agreements on DFQF access for LDCs and trade facilitation for the United States, as discussed earlier.

V.  Expanding and Improving GSP and Similar Programs If trade liberalization in Geneva is the preferred option, liberalization through RTAs the second, and DFQF treatment for LDCs the third, then  there exists still a fourth, unilateral market access expansion based on more traditional unilateral programs. Such long-standing, non-reciprocal means of reducing or eliminating tariffs on imports from developing countries to developed countries are represented by the GSP53 and other regional initiatives such as the EU’s Cotonou arrangements54 and the United States’ Caribbean Basin Initiative and AGOA as noted earlier. Such arrangements may run the risk of WTO challenges as with Cotonou, as discussed in Chapter 10 in the context of EU relations with its former colonies in Asia, the Caribbean, and the Pacific for which a WTO waiver expired December 31, 2007.55 For the United States, assuming that accepting the DFQF program as a binding WTO commitment is considered impracticable in terms of domestic politics, there may be some benefit in essentially accomplishing similar results through an enhanced version of the GSP, as Kimberly

AGOA, 19 USC §3701, Note. See, e.g., U.S. legislation authorizing the GSP program, 19 U.S.C. §§ 2461 et seq. 54 See Europa [EU], Cotonou Agreement, accessed August 7, 2012, http://ec.europa.eu/ comm/development/body/cotonou/index_en.htm. 55 WTO, “European Communities  – The ACP-EC Economic Partnership Agreement,” November 14, 2001, para. 1, accessed November 12, 2012, http://www.wto.org/english/ thewto_e/minist_e/min01_e/mindecl_acp_ec_agre_e.htm (providing a waiver of WTO requirements for regional trade agreements). 52 53

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Ann Elliott has suggested.56 Although the list of exclusions, 80 percent in the current GSP program, would be narrowed, competitive need mechanisms57 would likely be retained, possibly for importers with a market share of greater than 2 percent in a particular tariff line. Elliot also suggests that the system be implemented with the principal objective of protecting less competitive LDCs from the more competitive ones, not just U.S. textile or agricultural producers.58 In the United States and most other developed countries, preconditions are imposed with regard to what countries may be afforded and retain “BDC treatment” under the Generalized System of Preferences. The country offering GSP may do so with conditions, some of which may be onerous to or discriminatory among the BDCs, as was the GSP program offered by the EU to various countries (such as India).59 This does not occur under a bilateral RTA in which tariffs have been reduced to zero and most non-tariff barriers have been eliminated. Exclusions from GSP typically include textiles and apparel, steel, leather, and certain electronic and glass items, as well as most agricultural products.60 Many such exports of key interest to developing countries that enjoy duty-free and quota-free entry under some FTAs are not eligible for GSP treatment or are eligible only subject to burdensome rules of origin.61 As noted in









See Elliott, “Breaking the Deadlock,” 3. See USTR, U.S. GSP Guidebook, April 2012, accessed July 17, 2012, http://www.ustr. gov/webfm_send/2880, which discusses the competitive need limitations in the current U.S. GSP program. 58 Elliott, “Breaking the Deadlock,” 3. 59 See Appellate Body Report, European Communities – Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS346/AB/R, adopted April 20, 2004, which challenges various benefits provided by the EU to some beneficiaries but not to others on the grounds that such discrimination was not justified by the Enabling Clause. 60 See Coalition for U.S. GSP, “The U.S. Generalized System of Preferences: An Update,” February 2011, 3–5, accessed August 6, 2012, http://tradepartnership.com/pdf_ files/2011%20GSP%20Update.pdf. 61 See, e.g., “Harmonized Tariff Schedules of the United States (2007),” headings 6401– 6404 (footwear); headings 5206–5208 (most admitted duty-free when originating goods under many FTAs but not subject to GSP treatment). 56 57

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Section II of this chapter, rules of origin may also be used to limit the potential benefits to developing countries of duty-free entry. U.S. GSP benefits for specific products may be withdrawn under “competitive need” limitations, when the developing country producers achieve a high level of exports of the particular product, supposedly demonstrating that the tariff preference is no longer warranted.62 Also, when a particular nation has in the judgment of United States authorities reached a sufficient level of competitiveness so that it no longer requires GSP benefits, it may be “graduated” from the program. Korea, Taiwan, Singapore, Hong Kong, Malaysia, and others with a per capita GDP of more than $12,276 in 2011 have been graduated to date.63 In the EU, GSP is effectively a three-tier program. The regular GSP applies to all eligible developing countries, and covers all but 9 percent of tariff lines; twenty-three new lines, mostly raw materials, were added in October 2012.64 “GSP Plus” offers additional incentives to developing countries that are considered “vulnerable” if such countries agree to implement international agreements on human rights, labor environment, and good governance; their GSP imports must be less than 2 percent of all GSP imports and must be insufficiently diversified.65 Third, the “everything but arms” initiative mentioned earlier will continue to afford DFQF access with some product exceptions to LDCs. Since, GSP and similar programs are based on national legislation rather than mutually binding international agreements, they lack permanency and therefore generate uncertainties for exporters, importers and investors. For example, the U.S. GSP authorizing legislation expired January 1, 2011 and was not renewed until October 2011 (albeit



See USTR, “GSP Guidebook,”11. GSP Guidebook, 13–14. 64 See Charles Julien, “New GSP Scheme: Fewer Beneficiaries, More Benefits,” Int’l Law Office, November 23, 2012, 1, accessed December 6, 2012, http://www.internationallawoffice.com/newsletters/Detail.aspx?g=2acf0ebe-d1be-4fc2–88e5–5fdfdb9a0910, which summarizes the EU’s revisions to its GSP system. 65 Ibid. 62 63

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retroactively) and current law remains in effect only through July 31, 2013.66 Even so, such legislation may be controversial and subject to intense and costly lobbying by both sides in Washington, DC, Brussels, and elsewhere, both initially and when efforts are made periodically to add or eliminate specific products from the lists of those eligible for duty-free treatment.67 Unlike most RTAs embodied in international treaties, unilateral GSP programs convey no direct penalty on the developed country providing the benefits when the authorizing legislation and the related benefits are terminated. Also, because they are unilateral, the market access they provide likely will be less comprehensive than with an RTA for which mutual benefits are bargained. Nor is there any assurance that the smaller developing countries, particularly the LDCs, will benefit from such arrangements. With U.S. GSP, for example, the beneficiaries include such highly competitive exporters as Brazil and India, major world trading powers, as well as smaller, less competitive LDCs.68 GSP and similar programs authorized under the WTO’s “Enabling Clause”69 have both advantages and disadvantages when compared to RTAs. On the plus side, they normally do not require extensive international negotiations (with the possible exception of the Cotonou arrangements); they are simply enacted by developed country legislatures. Also, to the extent RTAs distort world trade by affording preferential treatment to certain countries, less trade diversion should theoretically occur because the preferences are unilateral. The BDC normally levies its MFN

USTR, Generalized System of Preferences, accessed August 6, 2012, http://www.ustr. gov/trade-topics/trade-development/preference-programs/generalized-system-prefere nce-gsp. 67 See, e.g., USTR, “Generalized System of Preferences (GSP): Notice of the Results of the 2005 Annual Product and country Practices review, and Certain Previously-Deferred Country Practice Decisions,” 71 Fed. Reg. 38190 (2006), which announces the results of the 2005 annual review of petitions requesting changes in GSP product coverage. 68 GSP Guidebook, 17. 69 “Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries,” November 28, 1979 (L4903), para 2(a), accessed August 6, 2012, http://www.wto.org/english/docs_e/legal_e/enabling1979_e.htm. 66

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tariffs on imports from all sources, including those from the ­country granting the GSP benefits. Although the United States’s GSP system currently covers at least 120 countries, more than 43 of them are LDCs, most of which are WTO Members;70 thus the WTO Members who would benefit from a DFQF agreement and currently enjoy GSP and would also benefit if GSP programs, while remaining unilateral, were broadened in scope. From an economic point of view it is questionable whether developing countries can truly benefit fully in the longer term if they are permitted to maintain their own high tariff walls despite improving their access to developed country markets. If one believes that freer trade increases domestic competition, makes exports more competitive in world markets, and in general enhances consumer welfare, a reciprocal RTA with longer tariff elimination periods for the developing country parties than the developed country parties is more likely to achieve these goals than are the various preference schemes. Also, the BDC may lose the opportunity to improve its own competitiveness worldwide because it is excused from the needed internal reforms commonly required in RTAs between developing nations and the United States or the EU. In sum, a BDC under GSP enjoys narrower and far less predictable benefits than under a typical RTA. That being said, GSP and similar unilateral programs will continue to play an important role, particularly unless and until a DFQF agreement is reached in Geneva. In particular, for developing nations that are unwilling or unable to meet the preconditions for negotiating free trade agreements or economic partnership agreements (the EU term for its FTAs with former colonies), or are simply not considered important enough to be asked to negotiate with the United States or the EU, these programs may be the only practical alternatives. Finally, as suggested previously, there may be convergence among developed countries that may be willing to provide DFQF treatment

USTR, “US Generalized System of Preferences Guidebook,” April 2012, 3, accessed August 6, 2012, http://www.ustr.gov/webfm_send/2880.

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and those that are prepared to afford LDCs the advantages of a revised GSP mechanism with fewer conditions and exclusions. Presumably, this approach would permit greater use of restrictive rules of origin and other limiting factors than a DFQF agreement, but could still be more liberal than the existing GSP programs.71 Whereas some developed nations, such as the United States, do not provide GSP benefits to all developing nations, such as those that have been graduated as noted earlier, a formal waiver for special GSP benefits for LDCs should be sought if efforts are made to accomplish a significant part of DFQF through the GSP system, so that the poorest WTO Members will be able to enjoy the benefits.

VI. Tariff Rate Quotas, Food Security, and Related Aspects of Agricultural Trade Given the role that disagreements over farm subsidies and agricultural market access played in ending the Doha negotiations (see Chapter 3), there is some irony in the fact that one of the “deliverables” proposed by the G-20 in October 2012 relates to the reform of certain developed Member country farm policies.72 The relatively modest list of items for discussion focuses on improving, through agreed international rules, the procedures that developed countries use to manage the tariff-rate quota systems they use to restrict agricultural imports after implementing the “tariffication” requirements of the Agreement on Agriculture.73 Developed Members such as the United States, the EU, Canada, and Japan, as well as South Korea, among others, have managed to maintain high levels of protection without traditional quotas through the use of

One possible difficulty is the language of the Enabling Clause, which refers only to “developing countries” without explicit mention of LDCs. 72 See “New Proposals Boost WTO Farm Trade Talks,” Bridges Weekly Trade News Digest 16 (October 3, 2012), 33, accessed October 18, 2012, http://ictsd.org/i/news/bridgesweekly/146511/, which discusses the various proposals. 73 WTO Agreement on Agriculture, art. 4.2. “Tariffication” is the requirement that agricultural quotas be converted to tariffs, a requirement that sets no ceiling on the resulting tariff levels. 71

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tariff rate quotas (TRQs), which establish an initial low tariff rate for imports of an agricultural product up to a certain volume level, at which time the tariff increases, in some instances to a rate that effectively eliminates imports. In Japan, for example, once rice imports have exceeded the WTO required quota of 682,000 tons, a 341 yen ($4.05) per kilogram tariff levy effectively eliminates any further rice imports.74 The language under discussion is apparently based on the most recent draft of the Doha accord. Issues addressed would include management of TRQs when the initial quotas are under-filled; reporting and monitoring requirements for the Committee on Agriculture; and updated studies on “export competition” in agriculture, encompassing export subsidies and credits, state trading enterprises, and food aid.75 Whether any of these, despite some optimism among the G-20 membership, can ultimately be incorporated in a package acceptable to the full Membership remains unclear. The EU, for example, is said to oppose such studies because of concern that the data, once compiled, would supply pressure for early progress on agriculture.76 The area of agriculture is subject to a Catch-22: if the steps taken have only marginal economic effect, the process may not be worth the effort; but those steps with a major impact on agricultural trade are almost certain to be opposed by whose agricultural interests are perceived to be adversely affected. Separately, proposals have surfaced under the rubric of farm trade and food security, but none appear to have broad support as of the end of 2012. Some participants in the G-20 have called for reforms that would reduce commodity price volatility and reducing subsidies for biofuels, on the grounds that the latter cause distortions in food pricing.77 A separate



See Steve Moody, “Japan Rice Trade Policy: Rice Trade Policy Overview,” Japan-101 Information Resource, undated, 2, accessed October 18, 2012, http://japan-101.com/ government/rice_trade_policy.htm, which discusses Japan’s trade policy for rice. 75 “New Proposals Boost WTO Farm Trade Talks.” 76 Ibid. 77 See Ivan Castano, “G-20 Puerto Vallarta Meeting Urges More Trade, Investment to Bolster Economy,” Int’l Trade Daily (BNA), April 20, 2012, which quotes G-20 task force leader Jose Ernesto Cacho Ribeirio. 74

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group of developing countries, the G-33, has tabled a proposal apparently championed by India, so that when developing country governments purchase foods for its stocks at market supported prices for “low-income, resource-poor producers” such purchases would not count against the “aggregate measure of support” that is limited for each WTO Member by the Agreement on Agriculture and would be instead treated as “green box” subsidies exempt from the requirements of the Agreement on Agriculture.78 Even though the exemption would apply only to farms of no more than ten hectares,79 the proposal in my view has almost no chance of being embraced by the larger WTO Membership in light of India’s earlier intransigence in 2008 demanding open-ended provisions to allow it to safeguard small farmers from foreign competition (see Chapter 3). The possibility that the EU and/or the United States will reduce agricultural subsidies unilaterally is discussed under unilateral measures (Chapter 12).



“Developing Countries table Food Security Proposal at WTO,” Bridges Weekly Trade News Digest 16 (November 14, 2012), 39 (reporting on the G-33 proposals). 79 Ibid. 78

5

Preserving the Environment Fisheries Subsidies and Trade in Environmental Goods

The GATT/WTO system has never been at the forefront of environmental protection. Still, since 1947 GATT has provided for exceptions to GATT obligations for measures that are necessary to protect human, animal, and plant life or health and to conserve exhaustible natural resources, subject to many conditions.1 The Preamble to the WTO Agreement recognizes that trade relations should be conducted in such a way, inter alia, so as to allow for “the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development.”2 In practice, considerable resistance to dealing with environmental issues within the WTO system has developed, presumably because some Members fear that environmental concerns will be used as a tool for barring access for their goods to developed country markets. The Committee on Trade and the Environment (CTE), created in 1994, has had few significant accomplishments in nearly twenty years. The CTE has focused on identifying the relationship between trade and environmental measures and considering recommendations on modifying provisions



GATT, art. XX(b), (g). Agreement Establishing the World Trade Organization, April 15, 1994, Preamble.

1 2

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of the multilateral trading system (although no recommendation to that effect has ever been made).3 The CTE has not effectively addressed the most ­obvious potential problem, possible conflicts between the WTO Agreements and multilateral environmental agreements.4 The WTO’s Appellate Body has proven more environmentally conscious in several decisions relating to U.S. laws designed to protect sea turtles from dangers of shrimp fishing, calling for Members to seek international agreements before resorting to unilateral action to protect the environment, but ultimately permitting the unilateral action when such negotiations were shown to be unsuccessful.5 If successfully concluded, the Doha negotiations might have assisted in protecting the world environment indirectly by bringing about a more efficient allocation of resources as a result of reducing barriers to trade and trade-distorting agricultural subsidies.6 It seems unlikely that either of these goals can be accomplished in the foreseeable future, although there is a slight chance of unilateral measures to reduce agricultural subsidies adopted by the United States and the EU (see Chapter 12). In my view, the only environmentally related areas that are likely to be effectively addressed outside the single undertaking requirements relate to fisheries and to trade in environmental goods, both of which offer some promise of successful conclusion if significant hurdles can be overcome.

See WTO, “Items on the CTE’s Work Programme,” accessed July 24, 2012, http://www. wto.org/english/tratop_e/envir_e/cte00_e.htm. 4 NAFTA, for example, addressed this issue in 1994, and various U.S. FTAs do so in more detail; see NAFTA, art. 104; United States – Peru Economic Partnership Agreement, art. 18.13.14 (in both cases providing that, in the event of an unavoidable conflict, the MEA normally prevails). 5 See Appellate Body Report, United States – Import Prohibition of Certain Shrimp and Shrimp Products, AB/WT/DS58/R, adopted December 6, 1998; Appellate Body Report, United States  – Shrimp: Implementation Phase (Article 21.5), adopted November 21, 2001. 6 See WTO, “An Introduction to Trade and the Environment in the WTO,” accessed July 24, 2012, http://www.wto.org/english/tratop_e/envir_e/envt_intro_e.htm, which discusses environmentally friendly aspects of the Doha Round. 3

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I.  Fishing Subsidies and Related Measures A.  Importance of Fisheries The U.N. Food and Agricultural Organization (FAO) states that as of 2010, 54.8 million individuals worldwide were engaged in capture fisheries, with 7 million of those engaged in occasional fishing or fish farming or in some form of aquaculture; the majority are located in developing nations. Some 660 to 820 million people, or about 10 to 12 percent of the world’s population, are dependent on fishing, packing, marketing, distribution, and other related activities.7 In other words, the sector is of great importance in many parts of the world. Unfortunately, it is estimated that about 80 percent of the world’s fisheries are being over-fished even as the global fishing fleet continues to expand.8 Among the reasons for such expansion is direct government financial support for construction of fishing vessels, which probably constitutes about 60 percent of the total fisheries subsidies.9 Other governments provide price and marketing support, port construction, and agreements permitting foreign vessels to access waters within another nation’s exclusive economic zone (EEZ). Such subsidies, like many others, cause market distortions and have encouraged over-building of fishing vessels; subsidies devoted to resource management, in contrast, could have positive effects. Fuel subsidies represent about 15 to 30 percent of the total. Japan and the United States have traditionally been the major providers of subsidies for fishing vessels, but China and Brazil are now becoming major players as well.10



FAO, “World Review of Fisheries, 2012,” 10, accessed July 15, 2012, http://www.fao.org/ docrep/016/i2727e/i2727e01.pdf. 8 ICTSD, “Tackling Perverse Subsidies in Agriculture, Fisheries and Energy,” 2, June 2012, accessed July 15, 2012, http://ictsd.org/downloads/2012/06/tackling-perverse-subs idies-in-agriculture-fisheries-and-energy.pdf. 9 Ibid. 10 Ibid. 7

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B.  Status of the Negotiations in Geneva As former Deputy USTR Peter Allgeier has suggested, the fisheries negotiations, focused as they are on encouraging sustainability, have a strong environmental protection element and a fisheries subsidies agreement could be the first true “trade and the environment” negotiation.11 Unfortunately, trade negotiators are typically focused on their own countries’ commercial interests rather than global environmental impacts.12 Fisheries subsidies also affect areas far from the territories of the subsidizing WTO Members because much of the fishing takes place well away from the EEZ of the flag vessel. Relatively broad support has existed for ending subsidies to industrial fishing fleets, primarily on environmental/protection of species grounds, but also to protect smaller coastal fishing industries. Discussions have been underway in Geneva since early 2002, with the major players under pressure to reach agreement not only from developing country coastal fishing industries but also environmentally minded NGOs and civil society groups in the United States, the EU, and other developed WTO Member nations. The Hong Kong Ministerial declaration in 2005 called on the Rules Negotiating Group to “strengthen disciplines on subsidies in the fisheries sector, including through the prohibition of certain forms of fisheries subsidies that contribute to overcapacity and overfishing.”13 As outlined by the WTO Secretariat, [t]he proposed new disciplines on fisheries subsidies as reflected in the Chairman’s first draft text would include a prohibited category

Peter Allgeier, “The Trade Toolbox and Environmental Sustainability: The Case for Fisheries,” January 2012, in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, 2, accessed July 15, 2012, http://ictsd.org/downloads/2012/02/peter-allgeier-the-trade-toolbox-and-environmental-sustainability-th e-case-for-fisheries.pdf. 12 Ibid. 13 WTO, “Hong Kong Ministerial Declaration,” December 22, 2005, Annex D(I)(9), accessed July 15, 2012, http://www.wto.org/english/thewto_e/minist_e/min05_e/final_ annex_e.htm#annexd. 11

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covering, inter alia, subsidies for construction of new fishing vessels and subsidies for operating costs of fishing. LDCs would be exempted from the new disciplines, and other developing Members would have substantial flexibilities, especially for subsidies to subsistence-type fishing in their territorial waters. All exceptions to the proposed prohibition would be conditioned on compliance with certain provisions related to fisheries management.14

Some Members, such as Japan, have argued that the problem with fisheries is less about subsidies than poor fisheries management regimes that fail to deal effectively with over-fishing. The EU has been generally supportive of subsidy reductions but some Members express concerns over their socio-economic impact. Korea has proposed exemptions for smaller scale fisheries, and nonexempt developing countries worry about negative impacts on their fisheries’ employment and food security.15 It is also unclear how the practice in some African, Caribbean, and Pacific (ACP) countries of authorizing foreign vessel access to their EEZs as noted above would be regulated under a fisheries subsidies agreement. An additional problem, not unique to fisheries subsidy disciplines, relates to differential treatment among non-LDC developing countries. In any event, no further progress appears to have been made in the negotiations from 2009 to 2011.

C.  Alternative Approaches Meanwhile, the EU is undertaking a review of its common fisheries policy (CFP) with the principal objective of bringing fish stocks back to stable levels. The new CFP is expected to become effective in 2013.16 Some observers have suggested that the Commission has watered down the catch reduction proposals to build support, calling into question the

WTO, “Introduction to Fisheries Subsidies in the WTO,” accessed July 15, 2012, http:// www.wto.org/english/tratop_e/rulesneg_e/fish_e/fish_intro_e.htm. 15 ICTSD, “Tackling Perverse Subsidies,” 4. 16 EU, “Reform of the Common Fisheries Policy,” accessed July 15, 2012, http://ec.europa. eu/fisheries/reform/index_en.htm. 14

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effectiveness of the reforms.17 Whether implementation of the new CFP would make the EU more willing and able to participate in a comprehensive fisheries agreement remains to be seen. Rashid Sumaila has suggested that to reach agreement, in addition to departing from the Doha Round’s single-undertaking approach, the world’s fisheries should be divided into domestic fisheries within the coastal state’s EEZ and international fisheries.18 The latter of which would further be divided into trans-boundary fish stocks, highly migratory species such as tuna that exist both in EEZs and on the high seas, and those fish that remain for their entire lives on the high seas. These categories reflect differing incentives to eliminate over-fishing as well as differing institutional frameworks. In most cases, the “heavy lifting” would be done by the coastal nation.19 Sumaila would focus the negotiations first on international fisheries for which an agreement would be least difficult to achieve because there are no strong arguments for continued subsidies, and then incorporate an enhanced role for regional fisheries management organizations.20 The Allgeier approach, in contrast, would recast the negotiations so as to address three issues, subsidies, illegal fishing, and seafood fraud.21 With subsidies, he would adapt the concept of “adverse effects” under the Agreement on Subsidies and Countervailing Measures (SCMA)22 to shift from focusing on a given manufactured product to a common, shared resource.23 Allgeier would deal with illegal fishing in a manner analogous



See ICTSD, “Tackling Perverse Subsidies,” 5. U. Rashid Sumaila, “Is an All or Nothing WTO Fisheries Subsidies Agreement Achievable?,” 2, in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, accessed July 15, 2012, http://ictsd.org/downloads/2012/02/ rashid-sumaila-is-an-all-or-nothing-wto-fisheries-subsidies-agreement-achievable.pdf. The EEZ typically extends 200 nautical miles from the coast. 19 See Sumaila, “All or Nothing WTO Fisheries Subsidies,” 3. 20 Ibid. 21 The latter relates to passing off one species of fish for another, more popular and higher-priced species for marketing purposes, through intentional mis-labeling. 22 WTO Agreement on Subsidies and Countervailing Measures, art. V. Domestic or “Yellow Light” subsidies are actionable at the WTO only if they cause “adverse effects.” 23 Allgeier, “The Trade Toolbox,” 3. 17

18

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to the provisions under TRIPS for border measures that block entry of goods that violate intellectual property norms.24 Seafood fraud would be addressed in a manner that used to be common under the Multifibre Agreement, with its mechanisms meant to thwart circumvention of rules of origin or mislabeling.25 Efforts to move a fisheries agreement forward post-Doha raise many challenges despite the opportunities. As with the reduction or elimination of agricultural subsidies, progress is virtually impossible unless all major subsidizers participate. For example, it would have made no sense for the United States to agree a decade ago to eliminate its agricultural subsidies in the context of the Free Trade Agreement of the Americas (FTAA), as Brazil demanded. To have done so would not have limited agricultural subsidies provided by the EU, continuing subsidies that could have undercut U.S. exports to the FTAA member states. The same is true for unilateral subsidies elimination by, for example, the United States or the EU. Still, a WTO fisheries agreement does not have to be universal if the major players such as the United States, the EU, Japan, Korea, India, and China all support the agreement. At some point, their mutual interest in fisheries conservation and stock rebuilding (significant civil society goals), the realization that, as an economic development tool, a fisheries agreement would be far less costly than direct foreign aid to LDCs dependent on coastal fisheries, and more general desires for government cost savings, particularly within the EU, could help to bring about an agreement.

II. Encouraging Freer Trade in “Green” Technology Goods and Services: A Sustainable Energy Trade Agreement? A.  General Considerations The Doha Declaration contemplates “the reduction, or as appropriate, elimination of tariff and non-tariff barriers to environmental goods and

WTO Agreement on Trade-Related Aspects of Intellectual Property, arts. 51–60. Allgeier, “The Trade Toolbox,” 4.

24 25

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services.”26 The negotiations, had they succeeded, would have reduced or eliminated tariff and non-tariff barriers for trade in “green” technology including renewable energy products and services, creating a Sustainable Energy Trade Agreement (SETA). Such an agreement would have an impact beyond political correctness. Total imports of environmental goods into twenty-two major WTO Member countries amounted to $135.7 billion in 2007, about 1.6 percent of all merchandise imports.27 The impact of a Doha Round agreement would have been considerably greater in dollar terms if a Japanese proposal to include environmentally friendly automobiles whether powered primarily by gasoline engines, natural gas, hybrids (e.g., the Toyota Prius or Chevrolet Volt), or all ­electric systems (e.g., Nissan Leaf).28 The United States, as the major proponent, had asked WTO Members to freeze current tariffs first on 155 then, as a compromise, on only 25 “green” tariff lines, but the negotiations did not prosper because of the opposition of Brazil, India, and some other WTO Members.29 Consequently, former USTR Susan Schwab’s suggestion that an accord on green technologies might be possible at Geneva separately from the Doha package is reasonable.30 Under the MFN principle, if the United States and other proponents  were to eliminate tariffs on “green” goods, all other WTO Members, including China, would benefit, regardless of whether they had participated and made concessions. Similarly, MFN obligations reduce the attractiveness of the option for discriminatory application of the



WTO Ministerial Declaration, November 14, 2001, para. 31(iii), accessed July 25, 2012, http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm. 27 See Gary Clyde Hufbauer, Jeffrey J. Schott & Woan Foong Wong, Figuring Out the Doha Round (Washington: Peterson Institute, 2010), 97 (citing UNCTAD data). 28 Ibid. 29 Daniel Pruzin, “Hopes Fading for WTO ‘Deliverables’ Deal as Delegations Take Hard Line on LDC-Plus,” Int’l Trade Rep. (BNA) 28 (July 14, 2011), 1164. 30 Susan Schwab, “After Doha: Why the Negotiations are Doomed and What we should do About It,” Foreign Affairs 90 (2011), 104, 111,” 104, 111. 26

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reductions in environmental services market access.31 Still, for countries that already have low tariffs on alternative energy goods, such as the United States, a commitment to reduce tariffs to no more than 5  percent probably doesn’t significantly impact current import tariff levels. Additionally, the benefits for U.S. (and EU) exporters in terms of foreign market access, particularly among developing countries, could be substantial if the BRICs were to decide to participate. Otherwise, the potential benefits may be much less significant. Regardless of the forum, acceptance would likely be increased if the agreement included meaningful commitments on technology transfer and developmental aid for LDCs. Among the options under discussion is a “hybrid” approach in which developed Member countries would eliminate import duties on the “core” environmental goods, and developing country participants would reduce their tariffs over a longer period of implementation with built-in flexibility for certain sensitive products.32 Deciding what goods would qualify as environmental goods is also a challenge, although the APEC group appears to have resolved many of these issues with regard to its own non-binding commitments (see Chapter 9). If negotiations on a binding accord move forward in Geneva, disagreements beyond those over high-fuel-economy autos are likely to resurface, such as whether bicycles be considered environmental goods, as Japan has asserted, or ethanol, as championed by Brazil.33 How would the agreement treat “dual-use” goods, those that could be used, for example, in a water treatment plant but also for purposes generally unrelated to the environment, and appliances with a high energy-efficient rating?34 Whether the parties could agree to a bright line cutoff rule remains to be seen.

General Agreement on Trade in Services (GATS), art. II. Daniel Pruzin, “India, Latin American Countries Give Cool Reception to APEC Green Tariff Initiative,” Int’l Trade Daily (BNA), November 16, 2012. 33 See John Brew, “Peter Allgeier, Global Trade Policy Perspectives: President, C&M International,” Global Trade & Customs J. 5 (July 2012), 327, 330. This interview discusses some of the inclusion issues. 34 Ibid. 31 32

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B.  Addressing Subsidies and Unfair Trade Actions To further complicate negotiations, the negotiators would have to decide whether to address, if at all, subsidies for renewable energy goods. As of early 2010, China became the world’s largest producer of both wind turbines and solar panels, 35 allegedly through currency manipulation and illegal WTO subsidies in addition to manufacturing efficiencies. It seems unlikely under these circumstances that President Obama and Congress would pursue an initiative to facilitate entry of Chinese such goods into the United States without China making major concessions as well, presumably on reducing subsidies and facilitating imports of competing goods into China. Even if China should agree to open its markets to foreign products, which it has refused to date36 unless the tariff reductions were accompanied by changes in mandatory transfer of technology rules in China, China’s acceptance into such an accord would be problematic. Nor is China the only WTO Member that subsidizes renewable energy goods. Such subsidies are provided in the United States and elsewhere, as major exporting nations offered renewable energy subsidies to their manufacturers as a matter of national government economic policies. In the United States, for example, such subsidies amounted to $44.3 billion in 2009, although they are scheduled to fall to $16 billion in 2012 and $11 billion in 2014.37 The motives in the United States and elsewhere are varied; the subsidies may help to reduce fossil fuel consumption but they also create jobs and support research and development for clean energy goods production and may, if used efficiently, encourage exports. Such subsidies are accepted, if not welcomed, by experts such as Kevin



Keith Bradsher, “China Leading Global Race to Make Clean Energy,” The New York Times, January 30, 2010. 36 ICTSD, “US, China Solar Tensions Threaten to Eclipse Environmental Trade Talks,” Bridges Weekly, November 9, 2011, accessed August 7, 2012, http://ictsd.org/i/news/ bridgesweekly/117948/. 37 See “The End of Clean Energy Subsidies?,” The New York Times (editorial), May 5, 2012. 35

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Gallagher, who observes that they may have the effect of correcting ­distortions in the market of “climate altering fossil fuel,” which is subject to subsidies exceeding $300 billion per year.38 The relatively high cost of using sustainable energy in comparison to fossil fuels also encourages subsidization by governments that favor such conversion as a matter of policy.39 Therefore, a no-subsidy requirement is likely to be opposed by some policy makers in many countries, probably including Obama Administration officials in the United States, that desire to preserve the right to address climate change through such measures despite failures of some such as the now-bankrupt U.S. manufacturer Solyndra.40 Related unfair trade actions have also greatly complicated further negotiations on green technology goods and services. A decision in October 2012 by the U.S. Department of Commerce to impose anti-dumping and countervailing duties in the ranges of 18.32 percent to 249.66 percent and 14.78 to 15.97 percent, respectively, on U.S. imports of Chinese solar panels may make a SETA even less likely in the foreseeable future.41 (For the major producers, the aggregate penalty duties are in the 30 to 45 percent



Kevin P. Gallagher, “The Challenging Opportunities for the Multilateral Trade Regime,” December 20113. in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, accessed July 15, 2012, 39 Mahesh Sugathan, “Harnessing Trade and Markets for Sustainable Energy: A Case for Sustainable Energy Trade Initiatives,” December 2011, 2, in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, accessed July 15, 2012, http://ictsd.org/downloads/2012/02/mahesh-sugathan-harnessing-trade-and-m arkets-for-sustainable-energy-a-case-for-a-sustainable-energy-trade-initiatives.pdf. 40 See Steve Hargreaves, “Solyndra Bankruptcy May not be a Total Loss for Taxpayers,” CNNMoney, September 11, 2011, accessed November 18, 2012, http://money.cnn. com/2011/09/30/technology/solyndra/index.htm. Hargreaves discusses whether part of the U.S. government loan of $500 million to the enterprise could be partially recouped through the sale of Solyndra’s assets in the bankruptcy proceedings. 41 See International Trade Administration, “Fact Sheet: Commerce Finds Dumping and Subsidization of Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules from the People’s Republic of China” October 10, 2012, accessed November 1, 2012, http://ia.ita.doc.gov/download/factsheets/factsheet_prc-solar-cells-ad-cvd-finals20121010.pdf. 38

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range.) A separate trade action saw the Department of Commerce determine that wind towers (for turbine generators) were being subsidized in the 21.86 to 34.81 percent range and sold in the United States with dumping margins from 44.99 to 70.63 percent.42 Wind towers from Vietnam were found to have been dumped at rates ranging from 51.50 to 58.49 percent.43 In September 2012, the EU Commission launched an anti-dumping complaint against Chinese solar panel producers, as requested by a group of German solar panel producers, despite the expressed preference of German Chancellor Angela Merkel for a negotiated solution.44 A second complaint was initiated the same month against alleged Chinese subsidies of solar panel production by EU Prosun, a trade group representing twenty-five solar panel manufacturers.45 Several months later, China filed a complaint with the WTO charging that certain EU Members were subsidizing domestic solar panel production and discriminating against imports.46 A more fundamental problem facing those who support an agreement to lower tariffs on green energy goods is the fact that major nations have invested heavily in solar panel production. It is estimated that global production capacity amounts to seventy gigawatts but current (2012) annual consumption is only thirty gigawatts.47 Even with subsidies Chinese





See Department of Commerce Fact Sheet,“Commerce Finds Dumping and Subsidization of Imports of Utility Scale Wind Towers from the People’s Republic of China (China) and Dumping of Imports of Utility Scale Wind Towers from the Socialist Republic of Vietnam (Vietnam)” December 18, 2012, accessed December 27, 2012, http://ia.ita.doc. gov/download/factsheets/factsheet_china-vietnam-uswt-adcvd-final-20121218.pdf. 43 Ibid. 44 See Joe Kirwin, “EU to Launch Antidumping Probe into Chinese Solar Panel Imports,” Int’l Trade Daily (BNA), September 6, 2012. 45 Joe Kirwin, “European Solar Panel Makers File New Complaint against Chinese Competitors,” Int’l Trade Daily (BNA), September 26, 2012. 46 Keith Bradsher, “China Files WTO Case against Europe,” The New York Times, November 7, 2012. 47 See Diane Cardwell, “Solar Tariffs Upheld, but May Not Help in U.S.,” The New York Times, November 7, 2012, which reports on world supply and demand. 42

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manufacturers may lose $1.00 for every $3.00 in sales with world prices falling by 75 percent since 2008,48 and a dozen solar panel makers have gone bankrupt in the United States in the past several years.49 Although Chinese unfair trade practices may have contributed to problems facing the U.S. (and European) industries, it is evident that solar power simply is not competing as well as in the recent past because of greater advances in fossil fuel technology, particularly the expansion of natural gas production in the United States with a concurrent steep drop in gas prices.50 The result is to add increased financial pressure on the solar power industry in its efforts to compete with fossil fuels.

C.  A Plurilateral Initiative at APEC Still, among the supporters in principle of an agreement on green technology goods are many of the twenty-one Members of the Asia-Pacific Economic Cooperation Forum (APEC) where a plurilateral agreement is being pursued. The membership first reiterated its support in 2011 for an accord in Geneva that would reduce APEC members’ applied tariff rates to 5 percent or less on an APEC agreed list of environmental goods by 2015.51 Nearly a year later, at the APEC leaders’ meeting in Russia, the leaders agreed on a “credible list” of environmental products that “directly and positively contribute to green growth and sustainable development objectives on which we will reduce applied tariff rates to 5 percent or less by the end of 2015, taking into account economies’ circumstances and without prejudice to their positions in the World Trade Organization.”52 The United States was successful in urging the inclusion

See David Brooks, “A Sad Green Story,” The New York Times, October 18, 2012. Cardwell, “Solar Tariffs Upheld.” 50 Brooks, “A Sad Green Story.” 51 APEC, 2011 Leader’ Declaration, November 13, 2011, 1, accessed July 8, 2012, http:// www.apec.oeg/Meeting-Papers/Leaders-declarations/2011/2011_aelm.aspx?p=1. 52 APEC, 2012 Leaders’ Declaration, September 9, 2012, 3. Annex C, accessed September 9, 2012, http://www.apec.org/Meeting-Papers/Leaders-Declarations/2012/2012_aelm. aspx. 48 49

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of “core environmental products” such as renewable energy technologies, water and wastewater equipment, air pollution control equipment, and environmental monitoring and assessment equipment.53 The Leaders’ Declaration also committed to “ensuring that our actions to protect the environment are [the] least trade restrictive and consistent with our international trade obligations.” The core products all have the advantage of appealing to members of APEC or the WTO who are concerned with the protection of human health and the 1.1 billion people who do not have access to potable drinking water and adequate wastewater systems.54 The “least restrictive” language may possibility reassure some APEC members and other WTO Members who fear that developed countries seek to restrict imports under the guise of environmental protection where international trading rules appear to permit them to doing so. Finally, although the commitment to reduce tariff barriers would have been more definitive if the leaders had agreed to reducing bound tariffs to 5 percent or less (because once bound, such tariffs could never be increased), the focus on actually applied tariffs has the major advantage of not requiring legislative approval in most countries. According to U.S. officials, more than $1 billion worth of environmental goods exports to the Asia-Pacific region are subject to tariffs of more than 5 percent.55 Presumably, the APEC membership would prefer that such reductions take place as part of a WTO Agreement, but it seems evident that some members of the group are prepared to address green technology even if the broader WTO Membership is not willing to do so prior to or during

See Len Bracken, “USTR Official Puts Environmental Goods List at Top of Agenda for United States and APEC,” Int’l Trade Daily (BNA), August 30, 2012 (quoting a “senior official”). 54 See World Water Forum, “Water Supply and Sanitation,” accessed November 12, 2012, http://www.worldwatercouncil.org/index.php?id=23, which reports that 1.1 billion people lack access to potable water and 2.5 billion lack adequate sanitation. 55 See Len Bracken, “APEC Agrees on List of Environmental Goods Set to Receive 5 Percent Tariff Limit by 2015,” Int’l Trade Daily, September 9, 2012 (quoting Deputy USTR Demetrios Marantis). 53

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2015. In APEC, most of the serious disagreements and game ­playing with the lists of products to be covered56 seem to have been resolved in September 2012. It is also hoped that a green technology agreement initially emanating from APEC could eventually attract broader support from a significant number of other WTO Members because, as with the Information Technology Agreement, the free-rider problem would presumably have been resolved within APEC. That being said, India and a group of WTO Members who are not participants in APEC (Argentina, Bolivia, Brazil, Cuba, and Venezuela) have indicated a strong preference for dealing with the SETA as part of the Doha Round in spite of at best modest progress in Geneva.57 Whereas one can speculate on the reasons for opposition by the six non-APEC countries (which oppose U.S. and other trade liberalization initiatives on a regular basis), the APEC initiative seems reasonably likely to come to fruition.



See Jeffrey J. Schott, “What Should the United States do About Doha?,” PB11-8, Peterson Inst. For Int’l Economics (2011), 8, accessed September 4, 2012, http://www. iie.com/publications/pb/pb11-08.pdf, which discusses the prospects for a green energy accord at Doha. 57 Pruzin, “India, Latin American Countries Give Cool Reception.” 56

6

New and Expanded Plurilateral Agreements (Part I)

With the exceptions noted in Chapters 4 and 5, broadly based (but not universally accepted) progress is more likely to be achieved through plurilateral agreements supported only by the Members that are willing to accept the obligations to reap the benefits, whether undertaken under WTO auspices or separately. As one scholar has observed: “[M]any complex issues, including services, investment, agricultural subsidies, and the import of manufactures in developing countries, remain de facto outside the WTO’s reach.”1 Some of these sectors may be effectively beyond any broad international accord even on a plurilateral basis and destined only for treatment in regional trade agreements; but agreement on others seem more promising. Historically, the GATT system is no stranger to agreements that are binding only for the willing. The Kennedy Round Anti-Dumping Code and the Tokyo Round codes on anti-dumping, subsides, customs valuation, and other disciplines2 were all effectively plurilateral agreements even though the term was not used at the time. Four plurilateral agreements were adopted as part of the Uruguay Round group of agreements,



See Uri Dadush, “The Future of the World Trading System,” Int’l Economic Bulletin, July 14, 2010, 3, accessed June 19, 2012, http://www.carnegieendowment.org/2010/07/14/ future-of-world-trading-system/45b. 2 See WTO, “Pre-WTO Legal Texts,” accessed December 5, 2012, http://www.wto.org/ english/docs_e/legal_e/prewto_legal_e.htm, which lists the various trade agreements developed from 1947–1986. 1

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the Government Procurement Agreement (GPA; see Section I of this chapter) and those addressing trade in civil aircraft, dairy, and bovine meat, but the last two are no longer in force.3 Another agreement – the 1996 Information Technology Agreement (ITA) – is discussed in Section II of this chapter. The practical ability of WTO Member nations further to reduce tariff (and service) trade barriers among a group smaller than the full WTO Membership is limited at the WTO in Geneva. Tariff reductions must be offered on a MFN basis, whether or not the beneficiaries of the reductions are part of the bargain4 and absent a waiver from the Membership (which may be problematic). Fortunately, if there is adequate political will there are other possibilities, the most promising of which include further refinements in the GPA and the ITA, where negotiations have been taking place in Geneva for some time. The ITA is particularly important for political reasons  – if a revised agreement negotiated primarily under WTO auspices in Geneva were to be completed by the December 2013 WTO Ministerial meeting, it would provide a large group of WTO Members with a notable achievement at a time when there are likely to be few other achievements to celebrate. Beyond the GPA and ITA, other colorable options for plurilateral agreements include further (probably long-term) efforts at anti-competition, protection of foreign investment, electronic commerce, and even health care, as well as the Anti-Counterfeiting Trade Agreement (ACTA) initially concluded in 2011 among the EU, its twenty-seven Members, and eight other WTO Member nations (thus a plurilateral agreement). Its fate, however, remains uncertain as of the end of 2012. Although it is conceivable that some sort of services disciplines could be made available to a significant group of willing WTO Members as a plurilateral agreement similar to the GPA and ITA, MFN



See Marrakesh Agreement Establishing the World Trade Organization, April 15, 1994, Annex 4. 4 GATT 1994, art. I. 3

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considerations and the “free rider” problem, among others, make this impractical,5 at least until such time as a critical mass of Members have acceded. Waivers of MFN requirements are possible under the General Agreement on Trade in Services (GATS),6 but the likelihood of a waiver for the multiple parties to a plurilateral services agreement that does not meet the requirements of GATS Article V “economic integration agreements” (EIA) and can therefore be implemented without a waiver seems slight. Consequently, any plurilateral agreement on services, even if negotiated in Geneva, must also qualify as an EIA under Article V, the GATS equivalent of a free trade agreement under GATT Article XXIV. If the ISA so qualifies it could provide expanded services disciplines and services market opening for the parties without concern over “free riders” who would reap the benefits under the MFN clauses. Accordingly, the prospects for a plurilateral EIA on services are discussed in Chapter 7. This chapter focuses on expansion of the GPA and the ITA, with briefer discussions of the other possibilities for plurilaterals as noted earlier.

I.  Expanding the Government Procurement Agreement A.  History and Significance After initial discussions at the OECD, government procurement was included in the Tokyo Round GATT negotiations, resulting in the conclusion of a Government Procurement Code (GPC), which in revised form became the GPA. The GPC entered into force in 1981 and was amended

At the 8th Ministerial Meeting in Geneva in December 2011, the Ministers agreed to a waiver of nondiscriminatory treatment so that preferential treatment in services could be offered by developed and developing countries to least developed countries. WTO, “WTO ministers adopt waiver to permit preferential treatment of LDC service suppliers,” Dec. 17, 2011, accessed June 20, 2012, http://www.wto.org/english/news_e/ news11_e/serv_17dec11_e.htm. 6 Waivers for individual members are contemplated under GATS Article II.2 and Annex on Article II Exemptions, but they apply primarily upon accession to GATS. 5

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in 1988; at that time, it imposed disciplines on bidding and transparency requirements only for central government procurement and only for goods, not services. 7 Like the other Uruguay Round Codes, accession was not mandatory for GATT Contracting Parties. The plurilateral Uruguay Round GPA became effective January 1, 1996.8 As explained by the WTO Secretariat, “[t]he GPA is based on the principles of openness, transparency and non-discrimination, which apply to Parties’ procurement covered by the Agreement, to the benefit of Parties and their suppliers, goods and services.”9 As of late 2012, the GPA’s membership includes forty-two nations, including the twenty-seven Members of the European Union.10 Twenty-three Members are observers; those actively seeking Membership include China, Jordan, the Ukraine, and six others.11 Indonesia was the most recent WTO Member to join the ranks of observers, signaling interest in adhering to the GPA without any understandings as to timing or scope of commitments.12 Government procurement of goods and services is an important sector in most economies, accounting for 15 to 20 percent of GDP.13 Economists









WTO, “The Plurilateral Agreement on Government Procurement,” accessed June 18, 2012, http://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm. 8 Agreement on Government Procurement, Annex 4 of the WTO Agreement, Apr. 15, 1994. 9 WTO, “The Plurilateral Agreement.” 10 The others include Armenia, Hong Kong, Iceland, Israel, Japan, South Korea, Lichtenstein, Aruba (Netherlands), Norway, Singapore, Switzerland, Chinese Taipei, and the United States. WTO, “Parties to the Agreement,” accessed June 20, 2012, http:// www.wto.org/english/tratop_e/gproc_e/memobs_e.htm#parties. 11 WTO, “Parties and Observers to the GPA,” accessed June 19, 2012, http://www.wto.org/ english/tratop_e/gproc_e/memobs_e.htm#memobs; see ICTSD, “Finish Line ‘Clearly in Sight’ for WTO Gov’t Procurement Deal: Chair,” October 19, 2011, 3, accessed June 19, 2012, http://ictsd.org/i/news/bridgesweekly/116637/. 12 See Daniel Pruzin, “Indonesia Signals Interest in WTO Government Procurement Agreement,” Int’l Trade Reporter (BNA) 29 (October 4, 2012), 1587, which indicates Indonesia’s request for observer status. 13 ICTSD – GPA, 1. The WTO secretariat suggests that the value of an expanded GPA with additional coverage and members would be worth $380 to $970 billion worth of trade annually. 7

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have estimated that a coming infrastructure boom in developing countries will amount to almost $20 trillion in expenditures for goods and services, the bulk of which will likely be spent by governments.14 The dream of a GPA that would include Brazil, China, India, Russia, and South Africa (BRICS) is likely some years away, because China is the only one of the five actively seeking Membership. Russia has only indicated that it would adhere to the GPA “in coming years.”15

B.  Updating the GPA – 2011 The 1996 GPA incorporates a requirement for further negotiations after the first three years in force and “periodically thereafter.”16 Such negotiations were incorporated into the Doha Round. Although provisional agreement on a revised GPA was reached in September 2006, the negotiations continued into December 2011 when the accord was finally completed.17 The negotiators sought to add more than 200 listed government ministries and agencies, as well as sub-central entities, to the Members’ annexes that would be newly subject to the GPA. Full coverage was also extended to construction services; more than 150 additional agencies were ultimately agreed on.18 One of the most difficult issues was EU dissatisfaction with Japanese and U.S. proposals on future commitments for liberalized public procurement and the future GPA work program.19 The EU had also been pressuring the United States to add more central government entities to those





J. Bradford Jensen, Global Trade in Services: Fear, Facts, and Offshoring (Washington: Peterson Institute, 2011), 7. 15 See Sergei Blagov, “Russia Will Continue to Support Agriculture after Full WTO Membership in August 2012,” Int’l Trade Rep. (BNA) 29 (February 2, 2012), 174 (quoting Russian WTO negotiator Maxim Medvedkov). 16 GPA, art. XVI(7). 17 Daniel Pruzin, “Negotiators Clinch WTO Procurement Deal,” Int’l Trade Rep. (BNA) – Breaking News, December 15, 2011. 18 Ibid. 19 Ibid. 14

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covered (with twelve added in the new accord), and to expand the coverage of U.S. state governments beyond the current thirty-seven.20 Other, broader, changes to the GPA process include updating that would take into account the increasing use of online advertising for tenders and electronic procurement. The negotiators also rejected efforts by some members to withdraw concessions granted in the Uruguay Round,21 and the United States successfully insisted that the revised GPA be concluded by December 2011, rejecting earlier in that year the idea of no more than an agreement in principle by that date.22 The revised GPA, once it has entered into force, is expected to expand the Parties’ market access by $80 to $100 billion annually,23 and is also designed to make accession more attractive to developing country Members. The negotiators, when pursuing new accessions by developing Members, are to “give special consideration to the development, financial and trade needs and circumstances of developing countries and least developed countries.”24 This provision contemplates price preferences to protect domestic industries, flexibility in deploying assets, phasing in of certain coverage, and initial coverage thresholds about the standard levels.25 It is hoped that these changes will encourage developing Members to accede.





Daniel Pruzin, “GPA Talks Chair Cites Growing Confidence in WTO Procurement Deal in December,” Int’l Trade Rep. (BNA) 28 (October 20, 2011), 1689. Alabama, Alaska, Georgia, Indiana, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, South Carolina, Virginia, and West Virginia have not permitted any of their procurement to be covered by the GPA. (U.S. GPA annexes.) 21 Ibid. 22 “U.S. Says Revised GPA Must be Fully Concluded by December Ministerial,” World Trade Online, October 20, 2011. 23 WTO, “Historical Deal Reached on Government Procurement,” December 15, 2011, accessed June 19, 2012, http://www.wto.org/english/news_e/news11_e/gpro_15dec11_e. htm. 24 Revised GPA, art. V(1). 25 See Robert D. Anderson, Steven L. Schooner & Collin D. Swan, “The WTO’s Revised Government Procurement Agreement  – An Important Milestone toward Greater Market Access and Transparency in Global Public Procurement Markets,” George Washington University Legal Studies research Paper No. 2012-7, January 2012, 3. 20

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C.  Further Expansion of the GPA The revised GPA was adopted by the Committee on Government Procurement (CGP) on March 30, 2012 and is under submission to the Parties’ respective constitutional processes for approval.26 It is hoped that the new GPA will enter into force in 2013. Still, remaining controversies suggest that the GPA discussions will continue well into the future with expansion of both commitments and membership. The revised GPA has built-in obligations to continue negotiations in such areas as best practices on encouraging participation by small and medium-sized businesses; promoting government procurement practices that are environmentally sustainable; and improving statistical data relating to the implementation of the Agreement.27 Also, the EU Commission has proposed that it be allowed to retaliate against non-Member nations when those nations fail to address market access imbalances and engage in “repeated and serious discrimination.”28 Such  retaliation  – if accomplished improperly  – could be of doubtful legality under other WTO Agreements, it underlies the significance that the EU gives to expanding government procurement markets abroad on the reciprocal basis that is permitted in the GPA. Although there is obvious benefit in increasing the lists of the Parties’ covered agencies and of sub-federal units, the greatest expansion of government procurement opportunities probably lies elsewhere, as suggested earlier. The highest priority for the parties to the GPA is and should be continued efforts to induce major developing countries, particularly the BRICS, to accede, as that is where the major gains in sales opportunities lie. It is estimated that, should the BRICS all become Parties, the

WTO, “Committee on Government Procurement Adopts Revised Agreement,” March 30, 2012, accessed August 7, 2012, http://www.wto.org/english/news_e/news12_e/ gpro_30mar12_e.htm. 27 Anderson, Schooner & Swan, “Revised GPA,” 4. 28 Bengt Ljung, “EU Plan Would Allow Retaliation against Countries Restricting Procurement Markets,” Int’l Trade Rep. (BNA) 29 (March 29, 2012), 479. 26

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total value of the additional market access commitments would be in the range of $380 to $390 billion annually.29 Pursuing the negotiations with nine of the now twenty-five WTO Members who are currently observers to the GPA and thus most likely to accede in the short-term (particularly China) is a short- to medium-term goal,30 with Russia hopefully to be added to the list of observers now that it is a Member of the WTO. It appears that both India and Vietnam, which have made no commitments to accede, are evaluating their interests in participating.31 Several of the remaining observers are also major economies, such as Argentina, India, Saudi Arabia, Russia, and Turkey. It is questionable, however, whether highly protectionist policies in Argentina and India are consistent with a strong interest in the GPA despite the likely benefits it would bring to their economies and to their own goods and services exports.32 Negotiations with China have been on-going since 2007. Although China has made three proposals, each more favorable to the other Parties than the earlier one, China in the view of the United States and other parties has not yet met their expectations for accession.33 China had committed to presenting a revised proposal by the end of 2012 that the United States hoped would include greater coverage at all levels of Chinese procurement and lower thresholds for applying GPA non-discrimination rules to public contracts and reducing the number of exceptions in the November 2011 offer.34 That revised offer was circulated in November





Robert D. Anderson, Philipe Pelletier, Kodjo Osei-Lah & Anna Caroline Miller, “Assessing the Value of Future Accessions to the WTO Agreement on Government Procurement (GPA),” WTO Working Paper, October 6, 2011, 8. 30 The others are Albania, Georgia, Jordan, the Kyrgyz Republic, Moldova, Oman, Panama, and the Ukraine, plus Indonesia as of late 2012. 31 Anderson, Pelletier, Osei-Lah & Miller, “Assessing the Value of Future Accessions,” 5. 32 See, e.g., Simon Denyer, “Promise of a US-India Economic Partnership Remains Unfilled,” Washington Post, May 3, 2012; “Protectionism in Argentina: Keep Out,” The Economist, September 24, 2011. 33 Anderson, Schooner & Swan, “Revised GPA,” 5. 34 See “U.S. Seeks Big Upgrades in China’s Next Government Procurement Offer,” World Trade Online, July 19, 2012, which relates the status of the Chinese offer and the U.S. position. 29

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2012, but was almost immediately rejected by the EU and the United States because it failed to cover state-owned enterprises (SOEs), expand coverage of construction and other services, or apply GPA disciplines to all Chinese provinces and municipalities.35 Also, because the GATS effectively excludes government procurement in its present form36 and an International Services Agreement likely will not, at least in the foreseeable future include BRICS membership, expanding developed country opportunities for increased services trade relating to such procurement depends on expanding GPA membership. Part of the process of attracting developing nations to the GPA is an educational one, which requires explaining the importance of increased competition, stimulating foreign investment, transparency in promoting more effective management of public resources, and reducing the corruption that arises in a closed procurement system whether the procurement is international or local.37 Recent developments, such as the enactment of “Buy American” provisions in the U.S. stimulus legislation in 2009,38 confirmed that non-GPA Parties can no longer assume that procurements in GPA Party nations will continue to be open to them. At least forty such “buy national” measures have been proposed in various countries, both developed and developing,39 and there seems little likelihood that this trend will not continue in a world in which sluggish growth or recession has become the norm. Protectionism in government procurement for non-GPA Parties is one of the few areas in which such preference for national suppliers carries little risk of WTO challenge and, despite the economic costs to the protector, is likely to continue or increase.



See “New Confidential China GPA Offer Falls Short of U.S., EU Demands,” World Trade Online, November 30, 2012, which summarizes the new Chinese offer and reactions to it in the United States and the EU. 36 GATS, art. XIII. 37 See id., 10, 24, 26. 38 American Recovery and Reinvestment Act of 2009, Pub. Law 111–5, §§ 604, 1605. 39 Anderson, Pelletier, Osei-Lah & Miller, “Assessing the Value of Future Access­ ions,” 22. 35

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Beyond developing Member accession, improving market access among current Parties is worth pursuing. Many current governments, including the United States, continue to exclude smaller procurements, generally those less than 130,000 Special Drawing Rights (currently $202,000) for central government procurement and 5 million SDRs ($7.78 million) for construction.40 Expanding such coverage soon after the efforts leading to the revised GPA is probably not likely for most GPA Parties despite the obvious benefits of domestic political opposition; but such coverage should be part of the GPA agenda for the longer term.

II. Revision and Expansion of the Information Technology Agreement A.  History and Significance The original ITA was not a part of the Uruguay Round package; it was concluded as a plurilateral agreement at the WTO’s Singapore Ministerial Conference in December 1996.41 The original number of participants (twenty-nine) has grown to seventy-four (counting the Members of the EU individually), representing some 97 percent of world trade in information technology (IT) products. (Brazil, Mexico, and now Russia appear to be the only major WTO Members that have not become parties.) The ITA provides for complete elimination of tariffs on approximately 180 covered IT products  – including ­semiconductors, computers, and telecommunications equipment – with some developed country Members afforded extended grace periods for



See 16 Fed. Reg. 76808–76809 (December 8, 2011); GPA, app. I. SDRs are an international reserve asset that was created by the IMF in 1969, with the value determined by a “basket” of currencies. See IMF, “Special Drawing Rights (SDRs),” accessed December 6, 2012, http://www.imf.org/external/np/exr/facts/sdr.htm. 41 For a comprehensive history and analysis of the ITA, see WTO, “15 Years of the Information Technology Agreement” (2011), accessed June 19, 2012, http://www.wto. org/english/res_e/publications_e/ita15years_2012full_e.pdf. 40

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certain products.42 Many ­developing countries have benefitted from the ITA even though they are not all Parties because of unconditional MFN treatment under the ITA; tariff reductions granted to the Members automatically apply to other WTO Members. For example, as a share of high-tech exports, the Philippines’ increased by 93 percent, India’s by 59 percent, and China’s by 57 percent.43 (All are ITA Parties.) An “ITA II” was contemplated in the initial WTO Ministerial Declaration and the implementation document (which called for periodic review of product coverage). That review process began in 1997 with an invitation to the Parties to submit lists of additional products; however, little progress was made. No effective progress was made during most of the Doha Round negotiations prior to 2010.44 Since 2010, the WTO’s ITA Committee had been discussing a proposal by the EU for a broad review of the ITA, which was to include negotiations on non-tariff barriers and expand both product coverage and membership.45 These continuing efforts reflect the widespread recognition that, after sixteen years of the development of new high-tech products, the ITA is seriously need of revision and expansion.

B. Conclusion of a Revised ITA and Expanded Country Participation 1.  Current Participants In May 2012, it was agreed by the Information Technology Agreement Committee (ITAC), with the United States supported by Canada,

WTO, “Information Technology Agreement,” accessed June 20, 2012, http://www.wto. org/english/tratop_e/inftec_e/inftec_e.htm. 43 “U.S., Others in Talks on Expansion of WTO Information Technology Agreement,” Int’l Trade Rep. (BNA) 29 (April 26, 2012), 653. 44 See WTO, “Information Technology Agreement  – Introduction,” accessed June 19, 2012, http://www.wto.org/english/tratop_e/inftec_e/itaintro_e.htm. 45 See “EU Pushes for Review of Information Technology Agreement,” Nov. 11, 2010, accessed June 20, 2012, http://www.wto.org/english/news_e/news10_e/ita_11nov10_e. htm. 42

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Chinese Taipei, Costa Rica, Japan, Korea, and (with some reservations) the EU, to begin informal talks for a revised ITA.46 The objective was to conclude a deal quickly, outside the Doha framework.47 As of November 2012, the list of participants also included Australia, China, Hong Kong, Japan, Malaysia, New Zealand, Norway, the Philippines, Singapore, and Thailand.48 The tentative discussions reflect a 2008 EU proposal to expand product coverage to reflect new technologies,49 reduce non-tariff barriers to high technology product trade, and increase the number of WTO Members who are Parties to the ITA beyond the existing group of seventy.50 As of the end of December 2012, it appeared probable that formal negotiations could begin as soon as the first part of 2013.51 Those negotiations, following five rounds of technical discussions, were expected to shift toward a series of negotiations over the various IT goods that would be included in the final lists, reflecting various trade-offs among the participants.52 2.  Additional Parties Two of the new Parties are likely to be Montenegro and the Russian Federation, both recent Members of the WTO, which were consulting on their tariff schedules with the WTO Secretariat as of September 2012.53 Russia had committed to accede to the ITA as part of its WTO accession,







WTO, “Informal Talks Set to Begin on Expanding the Information Technology Agreement,” May 15, 2012, accessed June 19, 2012, http://www.wto.org/english/news_e/ news12_e/ita_15may12_e.htm. 47 “U.S., Others in Talks on Expansion,” 653. 48 Daniel Pruzin, “Talks on Expanded ITA Expected to Shift into Trade-Off Phase Early Next Year,” Int’l Trade Daily, November 20, 2012. 49 These include GPS receivers; video game consoles; industrial robots; remote health patient monitoring systems; products capable of processing, sending or receiving digital signals; and related parts and components. 50 Ibid. 51 “ITA Negotiations Could Start in Early 2013; China Looks to Limit Scope,” World Trade Online, November 8, 2012. 52 Pruzin, “Talks on Expanded ITA Expected to Shift.” 53 WTO, “Informal Talks.” 46

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but did not meet that deadline.54 The Russian draft schedule was not submitted to the WTO until early August, guaranteeing that the accession process to the ITA would not be completed by its WTO accession (August 22, 2012). Whether this was a breach of a legal commitment to accede to the ITA by a date certain, Russia’s first as a WTO Member, or simply an undertaking to complete the procedural steps was a matter of disagreement among delegations.55 There remain a number of developing countries that have not yet joined the ITA. Unconditional MFN treatment may secure market access for developing country exporters, but the maintenance of tariffs on high-technology imports complicates high-tech manufacturing in non-ITA Party countries because of tariffs applicable to electronic parts and components imports that local high-tech producers require to manufacture products for export as well as those for domestic sale. Foreign firms that manufacture such goods may seek out countries in which they do not have to be concerned about import duties on such parts and components. Even if export goods are assembled in duty-free zones where importation of parts and components is permitted,56 duty-free importation of parts and components may be permissible only with detailed and administratively costly record keeping and a loss of sourcing flexibility. It is likely that these factors will continue to be relevant to attracting additional developing countries (most recently Colombia) to the ITA. In view of these considerations, one of the most puzzling holdouts is Mexico. Although Mexico (and Canada) agreed in NAFTA to reduce computer-related products to zero tariffs,57 Mexico has resisted eliminating duties through the ITA on many other high-tech products; no recent

See “U.S., WTO Members Express Alarm over Russia’s Delay in Joining ITA,” World Trade Online, July 25, 2012. 55 See “Russia Makes Progress Toward Joining ITA, but May Still Miss Accession,” World Trade Online, August 20, 2012. 56 Although the practice is an export subsidy, it is nevertheless permitted with certain limitations under the WTO Agreement on Subsidies and Countervailing Duties (SCMA), annex I(i). 57 NAFTA, annex 308.1. 54

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discussions regarding Mexico’s participation have occurred. Mexico’s non-Party status contributed to serious difficulties for electronics manufacturers located in Mexico beginning January 1, 2001, because (as of that date) Mexico under NAFTA was no longer permitted to afford maquiladora producers58 duty-free treatment of parts and components imported from outside the NAFTA region when the finished products were to be exported to the United States or Canada.59 To avoid a wholesale migration of such firms to locales that could provide remission of customs duties on parts and components, the government created an elaborate “special sector” program or “PROSEC.”60 To achieve compliance with NAFTA rules, the PROSEC program has been applicable to all manufacturers of the specified products in more than twenty industrial sectors. Unfortunately, although qualification for the PROSEC program is virtually automatic for maquiladoras,61 users are required to trace imported parts and components to finished product exports and to seek government approval to add products to the duty-free lists. In other words, it is a significant administrative burden for industry,62 much of which could have been avoided had Mexico acceded to the ITA. 3.  Expansion of ITA Coverage A WTO concept paper circulated in May 2012 noted that more than fifteen years had passed since the ITA was concluded in 1996; that the ITA



Foreign-owned companies originally designed to produce goods primarily for export and receiving certain benefits to encourage such production. 59 NAFTA, art. 303. 60 The essence of the PROSEC program was to provide Mexican importers of the parts and components used to manufacture specific finished products, with zero or reduced (usually 5%) duties on hundreds of non-NAFTA materials, parts and components, most recently in a 2002 decree. See “Decreto que Establece Diversos Arancels para la Competitividad de la Industria Electrónica y la Economía de Alta Tecnología,” (“Decree Establishing Various Tariffs for the Competitiveness of the Electronics Industry and the High Tech Economy”) D.O. April 4, 2002. 61 Luis Ricardo Rodriguez, email to author, June 20, 2012. 62 See David A. Gantz, “Legal and Policy Implications of the NAFTA Article 303 Changes,” Denver J. Int’l L. & Pol’y 30 (2001), 1, 30–36. 58

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has been “tremendously successful in facilitating increased global trade and investment, encouraging information and communications technology (ICT) adoption, and reducing the costs of ICT inputs.” Yet, over the period, “the ICT sector itself has evolved dramatically,” with many new IT and more sophisticated products and production methods reaching the market.63 Citing “substantial interest among ITA Members and the private sector to expand the scope of coverage to include new products,” the sponsors call for a two-pronged approach: expansion of product coverage and efforts to include non-signatory producers in the ITA. Prompt negotiations and conclusions would, according to the sponsors, “provide a much needed boost to the global economy and reinforce the importance of the multilateral trading system.”64 Similarly, a U.S. industry group has observed that the ITA is “way overdue on product expansion” and advocated completion of a revised ITA by the next WTO Ministerial meeting in December 2013.65 The Asia Pacific Economic Cooperation forum (see Chapter 9) has given its strong support to “achieve a good outcome” in the ITA negotiations.66 Given the pace of technological change in the world today, it seems obvious that – to be fully effective – the ITA should be subject to more frequent periodic updating. By the end of 2012, the discussions were slowly progressing. Some participants in the negotiations had proposed adding some 350 products to the lists of high-tech goods to be subject to duty-free treatment under a revised ITA. These included printing ink, turntables, microphones, computer fans, combined printer/copier/fax/scanners, laser machine tools, printed circuit manufacturing equipment, wafers, integrated circuits,

Canada, Japan et al., “Concept Paper for the Expansion of the ITA,” May 2, 2012, G/IT/W/36, accessed June 19, 2012, http://www.wto.org/english/news_e/news12_e/ ita_15may12_e.htm. 64 Ibid. 65 See “EU Endorses U.S.-Led Proposal for Negotiations on Expanded ITA,” Int’l Trade Rep. (BNA) 29 (May 17, 2012), 791. 66 “ITA Members Begin Talks on Drafting Proposals for Product Expansion,” World Trade Online, June 7, 2012, 2. 63

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flat panel displays, certain batteries, base stations, smart cards, ­monitors, TV cameras, optical fiber, and communications satellites.67 A U.S. International Trade Commission report identified 9 of the 130 product codes under multilateral consultation as being import sensitive, including various inks, photographic products semiconductor wafers copper foil and laminates, and one form of optical fiber.68 Although the ITC report does not preclude U.S. agreement to any of the listed items in a revised ITA, it confirms that final agreement on a list of covered items may be somewhat controversial, even for the United States. Some – perhaps considerable – disagreement remains as to the range of discussions. Although the EU initially urged that the negotiations deal with product standards, conformity texting and export controls, the United States expressed skepticism about addressing these issues in the ITA context because increasing the scope in this manner could slow or stall the negotiations, neither of which the concept paper addresses. The EU, however, has signaled that it would be flexible on inclusion or exclusion of these issues.69 The EU has also urged other ITA members to expand the discussion of non-tariff barriers to ITA goods beyond an existing work program, presumably because that program has produced few results and has progressed only slowly.70 The EU proposals have yet to become focused, making reference instead to broad themes such as “transparency” and “good regulatory practices,” and falling short of a binding legal obligation to eliminate existing NTBs and avoid creating new ones.71





Daniel Pruzin, “More than 350 Tariff Lines Proposed for Coverage under WTO’s Expanded ITA,” Int’l Trade Rep. (BNA) 29 (August 2, 2012), 1256. 68 See Amy Tusi, “ITC Issues ITA Report at USTR Request: Lists Nine Product Codes as Import Sensitive,” Int’l Trade Daily, November 11, 2012 (discussing the ITC Report). 69 “EU Throws Support behind ITA Expansion Approach Offered by U.S.,” World Trade Online, May 17, 2012. 70 “EU Proposal on Non-Tariff Barriers Faces Resistance from ITA Members,” World Trade Online, August 16, 2012 (explaining Member concerns with the EU proposal). 71 Ibid. 67

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In addition, several developing country Parties, including China, India, and Egypt, have expressed reservations, stressing a greater need for transparency in the negotiating process and the provision of “flexibilities” to developing countries in a revised accord. China has already identified a list of items (80 to 120 according to various sources) for which it is not prepared to reduce tariffs to zero because the items are said to be import sensitive.72 India has also expressed skepticism about a revised ITA because of concerns that some relatively new high-tech products being produced in India would be unable to compete with imports at low or zero duty levels.73 Under the MFN clause, India would reap the benefits of access for its exports of newly covered IT products to the other ITA Parties even if it does not participate. Given the dependence of electronics manufacturers in India and elsewhere on imported parts and ­components, however, one suspects that exports from India of some high-tech products which could otherwise be manufactured there will suffer if the parts and components imported into India remain subject to duties. The United States has taken no public position on India’s refusal to participate so that the United States’s willingness to conclude a revised ITA with India as an outlier is uncertain.74 Some Parties have also expressed the view that the focus of liberalization should be solely on information technology products, excluding such product lines as kitchen electronics.75 As of the end of 2012, both the content and pace of the negotiations remain unclear, although it appears that the differences to date are likely to result in reasonable compromises given the broad interest of the Parties and potential additional adherents in completing the negotiations within a reasonable time.



See “ITA Negotiations Could Start in Early 2013,” which discusses China’s position on sensitive products. 73 “EU Proposal on Non-Tariff Barriers Faces Resistance.” 74 See Pruzin, “Talks on Expanded ITA Expected to Shift” (noting India’s position and the possible U.S. reactions). 75 World Trade Online, June 7, 2012, 1. 72

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III. Other Possible Plurilateral Agreements Affecting Trade in Goods Of the many areas in which plurilateral agreements may be feasible if one is not committed to success in the short term, five – health care products, electronic commerce, investment, competition law, and anti-counterfeiting – are worth noting.

A.  Health Care Products and Services Former U.S. Trade Representative Susan Schwab has suggested that the ITA approach might be applied in a WTO plurilateral agreement that would cover pharmaceuticals, medical equipment, and/or health care services, with the objective of reducing the costs associated with delivering health care.76 In some areas, such as pharmaceuticals, the major producers include both developed Members, such as the United States and the EU, and developing country Members, such as India, Brazil, and Thailand. Whether those interested would be willing to conclude such an agreement or agreements, knowing that many of the benefits would accrue to free riders, remains to be seen. It may be that broad concerns over health care and related public health issues would provide sufficient stimulus for initiating such negotiations. At the same time, divergence of objectives between pharmaceutical providers in the EU and the United States and those in developing nations such as India and Thailand, may well as a practical matter preclude any effective agreement, particularly given the strong political influence of pharmaceutical producers in most producing nations.

B.  Electronic Commerce The WTO “Work Programme on Electronic Commerce,” has had little success in the past decade, despite the indication of interest in 2001:

Susan Schwab, “After Doha: Why the Negotiations are Doomed and What we Should do About It,” Foreign Affairs 90 (2011), 104, 111.

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As part of the Work Programme, the General Council has engaged in substantive discussions based on the reports submitted to it by the subsidiary Councils and Committees as well as on other relevant considerations. Given the rapid evolution of electronic commerce, many Members attach importance to further, focused deliberations on a number of the issues raised.77

This is an area in which the WTO has succeeded in reaching a “standstill” or understanding not to impose customs duties on electronic commerce; the long-standing policy has been rolled over until October 2012,78 but no further formal action to that end has been taken. Electronic commerce has been addressed much more fully in some regional trade agreements, including many of those concluded by the United States in recent years. For example, the United States-Korea Free Trade Agreement provides inter alia that the parties will not “impose customs duties, fees, or other charges on or in connection with the importation or exportation of . . . . a digital product fixed on a carrier medium; or a digital product transmitted electronically.” 79 Other WTO Members might be willing to consider similar commitments on a reciprocal basis. However, there appears to be no groundswell of WTO support for addressing these issues and some Members are likely wary about foreclosing any avenues for raising new revenue even if to date they have not been utilized.

C.  Investment Protection Agreements Both investment and competition law, as they relate to trade, were included in the Doha Declaration,80 but strong support for negotiations

Introduction to the Report of the General Counsel for Doha, Nov. 9, 2001, WT/ MIN(01)/14, accessed June 20, 2012, http://www.wto.org/english/thewto_e/minist_e/ min01_e/wt_min01_14_e.pdf. 78 “Continued Doha Disagreements Raise Doubts About Ministerial Declaration,” World Trade Online, October 13, 2011, at 1. 79 Free Trade Agreement between the United States and the Republic of Korea, U.S.–S. Korea, June 30, 2007, art. 15.3. 80 Doha Ministerial Declaration, November 20, 2001, paras. 20–22 (investment), 23–25 (competition), accessed December 6, 2012, http://www.wto.org/english/thewto_e/ minist_e/min01_e/mindecl_e.htm. 77

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on these two issues has been limited to the EU and Japan. The topics were dropped from the Doha negotiating agenda in 2004.81 New multilateral efforts seem no more promising than the Multilateral Agreement on Investment (MAI), except perhaps in the long term. Still, the importance of dealing effectively with foreign direct investment issues, including investor-state disputes, is self-evident. Global foreign direct investment (FDI) has continued to increase in recent years even with an uncertain global economy, despite some fluctuations. In 2011, FDI increased by 17 percent, to approximately $1.5 trillion.82 In contrast, as of the end of the third quarter of 2012, FDI flows were declining, by 12 percent from the second quarter of 2012 and 33 percent from a year earlier.83 Substantial volumes of FDI inevitably mean disputes. As of the end of 2011, at least 450 known investor-state arbitration cases had been lodged worldwide. Of these, 279 had been submitted to the International Center for Settlement of Investment Disputes (ICSID) or the ICSID Additional Facility, 126 under the UNCITRAL Rules, 21 at the Stockholm Chamber of Commerce, and 1 each at the Cairo Centre for International Arbitration and the London Court of International Arbitration. Overall, about 62 percent of all cases were brought under ICSID or Additional Facility Rules and 28 percent under UNCITRAL Rules. The legal framework is dominated by bilateral agreements rather than a multilateral accord. 1.  Failure of the MAI and Earlier Attempts Efforts over more than sixty years, beginning with the Havana Charter in 1946, to conclude broadly based international agreements on investment



See WTO secretariat, “The Doha Declaration Explained¸ Relationship between Trade and Investment, Relationship between Trade and Competition Policy,” accessed June 20, 2012, http://www.wto.org/english/tratop_e/dda_e/dohaexplained_e.htm#investment. 82 OECD/UNCTAD, “Seventh Report on G20 Investment Measures,” 1, accessed July 25, 2012, http://unctad.org/en/PublicationsLibrary/unctad_oecd2012d7_en.pdf. 83 OECD, “FDI in Figures, January 2013, accessed March 15, 2013, http://www.oecd.org/ daf/inv/FDI%20in%20figures.pdf. 81

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and competition law have been notoriously unsuccessful even among developed nations, despite the conclusion of more than 2,500 bilateral investment treaties (BITs),84 the vast majority among Members of the WTO. The most recent MAI, undertaken by the then twenty-five members of the Organization for Cooperation and Development (OECD) and the European Commission, would have been open for accession to all interested nations.85 That effort collapsed in 1998 because of concerns in several developed nations, particularly France and Canada but also the United States, that the accord would give foreign investors excessive power to challenge as indirect expropriation governmental actions protecting the environment and human health, and that it would undermine state authority for these and other exercises of police power without incurring liability.86 2.  Dominance of Bilateral Investment Treaties Given the multilateral failures, the focus remains on BITs, an anomaly if one considers that most of the WTO Members who oppose a new multilateral investment agreement are busily concluding BITs with various other Members (Brazil excepted). Among other factors, many developing countries are at a competitive disadvantage when negotiating BITs with powerful nations such as China, the EU, and the United States, a

More than 2,760 BITs and 250 FTAs with investment chapters had been concluded, with more than 2,000 in force. UNCTAD – Prevention and Alternatives to Arbitration II, at xvii, Accessed June 20, 2012, http://www.unctad.org/en/docs/webdiaeia20108_en.pdf; see also Americo Beviglia & Pierre Sauve, “International Investment,” in Research Handbook in International Economic Law, eds. Andrew T. Guzman & Alan O. Sykes (Cheltenham: Edward Elgar, 2007), 215 (citing 2005 data). 85 OECD, “Multilateral Agreement on Investment,” accessed June 20, 2012, http://www. oecd.org/document/35/0,3343,en_2649_33783766_1894819_1_1_1_1,00.html. 86 See Peter T. Muchlinski, “The Rise and Fall of the Multilateral Agreement on Investment: Where Now?,” Int’l Law. 34 (2000), 1033, 145–148. See also Riyaz Dattu, “A Journey from Havana to Paris: the Fifty-Year Quest for the Elusive Multilateral Agreement on Investment,” Fordham Int’l L.J. 24 (2000), 275, which includes a discussion of the MAI and several alternatives. The OECD website simply states tersely that “[n]egotiations were discontinued in April 1998 . . . . and they will not be resumed.” OECD – MAI. 84

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situation that would be significantly changed if the context were broadly multilateral. Although BITs are often similar in structure, they vary to some degree in language and content, even those negotiated by the same countries at different times. As with regional trade agreements, negotiations are simpler if there are only two or a small number of states participating in the process. It is estimated based on 2005 UNCTAD data that nearly 3,000 BITs and FTAs with investment chapters have been concluded as of 2012, and that the number actually in force exceeds 2,000.87 Several of the major proponents of BITs are moving forward with plans to expand their networks. The United States after nearly three years of inter-agency discussions issued a new model BIT in April 201288 and will eventually be pursuing BITs with major economies such as China and India.89 The latter will be particularly difficult given India’s ambivalence over whether to allow foreign investment in the multi-brand retail sector.90 The EU has resolved most of the legal and political constraints on the negotiation of EU-wide BITs in the wake of the Treaty of Lisbon,91 which transferred jurisdiction over foreign investment to the Commission to the Member states, but negotiating positions remain to be developed. The roughly 1,000 BITs concluded by the EU Members before the Lisbon Treaty will









See UNCTAD “Occasional Note: Many BITs Have Yet to Enter into force,” 2005 (estimating as of the end of 2004 that about 2,400 had been signed and 1,718 had entered into force), accessed July 15, 2012, http://unctad.org/en/Docs/ webiteiia200510_en.pdf. 88 U.S. 2012 Model BIT, accessed May 8, 2012, http://www.ustr.gov/sites/default/files/ BIT%20text%20for%20ACIEP%20Meeting.pdf. 89 See “USTR, State Department Release 2012 Model for Bilateral Investment Treaties after Review,” Int’l Trade Rep. (BNA) 29 (April 26, 2012), 649; “USIBC Launches Coalition for Jobs and Growth,” Press Release, June 25, 2012, which announces a major initiative by the U.S.–India Business Council to promote the negotiation of a BIT with India. 90 See “Potential India Retail Sector Opening Could Impact BIT Talks with U.S.,” World Trade Online, July 27, 2012, which discusses the possibility of such market-opening in the future. 91 Treaty of Lisbon, December 13, 2007, OJ 306 of Dec. 17, 2007.

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generally remain in force,92 but the Commission will negotiate new or revised BITs on behalf of the twenty-seven Members. The result will be a series of plurilateral BITs with twenty-eight or more parties. 3.  Rationale for a New Multilateral Effort Despite the history, some scholars concerned with the “risk of collection action problems and a race to the bottom among host countries (especially developing countries)”93 as a result of the fragmented system of BITs continue to advocate a new effort under WTO auspices to negotiate a multilateral investment agreement. They question the traditional model of investor protection, suggesting that “[a]s long as the inequity contained in regulatory restraints of the system affected only the powerless states, it [the BIT system] operated with vigor; but with powerful states feeling the effects of regulatory restraints of investment treaties, there has been movement away from the earlier premises of the established regime.”94 Such an agreement, presumably concluded on a plurilateral basis so that WTO Members who remain opposed to such accords (such as Brazil) could opt out, would be the objective. It would likely reassess the balance between investor rights and the interests of host countries, a balance that would be very difficult to achieve.95 In doing so, the initiative would likely lose the support of most of the business community, dooming it to failure. In particular, the disagreements as to proper coverage even among developed nations show no signs of resolution. In the recent example

See “EU Member States, Parliament Strike Deal on Preserving Existing BITs,” World Trade Online, April 19, 2012; EU Commission “EU takes key step to provide legal Certainty for Foreign Investors,” Press Release, June 21, 2012, accessed December 27, 2012, http://trade.ec.europa.eu/doclib/press/index.cfm?id=808 (establishing a framework for investor-state dispute settlement). 93 Michael J. Trebilcock, Understanding Trade Law (Cheltenham: Edward Elgar, 2011), 134. 94 See M. Sornarajah, “Starting Anew in International Investment Law,” Columbia FDI Perspectives no. 74, July 16, 2012. 95 See, e.g., Suzanne A. Spears, “The Quest for Policy Space in a New Generation of International Investment Agreements,” J. Int’l Economic Law (2010) 13 (4), 1037–1075. 92

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noted previously, a nearly three-year quest in the United States for a revised model BIT resulted, in April 2012, in a text that reflected only relatively minor changes from the 2004 model BIT.96 That 2004 Model BIT and contemporary U.S. FTAs reflected many of the issues that led to the demise of the MAI and shifted the balance of power somewhat from the foreign investor to the host state, by limiting the scope of indirect expropriation based on regulatory takings, restricting fair and equitable treatment violations to the relatively high standard provided by customary international law, increasing transparency of proceedings, and effectively incorporating U.S. takings law into the agreements.97 This experience suggests that the negotiation of a comprehensive multilateral agreement addressing investment issues would be a daunting challenge for the United States as well as for many other Members. Conceivably, a regional negotiation to agree on investment protection, perhaps through the Asia-Pacific Economic Cooperation forum, could then be expanded to broader (but still well short of universal) acceptance in Geneva by some Members of the WTO. APEC’s objectives have included in the so-called Bogor Goals adopted by APEC leaders in Indonesia in 1994 the goal of free and open trade and investment in the Asia-Pacific by 2010 for industrialized nations and 2020 for developing economies.98 Still, APEC members have shown little interest in a global investment agreement. Should the Trans-Pacific Partnership negotiations (see Chapter 11) be successfully concluded, the agreement will undoubtedly contain an investment chapter, likely reflecting the current views of both developed (Australia, Canada, New Zealand, Singapore, the United States, and perhaps Japan) and developing (Brunei, Chile, Malaysia, Mexico, Peru, and Vietnam) nations. With such diversity, it is at

See Len Bracken, “USTR, State Department Releases 2012 Model BIT.” See, e.g., CAFTA-DR, arts. 10.5, 10.21 and annexes 10-B, 10-C; David A. Gantz, “Settlement of Disputes Under the Central American – Dominican Republic – United States Free Trade Agreement,” B.C. Int’l & Comp. L. Rev. 30 (2007, 331. 98 See APEC, “Frequently Asked Questions,” accessed September 4, 2012, http://www. apec.org/FAQ.aspx. 96 97

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least conceivable that the investment provisions would eventually appeal to a broader group at the WTO or in another forum such as APEC. 4.  State-Owned Enterprises A subset of investment issues (although they raise anti-competition concerns as well), relates to alleged anti-competitive practices of state-owned-enterprises, including sovereign wealth funds, investing in other nations. Given the expansion of the use of SOEs in non-market economy nations such as China and Vietnam as well as more broadly, there is considerable interest in the United States and elsewhere in addressing such issues, either in anti-competition or investment agreements. The focus is on distortions in the market when SOEs are given discriminatory treatment by their governments in such areas as regulatory favoritism and subsidies, as well as preferential purchasing arrangements. Proposals by U.S. industry groups contemplate requiring the parties to an investment agreement “to ensure that the operation of SOEs does not ‘nullify or impair’ market access granted under the agreement.”99 Should efforts to conclude a multilateral investment agreement be renewed, SOEs are likely to be a high priority for the United States, the EU, and other capital-exporting states, probably further complicating efforts to achieve a broadly based investment agreement. SOEs are discussed in more detail in Chapter 11.

D.  Competition Law Efforts to conclude broad multilateral accords on standards for anti-competition law have been even less successful than those regarding to investment. Plans to improve international cooperation on anti-competition issues began with the Havana Charter, but the Charter was ultimately opposed by the United States Congress, in part because of the anti-trust

“U.S. SOE Proposal Raises Ire of Singapore State Owned Investment Firm,” World Trade Online, May 13, 2012, 1–2.

99

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provisions.100 Subsequently, no international agreement has been concluded that “requires cooperation by states in the identification or prosecution of conduct that violates competition laws.”101 U.S. bilateral competition agreements with the EU and several of the individual WTO Members (Australia, Canada, Brazil, Israel, Japan, and Mexico) are limited primarily to notification and information sharing.102 Perhaps a notification and information-sharing agreement, along the lines of those noted earlier, could be concluded with a larger group of countries, but whether it would improve antitrust enforcement significantly world-wide is less clear. Occasional, more extensive, anti-competition provisions appear to be limited to certain RTAs, such as the United States–Singapore FTA competition chapter103 and may be incorporated into the TPP. A competition agreement was discussed in the WTO context for the first time at the Singapore Ministerial meeting in 1996, with the creation of a working group to investigate the connections between trade and competition policy.104 As noted earlier, although the subject was included in the Doha Round agenda, it was dropped in 2004. Today, about 130 countries have adopted some form of competition law, whereas only 35 had done









Andrew T. Guzman, “International Competition Law,” in Research Handbook in International Economic Law, eds. Andrew T. Guzman & Alan O. Sykes (Cheltenham: Edward Elgar, 2007), 418, 424. 101 Ibid., 425. 102 Ibid. See., e.g., “Agreement Between the Government of the United States of America and the Commission of the European Communities Regarding the Application of Their Competition Laws,” Sep. 23, 1991, US-EU, reprinted in Trade Reg. Rep. (CCH) 4 (1991), paras. 13, 504. 103 United States–Singapore Free Trade Agreement, U.S-Sing., May 6, 2003, I.L.M. 42 (2003), 1026, art. 12.2.1, accessed June 20, 2012, http://www.ustr.gov/sites/default/files/ uploads/agreements/fta/singapore/asset_upload_file708_4036.pdf. The agreement requires, inter alia, that “[e]ach Party shall adopt or maintain measures to proscribe anticompetitive business conduct with the objective of promoting economic efficiency and consumer welfare, and shall take appropriate action with respect to such conduct.” 104 See Pradeep Mehta, “Towards a Multilateral Framework on Competition Policy,” 2, in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, December 2011, accessed July 15, 2012, http://ictsd.org/downloads/2012/02/pra deep-mehta-towards-a-multilateral-framework-on-competition-policy.pdf. 100

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so in 1995,105 but this does not seem to have encouraged broader support for a multilateral approach. Among the reasons is the fact that the laws even among developed country Members vary considerably in approach so that any sort of harmonization would be very difficult. Some developing country Members would also likely wish to maintain less strict standards when dealing with domestic mergers.106 Long-standing differences in scope, including the private treble damage actions and injunctions that are features of U.S. law107 and the efforts the United States makes to apply its anti-trust laws on an extraterritorial basis,108 reduce the prospects for an international competition agreement. Further differences, such as those relating to mergers and acquisitions between the U.S. Department of Justice and the European Commission109 suggest that any meaningful accord is likely to prove elusive, even among developed country WTO Members. In addition, it may be that some of the hostility to addressing the subject as part of the Doha Round was related to the unwillingness of the United States and the EU to consider any significant changes to the Anti-Dumping Agreement, which some Members believe countenances anti-competitive behavior, but would not be addressed in a WTO competition agreement. This hostility at the WTO suggests that a different forum, such as the OECD, might be preferable. Although the OECD has addressed competition issues in the past, a broadly based agreement has been achievable because of divergences in approach between the United States and the EU Members. Instead, the OECD (when addressing competition law) focuses on best practices, individual member country reviews, and capacity building.110 Even if the OECD members were to

Mehta, “Towards a Multilateral Framework,” 3. Ibid. 107 15 U.S.C. §§ 15, 26. 108 See, e.g., Aaron Xavier Fellmuth, The Law of International Business Transactions, (St. Paul: West, 2009), 530–534, which discusses the jurisdictional reach of the U.S. antitrust laws; Guzman, “International Competition Law,” 419–422. 109 Guzman, “International Competition Law,” 423. 110 See OECD, Competition, accessed July 15, 2012, http://www.oecd.org/topic/0,3699,en_ 2649_37463_1_1_1_1_37463,00.html. 105 106

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decide to pursue an agreement, it would likely be met with skepticism by developing nations who would fear that the agreement would be unbalanced against developing country consumers in favor of market access and would strengthen the already significant powers of multinational enterprises.111

E.  Anti-Counterfeiting Trade Agreement The ACTA is discussed here because, although concluded several years ago, it is highly likely to be renegotiated (or abandoned). The ACTA is plurilateral in the sense that all of the countries involved in the negotiations – the EU and its twenty-seven Members, Australia, Canada, Japan, South Korea, Mexico, Morocco, New Zealand, Singapore, Switzerland, and the United States  – are WTO Members.112 The negotiations were conducted and concluded in Japan, and the Government of Japan is the depository; thus, it is not a creature of the WTO or any other existing international organization.113 The ACTA is designed primarily to deal with “the proliferation of counterfeit goods” through “enhanced international cooperation” by providing “effective and appropriate means, complementing the TRIPS Agreement, for the enforcement of intellectual property rights,”114 As of the end of 2012, it seemed unlikely that ACTA would enter into force in its present form, let alone attract a broader range of WTO Members. More than most recent trade agreements, the ACTA has encountered its share of controversy and opposition. As described by the Congressional Research Service: [T]he ACTA is intended to build on the IPR protection and enforce­ ment obligations set forth in the 1995 World Trade Organization

Mehta, “Towards a Multilateral Framework,” 2, 3. Anti-Counterfeiting Trade Agreement, November 14, 2011, n. 17 (listing the participants), accessed December 4, 2012, http://www.international.gc.ca/trade-agreements-a ccords-commerciaux/fo/acta-acrc.aspx?lang=eng&view=d. 113 ACTA, art. 45. 114 Ibid, Preamble. 111 112

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(WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). It also is intended to address emerging IPR issues believed to be not addressed adequately in the TRIPS Agreement, such as IPR infringement in the digital environment. The ACTA . . . . focuses primarily on trademark and copyright enforcement. It establishes a legal framework for IPR enforcement, which contains provisions on civil enforcement, border measures, criminal enforcement in cases of willful trademark counterfeiting or copyright piracy on a commercial scale, and enforcement in the digital environment for infringement of copyrights or related rights.115

Almost from the outset, the ACTA was controversial. It was hailed by USTR as a “groundbreaking initiative by key trading partners to strengthen the international legal framework for effectively combatting global proliferation of commercial-scale counterfeiting and privacy.”116 Others attacked the ACTA for lack of transparency in the negotiating process, failure of USTR in the United States to consult properly with Congress, as an infringement on citizens’ rights to privacy and other fundamental rights in both Europe and the United States, questionable resort to criminal sanctions, a legal basis for online censorship of the Internet, and a measure that would retard the future development of innovation in the use of digital media and the Internet.117 Initially, USTR’s position that the ACTA required no Congressional action as a presidential executive agreement was widely criticized in Congress (typically by



Shayerah Ilias, “The Proposed Anti-Counterfeiting Trade Agreement: Background and Key Issues,” Congressional Research Service, July 19, 2012, ii, accessed December 4, 2012, http://www.fas.org/sgp/crs/misc/R41107.pdf. 116 USTR, “Anti-Counterfeiting Trade Agreement, 1, accessed December 4, 2012, http:// www.ustr.gov/acta. 117 See, e.g., “ACTA Fact Sheet,” European Digital Rights, accessed December 4, 2012, http:// www.edri.org/ACTAfactsheet; Margot E. Kaminski, “The U.S. Trade Representative’s Democracy Problem: The Anti-Counterfeiting Trade Agreement (ACTA) as a Juncture for International Lawmaking in the United States, Suffolk Transnat’l L. Rev. 35 (2012), 519; Andrew Rens, “The Enforcement Agenda and the Institutionalization of Enforcement Theater [sic] in the Anti-Counterfeiting Trade Agreement, Suffolk Transnat’l L. Rev. 35 (2012), 553. 115

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ACTA opponents), both before and after USTR modified its views and argued that ACTA had been authorized by the Prioritizing Resources and Organization for Intellectual Property Act.118 ACTA itself, which is most strongly supported at present by the United States, Australia, Canada, and Japan, provides for civil enforcement119 and border measures aimed at barring the release of suspect goods,120 as well as criminal prosecution of willful trademark counterfeiting or copyright or related rights piracy on a commercial scale.”121 It also provides detailed requirements for enforcement, including such innovations are explicitly requiring the development of specialized expertise for that purpose,122 a practical necessity at a time when counterfeiting of such items as footwear, apparel, and handbags is becoming so sophisticated that it sometimes requires experts to distinguish the legitimate article from the copy.123 Capacity building and technical assistance among parties are also contemplated.124 Many of these “TRIPS-Plus” concepts are reportedly included in the U.S. proposals tabled in the TPP negotiations (see Chapter 11). Interestingly for a modern trade agreement, ACTA provides no mechanism for dispute resolution other than consultations.125 The ACTA requires six ratifications to enter into force.126 Also significant given the controversy in so many of the countries that originally signed on to ACTA is the requirement in ACTA that ACTA remain open for signature only until May 1, 2013.127 To date, only Japan has





Publ. L. No. 110–403 (2008). See Tamlin H. Bason, “Wyden: Latest ACTA Rationale ‘Remarkable,’ Necessitates Close Look at Cybersecurity Act,” Int’l Trade Rep. (BNA) 29 (August 2, 2012), 1259. 119 ACTA, sec. 2. 120 Ibid., sec. 3. 121 Ibid., art. 23.1. 122 Ibid., art. 28. 123 The author participated in study in the early years of the new millennium which involved interviews with expert industry representatives in Mexico and Canada who described the difficulties even they had distinguishing, for example, authentic Nike or Louis Vuitton products from copies. 124 ACTA, art. 35. 125 Ibid., art. 38. 126 Ibid., art. 40. 127 Ibid., art. 39. 118

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concluded its internal ratification processes.128 The Australian Govern­ ment ­apparently has decided to move forward with approval despite some opposition,129 but ACTA was soundly rejected by the EU Parliament in its current form on July 4, 2012,130 which, as the Congressional Research Service notes, means that the ACTA is effectively on hold in the EU and that neither the EU nor individual Member states are expected to join ACTA as currently written.131 The Commission, responding to opposition to ACTA within the EU, initiated a two-phase plan for a “structured dialogue” in 2013 and 2014. The plan would move away from an enforcement-only approach to dealing with cross-border portability of content, user-generated content, data and text mining, private copy levies, access to audiovisual works, and cultural heritage, all of which the Commission apparently believes could be achieved without legislation.132 In the second phase, which would require legislation, the focus would be on “how to improve the legitimacy of enforcement in the context of wider copyright reform.”133 It is uncertain whether the plan, if successfully implemented, would lead the Commission to reconsider approval of ACTA. In the United States, as noted earlier, the status of ACTA is somewhat murky. It is uncertain whether the United States will eventually proceed to deposit its instrument of approval at a time when some









See Tamlin H. Bason, “Japan Ratifies ACTA but Opposition in U.S., EU Put Treaty’s Future in Doubt,” Int’l Trade Rep. (BNA) 29 (September 13, 2012), 1489 (noting Japan’s ratification on September 6, 2012). 129 See Josh Taylor, “Aust Govt Rejects Delaying ACTA Ratification,” ZDNet, November 29, 2012, accessed December 4, 2012, http://www.zdnet.com/au/aust-govt-rejects-del aying-acta-ratification-7000008065/ (discussing the status of ACTA in Australia and elsewhere). 130 “European Parliament Rejects ACTA,” European Parliament News, July 4, 2012, accessed December 5, 2012, http://www.europarl.europa.eu/sides/getDoc.do?type=IMPRESS&reference=20120618FCS47114&format=XML&language=EN. 131 Ilias, “The Proposed Anti-Counterfeiting Trade Agreement,” ii. 132 See Joe Kirwin, “EU Outlines Two-year Post-ACTA’ Plan to Ease Digital-Era Copyright Tensions,” Int’l Trade Rep. (BNA) 29 (December 20, 2012), which discusses the Commission’s response to criticism from the EU Parliament and other EU groups. 133 Ibid. 128

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members of the Senate are challenging the Administration’s constitutional authority to conclude the ACTA without Congressional approval. The United States, Australia, Canada, Japan, and Mexico could put the agreement into force if a sixth signatory could be convinced to approve the Agreement. Still, with the EU Commission and its individual Member nations holding back, this seems to me unlikely, as EU participation is sufficiently important to give most of the other participants pause as a result of the rejection. Nor are a significant number of additional states likely to have signed the ACTA before the May 1, 2013 deadline (although that deadline could always be extended should all the participants agree to do so.) Moreover, if a renegotiation takes place it would be easier (and less embarrassing) for all to take part if none has formally deposited its instrument of ratification. At the same time the idea of reopening a three-year negotiation must be unattractive to most of the participants in the negotiation. The options seem to me to be as follows: (1) abandonment of ACTA in light of the EU refusal to accede in ACTA’s present form (or simply allowing ACTA to remain in limbo); (2) reopening the negotiations after consultations among the original negotiating parties, perhaps after the EU’s “structured dialogue” has taken place; or (3) moving forward toward putting the ACTA into force without the EU in the hope that the EU and its Member states would eventually support ACTA. If there is any reasonable hope of expanding ACTA to other WTO Member countries it is likely to be through a renegotiation that results in modifications that permit the EU, its Parliament, and its individual Members to accept and enforce the Agreement, probably being accompanied by some face-saving compromise between USTR and the Congress on the approval process in the United States. Should that happen, there is some possibility in the longer term that some of the major trading nations in which counterfeiting is a serious problem (e.g., China, India, and Vietnam) might be persuaded to join.

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Even in the somewhat optimistic renegotiation and entry into force scenario, it is structurally difficult to see how ACTA could be included among the more typical WTO plurilateral agreements in the absence of a clearer relationship to TRIPs and a functioning dispute settlement mechanism.

7

New and Expanded Plurilateral Agreements (Part II) An International Services Agreement

Expanding services market access is one of the highest priorities for developed country Members of the WTO but is generally opposed by the major developing country Members. As U.S. Trade Representative Ron Kirk has observed, “[t]he positions of the major [WTO] players are too firmly entrenched, and too closely tied to a web of issues.”1 Therefore, this impasse is likely to be resolved only by a new services agreement that supplements the General Agreement on Trade in Services,2 but is concluded largely outside the auspices of the WTO even if the negotiations take place in Geneva. The goal of an ISA, regardless of its ultimate form, is to continue the process of broadening market access commitments and improving disciplines, through a series of negotiations that are likely to begin in earnest during 2013,3 with U.S. Trade Representative Kirk having notified Congress January 15, 2013 that the Obama Administration intended to enter into such negotiations.4 This chapter begins with an

See “Kirk: New Look at Services Trade ‘Long Overdue,’ ” Bridges Weekly Trade News Digest, September 26, 2012), 1, accessed September 28, 2012, http://ictsd.org/i/news/ bridgesweekly/146122/ (quoting Ambassador Kirk). 2 GATS, Annex 1B to the Marrakesh Agreement Establishing the World Trade Organization, April 15, 1994. 3 “Actual Negotiations for Services Plurilateral May not Start until Next Year,” World Trade Online, July 4, 2012. 4 “U.S. Trade Representative Ron Kirk Notifies Congress of Intent to Negotiate New International Trade Agreement on Services,” January 1, 2013, accessed March 15, 2013, http://www.ustr.gov/about-us/press-office/press-releases/2013/january/ustr-kirk-notifie s-congress-new-itas-negotiations. 1

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introduction to expanded services negotiations. Section II discusses the various reasons that the EU, the United States, and other developed country Members consider services one of the highest priorities in international trade negotiations. Section III summarizes the major features of the GATS, and Section IV discusses the possible options (multilateral, plurilateral and EIA) for an “International Services Agreement” (ISA). Section V deals with the structure and content issues in the “pre-negotiation” stage, and Section VI provides conclusions.

I.  Introduction and Background The objective of the GATS was straightforward: over time, to assure that the basic disciplines that have applied to trade in nonagricultural products for more than a half century – unconditional MFN treatment, national treatment, subsidies, transparency, and others  – are applied to services, along with the absence of local presence requirements, with a minimum of exceptions. GATS provides a series of legal rules governing market access and national treatment restrictions. GATS rules apply to regional and local as well as national governments. Members of the WTO agree through a “positive list” approach to restrict use of restrictions on market access and national treatment; obligations under GATS, except as noted later, are defined largely by Members’ individual schedules of commitments. Under the positive list approach, national treatment commitments are limited by each government to the services specifically designated by that government in its individual annexes. GATS also specified that the members, beginning in 2000, would enter into “successive rounds of negotiations . . . with a view to achieving a progressively higher level of liberalization.”5 Unfortunately, minimal progress has been made in the Doha services negotiations, particularly since 2008.6 Given that the services negotiations are part of the Doha

Ibid., art. XIX(1). See WTO, “Services Negotiations  – State of Play,” accessed August 7, 2012, http:// www.wto.org/english/tratop_e/serv_e/state_of_play_e.htm, which notes with typical

5 6

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Round single-undertaking approach, the effective abandonment of the Doha Round means that broadly based services liberalization is also abandoned or indefinitely delayed in Geneva. Because of the MFN provisions, plurilateral agreements on services alone are generally impractical; market access concessions among a few would automatically apply to and benefit other WTO Members, including those who did not participate in the negotiations or make concessions of their own, creating a significant free rider problem. Alternatively, an “economic integration agreement” under GATS Article V, which would permit departure from MFN treatment, offers a potential solution. An EIA also has some disadvantages. Such plurilateral negotiations would be more complex and difficult even than the Government Procurement Agreement7 and Information Technology Agreement8 that already exist as plurilateral agreements under the WTO rubric (see Chapter 6). Since the GATS entered into force in 1995, the United States and other key WTO Members have expanded services market access through their own RTAs. NAFTA and all subsequent U.S. FTAs have extensive services coverage.9 More recently, although a number of Asian FTAs (including the ASEAN FTA services agreement and the China–ASEAN, China–New Zealand, and Malaysia–New Zealand FTAs) contain services provisions of varying scope,10 none of these approach the comprehensiveness of the services coverage of the U.S. FTAs. These latter FTAs, such





understatement that “[p]rogress has been limited since the Signalling Conference of July 2008.” 7 Annex 4 of the WTO Agreement (April 15, 1994); the new GPA of December 15, 2011, adopted by the Committee on Government procurement, will enter into force when ratified by the parties. See WTO, “Committee on Government Procurement Adopts Revised Agreement,” March 30, 2012, accessed June 12, 2012, http://www.wto.org/english/news_e/news12_e/gpro_30mar12_e.htm. 8 WTO, “Information Technology Agreement,” accessed June 20, 2012, http://www.wto. org/english/tratop_e/inftec_e/inftec_e.htm. 9 See, e.g., David A. Gantz, Regional Trade Agreements: Law, Policy and Practice (Durham: Carolina Academic Press, 2009), chs. 4–9. 10 Jeffrey J. Schott, Minsoo Lee & Julia Muir, “Prospects for Services Trade Liberalization,” Petersen Institute Working Paper Series 12-17, October 2012, 3–11.

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as the United States–Korea FTA (KORUS), incorporate commitments that go well beyond GATS, using a “negative list” approach that typically results in broader coverage than the “positive list” used in GATS.11 Also, KORUS provides for improved market access for foreign services suppliers and investors as well as additional bindings and the elimination of local presence requirements.12 U.S. success with incorporating services provisions in its FTAs has likely contributed to the strong interest of the Obama Administration and U.S. stakeholders in expanding such coverage to a much wider group of nations, even if full WTO participation is not feasible. Services pre-negotiations outside of Doha were pursued during 2012 by the “Real Good Friends of Services,” the United States, the EU and other OECD Members, and by some developing countries. By the end of 2012, the participants included the EU and its Members, plus twenty-one other WTO Members: Australia, Canada, Chile, Colombia, Costa Rica, the EU, Hong Kong, Iceland, Israel, Japan, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, Singapore, South Korea, Switzerland, Taiwan, and the United States.13 The focus of an ISA will likely be on most of the same issues that arise under GATS – that is, market opening, domestic regulation, rules on the use of emergency safeguards, services subsidies and, possibly, special rules for least-developed countries.14 (Government



See, e.g., Free Trade Agreement between the United States and the Republic of Korea, U.S.–S. Korea, June 30, 2007 (KORUS), chs. 12 (cross-border services), 13 (financial services), 14 (telecommunications), accessed June 12, 2012, http://www.ustr.gov/ trade-agreements/free-trade-agreements/korus-fta/final-text. 12 Ibid; see Schott, Lee & Muir, “Prospects for Services,” 11–13. 13 See Daniel Pruzin, “Australia Reports Agreement on Framework for Talks on Global Services Trade Next Year,” Int’l Trade Rep. (BNA) 29 (December 13, 2012), 1932 (listing the members of negotiating group). See also Daniel Pruzin, “U.S. in Initial Talks on Lunching Services Plurilaterals Outside of Doha,” Int’l Trade Rep. (BNA) 29 (January 26, 2012), 103; and “U.S., Other WTO Members Begin Technical Work on Services Plurilateral,” World Trade Online, January 26, 2012 (both reporting on initial discussions in Austria in January plans to opening formal negotiations). 14 See WTO, “Services Negotiations,” accessed August 7, 2012, http://www.wto.org/english/tratop_e/serv_e/s_negs_e.htm#offers (listing the major areas of negotiations). 11

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procurement of services is related, but generally being addressed in the GPA negotiations.) A major objective is to expand individual country commitments to services market liberalization.15

II.  Reasons for Pursuing Additional Services Market Access By 2010, the services negotiations under Doha were viewed by some as a modest process that would assist recalcitrant Members in avoiding additional market access liberalization, rather than one that would reduce such market access restrictions. The Doha offers did not, in the words of Aaditya Mattoo, “provide greater access to markets, but do provide some reassurance that access will not get worse. The best offers submitted during the Doha Round improve on Uruguay Round commitments by about 10%, but remain on average about twice as restrictive as current policies.”16 Nevertheless, in terms of communications trade reform, finance, transport, and business services, the potential gains are probably larger than those from a comparable liberalization of trade in goods. Furthermore, if sub-Saharan African exporters are to successfully exploit opportunities created from liberalized market access in goods, better services will be required in many such areas, including those aimed at reducing transportation costs. The developed nations have all become service economies, with services (both exportable and non-exportable) amounting to 65 percent or more of GDP. For example, in the United States various services industries account for 68 percent of GDP and four out of five jobs. U.S. services exports exceeded $500 billion in 2008, generating a trade surplus of $160 billion. U.S. affiliates abroad reportedly accounted for an additional $806 billion in revenue in 2006 (latest data available).17 The United States runs

GATS, art. XIX (“negotiation of specific commitments”). Aaditya Mattoo, “Services in Doha: What’s on the Table,” in WTO/World Bank/ICTSD, Workshop on Recent Analyses of the Doha Round, November 2, 2010, 15, accessed July 15, 2012, http://www.wto.org/english/news_e/news10_e/dda_02nov10_e.htm. 17 Office of the U.S. Trade Representative, “Services,” accessed June 6, 2012, http://www. ustr.gov/trade-topics/services-investment/services. 15 16

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a consistent trade surplus in services trade compared to chronic trade in goods deficits, demonstrating that the United States enjoys a significant comparative advantage in such areas as telecommunications, financial, computer, environmental, retail distribution, and audiovisual services, among others. Such services exports would almost certainly increase if there were fewer barriers to foreign market access and to investment in services activities abroad. U.S. service firm participation in exports lags behind U.S. enterprise participation in manufacturing exports; although 20 percent of U.S. manufacturing sales are export sales, only about 5 percent of tradable business services are exported, largely because of the high barriers imposed by the emerging economies.18 Developed countries do not fully dominate trade in services. Twenty-seven countries are responsible for 90 percent of global services trade, and ten of those are developing countries, with China (third) and India (fifth) among the leaders along with the EU, the United States, and Japan.19 Expanding services trade even among developed countries is nevertheless controversial. In the United States, for example, some politicians and labor unions are concerned that increased services market access abroad will encourage the outsourcing of service jobs. Many scholars dispute this, pointing out that expanding infrastructure needs in developing countries mean huge opportunities for the exporting of engineering and other business services.20 Although the falling costs of information and communications technology has permitted advancement of services trade



J. Bradford Jensen, “Opportunities for US Exports of Business Services,” September 20, 2012, accessed September 28, 2012, http://www.piie.com/publications/print. cfm?researchid=2220&doc=int. 19 IMF, “Top 90% (27 countries) of Services Trade,” reproduced in Hosuk Lee-Makiyama, The International Services Agreement (ISA) – From the European Vantage Point, March 2012, European Center for International Political Economy, 4, accessed June 11, 2012, http://www.ecipe.org/media/publication_pdfs/ISA-revised30mar.pdf. 20 J. Bradford Jensen, Global Trade in Services: Fear, Facts, and Offshoring (Washington: Peterson Institute, 2011), 3. 18

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even without liberalization of GATS’ disciplines, reduction of barriers would undoubtedly result in further expansion. The resistance in developing or transition economies is much greater, particularly in the BRICS markets. There, as in many others, the challenges are not only market access per se but various regulations and licensing requirements.21 Currently, there appears to be an inverse relationship between national GDP and a nation’s restrictive services trade policies, with India, the Philippines and China being among the most restrictive and Brazil and South Africa not far behind.22 Economists who have sought to convert service barriers into tariff equivalents (a somewhat imprecise process) suggest that for China, India, Indonesia, and Pakistan the tariff equivalents are almost 70 percent, and more than 55 percent for Brazil and the Philippines. (For comparison, the levels for the United States and the EU are in the 5 to 6 percent range.)23 The effects of developing nation recalcitrance are pernicious. For example, India’s success in exporting services, particularly professional services, may be explained in part by the fact that some Indian services sectors have prospered less because of high productivity rather than as a result of an artificial comparative advantage created by the onerous regulation of every phase of Indian manufacturing.24 BRICS’s opposition is likely due in part to the fact that with the exception of China (as part of the WTO Accession Agreement) none made major service market opening commitments as part of the GATS negotiations. Whether and when any of them will see a need to improve their competitive positions in their domestic services sectors is uncertain.25 Currently, there seems less than lukewarm interest in services market liberalization in either India or Brazil.

Ibid., 7. Ibid., 150. 23 Ibid., 152 (relying on a 2010 study by Hufbauer, Schott & Wong). 24 Ibid., 127–128. 25 Gary Clyde Hufbauer, J. Bradford Jensen & Sherry Stephenson, “Framework for the International Services Agreement,” Peterson Institute Policy Brief PB12-10, April 2012, 34. This is one of the most comprehensive and useful discussions of the benefits and challenges of an ISA currently available, and has been relied on extensively for this chapter. 21 22

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Such protectionism occurs despite the fact that the developing ­country share of global services exports increased from 11 percent in 1990 to 21 percent in 2008,26 potentially allowing some developing countries to “leapfrog” their traditional paths of economic growth.27 A world economy increasingly dependent on “just in time” production, where services as well as goods can be fragmented into tasks performed in different countries (or continents),28 suggests that developing nations that fail to adapt are likely to retard both medium- and long-term growth. Fortunately, there are many more progressive developing countries that have already indicated a desire to participate in an ISA as part of the core group, with others that seem likely to join the negotiations including Barbados, Egypt, and Indonesia.29 One can at least speculate that some of the nineteen nations that have concluded FTAs with the United States,30 all of which but the FTA with Israel include services provisions, may find it in their interests to join the ISA negotiations, as they already have experience with services commitments going well beyond the GATS. It is even conceivable that China might eventually see its way to supporting an ISA. Sherry Stephenson, Senior Advisor for Services Trade at the Organization of American States has suggested, “China tends to be very pragmatic in its economic policies. . . . If the services agreement goes forward, then given its large and growing services exports, China will likely decide that it would be preferable to be on the inside rather than the outside, and then India would likely follow suit.”31 Although this may be an overly optimistic assessment given the current BRICS opposition to



Arti Grover Goswami, Ayditya Mattoo & Sebastian Saez, Exporting Services: A Developing Country Perspective (Washington: World Bank, 2012), 1. 27 Hufbauer, Jensen & Stephenson, “Framework,” 3. 28 Goswami, Mattoo & Saez, Exporting Services, 3. 29 Hufbauer, Jensen & Stephenson, “Framework,” 33. 30 Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Panama, Peru, and Singapore. 31 See ICTSD, “Services Liberalisation Talks Among Group of WTO Members to Enter ‘New Phase,’” Bridges Weekly Trade News Digest, July 11, 2012, 5, accessed July 11, 2012, http://ictsd.org/i/news/bridgesweekly/127881/ (quoting Ms. Stephenson). 26

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any services negotiations outside the Doha Round, the Chinese ­position may well evolve if the ISA negotiations in 2013 and 2014 suggest a strong possibility of success. In any event, protectionism is driven in part by local business where there are concerns, as in the banking sector, that competition from large foreign financial institutions will drive local firms out of business.

III.  Creation of the GATS It was only after more than forty-five years of international regulations of trade in goods under the General Agreement on Tariffs and Trade that a parallel agreement on services, the GATS, was adopted in the Uruguay Round negotiations. There are various reasons for this late incorporation of services disciplines in the global trade regulatory system, including the complexities of extending trade in goods protections to services. Prior to the GATS, services were legally regulated, if at all, through a variety of bilateral and regional schemes.32 These included a few FTAs, such as the 1987 U.S.–Canada Free Trade Agreement and, earlier, a number of U.S. Friendship, Commerce and Navigation (FCN) treaties, which contained limited coverage of specific services, particularly relating to transportation, rights of establishment and communications.33 The North American Free Trade Agreement incorporated substantial cross-border and financial services coverage and limited coverage of communications services.34 The European Union addressed services trade extensively



See Juan A. Marchetti & Petros C. Mavroidis, “The Genesis of the GATS (General Agreement on Trade in Services,” Eur. J. Int’l L. 22 (2011), 689, 690–691. 33 United States–Canada Free Trade Agreement, December 1997–January 1998 [U.S.– Can.], 27 I.L.M. 281 (1998), ch. 14; see, e.g., Japan–United States Friendship, Commerce and Navigation Treaty, TIAS 2863, April 2, April 9, 1953, arts. VII-IX (national treatment with regard to the right of establishment of businesses, including services enterprises, subject to some limitations). 34 North American Free Trade Agreement (NAFTA), December 17, 1992, U.S.–Mexico– Canada, I.L.M. 32, 289 (1993). 32

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beginning in 1985 with a White Paper on the Internal Market,35 indicating that liberalization of services trade would be essential to the establishment of the Single Market some eight years later. Cooperation also existed on a sector-by-sector basis in telecommunications, banking, civil aviation, and maritime transport, among others, either industry-to-industry or under an intergovernmental agreement.36 Some have suggested that the absence of a services agreement was, at least until the 1980s, not a major bar to services trade expansion because of the rise of facilitating technologies, including much less costly international communications and transport. The fact that goods trade liberalization automatically resulted in some services trade liberalization and the shift from manufacturing to services in developed countries, along with greater specialization in services is said to have led to productivity gains.37 The best rationale for a services agreement was likely that articulated by U.S. Trade Representative [and former senator] William Brock nearly thirty years ago, when he expressed fear of what he termed a “new protectionism.” He was concerned (quite rightly so in retrospect) that “[i]f the trend of increasing barriers to trade in services continues unchecked, trade opportunities could be markedly reduced and the international trading system could be seriously harmed.”38 In any event, the United States, with the support of the EU and the grudging acceptance of most but not all of the developing country GATT Contracting Parties, was successful in Montevideo in assuring that the negotiation of a services agreement in Geneva would become a major element of the Uruguay Round.39

“Completing the Internal Market: White Paper from the Commission to the European Council” (Milan, June 28–29, 1985) COM (85) 310, June 1985. 36 Marchetti & Mavroidis, “The Genesis,” 691. 37 Ibid. 38 H. Eason, “America’s ‘Invisible’ Trade Surplus  – Exporting of Services,” Nation’s Business, November 1984, 3. 39 For a detailed history of the background leading to the GATS, see Marchetti & Mavroidis, “The Genesis,” 692–701. 35

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The history of the Uruguay Round services negotiations has been ­discussed at length elsewhere.40 It is sufficient here to note that the major players, then and now, were the United States, the EU, India, and Brazil (China and Russia were not GATT Contracting Parties), with the United States playing the most prominent role in the drafting process. The GATS itself can be viewed as a plurilateral agreement “created by a group of countries that chipped in their commitments until the collective offer was good enough to be extended to all Members of the WTO on the principle of most favoured nation (MFN), irrespective of the risk of free riding from non-contributing parties.”41 The results reflect the distinctions between services trade and trade in goods as well as the complexities of applying GATT disciplines, such as MFN treatment, to services. The differences include the intangible nature of most services (making them more difficult to regulate and tax); the need for production and consumption to occur simultaneously; the need to tailor services to specific customer needs; and customer participation in the production process.42 Essentially all services are covered, but on a positive list basis; certain key obligations, such as national treatment, are provided only for services included in each Member’s services annexes. Other disciplines, such as MFN treatment, are provided more generally; exemptions that are afforded to MFN treatment are in principle limited to ten years, but in practice have been extended.43 There is no effective regulation of subsidies or safeguards; the Members simply agreed to discuss them at some later date, after three years for safeguards

See, e.g., Marchetti & Mavroidis, “The Genesis,” 704–719. Lee-Makiyama Hosuk, ISA, 3. 42 See Bernard Hoeckman & Aaditya Mattoo, “International Trade: Trade in Services,” in Research Handbook in International Economic Law, eds. Andrew T. Guzman & Allan O. Sykes (Cheltenham: Edward Elgar, 2007), 113, 115 (attributing the list to Jagdish Bhagwati). 43 Rudolf Adlung & Antonia Carzaniga, “MFN Exemptions under the General Agreement on Trade in Services: Grandfathers Striving for Immortality?,” J. Int’l Econ. L. 12 (2009), 357. 40 41

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and five years for subsidies.44 Similarly, government procurement of ­services is largely excluded,45 a significant problem given that the majority of WTO Members are not parties to the GPA. Still, considerable success was achieved in concluding sector-specific negotiations on telecommunications and on financial services, both in 1997. The financial services negotiations covered fifty-six schedules for seventy Members,46 the Agreement on Basic Telecommunications incorporated fifty-nine schedules for sixty-nine Members.47 Among the notable deficiencies of GATS is the positive-list approach, which has made it less complex for many Members, including most developing countries, to avoid committing to extensive services disciplines. More diffuse barriers to services trade include the need for consumer protection, as with “prudential” restrictions on financial services and licensing requirements for lawyers, medical professionals, and other professional services providers.48 Because of these and other limitations, the negotiators agreed that negotiations aimed at “progressive liberalization” through bilateral, plurilateral, or multilateral approaches would be initiated in 2000.49 The services negotiations, however, made little progress in more than ten years of negotiations in Geneva under the Doha Round. The principal difficulties according to the chair of the Doha Round Negotiating Group included relatively low levels of ambition among many Members, reluctance to bind either existing or improved levels of market access and national treatment. Added to these were limited offers by developed countries to sectors and modes of supply of interest to developing Members(discussed later), particularly movement of natural persons,

GATS, arts. X, XV. GATS, art. XIII. 46 GATS Annex on Financial Services, December 1997, accessed June 6, 2012, http://www. wto.org/english/tratop_e/serv_e/10-anfin_e.htm. 47 Fourth Protocol to the General Agreement on Trade in Services, April 30, 1997, accessed June 6, 2012, http://www.wto.org/english/tratop_e/serv_e/4prote_e.htm. 48 See Jensen, Global Trade in Services, 144–148. 49 GATS, art. XIX. 44 45

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including workers.50 With the Doha negotiations having failed to produce a revised and expanded GATS, other options must be considered, particularly given that the services negotiations have a “life of their own” as a result of the standing negotiating mandate.51

IV.  Alternative Routes to an International Services Agreement The way forward contemplates some sort of new services agreement, termed here and elsewhere the ISA. There is yet no clear path to an ISA, and all of the various approaches have disadvantages as well as advantages. Any agreement would be plurilateral in the sense that only a limited number of the WTO Members would become parties, at least for the foreseeable future. Moreover, it is by no means obvious whether ultimately the ISA if concluded will be part of the WTO group of agreements, like other plurilateral agreements (GPA, ITA) or a separate agreement, either stand-alone or possibly under the auspices of the Organization for Economic Cooperation and Development or even under the Asia-Pacific Economic Forum, in each case open to non-members. A potential Catch-22 also exists. Should the negotiating group aim for a very ambitious market-opening ISA despite the fact that this would likely require a long negotiation and might discourage some other WTO Members from joining later on, or for a more modest agreement that could be completed quickly and would be more attractive to other Members? Any discussion of the ISA must take into account the fact that those who have blocked progress on services in the Doha Round vehemently oppose a plurilateral ISA unless it provides MFN treatment to non-parties with no significant market-opening concessions, a non-starter for most of the proponents. For example, all of the BRICS refused to attend an initial meeting on the ITA in Geneva in January 2012, objecting



Mode 4. See Schott, Lee & Muir, “Prospects for Services,” 13–14 (discussing the chairman’s report). 51 Hufbauer, Jensen & Stephenson, “Framework,” 23. 50

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to a plurilateral services agreement as an impermissible departure from the Doha Round’s single-undertaking approach. They further suggested (at Davos) that this approach goes “against fundamental principles of transparency, inclusiveness and multilateralism” and “weakens the resolve of WTO Members to overcome the substantive gaps that exist among them.”52 India, Nigeria, and China also contended that an ISA would “disturb the delicate balance in market access pillars within the Doha Development Agenda and may make it practically impossible to conclude the negotiations.”53 Given that it has already become obvious that it is “practically impossible” to conclude the Doha Round it seems highly unlikely that any of the major proponents of the ISA will discontinue their efforts, although in my view it makes the likelihood of a WTO waiver for a plurilateral ISA as discussed in Subsection A problematic. Messrs. Hufbauer, Jensen and Stephenson suggest that there are three possible approaches: (1) an ISA inside the WTO; (2) an agreement with links to the WTO as another plurilateral agreement; and (3) a separate agreement authorized under GATS Article V as an “economic integration agreement” or FTA.54 These options are discussed in the following subsections.

A.  Continued Negotiations under Doha This first option entails a broadly based revival of the GATS negotiations as part of Doha, perhaps with a more limited scope. However, a limited services agreement would satisfy neither the ISA proponents nor their stakeholders in a context where many developing country Members are unwilling to bind existing services practices. A cynic would argue that any such effort is simply a blueprint for continued deadlock absent a fundamental change in the views of key WTO Members. Thus, given the



Quoted in Hufbauer, Jensen & Stephenson, “Framework,” 11. Ibid. 54 Ibid., 23–24. 52 53

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unfortunate history of the Doha services negotiations, resumption is effectively a non-starter and will not be discussed further.

B.  Plurilateral Agreement with WTO Waiver There is much to be said in principle for keeping an ISA within the WTO framework as an alternative or supplement to the GATS, including the possibility that, if successful, the ISA negotiations would stimulate further multilateral negotiations in other areas.55 A major additional advantage for the parties to the ISA would be the straightforward incorporation of the WTO’s dispute settlement mechanism, so that a new and separate mechanism would not have to be designed and implemented. Such piggybacking would likely save both costs and negotiating time. Also, some currently recalcitrant Members might be more likely to join an ISA if it were closely associated with the WTO rather than in a different forum or concluded on a stand-alone basis. Since the parties to an ISA are not likely to be willing to afford unconditional MFN treatment to non-participants, for the ISA to be part of the WTO package of agreements a waiver would be required. With an ISA, as with the Basic Telecommunications Agreement and the Financial Services Agreement (both concluded as annexes to the GATS based on reciprocity and without providing MFN treatment as permitted under GATS), the free-rider problem is simply too important, in part because – if services market access is extended to all (e.g., Brazil, Russia, India, and China in particular) – those Members would have little incentive to provide greater services market access to the ISA parties in the future. For the proponents, reciprocity in the ISA is essential but cannot be achieved with an ITA-type agreement. As noted previously, under the WTO Agreement, a waiver of the MFN requirement is legally possible, with a three-fourths vote of the Members, in “exceptional circumstances.”56 The GPA and the other three Annex

See Hufbauer, Jensen & Stephenson, “Framework,” 25. WTO Agreement, art. IX(3).

55 56

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4 plurilateral agreements received waivers in April 1994. Among the legal constraints is that such waivers are supposed to be temporary: “any waiver granted for a period of more than one year shall be reviewed by the Ministerial Conference not later than one year after it is granted, and thereafter annually until the waiver terminates.”57 Therefore, a waiver for the MFN obligations of the parties to an ISA would not likely be permanent, but could be subject to periodic requests for renewal. Although it is possible that the ISA parties might gain consensus or even muster a three-fourths vote of the Ministerial Conference, it does not seem probable in the event that the BRICS were to oppose the waiver given their broad support among the developing country Members. Therefore, the costs of “setting services free from the bonds of Doha”58 would be prohibitive. Under such circumstances it would seem unrealistic for the ISA parties to negotiate an agreement that could not become functional absent a waiver. One aspect of the waiver problem is probably not controversial. In 2011, the WTO adopted a waiver under Article XIX:3 of GATS to permit developed countries to depart from the MFN obligation of GATS Article II to provide special and differential treatment to least developed countries.59

C.  Economic Integration Agreement under GATS, Article V The most promising option is thus a stand-alone ISA or a plurilateral agreement legally structured as an EIA, negotiated in Geneva but not initially at least a WTO agreement. An ISA linked with another organization is conceivable but there are no obvious fora. As others have noted, the OECD is not an ideal forum. First, the failure of the negotiations of



Ibid. Lee-Makiyama, ISA, 6. 59 WTO, 2011 “News Items  – WTO Ministers Adopt Waiver to Permit Preferential Treatment of LDC Service Suppliers,” December 17, 2011, accessed June 11, 2012, http://www.wto.org/english/news_e/news11_e/serv_17dec11_e.htm. 57 58

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the multilateral agreement on investment60 a decade ago may sour OECD members on another major negotiation of similar importance. Second, the fact that the membership of the OECD is overwhelmingly the rich countries (with the exception of Mexico, Turkey, and a few others) could discourage non-OECD members from adhering to an ISA concluded under OECD auspices. With the OECD Convention on Bribery, a handful of non-members, including Argentina, Brazil, Bulgaria, the Russian Federation, and South Africa have become parties,61 but the vast majority of developing countries have not. Another possible institutional framework might be the Asian-Pacific Economic Cooperation forum, a loose alliance of developed and developing nations in and the west coast of the Americas.62 Although the twenty-one current members include many very large economies such as China, Russia, Japan, and the United States, the European Union – the major proponent of the ISA along with the United States – is not a member and thus would not welcome that forum as the locus of the ISA. If the Trans-Pacific Partnership is successfully concluded – a major “if” – it will undoubtedly include extensive services commitments. Using the TPP framework has most of the same disadvantages as seeking a stand-alone ISA under APEC auspices but with a smaller number of participants, although the TPP parties could in theory agree to open the services provisions to non-TPP parties on whatever terms they could agree on. Thus, the most likely approach is to treat the ISA, even if termed a plurilateral agreement, as a comprehensive, free-standing services EIA under Article V of the GATS, one which would be notified to the Council for Trade in Services (CTS) but which would not require a waiver. Although the EU initially opposed the GATS Article V route,



OECD, Multilateral Agreement on Investment, accessed June 11, 2012, http://www. oecd.org/document/35/0,3343,en_2649_33783766_1894819_1_1_1_1,00.html. 61 “OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions,” Dec. 17, 1997, accessed June 11, 2012, http://www.oecd.org/ dataoecd/4/18/38028044.pdf. 62 APEC, accessed June 11, 2012, http://www.apec.org/. 60

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the idea was ultimately accepted;63 and at this writing there seems to be no ­obvious alternative given the strong reservations of the BRICs to the entire concept of an ISA. GATS Article V incorporates language generally parallel to that of GATT, Article XXIV, but with some significant differences: 1. This Agreement shall not 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: (a) has substantial sectoral coverage,64 and (b) provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, 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, either at the entry into force of that agreement or on the basis of a reasonable time-frame. . . . 2. In evaluating whether the conditions under paragraph 1(b) are met, consideration may be given to the relationship of the agreement to a wider process of economic integration or trade liberalization among the countries concerned. ***

4. Any agreement referred to in paragraph 1 shall be designed to facilitate trade between the parties to the agreement and shall not in respect of any Member outside the agreement raise the overall level of barriers to trade in services within the respective sectors or subsectors compared to the level applicable prior to such an agreement. ***

Daniel Pruzin, “U.S., EU Seek to Resolve Differences on International Services Pact Framework,” Int’l Trade Rep. (BNA) 29 (2012), 784. 64 The footnote in Article V states “This condition is understood in terms of number of sectors, volume of trade affected and modes of supply. In order to meet this condition, agreements should not provide for the a priori exclusion of any mode of supply.” 63

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7. (a) Members which are parties to any agreement referred to in ­paragraph 1 shall promptly notify any such agreement and any enlargement or any significant modification of that agreement to the Council for Trade in Services. They shall also make available to the Council such relevant information as may be requested by it. The Council may establish a working party to examine such an agreement or enlargement or modification of that agreement and to report to the Council on its consistency with this Article. (b) Members which are parties to any agreement referred to in paragraph 1 which is implemented on the basis of a time-frame shall report periodically to the Council for Trade in Services on its implementation. The Council may establish a working party to examine such reports if it deems such a working party necessary. (c) Based on the reports of the working parties referred to in subparagraphs (a) and (b), the Council may make recommendations to the parties as it deems appropriate. ***

Although it is evident from Article V:2 that the parties contemplated situations in which trade in services would typically be part of a broader RTA on goods,65 this is one factor to be considered rather than an absolute requirement. Nor should it be difficult to avoid the prohibition in Article V:4 against raising services barriers for non-parties. The most difficult ­hurdle is likely satisfying the “substantial sectoral coverage” requirement. This is arguably a stricter standard than “substantially all trade” under GATT Article XXIV because the footnote indicates that “substantial” relates not only to sectoral coverage, but to trade volume and modes of supply. Thus, even if the coverage of the ISA is very broad in terms of sectors covered, as seems likely, and is initially concluded among nations where service imports and exports are already taking place at a high

Under GATS, art. V:2, in the WTO’s evaluation of the agreement “consideration may be given to the relationship of the agreement to a wider process of economic integration or trade liberalization among the countries concerned.”

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level and are expected to increase, coverage of all four modes of supply, including substantial coverage of Mode 4 (presence of natural persons), is required.66 (The other three modes are cross-border trade [Mode 1]; consumption abroad [Mode 2]; and commercial presence [Mode 3]). Still, if the ISA incorporates increases in coverage of professional services and some expansion of temporary movement of other natural persons in certain employment categories, a reasonable case may be made that the Mode 4 requirements of Article V will have been met. In particular, the current GATS schedules have almost no coverage of movement of unskilled or semi-skilled workers, and full integration of labor markets is not expected; it is only contemplated where Members are effectively permitted to establish such integration on a non-MFN basis.67 Even if the standard is rigorous, the practical application of the Article V requirements is anything but so. Beyond the footnote, there is no further explanation in GATS as to the meaning of “substantial sectoral coverage.”68 The lack of enforcement is evident from the record of notifications under GATS Article V:7. Although some 100 notifications have been made to the CTS, and 21 factual abstracts distributed, not a single report on a particular services agreement (typically chapters of an FTA or customs union agreement) assessing compliance has ever been issued by the CTS or adopted by the Council.69 As is the case with similar issues relating to the legal consistency of customs unions or free trade agreements with GATT Article XXIV,70 the scope of the Article V:1 requirements probably will remain somewhat unclear unless or until they have been explained or clarified by further Ministerial action or by the Appellate Body. Neither is at all likely to occur in the near future, the



See Hufbauer, Jensen & Stephenson, “Framework,” 24. GATS, art. V. 68 See GATS, art. CCVII (definitions). 69 WTO, “Some Figures on Regional Trade Agreements notified to the GATT/WTO and in Force,” accessed June 11, 2012, http://rtais.wto.org/UI/publicsummarytable.aspx. 70 David A. Gantz, Regional Trade Agreements: Law, Policy and Practice (Durham: Carolina Academic Press, 2009), 40–41. 66 67

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first because of the consensus or extraordinary majority requirements for decision-making in the WTO,71 the second because of the understandable reluctance of the Appellate Body to opine on the validity of particular regional trade Agreements.72 Consequently, GATS Article V provides a potentially powerful mechanism for services trade liberalization among those who are willing to agree to substantial increases in services market access in terms of sectoral coverage and by reducing current services barriers while agreeing not to establish new ones. Over a more extended period of time, as discussed later, these options are not mutually exclusive, because the ISA negotiators hope and expect that the ISA will be merged into the GATS or new WTO Members will decide to accede. Also, some participants would be willing after the ISA covers 80 to 90 percent of world services trade to ignore the free-rider problem and extend the benefits of MFN status to non-parties.73 In my view, the initial ISA will most likely follow the approach of the GPA (with reciprocity) rather than the ITA (with MFN treatment from the outset), negotiated at the WTO as a plurilateral but legally structured as an EIA.

V.  Shaping the ISA A.  General Approach It is too soon at this writing to know much about the ultimate contents of the ISA and whether the parties would be willing to embrace a new

WTO Agreement, art. IX(1) and (2) (preference for consensus, requirement of a three-fourths majority for adopting an “interpretation” of one of the WTO agreements). 72 See Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing Products, WT/DS34/AB/R, adopted October 22, 1999; Appellate Body Report, Brazil – Measures Affecting the Importation of Retreaded Tires, WT/DS/332/AB/R, adopted December 17, 2007. 73 See “Mexican WTO Official Advocates Two Stages for New Services Agreement,” September 20, 2012, World Trade Online, September 20, 2012, which quotes Mexican WTO Ambassador Fernando de Mateo. 71

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agreement that corrects many of the deficiencies of the GATS. As of December 2012, however, five objectives appear to have received the approval of the negotiating parties: • a “high ambition” agreement that could attract broad participation and be multilateralized in the future; • comprehensive in scope without the a prior exclusions of sectors or modes of supply; • commitments reflecting actual practice and opportunities for enhanced services market access; • inclusion of new or enhanced disciplines; and • an ISA that would be open to additional participants who “share our objectives” accompanied by efforts to take into account the interests of LDCs.74 These five principles have been developed through informal negotiations that took place throughout 2012 but likely remain a work in progress along with the preferred approach to meeting these goals. A major objective of the Members that are participating, including Korea, Mexico, and the EU, is to structure the ISA in such a manner as to facilitate its expansion to other WTO Members and its ultimate merger with the GATS. Korea (essentially agreeing with the EU) has recognized the need for a plurilateral agreement to avoid the free-rider problem, but with the assumption that it will be multilateralized in the future.75 The United States and New Zealand, concerned about delays because of disagreement over structure, have effectively suggested that the parties should move forward promptly with market access negotiations and leave details regarding the structure of the agreement for later.76 Canada

Pruzin, “Australia Reports Agreement on Framework” (discussing the tentative agreements reached through the exploratory talks on services). 75 See “Korean Minister Stresses Need for Clear Path to Multilateral Services Deal,” World Trade Online, September 20, 2012, which quotes Korean Trade Minister Bark Taeho. 76 Ibid (quoting U.S. Trade Representative Ron Kirk and New Zealand Trade Minister Tim Groser). 74

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has argued that the ISA should set a high standard for the market access provisions rather than being limited by concerns as to whether such an agreement would be overly ambitious to attract developing country adherence in the future.77 Also, there appears to be broad support for addressing disciplines on existing domestic regulation of services, a form of services trade facilitation. Some have compared the process to that which resulted from the conclusion of the Tokyo Round Subsidies Code, which ultimately evolved into the WTO Agreement on Subsidies and Countervailing Measures.78 That comparison may be imperfect in the sense that the SCMA was a new multilateral agreement replacing the Code, whereas an ISA would have to be combined or at least coordinated with the existing GATS. Mexico has suggested a somewhat different route, advocating as a first stage that the ISA participants agree to consolidate their most liberal services concessions from their RTAs into a plurilateral agreement, within a period of no more than twelve months.79 In the second stage, the parties would focus on strengthening the dispute settlement arrangements, seek to expand market access commitments from the first stage, and negotiate expanded disciplines. The Chairman of the Coalition of Services Industries, Samuel di Piazzi, had initially supported this approach: “Let’s find the things in the existing bilaterals that are best in class, and let’s make that our minimum.”80 This approach is not universally accepted, with others such as Australia concerned that a simplified approach might jeopardize the opportunity for a more ambitions “gold standard, A-grade” agreement

See “Kirk: New Look at Services Trade,” 2 (referring to statements by Canadian Trade Minister Ed Fast). 78 See “Ministers’ Services Debate Shows Fault Lines over ISA Multilateralization,” World Trade Online, September 20, 2012 (quoting New Zealand Trade Minister Tim Groser). 79 See “Mexican WTO Official Advocates Two Stages” (quoting Mateo). 80 See Daniel Pruzin, “U.S. Industry Reps Welcome Rapid Progress on Launch of Global Services Trade Initiative,” Int’l Trade Rep. (BNA) 29 (December 13, 2012), 1933 (quoting Mr. Di Piazza). 77

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that it and others are seeking.81 It would also raise the free-rider problem for ­countries such as Mexico that have concluded few trade agreements in the past fifteen years and thus, except for NAFTA, have made relatively few bilateral services commitments.82 Relatively broad agreement exists with regard to basing the ISA on the GATS framework so that an ISA could be more easily multilateralized; this might be achieved using a “negative-list” approach for national treatment (as advocated by the United States) and a “positive-list” approach for market access commitments (as advocated by the EU).83 This reflects a compromise. GATS embraces the positive-list approach in both areas. NAFTA (and all subsequent U.S. FTAs) use the negative-list approach favored by the United States, whereby only those services that are subject to reservations are excluded.84 Neither approach is simple to implement. With the negative-list approach, negotiators must be very careful to identify each service for which national treatment is not to be afforded, but the approach has the advantage of being applicable automatically to future innovations in technology affecting services. The positive-list approach has similar pitfalls, as the United States discovered when it the Appellate Body ruled that the United States had agreed in GATS to cover gambling services.85 Moreover, whereas parties to U.S. FTAs are familiar with this approach, the situation is different with the EU and its various FTAs and ­economic partnership agreements (EPAs), where the positive-list approach has historically been favored.



Ibid. (quoting Australian WTO Ambassador Tim Yeend). See “In Services Talks, Members Look to Balance Ambition and Expediency,” World Trade Online, October 25, 2012, 3 (discussing the tradeoffs between negotiating time and extent of coverage). 83 See “Officials Cite Agreement on Elements for ‘Architecture’ of Future Services Deal, Int’l Trade Rep. (BNA) 29 (October 11, 2012), 1610 (reflecting discussions with Asst. USTR Michael Punke following a week of ISA exploratory meetings). 84 See NAFTA, chs. 12, 14, Annexes I & II. 85 Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted April 7, 2005. 81 82

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The United States has retreated reluctantly from its position that all sectors other than those that are explicitly exempted be covered, and USTR officials have conceded that the likely result will be a “hybrid outcome”86 while continuing to argue for an approach that is more of a negative-list approach than in the GATS.87 Not only the EU but Australia and some other Members favor the positive-list approach because it was used in the GATS and therefore might make the ISA more attractive to future WTO Member adherents because it could be integrated more easily into the structure of the GATS. Also, as EU representatives have pointed out, a negative-list approach with a significant number of exceptions is not necessarily more trade liberalizing than a positive-list approach.88 Breadth and comprehensiveness are both requirements of GATS Article V (as noted earlier) and are desirable objectives. According to a statement released in July 2012, there appears to be support among the proponents of an ISA of an “ambitious” agreement “with no a priori exclusion of any sector or mode of supply. . . . Any such agreement would aim to capture a substantial part of the liberalisation achieved in other negotiations on trade in services. . . . The outcomes of the agreement could then be brought into the multilateral system.” 89 Among the other early proposals being raised in the technical discussions is a standstill on new services market restrictions going beyond the requirements of GATS Article V:4, and to effectively bind all existing services commitments including those in FTAs, although this would probably have to be done on a case-by-case basis to avoid dissention among FTA members. In a similar manner, the ISA parties may wish to include



See Len Bracken, “U.S., EU differ on Key ISA Element: Punke Envisions Use of Hybrid List,” Int’l Trade Rep. (BNA) 29 (September 27, 2012), 1541 (referring to statements of Deputy USTR Michael Punke). 87 See “U.S., Other WTO Members see ‘Hybrid Approach’ on Services Plurilateral,’ ” World Trade Online, September 20, 2012 (assessing the various positions). 88 Ibid. 89 See ICTSD, “Services Liberalisation,” 2 (quoting from the announcement). 86

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an “internal” MFN clause so that, if any of the ISA parties conclude a ­subsequent bilateral or regional agreement on services, those benefits would extend to other members.90 Also, the ISA might include a “ratchet-in” clause, whereby, in the event that a participant makes unilateral improvements to its services markets, liberalized access would be afforded on a permanent basis to the markets of other parties to the ISA.91 Another general objective of the ISA would be increased transparency in all measures affecting services trade, an obligation that is essential to assure that standstill commitments and bindings are actually being observed.92

B.  Expansion of Sector Coverage A threshold issue facing the ISA negotiators is whether bold expansion of services coverage, to maritime transport, telephone and cellular communication, healthcare services, and/or a variety of professional services, including legal, medical, engineering, and accounting services, among others, would be politically feasible. Although coverage can be expected to apply to all four modes of delivery, there are practical and political limits on Mode 4 (movement of natural persons) as noted earlier. Coverage of maritime transport is unlikely; it is, for example, excluded from all U.S. FTAs.93 Broader Mode 4 liberalization is probably best addressed in an incremental manner, with the usual professional service supplier categories extended to some technicians in markets for which their skills are lacking. It has been suggested that liberalization could be expanded to some semi-skilled worker categories, perhaps with a bonding requirement to protect against over-staying visas.94 Even venturing to a very limited

See Hufbauer, Jensen & Stephenson, “Framework,” 36. See ICTSD, “Services Liberalisation,” 3. 92 Ibid. 93 See, e.g., NAFTA, Annex II reservations (“water transportation”). 94 Hufbauer, Jensen & Stephenson, “Framework,” 37. 90 91

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degree into labor mobility beyond professionals and technicians would risk scuttling the ISA in the United States and many EU nations, as the ISA could be attacked as a back-door route to liberalizing immigration laws. Still, Deputy USTR Michael Punke has indicated that with regard to Mode 4 the United States “will look at those requests in the context of broader negotiations.”95 Achieving market liberalization for professional services has been only of limited success even in many U.S. FTAs; for example, the NAFTA Parties have made little progress in liberalizing many professional services despite commitments made in 1992 toward continuing liberalization.96 Thus, expansion of professional services coverage should be one of the highest priorities for the ISA in large part because many WTO Members (or their sub-federal units), including the United States, impose a variety of onerous requirements on professional services providers, particularly lawyers, engineers, accountants, and medical personnel. These include restrictions on the form of establishment; foreign partnership and ownership restrictions; national and/or residency requirements for obtaining practice licenses or accreditation; limits on the scope of activity; restrictions on multi-disciplinary activities (e.g., associations between lawyers and accountants); and various restrictions on fees and advertising.97 Not all such regulations are inappropriate or unreasonable. Most governments feel obligated to protect their citizens against abuses of the services marketplace, whether the rules are “prudential” regulation of financial services or rules to prevent incompetent medical personnel from treating patients. Drawing distinctions between reasonable regulation and outright protectionism is often difficult; creating a mechanism to determine if individual restrictions are protectionist as part of the ISA



“In Services Talks,” 2 (quoting Mr. Punke). For example, NAFTA, Annex 1201.5, Section B:4–7 calls for “future liberalization” of procedures for foreign legal consultants, but little progress has been made over twenty years. Temporary licensing of engineers under Section C has fared only modestly better. 97 See Jensen, Global Trade in Services, 147–149. 95 96

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is a challenge given the differing approaches by national governments to the regulatory process. Many countries, for example, make it difficult or impossible for foreign law firms to establish offices in the national jurisdiction. Even in Korea, U.S. law firms acquired the right to establish law offices in Korea only with the entry into force of the United States–Korea Free Trade Agreement in April 2012. KORUS permits the establishment of foreign lawyers as “foreign legal consultants,” persons who are authorized only to offer legal advice on the laws of the home country or international law, but the right to enter into cooperative agreements and joint ventures with Korean firms is phased in. 98 Reciprocal licensing of legal professionals is probably years away; KORUS provides national treatment (e.g., a U.S. citizen may qualify to sit for the bar if she obtains the necessary Korean law degree) and creates a working group to address such issues in the future.99

C. Foreign Direct Investment, Government Procurement, and Competition Should the ISA, as Hufbauer, Jensen, and Stephenson recommend, incorporate commitments to eliminate barriers to foreign direct investment in services sectors and provide for investor-state arbitration, the latter in Mode 3 (commercial presence)?100 This would be complicated by weak financial oversight in some of the potential members of the ISA and likely would succeed only if phased in over time and accompanied by technical assistance.101 The inter-relationship between services and investment is clear and is least likely to cause problems in an FTA with separate, but complementary, services and investment chapters. No multilateral investment agreement, however, as noted in Chapter 6, has been

KORUS, Annex II-Korea-43. KORUS, Annex 12-A. 100 Hufbauer, Jensen & Stephenson, “Framework,” 42. 101 See Hufbauer, Jensen & Stephenson, “Framework,” 36. 98 99

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concluded; investment protection issues are addressed most commonly in FTA investment chapters and the more than 2,700 individual bilateral investment treaties.102 Under such circumstances, seeking broad agreement in the ISA negotiations on the extremely complex issued raised by broadly based investment protection is likely to be unattractive to most participants and could significantly delay the completion of the negotiations. Even if it is achieved among the mostly developed country Members initially engaged in the ISA negotiations (which is far from certain), the presence of BIT-like investment protection provisions would likely make the ISA less attractive to future developing country participants. Perhaps investment issues related to business establishment under Mode 3 (commercial presence) could be addressed without seeking to deal with the broad range of investor protections in the typical FTA investment chapter or BIT.103 A significant area of potential overlap is in the area of government procurement. The GATS essentially excludes coverage of government purchases of services, other than to incorporate a mandate that called for negotiations on government procurement in services within two years of the entry into force of the WTO Agreement.104 The dichotomy is unfortunate from a practical point of view. If one assumes that there will be a huge increase in infrastructure construction in the developing world, and in many developed nations as well, financed in large part by governments, the sale of professional services, especially construction and engineering services, will likely be substantially increased.105 The December 15, 2011,



UNCTAD – Prevention and Alternatives to Arbitration II (2010), xvii; accessed August 7, 2012, http://www.unctad.org/en/docs/webdiaeia20108_en.pdf; see also Americo Beviglia & Pierre Sauvé, “International Investment,” in Andrew T. Guzman & Alan O. Sykes, eds., Research Handbook in International Economic Law (Cheltenham: Edward Elgar, 2007), 215 (citing 2005 data). 103 These typically include national treatment, most-favored nation treatment, minimum standard of treatment, protection against direct and indirect expropriation and investor-state arbitration. See, e.g., NAFTA, ch. 11. 104 GATS, art. XIII:2. 105 Jensen, Global Trade in Services, 8. 102

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expanded GPA increases coverage of telecommunications services, along with construction services and some other services categories,106 but the GPA has limited scope, applicable to only forty-two countries, including the twenty-seven Member nations of the EU. A strong argument can be made that the ISA should incorporate a narrower exception than the GATS, continuing to exclude such monopolies as police, defense, judicial, and some other such powers, but afford coverage to situations where national government purchase services from independent domestic enterprises.107 It seems illogical not to provide national treatment in the last situations. GATS’ regulation of monopolies is generally limited to requiring monopoly service suppliers, or other exclusive services suppliers, to comply with GATS’ nondiscrimination requirements, and not to abuse their monopoly positions.108 It may be worth considering, without addressing anti-competition provisions more generally, including regulatory coherence language in the ISA, perhaps using the general approach being advocated by the United States in the Trans-Pacific Partnership negotiations.109

D.  SOE and Other Desirable Provisions In the United States and some other developed countries, concerns exist regarding the expansion of the number and scope of state-owned-enterprises,

See Daniel Pruzin, “WTO Formally Adopts Revised Government Procurement Agreement,” Int’l Trade Rep. (BNA) 29 (2012), 521; Daniel Pruzin, “Negotiators Clinch WTO Procurement Deal; Expanded Access Valued at $80-$100 Billion,” Int’l Trade Rep. (BNA) 28 (2011), 2043. 107 See Hufbauer, Jensen & Stephenson, “Framework,” 38. 108 GATS, arts. II, VIII:1, 2, 5. 109 “[M]aintain transparent, effective, enforceable and mutually coherent regulatory systems that are both risk and science-based, adhere to international best practices, and assure high levels of collaboration among . . . governments and their stakeholders.” American Soybean Assn., Ú.S. Oilseed Industry Comments on the Tans-Pacific Partnership Agreement – Core Principles,” May 2012, accessed June 20, 2012, http:// insidetrade.com/iwpfile.html?file=may2012%2Fwto2012_1016b.pdf. 106

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and any anti-competitive benefits they enjoy, cutting across various GATT/WTO disciplines, including such areas as telecommunications, financial services, and health care. In addition to benefitting from subsides, SOEs typically enjoy other types of preferential treatment afforded by national governments such as preferential access to loans. Stronger disciplines regarding SOEs are under negotiation, inter alia, in the TPP negotiations, at USTR’s initiative (see Chapter 11). Efforts to bring SOEs squarely within the host state obligations afforded to foreign investors are also reflected in language in the U.S. 2012 Model BIT.110 Because foreign service providers typically face the same challenges where SOEs are prominent (as do foreign investors), consideration should be given to assuring that service providers should be able to participate on a nondiscriminatory basis in developing technical standards and regulations, and to expect that where governmental authority has been delegated to SOEs, those SOEs are covered by the ISA disciplines.111 As of the end of 2012, it appeared highly likely that USTR would respond favorably to U.S. stakeholder urging and seek inclusion of SOE disciplines in the ISA negotiations.112 Although it has been suggested that subsidies to service provider SOEs should be addressed in the ISA,113 some negotiators may well wish to avoid the complexities of creating a new set of subsidies disciplines, as was the case with the GATS, where subsidies are to be the subject of

U.S. 2012 Model BIT, accessed May 8, 2012, http://www.ustr.gov/sites/default/files/ BIT%20text%20for%20ACIEP%20Meeting.pdf. 111 The U.S. Model BIT, Article 2:3 provides that “[a] Party’s obligations under Section A shall apply: (a) to a state enterprise or other person when it exercises any regulatory, administrative, or other governmental authority delegated to it by that Party.” A footnote further provides that “[f]or greater certainty, government authority that has been delegated includes a legislative grant, and a government order, directive or other action transferring to the state enterprise or other person, or authorizing the exercise by the state enterprise or other person of, governmental authority.” 112 See “CSI President ‘Confident’ USTR Will Push for SOE Rules in Plurilateral Deal,” World Trade Online, December 17, 2012, which quotes Coalition of Service Industries president (and former deputy USTR) Peter Allgeier. 113 See Hufbauer, Jensen & Stephenson, “Framework,” 40. 110

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future negotiations.114 Many WTO Members, including the United States, are reluctant to deal with unfair trade practices except in the WTO context.115 Perhaps it would be possible to deal with a clearly enumerated list of export subsidies afforded to services providers to avoid complex issues such as “specificity.”116 Similarly, although the GATS contemplated negotiation of an “emergency safeguard” mechanism in the future,117 it may be politically desirable to include some type of safeguard in the ISA, to give the governments at the time of legislative approval the ability to assure members of the congresses and parliaments that there is an “escape clause” as in the GATT118 and to facilitate accession to the ISA by other WTO Members in the future. Given the rapid expansion of cross-border data flows, Hufbauer, Jensen, and Stephenson have urged that the ISA include explicit principles to be applied so as to prevent impediments that could discourage productivity and innovation, with the respondent (the government that is applying the restrictions) having the burden of demonstrating that the restrictions are neither discriminatory among parties nor disguised restriction on services trade.119 Although highly desirable, this is a complicated







GATS, art. XV. None of the many U.S. FTAs address substantive dumping or subsidies disciplines, in the services chapters or elsewhere, and the procedural mechanism for reviewing administrative decisions in dumping or countervailing duty cases (chapter 19) has not been replicated in any subsequent FTA. 116 WTO Agreement on Subsidies and Countervailing Measures, art. 2. 117 GATS, art. X. 118 GATT, art. XIX; WTO Agreement on Safeguards. The irony under the WTO system is that for all practical purposes the Appellate Body has made it impossible for Members to impose safeguard measures legally. See, e.g., Appellate Body, Argentina – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted January 21, 2000, which reestablishes the requirement that the administrative authority demonstrate that “unforeseen developments” arising from a tariff concession resulted in the need for safeguard measures. Fortunately, the “unforeseen developments” language is inapplicable to services. 119 See Hufbauer, Jensen & Stephenson, “Framework,” 41. The standard refers to the “chapeau” of the GATS Article XIV general exceptions, which in turn tracks the GATT Chapter XX chapeau. 114 115

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and controversial area, given that one nations’ privacy, internet security, and consumer protection concerns are often viewed by a trading partner as evidence of protectionism, and two of the major negotiating parties, the United States and the EU, have widely divergent views on such issues as privacy and the protection of personal data.120

E.  Dispute Settlement Dispute settlement provisions are essential, but the structure of the mechanism is probably less controversial than the locus, whether within or outside the WTO’s Dispute Settlement Understanding (DSU). 1.  Under the WTO’s Dispute Settlement Understanding Assuming that the ISA is ultimately concluded as a stand-alone agreement under GATS Article V without seeking a broad waiver from the WTO, dealing with dispute settlement will be a significant challenge. The strongly preferred option would be to make arrangements with the WTO, through a limited waiver or otherwise, so that ISA disputes could be resolved mutatis mutandis under the DSU. This would help to assure consistency between the WTO Dispute Settlement Body (DSB) rulings under both the ISA and the GATS, and provide significant administrative and costs savings over a separate dispute settlement mechanism. The WTO, with its expert secretariat and related resources is also likely to be much more efficient than FTA mechanisms in assuring that the process moves forward without delay in terms of promptly appointing panelists and generally avoiding other delays. Costs and precedence where the panels and Appellate Body are busy would also have to be addressed.

Consider, for example, the differing approaches of the EU and the United States with regards to the confidentiality of data, a concern that has Google embroiled in a dispute with Commission authorities. See Jennifer Baker, “Google Won’t Delay New Privacy Policy Despite EU Concerns,” PCWorld.com, February 2, 2012, accessed June 12, 2012, http://www.pcworld.com/printable/article/id,249246/printable.html.

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This seems procedurally straightforward, but it would be substantively more complex as mechanisms would have to be developed to insulate disputes under the ISA from possibly overlapping provisions of the GATS. Presumably, the parties to the ISA would agree in the ISA that where disputes relating to the provisions of the ISA were lodged they would be resolved in accordance with the ISA, with the exclusion of GATS provisions unless all parties to the dispute agreed otherwise or the GATS provisions were incorporated by reference into the ISA. Should one ISA Party allege against another ISA Party violations of both the ISA and the GATS procedures either for consolidating the proceedings before the DSB or mandating separate panels would be highly desirable. Should the DSU be utilized, it might also be appropriate to specify that panelists chosen to adjudicate ISA disputes would be selected only from citizens of WTO Members who were also Parties to the ISA. If many states adhere to the ISA, limiting panelists in this manner would not be administratively difficult, although provision should be made for more flexibility in the DSU rule against citizens of the parties to a dispute sitting on the panel.121 No effective means likely exists to assure that citizens of the ISA Parties adjudicate ISA disputes that reach the Appellate Body given that the Appellate Body consists of only seven members. 2.  A Separate Dispute Settlement Mechanism The alternative is a dispute settlement mechanism created specifically as part of the ISA, presumably patterned after both the DSU and one or more of the free trade agreements concluded by such countries as the United States, Canada, Australia, and New Zealand. The United States has experience with negotiating and utilizing mechanisms that include multiple parties, seven in the CAFTA-DR122 and eleven, or perhaps

See DSU, art. 8.3. United States–Central America–Dominican Republic Free Trade Agreement, U.S.  –CAFTA-DR, Aug. 5, 2004, ch. 20, accessed June 20, 2012, http://www.ustr. gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-republic-centra l-america-fta/final-text.

121 122

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more, in the Trans-Pacific Partnership. In key respects, these mechanisms are similar to those dictated under the DSU in terms of a consultation requirement, an international arbitration-like panel process, submissions, hearings, and submission of a final report, but without the need for approval of the report by a political body such as the DSB.123 Recent U.S. agreements, such as the KORUS, have improved mechanisms for review of post-report compliance and the magnitude of trade sanctions, but still do not incorporate any sort of appellate mechanism.124 The ASEAN–Australia–New Zealand Free Trade Agreement (AANZ) has similar provisions.125 Although ASEAN has incorporated an appellate body mechanism into its most recent state-to-state dispute settlement accord, that 2004 agreement has not entered into force.126 Experience under NAFTA has suggested that the greatest challenges to effective dispute settlement under FTAs may the significant delays that often arise with regard to the agreement by the Parties on panelists. The roster system under such FTAs127 depends on early agreement on selection of the members of the rosters before any disputes have arisen, and the willingness of the Parties either to choose panelists from the rosters or agree promptly on alternative panelists. Multiple factors have discouraged the use of such FTA dispute settlement mechanisms – the most recent NAFTA Chapter 20 decision was rendered in February 2001 – but long delays in appointing panelists are undoubtedly one of the most important.128 Where there is no secretariat, but only a ministerial or sub-ministerial group such



See, e.g., KORUS, ch. 16, art. 21.12.1: “On receipt of the final report of a panel, the Parties shall agree on the resolution of the dispute, which normally shall conform with the determinations and recommendations, if any, of the panel.” 124 KORUS, arts.22.13, 22.14. 125 AANZ, ch. 17, arts. 16, 17. 126 See ASEAN Protocol on Enhanced Dispute Settlement Mechanism, November 29, 2004 (not in force as of 2012), accessed August 7, 2012, http://www.aseansec.org/16754.htm. 127 See, e.g., NAFTA, arts. 2009–2011. 128 See David A. Gantz, “The United States and Dispute Settlement under the North American Free Trade Agreement: Ambivalence, Frustration and Occasional Defiance,” in The Sword and the Scales: the United States and International Courts and Tribunals, ed. Cesare P.R. Romano (Cambridge: Cambridge University Press, 2009), 356, 391. 123

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as NAFTA’s Free Trade Commission129 or the FTA Joint Committee under the AANZ,130 it seems unlikely that an RTA or EIA dispute settlement mechanism would be able to operate as effectively as the DSU/DSB even though the Commission or committee will likely manage the consultations required as a precursor to the formation of a panel. Whether the ISA negotiators will take bold new steps in the dispute settlement area is problematic given the daunting obstacles to the success of the ISA overall. Hufbauer, Jensen, and Stephenson have advocated the advisability of an advisory mechanism whereby service provider enterprises in the ISA member states could plead their cases directly before a panel of independent experts and render opinions and recommendations regarding alleged ISA violations by other member states.131 This is a concept that would undoubtedly be very attractive to service providers but an anathema to many governments, and not only those of developing countries, because governments by and large abhor being sued and in any event desire to maintain control of arbitral proceedings. In the unlikely event that there is broad interest in the mechanism, issues of staffing and funding (both manageable) would arise.

F.  Institutions As noted previously, the FTA models for dispute settlement do not incorporate an independent or quasi-independent secretariat that, among other functions, could assist disputing parties in appointing panelists and otherwise managing dispute settlement proceedings. The plurilateral GPA takes a similar approach to institutions generally, providing only that: A Committee on Government Procurement [CGP] composed of representatives from each of the Parties shall be established. This



NAFTA, art. 2001. ASEAN–Australia–New Zealand Free Trade Agreement, August 28, 2008 (not in force), ch. 16, art. 1:1, accessed June 20, 2012, http://www.asean.fta.govt.nz/preamble/. 131 Hufbauer, Jensen & Stephenson, “Framework,” 43. 129 130

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Liberalizing International Trade after Doha

Committee shall elect its own Chairman and Vice-Chairman and shall meet as necessary but not less than once a year for the purpose of affording Parties the opportunity to consult on any matters relating to the operation of this Agreement or the furtherance of its objectives, and to carry out such other responsibilities as may be assigned to it by the Parties.132

Under the GPA, the CGP need not participate in dispute settlement proceedings because disputes are referred to the DSB and with a few exceptions are governed by the DSU.133 Presumably, the ISA will incorporate a “Committee on Services” or something similar,134 which will primarily be a consultative mechanism, hopefully one that meets more than once a year, as is the case with CGP. Such a committee could perform whatever functions the Parties entrust to it, depending on whether the Parties are prepared to establish and fund a permanent secretariat even if it is not considered to be an international organization. Still, the United States, and probably other potential parties as well, are reluctant to create new international entities,135 so an institution of limited scope and authority similar to the CGP is probably the most likely outcome.

VI.  Conclusions The ISA is likely the most economically significant of the various multilateral and plurilateral options facing willing Members of the WTO, largely because of the rapidly growing volume of international trade and services. No reasonable observer can analyze the data and fail to see enormous potential for further growth in services trade if a large group



GPA, art. XXI. GPA, art. XXII. 134 With a name that distinguishes it from the Council on Trade in Services under art. 22 of the GATS. 135 See Gantz, “United States and Dispute Settlement,” 363 (discussing U.S. opposition to creating new institutions for NAFTA, despite Canadian desires to the contrary). 132 133

New and Expanded Plurilateral Agreements (Part II)

157

of the WTO Membership can agree on substantial liberalization of services’ trade and reduction of many existing barriers. Even if the BRICS and other major developing countries refuse to participate in the negotiations or to adhere to an ISA promptly after its conclusion, it is highly likely that many of them will realize eventually that the benefits of foreign market access for local businesses and individuals substantially outweigh the concessions required in terms of opening their national markets to greater services competition.

8

Continued Proliferation of Regional Trade Agreements

As this chapter, particularly Section III, demonstrates, the rise of ­regionalism through the proliferation of RTAs is one of the most controversial areas of international trade law and policy today, pitting those who favor RTAs for various reasons against those who would continue to focus primarily on multilateral negotiations. With more than 400 RTAs1 having been negotiated, the WTO estimates that on the average each WTO Member is party to 13.2 Regardless of whether regionalism is considered a positive or negative force for trade liberalization in the long run, with the deadlock in Geneva, the popularity of RTAs among WTO Members will only increase. Section I of this chapter summarizes the historical background for the acceptance by the GATT Contracting Parties of this major deviation from MFN treatment. Section II reviews the GATT/WTO legal structure, and the so-far unsuccessful efforts to require compliance with the GATT obligations on which the permissibility of RTAs is conditioned. Section III briefly discusses the pros and cons of RTAs.

I use the term “regional trade agreements” although many other scholars use “preferential trade agreements.” The latter is avoided herein even though it is a fair description because of potential confusion with WTO usage, where “preferential trade arrangement” denotes unilateral trade preferences such as the Generalized System of Preferences. See WTO, “Regional trade agreements and preferential trade arrangements,” accessed March 16, 2013, http://www.wto.org/english/tratop_e/region_e/rta_pta_e.htm. 2 Pascal Lamy, “Lamy Calls on Decision-Makers to Move the WTO Negotiations Forward,” September 21, 2012, 2, accessed September 21, 2012, http://www.wto.org/ english/news_e/sppl_e/sppl247_e.htm. 1

158

Continued Proliferation of Regional Trade Agreements

159

Legal and economic issues relating to “economic integration ­agreements” under Article V of the General Agreement on Trade in Services are discussed in Chapter 7 of this volume.

I.  Historical Background The “modern” era of RTAs originated, in part, as a result of a major change in U.S. policy toward RTAs beginning in the early to mid-1980s. The Single Market Initiative adopted in the EU in 1986 drew significant attention elsewhere in the world, as with Mercosur and the ASEAN FTA.3 The United States, although a long-term supporter of European integration, grasped the competitive benefits of Europe’s enhanced access to relatively low-wage production with the accession of Ireland (1973), Greece (1979), and Spain and Portugal (1986),4 and the implications for Europe’s competitiveness with the Western Hemisphere and with Asia. From 1982 until 1986, the United States was also frustrated in its efforts to bring about a new GATT negotiating round because of indifference from the internally preoccupied Europeans; the proposal for a new round made at a GATT ministerial meeting in 1982 was not adopted until four years later as the basis for the Uruguay Round negotiations.5 U.S. Trade Representative William Brock and his colleagues in the U.S. Government decided to respond to this rebuff in part by championing FTAs with Israel and then Canada. The logic then, as today with the WTO’s Doha Round, was that if the preferred global freer trade initiatives could not move ­forward, regional trade arrangements could provide



Jeffrey A. Frankel, Regional Trading Blocs in the World Economic System (Washington: Inst. for Int’l Economics, 1997), 4–5. 4 Paolo Mengozzi, European Community Law (London: Kluwer, 1992), 3. These developments are also discussed in William A. Lovett, Alfred E. Eckes, Jr. & Richard Brinkman, U.S. Trade Policy: History, Theory and the WTO (Armonk: M.E. Sharpe, 1999), 94–95. 5 WTO, “The Uruguay Round,” accessed August 1, 2012, http://www.wto.org/english/ thewto_e/whatis_e/tif_e/fact5_e.htm. 3

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Liberalizing International Trade after Doha

a viable alternative.6 The United States, eventually responding to a request from Israel in 19817 proceeded to conclude an FTA with Israel in 1985.8 Notwithstanding the initiation of the Uruguay Round in 1986, the United States and Canada completed their FTA negotiations in 1987, the first major U.S. FTA in terms of trade volume and also the first to be motivated primarily by economic rather than political and security considerations.9 Explosive RTA growth has been an even more recent phenomenon, with the majority having been negotiated since the early 1990s or even later. As of December 2012, 352 RTAs had been notified to the GATT/ WTO and were in force10 (Table 8.1): Table 8.1.  RTAs by type

GATT Art. XXIV (FTA) GATT Art. XXIV (CU) Enabling Clause GATS Art. V Grand total

Accessions

New RTAs

Grand total

1 6 2 3

192 9 34 105

193 15 36 108

12

340

352

Of these, about 80 percent of the total trade in goods agreements is free trade agreements, with customs unions accounting for about 6 percent and Enabling Clause agreements accounting for about 15 percent. Some 108 agreements have been notified under Article V of the GATS, almost all of these were notified under Article XXIV as well11 (see Table 8.2).



See David A. Gantz, Regional Trade Agreements: Law, Policy and Practice (Durham: Carolina Academic Press, 2009), 14–15. 7 See Sandra Ward, “The U.S.–Israel Free Trade Area: Is it GATT Legal?,” Geo. Wash. J. Int’l L. & Econ. 19 (1985), 199, 213–214. 8 United States–Israel Free Trade Agreement, April 22, 1985, 24 I.L.M. 653 (1985), accessed August 1, 2012, http://tcc.export.gov/Trade_Agreements/All_Trade_ Agreements/exp_005439.asp. 9 United States–Canada Free Trade Agreement, December 1997–January 1998 [U.S.– Can.], 27 I.L.M. 27 (1988), 281. 10 WTO, All RTAs in Force, by Notification, December 21, 2012, accessed December 22, 2012, http://rtais.wto.org/UI/publicsummarytable.aspx. 11 See WTO, “Coverage of Agreements: Services,” August 28, 2012, accessed August 28, 2012, http://rtais.wto.org/UI/PublicSearchByCrResult.aspx. 6

Table 8.2.  RTAs notified to the GATT/WTO and in force

161

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

Andean Community (CAN) Armenia – Kazakhstan

Goods

CU

1-Oct-90

Enabling Clause

25-May-88

Goods

FTA

17-Jun-04

25-Dec-01

Armenia – Moldova

Goods

FTA

17-Jun-04

Armenia – Russian Federation Armenia – Turkmenistan Armenia – Ukraine

Goods

FTA

17-Jun-04

Goods

FTA

17-Jun-04

Goods

FTA

17-Jun-04

ASEAN – Australia – New Zealand

Goods & Services

FTA & EIA

8-Apr-10

ASEAN – China

Goods & Services

PSA & EIA

21-Sep-2005(G) 26-Jun-2008(S)

ASEAN – India ASEAN – Japan

Goods Goods

FTA FTA

19-Aug-10 23-Nov-09

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V Enabling Clause & GATS Art. V Enabling Clause GATT Art. XXIV

ASEAN – Korea, Republic of

Goods & Services

FTA & EIA

21-Dec-95 25-Mar-93 7-Jul-96 18-Dec-96 1-Jan-10 01-Jan-2005(G) 01-Jul-2007(S) 1-Jan-10 1-Dec-08 01-Jan-2010(G) 01-May-2009(S)

(continued)

Table 8.2. (continued) 162

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

ASEAN Free Trade Area (AFTA) Asia Pacific Trade Agreement (APTA) Asia Pacific Trade Agreement (APTA) – Accession of China Australia – Chile

Goods

FTA

30-Oct-92

Enabling Clause

28-Jan-92

Goods

PSA

2-Nov-76

Enabling Clause

17-Jun-76

Goods

PSA

30-Apr-04

Enabling Clause

1-Jan-02

Goods & Services

FTA & EIA

3-Mar-09

6-Mar-09

Goods & Services

FTA & EIA

14-Apr-1983(G) 22-Nov-1995(S)

Goods

FTA

20-Dec-76

Goods & Services

FTA & EIA

31-Jul-08

Canada – Chile

Goods & Services

FTA & EIA

30-Jul-97

Canada – Colombia

Goods & Services

FTA & EIA

7-Oct-11

Canada – Costa Rica

Goods

FTA

13-Jan-03

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV

Australia – New Zealand (ANZCERTA) Australia – Papua New Guinea (PATCRA) Brunei Darussalam – Japan

01-Jan-1983(G) 01-Jan-1989(S) 1-Feb-77 31-Jul-08 5-Jul-97 15-Aug-11 1-Nov-02

Canada – Israel

Goods

FTA

15-Jan-97

GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV

1-Jan-97

Canada – Peru

Goods & Services

FTA & EIA

31-Jul-09

Caribbean Community and Common Market (CARICOM) Central American Common Market (CACM) Central European Free Trade Agreement (CEFTA) 2006 Chile – China

Goods & Services

CU & EIA

14-Oct-1974(G) 19-Feb-2003(S)

Goods

CU

24-Feb-61

Goods

FTA

26-Jul-07

GATT Art. XXIV

1-May-07

Goods & Services

FTA & EIA

20-Jun-2007(G) 18-Nov-2010(S)

01-Oct-2006(G) 01-Aug-2010(S)

Chile – Colombia

Goods & Services

FTA & EIA

14-Aug-09

Chile – Costa Rica (Chile – Central America) Chile – El Salvador (Chile – Central America)

Goods & Services

FTA & EIA

16-Apr-02

Goods & Services

FTA & EIA

29-Jan-2004(G) 05-Feb-2004(S)

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

1-Aug-09 01-Aug-1973(G) 04-Jul-2002(S) 4-Jun-61

8-May-09 15-Feb-02 1-Jun-02

163

(continued)

Table 8.2. (continued) 164

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

Chile – Guatemala (Chile – Central America) Chile – Honduras (Chile – Central America) Chile – India Chile – Japan

Goods & Services

FTA & EIA

30-Mar-12

23-Mar-10

Goods & Services

FTA & EIA

28-Nov-11

Goods Goods & Services

PSA FTA & EIA

13-Jan-09 24-Aug-07

Chile – Mexico

Goods & Services

FTA & EIA

27-Feb-01

China – Costa Rica

Goods & Services

FTA & EIA

27-Feb-12

China – Hong Kong, China

Goods & Services

FTA & EIA

27-Dec-03

China – Macao, China

Goods & Services

FTA & EIA

27-Dec-03

China – New Zealand

Goods & Services

FTA & EIA

21-Apr-09

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V Enabling Clause GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

19-Jul-08 17-Aug-07 3-Sep-07 1-Aug-99 1-Aug-11 29-Jun-03 17-Oct-03 1-Oct-08

China – Singapore

Goods & Services

FTA & EIA

2-Mar-09

Colombia – Mexico

Goods & Services

FTA & EIA

13-Sep-10

Colombia – Northern Triangle (El Salvador, Guatemala, Honduras) Common Economic Zone (CEZ) Common Market for Eastern and Southern Africa (COMESA) Commonwealth of Independent States (CIS) Costa Rica – Mexico

Goods & Services

FTA & EIA

31-Aug-12

Goods

FTA

18-Aug-08

Goods

CU

4-May-95

Goods

FTA

29-Jun-99

GATT Art. XXIV

30-Dec-94

Goods & Services

FTA & EIA

17-Jul-06

1-Jan-95

Goods & Services

FTA & EIA

6-Jan-12

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

Dominican Republic – Central America

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV Enabling Clause

1-Jan-09 1-Jan-95 12-Nov-09

20-May-04 8-Dec-94

4-Oct-01

165

(continued)

Table 8.2. (continued) 166

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

Dominican Republic – Central America – United States Free Trade Agreement (CAFTA-DR) East African Community (EAC)

Goods & Services

FTA & EIA

17-Mar-06

GATT Art. XXIV & GATS Art. V

1-Mar-06

Goods & Services

CU & EIA

09-Oct-2000(G) 01-Aug-2012(S)

Enabling Clause & GATS Art. V Enabling Clause

07-Jul-2000(G) 01-Jul-2010(S)

East African Community (EAC) – Accession of Burundi and Rwanda EC (10) Enlargement

Goods

CU

1-Aug-12

Goods

CU

24-Oct-79

EC (12) Enlargement

Goods

CU

11-Dec-85

EC (15) Enlargement

Goods & Services

CU & EIA

15-Dec-1994(G) 22-Dec-1994(S)

EC (25) Enlargement

Goods & Services

CU & EIA

26-Apr-04

EC (27) Enlargement

Goods & Services

CU & EIA

27-Sep-2006(G) 26-Jun-2007(S)

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

1-Jul-07

1-Jan-81 1-Jan-86 1-Jan-95 1-May-04 1-Jan-07

EC (9) Enlargement

Goods

CU

7-Mar-72

167

21-Jul-99

GATT Art. XXIV GATT Art. XXIV & GATS Art. V Enabling Clause

EC Treaty

Goods & Services

CU & EIA

24-Apr-1957(G) 10-Nov-1995(S)

Economic and Monetary Community of Central Africa (CEMAC) Economic Community of West African States (ECOWAS) Economic Cooperation Organization (ECO) EFTA – Albania

Goods

CU

Goods

1-Jan-73

24-Jun-99

CU

6-Jul-05

Enabling Clause

24-Jul-93

Goods

PSA

10-Jul-92

Enabling Clause

17-Feb-92

Goods

FTA

7-Feb-11

1-Nov-10

EFTA – Canada

Goods

FTA

4-Aug-09

EFTA – Chile

Goods & Services

FTA & EIA

3-Dec-04

EFTA – Colombia

Goods & Services

FTA & EIA

14-Sep-11

EFTA – Croatia

Goods

FTA

14-Jan-02

EFTA – Egypt

Goods

FTA

17-Jul-07

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV

1-Jan-58

1-Jul-09 1-Dec-04 1-Jul-11 1-Jan-02 1-Aug-07

(continued)

Table 8.2. (continued) 168

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

EFTA – Former Yugoslav Republic of Macedonia EFTA – Hong Kong, China

Goods

FTA

11-Dec-00

GATT Art. XXIV

1-May-02

Goods & Services

FTA & EIA

27-Sep-12

1-Oct-12

EFTA – Israel

Goods

FTA

30-Nov-92

EFTA – Jordan

Goods

FTA

17-Jan-02

EFTA – Korea, Republic of

Goods & Services

FTA & EIA

23-Aug-06

EFTA – Lebanon

Goods

FTA

22-Dec-06

EFTA – Mexico

Goods & Services

FTA & EIA

25-Jul-01

EFTA – Montenegro

Goods

FTA

24-Oct-12

EFTA – Morocco

Goods

FTA

20-Jan-00

EFTA – Palestinian Authority EFTA – Peru

Goods

FTA

23-Jul-99

Goods

FTA

30-Jun-11

GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV

1-Jan-93 1-Sep-02 1-Sep-06 1-Jan-07 1-Jul-01 1-Sep-12 1-Dec-99 1-Jul-99 1-Jul-11

EFTA – SACU

Goods

FTA

29-Oct-08

EFTA – Serbia

Goods

FTA

24-Nov-10

EFTA – Singapore

Goods & Services

FTA & EIA

14-Jan-03

EFTA – Tunisia

Goods

FTA

3-Jun-05

EFTA – Turkey

Goods

FTA

6-Mar-92

EFTA – Ukraine

Goods & Services

FTA & EIA

18-Jun-12

EFTA accession of Iceland Egypt – Turkey EU – Albania

Goods

FTA

30-Jan-70

Goods Goods & Services

FTA FTA & EIA

5-Oct-07 07-Mar-2007(G) 07-Oct-2009(S)

EU – Algeria

Goods

FTA

24-Jul-06

EU – Andorra

Goods

CU

23-Feb-98

EU – Bosnia and Herzegovina

Goods

FTA

11-Jul-08

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV Enabling Clause GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV

1-May-08 1-Oct-10 1-Jan-03 1-Jun-05 1-Apr-92 1-Jun-12 1-Mar-70 1-Mar-07 01-Dec-2006(G) 01-Apr-2009(S) 1-Sep-05 1-Jul-91 1-Jul-08

169

(continued)

Table 8.2. (continued) 170

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

EU – Cameroon

Goods

FTA

24-Sep-09

1-Oct-09

EU – CARIFORUM States EPA

Goods & Services

FTA & EIA

16-Oct-08

EU – Chile

Goods & Services

FTA & EIA

03-Feb-2004(G) 28-Oct-2005(S)

EU – Côte d’Ivoire

Goods

FTA

11-Dec-08

EU – Croatia

Goods & Services

FTA & EIA

17-Dec-2002(G) 12-Oct-2009(S)

EU – Eastern and Southern Africa States Interim EPA EU – Egypt

Goods

FTA

9-Feb-12

GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV

Goods

FTA

3-Sep-04

EU – Faroe Islands

Goods

FTA

17-Feb-97

EU – Former Yugoslav Republic of Macedonia EU – Iceland

Goods & Services

FTA & EIA

23-Oct-2001(G) 02-Oct-2009(S)

Goods

FTA

24-Nov-72

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV

1-Nov-08 01-Feb-2003(G) 01-Mar-2005(S) 1-Jan-09 01-Mar-2002(G) 01-Feb-2005(S) 14-May-12 1-Jun-04 1-Jan-97 01-Jun-2001(G) 01-Apr-2004(S) 1-Apr-73

171

EU – Israel

Goods

FTA

20-Sep-00

EU – Jordan

Goods

FTA

17-Dec-02

EU – Korea, Republic of

Goods & Services

FTA & EIA

7-Jul-11

EU – Lebanon

Goods

FTA

26-May-03

EU – Mexico

Goods & Services

FTA & EIA

25-Jul-2000(G) 21-Jun-2002(S)

EU – Montenegro

Goods & Services

FTA & EIA

16-Jan-2008(G) 18-Jun-2010(S)

EU – Morocco

Goods

FTA

13-Oct-00

EU – Norway

Goods

FTA

13-Jul-73

EU – Overseas Countries and Territories (OCT) EU – Palestinian Authority EU – Papua New Guinea / Fiji EU – San Marino

Goods

FTA

14-Dec-70

Goods

FTA

29-May-97

Goods

FTA

18-Oct-11

Goods

CU

24-Feb-10

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV

1-Jun-00 1-May-02 1-Jul-11 1-Mar-03 01-Jul-2000(G) 01-Oct-2000(S) 01-Jan-2008(G) 01-May-2010(S) 1-Mar-00 1-Jul-73 1-Jan-71 1-Jul-97 20-Dec-09 1-Apr-02

(continued)

Table 8.2. (continued) 172

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

EU – Serbia

Goods

FTA

31-May-10

1-Feb-10

EU – South Africa

Goods

FTA

2-Nov-00

EU – Switzerland – Liechtenstein EU – Syria

Goods

FTA

27-Oct-72

Goods

FTA

15-Jul-77

EU – Tunisia

Goods

FTA

15-Jan-99

EU – Turkey

Goods

CU

22-Dec-95

Eurasian Economic Community (EAEC) European Economic Area (EEA) European Free Trade Association (EFTA)

Goods

CU

21-Apr-99

Services

EIA

13-Sep-96

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATS Art. V

Goods & Services

FTA & EIA

14-Nov-1959(G) 15-Jul-2002(S)

Faroe Islands – Norway

Goods

FTA

12-Feb-96

Faroe Islands – Switzerland Georgia – Armenia

Goods

FTA

12-Feb-96

Goods

FTA

8-Feb-01

Georgia – Azerbaijan

Goods

FTA

8-Feb-01

GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV

1-Jan-00 1-Jan-73 1-Jul-77 1-Mar-98 1-Jan-96 8-Oct-97 1-Jan-94 03-May-1960(G) 01-Jun-2002(S) 1-Jul-93 1-Mar-95 11-Nov-98 10-Jul-96

173

Georgia – Kazakhstan

Goods

FTA

8-Feb-01

Georgia – Russian Federation Georgia – Turkmenistan

Goods

FTA

8-Feb-01

Goods

FTA

8-Feb-01

Georgia – Ukraine

Goods

FTA

8-Feb-01

Global System of Trade Preferences among Developing Countries (GSTP) Guatemala – the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu Gulf Cooperation Council (GCC) Honduras – El Salvador and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu Hong Kong, China – New Zealand

Goods

PSA

25-Sep-89

Goods & Services

FTA & EIA

11-Jul-11

Goods

CU

Goods & Services

FTA & EIA

6-Apr-10

GATT Art. XXIV & GATS Art. V

1-Mar-08

Goods & Services

FTA & EIA

3-Jan-11

1-Jan-11

Goods & Services

FTA & EIA

10-Jul-08

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

Iceland – Faroe Islands

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV Enabling Clause

GATT Art. XXIV & GATS Art. V

16-Jul-99 10-May-94 1-Jan-00 4-Jun-96 19-Apr-89

1-Jul-06

1-Jan-03

1-Nov-06

(continued)

Table 8.2. (continued) 174

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

India – Afghanistan India – Bhutan India – Japan

Goods Goods Goods & Services

PSA FTA FTA & EIA

8-Mar-10 30-Jun-08 14-Sep-11

13-May-03 29-Jul-06 1-Aug-11

India – Malaysia

Goods & Services

FTA & EIA

6-Sep-11

India – Nepal India – Singapore

Goods Goods & Services

PSA FTA & EIA

2-Aug-10 3-May-07

India – Sri Lanka Israel – Mexico

Goods Goods

FTA FTA

17-Jun-02 22-Feb-01

Japan – Indonesia

Goods & Services

FTA & EIA

27-Jun-08

Japan – Malaysia

Goods & Services

FTA & EIA

12-Jul-06

Japan – Mexico

Goods & Services

FTA & EIA

31-Mar-05

Enabling Clause Enabling Clause GATT Art. XXIV & GATS Art. V Enabling Clause & GATS Art. V Enabling Clause GATT Art. XXIV & GATS Art. V Enabling Clause GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

1-Jul-11 27-Oct-09 1-Aug-05 15-Dec-01 1-Jul-00 1-Jul-08 13-Jul-06 1-Apr-05

175

Japan – Peru

Goods & Services

FTA & EIA

24-Feb-12

Japan – Philippines

Goods & Services

FTA & EIA

11-Dec-08

Japan – Singapore

Goods & Services

FTA & EIA

8-Nov-02

Japan – Switzerland

Goods & Services

FTA & EIA

1-Sep-09

Japan – Thailand

Goods & Services

FTA & EIA

25-Oct-07

Japan – Viet Nam

Goods & Services

FTA & EIA

1-Oct-09

Jordan – Singapore

Goods & Services

FTA & EIA

7-Jul-06

Korea, Republic of – Chile

Goods & Services

FTA & EIA

8-Apr-04

Korea, Republic of – India Korea, Republic of – Singapore

Goods & Services

FTA & EIA

Goods & Services

FTA & EIA

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

1-Mar-12 11-Dec-08 30-Nov-02 1-Sep-09 1-Nov-07 1-Oct-09 22-Aug-05 1-Apr-04 1-Jan-10

21-Feb-06

GATT Art. XXIV & GATS Art. V

2-Mar-06

(continued)

Table 8.2. (continued) 176

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

Korea, Republic of – US

Goods & Services

FTA & EIA

15-Mar-12

15-Mar-12

Kyrgyz Republic – Armenia Kyrgyz Republic – Kazakhstan Kyrgyz Republic – Moldova Kyrgyz Republic – Russian Federation Kyrgyz Republic – Ukraine Kyrgyz Republic – Uzbekistan Lao People’s Democratic Republic – Thailand Latin American Integration Association (LAIA) Melanesian Spearhead Group (MSG) MERCOSUR – India Mexico – El Salvador (Mexico – Northern Triangle)

Goods

FTA

12-Dec-00

Goods

FTA

29-Jun-99

Goods

FTA

15-Jun-99

Goods

FTA

15-Jun-99

Goods

FTA

15-Jun-99

Goods

FTA

15-Jun-99

Goods

PSA

26-Nov-91

GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV Enabling Clause

Goods

PSA

1-Jul-82

Enabling Clause

18-Mar-81

Goods

PSA

3-Aug-99

Enabling Clause

1-Jan-94

Goods Goods & Services

PSA FTA & EIA

23-Feb-10 23-May-06

Enabling Clause GATT Art. XXIV & GATS Art. V

1-Jun-09 15-Mar-01

27-Oct-95 11-Nov-95 21-Nov-96 24-Apr-93 19-Jan-98 20-Mar-98 20-Jun-91

Mexico – Guatemala (Mexico – Northern Triangle) Mexico – Honduras (Mexico – Northern Triangle) Mexico – Nicaragua

177

Goods & Services

FTA & EIA

3-Jul-06

Goods & Services

FTA & EIA

10-Jul-2006(G) 20-Jun-2006(S)

Goods & Services

FTA & EIA

17-Oct-05

New Zealand – Malaysia

Goods & Services

FTA & EIA

7-Feb-12

New Zealand – Singapore

Goods & Services

FTA & EIA

4-Sep-01

Nicaragua and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu North American Free Trade Agreement (NAFTA) Pacific Island Countries Trade Agreement (PICTA) Pakistan – China

Goods & Services

FTA & EIA

9-Jul-09

Goods & Services

FTA & EIA

29-Jan-1993(G) 01-Mar-1995(S)

Goods

FTA

28-Aug-08

Goods & Services

FTA & EIA

18-Jan-2008(G) 20-May-2010(S)

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

15-Mar-01 1-Jun-01 1-Jul-98 1-Aug-10 1-Jan-01 1-Jan-08

GATT Art. XXIV & GATS Art. V Enabling Clause

1-Jan-94

GATT Art. XXIV & GATS Art. V

01-Jul-2007(G) 10-Oct-2009(S)

13-Apr-03

(continued)

Table 8.2. (continued) 178

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

Pakistan – Malaysia

Goods & Services

FTA & EIA

19-Feb-08

1-Jan-08

Pakistan – Sri Lanka Panama – Chile

Goods Goods & Services

FTA FTA & EIA

11-Jun-08 17-Apr-08

Panama – Costa Rica (Panama – Central America) Panama – El Salvador (Panama – Central America) Panama – Honduras (Panama – Central America) Panama – Peru

Goods & Services

FTA & EIA

7-Apr-09

Goods & Services

FTA & EIA

24-Feb-05

Goods & Services

FTA & EIA

16-Dec-09

Goods & Services

FTA & EIA

23-Apr-12

Panama – Singapore

Goods & Services

FTA & EIA

4-Apr-07

Panama and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu

Goods & Services

FTA & EIA

28-Jul-09

Enabling Clause & GATS Art. V Enabling Clause GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

12-Jun-05 7-Mar-08 23-Nov-08 11-Apr-03 9-Jan-09 1-May-12 24-Jul-06 1-Jan-04

179

Pan-Arab Free Trade Area (PAFTA) Peru – Chile

Goods

FTA

3-Oct-06

Goods & Services

FTA & EIA

29-Nov-11

Peru – China

Goods & Services

FTA & EIA

3-Mar-10

Peru – Korea, Republic of

Goods & Services

FTA & EIA

9-Aug-11

Peru – Mexico

Goods & Services

FTA & EIA

22-Feb-12

Peru – Singapore

Goods & Services

FTA & EIA

30-Jul-09

Protocol on Trade Negotiations (PTN) Russian Federation – Azerbaijan Russian Federation – Belarus Russian Federation – Kazakhstan Russian Federation – Republic of Moldova Russian Federation – Tajikistan

Goods

PSA

9-Nov-71

Goods

FTA

13-Sep-12

Goods

FTA

13-Sep-12

Goods

FTA

13-Sep-12

Goods

FTA

13-Sep-12

Goods

FTA

13-Sep-12

GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V Enabling Clause GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV

1-Jan-98 1-Mar-09 1-Mar-10 1-Aug-11 1-Feb-12 1-Aug-09 11-Feb-73 17-Feb-93 20-Apr-93 7-Jun-93 30-Mar-93 8-Apr-93

(continued)

Table 8.2. (continued) 180

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

Singapore – Australia

Goods & Services

FTA & EIA

25-Sep-03

28-Jul-03

South Asian Free Trade Agreement (SAFTA) South Asian Preferential Trade Arrangement (SAPTA) South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA) Southern African Customs Union (SACU) Southern African Development Community (SADC) Southern Common Market (MERCOSUR) Thailand – Australia

Goods

FTA

21-Apr-08

GATT Art. XXIV & GATS Art. V Enabling Clause

Goods

PSA

21-Apr-97

Enabling Clause

7-Dec-95

Goods

PSA

7-Jan-81

Enabling Clause

1-Jan-81

Goods

CU

25-Jun-07

GATT Art. XXIV

15-Jul-04

Goods

FTA

2-Aug-04

GATT Art. XXIV

1-Sep-00

Goods & Services

CU & EIA

17-Feb-1991(G) 05-Dec-2006(S)

29-Nov-1991(G) 07-Dec-2005(S)

Goods & Services

FTA & EIA

27-Dec-04

Goods & Services

FTA & EIA

1-Dec-05

Enabling Clause & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

Thailand – New Zealand

1-Jan-06

1-Jan-05 1-Jul-05

Trans-Pacific Strategic Economic Partnership Turkey – Albania

Goods & Services

FTA & EIA

18-May-07

Goods

FTA

9-May-08

181

Turkey – Bosnia and Herzegovina Turkey – Chile

Goods

FTA

29-Aug-03

Goods

FTA

25-Feb-11

Turkey – Croatia

Goods

FTA

2-Sep-03

Turkey – Former Yugoslav Republic of Macedonia Turkey – Georgia

Goods

FTA

5-Jan-01

Goods

FTA

18-Feb-09

Turkey – Israel

Goods

FTA

16-Apr-98

Turkey – Jordan

Goods

FTA

7-Mar-11

Turkey – Montenegro

Goods

FTA

12-Mar-10

Turkey – Morocco

Goods

FTA

10-Feb-06

Turkey – Palestinian Authority Turkey – Serbia

Goods

FTA

1-Sep-05

Goods

FTA

10-Aug-10

Turkey – Syria

Goods

FTA

15-Feb-07

GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV

28-May-06 1-May-08 1-Jul-03 1-Mar-11 1-Jul-03 1-Sep-00 1-Nov-08 1-May-97 1-Mar-11 1-Mar-10 1-Jan-06 1-Jun-05 1-Sep-10 1-Jan-07

(continued)

Table 8.2. (continued) 182

RTA Name

Coverage

Type

Date of notification

Notification

Date of entry into force

Turkey – Tunisia

Goods

FTA

1-Sep-05

1-Jul-05

Ukraine – Azerbaijan

Goods

FTA

18-Aug-08

Ukraine – Belarus

Goods

FTA

18-Aug-08

Ukraine – Former Yugoslav Republic of Macedonia Ukraine – Kazakhstan

Goods

FTA

18-Aug-08

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV

Goods

FTA

18-Aug-08

Ukraine – Moldova

Goods

FTA

18-Aug-08

Ukraine – Russian Federation Ukraine – Tajikistan

Goods

FTA

18-Aug-08

Goods

FTA

18-Aug-08

Ukraine – Uzbekistan

Goods

FTA

18-Aug-08

Ukraine -Turkmenistan

Goods

FTA

18-Aug-08

US – Australia

Goods & Services

FTA & EIA

22-Dec-04

US – Bahrain

Goods & Services

FTA & EIA

8-Sep-06

GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V

2-Sep-96 11-Nov-06 5-Jul-01 19-Oct-98 19-May-05 21-Feb-94 11-Jul-02 1-Jan-96 4-Nov-95 1-Jan-05 1-Aug-06

183

US – Chile

Goods & Services

FTA & EIA

16-Dec-03

US – Colombia

Goods & Services

FTA & EIA

8-May-12

US – Israel

Goods

FTA

13-Sep-85

US – Jordan

Goods & Services

FTA & EIA

15-Jan-02

US – Morocco

Goods & Services

FTA & EIA

30-Dec-05

US – Oman

Goods & Services

FTA & EIA

30-Jan-09

US – Panama

Goods & Services

FTA & EIA

29-Oct-12

US – Peru

Goods & Services

FTA & EIA

3-Feb-09

US – Singapore

Goods & Services

FTA & EIA

17-Dec-03

West African Economic and Monetary Union (WAEMU)

Goods

CU

27-Oct-99

GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V GATT Art. XXIV & GATS Art. V Enabling Clause

1-Jan-04 15-May-12 19-Aug-85 17-Dec-01 1-Jan-06 1-Jan-09 31-Oct-12 1-Feb-09 1-Jan-04

1-Jan-00

184

Liberalizing International Trade after Doha

II.  GATT/WTO Legal Structure The authority of GATT/WTO Members to enter into customs unions and free trade agreements dates from the original GATT 1947, Article XXIV. The compromise between the MFN principle and the perceived need for an exception for regional trade agreements was designed to deal primarily with the then-existing relationships between the United Kingdom and its colonies, later the members of the commonwealth. The United States was concerned that without some limitations these relationships would adversely affect U.S. interests.12 As a result, Article XXIV was crafted to limit, at least in theory, customs unions and FTAs to situations in which the agreement covered “substantially all trade,” achieved their objectives of eliminating tariffs and most tariff barriers “within a reasonable period of time” (usually ten years), and did not result in increasing tariffs on imports from non-members of the customs union or RTA.13 Article XXIV also incorporates explicit notification and monitoring requirements, in paragraph 7, modified on several occasions over the years.14 Article XXIV provides in pertinent part as follows: ***

2. For the purposes of this Agreement a customs territory shall be understood to mean any territory with respect to which separate tariffs or other regulations of commerce are maintained for a substantial part of the trade of such territory with other territories. ***

4. The contracting parties recognize the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to

John H. Jackson, World Trade and the Law of the GATT (New York: Bobbs-Merrill, 1969), 576–577. 13 GATT, art. XXIV(8), XXIV(5). 14 GATT, art. XXIV(6); Uruguay Round Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and Trade 1994, Uruguay Round Final Act, April 15, 1994; General Counsel, Transparency Mechanism for Regional Trade Agreements, December 14, 2006. 12

Continued Proliferation of Regional Trade Agreements

185

such agreements. They also recognize that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories. 5. Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free-trade area; Provided that: (a) with respect to a customs union, or an interim agreement leading to a formation of a customs union, the duties and other regulations of commerce imposed at the institution of any such union or interim agreement in respect of trade with contracting parties not parties to such union or agreement shall not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable in the constituent territories prior to the formation of such union or the adoption of such interim agreement, as the case may be; (b) with respect to a free-trade area, or an interim agreement leading to the formation of a free-trade area, the duties and other regulations of commerce maintained in each of the constituent territories and applicable at the formation of such free trade area or the adoption of such interim agreement to the trade of contracting parties not included in such area or not parties to such agreement shall not be 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, or interim agreement as the case may be; and (c) any interim agreement referred to in subparagraphs (a) and (b) shall include a plan and schedule for the formation of such a customs union or of such a free-trade area within a reasonable length of time.

186

***

7.

Liberalizing International Trade after Doha

(a) Any contracting party deciding to enter into a customs union or free-trade area, or an interim agreement leading to the formation of such a union or area, shall promptly notify the CONTRACTING PARTIES and shall make available to them such information regarding the proposed union or area as will enable them to make such reports and recommendations to contracting parties as they may deem appropriate. (b) If, after having studied the plan and schedule included in an interim agreement referred to in paragraph 5 in consultation with the parties to that agreement and taking due account of the information made available in accordance with the provisions of subparagraph (a), the CONTRACTING PARTIES find that such agreement is not likely to result in the formation of a customs union or of a free-trade area within the period contemplated by the parties to the agreement or that such period is not a reasonable one, the CONTRACTING PARTIES shall make recommendations to the parties to the agreement. The parties shall not maintain or put into force, as the case may be, such agreement if they are not prepared to modify it in accordance with these recommendations. (c) Any substantial change in the plan or schedule referred to in paragraph 5 (c) shall be communicated to the CONTRACTING PARTIES, which may request the contracting parties concerned to consult with them if the change seems likely to jeopardize or delay unduly the formation of the customs union or of the free-trade area. 8. For the purposes of this Agreement: (a) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs territories, so that (i) duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII,

Continued Proliferation of Regional Trade Agreements

187

XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and, (ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union; (b) A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other restrictive regulations of commerce (except, where necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in products originating in such territories. ***

10. The CONTRACTING PARTIES may by a two-thirds majority approve proposals which do not fully comply with the requirements of paragraphs 5 to 9 inclusive, provided that such proposals lead to the formation of a customs union or a free-trade area in the sense of this Article. ***

12. Each contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories.15 Paragraph 4 of Article XXIV essentially reflects the dichotomy and compromise between the desirability of increasing trade through regional agreements (departing from MFN treatment) and avoiding new trade barriers with non-members. Paragraph 5 continues this “on the one hand, on the other hand” approach by attempting to set out strict conditions for RTAs, which if observed, will minimize the adverse impact on non-parties.

GATT, art. XXIV (emphasis added).

15

188

Liberalizing International Trade after Doha

The “reasonable period of time” referred to under Paragraph 5(c) for the transition from “interim agreement” to a custom union of FTA was subsequently defined as ten years in most cases.16 In contrast, “substantially all trade” has not yet acquired a definition accepted by the Members. The result is a somewhat complex set of conditions, of which the restriction on “higher or more restrictive” duties or other restrictions on imports from non-parties is the only one which has been regularly enforced.17 Unfortunately, the Committee on Regional Trade Agreements (CRTA) and its predecessors18 have been largely ineffective in assuring that RTAs notified to the Council on Trade in Goods and referred to the CRTA otherwise complied with the requirements.19 The first major challenge was the creation of the European Economic Communities in the 1950s (beginning with the European Iron and Steel Community), which anticipated from the outset a single internal market without restrictions on goods as well as the elimination of restrictions on movement of persons, services, and capital.20 In retrospect this might have been a good test of the review mechanism in Article XXIV. However, Bernard Hoekman and Michael M. Kostecki have suggested that GATT scrutiny was limited in practice because the original European Economic Community Members (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands) threatened to leave the GATT if the Treaty of Rome were held to be inconsistent with Article XXIV.21





Uruguay Round Understanding, para. 3. Issues relating to the calculation of the “general incidence” under GATT, art. XXIV:5 are also addressed in the Understanding, paras. 4–5. 18 Individual “Working Parties” until 1996. 19 For example, despite the requirement of review of each RTA by the CRTA, “no examination report has been finalized since 1995 because of lack of consensus.” WTO, “Work of the Committee on Regional Trade Agreements (CRTA),” accessed August 1, 2012, http://www.wto.org/english/tratop_e/region_e/regcom_e.htm. 20 Commission of the European Communities, “Completing the Internal Market, White Paper, at Introduction,” June 1985, para. 4, in Paul Vishny, European Union Law; An Introduction (Philadelphia, ALI-ABA, 2006), 1, 3. 21 Bernard Hoekman & Michael M. Kostecki, The Political Economy of the World Trading System: The WTO and Beyond (Oxford: Oxford Univ. Press, 2001), 353. 16 17

Continued Proliferation of Regional Trade Agreements

189

Subsequently, GATT/WTO oversight has proven virtually impossible to implement in an effective manner. Efforts to further improve the review system as part of the Doha Round evidenced little progress in the past decade.22 In fairness, the number of RTAs submitted for review has overwhelmed the review system, and the inability of the Members to agree on such critical definitions as the meaning of “substantially all trade” has made the review task even more difficult. As recently as September 2012, WTO Director-General General Pascal Lamy suggested the desirability of “revisiting the existing rules on preferential trade arrangements.”23 Despite addressing RTA issues on several occasions, the WTO’s Appellate Body has proven reluctant to address the issues of GATT Article XXIV compliance head on.24 The Appellate Body has addressed Article XXIV concerns directly in only one case, Turkey  – Textile Restrictions and indirectly in several safeguards cases, including Argentina – Footwear Safeguards25 and United States – Steel Safeguards.26 In Brazil – Tyres, the Appellate Body also invited panels to scrutinize the use of Article XXIV as a defense to actions that would otherwise be inconsistent with related GATT obligations.27 The Panel Report in Canada  – Autos touched on Article XXIV scope issues.28







Negotiating Group on Rules Chair Dennis Francis on March 17, 2011, “noted the limited progress so far in negotiations on regional trade agreements. . .” quoted in WTO, “Regional Trade Agreements,” accessed August 1, 2012, http://www.wto.org/english/ news_e/news11_e/rta_17mar11_e.htm. 23 Pascal Lamy, “Lamy Warns Rise of Regional Trade Agreements Could Lead to ‘policy fragmentation,” September 20, 2012, 3, accessed September 20, 2012, http://www.wto. org/english/news_e/news_e.htm. 24 See Gantz, RTAs, 45–54. 25 Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear, WT/ DS121/AB/R, adopted January 12, 2000. 26 Appellate Body Report, United States  – Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248, 249, 251, 252, 253, 254, 258, 259/AB/R, adopted December 10, 2003. 27 Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/ DS332/AB/R, adopted December 17, 2007. 28 Panel Report, Canada  – Certain Measures Affecting the Automotive Industry, WT/ DS139/142/R, adopted June 19, 2000, appealed on other grounds; Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/142/AB/R. 22

190

Liberalizing International Trade after Doha

III.  Exploring the Pros and Cons A.  Traditional Considerations An enormous volume of literature debates the pros and cons of regional trade agreements.29 Professor Jagdish Bhagwati and some other economists have decried the expanding numbers of RTAs, terming them (with some logic) “preferential trade agreements” instead.30 Professor Bhagwati has also coined the term “spaghetti bowl” to reflect the proliferation and expansion of RTAs31 in which traders are forced to deal with overlapping and conflicting regional trade rules, particularly in sub-Saharan Africa and South America. The WTO Secretariat has described the RTA phenomenon in a more nuanced manner: They [the WTO and RTAs] seem to be contradictory, but often regional trade agreements can actually support the WTO’s multilateral trading system. Regional agreements have allowed groups of countries to negotiate rules and commitments that go beyond what was possible at the time multilaterally. In turn, some of these rules have paved the way for agreement in the WTO. Services, intellectual property, environmental standards, investment and competition policies are all issues that were raised in regional negotiations and later developed into agreements or topics of discussion in the WTO. The groupings that are important for the WTO are those that abolish or reduce barriers on trade within the group. The WTO agreements recognize that regional arrangements and closer economic integration can benefit countries.

See, e.g., Jagdish Bhagwati, Free Trade Today (Princeton, 2002); Economics of Preferential Trade Agreements, eds. Jagdish Bhagwati & Arvind Panagariya, (Washington, D.C: American Enterprise Institute, 1996); Bernard M. Hoekman & Michael M. Kostecki, The Political Economy of the World Trading System: The WTO and Beyond (Oxford: Oxford University Press, 2001); Richard Pomfret, The Economics of Regional Trading  Arrangements (Clarendon, 1997); Frankel, “Regional Trading Blocs”; Gantz-RTAs, ch. 2. 30 Bhagwati & Panagariya – PTAs, passim. 31 See Jagdish Bhagwati & Arvind Panagariya, “Preferential Trading Areas and Multilateralism – Strangers, Friends, or Foes?,” in The Economics of Preferential Trade Agreements. 29

Continued Proliferation of Regional Trade Agreements

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It also recognizes that under some circumstances regional trading arrangements could hurt the trade interests of other countries. . . . In particular, the arrangements should help trade flow more freely among the countries in the group without barriers being raised on trade with the outside world. In other words, regional integration should complement the multilateral trading system and not threaten it.32

Still, in 2012, the word from Geneva has turned more critical, with WTO Director-General Pascal Lamy criticizing the rise of regionalism because RTAs generate multiple trading costs through, inter alia, multiple sets of rules of origin; cause existing RTAs to be less preferential when the parties offer similar benefits to other trading parties; may encourage geopolitical tensions through their exclusiveness (as is likely with the TPP and China); may fail to address the major concerns of “smaller and weaker members”; and create divergences in policy that may make multilateral trade negotiations more difficult to conclude.33 Even discounting the Director-General’s obvious preference for multilateral over regional trade negotiations, the concerns he raises are valid ones. The dichotomy between global and regional trade agreements introduces other issues, most of which cannot be briefly addressed and are only mentioned here in passing. Do RTAs create or divert trade, or perhaps result in some of both, as with NAFTA (substituting regional parts and components for those from Asia, but allowing Mexican consumers to purchase more footwear, apparel and electronics from China)? Administratively, will nations engaged in RTA negotiations, particularly small developing nations, be unable to participate simultaneously in multilateral negotiations at the WTO? Is it politically easier or more difficult for countries, such as the United States, to muster Congressional and stakeholder support for regional or global trade agreements, taking into account the general preference by business for broader rather than narrower trading opportunities? Under what circumstances are RTAs useful

WTO, “Regionalism: Friends or Rivals?,” accessed August 1, 2012, http://www.wto.org/ english/thewto_e/whatis_e/tif_e/bey1_e.htm. 33 See Lamy, “Lamy Calls on Decision-Makers,” 2. 32

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tools in helping governments to make needed domestic legal and economic reforms that might not occur if it were not for the treaty obligations accepted under RTAs? To what extent are the benefits of an FTA, such as NAFTA, eroded when the parties conclude RTAs with third countries (e.g., the United States with the Central American nations and Mexico with the EU and Japan)? Is an RTA among neighbors (e.g., NAFTA, Mercosur, or the EU) easier to justify than a “regional trade agreement” between the United States and Singapore? Although it may be easier to negotiate a trade agreement among 2, or even 5 or 6 nations, is negotiating one among 12 or more (the Trans-Pacific Partnership) or 34 (the ill-fated Free Trade Agreement of the Americas) significantly less complicated than negotiating among nearly 160 WTO Members (of which probably 20 or fewer Members are the key to success or failure)?

B.  Dealing with Twenty-First-Century Issues One consideration receiving increased attention in recent years in RTA negotiations is the observation by Richard Baldwin that continuing to focus in Geneva on market access without addressing the internationalization of supply chains and the “trade-investment-service nexus” means that the complexities of modern trade will likely continue to be resolved through rules adopted at the RTA level.34 If Baldwin is right in concluding that twentieth-century GATT/WTO trading rules are not well-adapted to twenty-first-century realities, the continued inability to address these issues (or even more basic tariff and non-tariff barriers) in Geneva may render the discrepancy even more serious within a few more years. This could possibly stimulate ever-greater RTA activity, perhaps at the expense of discouraging serious reform to the global trading system. The importance of efficient supply chain management is illustrated by the ubiquitous iPhone, which is assembled in China by the troubled

See Richard Baldwin, “21st Century Realism: Filling the Gap between 21st Century Trade and 20th Century Trade rules,” WTO Staff Working Paper ERSD-2011-08, May 23, 2011, accessed August 7, 2012, http://www.cepr.org/pubs/PolicyInsights/CEPR_ Policy_Insight_056.asp.

34

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Foxconn Technology Group.35 The Chinese assembly cost accounts for only about 7 percent of the $600 cost of an iPhone (before discounts to the consumer who signs up for multi-year service contracts). Principal components (mostly semiconductors) are sourced from Korea, Switzerland, and Germany, among others,36 with dozens of other components coming from various countries in Asia. Such a manufacturing process, which has become common in recent years, depends for its feasibility on a predictable export-import process with a minimum of bureaucratic delays. Multinational sourcing patterns also imply that bilateral FTAs may not be well suited to addressing the problem; reciprocity really is not an issue for multi-nation sourcing that is demanded to produce the iPhone. Instead, Apple and Foxconn would benefit more from reductions in non-tariff barriers on a broad multilateral basis despite the low likelihood that the WTO will be in a position to address the issues in the foreseeable future other than in the much narrower context of trade facilitation. The importance of these factors has been underlined in recent years by the impact of natural disasters on the prevailing “just in time” business models, with materials, parts and components commonly being sourced from multiple countries with only a few days’ supplies kept available at the place of manufacturing. Many of these concerns relate to developing country suppliers, whose governments may be unable to react as quickly to natural challenges. For example, floods in Thailand in 2011 interrupted the supply of hard disk drives and other electronic components to such MNEs as Sony, Intel, Apple, Samsung, and Motorola, and also to automobile manufacturers such as Honda.37 As the aftermath of the Japanese earthquake and nuclear reactor meltdown indicated, however, the problem is by no means confined to the developing world. According to

See Charles Duhigg & David Barboza, “In China, Human Costs Are Built Into an iPad,” The New York Times, January 25, 2012, which discusses the harsh and dangerous working conditions faced by workers at Foxconn Technology. 36 David Barboza, “Supply Chain for iPhone Highlights Costs in China,” The New York Times, July 5, 2012 (discussing the sourcing of iPhone parts). 37 See Avery Fellow, “Natural Disasters Expected to Pose Greater Risk to Global Supply Chains, Study Says,” World Climate Change Report (BNA), August 15, 2012, which discusses the impact of various natural disasters on modern supply management. 35

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Christine Hauser, a New York Times reporter, the earthquake and ­tsunami ­demonstrates how global markets are entwined, with interruptions in Japanese manufacturing causing slowing in certain American businesses, particularly in the automotive sector.38 WTO Director-General Pascal Lamy has observed that global value chains have “transformed international production chains” and that such “international fragmentation of production processes offers tremendous opportunities,” assuming that the affected enterprises know how to use the opportunities and governments “create an environment that encourages engagement by enterprises in supply chains.”39 It is, therefore, no surprise that global supply chains are a focus of RTA negotiations, including the TPP (see Chapter 11) and, more broadly, within APEC (see Chapter 9). Further explaining the attractiveness of RTAs for dealing with such contemporary trade issues, Jean-Pierre Chauffour has suggested that: Objectives beyond market access and preferences have emerged as an important focus of modern [RTAs]. Increased economic interdependence is generating more demands for regional and global policy coordination and the delivery of transnational public goods. PTAs are increasingly seen as institutional means to solve these coordination problems.40

Chauffour sees the pattern of international trade deepening and shifting as a result of: (1) increases in global and regional integration, driven by lower tariffs and lower communications and transport costs; (2) the emergence of global production networks and value chains; (3) the rise in non-goods (services) trade; and (4) the global reduction in

See Christine Hauser, “Japan’s Crises Cut the Bottom Lines at Some Concerns,” The New York Times, April, 26, 2011 (discussing the impact on various U.S. manufacturers and exporters). 39 Pascal Lamy, “Global Value Chains are ‘Binding Us Together,’” September 19, 2012, accessed September 19, 2012, http://www.wto.org/english/news_e/sppl_e/sppl245_e. htm. 40 Jean-Pierre Chaffour, “Preferential Trade Agreements: Adjusting to New Realities,” Great Insights 4 (June 2012), 1. 38

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MFN tariffs and increased participation in PTAs. This means that the deeper, “­quality” PTAs must be viewed as powerful tools to bring about broad government reforms, and thus should be pursued selectively so as to avoid over-burdening the negotiating process, keeping in mind that deep integration is not a “one size fits all” situation.41 The Doha negotiations, particularly after competition and investment were eliminated from the agenda in 2003–2004, simply failed to address the “WTO-Plus” issues that have become increasingly important to international commerce after sixty years of reducing tariff and non-tariff barriers. In addition to competition and investment, these issues included electronic commerce, trade facilitation, and other non-border measures.42 In certain negotiations such as the TPP, cutting edge issues such as increased disciplines for state-owned industries are also being addressed in various negotiating committees (see Chapter 11). The shift in focus away from tariff rates per se toward concerns which have been lightly addressed, if at all, in Geneva is not surprising, particularly as the importance of MFN Tariff rates has lessened; more than half of world merchandise trade is already duty-free on an MFN basis. 43 This means that tariffs have decreased in significance over recent years and are not the principal motivators of most FTAs.44 Therefore, the relevance as well as the feasibility of the traditional approach is being questioned. This skepticism was clearly expressed by then-U.S. Trade Representative Robert Zoellick early in the Doha Round negotiations after the September 2003 Cancun Ministerial meeting. It was there that

Ibid., 2. See Andrew L. Stoler, “WTO-Plus Issues in the Multilateral Trading System,” in ICTSID, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 13, 2012, http://ictsd.org/downloads/2012/02/ andrew-stoler-wtoplus-issues-in-the-multilateral-trading-system.pdf (discussing the importance of the non-tariff issues addressed by many RTAs). 43 See Lamy, “Lamy Warns Rise of Regional Trade Agreements,” 2 (citing WTO World Trade Report 2011). 44 Ibid. 41 42

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negotiations initially broke down over agricultural subsidies and whether to include competition and foreign investment disciplines in the negotiations, with the “Singapore Issues” rejected by more than ninety of the delegations. Zoellick opined, “[t]he key division at Cancun was between the can-do and the won’t-do. For more than two years, the US has pushed to open markets globally, in our hemisphere, and with sub-regions or individual countries. As WTO Members ponder the future, the US will not wait: we will move towards free trade with can-do countries.”45

C.  Seeing RTAs as the Preferred Approach Another reason that RTAs may be preferable as Robert Z. Lawrence suggests, and not simply second best, results from the seeming paradox that “the optimum area for trade might be the world, but global federal governance is not widely seen as the optimal area for governance.”46 Moreover, an effective RTA that has broad tariff and non-tariff-barrier elimination while also addressing non-tariff issues is hardly second best to a series of WTO agreements characterized by exceptions, gaps in ­coverage and the inability to innovate. One considerably less sophisticated consideration, albeit seldom publicly acknowledged, is the likely concern among many WTO Members about increasing imports from China. RTAs provide an obvious solution to this problem; a member can reduce or eliminate tariffs among members of an RTA without offering such reduced tariffs to China on an MFN basis, and they likely can find many reasons, other than fear of China, to justify a new RTA to the public or its trading partners. This China fear-factor is seldom likely to be the primary consideration driving

Richard Adams, “Profile: Robert Zoellick,” The Guardian, May 30, 2007, accessed July 14, 2012, http://www.guardian.co.uk/business/2007/may/30/3 (quoting from a Financial Times article). 46 Robert Z. Lawrence, “Competing with Regionalism by Revitalizing the WTO,” in ICTSID, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 13, http://ictsd.org/downloads/2012/02/robert-la wrence-competing-with-regionalism-by-revitalizing-the-wto.pdf. 45

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a particular RTA, but it would be naïve to suggest that it is not present in some situations. Not surprisingly, given the importance of services trade to some WTO Members such as the United States and the EU, the RTA proliferation is not limited to the focus on facilitating trade in goods. Many of the RTAs concluded since 1990, at least 108 according to the record of WTO notifications, also cover services with varying degrees of comprehensiveness (see Table 8.2). Although the vast majority of services agreements are embedded in broader RTAs, stand-alone services agreements are permitted under GATS Article V and an International Services Agreement, discussed in Chapter 7, may well be the most significant plurilateral agreement to emerge post-Doha. Whether one supports or opposes the proliferation of regional trade agreements, it is clear that for some countries, including the United States, RTA negotiations have become the priority over GATT/WTO negotiations. The only major trade negotiation of the Obama Administration as of the end of 2012 has been the Trans-Pacific Partnership, which resulted in fifteen substantive negotiating sessions through December 2012, and appears to have engaged a broad range of not only U.S. government trade officials but officials of the ten other member countries as well (see Chapter 11). (Like many other “regional” trade agreements, the TPP is “regional” only in that the participating countries all riparian to the Pacific Ocean, and is not global.) Although the effectiveness of RTAs in actually improving market access is mixed,47 there seems little doubt that RTA activity has eclipsed the focus on global trade negotiations for many if not the majority of WTO Members, a result that is not surprising given the lack of progress in Geneva in recent years. For countries such as the United States and those of the European Union, the benefits of negotiating RTAs seem to clearly outweigh the costs, particularly when there is no significant downside in refocusing trade negotiations away from a moribund Doha Round. Both have sufficient

See discussion of Mercosur and ASEAN in Chapter 9 of this volume.

47

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economic power to strongly influence, if not dominate, negotiations with other developed nations as well as developing nations. This is confirmed by the consistency of content in NAFTA and the ten post-NAFTA FTAs concluded by the George W. Bush Administration.48 The positive impact on middle-income countries is probably more mixed.49 Shaffer and Sutton suggests that MICs may benefit from serving as hubs for South-South RTAs, and from North-South RTAs that promote efficiencies in maintaining and increasing global supply chains. They also suggest that negotiating experience gained from RTA negotiations could build experience for global trade negotiations later on.50 The disadvantages are the lack of bargaining power noted earlier, and the likelihood that some MICs will accept disciplines in areas they would prefer to avoid, such as investment, intellectual property, services, and labor and environment, even though in the longer term accepting disciplines in those sectors may benefit the national economy. Unfortunately, many of the same problems that plagued the Doha Round have also characterized some RTA negotiations. Although South-South RTAs are among those which are being negotiated, along with the North-South variety, many of the former, such as ASEAN and Mercosur have either been shallow in nature or highly comprehensive on paper but of limited scope in terms of the extent of implementation. This confirms the obvious: not all RTAs are equal either in their scope or the effectiveness of their implementation. Political will is required not only for the conclusion of the agreements but also on an ongoing basis for implementation and, inevitably, resolution of disputes over implementation. Perhaps the most obvious shortcoming of RTAs is in their dispute settlement mechanisms. With the exception of the EU’s Court of Justice



See Gantz, RTAs, chs. 5–9. See, e.g., Robert Z. Lawrence, Regionalism, Multilateralism, and Deeper Integration (Washington: Brookings Institution Press, 1996). 50 Gregory Shaffer & Charles Sutton, “Middle-Income Countries in the International Trading System,” in Middle Income Countries, eds. Randall Peerenboom & Thomas Ginsberg (Cambridge: Cambridge University Press, 2014). 48 49

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and Court of First Instance none of the RTA mechanisms have been ­unqualified successes.51 Even in NAFTA, which like more recent U.S. FTAs has a functional (if not extensively used) binding dispute settlement system, the process has been characterized by delays both in the process itself and by the speed of implementation of panel decisions.52 As Hosuk Lee-Makiyama has observed, “[a]n FTA without any losers means there is no restructuring taking place – and no new capital, innovation, efficiencies being brought in – and fewer jobs are being saved.”53 Governments negotiating RTAs thus face many of the same lack of resolve and the ability to overcome internal protectionist tendencies and resistance to “creative destruction”54 as they do when they negotiate in Geneva. This makes RTAs considerably less than a panacea. Although it may be simpler politically and logistically to negotiate trade liberalization among smaller groups than the WTO Membership, there is no assurance that the processes will be successful in particular circumstances; the unsatisfactory experiences with Mercosur, ASEAN, and several of the African RTAs is living proof that paralysis in trade negotiations and the inability to comply with agreed obligations is not unique to the WTO. Peter Allgeier, former Deputy U.S. Trade Representative and the principal negotiator for the failed Free Trade Area of the Americas has suggested, perhaps over-optimistically, that NAFTA, CAFTA-DR, and the other U.S. FTAs with Latin American states (Chile, Colombia, Panama, and Peru), along with the FTAs that Chile has with these countries, might

See, e.g., T. C. Hartley, The Foundations of European Community Law (Oxford: Oxford University Press, 1998), 52–67. 52 See, e.g., David A. Gantz “The United States and Dispute Settlement under the North American Free Trade Agreement: Ambivalence, Frustration and Occasional Defiance,” in The Sword and the Scales: The United States and International Courts and Tribunals, ed. Cesare P.R. Romano (Cambridge University Press, 2009), 356, 385–393. 53 See Hosuk Lee-Makiyama, “FTAs and the Crisis in the European Car Industry,” ECIPE Policy Brief no. 02/2012, accessed September 16, 2012, 15, http://www.ecipe. org/media/publication_pdfs/PB201102.pdf, which discusses the political resistance to an EU-Japan FTA because of concerns about the weak EU auto industry. 54 The inevitable process that occurs under a market-based system when some enterprises and sectors fail while others are being created and ultimately will prosper. 51

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someday be combined into a smaller version of the FTAA, with thirteen instead of thirty-four parties.55 Because the U.S. FTAs, and those concluded by Chile (and Canada), in Latin America are similar in scope and content, such an amalgamation might be feasible from a legal perspective. Politically, the concept seems much more problematic, particularly given the very limited interest of the United States since 2009 in new or expanded FTAs with Latin America. The shift in focus is not simply with the United States and the TPP; Chile, Colombia, Mexico, and Peru have formed the Pacific Alliance (Chapter 10, Section IV), again with a Pacific basin rather than Latin American outlook. Also, as Allgeier notes, there is much less likelihood that the various “partial coverage agreements” concluded by other nations in the region could be combined with the comprehensive, robust FTAs of the United States, Canada, and Chile.56 In any event, if one believes that some expansion of trade is better than none, the failure of the Doha Round will continue to stimulate RTA activity. As is evident throughout this volume, WTO Members who wish to continue expansion of their trading opportunities, even if they would prefer to operate on a multilateral basis, will pursue RTAs and other options as long as there is no progress in Geneva.



See John Brew, “Peter Allgeier, Global Trade Policy Perspectives: President, C&M International,” Global Trade & Customs J., 5 (July 2012): 327, 329 (Interview). 56 Ibid. 55

9

Widening and Deepening (or Disregarding) Existing RTAs

With the end of the Doha Round as a single-undertaking approach and no prospect of another such round in the foreseeable future, the members of some RTAs have seen the expansion and improvement of existing agreements to be of a higher priority that in the past even though upgrading and other changes may have been considered desirable earlier. This chapter considers four RTAs – the European Union, Mercosur, the ASEAN FTA, and NAFTA – and postulates that all four, which have in fact been subject to modification periodically over their existence to date, may eventually be expanded and/or revitalized, at least in part as a result of Doha’s demise. I also discuss the Asian Pacific Economic Cooperation (APEC) forum, a much looser trade grouping with a potential role in trade liberalization. Still, one cautions that with RTAs and APEC, as with the WTO, the political will to take apparently desirable, sometimes necessary steps, may be lacking with or without the impetus of deadlock at Geneva, as the history of Mercosur and ASEAN in particular demonstrate. In addition to the select group of RTAs discussed in this chapter, many other countries are actively engaging in negotiations to widen and deepen existing RTAs and may be expected to continue to do so. For example, as of October 2011, at least fifteen WTO members had ten or more RTAs in force.1 Several of the most active, such as Chile, have reached the second

WTO, “Regional Trade Agreements Notified to the GATT/WTO and in Force,” October 20, 2011, accessed June 27, 2012, http://rtais.wto.org/UI/publicPreDefRepByCountry.

1

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or third generation of FTA activity whereby ­expansion and restructuring are taking place.2 A selection of these is discussed in Chapters 10 and 11.

I.  European Union More than the failure of Doha, the financial crisis in the Eurozone nations is a result of the Great Recession and structural weaknesses in the Eurozone and among the EU Members. Still, the absence of multilateral trade negotiations may place a higher value on maintaining the health of the EU despite the burdens. Additionally, the longer the current EU crisis continues the less attention the EU nations are likely to devote to improving the global trading system. Those other European nations that continue to seek membership in the EU “club” may also be motivated in part by the lack of action in Geneva. Finally, as discussed in Chapter 10, the Euro crisis has done little or nothing to discourage the Commission from aggressively pursuing FTAs with other nations, including one with the United States, a major aspect of EU economic policy that is driven in significant part by the demise of Doha but cannot succeed in the long run without a robust EU.

A.  Overview of the EU and Eurozone After nearly sixty years, and despite the Eurozone crisis,3 the EU remains the world’s most successful customs union, having expanded from the

aspx. This group includes the EU (as a group), Chile, India, Japan, Korea, Malaysia, Mexico, Norway, Peru, Singapore, Switzerland, Thailand, Turkey, the Ukraine, and the United States. 2 See, e.g., “Supplementary Agreement on Trade in Services, Chile–China,” March 20, 2008, accessed December 13, 2012, http://www.sice.oas.org/Trade/CHL_CHN/CHL_CHN_e/ services_ind_e.asp (supplementing an FTA on trade in goods concluded in 2005). 3 See Jacob Funk Kirkegaard, “The Euro Area Crisis: Origin, Current Status and European and US Responses,” October 27, 2011 (testimony before the House Committee on Foreign Affairs Subcommittee on Europe and Asia), accessed June 27, 2012, http://www.piie.com/publications/testimony/kirkegaard20111027.pdf.

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original six members (France, Germany, Italy, Belgium, the Netherlands, and Luxemburg) to twenty-seven by 2007. Tariffs and non-tariff barriers have long since been eliminated; most border controls no longer exist in the “single market”; EU legislation (“regulations” and “directives”) dominates in such areas as international trade regulation, intellectual property, competition law, and environmental law; and, with significant exceptions, the EU has made major advances in the free movement of labor and capital as well as goods and services. With the entry into force of the Treaty of Lisbon in December 2009,4 the Commission and European Parliament’s authorities were again expanded. The Commission’s powers now encompass, inter alia, responsibility for foreign investment by the Members in third countries and an office that is the equivalent of a foreign ministry, and the Parliament’s a broader role in the legislative process and the budget, although little discussion has occurred in recent years considering the future of Europe’s common security and military policy.5 Much of the success of the EU in the past has been based on the ability of the Members to muster the political will to engage in a process of deepening regional integration, albeit not always on a linear basis, seldom quickly and often without the full support of Member state citizens.6 Because of the deepening economic integration, and no doubt in part



Treaty of Lisbon amending the Treaty on European Union and the Treaty establishing the European Community, December 13, 2007, O.J. C 306, December 17, 2007, accessed December 13, 2012, http://eur-lex.europa.eu/JOHtml.do?uri=OJ:C:2007:306:SOM:EN :HTML. 5 See Judy Dempsey, “Values Slide from Top of Merkel’s List,” The New York Times, November 26, 2012, which discusses the current focus of German foreign policy exclusively on economic issues. 6 See, e.g., Catherine Barnard, The Substantive Law of the EU, 2nd ed. (Oxford: Oxford Univ. Press, 2007); Henrik Bull, “The Constitutional Development of the European Union,” N.D. L. Rev. 83 (2007): 1, 16; Elizabeth F. Defeis, “A Constitution for the European Union? A Transatlantic Perspective,” Temp. Int’l & Comp. L.J. 19 (2005), 351; Thomas Eilmansberger, “IP and Antitrust in the European Union,” sw. j.l. & trade am. 13 (2007), 261, 26); T.C. Hartley, the Foundations of European Community Law, 6th ed. (Oxford: Oxford Univ. Press, 2007). 4

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as a result of the EU’s economic strength in the world economy, other nations, such as the Members of ASEAN and Mercosur, have considered the EU as the model for their own customs unions.7 Those RTAs, and perhaps NAFTA as well, would not likely have developed along present lines without the EU to “demonstrate the possibilities” of the economic and other benefits offered by RTAs.8 The Eurozone was created in 2001 with great fanfare and currently encompasses seventeen of the EU members (with ten, including the United Kingdom, remaining outside). The common currency system has not worked as hoped; the Eurozone has chronically suffered from poor fiscal discipline among its participants and a European Central Bank (ECB) that until very recently lacked the necessary powers to step in and serve beleaguered governments as a lender of last resort, providing Members with the liquidity they require to recover from the crisis (for example, with a Eurobond still in the discussion stage backed by all Members of the Eurozone, including Germany). The ECB, in contrast to the U.S. Federal Reserve System, also currently lacks the authority to impose fiscal discipline and debt limits on the borrowing governments and banks although the its powers are almost certain to increase in the next few years.

B.  The Eurozone Crisis Beginning in 2009 and likely continuing at least through 2013, the EU has been experiencing its most serious crisis ever, with Greece unable to pay its debts without massive financial assistance from the EU, a deteriorating banking-driven crisis having emerged in Spain, and political gridlock in Italy. Serious questions have arisen as to whether Italy and Portugal

David A. Gantz, Regional Trade Agreements: Law, Policy and Practice (Durham: Carolina Academic Press, 2009), 303. 8 See Nader Mousavizadeh & Erik Jones, “A World without Europe Spells Danger and Woe,” Financial Times, August 20, 2012 (asserting the economic and political importance of the EU). 7

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(and perhaps Ireland and Cyprus as well) can remain solvent in light of weak banking systems, excessive public sector employment, corruption, and labor laws that discourage the hiring of additional workers by making their discharge prohibitively expensive. Austerity with the massive unemployment and hardship it has created has long lost its attraction for everyone except the IMF and the German Government.9 In France, as well, there is an evident disconnect between responsible financial policies and popular support for high government pensions, early retirement, and other elements of the no-longer-sustainable existing economic/ social structure. There, President Hollande has pledged both to reduce the budget deficit to 3 percent and to fight austerity and labor and pension reform,10 raising questions as to whether either of these inconsistent objectives can be accomplished. With regard to the internal crisis, it can be argued that many of the EU problems are similar to those experienced in Geneva: [The] difficulties we are observing in the EU mirror the troubles of the multilateral system, since Europe remains a microcosm of the cosmos. Global governance, the legal and institutional framework to manage the ever-growing interdependence and interconnectedness at the world level, much like the European edifice, is built on a thin balance between disciplines, solidarity and legitimacy.11

A major difference may well be that in the process of strengthening the Eurozone, it seems almost certain that the treaties will again be supplemented, a scenario that for the present at least is much less likely at the WTO in Geneva. This may come in the form of a Eurozone bond and bank deposit insurance scheme, direct regulation of banks, tougher rules to restrict government spending deficits, and/or greater European

See, e.g., “Germany and the Euro; Reform or Else,” “Italy and the Euro; Are we Next?,” and Charlemagne, “Angela’s Vision,” all in The Economist, June 23, 2012. 10 See, “France’s Elections; Left Bankers,” The Economist, June 23, 2012. 11 Pascal Lamy, “Multilateralism is at a Crossroads,” Speech at the Humboldt-Viadrina School of Governance in Berlin, June 26, 2012, accessed June 27, 2012, http://www.wto. org/english/news_e/sppl_e/spp1239_e.htm. 9

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Central Bank and/ community legal powers to monitor and direct members’ national financial policies,12 among many other possibilities. The EU’s efforts to address the crisis have often been viewed with good reason as piecemeal and slow in coming. The December 2011 proposal for a treaty (technically outside the EU unanimity framework) providing for tighter regional oversight of government spending to be concluded by the seventeen Eurozone members and most, of the remaining ten, with only the United Kingdom demurring, did not effectively address the high interest rates or funding deficiencies that threaten the financial viability of Greece, Italy, Spain, and perhaps other Members. It may be abandoned, replaced with other initiatives, or extensively modified before it is adopted. Historians may well view the “saving” of the Euro, and perhaps the EU, as beginning when the president of the ECB, Mario Draghi, pledged in July 2012 that the ECB would do whatever is necessary to protect the Eurozone, and then decided in September that the ECB would resume (after imposing strict conditions13) purchasing the bonds issued by the governments in crisis, despite initial objections of Germany’s Bundesbank.14 Also, in October 2012, the Members agreed in principle to create a rescue fund of about €1 trillion to stave off the financial collapse of the weaker members, impose stricter fiscal rules, and introduce extensive supervision requirement for Member borrowing and lending practices, with penalties for lack of enforcement.15 By December 2012, the Member governments had agreed to entrust the ECB with direct supervisory powers of up to 200 of the EU’s largest

See Charlemagne, “Wake up, Euro Zone,” The Economist, October 22, 2011, 65. Member countries seeking such assistance must formally request it, often a politically unpleasant step, and submit a detailed program, which will be accepted with conditions and monitored by EU institutions. 14 See Charlemagne’s Notebook, “The ECB and the Euro: Too Central a Banker,” The Economist, September 7, 2012. 15 C. Fred Bergsten, “Five Myths about the Euro Crisis,” Washington Post, September 7, 2012, 1, accessed September 19, 2012, http://www.piie.com/publications/opeds/oped. cfm?ResearchID=2214. 12 13

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banks; the individual Member nation regulators would continue to exercise primary responsibility for some 6,000 smaller banks.16 Such action was a precondition to direct recapitalization of national banks, as in Spain.17 Full implementation of the plan was not expected before March 2014 and could require additional time for the governments and the Commission to agree on the details.18 Also, the IMF, the ECB, EU finance ministers, and other lenders ultimately agreed on the release in December 2012 of  the long-delayed €50 billion aid package for Greece.19 At the same time, the governments declined to commit to a more centralized fiscal union that would have given the EU greater control over the Members’ budgets and economic programs, along with expanded budgetary and taxing powers, simply agreeing to revisit such proposals in mid-2013.20 This compromise, which sets a measured pace for reform, undoubtedly reflects the dominance of German Chancellor Merkel’s cautious, “step-by-step” approach to addressing the crisis (in part because the EU depends on Germany for the lion’s share of the bailout funding) even though the EU Council, Commission, and probably the ECB would have preferred to move more rapidly. Despite the slow progress toward comprehensively addressing the crisis, these steps demonstrate that allowing Greece to be forced out of or withdraw from the Eurozone has become an unattractive option even for the most fiscally responsible Members such as Germany, Denmark, and Finland, likely in significant part for fear that a Greek departure could lead to similar abandonment of the Euro by Spain and Italy in time. Whether





James Kanter, “European Leaders Hail Accord on Banking Supervision,” The New York Times, December 13, 2012. 17 See James Kanter & Stephen Castle, “Leaders Say they Expect Agreement on Aid for Spanish Banks this Year,” The New York Times, October 18, 2012 (discussing various elements of a tentative agreement). 18 Kanter, “European Leaders Hail Accord.” 19 Ibid. 20 See Peter Spiegel & Joshua Chaffin, “Ambitions Deflated as EU Delays Decisions,” Financial Times, December 14, 2012, which reports on the result of an EU leaders meeting that considered such transformation proposals. 16

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Greek departure can be avoided in 2013 and 2014 remains uncertain given that Greece faces a sixth straight year of recession in 2013 dictated by the lenders, with an ever-present risk of social unrest that could disrupt the fragile coalition government in place at the end of 2012.21 Beyond Greece, it will be unclear at least until after German elections in September 2013 whether the EU Members – or even the seventeen Eurozone Members – will be able to agree on the sufficiently broad reforms of the EU accords urged by Germany (the EU’s major financier of last resort) as a condition for providing more financial aid. Some observers remain concerned at least through 2013 that the challenges for the EU of globalization and financial stability, particularly with the dual system, may not be sustainable under existing circumstances and could lead to a “downward spiral”22 if the reform process is not accelerated or does not provide the EU authorities with sufficient power to deal with future financial crises. Given the history of the EU and its past ability to respond (if with agonizing slowness) to crises, it appears to me that the odds are in favor of survival for both the EU and Eurozone; the EU leaders will persevere despite new challenges such as the indecisive Italian election in February 2013.23 As Ralph Atkins of the Financial Times observed in December 2012, the pundits “who bet on the Eurozone’s demise [in the recent past] were in for a disappointment” as they “misread European politics.”24 Although French President Francois Hollande may have exaggerated when he asserted in late October 2012 that “[t]he worst is over,”25 he may







See Kerin Hope, “Greece Faces ‘Make or Break’ Year,” Financial Times, December 19, 2012, which discusses the various challenges faced by the Greek Government and quotes Greek Finance Minister Yannis Stournaras. 22 “Staring into the Abyss,” The Economist, Special Report, November 12, 2011, 3–4. 23 See “Italy’s Election: Ungovernability Wins,” The Economist, March 2, 2013, discussing the election in which no party received a mandate to government and a comedian, Beppe Grillo, received 25 percent of the votes. 24 Ralph Atkins, “Eurozone will Survive Debt Crisis Intact,” Financial Times, December 11, 2012. 25 Kanter & Castle, “Leaders Say they Expect Agreement.” 21

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well be proved to be correct despite the difficult challenges that remain in France and elsewhere.

C.  Further EU Expansion Even with this fiscal crisis of three years’ duration, additional countries will likely be brought in to the EU and perhaps ultimately even to the Eurozone, because the crisis has not sufficiently dampened their enthusiasm to cause them to reconsider. Despite some concerns about joining the EU at a time when the costs of rescuing debt-laden countries may be high and countries like Croatia will have little say in decisions,26 Croatia has met the criteria for EU membership and is on track to become a member in July 2013 after ratification of its application by all of the EU Member states.27 Montenegro and perhaps Bosnia, Kosovo, Macedonia, and Serbia may ultimately seek to meet the criteria for EU admission more quickly as a result of the lack of trade liberalization at the WTO and the understanding that complying with the EU entrance requirements means a level of modernization and improvement of national laws that probably cannot be achieved any other way.28 The present membership, in contrast, is sufficiently preoccupied with the Eurozone crisis and slow or negative economic growth generally (as well as with the remaining difficulties of integrating Bulgaria and Romania29) to make some resistance to further accessions for several years likely.

Suzanne Daley & Stephen Castle, “As European Union Beckons, Allure Fades for Weary Croatia,” The New York Times (Electronic Ed.), January 17, 2012. 27 Neil MacDonald, “Croatians Set to Back EU Membership,” Financial Times, January 23, 2012. 28 See “The Pull of Brussels: At Least the Western Balkans is Still Starry-Eyed about the European Union,” The Economist, October 15, 2011, 60, which discusses the various candidates and their prospects for meeting the criteria for admission. 29 See “Romania and Bulgaria: Issues Concerning EU Membership,” CIVITAS EU Facts, May 11, 2012, accessed December 13, 2012, http://www.civitas.org.uk/eufacts/FSMS/ MS15.htm, which discusses potential penalties to be imposed because Bulgaria and Romania have not completed internal reforms promised in 2007. 26

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D.  British Euroskepticism A different kind of threat to the EU has arisen from the ambivalence that is growing in the UK regarding continued EU membership  – an ambivalence about Britain’s place in (or relating to) Europe that arguably has existed for half a millennium. The current resistance seems to be that “the Eurozone is being forced towards ‘more Europe’ while the UK wants less Europe.”30 It may be recalled that the UK has never been very enthusiastic about the EU. Initial efforts to join in 1963 were probably driven by then-Prime Minister Harold McMillan’s view that because European integration was inevitable, the UK would be better off joining; De Gaulle blocked UK Membership until 1973.31 Today, Eurozone skeptics in the UK have been proven correct about the faulty structuring of the Eurozone and their unhappiness with the politics of the EU has likely been exacerbated by the unsuccessful effort to date by Brussels and the ministers to control the crisis. The idea of a banking union supervised by the ECB seems particularly onerous to those supporting “the City,” the London financial district. Still, whether London’s preeminence in Euro trading and in attracting finance firms that want direct access to European markets would continue without Britain being a formal part of the EU and subject to EU banking regulations is problematic.32 The full implications of British withdrawal, possibly followed by Britain joining the European Economic Association with Norway, Iceland, and Lichtenstein and then proceeding to conclude various bilateral agreements not only with the EU but with third countries, are difficult to assess. The same is true for assessing the impact of withdrawal on specific British industries such as automobiles produced for the EU

Martin Wolf, “UK Rushes Needlessly Towards the EU Exit,” Financial Times, November 2, 2012. 31 Ibid. 32 See “Making the Break: How Britain Could Fall Out of the European Union, and what it would Mean,” The Economist, December 8, 2012, which discusses the many implications and uncertainties that would accompany British withdrawal from the EU. 30

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market (General Motors) and aerospace (Airbus).33 Should the UK seek to establish a status similar to that of Norway, which is effectively part of the single market but has no significant influence or voting rights in the decision-making process, the UK’s influence and its ability to protect important interests would be diminished.34 Other EU members are not likely to welcome a looser “pick and choose” relationship with Britain. The unprecedented step of withdrawal from the EU would be strongly opposed by most other Members. This lack of enthusiasm is represented by former Italian Prime Minister Mario Monti, who has called British Prime Minster David Cameron’s bluff, challenging Cameron to call a referendum in the UK on continued EU membership.35 Among other factors, the close relationship between the UK and the United States could suffer and those in Scotland who favor remaining in the EU (or reapplying quickly after independence) would have another reason to vote for independence from the UK.36 Nor would there likely be room for a return after exit, at least for an extended period of time. One acerbic British critic suggests that for Britain, a complete withdrawal from the single market would “mean becoming a sort of Greater Cayman Islands, a tax haven an offshore shelter . . . with very little influence inside the continent or in the rest of the world.”37 In the face of increasing popular opposition to the EU (with polls late in 2012 showing that almost one-half of Britons favored withdrawal38)







Ibid. See Jonathan Powell, “Out of Europe, Britain Faces a Weak Future,” Financial Times, December 1, 2012, which suggests that a “two-speed” Europe, with the UK less involved in participation, is not practical. 35 See James Fontanella-Kahn & Alex Barker, “Monti Presses Cameron for EU Referendum,” Financial Times, November 26, 2012, which reports that Monti urged such a referendum while opining that the UK would remain in the EU. 36 See “Scottish Independence: Breaking Up is Hard to Do,” The Economist, November 3, 2012, which speculates that should Scotland become independent, the EU would fast-track Scotland’s EU entry given Scotland’s expressed desire to remain in the EU after independence. 37 Powell, “Out of Europe,” 38 “Making the Break,” 3. 33 34

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Prime Minister Cameron has equivocated, fueling speculation that should the UK Independence Party do well in EU Parliamentary elections in 2014, he will be under further pressure to support those who seek a looser relationship with the EU.39 Still, and fortunately for both the EU and the UK, such withdrawal is not likely to transpire, largely because it seems inconceivable that the UK business leadership community, including both financial and industrial sectors, would fail to mount an all-out effort to defeat withdrawal.40 It is also difficult to visualize the United States, one of the original supporters of the EU, taking a position other than steadfast opposition to EU withdrawal, privately and likely in public as well.

II.  Mercosur A.  Overview Mercosur41 (Argentina, Brazil, Paraguay, Uruguay, Venezuela, and soon Bolivia) represents one of the most ambitious and important regional trade agreements ever concluded, at least on paper. As Mark Keller has observed, “Mercosur remains an economic and political force in the region, uniting South America’s two largest economies and providing a potential springboard for Latin American integration.”42 In the aggregate, Mercosur nations (including Venezuela but not Bolivia) have more

“Making the Break,” 2. Kahn & Barker, “Monti Presses Cameron” (quoting Monti’s views as to the likely actions of the business community). 41 This subsection is based in part on Gantz  – RTAs, 365–366; see also Rafael A. Porrata-Doria, Jr., MERCOSUR: the Common Market of the Southern Cone (Durham: Carolina Academic Press, 2005); Thomas Andrew O’Keefe, “Economic Integration as a Means for Promoting Regional Political Stability: Lessons from the European Union and Mercosur,” Chi.-Kent L. Rev. 80 (2005), 187; John A.E. Vervaele, “Mercosur and Regional Integration in South America,” ICLQ 54 (2005), 387. 42 Mark Keller, “Explainer: What is Mercosur?,” August 2, 2012, Americas Society/ Council of the Americas, 9, accessed August 16, 2012, http://www.as-coa.org/articles/ explainer-what-mercosur-0. 39 40

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than 275 million inhabitants and an aggregate GDP of $3.3 trillion, about 75 percent of which is attributable to Brazil.43 Brazil itself is the world’s sixth-largest economy and one of the most dynamic in Latin America because of factors that have little to do with Mercosur per se, including China’s demand for soy and iron ore exports in the past decade and preparations for the FIFA (soccer) World Cup in 2014 and the Olympics in 2016.44 Mercosur, with its current five Members, represents 47.5 percent of Latin America’s population and 59 percent of its GDP.45 From 1990 to 1997, intra-regional trade increased from $4 billion to $20 billion. Since that time, between the Brazilian devaluation in 1999 and the Argentine devaluation and economic crisis of 2001, the customs union has foundered.46 Mercosur may hold more promise in the much longer term  – however long that is – for trade liberalization among the Member States and within South America, although the Members (particularly Argentina and Brazil) are becoming more, rather than less, protectionist,47 not only toward the outside world but also internally. The frustration with Mercosur, particularly among the smaller, less powerful Uruguay and Paraguay, was summed up in June 2012 when the president of Paraguay was deposed through a “Congressional coup” using its impeachment power. The post-coup leaders have not complied with demands that they return the former president to power, mocking the importance of Mercosur to Paraguay and complaining about protectionist measures recently increased by Argentina. “The first thing that occurs to me is, ‘What







IDB, “Venezuela, A Mercosur Member,” INTAL Monthly Newsletter, August 2012; see also EU, “Mercosur Trade,” accessed June 27, 2012, http://trade.ec.europa.eu/doclib/ docs/2006/september/tradoc_113488.pdf. 44 See International Trade Administration (U.S. Dept. of Commerce), U.S. Export Fact Sheet, September 11, 2012, which extolls the benefits for U.S. enterprises of exporting to Brazil. 45 Ibid. 46 See Keller, “Explainer,” 9. 47 See Ed Taylor, “Brazil Increases Excise Tax on Car Imports,” Int’l Trade Rep. (BNA) 28 (September 22, 2011), 1546. 43

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Mercosur are you talking about?’” said Eduardo Felippo, president of the Paraguayan Industrial Union, in televised comments. “This will hardly affect us.” 48 In the meantime Paraguay remains under suspension. Still, Mercosur benefits from the common borders that suggest natural trading partners, a history of intra-regional trade, and a relative lack of competition among the constituent economies.49 In theory, Mercosur seeks to include the common market characteristics of labor and capital mobility and coordination of economic policies. For Brazil, and probably Venezuela as well, Mercosur has political significance, offering the promise of a closely linked group of economic allies to assist an emerging world power in offsetting the dominance of the United States in the Western Hemisphere.50

B.  Mercosur’s Implementation Challenges Unfortunately, as is often the case with RTAs, the enforcement of the Mercosur agreements lags well behind the formal legal and institutional framework, which is honored more in breach than through proper implementation. The early years, 1992–1999, embodied a general commitment to gradual economic integration and considerable progress in eliminating intra-regional customs duties for originating products, some reduction in non-tariff barriers, and increased coverage of the common external tariff (CET). Since then, Mercosur has repeatedly failed to meet timetables and expectations. Institution-building has languished.51 Little progress



Simon Romero, “In Reversal, Ex-President of Paraguay Seeks Power,” The New York Times, June 25, 2012. 49 Samuel A. Arieti, “The Role of Mercosur as a Vehicle for Latin American Integration,” Chi. J. Int’l L. 6 (2006), 761, 764. 50 See Mario E. Carranza, “Mercosur, the Free Trade Area of the Americas, and the Future of U.S. Hegemony in Latin America,” Fordham Int’l L.J. 27 (2004), 1029, 1063–1064, which asserts that “the Southern Cone countries are now makers and not simply takers of international policy, having decided to take their destiny into their own hands.” 51 See Arieti, “Role of Mercosur,” 764, which discusses some of the causes, including reluctance to cede political sovereignty. 48

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has been made in establishing the free movement of persons, services, and capital.52 Agreements negotiated years ago relating to foreign investment from both within and outside Mercosur have never entered into force.53 The development of a rules-based system with strong institutions and viable dispute settlement has been an aspiration rather than a reality despite modest improvements in recent years. Such rules have been flouted by both Argentina and Brazil in going their separate ways (rather than as Mercosur) when dealing with increasing imports from China.54 Those policies also violate the CET (estimated at 14 to 15 percent on average with most duties less than 20 percent). Under increasing pressure from both Brazil and Argentina to protect their markets against foreign (read “Chinese”) competition, the Members decided in July 2012 to allow each Member to increase the number of items on which it can assess import duties higher than the CET by 200 lines.55 As of September 30, 2012, Brazil had increased tariffs to 25 percent from 14 percent or 20 percent on 100 items such as steel products, auto parts, tires, furniture, petrochemicals, and construction materials, choosing these from a list of 300 increases sought by businesses on the basis of an assessment of the sector’s production capacity, domestic demand, and the possible impact of higher duties on the production chain.56







See John A. E. Vervaele, “Mercosur,” 408 (discussing the lack of progress in these areas as well as with recognition by the Parties of general principles of Mercosur law). 53 See, e.g., “Protocol of Colonia for the Promotion and Reciprocal Protection of Investments in Mercosur [investment within member countries],” January 17, 1994. (Status based on email exchange with Thomas A. O’Keefe, Mercosur Consulting, October 18, 2012; copy on file with author.) 54 Taylor, “Brazil Increases Excise Tax” (reporting on measures taken by Brazil alone to protect domestic manufacturers against Chinese auto imports); “Protectionism in Argentina,” The Economist, September 24, 2011, 47 (reporting on the use of “non-automatic licensing” and other measures to slow imports). 55 See David Haskell, “Brazil, India, Argentina Decry WTO Report on Trade Trends as Favoring Rich Nations,” Int’l Trade Rep. (BNA) 29 (August 9, 2012), 1313 (noting the increasing protectionism within Mercosur). 56 See Ed Taylor, “Brazilian Government Raises Import Duties on 100 Products Including Steel, Auto Parts,” Int’l Trade Rep. (BNA) 29 (September 13, 2012), 1491 (discussing the increases). 52

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C.  Admission of Venezuela and Bolivia The accession of Venezuela in mid-2012, stalled for more than five years as a result of Paraguay’s opposition57 and then completed while Paraguay was suspended from voting as a result of the Congressional coup, may create additional complexities as Venezuela’s membership is ultimately  implemented. In August 2012, Venezuela’s admission was denounced by Paraguay as ultra vires; the dispute may not be fully settled until after April 2013, when a scheduled presidential election in Paraguay will likely restore Paraguay to voting power in Mercosur. (Paraguayan officials hinted that, should the October 2012 presidential vote in Venezuela be fair and democratic, a compromise on membership might be possible,58 although definitions of what is “fair and democratic” when it comes to elections vary.) Despite these uncertainties it seems highly unlikely that Venezuela, having been incorporated into Mercosur, will be forced to leave the customs union in 2013 or thereafter. Ultimately, the potential benefit of Venezuela’s oil resources and resulting increased energy security for the other Mercosur members may be somewhat offset by the risk that Mercosur becomes a political and social forum rather than a mechanism for trade liberalization.59 Venezuela, which has until 2014 to do so, has not yet implemented the common external tariff or most of the formal Mercosur decisions.60 Tariffs on the entry of Venezuelan goods into Argentina and Brazil are to

See ICTSD, “Political Controversy in Paraguay Prompts Reshuffling of Mercosur Membership,” Bridges Weekly Trade News Digest 16 (July 4, 2012), 26 (reporting on Paraguay’s post-coup suspension and Venezuela’s welcome by the remaining members). 58 See David Haskell, “Paraguay’s Negative Vote Complicates Venezuela’s Continued Mercosur Membership,” Int’l Trade Rep. (BNA) 29 (September 6, 2012), 1444 (quoting Paraguayan senator Alfredo Stroesner). 59 See “Mercosur RIP?,” The Economist, July 14, 2012 (taking a very pessimistic view of the impact of Venezuela’s presence). 60 See Elonora Gosman, “Venezuela ingresa al Mercosur y recién en 2014 cumplirá las Normas,” iEco, July 30, 2012, accessed August 23, 2012, http://www.ieco.clarin.com/economia/Venezuela-ingresa-Mercosur-cumplira-normas_0_746325407.html?print=1#. 57

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be eliminated by 2016, and by 2019 for Paraguay and Uruguay. Whereas Venezuela is to eliminate tariffs on most goods from the other four Members by August 2018, tariffs on certain “sensitive” products will not be eliminated until 2024.61 The tentative decision of Mercosur in December 2012 to admit a sixth Member, Bolivia, subject to ratification by current Members (presumably including Paraguay at some time in the future),62 in my view further reduces the likelihood that Mercosur will move in the direction of more open trade among its members. Also, Brazil’s economic growth having fallen below 1 percent in 2012 and predicted to reach less than 3 percent in 2013 compared to near 4 percent prior to 2011,63 a reversal of Brazilian protectionism in the foreseeable future seems highly unlikely. Without Brazilian leadership, populist, anti-trade liberalizing governments in Mercosur (Argentina, Venezuela, and Bolivia) are not likely to alter their policies. In the absence of renewed efforts toward improving the functioning common market, the expanded Mercosur group is likely to continue to experience a lack of progress toward more open trade, thus yet again failing to meet its long-stated goals and objectives and similar economies in Asia. As of early 2013, the death of Venezuelan President Hugo Chavez and inevitable uncertainties regarding the policies of his likely successor, Nicolás Maduro,64 further increase the uncertainties Mercosur will be facing in 2013 and beyond.



INTAL, “Venezuela.” See “Bolivia Advances in Efforts to Become Full Member of Mercosur,” Bridges Weekly Trade News Digest 16 (December 12, 2012), 43 (discussing Bolivia’s signature of an accession agreement). 63 See Ruchir Smarma, “Bearish on Brazil: The Commodity Slowdown and the End of the Magic Moment,” Foreign Affairs 90 (May/June 2012), 79, 80 (discussing the reasons for the economic slowdown); “Brazil’s Economy: A Breakdown of Trust,” The Economist, December 8, 2012 (criticizing Brazil’s economic performance under President Dilma Rousseff). 64 See “Venezuela’s Presidential Campaign: A man after his own heart,” The Economist, March 16, 2013, discussing Mr. Maduro’s efforts to “appropriate his mentor’s popularity” and some of the reasons it may be difficult for Maduro to do so. 61 62

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A possible impact of the demise of the Doha Round could conceivably be additional efforts to resurrect Mercosur’s FTA negotiations with the European Union, begun in 1993 but with little progress made after twenty years. In September 2012, Brazil’s Foreign Trade Chamber decided to consult again with Brazil’s private sector regarding the possible resumption of trade negotiations with the EU (and Canada as well).65 There seems little reason for optimism as to the resumption of FTA talks under present economic circumstances in either the EU or Brazil.

III.  ASEAN FTA A.  Overview ASEAN66 as now constituted comprises more than 500 million persons, a land area of 4.5 million square kilometers, total trade of $850 billion (internal and external), and a GDP of approximately $700 billion.67 The group encompasses several of the most dynamic trading nations in the world – Singapore, Malaysia, Thailand, Indonesia, and Vietnam – as well as some of the most restrictive nations – Laos and Myanmar, along with Brunei, Cambodia, and Indonesia. The wide differences in the levels of development, receptiveness to foreign investment and openness of the markets, among other factors, have led to a “least common denominator” effect. This effect means that the slowly reached accords among the ten members inevitably represent significant compromises by the bolder, more open Member governments. Moreover, ASEAN Members have

See Ed Taylor, “Brazilian government Raises Import Duties.” This subsection draws on Gantz – RTAs, 411–412, 432–433. Major sources for information on ASEAN include Zakir Hafez, The Dimensions of Regional Trade Integration in Southeast Asia (Leiden: Transnational Publishers, 2004); Lay Hong Tan, “Will ASEAN Economic Integration Progress beyond a Free Trade Area?,” ICLQ 53 (2004): 935; Paul J. Davidson, “The ASEAN Way and the Role of Law in ASEAN Economic Cooperation,” S.Y.B.I.L. 8 (2004), 165. 67 ASEAN Secretariat, “Overview: Association of Southeast Asian Nations,” accessed June 28, 2012, http://www.aseansec.org/147.htm. 65 66

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historically faced political and security challenges that discouraged and delayed greater economic integration, such as border clashes between Thailand and Cambodia.68 ASEAN also suffers from poor infrastructure, including but not limited to lengthy land travel routes that are served by poor road and railroad networks,69 or distances that can be bridged only by sea or air. ASEAN and the 1994 ASEAN Free Trade Agreement (AFTA) consist of literally dozens of legal agreements and declarations, often overlapping and/or in conflict,70 some of which remain unratified after many years. As a general rule, the treaties are only loosely enforced. As an ASEAN secretariat official has noted, “[e]ach member state is still very jealous of its own sovereignty and decision-making power.”71 Reluctance exists on the part of some of the Member governments to accept firm commitments and to adopting functioning, and binding, legal rules and structures. This hesitation includes a lack of apparent support for effective dispute resolution, preferring instead informal dispute resolution by consensus, the “ASEAN Way.” Additionally, “framework agreements”72 are particularly popular, likely because they allow the Members to announce their intention to conclude arrangements while deferring accession to more significant and binding obligations.





See, e.g., Neil Chatterjee, “ASEAN Summit Fails to Resolve Thai–Cambodia Conflict,” Reuters (Electronic ed.), May 8, 2011 (reporting on ongoing border skirmishes). 69 Even in 2002, one of the key areas of China–ASEAN cooperation was acceleration of various multinational rail and highway projects, as well as development of the Mekong River basin. Framework Agreement on Comprehensive Economic Co-Operation between ASEAN and the People’s Republic of China, November. 5, 2002, annex 4(a), accessed June 28, 2012, http://www.aseansec.org/13197.htm. 70 See ASEAN Secretariat, Table of Treaties/Agreements and Ratifications, October 29, 2007, accessed June 28, 2012, http://www.aseansec.org/Ratification.pdf (a list of 205 instruments that does not include dozens of ministerial and other declarations). This table is probably the best available source of the status of ratification of the various ASEAN and AFTA agreements. 71 See Thomas Fuller, “Wary Neighbors Turn into Partners in a Quickly Developing Southeast Asia,” The New York Times, July 5, 2012 (quoting Secretary General Surin). 72 Essentially, broad undertakings for which details are left for negotiation and agreement at an unspecified later time. 68

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This cautious approach has persisted despite China soaking up the lion’s share of the region’s foreign direct investment; continuing credibility problems with foreign traders and investors over vague and non-transparent rules that really are not legally binding and, in any event, cannot be enforced; and evidence that the market-based approach, increasingly in use elsewhere, functions more effectively than many ASEAN Member’s heavy reliance on government regulation. Businesses complain about the lack of consistent standards in the region, barriers to trade, and lack of integrated capital markets.73

B.  ASEAN’s Implementation and Fragmentation Challenges Perhaps inevitably, the policies of Singapore, Thailand, Malaysia, Indonesia, and Vietnam have emphasized investment in export-intensive industries and greater integration with global economies instead of restricted markets and import-substitution either individually or as part of ASEAN.74 These ASEAN Members have greater interest and see more economic benefit in fostering expanded trade relations with nations outside Southeast Asia rather than with the other Members of ASEAN.75 After nearly a decade of negotiations, a free trade agreement between China and the ASEAN nations went into effect in 2010; however, that agreement permits members to exclude dozens of sensitive areas from tariff reduction obligations and lacks any effective mechanism



See Fuller, “Wary Neighbors” (quoting Stuart Dean, chief executive of General Electric ASEAN). 74 See Lay Hong Tan, “ASEAN Economic Integration,” 938 (discussing early efforts at greater regional economic cooperation among ASEAN governments to encourage intra-regional trade and investment). 75 For example, in a book on the EU and ASEAN, the authors effectively suggested that EU nations might prefer to deal with individual ASEAN nations such as Malaysia and Singapore rather than as a group. See Mary T. Yeung, Nicholas Perdikis & William A. Kerr, Regional Trading Blocs in the Global Economy: The EU and ASEAN (Cheltenham: Edward Elgar, 1999), 134–135. 73

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for resolving disputes.76 The fact that Brunei, Malaysia, Singapore, and Vietnam, four of ASEAN’s ten Members, are engaged in the Trans-Pacific Partnership negotiations (discussed in Chapter 12), with a fifth, Thailand, having sought the right to participate, is simply one more example of the frustration with the lack of progress toward regional integration within ASEAN. A lingering question is whether the challenges of competition from China, from the decline of multilateralism in Geneva, and from Members who are concluding FTAs and bilateral investment treaties with third countries will encourage the members of ASEAN to move forward with their regional integration. Myanmar’s fragile transition to democracy could facilitate investment, and pressure from major investors may eventually encourage the ten Members to move forward.77 The standstill in Geneva in particular may also offer ASEAN an politically attractive opportunity to reinforce its “commitment” to establish an ASEAN Economic Community (AEC) along the lines of the EU supposedly by 2015 but more likely not for at least several years (and perhaps many years) thereafter. This would be based on the Cebu Declaration in 2007,78 most of which has effectively been ignored for at least five years. Unfortunately, this document is typical of the manner in which ASEAN seeks to move forward; the Members “declare” their “strong commitment” to accelerate the establishment of the Community, “strong determination” to accelerate implementation of program areas and “determination” to create a “stronger, more united and cohesive ASEAN,” but the words “shall” or “must” are never mentioned.79



“The China–ASEAN Free-Trade Agreement – Ajar for business; More Breadth than Depth,” The Economist, January 7, 2011, accessed June 28, 2012, http://www.economist. com/node/15211682. 77 See Fuller, “Wary Neighbors.” 78 “Cebu Declaration of the Establishment of an ASEAN Community by 2015,” January 13, 2007, accessed June 28, 2012, http://www.aseansec.org/19260.htm. 79 Ibid. 76

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Additionally, no strong prospect of rapidly expanding ASEAN ­economic integration through other mechanisms exists. The “ASEAN + Three” concept seems to have been abandoned, with the “Regional Comprehensive Economic Partnership” (RCEP) replacing “ASEAN + Six” in terms of nomenclature but not necessarily with regard to serious negotiations (see Chapter 10, Section IV). The most significant accord in recent years beyond the FTA with China is the AANZ, an ASEAN FTA with Australia and New Zealand concluded in 2009.80 A potentially serious contemporary threat to ASEAN’s internal progress is a divide over addressing Chinese maritime claims in the South and East China Seas in areas where China, Brunei, Malaysia, the Philippines, and Vietnam assert rival claims. An unprecedented failure in the “ASEAN Way” occurred in mid-2012 in Phnom Penh, when agreement of the membership on a communique from a foreign ministers’ meeting was blocked by disagreement over references in the communique to the territorial disputes. The stalemate reflected strong diplomatic pressure by China on two of its client states, Cambodia and Laos, because China prefers to deal with such claims individually rather than have ASEAN adopt a “code of conduct” for the South China Sea.81 Assessing the risks of a great power rivalry within ASEAN, with the Philippines, Vietnam, Thailand, and Singapore generally supported by the United States, is difficult, but the risks to further ASEAN cooperation in economic, commercial, and other areas are obvious. Still, the Cebu Declaration could serve as a basis for improving regional integration through the AEC, and its objectives might have been advanced somewhat by the now-abandoned communique. For the foreseeable future, progress in implementing the AEC seems unlikely,



Agreement Establishing the ASEAN–Australia–New Zealand Free Trade Area, February 27, 2009, accessed December 13, 2012, http://www.asean.fta.govt.nz/ preamble/. 81 See “ASEAN in Crisis: Divided We Stagger,” The Economist, August 18, 2012 (suggesting that not only Cambodia, but also Laos and Myanmar are heavily dependent on Chinese funds and goodwill). 80

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particularly if APEC expands in importance (Section V of this ­chapter), if the TPP negotiations are concluded and expanded to other Asian nations (Chapter 11), or if the Regional Comprehensive Economic Partnership (ASEAN and six other Asian nations; Chapter 10) is concluded within a few years. Under these circumstances, within five years, ASEAN per se could become much less relevant with the focus on trade with ASEAN having been replaced with efforts to expand ASEAN trade with non-members.

IV.  North American Free Trade Agreement A.  Overview The North American Free Trade Agreement82 – comprised of the United States, Canada, and Mexico  – is the world’s largest free trade area. It accounts for more than $1 trillion worth of trilateral trade in goods and services in a region of more than 450 million persons with $17 trillion in GDP, more than any other regional trading bloc except the European Union. 83 NAFTA provides for the elimination of all intra-regional tariffs and removal of essentially all non-tariff barriers except for those applicable to a few agricultural products. It also incorporates comprehensive rules for treatment of foreign investment, including investor-state dispute settlement; government procurement; trade in services, including financial and transportation services; customs procedures; technical standards; sanitary and phytosanitary standards; protection of intellectual property; trade in agriculture, energy, and basic petrochemicals; temporary entry of persons

North American Free Trade Agreement, December. 17, 1992, U.S.–Mexico–Canada, (“NAFTA”), 32 I.L.M. 289 (1993), accessed June 28, 2012 http://www.nafta-sec-alena. org/en/view.aspx?x=343. 83 USTR, North American Free Trade Agreement (NAFTA), accessed June 28, 2012, http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-tra de-agreement-nafta. 82

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for business purposes; appeals of administrative decisions; and comprehensive dispute settlement in regards to disagreements among the governments about the application or interpretation of NAFTA provisions and administrative determinations in unfair trade (dumping, subsidies) cases.84 NAFTA differs in two major respects from the EU, Mercosur and the ASEAN FTA: (1) it is an FTA rather than a customs union, with the three Parties remaining free to set their own MFN tariffs under WTO rules; and (2), with minor exceptions, NAFTA is a single instrument, one that has not been amended in twenty years.85 Effectively, it is a “confederation among independent sovereigns, each maintaining autonomous political decision-making authority within the constraints defined by agreement.”86 Also, like the EU, but unlike Mercosur and ASEAN, NAFTA’s internal trade liberalization measures have been fully implemented in accordance with the schedules agreed on during the negotiations.87 The built-in mechanism for accelerating tariff reductions and making rules of origin more flexible has been utilized but not with regard to “sensitive” goods. National laws in all three countries provide authorization for the United States to agree with Canada and Mexico on periodic modifications of the rules of origin to facilitate achievement of freer trade,88 and such authority is exercised on a regular basis.89







Useful sources include The North American Free Trade Agreement: A New Frontier in International Trade and Investment in the Americas, eds. Judith H. Bello et al. (Chicago: American Bar Assn., 1994); The Future of North American Integration, eds. Peter Hakin & Robert E. Litan (Washington: Brookings, 2002); Gary Clyde Hufbauer & Jeffrey J. Schott, NAFTA Revisited: Achievements and challenges (Washington: Inst. for Int’l Economics, 2005). 85 The Clinton Administration negotiated two “side agreements,” the North American Agreement on Labor Cooperation and the North American Agreement on Environmental Cooperation with Mexico and Canada; both were submitted to the Congress for approval with the original NAFTA text in September 1993. 86 Frederick M. Abbott, “The North American Integration Regime and its Implications for the World Trading System,” in The EU, the WTO and the NAFTA, ed. J. H. H. Weiler (Oxford: Oxford UP, 2000), 169, 171. 87 NAFTA, art. 302, annex 302, Party schedules to annex 302. 88 NAFTA Implementation Act, sec. 202(q) (19 U.S.C. § 3332(q) (1993). 89 See, e.g., White House Press Release, “Proclamation by the President to Modify Rules of Origin under the North American Free Trade Agreement,” October 11, 2006, accessed 84

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B.  Implementation without Amendment The NAFTA Parties have agreed on initiatives to deal with streamlining and coordinating regulations with the object of encouraging regional trade by small- and medium-sized businesses. Mexico’s former President Calderon suggested trilateral cooperation in such areas as nanotechnology and vehicle emissions standards.90 Many actions to facilitate cross-border trade may require Congressional appropriations but do not require any modification of the Agreement. In recent years, for instance, several new and modernized ports of entry have been inaugurated and clearance is pending for several new railroad crossings.91 Knowledgeable observers, such as Congressman Henry Cuellar (D-Texas), have strongly urged that the United States take relatively simple steps to facilitate cross-border truck traffic by stationing more customs agents at busy border crossings (including Laredo, Texas, which Cuellar represents). Cuellar also advocates renovation of the many cross-border bridges that were built decades ago and are poorly equipped to handle the current demand.92 Of major significance to United States–Mexican border relations in particular, the United States and Mexico signed an agreement resolving a fifteen-year-old dispute regarding Mexican truck access to the United States in July 2011.93 The close economic cooperation that NAFTA has fostered, particularly between the United States and Mexico, has made cooperation possible in other areas, such as energy. An agreement concluded in February



June 28, 2012, http://www.whitehouse.gov/news/releases/2006/10/print/20061011–11. html. 90 Len Bracken, “Canada, Mexico, U.S. Goods Trade Reaches $1 Trillion; Leaders Announce Harmonization,” Int’l Trade Rep. (BNA) 29 (April 5, 2012), 542. 91 See Arturo Sarukhan, “Forward Together  – A Conference Looking at the Changing Politics of the Americas, April 11, 2011, 7 (unpublished transcript on file with author). 92 Americas Society/Council of the Americas, “Interview, U.S. Congressman Cuellar,” 9. 93 Memorandum of Understanding Between the Department of Transportation of the United States of America and the Secretaría de Comunicaciones y Transportes of the United Mexican States on International Freight Cross-Border Trucking Services, July 6, 2011, accessed June 28, 2012, http://www.fmcsa.dot.gov/documents/Mexican_MOU_ Eng.pdf.

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2012 between the United States and Mexico to facilitate petroleum exploration and development along the maritime boundary in the Gulf of Mexico is an example of such cooperation. The agreement, when ratified in both nations, will end uncertainty along the border and encourage joint development of cross-boundary oil reserves by U.S. oil companies and Mexico’s state-owned petroleum entity, Pemex.94 Additionally, with regard to the environment, Mexico and the United States concluded an eight-year agreement to deal with greenhouse gas emissions, water quality and wastewater services, among other environmental issues.95 This “Border 2020” plan replaces a series of United States–Mexico accords to deal with pressing environmental issues, most recently the “Border 2012” plan that expired December 31, 2012.96 Although separate trade-related agreements of limited scope are therefore feasible, amendments to the NAFTA text itself have been impossible to achieve, even though (after twenty years) it is obvious that revisions are desirable (if not urgent) in areas including government procurement (i.e., extending the chapter to state and local entities), rules of origin, and achieving parity for Mexico with newer U.S. FTAs. Mexican politicians beginning with former President Vincente Fox in 2000 have periodically called for a widening and deepening of NAFTA, moving toward a common market with a common currency and free labor flows that more closely reflects European integration.97 Then, as now, such expansion, which would require amendment of the

“US, Mexico Sign GOM Agreement,” Oil Online, February 21, 2012, accessed June 28, 2012, http://www.oilonline.com/default.asp?id=259&nid=37499&name=US%2C+Mex ico+sign+GOM+agreement. 95 See Carolyn Whetezel, “U.S., Mexican Officials Sign Eight-year Pact to Address Greenhouse Gases, Other Priorities,” World Climate Change Report (BNA), August 8, 2012. 96 See EPA, “What is Border 2020?,” accessed August 9, 2012, http://www.epa.gov/usmexicoborder/framework/index.html. 97 See “Fox’s Calls for Expansion of NAFTA Held Unlikely to Gain U.S. Approval,” Int’l Trade Rep. (BNA) 17 (July 13, 2000), 1085 (noting that Mexico would require a 7% annual growth rate to create the jobs necessary to keep Mexican workers from migrating to the United States). 94

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agreement, is politically unacceptable in the United States (and probably in Mexico today as well). President Obama’s decision in 2009 to effectively abandon campaign promises to amend NAFTA demonstrated this near impossibility.98 What is somewhat more likely to occur is a “backdoor” modernization of NAFTA through participation by all three NAFTA Parties (with eight or nine other nations) in the Trans-Pacific Partnership. As discussed in detail in Chapter 11, the TPP negotiations contemplate an extensive FTA that goes beyond NAFTA in such respects as treatment of state-owned enterprises, competition law, “TRIPS Plus” intellectual property provisions,99 protection of labor and the environment, and changes in the protection offered to foreign investors. Canada advocates relaxation of the textile rules of origin with departures from the NAFTA “yarn-forward” rule which requires that the yarn and woven fabric used in apparel production in North America be produced there.100 Should these negotiations succeed, some (although certainly not all) of the perceived deficiencies in NAFTA could be remedied. It may well be that the most significant changes improving the functioning of NAFTA emanate not from the NAFTA or any direct or indirect revisions but from a continuing series of unilateral steps by the Calderon and since December 2012 the Peña Administrations to lower tariffs, remove non-tariff barriers, improve education, reform labor laws, simplify the tax code and make it possible for private enterprises to participate with Pemex (the state oil monopoly) in the exploitation of petroleum resources (see Chapter 12). If successful, comprehensive

See Nacha Cattan & Rossella Brevetti, Mexico Sees Need to Dust Off, Rehabilitate Aging NAFTA with U.S., Canada, Int’l Trade Rep. (BNA) 27 (January, 1, 2010), 93, which discusses the lack of pressure to renegotiate NAFTA in both the U.S. and Canada and some of the changes that have been discussed. 99 Based on the WTO’s Agreement on Trade-Related Aspects of Intellectual Property, Annex 1C of the Marrakesh Agreement Establishing the World Trade Organization, April 15, 1994. 100 See “Special Report: The Auckland TPP Negotiations,” Inside U.S. Trade, December 12, 2012, 8 (discussing the Canadian proposals). 98

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immigration reform in the United States, stalled for many years, could further improve the efficiencies realized by the United States by the availability of temporary lower cost labor, particularly in the U.S. agricultural sector. Finally, with Canada, one should never totally discount the independence movement in Quebec. None of the NAFTA governments have suggested that NAFTA would be expanded to any additional members because efforts to include Chile fizzled in the mid-1990s when it became clear that such inclusion was politically impossible in the United States.101 Still, interesting and complex legal issues, not only for Canada but also for the other NAFTA Parties, could arise should the Parti Québécois (PQ) ultimately be successful in persuading Quebec voters to support independence from Canada102 and then seek NAFTA membership (or continuation of membership depending on the legal theories advanced).103 Referenda held under previous PQ governments were defeated, but only by a small margin, under 1 percent, in 1995. Although no further referendum has been set, Pauline Marois, chosen as leader of the PQ, confirmed shortly after the September 2012 elections that she wished to pursue Quebec independence.104 Moving toward independence will be very difficult for the PQ under present circumstances, because the PQ lacks a majority in the Quebec Parliament and other, domestic, issues are the principal challenges facing Marois’ government.105 From a practical point of view, Quebec, regardless of its political status, would have little interest in disrupting its NAFTA trade and investment benefits, which resulted in $78.5 billion in trade with the United States in 2008 and U.S.

See, e.g., Gantz, RTAs, 244–245. See A. Brebner, “Things Fall Apart? NAFTA after Quebec Succession,” Dalhousie J. Legal Studies 6 (1997), 287. 103 See Peter Morici, “A Sovereign Quebec and U.S. National Interests,” 1997, accessed September 9, 2012, http://www.rhsmith.umd.edu/faculty/pmorici/cv_pmorici.htm (discussing legal and policy issues should Quebec become a separate nation). 104 See “The Separatists Are Back, But Only Just,” The Economist, September 8, 2012. 105 See ibid (reporting on the election, the minority that the PQ holds in the Quebec Parliament and urgent college tuition issues). 101 102

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investment that accounts for 62 percent of total foreign investment in Quebec.106 The relationship between an independent Quebec and the remaining Canadian provinces and the federal government would be more complex.

V.  Asia-Pacific Economic Cooperation Forum One of the challenges of a volume of this nature is how and where to address APEC. The Asian-Pacific Economic Cooperation forum is a loose framework of developed and developing nations in Asia or part of the Pacific Basin.107 APEC’s twenty-one Members108 include several of the fastest-growing and most dynamic nations in the world, including China, Vietnam, Indonesia, and Chile. Russia, the host of the 2012 APEC summit, was said to be providing a heightened level of diplomatic support for APEC,109 perhaps partially as a result of Russia’s accession to the WTO and its realization that, because Asia is currently driving global growth, greater participation in APEC affairs is warranted. According to the ASEAN Secretariat, the APEC Member economies are responsible, in the aggregate, for more than half of worldwide real GDP (purchasing power parity [PPP]), $38 trillion in 2008, and 44 percent of total world trade in the same year.110 APEC is not an RTA and it is not based on a treaty or other formal, signed, and ratified international agreement. Moreover, APEC has



See Quebec, “Quebec-USA,” accessed September 9, 2012, http://www.gouv.qc.ca/ portail/quebec/international/usa/quebec/quebec-etats-unis/. 107 APEC, accessed June 11, 2012, http://www.apec.org/. 108 Australia; Brunei Darussalam; Canada; Chile; People’s Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; and Viet Nam. No new members have been admitted since 1997. 109 See Elaine Kurtenbach, “APEC Trade Boost for Growth Facing Challenge from Territorial Rows, Other Tensions,” Associated Press, September 7, 2012. 110 See APEC, “Frequently Asked Questions,” accessed September 4, 2012, http://www. apec.org/FAQ.aspx. 106

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no independent legal personality. Instead, according to the Secretariat (established in 1993), APEC began as an “informal dialogue group” in 1989, but “has since become the premier forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region.”111 Then, and now, APEC is accurately characterized as a “soft” law institution that relies on voluntarism and permits the members to liberalize economic sectors at their own pace, often with only peer pressure encouraging them to do so.112 Inevitably, some APEC members decline to participate in certain initiatives. Among the reform proposals offered by observers is the conclusion of a formal agreement or charter that would convey legal personality on APEC, strengthen the APEC secretariat, and tighten the review process for member compliance with APEC commitments.113 There is, however, little indication that the APEC membership as a whole is interested at least at the present time in converting APEC into a more formal legal entity. Therefore, the institution seems destined to continue its gentler approach to trade liberalization, at least until such time as the Free Trade Area of the Asia-Pacific subsumes (or is subsumed by) the TPP. The lack of a formal treaty may encourage informal discussions, or the evolution of informal discussions, that could lead to a formal agreement on a particular subject. At the same time, the number and diversity of the group, economically and politically, the consensus requirements for any decision-making, along with the presence of China, Russia, and the United States, may well be a limiting factor with regards to what is feasible to achieve among the participants. In the near term, frictions between Korea and Japan, Japan and China, China and Russia, and China with Vietnam and the Philippines, may well retard progress on issues of

APEC, “Frequently Asked Questions.” See Pash L. Hsieh, “APEC as a Trans-Regional Economic Governance Architecture: A Critical Assessment with Reform Proposals,” Society of Int’l Economic Law, Working Paper no. 2012/45, July 6, 2012, 3–4, accessed September 16, 2012, http://papers.ssrn. com/sol3/papers.cfm?abstract_id=2101759. 113 See Hsieh, “APEC as a Trans-Regional Economic Governance Architecture,” 17–18. 111 112

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common interest otherwise,114 as is the case with ASEAN (discussed in Section IV of this chapter). Still, several of the major initiatives discussed elsewhere in this volume may well be implemented or at least substantially advanced through APEC. For example, APEC is playing a major role in: reducing tariffs and NTBs for trade in green technology goods and services (Chapter 5); addressing foreign investment (Chapter 6); seeking an international services agreement (Chapter 7); global value chain issues (Chapter 8); and as a possible vehicle for expanding the TPP (Chapter 11). As WTO Deputy Director General Rufus Yerxa has noted, “APEC has asserted itself as a premier forum for championing open talks on some of the most recent, pressing and often controversial challenges facing the multilateral trading system.”115 These APEC-led initiatives include those discussed later. Whereas APEC is to some extent taking the lead in these areas, a commitment to “the value and centrality of the multilateral trading system as embodied in the WTO”116 remains and it is evident that in such areas as environmental goods the preference is for working within the WTO system.

A.  Standstill, Environmental Goods, and Trade Facilitation In September 2012 in Vladivostok, the ASEAN leaders reaffirmed their “pledge to refrain through the end of 2015 from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO-inconsistent measures in all areas, including those that stimulate exports.”117 They also expanded commitments to

See Kurtenbach, “APEC Trade” (discussing the various political constraints on APEC affecting the September 2012 meeting). 115 See WTO, “DDG Yerxa says APEC has become ‘Forerunner’ on New Trade Issues,” September 5, 2012, accessed September 5, 2012, http://www.wto.org/english/news_e/ news12_e/ddg_05sep12_e.htm. 116 APEC, 2012 Leaders’ Declaration, 2. 117 APEC, 2012 Leaders’ Declaration, September 9, 2012, 2, accessed September 9, 2012, http://www.apec.org/Meeting-Papers/Leaders-Declarations/2012/2012_aelm.aspx. 114

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reduce tariffs on environmental goods trade (see Chapter 5) and to use other regional undertakings as “a way toward an eventual FTAPP [Free Trade Area of the Pacific].”118 A further undertaking, sponsored in part by Russian President Putin as the 2012 chair of the APEC leaders and endorsed by the ministers, was a model chapter for RTAs and FTAs. This chapter would be “used as a guide by APEC economies” and, if adopted, would require the parties to disclose laws, regulations, administrative decisions and judicial determinations relating to trade (transparency), and provisions that are to be included in FTAs in advance.119 The first part is incorporated in many FTAs, including almost all of those recently negotiated by the United States;120 more robust disclosure of FTA provisions while under negotiation would, in the somewhat unlikely event that the practice would be adopted, be a significant innovation. (The ironies of the Russian government advocated guidelines on transparency were presumably not lost on the other participants.)

B.  Supply Chain Support APEC has also established itself as the leading international entity in addressing global supply chain issues, confirming the views of experts (discussed in Chapter 8) that this set of issues is best addressed regionally rather than in Geneva. The level of specificity in dealing with some such issues increased at APEC’s 2012 leaders’ meeting, with the reaffirmation of a commitment to “achieving an APEC-wide target of a ten percent improvement in supply-chain performance by 2015, in terms of reduction of time, cost and uncertainty of moving goods and services through



Ibid, 2–3. “APEC Countries Agree to Disclose Terms of Bilateral Deals in Transparency Effort,” Int’l Trade Daily (BNA), September 11, 2012 (quoting President Putin’s statement at a press conference); see also 2012 APEC Leaders’ Declaration, 3. 120 See, e.g., United States–Korea Free Trade Agreement, June 30, 2007, ch. 21, accessed September 16, 2012, http://www.ustr.gov/sites/default/files/uploads/agreements/fta/ korus/asset_upload_file503_12720.pdf. 118 119

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the Asia-Pacific region, taking consideration [of] individual economies’ circumstances.”121 The leaders further pledged to take “a more systematic approach to chokepoints” and to give attention to diversifying transportation routes, resiliency planning, and technological enhancements, all in consultation with the business community and other stakeholders.122 With regard to customs clearance for goods, thirteen of the APEC members have developed “single window” systems for simplifying customs procedures and five more are in the process for doing so.123 Progress in this area contemplates ongoing cooperation between APEC and the World Customs Organization (WCO; which participates in various APEC committee meetings) in developing reliable supply chains through the streamlining customs procedures.124

C.  Free Trade Area of the Asia-Pacific? As noted with regard to the TPP in Chapter 11, commentators both within and outside APEC see at least the possibility that the nearly decade old objective of an FTAAP could be achieved through an expansion of the TPP to all, or most of, the remaining members. This is undoubtedly a long-term objective given the political and economic issues that would arise when considering accession to the TPP by China and the Russian Federation, among others. Outside of the TPP, there are few other viable routes to the FTAPP. Some have suggested the RCEP among ASEAN and six other nations could be such a vehicle, as discussed in Chapter 10, Section IV, although this seems to me unlikely for reasons discussed therein. Still, if either the RCEP or the TPP succeeds either could conceivably be a route to the FTAPP or some similar concept. As of June 2012, APEC members had reportedly signed 128 FTAs including 49

APEC, 2012 Leaders’ Declaration, 6. Ibid. 123 See Hsieh, “APEC as a Trans-Regional Economic Governance Architecture,” 10. 124 See Rossella Brevetti, “WCO Head Says World Customs Body Will Continue Engagement with APEC,” Int’l Trade Daily (BNA), September 17, 2012. 121 122

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intra-APEC FTAs, with some of 40 percent of intra-APEC trade among FTA parties.125 This, of course, assumes that the TPP and/or a FTAAP would reduce rather than simply add another layer of legal regulation to the large number of RTAs in the region. The effectiveness of APEC commitments that are political rather than legal in nature may be questioned, but at a minimum they provide a basis for cooperation in achieving goals, which all APEC members appear to realize are crucial to further expansion of trade in the region and perhaps globally as well. The major flaw to the approach, is the lack of binding legal disciplines, meaning that comprehensive progress may require a level of political will that is lacking at least with some of the APEC participants and may continue with those countries indefinitely.



Hsieh, “APEC as a Trans-Regional Economic Governance Architecture,” 30 (attributing the data to Muhamad Noor).

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Concluding New and Pending RTAs (Part I)

The proliferation of RTAs has not only continued but accelerated in the wake of the multi-year impasse in the Doha Round negotiations. As U.S. Trade Representative Ron Kirk suggested in January 2012, “[s]hort-term, I think you are going to see more and more countries turn to bilateral, regional engagements because of the difficulties of finding consensus among 153 very diverse economies.”1 In this chapter, I discuss six of the many regional trade negotiations currently underway or likely to be initiated in the relatively near future. Because of its length, the discussion of the Trans-Pacific Partnership negotiations is treated separately (Chapter 11). Many others exist at various stages of progress, all initiatives of WTO Members who historically have participated in multiple RTAs as well as multilateral trade negotiations in Geneva  – the EU, the United States, Mexico, and Chile, in particular.

I.  European Union Initiatives Observers suggest that historically and strategically the EU has differentiated among various types of FTA partners because of differing objectives. For example, FTAs with Mediterranean nations provide for broad manufactured goods coverage but exclude sensitive agricultural

“USTR Sees Proliferation of Bilateral, Regional Deals Due to Doha Impasse,” World Trade Online, January 31, 2012 (quoting Ambassador Kirk).

1

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products. Conversely, those with India, Japan, and Korea reflect a desire to strengthen the impact of the EU in Asia.2 The FTA with Mexico was intended after the entry of NAFTA into force to allow EU producers to compete more effectively with the United States and Canada in the Mexican domestic market. The Africa, Caribbean, and Pacific (ACP) economic partnership agreements (discussed in Subsection B in this section) reflect both export interests and the EU’s economic development objectives. Although the EU has negotiated FTAs at various times in the past, it has become more proactive in recent years.

A.  Free Trade Agreements The European Union has been negotiating a number of RTAs in Latin America and Asia and is considering an FTA with the United States. There seems little doubt that the flurry of new FTA activity is stimulated both by the lack of progress with the Doha Round and by U.S. and Chinese initiatives in Asia. Should the EU be able to conclude FTAs with most of the provisions commonly sought by the Commission, including solid coverage of services and investment, with Canada, Japan, Singapore, and the United States (Section II in this chapter), along with several others, future EU reliance on trade liberalization under the WTO Agreements would be significantly reduced. 1.  The Americas A potentially significant agreement with Canada may be concluded in 2013.3 After more than three years, however, the EU and Canada have yet

See Kenneth Heydon & Stephen Woolcock, The Rise of Bilateralism, 8–9, 161 (New York: United Nations University Press, 2009), which analyzes EU FTA policies. 3 See “EU, Canada Aim to Conclude Trade Deal in Coming Weeks; Important Work Remains,” Int’l Trade Rep. (BNA) 29 (December 6, 2012), 1900; Peter Menyasz, “Free Trade Talks Between Canada, EU Enter Ninth Round of Negotiations, Fast Says,” Int’l Trade Rep (BNA) 28 (October 20, 2011), 1700, which reports on what Canadian authorities have called “our most significant trade initiative since the North American Free Trade Agreement.” 2

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to agree on a number of key issues including tariff-rate quotas for ­certain sensitive agricultural products; pharmaceutical patents; geographical indications; government procurement, services, and investment market access; financial services; cultural services; and automobiles, including the applicable rules of origin.4 An FTA with Colombia and Peru, two members of the Andean Community, was concluded at the end of May 20125 and finalized in December 2012 along (after six years of negotiations) with a separate pact for Costa Rica, El Salvador, Guatemala, Honduras, and Panama.6 That FTA, once ratified by the parties, is expect to reduce duties by €500 million annually (on current two-way trade of about €20 billion) through liberalization of all trade in industrial and fisheries products. It also includes provisions on trade in services and intellectual property rights, and commitments requiring the parties to implement key international labor conventions and to preserve a high level of environmental protection.7 Although the other two members of the Andean Community withdrew from the negotiations some years ago, according to EU ­officials the FTA remains open to them should they decide to accede. The first FTA was approved by the EU Parliament (which has veto power) in November 2012 after Colombia and Peru adopted a “road map” for adopting laws that would provide greater protection for labor rights, the environment, and human rights.8 These FTAs, along with earlier agreements with Mexico and Chile, put the EU on a more competitive footing with the United States in terms of Central and South American FTAs.





See Joe Kirwin, “EU OKs Free Trade Talks with Japan Despite Fierce Auto Industry Opposition,” Int’l Trade Rep. (BNA) 29 (December 6, 2012), 1900, which discusses a “progress report” on the EU-Canada FTA negotiations. 5 ICTSD, “EU Trade Ministers Approve Pact with Colombia, Peru,” Bridges Weekly Trade News Digest 16 (June 6, 2012), 22. 6 Joe Kirwin, “EU Finalizes Free Trade Deals with Eight Latin American Countries,” Int’l Trade Daily (BNA), December 12, 2012. 7 Ibid. 8 See Joe Kirwin, “European Parliament Panel Backs Colombia, Peru Free Trade Deal,” Int’l Trade Daily (BNA), November 28, 2012. 4

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One initiative of more than twelve years’ duration, an FTA with Mercosur, seems no closer in 2012 than it was in 2010, when the talks were relaunched after a long hiatus. EU Trade Commissioner Karel De Gucht has confirmed the lack of progress, noting that only “technical discussions” were continuing as of late 2012.9 De Gucht further noted that moves by Argentina have not “created the climate to start the endgame. It is very difficult with Argentina introducing new protectionist measures every fortnight.”10 He was undoubtedly referring to the expropriation by Argentina of the interest by the Spanish oil company Repsol’s Argentina subsidiary YPF in April 2012.11 2.  Asia EU interest in FTAs in Asia is driven in significant part according to observers by concerns that without FTAs EU enterprises would not be able to compete with a Japan participating in the TPP and the “Regional Comprehensive Economic Partnership” among Pacific Rim nations, including China.12 The EU has concluded (but has not yet implemented) an FTA with Singapore, where 8,000 EU enterprises already deal in goods and services.13 Other EU negotiations are in progress with several ASEAN Members, including Malaysia and Vietnam.14











See Lucien O. Chauvin, “EU Beefs up Deals with Latin America; Peru, Colombia FTA Approvals Expected Soon,” Int’l Trade Reporter (BNA) 29 (November 29, 2012), 1878 (reviewing the EU’s progress on various FTA negotiations). 10 Ibid. 11 See Augustino Fontevecchia, “US Condemns YPF Expropriation as Spain-Argentina Trade War Nears,” Forbes, April 18, 2012 (discussing the taking and the possible consequences). 12 See Hosuk Lee-Makiyama, “Upholding Europe’s Mandate on Trade,” ECIPE Policy Briefs no. 11/2012, 1, accessed December 6, 2012, http://www.ecipe.org/media/publication_pdfs/PB201212.pdf, which discusses the EU challenges posed by FTAs being negotiated by Japan and other trading partners in Asia. 13 “EU, Singapore Clinch Trade Pact Aimed at Boosting ‘Green Growth,’” Bridges Weekly News Digest 16 (December 19, 2012), 44, accessed December 19, 2012, http://ictsd.org/i/ news/bridgesweekly/152006/. 14 Ibid. 9

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But in Asia, the most important EU initiative is with Japan. Since mid-2011, the European Commission has called for an FTA between the EU and Japan. Such an agreement would likely be the largest bilateral FTA ever negotiated, between the world’s largest and fourth largest economies.15 Commissioner De Gucht has suggested that such an FTA would increase the EU’s GDP by 1 percent, increase EU exports to Japan by one-third, and create 400,000 new jobs within the EU.16 The Commission’s action is said to reflect the Commission’s resorting to possible bilateral trade agreements to stimulate the economic recovery of EU nations in light of the Doha Round impasse.17 The EU Council of Ministers formally agreed to launch negotiations with Japan in December 2012, despite continued opposition by the auto industry in most of the EU countries.18 The negotiating mandate included a requirement that EU tariffs would be liberalized on Japanese imports only if accompanied by elimination of tariff and non-tariff barriers and an understanding that the EU will discontinue the negotiations should Japan fail to meet EU criteria with regard to the scope of the FTA.19 As with some U.S. opposition to Japanese participation in the TPP, concerns exist within the EU over Japan’s government procurements policies and a range of NTBs; non-tariff barriers in Japan’s auto and pharmaceutical sectors are of primary concern,20 particularly given the overcapacity of automakers in the EU, especially in Italy and France.21 The crisis in the European auto industry, even with a 10 percent MFN



See Hosuk Lee-Makiyama, “FTAs and the Crisis in the European Car Industry,” ECIPE Policy Briefs no. 02/2012, accessed September 16, 2012, 2, http://www.ecipe.org/ media/publication_pdfs/PB201102.pdf. 16 Lee-Makiyama, “FTAs and the Crisis.” 17 See ICTSD, “Brussels Seeks to Launch Japan Trade Talks,” Bridges Weekly Trade News Digest 16 (July 25, 2012), 29. 18 Kirwin, “EU OKs Free Trade Talks with Japan.” 19 Ibid. 20 See “European Commission Faces Battle for Japan FTA Negotiating Mandate,” World Trade Online, July 27, 2012. 21 See “European Cars  – Not Turning Yet,” Financial Times, July 27, 2012, which notes that French and Italian automakers are suffering both from the lowest demand in two decades and from substantial over-capacity. 15

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import duty (compared to 2.5 percent in the United States), along with rigid EU safety standards imposed on foreign auto manufacturers (as with the United States), may well be the most important disincentive to finalizing the FTA.22 Noting the difficulties that face EU–Japanese FTA negotiations and the fact that negotiations with Korea were successfully concluded in 2011, several scholars have suggested that the EU consider an FTA with Taiwan.23 Such an accord would be at best a long-term aspiration given the fact that the EU and most other WTO Member nations do not maintain diplomatic relations with Taiwan. At the beginning of 2011 (but not much since), EU officials were considering a WTO Plus trade agreement with Russia, which might eventually lead to an FTA, although earlier efforts have made little progress.24 Issues to be addressed include EU trade difficulties regarding footwear, wine and spirits, and interest in investment protection, as well as Russian interests in visa liberalization for Russian citizens visiting the EU.25 With Russian accession to the WTO accomplished in July 2012, there is some hope for re-energizing such negotiations, despite doubts by many in the EU that Russia has any interest in further liberalizing trade ties beyond the concessions made for WTO Membership.

B.  Economic Partnership Agreements The remainder of Section I focuses on EU negotiations with former colonies, the African, Caribbean and Pacific (ACP) states, negotiations

See Makiyama, “FTAs and the Crisis,” 7 (discussing the negotiating challenges that result from EU and individual country auto policies). 23 See Michal Krol & Hosuk Lee-Makiyama, “An EU-Taiwan Trade Accord from EU Member States Perspective: Rebalancing Regional Trade,” ECIPE Policy Briefs no. 13/2012, accessed December 12, 2012, http://www.ecipe.org/media/publication_pdfs/ PB201213_final.pdf. 24 “EU, Russia Moving towards ‘WTO Plus’ Trade Agreement, Eventual FTA,” World Trade Online, December 15, 2011. 25 ICTSD, “EU Trade Ministers Approve Pact.” 22

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made more urgent by the collapse of Doha. The EPAs arise out of a long-term trade and development policy that predates the European Union and originates in the colonial era. France, the Netherlands, and the United Kingdom in particular have sought to maintain close relationships with their former colonies, although historical political controls have been replaced by economic development needs as the most significant (although not only) justification.26 It was and is a discriminatory policy in which former colonies in general were afforded more favorable access to the EU market than the rest of the developing world (including those in Latin America who obtained their independence from Spain and Portugal 150 to 200 years ago). Individual EU Member State policies were largely subsumed into the EU beginning in the 1950s; the original European Community Treaty includes among the list of EU activities “the association of overseas countries and territories in order to increase trade and promote jointly economic and social development.”27 Initial efforts to maintain special trade relations with former colonies, as under the Yaoundé Conventions with new African states, were generally reciprocal in nature. Nevertheless the EC Treaty provisions (although not the Yaoundé Conventions per se) raised consistency issues under GATT Article XXIV. The Working Party objected that duties were not to be eliminated on “substantially all trade” and to the limited (five-year) term of the agreements. Questions of law were shelved in favor of an informal agreement to GATT consultations should any future problems arise.28 EU maintenance of association or economic partnership agreements with its former colonies, with the less advantageous GSP offered to other developing countries, continues to complicate EU trade and development policy to this day.



Lorand Bartels, “The Trade and Development Policy of the European Union,” Eur. J. Int’l L. 18 (2007), 715. The former Spanish and Portuguese colonies in Latin America, most of which became independent around 1820, are excluded. 27 EC Treaty, art. 3(s). 28 See ibid at 722–729 (discussing the Yaoundé Conventions and the GATT Article XXIV legality questions). 26

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The EU’s trade and development policies in the 1970s and 1980s were primarily non-reciprocal, both in the association agreements and in implementation of GSP. Fortunately for the EU, legal challenges under GATT did not occur for some years. In 1975, the EU concluded the first of what would be a thirty-five year series of still non-reciprocal agreements with the ACP states, the four Lomé conventions29 and Cotonou Agreements.30 The trade cooperation provisions of the Cotonou Agreement (providing duty-free treatment for most ACP products entering the EU) were not GATT legal because they departed from MFN treatment in GATT, Article I without meeting the requirements of Article XXIV or the 1979 Enabling Clause authorizing the GSP programs. In 2001, the WTO Ministers agreed to a waiver for the trade provisions of the Cotonou Agreement effective through 2007,31 which everyone understood would not be renewed. Thus, the goal for both the EU and the ACP states was a series of EPAs that would be considered legal under GATT Article XXIV. The EU decided in consultation with the ECP states that the trade preference provisions of the Cotonou Agreement would have to be replaced with new arrangements that would be GATT-legal, using Cotonou as the “foundation” for such discussions.32 Failing agreement, the ACP exports to the EU would have as of January 1, 2008 benefitted only from GSP rather than from the superior preferential access under Cotonou.33 The impact of this change on ACP states







Four Lomé Conventions were concluded, the most recent of which expired in 2000. See ACP: Lomé Convention, accessed July 24, 2012, http://homepages.uel.ac.uk/ben2417s/ EUAid3.htm. 30 It was first concluded in 2000 and revised in 2005. Commission, the Cotonou Agreement, accessed July 24, 2012, http://europa.eu/legislation_summaries/development/ african_caribbean_pacific_states/r12101_en.htm. 31 WTO Ministerial Decision, “European Communities  – The ACP-EC Partnership” Agreement, November 14, 2001, accessed July 24, 2012, http://www.wto.org/english/ thewto_e/minist_e/min01_e/mindecl_acp_ec_agre_e.htm. 32 Non-trade related provisions of Cotonou remain effective until 2020. 33 See Office of Trade Negotiations, Special RNM Update, December 4, 2007, “Getting to Know the EPA,” accessed July 24, 2012, http://www.crnm.org/index.php?option=com_c ontent&view=article&id=172:special-rnm-update-getting-to-know-the-epa&catid=18 29

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would not have been uniform. The least developed developing states, mostly in Africa, would have had duty-free access to the EU market for “everything but arms” (see Chapter 4) and thus would not have seen major differences in market access compared to Cotonou. However, for “middle income” Caribbean states (all except Haiti) and many African nations the EU GSP benefits34 would have been considerably less favorable than those available under Cotonou or under a new EPA.35 For the EU, the focus began shifting toward a greater level of reciprocity, while continuing the emphasis on development. As EU Trade Commissioner Peter Mandelson affirmed in April 2008 (while defending the EPA negotiations against criticism): “The whole idea of the EPA is to harness trade in the cause of development, to create opportunities for trade linked to capacity building and development cooperation, which offers a much better deal than the old-style tariff preferences of Cotonou.”36 When negotiations were opened with seventy-eight ACP nations in 2002, the assumption was that such agreements would usher in a new era for economic development, encouraging market-based reforms and better access by the ACP countries to global markets, with corresponding benefits to economic development. 37 The EU’s efforts to complete negotiations with all ACP nations by the end of 2007 were not successful except with respect to the fifteen Caribbean (CARIFORUM) nations.38 In several situations, the EU



7:rnm-updates-for-2007&Itemid=126, which notes that without an economic partnership agreement in place by January 1, 2008 the region would be in a disadvantageous position because it would only be able to enjoy EU GSP benefits, which are less generous than the Cotonou agreement. 34 See Commission, “Generalized System of Preferences 2006–2008,” accessed July 1, 2012, http://www.europa.eu/scadplus/leg/en/lvb/r11020.htm. 35 Ibid. 36 Mathabo le Roux, “Tricky Trade Negotiations Need More Discussion,” AllAfrica, April 8, 2008, 1, http://allafrica.com/stories/200804080659.html?viewall=1. 37 See “Trade talks between Europe and Africa: time to bring the curtain down?,” The Guardian, accessed July 13, 2012, www.guardian.co.uk. 38 See Bruce Zagaris & Elena Papangelopoulou, “An Overview of the CARIFORUM-EC Economic Partnership Agreement,” Tax Notes Int’l 49 (February 25, 2008), 689; David

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concluded interim EPAs, accords which left many details to be ­negotiated until later and/or covering trade in goods but not services, intellectual property, or government procurement.39 As of late 2012, only thirty-six ACP nations had concluded some form of EPA with the EU, with eight of that group not having signed the EPAs and fifteen not having begun the ratification process.40 Still, the ACP nations have continued to receive duty-free, quota-free access to the EU market. This approach may be ending; the EU threatened in September 2011 that as of January 1, 2014 those ACP countries that had not concluded and ratified an EPA would lose their DFQF access.41 Even here, EU policy is not final or consistent among entities; the European Parliament voted to extent the preferential treatment to 2016.42 Whether the EU will be successful after a decade of mostly fruitless discussions in concluding comprehensive EPAs covering trade in services, investment, intellectual property, labor and environmental standards, and perhaps human rights as well43 is an open question. All of these are issues addressed in the EU–CARIFORUM EPA, but in a very lukewarm fashion in such areas as labor, environment, and human rights, and with the provisions on services and investment being largely an agreement to pursue negotiations at a later time.44 It has been suggested that an











A. Gantz, Regional Trade Agreements: Law, Policy and Practice (Durham: Carolina Academic Press, 2009), 349–359. 39 Luisa Morgantini, “EU-ACP Trade  – Unequal Partners, Unfair Rules,” AllAfrica, December 26, 2007, 1, accessed August 9, 2012, http://allafrica.com/stories/200712260449. html. 40 See San Bilal, “EPAs’ 10th Anniversary: the Never-Ending Story,” ECDPM Talking Points, September 27, 2012, 1, accessed September 28, 2012, http://www. ecdpm-talkingpoints.org/epa-anniversary-the-never-ending-story/. 41 ICTSD, “Special Update: European Commission Puts Renewed Pressure on EPA Negotiations,” Trade Negotiations Insights, October 2011, 2, accessed August 9, 2012, http://ictsd.org/i/news/tni/115406/. 42 See Bilal, “EPAs’10th Anniversary,” 2 (reporting on the Parliament’s action). 43 See Council of the EU, “Human Rights and Democracy: EU Strategic Framework and EU Action Plan,” June 25, 2012 (setting forth a program for promoting and protecting human rights “throughout the world”). 44 “Economic Partnership Agreement between the CARIFORUM States, of the One Part, and the European Community and its Member States, of the other Part,” December 16, 2007; Gantz, EPAs, 352–356.

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alternative approach is warranted – an approach in which the EU would propose “concrete options to each region” and demonstrate additional flexibility with regard to the more controversial provisions. At the same time the African and other ACP regional would reassess their positions, identify their highest priorities and also those areas where compromise would be feasible.45 Investment issues have not been extensively covered in the ACP agreements, in part because most of the EU Member nations have BITs with many of these same states. The coverage of investment issues in the EPAs may be altered now that the Commission under the Treaty of Lisbon is responsible for negotiating BITs and FTA investment provisions, rather than the BITs being negotiated by individual Member states.46 Whether Commission provisions will be as attractive to EU investors as bilateral BITs is anyone’s guess and that question may not be resolved for some years. Possibly, the absence of negotiations in Geneva will encourage at least some ACP nations to renew efforts to complete the EPA negotiations by 2014 or the Commission to offer greater flexibility in its demands. It also seems likely that in the absence of another broad negotiating round in Geneva, the EU and the ACP states will continue to develop the trade relationships that are the subject of the EPAs. One unpredictable factor is the extent to which the EU financial crisis is diverting EU attention and resources from these objectives. Also related, but distinct from the EPA process, is a decision by the Commission to reduce EU support for various regional integration projects in Eastern, Western, and Southern Africa. Should the reduced level of funding continue, the African RTA secretariats will be required to seek alternative sources of funding, either



Bilal, “EPAs’ 10th Anniversary,” 2. See Luke Eric Peterson, “European Commission Unveils Proposal for who Should Bear Brunt of Future Investment Arbitrations; Member States could Continue to be Respondents in Some Cases,” June 21, 2012, IAReporter, accessed June 21, 2012, http://www.iareporter.com.ezproxy.law.arizona.edu/articles/20120621/print. The article notes that the Commission has taken over such negotiations with external trading partners.

45 46

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from individual EU states or elsewhere.47 Observers have speculated that the election of Nkosazana Dlamini-Zuma of South Africa as head of the African Union Commission could lead to a stronger relationship between the AU and the EU,48 presumably affecting trade as well as other aspects of the relationship. It is also evident that some provisions of the EPAs, especially in Africa, may be inconsistent with African regional integration agreements and the obligations that states have accepted under them. Some critics have charged that the EU’s EPAs complicate regional integration in Africa by forcing nations that are highly dependent on trade with the EU, such as the Ivory Coast and Ghana in West Africa, to conclude interim EPAs that may result in such conflicts.49 Both Ivory Coast and Ghana have free trade agreements with the EU opening their markets to EU goods and services but are also members of a customs union whose members have sought to date to protect their domestic markets from EU goods.50 More efficient customs services in the member countries could facilitate trans-shipment of EU goods from the Ivory Coast and Ghana to the other member countries, but it is reasonable to assume that such efficiencies for the most part do not exist. Another factor that may affect the EU’s ability to negotiate EPAs with the desired coverage is the increasing influence of China in Sub-Saharan Africa, discussed in Section VI of this chapter. According to U.S. Secretary of State Hilary Clinton, “Africa offers the highest rate of return on foreign direct investment of any developing region in the world.”51 The EU Commission is undoubtedly aware of this fact and the view by some in Africa that Africa can continue to grow without the EPAs. Both groups are aware that trade agreements



See Kathleen van Hove, “EU Support to Regional Integration: Between Cuts and ‘Unfailing’ Commitments,” ECDPM Talking Points, June 15, 2012, accessed June 15, 2012, http://www.ecdpm-talkingpoints.org. 48 European Center for Development Policy Management, “Could Dlamini-Zuma’s Election Revive EU-African Relations?,” ECDPM Talking Points, July 20, 2012. 49 Ibid. 50 The Guardian, “Trade Talks,” 2. 51 See ibid (quoting Secretary Clinton). 47

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help, particularly when they are being concluded by competing exporters. Thus, while resistance is likely to continue, many of the EPA’s incentives to complete the process remain. As The Guardian has suggested, “Europe should lower its ambitions and show flexibility if it wants to reach a deal, whereas African countries and regions should serious consider their strategic development objective and the concessions they contemplate, or walk out of the negotiations.”52

II.  A Transatlantic Trade and Investment Partnership? A.  The Pros and Cons One potential new agreement that is clearly being driven by the failure of Doha is a United States–EU trade agreement, referred to as the TTIP. The attractiveness of a comprehensive free trade agreement between the United States and the EU, perhaps parallel to the ongoing negotiations (since 2009) of such an agreement between the EU and Canada (Section I of this chapter), is unassailable given the enormous volume of bilateral trade.53 The options range from relatively narrow coverage, perhaps of services, investment, competition law, and regulatory standards, to an intermediate agreement that would cover manufactured goods as well, to a fully comprehensive agreement that would also address agricultural trade.54 The more than $500 billion of bilateral trade annually could, according to the U.S. Chamber of Commerce, increase by up to $120 billion a year should such an agreement be completed.55 House Ways and

The Guardian, “Trade Talks,” 3. In 2010, U.S. exports to the EU were approximately $240 billion, whereas exports were worth $319 billion, for total trade in goods of $659 million. U.S. Census, Trade in Goods with the European Union, accessed June 30, 2012, http://www.census.gov/foreign-trade/ balance/c0003.html#2010. 54 See “Chamber of Commerce Eyes Expansion of U.S.–EU ‘Zero-Tariff’ Concept,” World Trade Online, October. 27, 2011 (discussing various Chamber of Commerce proposals for a trade deal with the EU). 55 ICTSD, “US, EU Move Closer toward Possible Trade Talks,” Bridges Trade News Digest 16 (June 2012), 25 (quoting Chamber statements). 52 53

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Means Committee Chairman Kevin Brady (where an FTA with the EU would be referred first for Congressional approval) also supports such “strengthening and deepening the bilateral U.S. and EU relationship” even though it will not be easy.56 For some in Europe, the motivation is political as well as economic, a means of causing the United States to restore at least some of its cooperation with Europe – a relationship which in the words of The Economist “remains the closest and richest in the world”57 – before the “pivot” to Asia and preoccupation with wars in the Middle East. Like the benefits, the obstacles are daunting as well, particularly in the GATT requirement that it apply to “substantially all trade” including agriculture and the political and economic need to apply to major services sectors and to address inconsistent regulatory practices. The fact that Canada, a nation of less than 35 million people with a GDP about 5 percent of that of the United States, may be able to successfully negotiate such an agreement does not mean the same is true for the United States. Moreover, issues such as agricultural subsidies, agricultural trade, investment, and competition have proven daunting for the United States and the EU nations to address in the past.58 According to some agriculture interests, the absence of coverage of agriculture, including in particular sanitary and phytosanitary measures, could doom the agreement in Congress.59 The large volume of WTO litigation between the United States and the EU is also notable60 and indicative of the level of ongoing



See “Brady Calls for Bold Trade Agenda, Including EU Trade Deal, Fast-Track,” World Trade Online, November 21, 2012 (outlining his plans for trade in 2013). 57 Charlemagne, “Hope and no Change: After Barak Obama’s Re-Election, it is Time to Push for Transatlantic Free Trade,” The Economist, November 10, 2012 (discussing the EU–U.S. relationship including but not limited to trade). 58 Negotiations at the OECD of a “multilateral investment agreement” failed in 1998. 59 “Without Agriculture, U.S.–EU FTA would Struggle in Congress,” World Trade Online, November 12, 2012 (quoting Farm Bureau President Bob Stallman). 60 Since 1995, the EU had brought twenty-nine WTO actions against the United States, and the United States had brought twenty-four actions against the EU or individual Members. WTO, “Chronological List of Disputes Cases,” accessed June 30, 2012, http:// www.wto.org/english/tratop_e/dispu_e/dispu_status_e.htm. 56

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trade friction between the EU and the United States. Some Members of Congress have also expressed concern that by strengthening trade relations with the EU (particularly if it means a reduced U.S. focus on Asia) the United States could become more vulnerable to the various economic problems facing the EU.61 A TTIP would be controversial with other WTO Members. Some are likely to see such negotiations as the abandonment of Doha or future broad WTO negotiating rounds by the two leading proponents of freer trade or at minimum a major distraction from both EU and U.S. focus on multilateral trade agreements. Still, some groups such as the Transatlantic Economic Council and the National Foreign Trade Council have suggested that an EU–U.S. FTA might ultimately facilitate future trade negotiations in Geneva. First, a “high standard” agreement between two of the three largest WTO Members could encourage consideration of covered issues in Geneva, including regulatory coherence and cooperation. Second, the FTA would represent a market bloc with power equal to or greater than that of China, which would give China an “incentive” to conform to the disciplines on which bilateral agreement were reached, or at least some of those elements that the EU and the United States have been advocating as part of Doha.62 Others, including strong supporters of the agreement in Europe, note that the FTA could provide “new sources of growth to two giant economies that are stagnant and, of particular importance from a European point of view, deal with EU–U.S. relations that have been adrift for many years.”63 Certainly, a successful FTA would command the attention of other WTO Members and make it very clear that, in the absence of opportunities for market liberalization



See “Drier Sees Less Enthusiasm in Congress for Outreach to EU than TPP,” World Trade Online, August 23, 2012 (quoting House Rules Committee Chairman David Dreier, who disclaimed such views as his own). 62 See Len Bracken, “Industry Groups See U.S.–EU Bilateral as Reinforcing World Trade Organization,” Int’l Trade Daily (BNA), August 6, 2012. 63 Edward Luce, “Obama’s Coming Leap of Faith on Europe,” Financial Times, December 23, 2012. 61

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at the WTO, the EU and the United States are prepared to liberalize on a bilateral basis.

B.  Will They or Won’t They? Despite the EU’s ongoing fiscal crisis (see Chapter 9) and the expected initiation of negotiations toward an International Services Agreement (Chapter 7), the two economic superpowers have moved cautiously toward serious bilateral negotiations. As noted earlier, something less than a full FTA along the lines of the TPP may be feasible. Even if a broadly comprehensive FTA proves impossible to negotiate, a more modest agreement on selected trade issues would still have considerable value64 and could result in significant trade expansion while still maintaining WTO legality.65 The initial commitment to consider seriously the possibility of an FTA followed a November 2011 EU–U.S. summit. There the EU and the United States agreed to seek new ways to increase bilateral trade and investment by the end of 2012,66 possibly including an FTA.67 A final working group report, which was initially to be released by the end of 2012, was delayed until early 2013 because “more work needs to be done” according to officials of both countries speaking in mid-2012.68 Still, the suggestion in November 2012 of the president of the European





See ICTSD, “US, EU Trade Chiefs Mull Options for Deepening Trans-Atlantic Ties,” Bridges Weekly Trade News Digest 16 (May 23, 2012), 20 (quoting USTR Ambassador Ron Kirk). 65 For example, a services bilateral agreement need only meet the requirements of GATS, art. V (discussed in Chapter 7). Agreements on most investment issues and competition law would be totally outside of the scope of the WTO agreements. 66 “EU, U.S. to Explore Deeper Bilateral Economic Ties by End of 2012,” World Trade Online, November 28, 2011. 67 “Kirk, Froman Say U.S.–EU FTA on the Table in New Working Group,” World Trade Online, November 30, 2011. 68 Len Bracken, “U.S., EU Officials Note Need for More Work on Recommendations for Trade Negotiations,” Int’l Trade Rep. (BNA) 29 (December 6, 2012), 1892, which reviews the then-current state of play for the discussions and the obstacles to agreement. 64

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Parliament, Martin Schultz that the FTA could be concluded by 201569 seems reasonable if the obstacles to initiating negotiations can be overcome. The U.S. Government (except for Secretary of State Clinton) had avoided a formal decision on initiating negotiations during 2012, apparently because of long-outstanding bilateral issues which USTR and other agencies would like to see resolved at the outset rather than dragging on through what could be a lengthy series of FTA negotiations.70 This political logjam in the United States was broken when President Obama explicitly endorsed a TTIP in his state of the union address in February 2013;71 the EU Commission formally approved a draft mandate for discussions with Member states a month later.72 Such actions contemplate a broad agreement, as a joint EU–U.S. High Level Working Group preliminary report had suggested in 2012. That report concluded that a broad, comprehensive bilateral agreement would be the option offering the “greatest potential” for creating jobs and encouraging economic growth.73 It noted that the options included: elimination or reduction of conventional barriers to trade in goods, such as tariffs and tariff rate quotas; elimination, reduction or ­prevention of barriers to trade in goods, services, and investment; opportunities for enhancing the compatibility of regulations and standards; elimination, reduction, or prevention of unnecessary “behind the border” non-tariff barriers to trade in all categories; and enhanced cooperation for the development of rules and principles on global issues of





Len Bracken, “European Parliament’s Schultz Cites 2015 as Date for Establishment of Free Trade Zone,” Int’l Trade Rep. (BNA) 29 (November 29, 2012), 2012 (quoting Schultz). 70 See “U.S. Remains Undecided on EU Trade Deal Weeks before HLWG Deadline,” World Trade Online, December 6, 2012 (quoting Secretary Clinton, Deputy National Security Advisor Michael Froman, Deputy USTR Miriam Sapiro and USTR Ron Kirk). 71 See “Free Trade Across the Atlantic: Come on, TTIP,” The Economist, February 16, 2013, noting the inclusion of the President’s proposal. 72 “EU Commission Approves Draft, Mandate, Kicking Off Member State Talks,” World Trade Online, March 14, 2013. 73 ICTSD, “US, EU Move Closer.” 69

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common concern and also for the achievement of shared economic goals relating to third countries.74

Although that report indicated that further substantive work was required in some areas, it suggested that a comprehensive agreement should include the substantial elimination of tariffs immediately after the FTA entered into force or with a “short time frame.” It also endorsed comprehensive coverage of such regulatory issues as “SPS-Plus” and “TBT-Plus” provisions75 as well as regulatory coherence and transparency and efforts to promote regulatory compatibility in agreed sectors.76 EU officials have indicated that the EU would consider reevaluating some of its rules, including those relating to SPS measures (a key problem for the United Sates), to achieve a bilateral agreement.77 For its part, the Obama Administration initially sought to seek resolution of outstanding SPS and certain other bilateral issues as “confidence-building” preconditions for initiating formal negotiations,78 and will undoubtedly continue pressure on these questions once the negotiations formally begin. Given the number of U.S.–EU disputes over phytosanitary and sanitary disciplines and standards (TBT), it is difficult to overemphasize the importance of flexibility by the EU in this area if the differences are ultimately to be resolved.79





Working Group, “Interim Report to Leaders from the Co-Chairs EU–U.S. High Level Working Group on Jobs and Growth,” June 19, 2012, 1, accessed March 16, 2013, http:// www.ustr.gov/about-us/press-office/reports-and-publications/2012/interim-report-euus-working-group. 75 Ibid. 76 Working Group, “Interim Report,” 2. 77 “De Gucht Says U.S.–EU Trade Deal May Require ‘Hard Look’ at Rules,” World Trade Online, November 15, 2012. 78 See “U.S. Remains Undecided on EU Trade Deal.” 79 See, e.g., Appellate Body Report, United States – Continued Suspension of Obligations in the EC-Hormones Dispute, WT/DS320/AB/R, adopted November 14, 2008 (and a dozen other WTO proceedings regarding the same issues as between the EU, the United States, Mexico, and Canada); Appellate Body Report, European Communities – Trade Description of Sardines, WT/DS231/AB/R, adopted October 23, 2002. 74

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Services market liberalization would be bound at the highest levels of existing FTAs, but the goal would be to enhance the regulatory principles of those FTAs as well as improving transparency, impartiality, and licensing procedures.80 There is no discussion in the proposal of how, if at all, the services provisions would relate to the proposed ISA. Other areas to be covered would include: investment; government procurement; intellectual property rights; rules, such as those relating to trade facilitation, customs, SOEs, and competition; trade related aspects of labor and environment; small and medium-sized industry; improving supply chains; and access to raw materials and energy.81 Private sector stakeholders have urged that the negotiations be used as a basis for increased regulatory cooperation between the EU and the United States; for non-agricultural U.S interests the harmonization of regulations appears to be far more important than further tariff reduction. In one example, Daimler-Benz officials have expressed the hope that an agreement would help it avoid the requirement for multiple certifications whenever a new Mercedes engine is offered in the market, and pharmaceutical firms would like to avoid having to test new drugs in both the U.S. and EU markets.82 The U.S. Chamber of Commerce and Business Europe have advanced two principal objectives: a formal bilateral process for consulting on new regulations and a mechanism for examining existing regulations to determine if the two jurisdictions have “equivalent regulatory outcomes” even if the approaches differ.83 The elements envisioned by the proponents include a mutual recognition agreement for situations in which the regulatory outcomes are similar and a “Trade and Regulatory Analysis”

Working Group, “Interim Report,” 2. Ibid., 3. 82 See Jack Ewing, “Trade Deal between U.S. and Europe May Come to the Forefront,” The New York Times, November 25, 2012, which discusses the importance of harmonizing regulations. 83 “U.S., EU Groups Team Up on New Approach for Regulatory Cooperation,” World Trade Online, September 13, 2012, 1. 80 81

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to avoid “unnecessary divergence” between the jurisdictions with new ­regulations.84 Neither the EU nor the United States governments have committed to the inclusion of such topics. Sources point out that including such independent agencies as the Securities and Exchange Commission and the Federal Trade Commission in a regulatory cooperation package would be problematic.85 This means that an arrangement along these lines is likely practical only in the context of a broader EU–U.S. FTA that would be formally approved by the Congress. Surely, if the EU and the United States were even partially successful in completing the negotiations, the TTIP would rival or exceed the TPP in its comprehensiveness and potential economic impact on bilateral and global trade, particularly if at least some degree of regulatory harmonization with regard to trade in goods (including agricultural products such as meat) could be achieved. Also, compared to many other U.S. FTAs that have met opposition in Congress and civil society, the TTIP with the EU would likely gain broad support if properly structured. Given the complexities of the issues that must be addressed, whether the negotiations will be initiated, and if initiated can be successfully concluded, remains uncertain. Still, some contend with some justification that the negotiations with the EU, once initiated, could be more straight-forward for the United States than with some of the U.S. partners in the TPP negotiations.86 As with the EU’s other efforts, discussed in Section I of this ­chapter, the United States may well be heading for a situation in which all of its major trading partners except China, the EU in the TTIP, Canada, Mexico, and Japan in the TPP, are bound by FTAs which provide greater tariff reductions, intellectual property, and services coverage than under the WTO Agreements. Those FTAS would also encompass important areas such as investment, competition, labor rights, and the environment. The

Ibid. Ibid., 2–3. 86 See Luce, “Obama’s Coming Leap of Faith” (suggesting that despite the frustrations of dealing with the EU they “share U.S. values”). 84 85

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potential implications of this for the WTO system, particularly Members that do not have FTAs with the United States or enjoy GSP or similar unilateral access programs, are far-reaching. At minimum, many smaller nations that do not have significant trade relationships with the two economic superpowers, or FTAs with one or both of them, could be left out of the most significant trade liberalization processes of a decade or more.

III.  Pacific Alliance In June 2012, Chile, Colombia, Mexico, and Peru signed the “Pacific Alliance” agreement, probably the first major free trade initiative in Latin American in several decades.87 The four countries, despite the small size of all except Mexico, have a combined GDP of nearly $2 trillion, 206 million citizens, and, with global trade of $1.045 billion, account for about 50 percent of total Latin American trade.88 The Agreement, which will require ratification by each party, has as its principal objectives strengthening of economic ties and increasing trade with the Asia-Pacific countries. Obligations would include the elimination of both tariff barriers and rules of origin applicable to intra-regional trade by the end of 2012 (which proved overly-optimistic in retrospect). This integration is “not only the world of the future, but also the world of the present” according to Chilean President Sebastían Piñera.89 Among other potential benefits, the Alliance will facilitate participation by the Mexican stock exchange in the Latin American Integrated Market (Mila) with exchanges in Chile, Colombia, and Peru. The four Members also plan to work jointly to



See Chauvin, “Pacific Alliance.” R. Viswanathan, “The Pacific Alliance, Yet Another Bloc in Latin America, MercoPress, June 12, 2012, accessed June 29, 2012, http://en.mercopress.com/2012/06/12/the-pacificalliance-yet-another-bloc-in-latin-america. 89 ICTSD, “Pacific Alliance Launched in Chile,” Bridges Weekly Trade News Digest 16 (June 13, 2012), 23. 87 88

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attract investment from China, Japan, South Korea, and Taiwan through trade fairs and similar mechanisms.90 Chile, Mexico and Peru are simultaneously participating in the Trans-Pacific Partnership negotiations (Chapter 11), and Colombia is reportedly considering TPP participation, even it though it would be the only TPP party that is not also a member of the Asia-Pacific Economic Cooperation forum. The Alliance reflects the embrace by Peru’s President Humala of free trade, including the Alliance, the TPP, and APEC, a shift from earlier positions opposing freer trade.91 The Alliance is not intended to restrict the ability of Members to conclude additional bilateral FTAs with other parties. For example, Japan and Colombia in late 2012 agreed to negotiate an FTA.92 The four members of the Pacific Alliance (see Chapter 12, Section I on the “Four Jaguars”) are relatively open economies with investment-grade or near investment-grade markets, all veterans of many free trade agreements and all interested in maintaining strong trade and political relationships with the United States. Because there is relatively little intra-regional trade and not likely to be much more,93 it is not surprising that the focus of the group is increasing economic ties with Asia. Mexico, where roughly 80 percent of its trade is with the United States, is continuously seeking opportunities for export diversification. The Pacific Alliance may prove to be a means of achieving this Mexican objective in Asia, along with the TPP and an existing free trade agreement with Japan.94 The founding





Mexican Secretariat of the Economy, “The Pacific Alliance as a Pathway to Further Latin American Integration,” NAFTA Works, October 2012, 2, accessed November 9, 2012, http://www.naftamexico.net/wp-content/uploads/2012/11/oct12.pdf. 91 See Lucien O. Chauvin, “Peru’s President Embraces Free Trade He Once Criticized as Key to Success,” Int’l Trade Rep. (BNA) 29 (September 27, 2012), 1561 (detailing the shift in Humala’s views). 92 Toshio Aritake, “Japan, Colombia Agree to Negotiate FTA, Aim for Year-End 2013 Conclusion,” Int’l Trade Daily (BNA), September 28, 2012. 93 See Viswanathan, “The Pacific Alliance” (discussing the compatibilities of the four countries). 94 See Jorge Huerta-Goldman, Dispute Settlement Mechanisms in International Trade: Mexico’s Twenty Years of Litigation, April 2008, 17–18, Ph.D. dissertation, June 2008; 90

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members see the Alliance as a platform with which to establish linkages with other regional trading blocs such as APEC (of which Colombia will likely eventually become a member) and ASEAN.95 All four governments have associate relationships with Mercosur, where protectionist policies in Brazil and Argentina have been widely criticized (see discussion in Chapter 11). Mexico, for example, was forced by Brazil to renegotiate a long-standing auto trade pact when the balance more recently swung in Mexico’s favor, resulting on caps on Mexican auto exports to Brazil for a multi-year period. Argentina has sought similar restrictions.96 Together, despite much smaller size than Mercosur, the Pacific Alliance nations export twice what Mercosur does in terms of volume and value.97 Although the four governments deny it, it is reasonable to assume that one factor behind the Pacific Alliance is to guard against dependence on Mercosur through expanding other, more promising, trade relationships.98 At least one expert has suggested that counteracting Mercosur is a principal purpose of the Pacific Alliance, and that it is a “political club” as much as a trade agreement.99 Colombia alone is a member of the more than forty-year-old Andean Community (with Bolivia and Ecuador), but that group has languished as Bolivia and Ecuador have turned their attention to the anti-free trade, anti-United States Bolivarian Alliance for the Peoples of Our America (ALBA).100





(copy on file with author). NAFTA accounts for about 70% of Mexico’s total trade, the EU FTA about 8%, and the Japan FTA about 3.3% (2009 figures). 95 See Lucien O. Chauvin, “Pacific Alliance Hopes to Expand Regional Trade, Links with International Forums,” Int’l Trade Rep. (BNA) 29 (September 13, 2012), 1487 (reporting on a meeting of the Alliance in Peru). 96 David Haskel, “Argentina Seeks to Follow Brazil’s Lead by Limiting Mexican Automobile Imports,” Int’l Trade Rep. (BNA) 29 (March 29, 2012), 495. 97 ICTSD, “Pacific Alliance” (quoting then-President of Mexico Felipe Calderón). 98 See ibid (assumptions are the author’s). 99 Viswanathan, “The Pacific Alliance.” 100 The other members are Antigua and Barbuda, Cuba, Dominica, Honduras, Nicaragua, St. Vincent and the Grenadines, and Venezuela. Although ALBA will likely survive Venezuelan President Chavez’s death it is unclear whether Venezuela will be in a position economically to continue to provide the other Members with deeply discounted petroleum for the indefinite future.

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If successful, the implementation process for the Pacific Alliance may be completed ahead of the TPP negotiations, and in some areas, such as elimination of rules of origin, will go beyond the TPP in effectively reducing trade barriers. Costa Rica and Panama were expected to join the Alliance once the original four have concluded all negotiations and implementation details101 and Uruguay (the only one of the group without a Pacific coast) has also sought membership. Canada, which has FTAs with all four Pacific Alliance countries, has been accepted as an observer, a status which will permit Canada to participate in the groups meetings and discussions.102

IV.  All-Asian FTA Initiatives Two relatively new initiatives, the China–Japan–Korea FTA (CJKFTA) and the Regional Comprehensive Economic Partnership (RCEP), share a number of factors in common. First, both exclude the United States and limit membership to Asian nations. Second, both include China, Korea, and Japan, the region’s economic powerhouses but nations that today and historically have bitter differences in both economic and security matters. Third, both initiatives appear to be viewed by China (and perhaps others as well) as a means of counteracting the growing U.S. economic and security presence in the region as reflected in the ongoing TPP negotiations.

A.  China–Japan–South Korea FTA The goal of an FTA among China, Japan, and South Korea, announced in  May 2012 and to be formally initiated in 2013,103 is not new. It was  being  discussed seriously, at least in academic circles, as early as

See Chauvin, “Pacific Alliance.” “Canada Gets Pacific Alliance Observer Status,” Int’l Trade Rep. (BNA) 39 (November 29, 2012), 1880. 103 Toshio Aritake, “Japan, China, Korea to Start Talks on Free Trade Pact on Heels of RCEP,” Int’l Trade Rep. (BNA) 29 (November 29, 2012), 1871. 101 102

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2000.104 The CJKFTA is an agreement that from an economic point of view then and now seems self-evident, given the substantial Korean and Japanese investment in China and high Japanese investment levels in Korea. A large volume of trade takes place among the three countries; for example, China is Korea’s largest trading partner, eclipsing the United States several years ago. Together, the three nations account for about 20 percent of global output and 18 percent of world exports.105 A key hurdle is political: mistrust by China and Korea of Japan fostered by the brutal atrocities such as the “Rape of Nanking” by Japanese soldiers against Chinese civilians in 1937.106 In 2000, it was still too soon fifty-five years after the end of World War II for such an agreement to move forward, but efforts are again underway twelve years later. Even today, cooperation by Korea and China with Japan is problematic. For example, with the Korean government’s tentative conclusion in June 2012 of an agreement to share military intelligence with Japan, the disclosure of the negotiations created a political firestorm in Seoul and forced the president’s top foreign affairs adviser to resign.107 Similarly, severe diplomatic friction between Japan and China over small islands (“Diaoyu” in China, “Senkakus” in Japan) in a resource-rich area of the South China Sea arose in August 2012 when activists from Japan visited them.108 To complete the circle, Japan and Korea were at odds during the same period over the Korean president’s visit to another set of disputed islands (“Dokdo” in Korea, “Takeshima” in Japan).109 China’s

The author participated in a conference on the subject in December 2000 in Seoul, Korea. 105 See “Trading Strategies: China and American Complete to Lead Regional Free Trade Arrangements,” The Economist, May 19, 2012. 106 “Japanese Occupation of China,” Facts and Details, February 2011, accessed July 2, 2012, http://factsanddetails.com/china.php?itemid=59&catid=2. 107 Choe Sang-Hun, “South Korea Fires Top Presidential Aide Over Pact With Japan,” The New York Times, July 5, 2012. 108 Jane Perlez & Steven Lee Myers, “In Beijing, Clinton Will Push for Talks Over Disputed Islands,” The New York Times (Electronic Edition), September 3, 2012. 109 Yang Razali Kassim, “Japan–Korean Territorial Dispute: Setback for East Asian Cooperation?,” RSIS Commentaries, No. 164/2012, September 3, 2012, 2. 104

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effort to exercise sovereignty over disputed areas of the South China Sea, most recently by the issue of new passports with maps designed to reinforce China’s territorial claims, have been met with concerns not only in Japan but in India, Vietnam, and the Philippines (all to be parties to the RCEP) as well.110 The efforts to overcome political history and current political concerns are being driven largely by economic pressures in a region where the number of FTAs has increased from three in 2000 to seventy-one in 2012, and by the fact that Doha has stalled.111 Some have suggested that the tripartite agreement is an alternative path to the TPP for a region-wide FTA in which it would eventually be combined with the network of FTAs between the ASEAN group and China, Japan, Korea, India, Australia, and New Zealand (see Subsection B). As among China, Japan, and Korea, political distrust and the fact that both Japan and Korea are close U.S. allies are not the only constraints. China and Japan in particular have exhibited protectionist tendencies in the past and follow different investment policies. China continues to favor its SOEs in many sectors that are considered strategic and both Japan and Korea are among the most protected agricultural markets in the world. At least on the part of China the CJKFTA if broadened to include ASEAN, would be seen as a counter-balance to the perceived threats of the TPP, even if Korea and Japan eventually join the TPP.112 Moreover, China’s trade agreements, such as the FTA with ASEAN, tend to be “shallow” with many exemptions in contrast to FTAs concluded by the United States and the EU.113 Thus, at least initially, the CJKFTA is far less ambitious than the TPP. In bilateral discussions between Korea and China that began in May

See Victor Mallet, “India Hits Back at China in Passports War,” Financial Times, November 23, 2012. 111 Pradumna B. Rana, “Towards a Region-Wide FTA in Asia: Whither the Trilateral FTA?, RSIS Commentary 096/2012, June 8, 2012, 1. 112 Ibid. See also “Korean Trade Minister Proclaims Interest in TPP, Even as Seoul Begins FTA Talks with China,” World Trade Online, May 21, 2012, 1. 113 See “Trading Strategies,” The Economist. 110

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2012, presumably merged into the CJKFTA, “sensitive areas” are to be protected and agriculture has not been mentioned. Trade liberalization for goods and services is to go beyond WTO commitments and the scope of investment provisions but the actual “level of ambition and coverage” remains to be discussed.114 Whether such an agreement will be pursued in the short term if at all (given the potentially greater economic significance of the RCEP), remain to be seen. The question of GATT Article XIV legality must also be addressed eventually.

B.  Regional Comprehensive Economic Partnership The RCEP (formerly referred to as “ASEAN Plus 6”) was formally initiated in November 2012, and would include the ten ASEAN nations plus China, Japan, Korea, India, Australia, and New Zealand.115 The discussions are predicted to begin during 2013 and be concluded by 2015. According to a joint declaration of the leaders, the RCEP will be a “modern, comprehensive, high-quality, and mutually beneficial economic partnership agreement establishing an open trade and investment environment in the region.”116 The RCEP seems to have evolved from discussions in the 1990s within APEC and later ASEAN of various possible structures, including at one time an “ASEAN Plus 3” agreement that would have included the ASEAN nations along with China, Korea, and Japan.117 According to one Asian scholar, “[t]his sequential approach to trade integration reflects Asia’s pragmatic bottom-up approach to integration that supports sub-regional cooperation as the building blocks of an eventual, broader deeper and more unified regional architecture.”118 It may also reflect the fact that little progress toward deeper integration



“Korean Trade Minister,” 1 (quoting Minister Bark Taeho). ICTSD, “Asia-Pacific Leaders Announce Major Regional Trade Talks,” Bridges Weekly News Digest 16 (November 21, 2012), 40. 116 ICTSD. 117 Aritake, “Japan, China, Korea to Start Talks.” 118 Rana, “Towards a Region-Wide FTA in Asia,” 1. 114 115

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is occurring with ASEAN. The potential economic benefits if the RCEP could be concluded are substantial; the sixteen RCEP nations comprise 3.4 billion people, about one-half of the world’s population, with a GDP of about $20 trillion, one-third of global GDP. The potential difficulties are also many, including but not limited to those facing the negotiators of the CJKFTA. As one example of the political challenges, the Government of the Philippines took the extraordinary step of publicly supporting a change in the Japanese Constitution that would permit the rearming of Japan. The Philippines’ foreign minister Albert del Rosario is quoted as justifying the government’s position by indicting that “[w]e are looking for balancing factors in the region and Japan could be a significant balancing factor.”119 Although the negotiations may well be dominated by the major trading nations (China, Korea, Japan, and India) the challenges of reaching a meaningful accord with ASEAN as a group are substantial, particularly if the approach taken is to build on the “ASEAN Way” of ­consensus and unenforceable obligations. The ASEAN FTA has accomplished only modest trade liberalization among the members since its inception in 1992 (see Chapter 9). Broad differences in trade policies as well as levels of development also exist among the sixteen nations. As with the TPP, the RCEP nations have multiple and overlapping trade agreements, so that legal conflicts between these agreements and the RCEP would ­complicate trade unless such conflicts are explicitly addressed, as for example with the FTA between ASEAN and China that entered into force in 2010.120 The RCEP and CJKFTA discussions are to proceed in parallel for the three nations participating in both initiatives; the RCEP and the TPP negotiations have seven common negotiating parties (Australia, Brunei, Malaysia, New Zealand, Singapore, Vietnam, and Japan). If

David Pilling, Roel Landingin & Jonathan Soble, “Philippines Backs Rearming of Japan,” Financial Times, December 9, 2012. 120 “Agreement on Trade in Goods of the Framework Agreement on Comprehensive Economic Cooperation between China and ASEAN,” November 2004, accessed December 7, 2012, http://fta.mofcom.gov.cn/topic/chinaasean.shtml. 119

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nothing else, these multiple negotiations will be a challenge for the trade ministries of the affected countries and may well lead to even less attention being paid to multilateral trade negotiations, if any, in Geneva. Under the circumstances, and given the reluctance of many ASEAN members, China, and India to negotiate comprehensive FTAs, if an agreement is eventually reached, it is likely to be limited in scope compared to the TPP.121 Still, the pressure from ASEAN’s major trading partners toward greater trade liberalization may be more successful than the intra-regional efforts that have often foundered.

V.  All African Regional Initiatives Sub-Saharan Africa is the laggard in terms of world trade, although many believe that the tide has turned, with a 30 percent increase in per-capita GDP over the past decade and reasonable prospects for a 6 percent annual increase over the next.122 Still, according to the World Bank, Africa’s share of worldwide exports decreased between 1976 and 2006, from 2.9 to 0.9 percent.123 This occurred despite trade liberalization measures taken by some countries either through the WTO process, as a result of IMF and World Bank pressures, or unilaterally.124 In addition to weak infrastructure and poor commitment to the rule of law in much of the continent, experts have suggested that often weak “domestic institutions play a pivotal role in economic development” and that markets and



Chinese officials are reported to have concluded that the bar for meeting the requirements of the TPP was “very high,” although China has not been invited to join. See Jane Perlez, “Asian Nations Plan Trade Bloc That, Unlike U.S.’s, Invites China,” The New York Times, November 20, 2012. 122 “Africa Rising: A hopeful Continent,” The Economist, March 2, 2013. 123 See A. Portugal-Perez & J.S. Wilson, “Why Trade Facilitation Matters to Africa,” World Trade Review 8 (2009), 379. 124 See Melaku Geboye Desta & Moshe Hirsch, “African Countries in the World Trading System: International Trade, Domestic Institutions and the Role of International Law,” June 20, 2012, Society of Int’l Economic Law, Working Paper no. 2012/6, 2, accessed September 7, 2012, http://www.ssrn.com/link/SIEL-2012-Singapore-Conference.html. 121

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institutions “are closely entwined.”125 Corruption is also recognized as a major problem; by some estimates it results in a loss of up to 25 percent of GDP in some African nations.126 Doing business in Africa, including within the various RTAs such as the Southern African Development Community (SADC) remains a practice that is “still not for the faint of heart.”127 Businessmen have complained about corruption; complex customs regulations and clearance processes; non-tariff barriers and inefficient bureaucracies; shortages of skilled labor; access to finance; policy uncertainties; tax rates; and weak infrastructure.128 Goods moving by truck are particularly sensitive to such problems as weigh-stations, roadblocks, and constant requests for bribes.129 Thus, despite prospects of solid economic growth in many African nations, it remains clear that “the development process in Africa must continue to be led by African governments and their peoples” where (some) governments continue to follow an agenda for political and economic reform,130 addressing the problems noted above. Under such circumstances, governments that do not reform will fall behind. Africa is no stranger to regional trade agreements; there are broad networks of accords in many areas of the continent.131 Some twenty-eight







See ibid, 4, 24 (citing, inter alia, Dani Roderik for the conclusion that the quality of institutions “holds the key to prevailing patterns of prosperity around the world”). 126 See ibid; OECD & UNECA, The Mutual Review of Development Effectiveness in Africa: Promise and Performance: Focus Issue 10  – Economic Governance (Paris: OECD, 2009). 127 Talitha Bertelsman-Scott, “Doing Business in SADC still not for the Faint of Heart,” Great Insights, November 2012, 13, accessed December 7, 2012, http://www.ecdpm.org/ Web_ECDPM/Web/Content/Download.nsf/0/DAE17B11E7C74206C1257ABC003E5 961/$FILE/GREAT1-9%20final%20version%20(1).pdf. 128 Ibid. 129 Ibid. 130 U.N. Economic Commission for Africa and the Organization for Economic Cooperation and Development, “The Mutual Review of Development Effectiveness in Africa: Promise and Performance,” 2009, Preface, accessed October 19, 2012, http://www.oecd. org/site/africapartnershipforum/mrde/42179846.pdf. 131 These include, in addition to SACU, the African Union; Central African Economic and Monetary Community; the Common Market for Eastern and Southern Africa; 125

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RTAs, including seven customs unions and the rest FTAs, exist.132 The continent has been fragmented into at least fourteen regional economic communities with overlapping membership.133 Among the oldest and most successful economically, at least until recently, is the Southern African Customs Union (SACU), composed of Botswana, Lesotho, Namibia, Swaziland, and South Africa, dominated by South Africa.134 As one African-based observer has noted, “[r]egional integration has gone from being a second best policy, shunned upon by mainstream economics, to a policy which is an integral part of most developing country national development plans and key development partners’ programmes.”135 One of the newer efforts designed to deal with these problems is a proposed agreement that would combine the SADC, the Common Market for Eastern and Southern Africa (COMESA) and the SACU, thus “ameliorating the problem of overlapping memberships among the three constituent RECs (regional economic communities).”136 The result, if such an agreement were to be concluded and implemented, would be a simplification of trade and applicable legal rules, particularly conflicting







the East African Economic Community; Economic Community of Central African States; Economic Community of West African States; West African Economic and Monetary Union; and the South African Development Association. See USTR, 2007 Comprehensive Report on U.S. Trade and Investment Policy Toward Sub-Saharan Africa and Implementation of the African Growth and Opportunity Act, May 2007, at 29–30, annex C, accessed July 11, 2012, http://www.ustr.gov/sites/default/files/asset_upload_ file762_11294.pdf. 132 WTO, “Regional Trade Agreements Information System,” accessed December 7, 2012, http://rtais.wto.org/UI/PublicMaintainRTAHome.aspx. 133 Peter Draper, “Africa’s Tripartite Preferential Trade Agreement and the PTA-WTO Coherence Debate: Yin and Yang,” in ICSID, Trade and Development Symposium: Perspectives on the Multilateral Trading System, December 2011, accessed July 11, 2012, http://www.ictsdsymposium.org/en/events/trade-and-development-symposium. 134 See Gantz, RTAs, ch. 15; Robert Kirk & Matthew Stern, “The New South African Customs Union Agreement,” World Econ. 28 (vol. 2, February 2005), 169, 173. 135 Amanda Sunassee Lam, “Regional Integration in Africa – Looking East for Inspiration,” Great Insights, November 2012, 9, accessed December 7, 2012, http://www.ecdpm.org/ Web_ECDPM/Web/Content/Download.nsf/0/DAE17B11E7C74206C1257ABC003E5 961/$FILE/GREAT1-9%20final%20version%20(1).pdf. 136 Draper, “Africa’s Tripartite Preferential Trade Agreement.”

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rules of origin, which would presumably make trade a good deal more transparent and less confusing for importers and importers both within and outside the tripartite agreement nations. This could be an important step toward the expressed pan-African objective of creating a single African Economic Community by 2025,137 an objective that generates considerable skepticism among those who have followed the current lack of significant accomplishment with many of these African regional integration efforts, mirroring similar limited successes in Latin America. (See discussion of Mercosur in Chapter 9.) The approach intended for the tripartite RTA for “multilateralizing regionalism” appears to be one of focusing initially on tariffs and then moving on to addressing regulatory barriers including rules of origin, technical barriers to trade, harmonization of regulations, and even coordination of infrastructure investment.138 These worthy objectives involve daunting challenges which will require a decade or more to address and implement, although the failure of Doha and the reduction of EU assistance to African regional economic organizations (discussed in Section I of this chapter) may provide a new and necessary impetus toward reform.

VI.  Prospects for Chinese Trade Arrangements with Africa Despite more than a decade of Chinese emphasis on extraction industries in Africa, China has to date concluded no FTAs with any African nations, in contrast to at least fifteen with nations in Asia and Latin America.139 Yet for China, African nations (particularly Sudan and Angola) have become major sources of oil and both Zambia and the Congo are suppliers of copper.140 China reported trade with Africa amounting to $166

Ibid. Ibid. 139 WTO, “List of RTAs Notified and/or In Force,” China, accessed August 6, 2012, http:// rtais.wto.org/UI/PublicPreDefRepByCountryRTAList.aspx?membercode=156. 140 See Jane Perlez, “With $20 Billion Loan Pledge, China Strengthens its Ties to African nations,” The New York Times, July 19, 2012. 137 138

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billion in 2011 and eclipsed the United States as the continent’s major trading partner several years ago.141 United States’ and other western economic assistance have never overcome a perception of failure from the 1960s to 1980s despite the large volumes of bilateral and multilateral foreign assistance. As Joel Ng has noted, such assistance has not consistently translated into economic growth and often does not reach Africa in monetary form.142 Moreover, China, with its many state-owned enterprises, is able to direct and coordinate its foreign investment in Africa or elsewhere more efficiently than could western democracies where most of the investment is by multinational enterprises that are not under control of the respective governments.143 The focus of Chinese investment in African infrastructure is on the roads, pipelines, and ports needed for extractive industries which provide exports to China. In addition to meeting a pressing need, such assistance reflects a faith largely shared by many African countries (whether or not justified) in the state’s ability to overcome obstacles to development and the greater understanding of the issues faced by developing countries than western democracies.144 China has been criticized, inter alia, for ignoring human rights issues and for poor labor practices. South African President Jacob Zuma, visiting China in July 2012, suggested that a natural resource-based trade pattern is unsustainable for Africa in the longer term, referring to the continent’s prior economic experience with Europe.145 China reacted to the criticism by promising to train 30,000 Africans, provide thousands of scholarships, and send medical personnel to Africa, as well as to fund safe drinking water and forest preservation.146 Secretary of State



See “China Attacks Clinton’s Africa Comments,” Financial Times, August 3, 2012. See Joel Ng, “Great Power Rivalry in Africa: Economic Engagement Holds Key,” RSIS Commentaries, August 14, 2012 (discussing U.S. aid shortcomings). 143 See Ng, “Great Power Rivalry” (discussing the differences in aid and investment policies between China and western nations). 144 Ibid. 145 Perlez, “With $20 Billion Loan Pledge.” 146 Ibid. 141 142

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Clinton has also censured China’s incursions in to Africa, suggesting that the United States, in contrast, is more likely to support democracy and human rights even when it could be profitable to ignore such considerations.147 However, U.S. prioritization of human rights and democracy in the region has not always been feasible in light of other strategic priorities. For example, the United States’ foreign policy and security concerns resulted in support for Hosni Mubarak in Egypt for decades and currently for Ugandan President Yoweri Museveni of Uganda, a major supplier of African Union troops fighting Islamic terrorists in Somalia.148 More recently, some African observers such as Nigerian banker Lamido Sanusi suggest that by courting Chinese investment, Africa is “opening itself to a new form of imperialism” where “China takes from us primary goods and sells us manufactured ones.” China is, he says, no longer a “‘fellow underdeveloped economy’” and African countries as a result must guard against “predatory trade practices.”149 Even with such concerns, Chinese activities and political influence in Africa seemed destined to increase in the coming years. It may well be that as a result of views such as Sanusi’s or other circumstances, China will eventually find it expedient to shift its African policies away from its ­current narrow focus on resource extraction to a more balanced approach. This could mean efforts to formalize and broaden its influence in the region through the negotiation and conclusion of FTAs with selected African allies.



See Financial Times, “China Attacks.” See Ng, “Great Power Rivalry,” which discusses Somalia and suggests that regional security has become more important in the region for the United States than supporting democracy. 149 William Wallis, “Africa told to view China as a Competitor,” CNN, March 12, 2013, accessed March 16, 2013, http://www.cnn.com/2013/03/12/business/ china-competitor-to-africa/. 147 148

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Concluding New and Pending RTAs (Part II) The Trans-Pacific Partnership

I.  Introduction The TPP negotiations, initially suggested by President George W. Bush, have become the centerpiece of President Obama’s trade policy and taken on added importance with the demise of the Doha Round.1 The three-year-old TPP negotiations comprise twelve nations (Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, Japan and Vietnam) and represent the only major new Obama Administration trade initiative (beyond the enactment in October 2011 of long-stalled Bush era FTAs with Colombia, Panama, and South Korea).2 As of December 2012, the participants had set the annual APEC forum scheduled for October 2013 in Indonesia as the locus for making the final TPP decisions at the political level so as to conclude the negotiations.3 This was said to be possible according to then-current plans if the negotiators were able to hold three full rounds of negotiations prior to

For a thoughtful and comprehensive discussion of TPP issues as of 2011, see The Trans-Pacific Partnership: A Quest for a Twenty-First Century Trade Agreement, eds. C. L. Lim, Deborah K. Elms & Patrick Low (Cambridge: Cambridge University Press, 2012). 2 See Rachel Boehm, “Obama Signs Robust Trade Package Implementation: TPP Next for U.S. Trade,” Int’l Trade Rep. (BNA) 28 (October 27, 2011), 1735. 3 See “TPP Members Expected to Hold Three Full Rounds in 2012 Ahead of APEC,” World Trade Online, December 5, 2012 (discussing the future negotiating schedule and goals). 1

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October,4 but in the view of most observers conclusion of the TPP ­during 2013 is highly improbable for a variety of reasons, among them elections during 2013 in Chile, Malaysia and Australia, as well as the entry into the negotiations of Japan. 5 For the United States and many of the other TPP participants, the importance of concluding an agreement goes well beyond trade and economic issues. The TPP is a key element of U.S. economic, political, and security policy in Asia at a time when China’s influence in all such areas is rapidly increasing; and it is therefore a key element of the “pivot” or rebalancing of U.S. foreign policy that envisions an expanded U.S. presence in Asia. Despite the obvious potential impact on U.S.–China relations, the TPP’s economic, as well as political and security aspects, suggest a positive sum project that goes well beyond a form of “economic warfare” with China.6 The TPP builds on the “P-4” agreement among Brunei, Chile, New Zealand, and Singapore, concluded in 2006 and intended to be a high-quality, “deep” model agreement intended for expansion to other Pacific Basin States. The P-4 provided for further negotiations in 2008 on financial services and investment. The United States, followed by Australia and New Zealand, effectively said “Can we sit in?”7 President Bush and later President Obama wisely saw an opportunity to ­counteract contemporary efforts (e.g., the Regional Comprehensive Economic Partnership8

Ibid. See “TPP Talks Make Some Progress, But 2013 Conclusion Still Unlikely,” World Trade Online, March 14, 2013, assessing the status of the talks after the March negotiating session in Singapore. 6 Peter A. Petri and Michael G. Plummer, “The Trans-Pacific Partnership and Asia-Pacific Integration: Policy Implications,” Peterson Institute Policy Brief PB12-16, June 2012, 2, accessed July 2, 2012, http://www.iie.com/publications/pb/pb12-16.pdf. 7 See Meredith Kolsky Lewis, “The Trans-Pacific Partnership: New Paradigm or Wolf in Sheep’s Clothing,” B.C. Int’l & Comp. L. Rev. 34 (2011), 27, 30–36, which discusses the genesis of the TPP and the United Stated decision to join the negotiations. 8 Formerly the “ASEAN Plus 6:” ASEAN Members (Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) with China, Japan, South Korea, India, Australia, and New Zealand. 4 5

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discussed in Chapter 10), which would include China but exclude the United States. At the same time, the initial version of an expanded P-4 would have added only U.S. FTA relations with Brunei and New Zealand, because the U.S. already was party to FTAs with Australia, Chile, Peru, and Singapore. A TPP consisting only of the seven countries (all relatively small economies except for the United States) was hardly worth the effort on economic grounds, but somewhat more justifiable from a strategic point of view.9 Some observers have suggested that the TPP is likely the best route to the Free Trade Area of the Asia-Pacific (FTAAP), an expressed goal of APEC since 2006 or earlier (see Chapter 9). This chapter, admittedly a snapshot of an ongoing negotiation that may or may not be successfully concluded, discusses the key ­considerations involved in framing and completing an ambitious, complex, and ultimately far-reaching negotiation. Section II provides an overview of the general approach to the TPP negotiations. Section III considers membership expansion issues. Section IV assesses prospects and ­challenges on key substantive issues as of December 2012, and Section V discusses political support and opposition, particularly in the United States. Section VI addresses certain legal and economic challenges. Section VII considers the novel possibility of whether the North American Free Trade Agreement10 may be effectively modified through the TPP (because all NAFTA Parties would also be TPP Parties). Finally, in the assessment and conclusion (Section VIII), I discuss the reasons for my belief that ultimately the TPP negotiators, with U.S. leadership, have a decent chance of succeeding in overcoming the many obstacles facing them to complete the negotiations and bring the agreement into force.



Lewis, “The Trans-Pacific Partnership.” “North American Free Trade Agreement, December. 17, 1992, U.S.–Mexico–Canada, (‘NAFTA’),” 32 International Legal Materials 289 (1993), accessed June 28, 2012, http:// www.nafta-sec-alena.org/en/view.aspx?x=343.

9 10

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II.  The General Approach In terms of its anticipated content, the TPP is an extraordinarily ambitious project, reflecting the comprehensiveness of NAFTA and subsequent U.S. FTAs, as well as the “high quality, deep” agreement contemplated by the P-4. In the TPP, this has meant twenty-nine chapters covering not only trade in goods but trade in some agricultural products, services, intellectual property, foreign investment, trade facilitation, treatment of state-owned enterprises, protection of labor rights and the environment, and dispute settlement. The TPP, like the Doha Round of WTO negotiations, is being pursued with the same single-undertaking approach. As with most FTA negotiations, the TPP negotiators are operating under that principle holding that none of the chapters under negotiation is to be finally closed unless everything can be agreed upon. This approach, according to a U.S. negotiator, is designed to assure that “overall balance in the entire agreement is achieved.”11 Until agreement is reached on most major issues, it will be difficult for the negotiating governments to predict whether the full TPP can be completed, abandoned, or scaled back to a less comprehensive FTA.

III.  Potential Expansion of Membership The objective of the United States and other negotiating parties that the TPP would partially replace stalled WTO negotiations may be ultimately justified, although the full benefits would likely be achieved only with broader membership. Trade expert Gary Horlick, a strong proponent of an expanded TPP, has suggested that such a TPP might be a workable alternative to the WTO for those nations that ultimately become



See Amy Tsui, “No Chapter Closures in 14th TPP Round; Progress Continues, U.S. Negotiator Says,” Int’l Trade Rep. (BNA) 29 (September 13, 2012), 1482, which quotes an un-named U.S. negotiator speaking after conclusion of the September round of negotiations.

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Parties.12 From a purely economic point of view, one study suggests that  the income gains for the original nine TPP parties by 2025 would be in the range of $ 128.7 billion annually, but would reach $ 405 billion if the agreement were broadened to include all twenty-one members of APEC.13 The Office of the U.S. Trade Representative has emphasized that the United States’s eventual goal with the TPP is to expand it to include all members of APEC, including China.14 Such expansion may be a reasonable long-term goal given the historical support APEC has provided for trade liberalization, with the organization on record as pledging a “standstill” against protectionism through 2015.15 ASEAN also has welcomed the increased level of U.S. engagement in the Pacific and the importance of the “high-standard” TPP being developed.16 Interest in expansion of the TPP has not been limited to the United States. As the Chilean negotiator Rodrigo Contreras has observed, “[o] ur objectives are to negotiate the highest quality agreement and set the foundation for an Asia-Pacific Agreement.”17 Another expert, Pasha Hsieh, has echoed similar sentiments from Singapore. He has suggested that if the TPP were expanded into a twenty-one nation FTAAP, this would be a functional “Plan-B” for the WTO Members who are already APEC members as well.18 Enterprises dependent on global supply chains,



Viv Davies, “The Future of Doha and the WTO: a CEPR trade seminar,” Vox, April 27, 2011, accessed June 29, 2012, http://www.voxeu.org/index.php?q=node/6431 (remarks of Gary Horlick). 13 Petri and Plummer, “The Trans-Pacific Partnership,” 5–8. 14 See “Weisel: TPP Could be Reopened if Japan Joins After Entry into Force,” World Trade Online, July 4, 2012 (quoting Asst. U.S. Trade Representative Barbara Weisel). 15 APEC, 2011 Leaders’ Declaration, November 13, 2011, 1, accessed July 8, 2012, http:// www.apec.oeg/Meeting-Papers/Leaders-declarations/2011/2011_aelm.aspx?p=1. 16 Amy Tsui, “ASEAN Recognizes U.S. Role in Region; TPP Leaders Aim to Conclude Talks in 2013,” Int’l Trade Daily (BNA), November 21, 2012. 17 Lucien O. Chavin, “Ninth Round of TPP Talks Concludes in Lima; U.S. Tables State-Owned Enterprise Proposal,” International Trade Daily, October 31, 2011. 18 See Pash L. Hsieh, “APEC as a Trans-Regional Economic Governance Architecture: A Critical Assessment with Reform Proposals,” Society of Int’l Economic Law, Working Paper no. 2012/45, July 6, 2012, 5, accessed September 12, 2012, http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=2101759. 12

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relying on trade with both developed and developing nations (with the latter relying for about 70 percent of their aggregate exports of manufactured goods, including intermediate goods), would benefit from the largest feasible number of members.19

A.  Canada and Mexico The decision to include Canada and Mexico,20 effective with the December 2012 negotiating session, greatly increased the potential economic significance of the TPP,21 given that intra-NAFTA trade alone is approximately $1 trillion annually.22 TPP coverage would be increased to encompass 640 million persons,23 but the negotiating challenges were also increased, among them pressures on the U.S. Government to include dairy products, effectively excluded from NAFTA. Initially, the United States sought to limit the extent of Canadian and Mexican participation by seeking assurances that the two newer parties would accept all language negotiated as of late June and would not exercise “veto authority” over the conclusion of future FTA chapters.24 From the outset, Mexico stated that it would be a full partner in the negotiations.25 Given the relative lack of success of the negotiators in resolving major issues present in







See Sungjoon Cho and Claire R. Kelly, “Are Global Trading Rules Passé?: Trade Anachronism and its Discontents,” Society of International Economic Law, Working Paper No. 2012/18, June 20, 2012, 12, accessed September 12, 2012, http://papers.ssrn. com/sol3/papers.cfm?abstract_id=2088368 (discussing the shift from the classical raw materials exports from developing countries to manufactured exports). 20 Peter Menyasz, Daniel Pruzin & Amy Tsui, “Canada, Mexico Invited to Join TPP Talks, Expected to Enter Negotiations in Early Fall,” Int’l Trade Rep. (BNA) 29 (June 21, 2012), 1004. 21 Len Bracken, “Nine Leaders Agree on Outline for TPP; Canada, Mexico Follow Japan in Bid to Join,” Int’l Trade Rep. (BNA) (Breaking News), November 14, 2011, 3. 22 USTR, North American Free Trade Agreement (NAFTA), accessed June 28, 2012, http://www.ustr.gov/trade-agreements/free-trade-agreements/north-american-free-tra de-agreement-nafta. 23 Charles Shapiro, “Trans-Pacific Trade Talks: Focus is on Next Generation Issues,” San Diego Union Tribune, July 5, 2012. 24 “Mexico Stresses it will be a Full TPP Partner, Despite Terms of Entry,” World Trade Online, June 21, 2012. 25 Ibid. 19

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the TPP by the end of 2012, Mexico and Canada appear to have lost little by not participating from the outset. As President Obama noted in June 2012 when he welcomed Mexico’s accession, “we both recognize that growth is going to take place in the Asia-Pacific region.”26 For those familiar with NAFTA and the political impossibility of upgrading what Ambassador Charles Shapiro calls (with a bit of overstatement) a “sclerotic relic” after twenty years,27 the TPP negotiations may represent an opportunity to deal with some of NAFTA’s more pressing deficiencies, such as overly-complex rules of origin, in a new context. Notwithstanding opportunities relating to NAFTA, Mexican enterprises will likely be concerned about some of the same competitive issues as enterprises in the United States, such as footwear and apparel exports from Vietnam and dairy products from New Zealand.28 Because Mexico already has an FTA with Japan,29 Japanese participation in the FTA is less important economically for Mexico than it is for the United States. Mexico already has trade agreements with Chile and Peru but not with the other Asian TPP partners; the TPP therefore offers potential new export opportunities.

B.  Japan Japan initially indicated interest in joining the TPP negotiations in November 2011,30 but during 2012 waffled on a full commitment,



Menyasz, Pruzin & Tsui, “Canada, Mexico Invited” (quoting the President). Shapiro, “Trans-Pacific Trade Talks.” 28 See “Mexican Sensitivities on Goods in TPP talks Include Agriculture, Apparel,” World Trade Online, August 24, 2012 (quoting former Mexican trade negotiator Luis Maria de la Mora). 29 “Agreement between Japan and the United Mexican States for the Strengthening of the Economic Partnership,” September 17, 2004, accessed August 30, 2012, http://www. mofa.go.jp/region/latin/mexico/agreement/agreement.pdf. 30 See “Noda Announces Japan Will Take Preliminary Steps toward Joining TPP,” World Trade Online, November 11, 2011 (reporting on the prime minister’s decision to enter into consultations). 26 27

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apparently because of internal political constraints in Japan and the ­government’s desire to complete major tax and social security reforms first.31 It was considered by some doubtful that Japan would have been willing to take on another highly controversial political issue during 2012, after controversies over tax reforms and restarting two of Japan’s nuclear plants. Shinzo Abe, the head of the Liberal Democratic Party (LDP) who became prime minister after elections in December 2012, was initially equivocal regarding his support for the TPP. Others in the Liberal Democratic Party, supposedly with Abe’s blessing, expressed opposition to Japanese participation;32 more than 80 percent of the LDP candidates of the winning LDP opposed the TPP although more than half of the candidates for the opposition Democratic Party of Japan (DJP) were said to favor it.33 Uncertainty regarding Japan’s intentions was resolved in March 2013, when Prime Minister Abe, in announcing on national television Japan’s plans to join the negotiations described the TPP as “Japan’s last chance to remain an economic power in Asia and shape the region’s future.”34 The process by which each current TPP participant must approve Japan’s participation remained to be completed and of the end of March 2013 and may well be complicated or delayed by Japan’s announced intention to exempt from the negotiations a variety of agricultural products, including rice and beef as well as health insurance and medical and pharmaceutical services.35





See “Experts See Narrow Window of Opportunity for Japan TPP Breakthrough,” World Trade Online, June 28, 2012 (suggesting a decision by the end of September 2012). 32 See “TPP Likely to Emerge as a Major Point of Contention in Lower House Pool,” The Mainchi (Japan), November 16, 2012 (discussing various party positions on the TPP). 33 See “Japanese Politics: Mutton Dressed as Lamb,” The Economist, December 8, 2012, which quotes recent polls in Japan. 34 See Hiroko Tabuchi, “Japan Moves to Enter Talks on Pacific Trade,” The New York Times, March 15, 2013, reporting on Abe’s speech. 35 Toshio Aritake, “Japan Set to Announce Entry into TPP; Talks with China, Korea and EU to Follow,” Int’l Trade Daily (BNA), March 15, 2013. 31

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Japanese accession radically changed the economic equation, as U.S. Congressional leaders have cautioned.36 The U.S. auto industry, among others, is opposed.37 One industry-sponsored study asserts that Japan’s accession, with elimination of the U.S. 2.5 percent MFN duty on autos, would result in an increase of Japanese source exports by 6.2 percent, with additional increases or decreases possible depending on the dollar-yen exchange rates.38 As one Member of the U.S. Congress observed, Japan is in a “wholly separate category from Canada and Mexico,” in that “[w]ith our long history of fruitless attempts to open Japanese markets through negotiations, what we need from Japan is . . . comprehensive action before – not after – joining TPP.”39 Such multinational companies as Caterpillar are strong supporters, along with the California Chamber of Commerce.40 Japan’s very cautious approach to the TPP is consistent with Japan’s earlier ambivalence about RTAs, with relatively few FTAs having been concluded, perhaps now reflecting a fear of being left out as Abe suggested rather than a proactive approach. Two FTAs, with Singapore and Chile, exclude 50 percent or more of scheduled agricultural products and carry restrictions for Japan on industrial schedules that go beyond those of most other nations.41 Japan will presumably continue to be engaged in trade negotiations with fifteen other Asian nations as part of the RCEP







“Congressional Leaders Caution USTR on Possibility of Japan Joining TPP,” World Trade Online, November 9, 2011. 37 “U.S. Auto Companies Opposed Japanese Participation in TPP Negotiations,” World Trade Online, November 11, 2011. 38 See Center for Automotive Research, “New Study Estimates the Effects a Free Trade Agreement with Japan will have on the U.S. Auto Industry,” Press release, August 21, 2012; the CAR study was financed by the Ford Motor Company. 39 See “TPP Partners Official Invite Canada to Join Talks, Ending Years of Effort,” World Trade Online, June 19, 2012 (quoting Rep. Sander Levin). 40 Letter from William C. Lane, Washington Director of Caterpillar, to USTR January 11, 2012 (copy on file with author); Letter from the California Chamber of Commerce to USTR Ron Kirk, January 5, 2012 (copy on file with author). 41 See Heydon & Woolcock, The Rise of Bilateralism, 7–9, 187–195, which discusses the Japanese FTAs with Singapore and Chile. 36

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and the trilateral CJKFTA, the latter as early as April 2013.42 Under the best of circumstances, such negotiations will not produce FTAs that are as comprehensive as the TPP (which would likely lead to long-overdue economic reform in Japan) nor offer similar opportunities to deepen economic relations with the United States.43 Based on past history, an FTA based on ASEAN plus China and India, even with Korea, Australia, and New Zealand participating, is not likely to substantially liberalize trade across the board in the foreseeable future given the reluctance of many ASEAN members and India to engage in such market liberalization. In the shorter term, the bitter conflicts among China, Japan, and Korea (and with the Philippines and Vietnam) over disputed island territories make progress toward an RCEP even more problematic (see Section V of Chapter 10).

C.  Other Possible TPP Members China has indicated that it might be willing eventually to take part,44 but China’s presence would not likely be welcomed in the United States. Were China to offer to adhere to TPP disciplines in areas such as foreign investment, protection of intellectual property, and requirements for state-owned enterprises, the economic benefit for the United States (and other TPP Parties) would be significant and U.S. presumed opposition might change. South Korea has also suggested an interest in joining the TPP sometime in the future, after it completes the CJKFTA.45 Thailand expressed

“Japan Set to Announce Entry into TPP.” See “‘ASEAN Plus Six’ Deal Unlikely to Lessen Japan’s Interest in TPP: Experts,” World Trade Online, September 20, 2012 (discussing Japan’s negotiations with the ASEAN nations and others in Asia). 44 Daniel Pruzin & Len Bracken, “Official Says China ‘Open’ to Participation in Trans-Pacific Partnership Negotiations,” Int’l Trade Rep. (BNA) 28 (September 29, 2011), 1566. 45 “Korean Trade Minister Proclaims Interest in TPP, even as Seoul Begins FTA Talks with China,” World Trade Online, May 21, 2012. 42 43

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interest in taking part in November 201246 but has not formally sought participation. Russia is also a possible future candidate, albeit something of a long shot, with the nation’s economy minister expressing strong interest in the TPP in September 2012.47 Others, such as Costa Rica and Colombia, seem more likely to be accepted by the current twelve ­negotiating parties, although neither has formally applied for membership.48 This may not be a final list, as some of the negotiators are continuing to discuss TPP membership with other APEC nations that have expressed interest in joining, with the objective of facilitating possible future participation.49

IV.  Progress and Challenges After fifteen rounds of talks through December 2012 and another in March 2013, no consensus has been reached on many difficult issues, including some that have also eluded negotiators in Geneva. Areas of controversy include increased protection of intellectual property (TRIPS-Plus), investment, expanded trade facilitation, enforceable labor rights, and environmental protection, as well as market access in sensitive goods and services sectors such as certain industrial goods, dairy, sugar, and textiles and apparel (including textile rules of origin). Substantial progress had been reported on customs, cross-border services, government procurement, telecommunications, competition policy, small- and medium-sized enterprises, competitiveness and business facilitation, cooperation, and



ICTSD, “Thailand Expresses Interest in Joining Trans-Pacific Trade Talks, as TPP Leaders Set New Deadline, Bridges Weekly Trade News Digest 16 (November 21, 2012), 40. 47 See Elaine Kurtenbach, “APEC Trade Boost for Growth Facing Challenge from Territorial Rows, Other Tensions,” Associated Press, September 7, 2012 (quoting Andrei Belousov, Russia’s economy minister). 48 Lucien Chauvin, “Chile, Colombia, Mexico, Peru Sign Declaration Creating the Pacific Alliance,” Int’l Trade Rep. (BNA) 29 (June 14, 2012), 987. 49 Trans-Pacific Partnership Leadership Statement, September 9, 2012. 46

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capacity building.50 The United States is seeking ­language to regulate behavior of state-owned enterprises51 along with the labor and environmental provisions that are politically required in any U.S. FTA. The U.S. proposals on labor and environment as envisioned by the United States would be more comprehensive than even the most recent Bush-era FTAs (Colombia, Panama, Peru, and South Korea) but they are probably not achievable, even with major U.S. compromises on other matters. Areas of resistance on the part of the other potential parties involve, inter alia, Australia’s refusal to include investor-state arbitration, at least in the absence of increased U.S. market access for sugar; Singapore and Vietnam’s hesitancy regarding stronger disciplines for SOEs; Vietnam’s concerns with the very restrictive textile rules of origin (“yarn forward”) proposed by the United States and discussed in Section IV, Subsection F; broad opposition to U.S. proposals to make failure to comply with labor rights and environmental provisions subject to mandatory dispute settlement and potential trade sanctions; and proposals for mechanisms to assure that national regulatory systems achieve internal “regulatory coherence.” Some governments, less enamored than the United States with open hearings and other areas in which the investment dispute process is conducted to a significant degree in public, have yet to accept U.S. proposals on transparency in the arbitral process.52 Australia and New Zealand are advocating commitments to limit agricultural export subsidies and trade-distorting food aid programs, most of which would be difficult or impossible for the United States to accept in the context of an FTA. A leaked June 2012 investment text also reveals competing proposals for addressing indirect expropriation in a manner that would



See Amy Tsui, “TPP Leaders Say Goal of Concluding Pact Within Reach; Ministers Issue Report,” Int’l Trade Daily (BNA), September 11, 2012. 51 See “U.S. Fixes Future-SOE ‘Loophole,’ Sends TPP Partners Proposed Text,” World Trade Online, Oct. 21, 2001. 52 See Citizens’ Trade Campaign, TPP draft, ch. 12, art. 12.23, June 2012, available at http:// www.citizenstrade.org/ctc/wp-content/uploads/2012/06/tppinvestment.pdf (last visited July 2, 2012). 50

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not unduly restrict national regulatory processes, particularly in natural resource sectors. The major substantive areas of controversy are discussed in the following subsections.

A.  Investment According to the June 2012 investment chapter text, the parties are in disagreement, inter alia, as to whether Australia may be excluded from the investor-state dispute settlement obligations (as it has demanded); whether members may restrict capital flows in the event of a financial crisis (as Singapore and Chile may under their FTAs with the United States).53 Nor has agreement been reached as to how to define indirect expropriation (regulatory takings) in a manner that in the view of some governments adequately protects governments from expropriation claims based on the “reasonable” exercise of police powers and affords respondent government flexibility to regulate in such areas as protecting the environment.54 U.S. FTA investment chapters subsequent to NAFTA Chapter 11 (including those U.S. FTAs with Chile, the Central American nations, the Dominican Republic, Peru, Colombia, Panama, and South Korea, as well as BITs with Uruguay and Rwanda and the 2012 U.S. Model BIT55) provide host governments with greater flexibility to avoid claims when taking non-discriminatory actions to protect the environment and

See United States–Chile Free Trade Agreement, June 6, 2003, U.S.–Chile, accessed August 9, 2012, http://www.ustr.gov/new/fta/Chile/text/index.htm, annex 10-C(2), which precludes U.S. claims under either chapter 10 or chapter 22 – government-to-government dispute settlement – for Chilean actions restricting financial transfers for one year after such restrictions are applied. 54 See Citizens’ Trade Campaign, TPP draft ch. 12, annexes 12-C and 12-D; “Leaked TPP Investment Text Shows Disagreement on Indirect Expropriation Definition,” World Trade Online, June 14, 2012. The leaked draft is an unofficial text that has not been confirmed by the Parties and has likely been modified since June 2012. 55 “U.S. 2012 Model BIT,” art. 12.3(2)(b), accessed May 8, 2012, http://www.ustr.gov/sites/ default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf. 53

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public health and otherwise limit investors’ ability to prevail on “fair and ­equitable treatment” and indirect expropriation/regulatory takings claims, and make it easier for governments to seek dismissal on jurisdictional grounds at the outset of arbitration.56 Under the revised fair and equitable treatment language, “[e]ach Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.” The section clarifies that “the concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights.”57 On indirect takings, the language emphasizes that expropriation and compensation are “intended to reflect customary international law” and that “[e]xcept in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.”58 An action or a series of actions by a Party cannot constitute an expropriation “unless it interferes with a tangible or intangible property right or property interest in an investment.”59 The draft TPP investment chapter, like the 2012 U.S. Model BIT, also reportedly reflects U.S. government concerns that frivolous claims could be pursued as an adjunct to final judgment on the merits for which the tribunal failed to address challenges to jurisdiction in preliminary proceedings. The objective is to encourage arbitral tribunals to add­ ress such preliminary issues separately from the merits. Consequently,

See David A. Gantz, “Settlement of Disputes under the Central American–Dominican Republic–United States Free Trade Agreement,” B.C. Int’l & Comp. L. Rev. 30 (2007), 331–410, which discusses the departures from NAFTA in CAFTA-DR and other newer U.S. FTAs. 57 2012 Model BIT, art. 5. 58 Ibid., paras. 4(a), 4(b); Citizens’ Trade Campaign, TPP draft ch. 12, annex 12-D (1, 2, 5). 59 Ibid., annex B, paras. 1–2. 56

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“[w]ithout prejudice to a tribunal’s authority to address other objections as a ­preliminary question, a tribunal shall address and decide as a preliminary question any objection by the respondent that, as a matter of law, a claim submitted is not a claim for which an award in favor of the claimant may be made under Article 34 [Awards].”60 According to the leaked draft, none of the other negotiating parties have objected to this language. All such modifications reflect the fact that under NAFTA the United States for the first time has been a respondent in actions brought by foreign (Canadian) investors in the United States. They also reflect civil society complaints about the unbalanced nature of the agreements (which incorporate many protections for investors but few or no protections for the host governments) and concerns that expropriation provisions would be used to block legitimate government efforts to protect human health or the environment. Experience in the United States in responding to more than a dozen NAFTA investment claims has also resulted in greater attention to arbitration procedures, such as those noted earlier to reduce the time and cost of responding to allegedly frivolous claims. Under the 2012 Model BIT and the draft TPP investment chapter, as noted previously, the United States also advocates a relatively open arbitral process. Government respondents are required to disclose the notice of arbitration, pleadings, awards, and other key documents to the public, and to open hearings to the public, subject to protection of confidential or privileged information.61

B.  State-Owned Enterprises Increased U.S. investor concerns about the spread of the influence and number of SOEs, not only in Vietnam but in Singapore and Malaysia as well,62 have resulted in U.S. proposals to bring SOEs explicitly within the

2012 Model BIT, art. 28(4); Citizens’ Trade Campaign, TPP draft, ch. 12, art. 12.22.4. Ibid., art. 29. 62 See, e.g., “US to Consult Internally on Ag Export Competition; Next TPP Round Set for New Zealand,” World Trade Online, September 15, 2012 (reporting on concerns 60 61

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investment chapter disciplines so that SOEs cannot effectively nullify or impair other benefits of the market access provisions when they are competing with private sector enterprises. Transparency provisions applicable to SOEs are also a major U.S. objective.63 (Some SOE issues will also be part of the ISA negotiations discussed in Chapter 7.) U.S. SOE initiatives reflect studies at the OECD on best practices for SOEs.64 The United States is the first OECD Member to suggest incorporating these guidelines as mandatory obligations in an FTA despite the fact that a majority of the TPP countries are also OECD Members.65 As suggested by the United States, the bracketed (non-agreed) negotiating text reportedly provides that the “scope and coverage” of the investment chapter would stipulate that a Party’s obligations would “apply to measures adopted or maintained by . . . a state enterprise or other person when it exercises any regulatory, administrative or other government authority delegated to it by that Party such as the authority to expropriate, grant licenses, approve commercial transactions, or impose quotas, fees, or other charges.”66 The SOE aspect of the negotiations is said to be complicated by the fact that U.S. proposals on SOEs only apply to central-government entities, not to those owned by state and local governments (such as electric companies). Additionally, because many of the TPP nations have multiple SOEs at different levels of government, internal consultations are required to determine the extent to which certain SOEs would be covered by the various SOE proposals on the table.67 Definitions and







expressed by negotiators from Malaysia, Singapore, and Vietnam about U.S. SOE proposals). 63 See Amy Tsui, “Weisel Says SOEs a Top Priority in TPP, U.S. Proposal Seeks to Address Behavior,” Int’l Trade Rep. (BNA) 29 (September 27, 2012), 1554 (quoting Asst. USTR Barbara Weisel). 64 Ibid. 65 Australia, Canada, Chile, Mexico, New Zealand, Singapore and the United States; Japan is also a member of the OECD. See OECD, “List of OECD Member Countries, “accessed March 17, 2013, http://www.oecd.org/general/listofoecdmembercountries-ratificationoftheconventionontheoecd.htm. 66 Citizens’ Trade Campaign, TPP draft, ch. 12, art. 12.3.2(b). 67 See “SOE Talks Slowed by Countries’ Internal Processes, Australian Demand,” World Trade Online, September 12, 2012, 1 (quoting un-named sources).

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scope have also proven to be a challenge. For example, the United States has clarified that its SOE proposals would not apply to sovereign wealth funds that limit themselves to portfolio investment but would apply only to direct investments.68 Nor would SOE provisions apply to Mexico’s Pemex petroleum monopoly and Commission Federal de Electricidad because both entities are government monopolies that do not compete with private enterprises.69 In any event, some negotiating parties have been slow to respond because of the need for determining the precise coverage sought by the United States. Singapore, among others, appears concerned that overly intrusive disciplines on SOEs could put some, particularly those already operating on commercial terms, at a competitive disadvantage and suggested that the effects, rather than the entities, be targeted in the TPP.70 Australia and New Zealand have tabled an alternative SOE proposal which would substitute non-binding “principles” for the United States’ binding commitments.71 Depending on the extent of opposition to the U.S. SOE proposals, the United States may well have to decide whether demanding binding SOE rules justifies concessions on other priorities or delays in concluding the negotiations, trade-offs that some business interests have questioned, particularly where hortatory language incorporated into the TPP would still be a major achievement.

C.  Tobacco Products Addressing national controls on the use of tobacco products is also subject to dispute within the negotiations and elsewhere given the conflicting

See “U.S. Clarifies Treatment of Sovereign Wealth Fund Investment in TPP,” World Trade Online, September 21, 2012 (explaining the distinction and its significance for Singapore). 69 “Mexican energy SOEs Likely Fall outside Scope of U.S. Proposal in TPP,” World Trade Online, October 11, 2012. 70 See World Trade Online, “US to Consult Internally” (quoting remarks by Singaporean negotiator Ng Bee Kim). 71 See “Special Report: The Auckland TPP Negotiations,” 1 (discussing alternative SOE proposals). 68

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views of U.S. foreign anti-tobacco advocates and American tobacco ­producers. Some civil society groups have urged a complete exclusion of TPP coverage of tobacco through a “safe harbor” clause so that the provisions of the TPP could not be used by tobacco companies to challenge tobacco control measures, such as Australia’s “plain packaging” rules which are the subject of a claim in the WTO’s Dispute Settlement Body.72 Support for such a “safe harbor” excluding coverage of tobacco has been endorsed, inter alia, by TPP group member Malaysia in the context of an ASEAN group meeting. Others, such as New Zealand, may be uncomfortable with setting a precedent for excluding any particular product from coverage.73 As of the end of 2012, the United States had not finalized its proposals on tobacco, so that whether an earlier USTR “fact sheet” issued in May supporting a partial exclusion of tobacco products will be adopted by the Obama Administration remains uncertain.74 Given the health-related concerns about tobacco both in the United States and elsewhere, disciplines on non-discriminatory national government restrictions imposed for health reasons may ultimately elude TPP coverage.

D.  Intellectual Property One of the most difficult areas of negotiation in any comprehensive FTA in which developing countries are negotiating parties is likely to be intellectual property (IP). With the TPP, this is largely because of U.S. proposals on access to medicines that go beyond not only TRIPs but also beyond the TRIPS-Plus provisions of recent U.S. FTAs, some of which had not been formally tabled as of the March 2013 Singapore Round, where only

See Amy Tsui, “USTR Set to Announce Whether to Propose Exception for Tobacco After Elections,” Int’l Trade Rep. (BNA) 29 (November 1, 2012), 1727 (predicting that USTR would announce a partial exclusion). 73 “ASEAN health Ministers’ Tobacco Move Could Have Implications for TPP,” World Trade Online, July 20, 2012. 74 See Tsui, “USTR Set to Announce.” 72

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a general discussion and exchange of information took place.75 Initial U.S. proposals on transparency requirements and procedural disciplines relating to national pharmaceutical pricing and reimbursement, an area of particular interest to New Zealand (but also to Australia and Canada), were effectively withdrawn because of opposition, with U.S. demands having been eased in September 2012.76 According to one non-government source, the other parties are more broadly opposed to a U.S. proposal for longer patent terms for pharmaceutical products that includes data exclusivity of twelve years (e.g., making it unavailable to generic producers), along with increased protection for pharmaceutical copyright holders.77 Also controversial is a related U.S. requirement that governments provide enhanced patent protection where an enterprise seeks marketing approval in one TPP country for a certain period or “access window” after the patent has been authorized by another TPP government, with conditions such as patent extensions which some other TPP countries are not currently offering.78 Other controversial aspects of the U.S. IP proposals are said to include limitations and exceptions for copyright protections that are supported by U.S. Internet companies but may not be as liberal as desired by some other negotiating parties.79 U.S. proposals on geographic indications (with ­support from Australia and New Zealand) are being floated in part to counteract EU diplomatic efforts to secure stronger protection in other fora.80 Beginning in December 2012, New Zealand was



“TPP Talks Make Some Progress.” “U.S. to Table Refined TPP Drug Pricing Proposal at Leesburg Round,” World Trade Online, September 6, 2012. 77 See Amy Tsui, “Kirk Says 2013 could be Year for TPP; Business, Others Weigh in Before Talks,” International Trade Daily, September 6, 2012, 2 (quoting Peter Maybaraduk of Public Citizen). Admittedly, Public Citizen has opposed almost every FTA negotiated by the United States. 78 “Special Report: The Auckland TPP Negotiations,” 7. 79 See “Key Areas of TPP Talks at Different Stages after 30 Months of Effort,” World Trade Online, September 5, 2012. 80 Ibid. 75 76

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indicating flexibility on both pharmaceutical pricing and geographical indications.81

E.  Labor and Environment Reflecting in part the labor and environment provisions included in U.S. FTAs with Colombia, Peru, Panama, and South Korea as a result of the May 2007 “Bipartisan Trade Deal” between the Democratic Congress and USTR, 82 the U.S. TPP proposals would effectively make violations of International Labor Organization (ILO) “core” labor standards and failure to comply with the provisions of certain multilateral environmental agreements violations of the TPP. Such labor and environmental commitments if breached would thus be subject to challenge by another Party under the TPP’s general mandatory state-to-state dispute settlement provisions, with the possibility of trade sanctions for non-compliance. These proposals are more stringent than the comparable provisions of U.S. FTAs with Australia, Canada, Chile, and Singapore, which provide only for limited monetary penalties in case of non-compliance. The opposition to them is not necessarily limited to developing countries or TPP negotiating parties that already have FTAs with the United States.83 The broad commitments themselves are also opposed by some of the TPP parties, including Malaysia and Vietnam;84 these countries also oppose enforceability of such labor rights provisions.85 Canada has suggested an approach similar to that in the North American Agreement on Labor





“Grosser: NZ Seeking Reasonable Compromises on Pharmac, GIs,” World Trade Online, December 3, 2012. 82 USTR, “Bipartisan Trade Deal,” May 2007, 1–3, September 9, 2012, http://www.ustr. gov/sites/default/files/uploads/factsheets/2007/asset_upload_file127_11319.pdf. 83 “USTR Confirms Objections on Enforceability in TPP Environment Talks,” World Trade Online, June 27, 2012. 84 See Amy Tsui, “U.S. Official Says Labor Chapter ‘Far Along,’: No Talk of Transition Time Periods at Round,” Int’l Trade Rep. (BNA) 29 (September 20, 2012), 1517 (discussing the status of the labor chapter negotiations). 85 “Special Report: The Auckland TPP Negotiations,” 5. 81

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Cooperation (NAALC), which  – in the event that Canada is found to have committed persistent violations of core labor rights  – provides only for monetary penalties.86 (Because there has never been arbitration under the NAALC, the risks are largely academic.) The dilemma presented to the U.S. negotiators is a challenge; since NAFTA, no U.S. FTA has been approved by Congress without the inclusion of increasingly stringent environmental and labor provisions. Given the unpopularity of the stricter U.S. proposals, without U.S. concessions on issues of important to those countries, such as relaxed rules of origin for apparel, the United States is not likely to prevail on labor rights.

F.  Market Access This section highlights the most contentious of the remaining market access issues. 1.  Apparel and Footwear As noted earlier, market access for footwear, textiles, and apparel from Vietnam is the most important issue for Vietnam, exceeding all others in economic significance. Market access discussions with Vietnam remain unresolved as of March 2013 because the United States has not yet indicated the extent to which the United States is prepared to open up footwear and apparel markets.87 To date, the United States is advocating its traditional yarn-forward rule of origin under which TPP apparel would qualify for reduced duty or duty-free treatment only if the yarn and all subsequent manufacturing steps, including weaving of the fabric, result from manufacturing fabric in one or more of the TPP parties (e.g., not in China).88 Any

Ibid. See “U.S. Makes Progress in TPP Market Access Talks, ‘Political’ Issues Remain,” World Trade Online, October 4, 2012; “TPP talks Make Some Progress.” 88 “Key Areas of TPP Talks,” 2. The issue essentially is whether Vietnam can achieve greater access to the U.S. and other TPP markets for apparel using fabric manufactured in China. 86 87

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change in the yarn-forward rule of origin is being vehemently opposed by the U.S. ­textile producing industry as an unacceptable departure from long-standing U.S. policy.89 Predictably, U.S. apparel importers who seek the lowest-cost sources are just as strongly arguing for more flexible rules of origin that would treat textiles and apparel in the same manner as most other TPP goods imports.90 In December 2012, USTR suggested some flexibility with regard to the yarn-forward approach, apparently indicating that although the United States was still committed to the traditional rule, there might be categories, possibly limited to short supply situations, in which a “cut and sew” rule would apply.91 Among the TPP negotiating parties, only the United States, Peru and Mexico prefer a broad yarn-forward rule. The dissenters include Canada, where the small apparel industry would benefit from a departure from the NAFTA yarn-forward approach.92 The critical decision for the United States in subsequent negotiating sessions will be how far it is willing to go to establish broader categories of apparel exports that are exempt from the yarn-forward rule. One might reasonably expect the United States to show flexibility on traditionally high U.S. footwear tariffs (6 to 70 percent depending on the model) because some 99 percent of the footwear sold in the United States is imported, much of it from Vietnam (and China) by companies such as Nike. However, the only remaining athletic footwear manufacturer in the United States, New Balance, and the Maine Congressional delegation, adamantly oppose a lowering of footwear tariffs.93 Protecting





See “Groups Address Yarn-Forward Provisions in TPP in Competing Letters to USTR Kirk,” Int’l Trade Rep. (BNA ) 29 (October 4, 2012), 1588. 90 See Michela D. Platzer, “U.S. Textile Manufacturing and the Trans-Pacific Partnership Negotiations,” Congressional Research Service, October 5, 2012, Summary, accessed October 22, 2012, http://www.fas.org/sgp/crs/row/R42772.pdf. 91 See “Special Report: The Auckland TPP Negotiations,” 1, 8, 9. 92 Ibid., 9. 93 See Peter Whoriskey, “New Balance Struggles s Last Remaining Athletic Shoemaker,” Washington Post, July 29, 2011 (reporting on the differing views of Nike and New Balance). 89

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the 15,000 remaining U.S. footwear industry workers (down from 250,000 in the 1950s) is not likely to occur if the negotiations move to a conclusion, assuming that the U.S. government wants better access to Vietnam’s agricultural markets, coverage of labor and the environment, SOEs, and other sectors of high interest for the United States. The United States is not the only negotiating party concerned about opening its market to footwear and textiles; Mexico is also seeking exemptions for many items, including but not limited to textiles, apparel, and footwear,94 presumably with a focus on Vietnam and to a lesser extent, Malaysia and Singapore. 2.  Automobiles and Auto Parts Among the challenges for the United States is how best to treat market access for automobiles and auto parts, dependent on the applicable rules of origin, and whether U.S proposals once tabled will be acceptable to the other negotiating Parties. At the present time, the difficulty lies in how to make it possible for U.S. auto producers to source auto parts from lower cost producers among the TPP members (including current suppliers in Malaysia and Australia) without at the same time encouraging Korean or Japanese auto producers to set up production facilities in low-wage cost countries such as Vietnam and Malaysia.95 The dilemma is exacerbated by the fact that the automobile industry is increasingly globalized, with most auto manufacturers wherever located obtaining parts and components from suppliers in multiple countries. Moreover, with Japan and Korea later becoming a Party to the TPP, the other Parties, particularly the United States, would be faced with possibly even greater imports of finished vehicles from those two countries. One study estimates that eliminating the 2.5 percent U.S. tariff on passenger cars would probably not result in an increase in Japanese auto imports (should Japan be a

See “TPP Talks Make Some Progress.” See “In TPP, U.S. Automakers Face Balancing Act in Proposing Rules of Origin, World Trade Online, October 18, 2012, which discusses the different approaches to rules of origin for autos and auto parts.

94 95

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TPP Party), but eliminating the 25 percent tariffs on pickup trucks would likely result in increased imports96 in a segment of the U.S. passenger vehicle market that is flat or declining because of higher gasoline prices. The interests of the U.S. “Big Three” are not fully parallel because General Motors is an automobile producer in Korea. American automobile union interests, which have little desire to encourage auto or auto parts production anywhere but in the United States, also diverge from those of the manufacturers. Although the manufacturers are not yet publicly advocating any particular rule of origin, the AFL-CIO has urged that the initial rule of origin require 62.5 percent local content, as in NAFTA, which would rise to 75 percent over a period of time.97 Additionally, in this area, Canada and Mexico’s presence may make a difference in the ultimate agreement, given the high level of integration of the North American auto industry under NAFTA (including firms such as Honda with production in all of the NAFTA countries). One can reasonably assume that there will be a special rule of origin for automobiles in which the regional content requirement is somewhere between 50 and 62.5 percent; anything higher is unrealistic and likely unattainable. 3.  Agriculture The most sensitive agricultural issues in the negotiations are likely dairy products and sugar. The dairy industry is important to Canada, Mexico and the United States and vital to Australia and New Zealand. Although one may well have visions of small dairy farmers in the United States who seek production from imports, U.S. opposition is also driven by the Teamsters’ Union that seeks to protect its 31,000 members who work in the dairy industry, including drivers of bulk milk and feed trucks as well as union members in milk processing and

See Amy Tusi, “TPP Represents Challenges, Opportunities for U.S. Automakers, Report’s Author Says,” Int’l Trade Rep. (BNA) 29 (November 8, 2012), 1787 (quoting a Bloomberg Government Study, Japan and the Trans Pacific Partnership: Stakes for Automakers). 97 See “In TPP, U.S. Automakers Face Balancing Act.” 96

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product manufacturing.98 The U.S. industry (but not necessarily the Teamsters) has indicated that if Canada opens it closed dairy market, the U.S. would be willing to follow suit provided that the United States also negotiate an SPS agreement that is fully enforceable under TPP.99 The U.S. dairy lobby has also demanded the imposition of special competition rules that would single out New Zealand’s powerful Fonterra dairy cooperative.100 Given that New Zealand is the largest exporter of dairy products in the world, market access to the U.S., Canadian, Mexican, and Japanese markets is a major goal for their TPP negotiators.101 Representatives of the New Zealand and Australian dairy industries have taken steps to suggest that those who opened markets would not face a “flood of dairy imports” from those two countries; a decline of about 40 percent in New Zealand exports to the United States in the past five years resulted from development of new Asian markets rather than trade barriers.102 Canada, given its traditionally closed dairy import market, may have more difficulty than the United States dealing with these issues. These issues will not likely be resolved until the end of the TPP negotiations. 103 Additionally, the United States and New Zealand must eventually agree on the treatment of New Zealand lamb in the U.S. market, a stage of negotiations that apparently had not been reached in 2012. 104 Related to dairy trade are U.S. proposals for an SPS chapter that goes beyond the WTO Agreement on Sanitary and Phytosanitary Measures





See “Teamsters Weighing Opposition to Opening Dairy Market Access in TPP,” World Trade Online, December 7, 2012 (explaining the Teamsters’ interest in the dairy industry). 99 “Key Areas,” 2. 100 See Lewis, “The Trans-Pacific Partnership,” 42–43 (noting that half of New Zealand’s exports to the United States are sensitive agricultural products such as dairy and lamb). 101 Ibid. 102 See “Special Report: The Auckland TPP Negotiations,” 2. 103 See “U.S. Official Sees New Zealand Dairy Talks as Part of TPP Endgame,” World Trade Online, September 12, 2012, 1. 104 See “Key Areas,” 2. 98

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and is fully enforceable under the TPP, an area that is complicated for the United States by domestic considerations. Because U.S. regulators, such as the Food and Drug Administration, apparently consider that an “SPS-Plus” chapter could interfere with their authority to regulate,105 it is unclear whether or if the United States will be able to craft and offer language that meets FDA concerns as well as those of other negotiating parties. Another major area of contention for agriculture trade is sugar, imports of which are strictly regulated by the United States. Australia was denied an increase in access to the U.S. sugar market under its FTA with the United States and is apparently raising the issue anew in the TPP negotiations. As of December 2012, the United States had shown no flexibility on sugar imports.106 Additionally, unless Japan and other major Asian nations become parties to the negotiations, or agree to adhere soon after negotiations are completed, and agree to liberalize their own agricultural market access, U.S. agricultural producers more generally may have little to gain from the TPP in terms of foreign market access because they already enjoy relatively broad access to Canada and Mexico under NAFTA, and the other TPP negotiating parties are relatively small economies or are already covered by existing U.S. FTAs. According to some observers, this means that strong support from U.S. agricultural producers could only be achieved by demonstrating the importance of the TPP for broader U.S. strategic interests, which ultimately will require strong presidential leadership and a significant expenditure of political capital.107 If by the time the negotiations are concluded there appears to be a high likelihood that not only Japan but a significant number of other Asian countries will be joining the TPP, the enthusiasm of U.S. agricultural interests ­generally for the TPP could increase.



“Special Report: The Auckland TPP Negotiations,” 3. Ibid., 6. 107 See “To Gain Agriculture Support, Administration Must Argue Broad National Interest for TPP,” World Trade Online, August 13, 2012 (quoting Jim, Grueff, former U.S. Department of Agriculture trade negotiator). 105 106

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4.  To Renegotiate or Not to Renegotiate? USTR has maintained the position that it will not renegotiate market access issues under existing FTAs with Australia, Canada, Chile, Mexico, Peru, and Singapore. Presumably, this means that neither the tariff reduction schedules nor the exceptions are subject to discussion. The approach appears to be most controversial with Australia, which has effectively been told that it should not expect improved access to the U.S. sugar market. It is equally evident that Australia has not accepted this assertion and has linked Australian support for greater disciplines for SOEs, an area in which Australia has no apparent substantive disagreements with the United States, to improved U.S. policies to reduce distortions in agricultural exports.108 Australia seems to be saying to the United States, in effect, “If you are so concerned with the trade-distorting effects of SOEs let’s also talk about the trade-distorting effects of U.S. agricultural policies.” A broad and early resolution of the latter, particularly in a regional trade agreement, does not seem likely. The United States concentrated its TPP market access discussions through most of 2012 on Brunei, Malaysia, and New Zealand and apparently made considerable progress with all of them.109 These are arguably the easiest cases, although one can reasonably assume that the most controversial tariff items still remain to be agreed on, including textile and apparel trade with Malaysia and (as noted earlier) dairy and lamb trade with New Zealand.

G.  Regulatory Coherence and Supply Chain Support Prior U.S. FTAs have contained language designed to facilitate coordination of new regulatory measures. These agreements typically have included provisions requiring the publication of new regulations, providing advance notice of regulatory changes and affording interested parties

See “SOE Talks Slowed,” 1–2. See “U.S. Makes Progress in TPP Market Access Talks” (citing un-named USTR officials).

108 109

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the opportunity to seek review and appeal of regulatory actions.110 The U.S. TPP proposals go further and, if accepted by the other Parties, would require each to establish a central coordinating body to reduce the chances that different ministries would issue conflicting regulatory requirements.111 Improvements in regulatory coherence relate directly to the objective of simplifying supply chain management where manufacturers depend on parts and components widely sourced throughout the world, supply chains that can easily be interrupted by disruptions in any one of many supplier countries. They thus affect trade facilitation measures as well. According to business groups such as the U.S. Chamber of Commerce, a single-window approach (whereby businesses could contact a single government entity in each country) would greatly facilitate and simply importing and exporting. That entity would be responsible not only for coordinating the national entities and regulatory bodies that affect the supply chain, but would also have ultimate authority to decide whether an imported product could enter the national customs territory.112 Although the former may be achievable in some of the TPP countries, assuming that the coordination function is at least initially voluntary, the latter seems a much more difficult challenge given the inevitable bureaucratic rivalries that would develop should a “super-agency” be established with authority over existing ones (including in the United States). In some areas, such as rules of origin and tariff reduction schedules, broad harmonization could in major respects simplify trade for enterprises exporting to several members of the group and thus facilitate global supply chain development. The best example is rules of origin. As an example, suppose a Mexican widget manufacturing enterprise

See, e.g., Korea–U.S. Free Trade Agreement, June 30, 2007, arts. 7.1, 7.5, 7.8, accessed September 9, 2012, http://www.ustr.gov/Trade_Agreements/Bilateral/Republic_of_ Korea_FTA/Final_Text/Section_Index.html. 111 See World Trade Online, “Key Areas,” 4. 112 See “Major Business Demand on Supply Chains in TPP Faces Challenges,” World Trade Online, August 31, 2012 (quoting Adam Salerno, director of national security and emergency preparedness, U.S. Chamber of Commerce). 110

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(regardless of the nationality of ownership) routinely takes advantage of low tariffs for exports not only to the United States and Canada under NAFTA but also to Chile under the Mexico–Chile FTA. Unfortunately, widget production that satisfies NAFTA rules of origin through a tariff change, minimum local content, or other rules113 may not satisfy the different rules of origin in the Mexico–Chile FTA. This means that the enterprise must change its sourcing of materials, parts, and components for the widgets produced for export to Chile or lose tariff-free treatment when the widgets enter Chile. Similar issues would arise with respect to the TPP. U.S. enterprises are faced with differing rules of origin for exports to Canada and Mexico, Chile, Peru, Singapore, and Australia under the five existing U.S. FTAs. The benefits for such enterprises of a single set of rules of origin, or at least a situation where “regional value content” means goods originating in any of the TPP countries and subject to the same regional content requirements where applicable, would provide significant competitive advantages to manufacturers operating within TPP.

V.  Domestic Political Factors in the United States A.  Political Support and Opposition As evident from earlier discussions in this chapter, support for the TPP within the United States is far from uniform. In addition to skepticism regarding Japan’s probable accession along with Vietnamese source apparel imports, some U.S. special interest groups have indicated their intent to oppose the TPP unless their objectives are met. For example, despite assurances from USTR that Australia’s access to the U.S. sugar market will not be increased under the TPP, the U.S. sugar producers fear increased access from other parties, such as Mexico.114 Among the



See NAFTA, art. 401, annex 401. “US Sugar Producers Want Tough TPP Stance from Mexican Government, World Trade Online, August 14, 2012.

113 114

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producers concerns is, if Mexico imports more sugar from Australia, it will free up Mexican produced sugar for export to the United States; in 2008, limits on such exports were eliminated under NAFTA. Twenty-four liberal Democrats, one Republican, and an independent in the Senate, in a letter to President Obama authored by Senator Al Franken, urged President Obama to negotiate in the TPP “Buy American” government procurement provisions; enforceable protections for labor rights, rules of origin such as the yarn-forward approach now being advocated by USTR and objected to by Vietnam; disciplines for SOEs; investment and services safeguards to provide incentives against outsourcing; and safeguards against currency manipulations.115 The letter was supported by various U.S. unions.116 Several of the goals, including those relating to labor rights, rules of origin, and disciplines for SOEs, are already being advocated by USTR. Others, such as the safeguards for outsourcing and currency manipulation, are unlikely to be addressed in the negotiations. In contrast, some other stakeholders are enthusiastic across the board. Multinational agribusiness companies, such as Cargill, have expressed strong support, asserting that the “TPP is in the long-term interest of the U.S. food and agricultural sector, considering that 95% of the world’s consumers live outside the borders of the United States, and 60% of those consumers reside in Asia.”117 Business groups, including the Chamber of Commerce (as noted previously), more generally have been positively inclined, with some urging the Obama Administration beginning in November 2011 to “set an ambitious timetable for completion of



Letter of November 30, 2012 from Senator Franken and others to President Barak Obama (copy on file with author); see also “Twenty-Four Senators Press Obama on TPP Goals in Union-Backed Letter,” World Trade Online, December 4, 2012. 116 Ibid. 117 Testimony of Devry S. Boughner, Cargill director of international business relations, before the U.S. House of Representatives, Committee on Ways and Means, Trade Subcommittee, December 14, 2011, 3 (copy on file with author). 115

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these talks” and apparently fearing (with good reason in retrospect) that the talks would move forward very slowly.118

B.  The Obama Administration’s Catch-22 While the United States has effectively controlled the negotiations with most FTAs concluded since NAFTA, with the possible exception of the U.S.-Korean FTA, unilaterally dictating the content is proving to be impossible with the TPP. Among other factors, the presence of Canada and Mexico (and now Japan) in the negotiations provides a greater level of economic and political balance than was the case in earlier negotiations. It is evident that the texts that USTR has tabled will not be accepted in many instances without significant changes, and that the U.S. negotiators cannot possibly meet all current expectations from ­stakeholders in the United States, whether public or private. The best evidence of the appreciation of this reality to date occurred in August 2012, when USTR asked for greater stakeholder input, asking business groups to identify their highest priorities as well as areas where they could be more “flexible.”119 Observers suggest that this is necessary preparation for the compromises that will be necessary if the TPP is to be successfully concluded.120 USTR is effectively caught between the proverbial rock and hard place. It will be difficult and require great diplomacy with both the TPP negotiating parties and Congress, to make sufficient compromises with the other ten (or eleven) TPP parties to conclude the negotiations and at the same time produce an agreement that, even with extensive consultations with Congress, has a strong chance of being approved by the Congress.



See “Business Groups Urge Countries to Conclude TPP Talks by Mid-2012,” World Trade Online, November 11, 2011 (discussing the negotiations at the APEC meeting). 119 “USTR Wants More Business Input on ‘Red Lines’ for TPP Sensitive Issues,” World Trade Online, August 22, 2012. 120 Ibid (noting that USTR is increasing outreach to targeted interest groups). 118

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The process is further complicated by the fact that President Obama, despite some urging from Members of Congress suggesting that Trade Promotion Authority121 would be of critical importance in concluding the TPP,122 had not as of March 2013 sought such authorization from Congress although consultations with Congress have reportedly taken place. The lack of TPA will make it increasingly difficult, if not impossible, for USTR to address sensitive political issues in the remaining negotiating sessions because the other negotiating parties know that TPA has not been enacted by the Congress,123 particularly if TPA is not enacted before the high level political horse-trading that many hope will take place late in 2013. Concluding the TPP without TPA is not a viable option. In the thirty-eight years since the fast-track procedures were first embodied in U.S. law, only one FTA was enacted without it, the U.S.–Jordan FTA.124 Other negotiating parties are not likely to risk giving the United States their bottom line positions when they realize that Congress subsequently may demand that the president ask for more, or change the negotiating objectives for the TPP late in the process. Although USTR has effectively undertaken the same extensive level of consultations that would have been required had it been in force,125 the legislative renewal of TPA for the purposes of authorizing the TPP (and perhaps the TTIP) could provide a challenge even with bipartisan support. Further debate on the hot-button issues such as labor rights, environmental protection, the scope of investor protections, intellectual







Bipartisan Trade Promotion Authority Act of 2002, 19 U.S.C. §§3801–3813 (expired June 30, 2007). 122 See Rossella Brevetti, “Rep. Brady Urges Going ‘Big’ in Expanding U.S. Trade Agenda,” Int’l Trade Rep. (BNA) 29 (November 22, 2012), 1822 (quoting House Ways and Means Trade Subcommittee Chair Kevin Brady). 123 Amy Tsui, “Business Interests Hope for Progress at Fifteenth Round of TPP Talks in Auckland,” Int’l Trade Rep. (BNA) 29 (December 6, 2012), 1905 (quoting trade attorney Alan Dunn). 124 See discussion in Gantz, RTAs, ch. 8. 125 Based on discussions with a Ways and Means Committee staff member in December 2012 (notes on file with author). 121

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property, and agricultural and apparel imports is inevitable, as suggested by the Franken letter discussed previously. The debate will place unions, environmental groups, other NGOs, and their mostly Democratic supporters in Congress again at odds with business stakeholders and their supporters. As of the December 2012 negotiations, USTR was engaged in exploratory conversations with Congress regarding TPP.126 Members of Congress seem divided as to whether a broad or narrow renewal of TPA is to be preferred.127 Regardless of the eventual approach, without strong leadership from President Obama (and openness to some political “horse-trading”) it is unlikely that TPA can be enacted promptly and with the strong bipartisan support that would facilitate not only conclusion of the TPP but increase USTR’s credibility in other FTA negotiations such as those with the EU.

VI.  Other Legal and Economic Challenges A.  The “Spaghetti Bowl” The legal challenges in meshing the TPP with other regional trade agreements are also daunting, reminiscent of the ill-fated Free Trade Agreement of the Americas.128 In addition to the NAFTA, the United States has bilateral FTAs with Australia, Chile, Peru, and Singapore, which were concluded between 1992 and 2006; despite some similarity, key provisions in areas such as market access, investment, intellectual property, labor rights, and environmental protection vary. Australia, Brunei,

See “Kirk Says Big Issues Remain in TPP; Administration Begins to Discuss TPA,” Int’l Trade Daily (BNA), December 12, 2012. 127 See “Special Report: The Auckland TPP Negotiations,” 4. 128 See Free Trade Agreement of the Americas, accessed July 2, 2012, http://www.ftaa-alca. org/alca_e.asp. Negotiations initiated in December 1994 ultimately were abandoned in 2003 when it became clear that differences over many issues, including investment, agricultural subsidies, and both agricultural and industrial market access, could not be bridged. 126

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New Zealand, Singapore, and Vietnam are all Parties to the ASEAN– Australia–New Zealand FTA.129 Chile, Colombia, Mexico, and Peru are parties to the Pacific Alliance.130 Japan and Canada have initiated FTA talks as of November 2012.131 The eleven TPP negotiating parties have in force more than forty bilateral or trilateral FTAs among them.132 Precisely how the TPP would legally relate to the earlier agreements as well as others that are currently being negotiated has not yet been resolved. Perhaps parts of the TPP would formally and explicitly supersede all other FTAs among the TPP Parties; hopefully, the relationships will be spelled out rather than simply including language that effectively states that “the TPP prevails when conflicts arise with earlier FTAs among the Parties,” leaving it to the dispute settlement mechanism to resolve disagreements over the application of such provisions to specific circumstances. The United States has apparently suggested that the TPP and the other agreements could “coexist,” with the TPP prevailing wherever there were no specific exceptions.133 It would be a poor solution indeed to rely on the panelists under the dispute settlement mechanism to properly apply the customary international law principle that among conflicting international agreements the most recent in time prevails.134



ASEAN–Australia–New Zealand Free Trade Agreement, February 27, 2009, accessed July 2, 2012, http://www.asean.fta.govt.nz/preamble/. 130 See Lucien Chauvin, “Chile, Colombia, Mexico, Peru Sign Declaration Creating the Pacific Alliance,” Int’l Trade Rep. (BNA) 29 (June 14, 2012), 987. 131 “Japan, Canada to Begin FTA Talks in Late November,” Int’l Trade Rep. (BNA) 29 (November 22, 2012), 1841. 132 See WTO, “List of All RTAs,” accessed October 2, 2012, http://rtais.wto.org/UI/ PublicAllRTAList.aspx. 133 See “TPP Countries Face Legal Issues Over TPP-FTA Coexistence, Entry into Force,” World Trade Online, March 14, 2013, discussing this and other legal implementation issues. 134 When two countries are parties to both the earlier and a later treaty addressing the same subject matter, “the earlier treaty applies only to the extent that its provisions are compatible with those of the later treaty.” Vienna Convention on the Law of Treaties, May 23, 1969, arts. 30 (3), 30(4), accessed October 29, 2012, http://untreaty.un.org/ilc/ texts/instruments/english/conventions/1_1_1969.pdf. 129

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It is therefore difficult to predict whether the TPP would somewhat reduce the confusion created by the “spaghetti bowl” that characterizes current FTAs among the eleven negotiating parties, or exacerbate it. Despite USTR’s efforts, no agreement has been reached as to whether the TPP will augment existing market access rules embodied in other FTAs among the parties or establish a single, unified group of market access commitments.

B.  Addressing Variations in Level of Economic Development Another issue of particular importance given that the TPP negotiating parties represent a wide range of stages of economic development, Australia, New Zealand, Singapore, and the United States (and Japan if accepted into the negotiations) at the highly developed end of the spectrum and Vietnam and Brunei among the lowest income nations, is whether there should be a single schedule of tariff reductions for each party relating to imports from the others, other special treatment, or a more differentiated system. The United States has indicated its preference that the single market access approach be used.135 A related issue is whether tariff reduction schedules embodied in earlier FTAs, as in the United States’ FTAs with Australia, Chile, Peru, and Singapore, will be maintained or subsumed by the TPP schedules.136 (The issue is moot with regard to NAFTA since the phase-in of tariff reductions was completed as of January 1, 2008.137) There is much to be said for maintaining existing FTA schedules, some of which have been in force for almost a decade (e.g., U.S. FTAs with Chile and Singapore), rather than re-inventing them, even if some of the exceptions are addressed. The United States already has experience with this matter, for example when the U.S.–Canada FTA was largely superseded by NAFTA. There,

Amy Tsui, “Single Market Access Schedule to Result from Multiple Separate Negotiations in TPP,” International Trade Daily, August 13, 2012. 136 Ibid. 137 See NAFTA, annex 302.2.1. 135

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the U.S.–Canada tariff reduction schedules, with the relatively short ten-year phase-out period, and the rules of origin in that agreement, remained applicable for trade between the United States and Canada when NAFTA entered into force six years later.138

C.  Putting the TPP into Force Little attention has been given to date to procedures that would be used to bring about the entry into force of the TPP with the various Parties, beyond the usual assumption that in each country applicable constitutional procedures would be followed. In this regard questions may arise regarding the methodology typically used by the United States to assure that its FTA parties do not put the agreements into force until such parties have enacted the necessary implementing legislation. With recent agreements, the United States has insisted on the right to decide unilaterally when each of the other parties has completed the necessary domestic legislative and regulatory steps to assure that, in the view of the United States, it will be able to fully comply legally with its obligations under the FTA. This has been accomplished largely through provisions in the FTA and in U.S. legislation. For example, CAFTA-DR provides in pertinent part only that “(b) If this Agreement does not enter into force on January 1, 2005 [which it did not], this Agreement shall enter into force after the United States and one or more other signatories make such a notification, on such later date as they may agree.” 139 The U.S. implementing legislation for CAFTA-DR provides: (b) CONDITIONS FOR ENTRY INTO FORCE OF THE AGREEMENT  – At such time as the President determines that

See ibid., annex 302.2, paras. 4–6, 9, 12–13. Central American-Dominican Republic-United States Free Trade Agreement, U.S.CAFTA-DR, Aug. 5, 2004, 19 U.S.C.A. § 4000, sec. 22.5, accessed September 17, 2012, http://www.ustr.gov/trade-agreements/free-trade-agreements/cafta-dr-dominican-repu blic-central-america-fta/final-text (emphasis added).

138 139

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countries listed in subsection (a)(1) [Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua] have taken measures necessary to comply with the provisions of the Agreement that are to take effect on the date on which the Agreement enters into force, the President is authorized to provide for the Agreement to enter into force with respect to those countries that provide for the Agreement to enter into force for them. 140

In the case of CAFTA-DR, the Presidential determinations for each of the 6 other parties took place over a period of nearly three years, from March 1, 2006 (El Salvador) to January 1, 2009 (Costa Rica), 141 when in the view of the United States each other Party had complied with its obligations. The situation with TPP the is likely to be more complex, since other parties may be unwilling to wait until the United States agrees that each has enacted all necessary domestic legislation for implementation, unless many of the parties agree that a particular party has not complied with its obligations. Chile, for example, has objected to this “unilateral” certification requirement because of the leverage it would give the U.S. over other members and their legislatures.142 To date, only one other TPP negotiating party has even informally questioned the U.S. approach (Vietnam),143 but one may reasonably assume that others will raise the issue when final provisions and procedures are ultimately negotiated. The U.S. approach also creates a risk exists that the TPP will come into force for pairs of parties at different time unless the final provisions



Dominican Republic–Central America–United States Free Trade Agreement Implementation Act, PL. 109–53, 119 Stat. 462, et seq., August 2, 2005, sec. 101(b), 19 U.S.C. §4001(b). 141 See SICE (OAS Foreign Trade Information System), “Central America–Dominican Republic–United States Free Trade Agreement,” accessed September 17, 2012, http:// www.sice.oas.org/TPD/USA_CAFTA/USA_CAFTA_e.ASP (providing a chronology of the CAFTA-DR negotiations and entry into force). 142 See “TPP Countries Face Legal Issues Over TPP-FTA Coexistence.” 143 Email exchange exchanges between the author and a Vietnamese official, September 2012 (copies on file with author). 140

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provide otherwise, causing significant confusion for stakeholders in all parties to the TPP.

VII.  “Backdoor” Modification of NAFTA? Because direct amendment of NAFTA is improbable from a political point of view in both the United States and Mexico, the opportunity to modify NAFTA (and perhaps other earlier FTAs) indirectly through the TPP process is understood by governments and interest groups in all of the NAFTA Parties. In this respect, it should be recalled that both Barack Obama and Hillary Clinton during the 2008 primary campaign proposed amending NAFTA outright to incorporate the separate labor and environmental provisions into the body of NAFTA; this would have made the Chapter 20 government-to-government dispute settlement provisions applicable. Later in the campaign, then-Senator Obama’s views moderated, partially in response to criticism from Senator McCain.144 In any event, Mr. Obama softened his unilateral demand for renegotiation of NAFTA “or else,” calling instead for a “dialogue” with Mexico and Canada to address job losses associated with NAFTA, and asserted that “I’m not a big believer in just doing things unilaterally.”145 Wisely, the Obama Administration abandoned its campaign promise to renegotiate NAFTA early in 2010, suggesting that the objectives could be addressed without renegotiation.146 (No changes in NAFTA have been pursued by the Obama Administration since that time.) It had become obvious to Administration officials that if NAFTA were to be renegotiated, Mexico and Canada would be under pressure from interest



See Gantz, FTAs, 88. Gary G. Yerkey, “Sen. Obama Calls for Dialogue With Canada, Mexico to Fix ‘Costs’ of NAFTA,” Int’l Trade Rep. (BNA) 25 (June 26, 2008), 958. 146 Rossella Brevetti, “Kirk Says USTR to Review Colombia FTA, Reopening of NAFTA May Not Be Necessary,” 26 Int’l Trade Rep. (BNA) 26 (April 23, 2010), 534 (stating that the Administration’s problems with NAFTA “can be addressed without reopening the agreement”). 144 145

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groups to offer additional proposed changes, some of which would have been unacceptable to U.S. interests. For example, Mexican agricultural groups might have sought re-imposition of tariffs on various foodstuffs such as corn and hard beans (frijoles). Various interest groups in Quebec suggested that NAFTA provisions on agriculture, energy foreign investment, financial services public services and employment and labor rights, among others, should be renegotiated.147 Although wholesale changes in NAFTA are unlikely in the TPP context (see Chapter 9, Section IV), some areas could be improved and updated after twenty years, such as changes in NAFTA’s investor protection chapter that would bring the NAFTA provisions into conformity with the more state-friendly provisions in subsequent U.S. and Canadian FTAs, and simplification of the NAFTA rules of origin. Other areas are more problematic. For example, a group in Congress has effectively demanded albeit obliquely that in the course of negotiating the TPP, NAFTA’s Chapter 19, which provides for binational panel review of national administrative decisions in unfair trade cases rendered by agencies in the United States, Canada, and Mexico, effectively displacing the national courts, be eliminated.148 There is no possibility that the United States would propose a Chapter 19 (which originated in the U.S.–Canada FTA) for the TPP; none of the many post-NAFTA FTAs include such provisions. It seems exceedingly unlikely, however, that either Canada or Mexico would support TPP language that effectively ended Chapter 19 review, given that the inclusion of Chapter 19 was an essential element of the package for Canada and, to a lesser extent, Mexico.149

See Rossella Brevetti, Peter Menayasz & Ioan Grillo, “Mexico Reluctant to Renegotiate NAFTA, While Canada Appears Ambivalent,” Int’l Trade Rep. (BNA) 26 (January 22, 2009), 111 (reporting on various proposals for changes in NAFTA). 148 See Amy Tsui, “TPP Should Ensure U.S. Courts Interpret U.S. Trade Laws, House Members Tell Obama,” Int’l Trade Daily (BNA), August 3, 2012 (referring to NAFTA Chapter 19). 149 See Michael Hart, Bill Diamond & Colin Robertson, Decision at Midnight: Inside the Canada-U.S. Free Trade Negotiations (Vancouver: UBC Press, 1994), 321–334; David A. Gantz, “The United States and Dispute Settlement under the North American Free 147

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VIII.  The Prognosis The TPP negotiations may ultimately be successfully concluded, not in 2013 but by the end of 2014, although such an outcome is anything but certain. One positive factor is that the TPP is one of those exceedingly rare initiatives that enjoy broad bipartisan support in the United States Congress. The Republican Platform stated “[a] Republican President will complete negotiations for a Trans-Pacific Partnership to open rapidly developing Asian markets to U.S. products.”150 The Democratic Platform took a slightly different approach by asserting that, [a]longside Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam [with no mention of Canada and Mexico, perhaps intentionally], we are on track to finalize the Trans-Pacific Partnership, a historic high-standard agreement that will address new and emerging trade issues, lower barriers to the free flow of trade and investment, increase exports and create more American jobs.151

The pace of the negotiations, as noted throughout this discussion, has been slow. The U.S. presidential election and other political constraints152 as well as the added complexities of integrating new participants such as Mexico, Canada and Japan into the ongoing negotiations have made the entire process more difficult. Even though agreement was reached

Trade Agreement: Ambivalence, Frustration and Occasional Defiance,” in The Sword and the Scales: the United States and International Courts and Tribunals, ed. Cesare P. R. Romano (Cambridge: Cambridge University Press, 2009), 376–377. 150 See “Official Republican Platform Ramps up Criticism of China; Supports TPP, Magnitsky,” World Trade Online, August 28, 2012 (quoting from the platform). 151 See “Democratic Platform Touts Administration’s China Record; Vows to Open New Markets,” World Trade Online, September 4, 2012 (quoting from the 2012 Democratic Party Platform). 152 A major constraint overshadowing the early TPP negotiations was resolved in October 2011, when the long-stalled U.S. FTAs with Colombia, Panama, and South Korea were approved. Rachel Boehm, “Obama Signs Robust Trade Package Implementation; TPP Next for U.S. Trade,” International Trade Daily, October 24, 2011.

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on some of the text during 2012, almost all of the truly sensitive issues have been left for resolution in negotiations at political levels of government toward the end of 2013 or later (as both Deputy USTR Demetrios Marantis and USTR Ron Kirk much earlier predicted). 153 Further delays may occur because President Obama is restructuring his international economic policy group, as is typical at the start of a new presidential term, is preoccupied by domestic economic and political issues, and because the budget sequestration is resulting in $3 million less funding for USTR’s negotiating mandate.154 As noted earlier, it remains to be seen whether the United States can conclude an agreement that is satisfactory to all or most of the other negotiating parties and is also one that can be approved by Congress. At some point, other parties, in addition to Australia, are likely to reject the United States’ frequent refrain, “We must have this to satisfy Congress.” Thus, as the negotiations reach the crucial stages, the United States government, including Congress, will almost certainly be forced to make difficult decisions. In particular, would the economic, foreign policy and strategic benefits of TPP outweigh the costs in terms of the political capital the president will be required to spend, reducing protection of the U.S. market (especially in agriculture and apparel rules of origin), and agreeing to the more relaxed treatment of labor and the environment and regulation of SOEs, among others, that will almost certainly be demanded by the other parties? Despite the uncertainties regarding whether or when the TPP negotiations can be successfully concluded, their significance for all parties is difficult to overstate. If the negotiations are concluded in 2014 and meaningful negotiations have not been resumed in Geneva, other APEC nations will likely be convinced to participate sooner rather than later

See Len Bracken, “USTR’s Marantis Cites Progress on TPP, Says Tough Issues Remain at This Stage,” International Trade Daily, August 8, 2012 (quoting Ambassador Marantis); Amy Tsui, “Kirk Says 2013 could be Year,” (quoting Ambassador Kirk). 154 Rossella Brevetti, “Sequestration May Hamper ITEC; Hurt Trade Talks; Escalate Container Delays at Seaports,” Int’l Trade Rep. (BNA) (March 7, 2013) 30, 325. 153

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in the TPP. Under such circumstances, the TPP could soon rival or surpass the EU among regional trade agreements in total trade. As Daniel Russell, a Special Assistant to the President, observed in several years ago: When . . . President [Obama] came to office . . . he felt that we were under-invested in the Asia Pacific region. And he set as a goal remedying that through a variety of diplomatic, economic, and security initiatives. We have made best efforts to strengthen America’s relationship with our allies, we have worked intensely with emerging regional powers and leaders such as China, Indonesia, India, of course. But we’ve also worked to forge healthy and cooperative relations with countries throughout the Asia Pacific region as well as working closely with the institutions and the arrangements and developing trilateral forms of cooperation that have been very productive and innovative. That’s reflected in our trade strategy and that mindset is reflected also in our security posture planning.155

The TPP may not be the most important aspect of the “pivot” or refocusing of the United States toward Asia, but economically it is a key element; the failure of the TPP could have significant negative political affects. Among such consequences would almost certainly be an acceleration of the RCEP negotiations and other regional trade initiatives that include China but exclude the United States,156 and the reluctant conclusion on the part of many Asian nations that the United States is not really serious about reestablishing economic prominence in the region. This suggests that serious efforts to reach a successful conclusion to the negotiations must continue even if the United States is required to make more compromises than it has in earlier FTAs, even if additional months or a



Daniel Russell, Special Assistant to the President and Senior Director for Asian Affairs, “U.S. Foreign Policy in the Asia-Pacific Region,” U.S. Department of State, Diplomacy in Action, September 21, 2012, 1, accessed July 2, 2012, http://fpc.state.gov/172931.htm. 156 See “Special Report: The Auckland TPP Negotiations,” 4, which quotes USTR Kirk as saying that one implication of the RCEP launch is that it should drive the TPP partners to get their deal done. 155

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year or more are required for conclusion of the negotiations, and even if President Obama is required to go all out to assure that the negotiations reach a conclusion. Whether the United States has both the negotiating skills and the political will and the other Parties are willing to cooperate to bring the TPP to fruition remain to be determined.

12

Unilateral Approaches to Trade and Market Liberalization

Despite attracting much less attention internationally than multilateral trade negotiations, a very substantial portion of the increase in world trade in recent decades is the result of unilateral national government actions to lower tariffs, reduce non-tariff barriers and/or make importing and exporting operate more efficiently. Several World Bank scholars have estimated that during the period 1983–2003, “autonomous changes in national law were responsible for the overwhelming majority (roughly 66 percent)” of trade liberalization in developing countries.1 It is suggested that trade liberalization in developing countries, particularly in Asia, has been “in large part, unilateral” and that “the increasing consistency of developing country trade policies with the general line espoused by the GATT and the growing influence of developing countries in the GATT system have been the result rather than the cause of their changed economic policies.”2 The process of unilateral trade liberalization has continued in the past few years as it became more and more obvious that the Doha Round negotiations had stalled. The lack of progress in Geneva made it increasingly clear that governments interested in accelerating economic

Uri Dadush, “The Future of the World Trading System,” Int’l Economic Bulletin, July 14, 2010, 2 (citing a study by Will Martin and Francis Ng of the World Bank). 2 J. Michael Finger, “Introduction to the New Edition,” in Robert E. Hudec, Developing Countries in the GATT Legal System (Cambridge: Cambridge University Press, 1987, 2011), 19. 1

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development through making their economies more attractive to both domestic and foreign investment would need to implement alternatives to the WTO negotiations to be able to achieve such objectives. Unilateral trade liberalization is not the only popular route for countries dissatisfied with progress in Geneva. The number of protectionist unilateral actions, often but not always inconsistent with GATT/WTO disciplines, is also increasing. These are presumably driven by the continuing weaknesses in the world economy as well as the demise of Doha. In June 2012, WTO Director General Lamy suggested that for the first time since the Great Recession began in 2008, the scale of protectionist trade restrictions is a cause for “serious concern” with restrictive measures put in place since October 2008 covering 3 percent of world merchandise trade and 4 percent of G20 trade.3 He decried the “discrepancy between the commitments taken and the actions on the ground.” Although unilateral actions work for some governments, others are most likely to liberalize when they are under outside pressure to do so, as in the WTO accession process or as a result of FTA commitments. Thus, for example, it seems highly unlikely that China, Vietnam, and Russia, among others, would have liberalized their markets to the extent and in the time frames required for WTO accession without the demands of the other members, even though it was in their economic interest to liberalize regardless of WTO membership.4 In this chapter, I consider selected examples of the power and reach of unilateral market liberalization through national legislation and



Pascal Lamy,“Rise in Trade Restrictions now ‘Alarming,’ Lamy tells WTO Ambassadors,” WTO News, June 7, 2012, accessed June 7, 2012, http://wto.org/english/news_e/sppl_e/ sppl234_e.htm. 4 With Vietnam, for example, the various reforms beginning in 1995 with the expansion of “doi moi” (opening of the economy) and continuing with the WTO accession process from 2000–2007, have led to substantial increases in per capita GDP, from around $300 in 1995 to more than $1,200 in 2012, with a further increase to more than $2,000 expected by 2016. See “Vietnam GDP Per Capita (Current Prices, US Dollars Statistics,” Economy Watch, November 25, 2012, accessed November 25, 2012, http://www.economywatch. com/economic-statistics/Vietnam/GDP_Per_Capita_Current_Prices_US_Dollars/. 3

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administrative acts alone. These include the country-specific actions of the Asian “Four Tigers” as well as the countries I label the “Four Jaguars,” Chile, Colombia, Mexico, and Peru; the individual actions of many countries under the stimulus of the “Washington Consensus”; and the use of uniform national laws to implement desirable change, such as the efforts at the Organization of American States (OAS) and UNCITRAL on secured financing and simplified corporation registration statues. Many others undoubtedly could be discussed, but are not addressed in the interest of brevity. I also suggest that with the importance of global supply chains and “just in time” delivery of parts and components, further steps will be necessary, at the WTO, in the expansion of RTAs as ­discussed in detail in Chapters 9 through 11, and unilaterally as with the examples of Mexico, Chile, and Colombia in particular. The same caveat applies to these approaches as with the others discussed in earlier chapters; unilateral market liberalization also requires a high degree of political will and the willingness of a government to make economic sacrifices today to reap the benefits of a more competitive economy tomorrow.

I.  Individual Developing Nation Market and Trade Liberalization A.  The “Four Tigers” 1.  Overview When unilateral trade liberalization is discussed, the most commonly cited examples are the “Four Tigers” of Asia: Hong Kong, Singapore, Taiwan, and South Korea. Although the extent of liberalization varied from Hong Kong and Singapore, where markets became almost completely open in the 1980s, to Taiwan and Korea, where the process has taken longer (and is lagging in Korea), all have been praised for recognizing the benefits of unilateral opening, and as examples for the rest of the developing world to follow. This is in fact an over-simplification of a forty-year, nuanced process that varied among the countries, where success was driven in significant part by factors in addition to the reduction of tariffs and NTBs.

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Here as elsewhere, tariff reduction was a necessary but not a sufficient condition for economic growth. Some aspects of these countries’ experiences may be useful models for other developing nations, particularly those outside of Asia; others may not. The experiences nevertheless still merit attention and analysis by other developing countries given that the four nations each decided unilaterally to use trade expansion as a tool for economic development. The patterns of development in the four countries were different but shared common threads. Most important was probably the export-oriented industrialization that all of them pursued.5 Another factor common to all four was what Kwang Yeong Shin terms “authoritarian capitalism,” which he describes as being a system with private ownership of the means of production but where “political power is monopolized by particular social groups, such as the military or political parties.”6 For example, dictatorships in Korea and Taiwan permitted centralized economic policy-making, controlled by such entities as the Economic Planning Board in Korea. Additionally, except in Hong Kong, the governments also controlled the banking system and the availability and cost of credit. Other common factors included following policies that kept labor costs to a minimum, largely through various forms of coercion.7 Gary Gereffi suggests that Asia’s economic success (presumably except for Singapore) may be less in economic policies than in other factors. These factors include: (1) local ownership of major export and intermediate goods industries; (2) substantial backward and forward linkages within the domestic economy; (3) endogenous, if limited, technological



See Ichiro Numazaki, “The Export Oriented Industrialization of Pacific Rim Nations and Their Presence in the Global Market,” in The Four Asian Tigers: Economic Development and the Global Political Economy,” ed. Eun Mee Kim (San Diego: Academic Press, 1998), 61–86. 6 Kwang Yeong Shin, “The Political Economy of Economic Growth in East Asia: South Korea and Taiwan,” in The Four Asian Tigers: Economic Development and the Global Political Economy,” ed. Eun Mee Kim (San Diego: Academic Press, 1998), 5–6. 7 Ibid., 9. 5

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development; and (4) industrialization through others’ best practices or developing their own.8 In Gereffi’s view, high internal savings and investment rates and strong educational systems in these countries are complemented by “micro-institutional foundations” that put the development process in a local context.9 The Four Tigers also benefitted from a relatively open U.S. market for the consumer goods manufactured in Asia, driven by rising U.S. consumer demand for inexpensive apparel, footwear and televisions that could be produced in Asia with low-cost labor.10 For geopolitical reasons, the United States did not demand reciprocal market opening, particularly with regard to Korea and Taiwan. For example, the Four Tigers were eligible for the U.S. GSP program for decades, although textiles and apparel, footwear, and color televisions were excluded from GSP benefits and footwear and televisions were subject periodically to U.S. trade remedies.11 (The four were all “graduated” from GSP in 1989.12) Shin suggests that their continued eligibility was largely the result of the Cold War rather than any purely economic justification.13 Another factor was the necessity for U.S. manufacturers to locate abroad lower-cost manufacturing platforms for sales to the U.S. market to remain competitive, sometimes for the entire product, as with footwear and apparel, but elsewhere, as in the computer industry, primarily for parts and components.14







Gary Gereffi, “Commodity Chains and Regional Divisions of Labor in East Asia,” in The Four Asian Tigers: Economic Development and the Global Political Economy,” ed. Eun Mee Kim (San Diego: Academic Press, 1998), 96. 9 Ibid., 97. 10 See Shin, “The Political Economy,” 16–17. 11 For example, the Carter Administration imposed “orderly marketing agreements” (a quota system) on footwear imports and television imports from both Korea and Taiwan. 12 Coalition for GSP, “The U.S. Generalized System of Preferences Program: an Update,” February 2008, 6, accessed August 2, 2012, http://www.usvtc.org/trade/other/GSP/ GSP%20Update%20Feb08.pdf. 13 Shin, “The Political Economy,” 17. 14 See Numazaki, “The Export Oriented Industrialization,” 74–75. 8

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The impact of these policies was staggering. By the early 1990s, U.S. imports from the Four Tigers plus Indonesia, Malaysia, Thailand, and China (although the last was just beginning its explosive export growth in 1991), accounted for about two-thirds of all clothing and footwear exports, three-fourths of office equipment, and more than half of audio-visual equipment (such as televisions) and other electrical appliances.15 These trade volumes could not entirely be attributed to production in the Four Tigers and the other Asian nations noted previously. Most significantly, Japanese enterprises, often earlier than those in the United States, sought lower cost manufacturing through establishing subsidiaries in Korea, Singapore, and Malaysia in particular, with the accompanying transfers of technology.16 2.  South Korea According to the CIA and many other sources, over four decades, Korea has demonstrated “incredible growth and global integration to become a high-tech industrialized economy,” attaining the status of one of the world’s twenty largest economies from a status among the world’s poorest economies in the 1960s.17 Structural problems remain. In Korea, in significant part because of defense considerations, pressure existed to develop a national economy integrated with the state, even after the dictatorship was replaced by a democratic system in the mid-1980s, setting export targets and subsidizing favored industries (such as semiconductors) with low-cost loans and other privileges.18 Over the years, this resulted in the creation of large integrated conglomerates or “chaebols,” whose businesses ranged from automobiles, ships, and heavy machinery to consumer electronics, home appliances, textiles, and footwear. It was only gradually that the major chaebols moved from depending on OEM

Numazaki, “The Export Oriented Industrialization,” 72–73. Ibid., 78–79. 17 “Korea: Economy,” CIA World Factbook, accessed November 25, 2012, https://www.cia. gov/library/publications/the-world-factbook/geos/ks.html. 18 See Numazaki, “The Export Oriented Industrialization,” 81. 15 16

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sales in the United States and Europe to selling under their own brands. The conversion was most successful for Samsung Electronics, now a household name in electronics, along with auto producer Hyundai. Other factors favoring Korea’s economic development included heavy government expenditures on education, which even in the late 1970s produced a skilled labor force available at low cost. Another, rather different, transformation took place in South Korea in the second half of the 1980s when labor costs, no longer suppressed by the dictatorship, increased by double digit percentages each year for at least five years. This had two major impacts on the economy. First, it caused Korean-made apparel, footwear, and consumer electronics to become non-competitive in the world economy, forcing many of the enterprises to move equipment and production to China, Vietnam, Indonesia, and elsewhere. Secondly, the increased wages created a large middle class population whose members desired to purchase Korean-made clothing, footwear, televisions, and automobiles among other products, reducing Korean economic dependence on exports.19 Trade in goods and services still accounted for 90 percent of GDP in 2007.20 Despite some reforms, the Korean economy has lagged well behind other OECD nations in openness to foreign investment, with investment volumes declining from 1.2 percent of GDP in 2004 to 0.4 percent in 2008; the investment climate requires further improvement according to the WTO.21 Arguably, it is only with the FTAs recently concluded with the EU and the United States that one can reasonably expect a more open market for foreign investment.22 Tariffs also remain high by OECD standards (and

For example, the author, as a trade remedies lawyer in the 1980s and early 1990s, watched one of his major clients, the Korean Footwear Manufacturers’ Association, fade away. Footwear exports from Korea to the United States essentially ceased around 1990 and with it the risks of trade remedies brought in the United States against such exports. 20 WTO, “Trade Policy Review: Republic of Korea,” September 3, 2008, accessed August 2, 2012, viii, http://www.wto.org/english/tratop_e/tpr_e/tp304_e.htm. 21 Ibid., viii, ix. 22 See, e.g., ch. 11 of the Korea–U.S. Free Trade Agreement, June 30, 2007, accessed August 2, 2012, http://www.ustr.gov/Trade_Agreements/Bilateral/Republic_of_Korea_FTA/ Final_Text/Section_Index.html. [hereinafter “KORUS”]. 19

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in comparison with Chile, Colombia, and Mexico) with an applied MFN rate of 12.8 percent in 2008 and an elaborate system of duty remission mechanisms to avoid a situation where imported parts and components make exports prohibitively expensive.23 Still, Korea is given good marks for making its laws transparent and accessible, with English translations readily available, and for user-friendly customs procedures.24 By OECD standards, Korea remains a difficult place to do business and invest as a result of burdensome regulations, despite some recent improvements, with foreign investment in 2010 still below 2004–2006 levels.25 This is partly because market concentration remains high and productivity growth in government-dominated services relatively low, with the chaebol continuing to play a major role in the economy despite efforts to reduce their monopoly or oligopoly power.26 Chaebol operating profits account for 70 percent of all companies listed on the Korean stock exchange.27 According to the OECD, the pernicious effects of the chaebol and the “unfair privileges” they enjoy with regard to access to capital, and their practice of buying up smaller, innovative businesses, and allowing them to stagnate once absorbed, have also allowed manufacturing (dominated by the chaebols) to starve other sectors, such as services, from the capital and talent they would likely otherwise obtain.28 Wide worker pay discrepancies between the chaebol and smaller businesses, along with family control and various scandals, also feed a sense of injustice that became a major issue in the fall 2012 presidential election campaign.29





See WTO, “Korea,” viii. WTO, “Trade Policy Review: Republic of Korea, Executive Summary,” September 19, 2012, viii-ix, accessed September 19, 2012, http://www.wto.org/english/tratop_e/tpr_e/ s268_sum_e.pdf. 25 Ibid., vii. 26 See ibid, x (discussing the status and regulation of the Chaebol). 27 “President Politics in South Korea: Bashing the Big Guys,” The Economist, October 13, 2012, 28 Ibid. 29 Ibid.; see Choe Sang-Hun, “South Korea is Surprised by Departure of Candidate,” The New York Times, November 23, 2012 (also discussing income inequality and citizen resentment of the conglomerates). 23 24

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Since all three major candidates during the 2012 presidential ­campaign criticized the unfairness of the Korean economy with a focus on the chaebol, and there is a consensus that some long-overdue reforms will occur during the new administration, although perhaps less so than if the opposition party candidate had prevailed.30 The winning candidate of the governing Saneuri Party, Park, Geun-hye, is expected to take a more gradual approach to reducing the negative influences of the chaebol, although she too is committed to changes that would create greater economic equality.31 3.  Chinese Taiwan Taiwan’s highly capitalist economy remains constrained by its complex political relationship with China, with China now a major source as well as a destination for investment. In recent years, an Economic Cooperation Framework Agreement (ECFA) with China signed in 2010 has provided a basis for memoranda of understandings applicable to banking, insurance, and securities.32 The ECFA offers opportunities for closer economic links with China but also uncertainty as long as political differences are unresolved.33 Because of Taiwan’s status (vis-à-vis China), Taiwan has been excluded from the wave of FTAs concluded by other Asian countries in recent years (although the country became a Member of the WTO in 1992), requiring the country to rely on its own national laws and policies to stimulate exports and the economy. Taiwan, where wage costs also rose significantly in the late 1980s, has taken advantage of its cultural, language, and geographical advantages to

Choe, “South Korea is Surprised” (discussing the joining forces of the liberal candidates to have a better chance of prevailing against the ruling party in part because of citizen concerns over the chaebol). 31 See Choe Sang-Hun, “South Korean President-Elect Calls for Reconciliation after Tight Race,” The New York Times, December 20, 2012 (discussing the implications of the election for the chaebol and for relations with North Korea). 32 “Taiwan: Economy,” CIA World Factbook, November 14, 2012, accessed November 25, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/tw.html. 33 Ibid. 30

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invest heavily in lower cost production facilities in China, encouraged in the past twenty years or so by Chinese economic policies that encouraged such activities without the recent formalities of the ECFA. Outbound investment flows, primarily to China, are double the volume of inbound investment to Taiwan.34 Taiwanese enterprises have diversified, with significant levels of investment in many other countries including Vietnam and various African nations among others.35 Historically, Taiwan has taken an approach different from Korea in maintaining economic growth through exports, with exports of manufactured goods representing 72 percent of GDP even in 2010.36 Taiwan traditionally has relied on much smaller scale enterprises and entrepreneurs than Korea, experiencing nothing similar to the growth and dominance of the chaebol that characterize the Korean economy. Where large public corporations exist, in the petroleum, chemicals, communication, and transportation sectors, they serve primarily the domestic economy.37 The government is also directly involved in shipbuilding, petroleum, steel, sugar, tobacco and liquor, banking, and insurance.38 Because of the prevalence of smaller firms, those firms have largely developed as subcontractors to major multi-national enterprises, particularly in the personal computer industry. It is only within approximately the last five years that most U.S. consumers have become familiar with Taiwanese brands such as Azus and Acer, even though both have been producing OEM computers for U.S. giants such as Dell for several decades.39





WTO “Trade Policy Review: Taiwan,” May 31, 2010 (Report of the Secretariat), accessed August 2, 2012, x, http://www.wto.org/english/tratop_e/tpr_e/tp332_e.htm. 35 For example, Taiwan investment in Vietnam is estimated at approximately $25 billion, trailing only Korea and Japan. “Taiwan Emerges as Major Source of Foreign Investment in Vietnam, Business Times [Vietnam], September 28, 2012, accessed October 25, 2012, http://businesstimes.com.vn/taiwan-emerges-as-major-source-of-foreign-investmen t-in-vietnam/. 36 WTO, “Taiwan,” ix. 37 Numazaki, “The Export Oriented Industrialization,” 82. 38 WTO, “Taiwan,” xi. 39 Ibid., 83. 34

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Taiwan, like Korea, still lags beyond most developed countries in ­various respects. In particular, average applied tariff rates in Taiwan have remained at the 7.8 percent level for some time and a variety of barriers remain to inward investment.40 Whether further liberalization to match that of recent decades can be undertaken in the coming years remains unclear. 4.  Singapore According to the WTO, “Singapore remains one of the most market-oriented and open economies in the world and is also considered the easiest country in which to do business.”41 Significant restrictions on FDI exist in only a few sectors such as broadcasting/media, legal services, and retail banking.42 As the CIA notes, “Singapore has a highly developed and successful free-market economy. It enjoys a remarkably open and corruption-free environment, stable prices, and a per capita GDP higher than that of most developed countries.”43 Historically, Singapore’s economic policies for exports and development depended on welcoming foreign MNEs, particularly those headquartered in Japan and the United States, with various tax and non-tax incentives. Even by the early 1970s, the MNEs dominated exports, benefitting from fourteen export processing zones (reduced to five in 2012) created by the government with minimal documentation requirements; there MNCs could assemble export goods as elsewhere in the region.44 The government retains ownership of the electricity, telecommunications, transport, and port sectors.45 Singapore, because of its geographical location, fine port facilities, and well-developed financial sector, became a regional business center; it was one of the first nations to take full

Ibid., x, xiii. WTO “Trade Policy Review: Singapore” (Report of the Secretariat), July 26, 2012, vii, accessed August 2, 2012, http://www.wto.org/english/tratop_e/tpr_e/tp367_e.htm. 42 Ibid. 43 “Singapore: Economy,” CIA World Factbook, November 14, 2012, 1, accessed November 25, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/sn.html. 44 Numazaki, “Export Oriented Industrialization,” 83. 45 WTO “Trade Policy Review: Singapore,” vii. 40 41

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advantage of “just in time” procurement and sourcing practices. Singapore was thus a pioneer in developing itself as an outsourcing and processing center;46 it has been particularly successful in attracting semiconductor, pharmaceutical, and financial industry investment.47 Unlike Taiwan and Korea, Singapore eliminated most tariffs and NTBs early on (six tariff lines applicable to beer, ales, and samsu are the exceptions), although almost a third of Singapore’s tariff lines are unbound.48 Singapore has also facilitated trade through the use of a single-window system where traders submit import documentation electronically, resulting in approval time in ten minutes or less in all but about 1 percent of cases.49 These zero tariffs and trade facilitation mechanisms have undoubtedly reinforced Singapore’s position as a preferred location for managing global supply chains. The nation has also benefitted from providing excellent air and communications services and in welcoming foreign law firms despite some limits on local law practice. 5.  Hong Kong During the period 1970–1990, Hong Kong’s low-cost apparel, clothing, handbags, toys, and plastic products exports were produced primarily by small- and medium-sized enterprises, with a few large Chinese textile producers operating in the territory. Most were able to offer flexible manufacturing networks to produce goods for overseas purchasers by taking advantage of lower cost labor in mainland China as appropriate.50 Like Singapore, and presumably for the same reasons, Hong Kong eliminated most tariffs and NTBs, becoming what is probably the most open economy in the world. As China has become one of the world’s leading economic powers, Hong Kong has proven a popular location for regional



Numazaki, “Export Oriented Industrialization,” 84. See “CIA, “Singapore: Economy,” 1. 48 WTO “Trade Policy Review, Singapore,” viii. Samsu is an inexpensive beverage made from caramel, water, alcohol, and sugar. 49 Ibid. 50 Numazaki, “Export Oriented Industrialization,” 84–85. 46 47

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headquarters for global MNCs with manufacturing operations in China. From an economic point of view, the return of Hong Kong to Chinese control in 1997 does not appear to have changed the modus operandi of the private sector. The Hong Kong government (appointed by China) is seeking to take advantage of the internationalization of the Chinese renminbi (RNB) currency by establishing through legislation a Special Administrative Region (SAR).51 As the WTO secretariat has observed, Hong Kong remains “one of the most market-oriented and open economies in the world . . . and has one of the world’s most liberal and transparent foreign investment regimes.”52 All applied MFN tariffs are zero, although certain agricultural tariffs are not bound.53 Legal, banking, and air services, among others have flourished. However, like many other nations, Hong Kong is considering greater intervention in the market economy. The government has decided that financial and regulatory incentives should be provided to sectors with competitive advantages, including testing and certification, medical services, innovation and technology, cultural and creative industries, environmental services, and education services.54 None of these changes seems likely to change Hong Kong’s status as a highly attractive place to do business.

B. The Latin American “Jaguars”: Chile, Colombia, Mexico, and Peru The liberalization taking place today in these four Latin American economies – which I have nicknamed the “Jaguars” to distinguish them from the “Tigers” – is more recent, for the most part beginning after 2000, so it is more difficult to assess the longer-term success of the efforts, but to date

“Hong Kong: Economy,” CIA World Economic Factbook, November 14, 2012, 1, accessed November 25, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/ hk.html. 52 WTO “Trade Policy Review: Hong Kong” (Report of the Secretariat), December 3, 2010, vii, accessed August 2, 2012, http://www.wto.org/english/tratop_e/tpr_e/tp341_e. htm. 53 Ibid., viii. 54 Ibid., vii. 51

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all are very promising. None of the four countries has managed to eliminate tariffs in the manner of Singapore and Hong Kong or to achieve to date the economic development success of Korea and Taiwan. In contrast, all four are far more receptive to foreign investment than either Korea or Taiwan, and their import tariffs are now lower on the average. Also, despite the unilateral relaxing of trade and investment barriers, all four nations are among the most frequent parties to free trade agreements. 1.  Chile Chile had been a strong advocate of freer trade for more than two decades before the demise of Doha. President Sebastian Piñera reiterated his view in September 2012 that the “best way to integrate the world is when we have a worldwide agreement – that was the target of the World Trade Organization and that was the mission of the Doha Round.”55 Chile has also been one of the world’s most prolific users of FTAs, having concluded dozens of such agreements with nations representing 86 percent of global GDP,56 and is a participant in the TPP negotiations (see Chapter 11). In 2012, Chile became the first South American country to become a member of the OECD.57 At the same time, Chile has also taken a variety of unilateral steps to stimulate trade and its own competitiveness worldwide, giving it a reputation for “strong financial institutions and sound policy” as well as high levels of foreign investment.58 Chilean officials have explained in a WTO report that: Chile’s applied MFN tariff was unilaterally phased down from 11 per cent to six per cent between 1999 and 2003. Since 2003, this uniform

See Tom Azzopardi, “Chilean President Says Doha ‘Dead,’ Urges Countries to Pursue Asia-Pacific Pact,” Int’l Trade Daily (BNA), September 11, 2012 (quoting President Piñera, speaking in Australia). 56 Ibid. 57 OECD, “List of OECD Member countries  – Ratification of the Convention on the OECD,” accessed November 25, 2012, http://www.oecd.org/general/listofoecdmembercountries-ratificationoftheconventionontheoecd.htm. 58 “Chile: Economy,” CIA World Factbook, November 14, 2012, accessed November 25, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/ci.html. 55

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overall tariff has been maintained unchanged as a six per cent ad valorem duty on imports, virtually without exceptions. This low and uniform tariff is a distinctive feature of Chile’s trade policy that makes for more efficient resource allocation by establishing the basis for non-differential treatment of the various production sectors, and has also enabled Chile to negotiate preferential agreements with various countries. 59 As the Chilean Government further elaborated, Chile’s trade policy maintains its objective of improving and ensuring access for its goods and services to all markets, as well as encouraging domestic and foreign investment. With a view to liberalizing the economy, all available channels have been used to give Chile’s trade policy an outward orientation, including unilateral market opening and multilateral and bilateral trade negotiations.60

The advantages of these policies have been substantial. First, they reduce the costs of doing business for enterprises and individuals that are dependent on imported goods. Second, the flat tariff has greatly simplified the classification process for business stakeholders and the customs service alike and greatly reduced the likelihood of customs fraud and customs officials’ corruption – an endemic problem in many developing countries – because an importer no longer received a financial advantage by seeking the fraudulent reclassification of goods to her advantage. 2.  Colombia Colombia has in recent years established a substantially open trade regime, probably more so in 2012 than Mexico’s, through aggressively stimulating foreign trade. From 2005 to 2011, imports and exports increased at an average annual rate of approximately 17 percent, and Colombia reduced its average MFN tariff rate from 12 percent in 2006 to 6.2 percent in

WTO, “Trade Policy Review – Report by Chile,” October 9, 2009, 7, accessed March 18, 2013, http://www.wto.org/english/tratop_e/tpr_e/tp320_e.htm. 60 Ibid. 59

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2012.61 According to the CIA, “Colombia’s consistently sound economic policies and aggressive promotion of free trade agreements in recent years have bolstered its ability to face external shocks. Real GDP grew 5.7 percent in 2011 and inflation ended 2011 at 3.7 percent, continuing almost a decade of strong economic performance.”62 Free trade agreements with nearly a dozen countries are bolstering national policies.63 As in Korea, economic growth in Colombia is increasingly driven by private domestic demand as well as investment.64 Additionally, as indicated in Section III of this chapter, Colombia has been in the forefront of legal reforms designed to stimulate growth of small- and medium-sized enterprises. Colombia appears to have been successful in attracting foreign investment without such investment resulting in investor-state disputes. As of 2012, Colombia had yet to experience its first such dispute, comparing in this respect favorably with Chile (with three disputes to date) and Mexico (with more than twenty, mostly under NAFTA).65 Like many other countries in Latin America, Colombia continues to face challenges resulting from dependence on natural resource exports (oil and coal), poor infrastructure, underemployment, and narco-trafficking,66 along with related lingering security issues. 3.  Mexico Mexico began liberalizing its economy in 1985 in preparation for accession to GATT in 1986, and has continued the process (with more than a





WTO, “Trade Policy Review: Colombia” (Report of the Secretariat), June 28, 2012, x, xi, accessed August 2, 2012, http://www.wto.org/english/tratop_e/tpr_e/tp365_e.htm. 62 “Colombia: Economy,” CIA World Factbook, November 14, 2012, accessed November 25, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/co.html. 63 Ibid (listing agreements concluded or in the process of negotiation with Canada, Chile, Mexico, Switzerland, the EU, Venezuela, South Korea, Turkey, Japan, and Israel, as well as the United States). 64 WTO, “Trade Policy Review: Colombia,” 3. 65 See David A. Gantz, “Resolution of Investor-State Controversies in Developing Countries,” Law and Development Review 5 (2012), 83 (discussing the defense of investor-state disputes in, inter alia, Chile, Colombia and Mexico). 66 CIA, “Colombia: Economy.” 61

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few ups and downs and many delays) since that time. Much of Mexico’s reform legislation was mandated by NAFTA, such as the 1993 Foreign Investment Law.67 Wisely, that law like many others was applied from the outset by Mexico in a nondiscriminatory manner to persons of other nationalities investing in Mexico, and that practice has not changed. In my view, however, Mexico initially squandered its huge comparative advantage in preferred access to the U.S. and Canadian markets, with desirable business and fiscal reforms proceeding at a glacial pace for more than a decade after NAFTA entered into force in 1994. A more comprehensive agenda for regulatory reform finally began in 2006 (presumably driven as much as more by the desire to compete more effectively with China than pressures of NAFTA) with the Secretariat of the Economy indicating that the objective for Mexico was to “promote a more business-friendly environment thereby improving its global competitiveness.”68 The Calderon Administration enacted some energy reform measures in 2008 and additional fiscal reforms in 2009.69 The challenges remain daunting, particularly the requirements for coordination among the federal government, thirty-one states, and more than 2,400 municipalities. Among the successes, according to the Secretariat of the Economy, has been a reduction of the time required to start a business, from thirty-six to fifteen days, and improvements in the areas of trade, construction permitting and the required registration of businesses along with their property and collateral.70 As a result of these changes, Mexico, despite some continuing complexities in the system, is considered by the World Bank to be the easiest place in Latin America to do business and thirty-fifth in the world.71

Diario Oficial, December 27, 1993. Secretariat of the Economy, “Mexico’s Regulatory Reform has become an Ongoing Process,” NAFTA Works, September 2012, 1. 69 “Mexico: Economy,” CIA World Factbook, November 15, 2012, accessed November 25, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html. 70 Ibid., 1–2. 71 “Making the Desert Bloom: The Mexican Economy has Recovered Somewhat from a Scorching Recession Imported from America, but is Still Hobbled by Domestic Monopolies and Cartels,” The Economist, August 27, 2011, 59. 67 68

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Mexico has also benefitted from external changes. Among the most important is the fact that although in 2000 Chinese wages were only about 20 percent of those in Mexico, by 2011 Chinese wages had increased to $1.63 per hour and Mexican wages had risen only modestly, to $2.10.72 Mexican officials are aware that more remains to be done in the area of business facilitation; they estimate that if all the best practices being used in some parts of Mexico were implemented throughout, Mexico would rank twentieth of 183 economies worldwide in terms of the ease of doing business.73 Mexico’s future, perhaps more than most countries given the enormous comparative advantages it received with NAFTA, depends today as it did a decade ago, more on its ability to bring about internal reforms than on gains it has reason to expect from new trade agreements. Mexico remains a trade-oriented economy with trade in goods accounting for 60 percent of GDP in 2006.74 More than 90 percent of Mexico’s foreign trade occurs under more than a dozen FTAs, with 78.9 percent of total exports still destined for the United States.75 As the WTO Secretariat observed in 2008: Since its previous Review in 2002, Mexico has continued with the gradual and unilateral liberalization of its trade regime. It has also concluded new free-trade agreements, now conducting 85 per cent of its trade with preferential partners. . . . At the same time, some barriers to MFN trade and foreign investment limit the access of Mexican consumers and producers to certain goods and services on more competitive terms.76

Mexico reduced its average MFN tariff from 16.5 percent in 2001 to 11.2 percent in 2007. 77 Still, these relatively high rates complicated business





“Señores, Start Your Engines: Cheaper than China and with Credit and Oil About to Start Flowing, Mexico is Becoming a Brazil-Beater,” The Economist, November 24, 2012, 3. 73 Ibid., 2. 74 WTO, “Trade Policy Review: Mexico” (Report of the Secretariat), February 11, 2008, vii, accessed August 2, 2012, http://www.wto.org/english/tratop_e/tpr_e/tp295_e.htm. 75 See CIA, “Mexico: Economy,” 1, 3. 76 Ibid., vii. 77 Ibid, viii. 72

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for many enterprises that are dependent on imported parts and components, particularly for those that export to the United States and Canada, because remission of duties on imported parts and components has been prohibited since 2001.78 The requirement that the policy of remitting duties be eliminated resulted in the PROSEC program, a regime that provided similar duty remission benefits but without the prohibited direct tie to the exportation of the finished product, at the expense of adding a new and onerous administrative process with which export businesses were forced to comply.79 In part to address these issues and to further guarantee Mexico’s competitiveness in manufacturing using global supply chains, Mexico announced in late 2008 that it would further reduce MFN industrial tariffs between 2008 and 2013, from an average of 10.4 percent in 2008 to only 4.3 percent in 2013, with certain exceptions until 2012 for designated iron and steel products.80 Once fully implemented, these tariff reductions will make Mexico’s the lowest tariffs in Latin America. Mexico also benefits from some fifteen years of “macroeconomic stability, low inflation, manageable debt, a [relatively] open economy and increasing competitiveness” with GDP expanding 3.9 percent in 2011.81 Despite significant improvements in recent years, Mexico has suffered in the areas of high energy costs, low-quality education, archaic (1970) labor laws, tax inequality, monopoly power, weak infrastructure, legal system inefficiency, and corruption, among others.82 However, it is expected

NAFTA, art. 303(1). See David A. Gantz, “New Challenges for the Maquiladoras: Legal and Policy Implications of NAFTA Article 303 for United States–Mexico Trade” Denver J. Int’l L. & Pol’y 30 (2001): 1, 30–36. 80 Diario Oficial, December 24, 2008; see “Mexico: Unilateral Tariff Elimination,” Global Trade Alert, October 7, 2009, accessed August 2, 2012, http://www.globaltradealert.org/ measure/mexico-unilateral-tariff-elimination. 81 Elizabeth Malkin & Simon Romero, “World Leaders Meet in Mexico Now Giving Brazil a Run for its Money,” The New York Times, June 17, 2012. 82 See Carol Wise, Mexico’s Democratic Transition: the Search for New Reform Coalitions, 9 LBUSRAM 283, 305–310 (2003) (discussing Mexico’s needs, inter alia, for tax reform, investment in education and human capital, reform of labor markets and reform of the tax system, including dependence on oil revenues); David A. Gantz, Regional Trade 78 79

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that advances may be made with various structural reforms, such as simplifying the firing of workers; reform of the petroleum sector, including opening up the sector to private investment; and fiscal reform, which – if effective  – would enhance infrastructure and security and lower the costs of doing business in many sectors. The new president, Enrique Peña Nieto of the Institutional Revolutionary Party (PRI), and the National Action Party (PAN) (the latter in office until December 1, 2012), have both supported such changes.83 Reform of the Pemex petroleum monopoly (which currently under the Constitution controls all “petroleum industry activities”) may take finally take place under President Peña Nieto because it is crucial to Mexico’s future, both to halt the precipitous decline in petroleum production (from 3.4 million barrels per day at its peak to 2.5 mbd in 2012) and reliance on petroleum for 35 percent of net government income.84 President Peña Nieto is also seeking tax reform, and his administration will benefit from a new labor law he initiated that makes it easier to hire and fire workers, facilitate outsourcing and increase protections for female employees, enacted with both PRI and PAN party support in December 2012.85 Efforts by the President to improve Mexico’s chronically weak educational system will also require difficult negotiations with the powerful pro-PRI teachers’ unions that control both recruitment and training of teachers;86 a good first step was the arrest of the long-time and once untouchable president of the union, Elba Esther Gordillo, on





Agreements: Law, Policy and Practice (Durham, NC: Carolina Academic Press, 2009), 156–157 (discussing the continuing need for internal reforms in Mexico). 83 See “Mexico: numero uno in LatAm,” Financial Times, July 10, 2012. 84 See Lourdes Melgar, “The Future of Pemex,” Americas Quarterly, accessed July 26, 2012, http://www.americasquarterly.org/node/3781. 85 Secretariat of the Economy, “Mexico’s New Labor Law: A Step Forward to Greater Competitiveness,” NAFTA Works, January 2013, accessed March 18, 2013, http://www. naftamexico.net/wp-content/uploads/2013/01/jan13.pdf. 86 See “Mexico’s New Government: With a Little Help from My Friends,” The Economist, December 8, 2012 (discussing, among other issues, challenges to the reform of Mexico’s educational system).

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corruption charges.87 President Peña Nieto set out a detailed reform agenda in his “Pact for Mexico” late in 2012. The Pact was notable in itself because both opposition parties had formally signed on to it.88 The details, particularly on energy and tax reform, are being offered to the Congress as of March 2013. Among the steps taken have been are submission of legislation to liberalize the telecommunication and television sectors, and convincing his party’s PRI national assembly to allow modernization of the energy sector.89 The Economist suggested in March 2013 that Mr. Peña Nieto “seems intent on clearing out the monopolistic blockages to Mexico’s growth and confronting some of its most ­formidable lobbies.”90 The President’s first 100 days gave cause for optimism that Mexico today, even more than his immediate predecessors, will move forward promptly with vital reforms. Even with the many remaining economic and systemic challenges, Mexico is perhaps the best current poster child for the power of internal, unilateral, legislative reforms, following policies that should be instructive to other nations. This approach contrasts with such nations as Brazil which as exports to China and economic growth has decreased favors a model involving “muscular government intervention through big state-controlled companies.”91 4.  Peru Nearly four decades of political instability and periods of economic stagnation (including a series of disastrous expropriations in the 1970s92)



See Adam Thomson, “Bold Reforms of President Buoy Mexico,” Financial Times, March 7, 2013, reporting on the president’s first 100 days. 88 See Adam Thomson, “Peña Nieto Sets out Reform Agenda,” Financial Times, December 4, 2013, summarizing the “Pact for Mexico.” 89 Thomson, “Bold Reforms.” 90 “Enrique Peña Nieto’s Proposal to Reform Television and Telecoms Shows hi is Serious about Shaking up the Economy,” The Economist, March 16, 2013. 91 See Malkin & Romero, “World Leaders Meet in Mexico” (contrasting the approach of Brazil and Mexico and discussing the advantages of the Mexican route). 92 See, e.g., David A. Gantz, “The U.S.-Peruvian Claims Agreement of February 19, 1974,” Int’l L. 10 (1976); 389 (discussing a U.S. Government claims settlement with the 87

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came to an end during the 1990s and the beginning of the twenty-first century. Peru’s economy grew at an average rate of 6.4 percent per year from 2002–2011, with low inflation.93 Peru’s economy was expected to grow by 6.3 percent for 2012, making it the fastest-growing economy in Latin America.94 This performance is largely because of export-oriented, foreign investment stimulating policies of Presidents Alan Garcia and more recently, Ollanta Humala. Both have promoted both internal reforms and export-oriented industries, with the Humala Administration pledging additional support to the status of indigenous citizens and other disenfranchised groups.95 Despite the fact that more Peruvians are “sharing the benefits of growth . . . inequality persists,” creating challenges for the government,96 as does the need for additional investment in infrastructure (particularly in non-coastal areas of the country) at a time when export earnings are declining. From 2000–2006, Peru continued to implement an “ambitious privatization program which generated about US$1 billion” that had begun in the 1990s,97 probably reacting to external stimuli created by the Washington Consensus. Peru also reduced its average applied MFN tariff rate from 13.6 percent in 1999 to 8.2 percent in 2007; this particularly reflects capital goods and other inputs that are not produced in Peru.98 Imports generally receive national treatment except for the national alcoholic beverage, Pisco, and used motor vehicles.99 Successive governments





Peruvian Government providing a lump sum settlement of at least 10 U.S. enterprises in Peru that had been expropriated by the military government). 93 “Peru: Economy,” CIA World Factbook, December 13, 2012, accessed December 23, 2012, https://www.cia.gov/library/publications/the-world-factbook/geos/pe.html. 94 “Domestic Demand Boosts Peru’s Economy in 2012  – IMF,” NBC Business News, accessed December 23, 2012, http://www.cnbc.com/id/100329167/ Domestic_demand_boosts_Peru039s_economy_in_2012_IMF. 95 See CIA, “Peru: Economy.” 96 Ibid. 97 WTO, “Trade Policy Review: Peru” (Report of the Secretariat), September 12, 2007, viii, accessed December 23, 2012, http://www.wto.org/english/tratop_e/tpr_e/tp289_e.htm. 98 Ibid. 99 See Ibid., ix.

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have encouraged investment in the mining and hydrocarbon sectors, with minerals exports increasing to 72 percent of total exports by 2006.100 Although Peru benefitted from high prices realized from iron ore and copper exports in particular, the nation remains vulnerable to fluctuations in world market prices,101 as it has for many decades. For example, in October 2012, Peru’s trade surplus was 95 percent lower than in October 2011, because of declining prices for raw material exports.102 New mining projects face increasing challenges from civil society and indigenous groups,103 one of the costs of the institution of a more democratic society. Although some of the market liberalizing actions can be attributed to the requirements of more than a dozen FTAs that Peru has concluded (and the economic success of neighboring Chile), the changes were already well under way before the FTA with the United States became effective in 2009104 and the FTA with the EU was concluded in 2012.

C.  Concluding Observations on Unilateralism It is notable that much of the successful economic development of the Four Tigers took place before most were actively participating in the GATT/WTO system (although all but Taiwan were Contracting Parties to the GATT105) and before any of them were parties to a significant number of free trade agreements. Korea and Taiwan both were able to pursue export oriented economic development because of special relationships,



Ibid., x. See CIA, “Peru-Economy.” 102 NBC, “Domestic Demand.” 103 See CIA, “Peru-Economy.” 104 United States–Peru Trade Promotion Agreement, April 12, 2006, accessed December 23, 2012, http://www.ustr.gov/trade-agreements/free-trade-agreements/peru-tpa/ final-text. 105 Korea in 1967, Singapore in 1973, and Hong Kong in 1986; see WTO, “The 128 Countries that had Signed the GATT by 1994,” accessed August 2, 2012, http://www.wto.org/english/thewto_e/gattmem_e.htm. 100 101

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both with the United States since the Communist takeover of China and the end of the Korean War. More recently, in the past twenty-five years, Taiwan has developed its own special relationship, albeit it strained and informal, with China. The Hong Kong–China relationship before 1997 reflects some of the same advantages. Some of the economic practices maintained by the Four Tigers, a relatively attractive investment climate, well-educated work force, reduced tariffs and NTBs, and (in Hong Kong, Singapore and to a lesser extent in Taiwan) policies encouraging foreign enterprises to operate within their territory, could and have been copied elsewhere. Given that both Korea and Taiwan maintain relatively high tariff levels and restrictions on foreign investment, it may be misleading to attribute their economic success primarily to unilateral establishment of relatively open markets. Korea and Taiwan also reaffirm the supreme importance of supporting strong educational systems and encouragement, if imperfectly, of research and development and technological innovation. Much the same could be said about liberalization of the economies of Chile, Colombia, Mexico, and Peru, although Colombia’s progress is more recent than the other three. All except Peru also benefited from a special relationship with the United States, Mexico for many decades, Chile for nearly twenty-five years, and Colombia for more than a decade. It is probably not a coincidence that Chile, Mexico, and Peru are among the world’s leading proponents of FTAs, with Colombia now moving to catch up; certainly those agreements, particularly those with the United States and the EU, have provided strong external stimuli for necessary domestic legal and economic reforms.

II. The “Washington Consensus” as an Incentive to Unilateral Actions The “Washington Consensus” is the term commonly given to the post-Cold War program urged on the developing world beginning around 1990. The essence of the Washington Consensus was deregulation, along

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with a package of liberal economic, legal, and political reforms that emphasized democracy through free elections. These changes were to be accompanied by essentially unilateral actions by national governments (with some prodding from the United States and the IMF and World Bank) to establish balanced budgets, a smaller state sector, and privatization and deregulation of the national economy.106 Critics have charged that the program was imposed without regard to individual country and citizen needs; others have blamed it (probably unfairly) for the Argentine financial collapse.107 To the extent that the Washington Consensus stands for healthy, democratic institutions, less (but not an absence of) regulation, reduced corruption, and emphasis on internal reforms rather than outside assistance, a neo-Washington Consensus as it were, the approach seems very much alive as the experience of Chile, Mexico, and Peru in particular confirms. The Peruvian economist, Hernando De Soto, postulated that poor countries could benefit from globalization only if they reform their regulatory institutions with the objective of reducing or eliminating unnecessary barriers to entry for local entrepreneurs and permit registry of land titles so small businesses will have better access to credit.108 In other words, the pressures were not driven solely by policy makers in Washington and in other OECD nations. The George W. Bush Administration created the Millennium Challenge Corporation (MCC) with bipartisan support in 2004. The MCC provides financial aid only to lower-middle income developing countries (such as Honduras and Ghana) that bring about certain internal reforms considered vital to sustainable economic growth and

Thomas Kelly, “Beyond the Washington Consensus and New Institutionalism: What is the Future of Law and Development,” N.C. J. Int’l & Com. Reg. 35 (2010), 539, 542–543. 107 See John Williamson, “A Short History of the Washington Consensus,” L. & Bus. Rev. Am. 15 (2009), 7, 13 (contending that the Argentine collapse was caused by a fixed, chronically overvalued exchange rate and an excessive debt/GDP ratio). 108 Hernando De Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Basic Books, 2003). 106

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development, including providing legal and financial support for small and medium-sized businesses and strengthening and improving government institutions. Before a country is eligible the candidate country’s performance on various policy indicators is examined, with those selected being based on policy performance. Those countries that are chosen must “identify their priorities for achieving sustainable economic growth and poverty reduction.”109 The MCC requires that individual country proposals be developed in consultation with civil society (stakeholders and members of the public); the MCC also provides consultations with the target countries to help them develop and refine their programs.110 As Professor Thomas Kelly has observed, funds are not made available by the MCC until after the country “has demonstrated progress in institution-building.”111 President Obama, beginning with his first year in office, appeared to be an ardent supporter of strong institutions rather than “strongmen,” as he indicated in a major speech in Ghana.112 The program has continued without major changes under the Obama Administration. The selected countries include Honduras, whose secured financing legislation and registry were supported by the MCC. It is impossible to predict in this time of unacceptably high budget deficits whether the United States, the EU, and other developed countries will continue to provide existing levels of foreign assistance and funding for the international development banks. It seems likely, however, that such assistance will be furnished in most cases only under conditions in which the donors believe it can be effective. Consequently, developing nations that take the steps that are necessary to create improved conditions for economic development, even if there is less knee-jerk deregulation and more institution building, are most likely to prosper.

About MCC, accessed August 9, 2012, http://www.mcc.gov/pages/about. Ibid. 111 Kelly, “Washington Consensus,” 547. 112 Ibid., 540. 109 110

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III.  Model Corporate and Commercial Laws Another approach that falls within the gambit of national legislation is the practice of drafting models laws for adoption individually by the states participating in the multilateral organizations, such as the United Nations Commission on International Trade Law (UNCITRAL) and the Committee on Private International Law (CIDIP) at the Organization of American States (OAS). By definition, such model laws are for the willing; no members of the drafting organizations are ever required to adopt the laws, although competitive pressures in neighboring countries for the foreign investment dollar or as a result of local citizen interests may make such reforms less truly discretionary than would otherwise be the case. Nor does the process result in an international agreement that must be submitted to national constitutional procedures for approval, a politically sensitive process for those nations that do not recognize immediate benefits, although in almost all cases legislative action is needed. Often these model laws address topics such as trade facilitation (see Chapter 4), issues not considered practicable for international conventions (at the WTO or elsewhere), which nevertheless strongly support implementation of the market-opening measures contained in the WTO Agreements or free trade agreements.

A.  Secured Transactions Versions of the 2002 OAS model secured transactions law113 have been adopted in one form or another in Mexico, Honduras, and Guatemala. Internal deliberations among government officials, banks, and potential borrowers were underway as of late 2012 in Chile, Colombia, Malawi, and Uganda. The “demonstration effect” in other countries where increasing the availability of credit for small- and medium-sized businesses is

OAS, “Model Inter-American Law on Secured Transactions,” accessed August 9, 2012, http://www.oas.org/dil/cidip-vi-securedtransactions_eng.htm.

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likely to encourage additional governments to enact similar legislation. The successor to the UNCITRAL working group that was responsible for the UNCITRAL Legislative Guide on Secured Transactions114 is drafting a new secured transactions law, focused on facilitating asset-based lending. This guide is likely to have appeal well beyond Latin America and is also expected to enable implementation of the necessary reforms, facilitating the availability of secured credit for small- and medium-sized business in the developing world.115 The model-law approach, however, is not universally accepted. Although it is favored by the United States and Latin American nations, many European nations are unenthusiastic about such approaches and favor instead guidelines or recommendations. Some experts believe such alternative approaches to legislation are unfortunate because the unilateral actions taken by these nations, on the basis of guidelines, frequently result in disharmonized secured transactions legislation that may inhibit the financing of international trade.116 The model-secured transaction laws, originally based on Article 9 of the U.S. Uniform Commercial Code, are designed to facilitate financing using personal property (consumer goods, inventory, accounts receivable, etc.) as collateral, a practice that is extremely widespread in the United States and Canada but rare in most of the developing world. In the United States and Canada, automobile sales depend on credit,117 with

UNCITRAL, “Legislative Guide on Secured Transactions: Terminology and Recommendations, 2009,” accessed August 9, 2012, http://www.uncitral.org/pdf/english/texts/security-lg/e/Terminology-and-Recs.18–1–10.pdf. 115 This section is based on discussions with Professor Boris Kozolchyk and Dr. Marek Dubovec who have been working with various Latin American and African governments on secured transactions legislation and the accompanying electronic registry systems for more than a decade. Dr. Dubovec is a member of the UNCITRAL Working Group VI. 116 Email correspondence with Marek Dubovec, research director of the National Law Center for Inter-American Free Trade, July 16–17, 2012 (copy on file with author). 117 See Eric Dash, “Behind a Rise in Auto Sales, Easier Credit,” The New York Times, February 27, 2012 (attributing increased U.S. auto sales to increased availability of credit at low interest rates). 114

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the vehicle pledged as security, and almost all businesses use inventory or accounts receivable as security for relatively low interest credit for their operations. In many countries, in contrast, bank credit is available primarily to persons who can pledge real property as security or are personally known to the bankers. Professor Boris Kozolchyk, the principal author of the OAS Model law, has long argued that commercial loans (secured loans) “are loans that are particularly suited to satisfy the credit needs of small- and medium-sized enterprises. . . . Because secured lending reduces commercial risks, it increases the borrower’s access to credit and lowers the rates of interest.” He cites studies suggesting that in Brazil, a third of the 40 percent annual interest rate paid by Brazilian commercial borrowers can be attributed to the legal uncertainties of collection, and that risk reduction generally may be passed on to borrowers in the form of reduced rates of interest.118 Therefore, risk reduction can be an important aid to economic development and to the financing of international trade. The essential elements of a workable secured transactions law are as follows: 1) the ability to create a security interest in any personal property subject to monetary valuation where the debtor has a right to possession; 2) the debtor must be in possession but the title may be held elsewhere (i.e., by the lender); 3) the existence of a system of inexpensive, easily accessible (electronic) public registration providing notice of the debt to third parties, in significant part to eliminate secret liens; 4) provision of special notice to existing lien-holders; 5) registration permitting generic descriptions, such as “accounts receivable” or “inventory” as well as specific descriptions, as “Honda automobile serial number xxxx”; 6) self-liquidation of the security when the debt is not paid, on an extra-judicial basis; 7) exclusion where possible of the protected security interest from bankruptcy protection; and 8) harmonization of the secured

Boris Kozolchyk, “Secured Lending and its Poverty Reduction Effect,” Tex. Int’l L.J. 42 (2007), 727, 728.

118

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transactions laws so as to facilitate cross-border lending, particularly in adjacent states such as the nations of Central America.119

B.  Simplified Stock Corporation The importance of regularizing the status of small businesses is also difficult to overemphasize. First, corporate or other limited liability company status facilitates the ability of the owners of the enterprise to obtain capital at reasonable costs, particularly when combined with secured transactions legislation. Second, the formal status facilitates addressing generational changes, as when the elder generation retires and sons or daughters take over responsibility for management. Third, it brings the enterprise into the formal economy, permitting necessary government regulation and facilitating the collection of taxes. The concept of a vastly simplified means of achieving corporate status for small and medium-sized enterprises as of late 2012 exists primarily in Colombia and Chile. The success of the innovations in Colombia and Chile is fueling efforts to use the Colombian and Chilean experiences as the base for creating a model law in the same manner as was accomplished earlier with the model secured transactions law. The approach in Colombia is described as follows: The need to develop new business forms is particularly strong in Latin American countries. Family-owned enterprises and closely-held companies abound in Latin America, creating significant demand for entities that allow parties to engage in extensive private ordering. Indeed, to function properly, family-owned businesses typically require a high degree of contractual arrangements aimed at governing intra-firm relations. Existing business forms have proven to be inflexible to suit the needs of family-owned firms. . . . Some Latin American countries have taken initial steps toward reform in the area of company law. In Colombia, Law No. 1258/2008,

Adapted from National Law Center for Inter-American Free Trade, “NLCIFT 12 Principles of Secured Transactions Law in the Americas,” 2006.

119

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which regulates the Colombian Simplified Stock Company (Sociedad por Acciones Simplificada – Colombian SAS), is an example of a successful efficiency-minded law-making effort in a civil-law jurisdiction. The SAS aims at providing its users with flexibility in its organization and capitalization, complete freedom of contract and full-fledged limited liability.120

In Colombia, as is true elsewhere, a key element of the system is a simplified, low-cost, corporate registry mechanism, either electronic or paper-based or both. Such registries may be operated by the government or by private entities such as the Chambers of Commerce in Colombia. Early experience with Law 1258 is encouraging, and may make expansion of the concept elsewhere more attractive. Its implementation as a new, cost-effective, flexible, and practical business form has to some extent replaced the use of the more traditional forms of corporate registration. Two years after the enactment of the law, more than 52,000 Colombian SASs had been created, representing 70 to 84 percent of new business registrations.121 Proponents of the SAS suggest that the figures “serve to underscore the significance that local businesspersons attribute to the principle of party autonomy and freedom of contract – a prominent feature of this company type.”122 Chile, taking a slightly different approach, adopted legislation creating an Individual Limited Liability Company or Empresa Individual de Responsabilidad Limitada (ILLC).123 As in Colombia, the ILLC was designed to encourage micro- or small-business owners to become part



National Law Center for Inter-American Free trade, “Notes and Statistics on the Chilean and Colombian Simplified Stock Corporation,” October 2012, 1; see also Francisco Reyes, A New Policy Agenda for Latin American Company Law: Reshaping the Closely-Held Entity Landscape (Durham: Carolina Academic Press, 2012). This section is based in significant part on these two publications. 121 NLCIFT, “Notes and Statistics,” 3 (citing Confederation of Colombian Chambers of Commerce data). 122 Ibid. 123 Law 19.851 (Chile), Authorizing the Creation of Individual Limited Liability Companies (published February 11, 2003). 120

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of the formal market,124 a first major step in the simplification of Chilean company law. Subsequently, Chile enacted Law 20.190 amending the Chilean Commercial Code and introduced a new section on Simplified Stock Corporations (hereinafter, Chilean SAS).125 When enacted, a draft law in Chile will introduce an electronic registry system for the SAS, utilizing standard forms completed by the owners online. Unlike Colombia, the Chilean system will be exclusively electronic, without the option of paper-based filings. Whether Internet access among lower-income businesspersons is sufficiently widespread to allow all interested registrants to participate remains to be seen.

IV. Reduction of Agricultural Subsidies in the EU and United States? Historically, reduction of agricultural subsidies has been one of the most difficult aspects of international trade negotiations. EU reluctance to decrease agricultural subsidies almost derailed the Uruguay Round negotiations in 1992, but the impasse was ultimately resolved through the “Blair House Accord.”126 As noted in Chapter 3, U.S. and EU opposition to further subsidy reductions also contributed significantly to the demise of the Doha Round. Under such circumstances it may be considered strange to suggest that either the United States or the EU would consider reducing their agricultural subsidies on a unilateral basis. Nevertheless, particularly when one is considering the longer term, this may be possible. The reason will likely have little to do with international trade negotiations per se. It will instead be because of budgetary constraints and the increasing importance of environmentally sound farming.



Library of the National Chilean Congress, Historia de la Ley No. 19.851, February 11, 2003, 158–159. 125 Law 20.190 (Chile) Amending the Commercial Code, introducing new articles 424–446 (published Jun 5, 2007). 126 Kevin C. Kennedy, International Trade Regulation: Reading, Cases, Notes and Problems (New York: Aspen, 2009), 15. 124

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The EU, which devoted almost 44 percent of the $168 billion EU ­budget to agricultural support in 2007,127 decided provisionally to freeze the farm supports in absolute numbers for seven years beginning in 2012 at about 36 percent of the total.128 As the EU Agricultural Commissioner noted in October 2011, “[t]he next decades will be crucial for laying the foundations of a strong agriculture sector that can cope with climate change and international competition while meeting the expectations of the citizen.”129 Continuing financial pressures on the EU as a result of fiscal crises in Greece, Spain, Portugal, Ireland, and elsewhere may accelerate this trend, despite the risk that reducing farm supports could further exacerbate economic problems in some of the EU’s more vulnerable economies. As of late November 2012, the EU Members had been unable to agree on a new budget for a seven-year cycle and effectively postponed further discussions until 2013. Disagreements over administrative costs in Brussels and financial transfers from the richer to the poorer Members, the latter including but not limited to agricultural subsidies, have divided the membership.130 The prognosis for reduced farm subsidies in the United States is much less clear. Financial constraints in the coming years have increased pressures to reduce agricultural subsidies,131 either as part of the ongoing super committee process or through continuing demands to reduce the









European Commission, Managing the Agricultural Budget Wisely (2007), at 3, accessed October 20, 2011, http://ec.europa.eu/agriculture/fin/clearance/factsheet_en.pdf 128 “EU farm budget frozen for next seven years and conditioned to ‘greening,’” MercoPress (Uruguay), July 1, 2011 (republished October 20, 2011), accessed August 9, 2012, http:// en.mercopress.com/2011/07/01/eu-farm-budget-frozen-for-next-seven-years-and-cond itioned-to-greening. 129 Joe Kirwin, “EC Proposed Radical Reforms to Agricultural Subsidy Program,” Int’l Trade Rep. (BNA) 28 (October 20, 2011), 1698 (quoting Commissioner Dacian Ciolos). 130 See James Kanter & Andrew Higgins, “New Setback for European Union as Budget Talks Falter over Administrative Costs,” The New York Times, November 23, 2012 (discusses the reasons for the deadlock). 131 See “Farm Bill Proposals Foresee Elimination or Cuts for Direct Payments, CCPs,” World Trade Online, October 19, 2001, at 1. 127

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budget deficit, including but not limited to actions by President Obama and the new Congress in 2013. A farm bill passed by the Senate (with a savings estimated at $23 billion over ten years) but stalled in the House of Representatives in late 2012 because of disagreements regarding to cut more or less in terms of subsidies and food stamp programs, even though some Members of Congress supported the bill on the grounds that “the Farm bill is the only bipartisan deficit reduction bill that passed the Senate this year.”132 (The 2008 farm bill was extended until September 30, 2013 as part of legislation designed to avoid the “fiscal cliff” in January 2013.133) In the past, the strength of the farm lobby within Congress and particularly within the U.S. Senate has been such that substantial reductions, at least in the short to medium term, have been impossible, but that lobby did not have the political power to bring about a vote in the House on the more comprehensive bill. President Obama had supported the farm bill passed by the Senate,134 but had not encouraged greater savings through reduction of farm subsidies. The Congress will be forced to address farm legislation, including subsidies, again before the end of September 2013. The major U.S. subsidies for the ethanol industry, including a tariff of $0.54 per gallon and a $0.45 per gallon “volumetric ethanol excise tax credit,” were allowed by the U.S. Congress to expire at the end of 2011.135 At the same, time U.S. “amber box”136 farm subsidies that are subject to the disciplines of the WTO’s Agreement on Agriculture, in the most recent reporting year (2012), were at $4.12 billion, far below the WTO limit of





See Ron Nixon, “Stalled Farm Bill is pushed for its Savings,” The New York Times, December 5, 2012 (quoting Senator Debbie Stabenow of Michigan). 133 See Marc Heller and LaTrina Antoine, “Congresses Passes one-Year Extension to Farm Bill, Averting Dairy price Spike,” Int’l Trade Daily (BNA), January 3, 2013, explaining the limited scope of the extension. 134 See “Romney Defends U.S. Agricultural Subsidies as Key to Unfair Competition,” World Trade Online, October 15, 2012 (discussing the Obama and Romney positions on farm subsidies). 135 See “End of U.S. Tax on Imported Ethanol Expected to Boost Brazil’s Biofuel Industry,” Int’l Trade Rep. (BNA) 29 (January 12, 2012), 50. 136 For various reasons the several types of farm subsidies are divided into blue, amber, and green “boxes” even though those terms are not used in the Agreement on Agriculture. 132

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$19.1 billion, and were also down 3.5 percent from the $4.27 ­billion level in 2009.137 Exempt “green box” subsidies in the U.S. increased, apparently because of disbursements under the food stamp program. Under these circumstances, particularly if current trends continue well into 2013, it would appear to be relatively painless for the United States (in actual practice if not politically) to agree to a significantly lower cap on “amber box” subsidies in a future WTO Agreement or simply as part of a new farm bill.



See Daniel Pruzin, “U.S. Reports Continued Decline in Spending on Farm Subsidies,” Int’l Trade Rep. (BNA) 29 (October 11, 2012), 1615 (commenting on the United States’s most recent notification).

137

13

Conclusions and the Crystal Ball

Although multilateral trade negotiations may well be the best route to international rules governing the reduction of tariffs and non-tariff barriers for agricultural and manufactured goods, increased market access for services and disciplines in new areas affecting trade, among others, in the absence of the collective political will among WTO Members to move forward, other options will continue to become more popular. Most observers would agree that some trade liberalization is better than no trade liberalization or increased protectionism. The evidence is strong that future international trade liberalization is with a few exceptions most likely to result from new or expanded regional trade agreements, plurilateral accords among willing sub-groups of the WTO membership and increased attention as to how members can increase their own competitiveness and trade through unilateral changes in national laws and policies. There are risks in all of these options, but the failure of Doha has given Members who seek expanded trade and the benefits accruing therefrom no other choice; the willing are simply not prepared to have their efforts stymied by WTO Members who seek to block further trade liberalization. This is not to suggest that progress will be easy or linear, or that most – or even many – of the initiatives discussed in this volume will ultimately be successfully concluded. The Doha Round failed in significant part because of a lack of political will among its most important Members (the EU, United States, Brazil, China, India, and Japan, among others) 347

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and it is unclear whether those who are most engaged in alternatives to Doha will be able to muster the political will necessary for successful conclusion of even the less controversial of these initiatives. The timing of these initiatives is also uncertain. Some may be achievable within the next couple of years, but others are much longer-term. One can at best make educated guesses as to how quickly key initiatives may succeed (or clearly fail). Realizing the risks, I have nevertheless tried to do so in Table 13–1. What are the most likely successes in market liberalization over the next two to five years? As an educated guess I suggest the following: • GPA membership will continue to expand, with China becoming a party within two to three years. • The ITA will expand coverage and membership, with the Russian Federation ultimately meeting its WTO accession commitment to join the ITA. • After two to three years, an International Services Agreement, negotiated under authority of GATS, Article V, will be concluded, with the participation of some developing nations but not the BRICS. • TFQF treatment will be provided by most developed countries (but not the BRICS) to most LDCs, with some tariff lines subject to various GSP-like conditions, including textile rules of origin. • WTO Members will agree on a limited number of trade facilitation measures. • With new and expanded existing FTAs, the United States, Canada, the EU, and Japan, as well as Mexico, Singapore, South Korea, Turkey, and a few other middle income countries have a reasonably strong prospect in the medium term of being connected by more-or-less comprehensive FTAs (including not only trade in goods but services, investment, and intellectual property), which in the aggregate cover about 65 percent of worldwide trade in goods and services. (Caveat: The resolve of the United States and Japanese governments to move decisively in this direction remains uncertain.)

349

Conclusions and the Crystal Ball

Table 13.1.  Prognosis for key initiatives Initiative RTAs:   Trans-Pacific Partnership  Regional Comprehensive Economic Partnership   China, Japan, Korea FTA   EU-U.S. FTA   African Tripartite RTA   Pacific Alliance   ASEAN deepening   Mercosur deepening   EU-ACP economic cooperation Plurilateral trade agreements:   GPA Expansion   ITA revisions   International Services Agreement   Investment Agreement   Competition Agreement WTO based agreements:   Fisheries subsidies   Trade facilitation   Duty free, quota free for LDCS   Green Energy Goods

Probable completion Short term Medium term/long term Long term Medium term/long term Long term/very long term Short term/medium term Long term/never Long term/never Medium term Short term/medium term Short term Medium term Long term/very long term Long term/very long term Short term/medium term Short term/medium term Short term/medium term Medium term/long term

“Short term” means 1–2 years; “medium term” means 3–5 years; “long term” means 6–10 years; “very long term” means over 10 years. The period is measured from January 1, 2013.

• Many developing countries will preserve or improve access to developed country markets through an expanded network of U.S. and EU sponsored FTAs, including the TPP and additional EU Economic Partnership Agreements with a larger group of ACP states. • ASEAN, Mercosur, and most of the all-African FTAs and customs unions will make only limited progress in opening markets among the members or addressing desirable reforms in corruption, income distribution, tariff reduction, and infrastructure improvements. • The Latin American Jaguars, and to lesser extent the Asian Tigers, will continue to lead the way in demonstrating to other developing

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countries that unilateral market liberalization and improvement of the business and investment climate is one of the most effective routes to increased trade and economic development. • The BRICS will continue to resist further liberalization of trade in goods and services in Geneva and elsewhere for the medium term and perhaps longer.

Selected Bibliography

International Trade Issues Generally

Raj Bhala, International Trade Law and Practice: Interdisciplinary Theory and Practice (3rd ed.) (New York: Lexis/Nexis, 2008). Judith Goldstein, “Ideas, Institutions and American Trade Policy,” Int’l Org. 42 (1988): 79. Bernard Hoekman & Michael M. Kostecki, The Political Economy of the World Trading System: The WTO and Beyond (Oxford: Oxford University Press, 2001). Kevin C. Kennedy, International Trade Regulation: Reading, Cases, Notes and Problems (New York: Aspen, 2009). Eun Mee Kim, ed., The Four Asian Tigers: Economic Development and the Global Political Economy (San Diego: Academic Press, 1998). Marc Levinson, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (Princeton: Princeton University Press, 2006). Andreas F. Lowenfeld, International Economic Law (Oxford: Oxford University Press, 2002). Michael J. Trebilcock, Understanding Trade Law (Cheltenham: Edward Elgar, 2011). GATT/WTO History and Practice, the Doha Round and Beyond

Roderick Abbott, “The Future of the Multilateral Trading System and the WTO,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, http://ictsd.org/down-

351

352

Selected Bibliography

loads/2012/02/roderick-abbott-the-future-of-the-multilateral-trading-syst em-and-the-wto.pdf. Raj Bhala, “Resurrecting the Doha Round: Devilish Details, Grand Themes, and China Too,” Tex. Int’l L. J. 45 (2009): 1. Paul Blustein, Misadventures of the Most Favored Nations: Clashing Egos, Inflated Ambitions, and the Great Shambles of the World Trading System (New York: Public Affairs, 2009). Sungjoon Cho & Claire R. Kelly, “Are Global Trading Rules Passé?: Trade Anachronism and its Discontents,” Society of International Economic Law, Working Paper No. 2012/18, June 20, 2012, http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=2088368. Uri Dadush, “The Future of the World Trading System,” Int’l Economic Bulletin, July 14, 2010, http://www.carnegieendowment.org/2010/07/14/ future-of-world-trading-system/45b. David A. Gantz, “Failed Efforts to Initiate the ‘Millennium Round’ in Seattle: Lessons for Future World Trade Negotiations,” Arizona J. Int’l & Comp. L. 17 (2000): 349. Robert E. Hudec, Developing Countries in the GATT Legal System (Cambridge: Cambridge University Press, 1987, 2011). Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT System (Salem, N.H.: Butterworths, 1993). Gary Clyde Hufbauer & Jeffrey J. Schott, “Will the World Trade Organization Enjoy a Bright Future?,” Peterson Institute Policy Brief PB12-11, May 2012. Gary Clyde Hufbauer, Jeffrey J. Schott & Woan Foong Wong, Figuring Out the Doha Round (Washington: Peterson Institute, 2010). John H. Jackson, World Trade and the Law of the GATT (New York: Bobbs-Merrill, 1969). Robert Z. Lawrence,“Competing with Regionalism by Revitalizing the WTO,” ICTSID,Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, http://ictsd.org/downloads/2012/02/rober t-lawrence-competing-with-regionalism-by-revitalizing-the-wto.pdf. Robert Z. Lawrence, Regionalism, Multilateralism, and Deeper Integration (Washington: Brookings Institution Press, 1996). William A. Lovett, “Beyond Doha: Multipolar Challenges for a Globalized World,” Tul. J. Int’l & Comp. L. 17 (2008): 3. Michael Rodriguez Mendoza, “Towards ‘Plurilateral Plus’ Agreements,” ICTSD,Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, http://ictsd.org/downloads/2012/02/migu el-rodriguez-mendoza-towards-plurilateral-plus-agreements.pdf.

Selected Bibliography

353

Sandra Polaski, “What Future for the WTO?” L’Economie Politique, July 1, 2007). Mark R. Sandstrom, Julia M. Cheung & Michelle D. Lynch, “Market Access,” in The World Trade Organization, ed. Terrence P. Stewart (Chicago: ABA, 1996), 122–123. Jeffrey J. Schott, “What Should the United States do About Doha?,” June 2011, http://www.iie.com/publications/pb/pb11-08.pdf. Susan Schwab, “After Doha: Why the Negotiations are Doomed and What We Should do About It,” Foreign Affairs 90 (2011): 104. Andrew L. Stoler, “WTO-plus Issues in the Multilateral Trading System,” ICTSID,Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, http://ictsd.org/downloads/2012/02/ andrew-stoler-wtoplus-issues-in-the-multilateral-trading-system.pdf. Peter Sutherland, “A Future for the World Trade Organization?,” September 2010, http://www.ecipe.org/publications/jan-tumlir-policy-essays/a-future-f or-the-world-trade-organisation/PDF Trade Facilitation and other Developing Country Issues

Kimberly Ann Elliott, “Breaking the Deadlock on Market Access for Least Developed Countries,” ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, December 2011, http:// ictsd.org/downloads/2012/02/kimberly-ann-elliot-breaking-the-deadlockon-market-access-for-least-developed-countries.pdf. Bernard A. Gelb, “Textile and Apparel Rules of Origin in International Trade,” May 23, 2003, CRS-5–8, http://www.policyarchive.org/handle/10207/ bitstreams/1737.pdf. Aaditya Mattoo, Devesh Roy & Arvind Subramanian, “The Africa Growth and Opportunity Act and its Rules of Origin: Generosity Undermined?,” IMF Working Paper, December 2002, http://info.worldbank.org/etools/ docs/voddocs/201/393/africa-ver2.pdf. Evdokia Möisé (of the OECD), “Assessing the Benefits of Trade Facilitation,” WTO/World Bank/ICTSD, Workshop on Recent Analyses of the Doha Round, November 2, 2010, http://www.wto.org/english/news_e/news10_e/ dda_brochure_nov10_e.pdf. Gregory Shaffer & Charles Sutton, “Middle-Income Countries in the International Trading System,” in Middle Income Countries, eds. Randall Peerenboom & Thomas Ginsberg (Cambridge: Cambridge University Press, 2014).

354

Selected Bibliography

Amadou Tomani Toure, Introduction to International Trade Negotiations and Poverty Reduction: The White Paper on Cotton, ed. Eric Hazard (Senegal: Enda Prospectives Dialogues Politiques, 2005). USTR, U.S. GSP Guidebook (April 2012), http://www.ustr.gov/ webfm_send/2880. Fisheries and the Environment

Peter Allgeier, “The Trade Toolbox and Environmental Sustainability: The Case for Fisheries,” January 2012, in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, http://ictsd. org/downloads/2012/02/peter-allgeier-the-trade-toolbox-and-environment al-sustainability-the-case-for-fisheries.pdf. Kevin P. Gallagher, “The Challenging Opportunities for the Multilateral Trade Regime,” December 2011, in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, http://ictsd. org/downloads/2012/02/kevin-gallagher-the-challenging-opportunities-for -the-multilateral-trade-regime.pdf. Mahesh Sugathan, “Harnessing Trade and Markets for Sustainable Energy: A Case for Sustainable Energy Trade Initiatives,” December 2011, in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, http://ictsd.org/downloads/2012/02/mahesh-sugathan-harnessing-trade-and-markets-for-sustainable-energy-a-case-for-a-sustainabl e-energy-trade-initiatives.pdf. U. Rashid Sumaila, “Is an All or Nothing WTO Fisheries Subsidies Agreement Achievable?,” in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, http://ictsd.org/downloads/20 12/02/rashid-sumaila-is-an-all-or-nothing-wto-fisheries-s ubsidies-agreement-achievable.pdf. World Water Forum, “Water Supply and Sanitation,” accessed November 12, 2012, http://www.worldwatercouncil.org/index.php?id=23. Government Procurement, Information Technology, ACTA and Other Plurilaterals

Robert D. Anderson, Philipe Pelletier, Kodjo Osei-Lah & Anna Caroline Miller, “Assessing the Value of Future Accessions to the WTO Agreement on Government Procurement (GPA),” WTO Working Paper, October 6, 2011.

Selected Bibliography

355

Robert D. Anderson, Steven L. Schooner & Collin D. Swan, “The WTO’s Revised Government Procurement Agreement – An Important Milestone toward Greater Market Access and Transparency in Global Public Procurement Markets,” George Washington University Legal Studies Research Paper No. 2012–7, January 2012. Shayerah Ilias, “The Proposed Anti-Counterfeiting Trade Agreement: Background and Key Issues,” Congressional Research Service, July 19, 2012, accessed December 4, 2012, http://www.fas.org/sgp/crs/misc/R41107. pdf. Margot E. Kaminski, “The U.S. Trade Representative’s Democracy Problem: The Anti-Counterfeiting Trade Agreement (ACTA) as a Juncture for International Lawmaking in the United States,” Suffolk Transnat’l L. Rev. 35 (2012): 519. Shin-Yi Peng, “Taxing Innovation? The Evolving Coverage of the Information Technology Agreement,” Tax Law 64 (2010): 79. Andrew Rens, “The Enforcement Agenda and the Institutionalization of Enforcement Theater in the Anti-Counterfeiting Trade Agreement, Suffolk Transnat’l L. Rev. 35 (2012): 553. WTO, “15 Years of the Information Technology Agreement,” (2011), accessed June 19, 2012, http://www.wto.org/english/res_e/publications_e/ ita15years_2012full_e.pdf. Trade in Services

Rudolf Adlung & Antonia Carzaniga, “MFN Exemptions under the General Agreement on Trade in Services: Grandfathers Striving for Immortality?,” J. Int’l Econ. L. 12 (2009). Petra L. Emerson, “An Economic Integration Agreement on Services: A Possible Solution to the Doha Development Round Impasse,” Trade L. & Dev. 2(2) (2010): 252. Arti Grover Goswami, Ayditya Mattoo & Sebastian Saez, Exporting Services: A Developing Country Perspective (Washington: World Bank, 2012). The WTO and Trade in Services, ed. Bernard Hoekman (Cheltenham: Edward Elgar Publishing, 2012). Bernard Hoeckman & Aaditya Mattoo, “International Trade: Trade in Services,” in Research Handbook in International Economic Law, eds. Andrew T. Guzman & Allan O. Sykes (Cheltenham: Edward Elgar, 2007), 113–150.

356

Selected Bibliography

Gary Clyde Hufbauer, J. Bradford Jensen & Sherry Stephenson, “Framework for the International Services Agreement,” Peterson Institute Policy Brief PB12-10, April 2012. J. Bradford Jensen, Global Trade in Services: Fear, Facts, and Offshoring (Washington: Peterson Institute, 2011). J. Bradford Jensen, “Opportunities for US Exports of Business Services,” September 20, 2012, http://www.piie.com/publications/print. cfm?researchid=2220&doc=int. Juan A. Marchetti & Petros C. Mavroidis, “The Genesis of the GATS (General Agreement on Trade in Services,” Eur. J. Int’l L. 22 (2011). Aaditya Mattoo, “Services in Doha: What’s on the Table,” in WTO/ World Bank/ICTSD, Workshop on Recent Analyses of the Doha Round, November 2, 2010, 2012, http://www.wto.org/english/news_e/news10_e/ dda_02nov10_e.htm. Jeffrey J. Schott, Minsoo Lee & Julia Muir, “Prospects for Services Trade Liberalization,” Petersen Institute Working Paper Series 12–17, October 2012. Regional Trade Agreements

Frederick M. Abbott, “The North American Integration Regime and its Implications for the World Trading System,” in The EU, the WTO and the NAFTA, ed. J.H.H. Weiler (Oxford: Oxford UP, 2000), 169. Samuel A. Arieti, “The Role of MERCOSUR as a Vehicle for Latin American Integration,” Chi. J. Int’l L. 6 (2006): 761. Kyle W. Bagwell and Petros Mavroidis (eds.), Preferential Trade Agreements: Law, Policy and Economics (Cambridge: Cambridge University Press, 2011). Richard Baldwin, “21st Century Realism: Filling the Gap between 21st Century Trade and 20th Century Trade rules,” WTO Staff Working Paper ERSD-2011–08, May 23, 2011, http://www.cepr.org/pubs/PolicyInsights/ CEPR_Policy_Insight_056.asp. Catherine Barnard, The Substantive Law of the EU, 2nd ed. (Oxford: Oxford University Press, 2007). Lorand Bartels, “The Trade and Development Policy of the European Union,” Eur. J. Int’l L. 18 (2007): 715. The North American Free Trade Agreement: A New Frontier in International Trade and Investment in the Americas, eds. Judith H. Bello et al (Chicago: American Bar Assn., 1994).

Selected Bibliography

357

Talitha Bertelsman-Scott, “Doing Business in SADC still not for the Faint of Heart,” Great Insights, November 2012, http://www.ecdpm.org/Web_ ECDPM/Web/Content/Download.nsf/0/DAE17B11E7C74206C1257ABC 003E5961/$FILE/GREAT1–9%20final%20version%20(1).pdf. Jagdish Bhagwati, Free Trade Today (Princeton, 2002) in Economics of Preferential Trade Agreements, eds. Jagdish Bhagwati & Arvind Panagariya (Washington, D.C: American Enterprise Institute, 1996). A. Brebner, “Things Fall Apart? NAFTA after Quebec Succession,” Dalhousie J. Legal Studies 6 (1997): 287. John Brew, “Peter Allgeier, Global Trade Policy Perspectives: President, C&M International,” Global Trade & Customs J., 5 (July 2012): 327. Henrik Bull, “The Constitutional Development of the European Union,” N.D. L. Rev. 83 (2007): 1. Mario E. Carranza, “Mercosur, the Free Trade Area of the Americas, and the Future of U.S. Hegemony in Latin America,” Fordham Int’l L.J. 27 (2004): 1029. Paul J. Davidson, “The ASEAN Way and the Role of Law in ASEAN Economic Cooperation,” S.Y.B.I.L. 8 (2004): 165. Elizabeth F. Defeis, “A Constitution for the European Union? A Transatlantic Perspective,” Temp. Int’l & Comp. L.J. 19 (2005): 351. Melaku Geboye Desta & Moshe Hirsch, “African Countries in the World Trading System: International Trade, Domestic Institutions and the Role of International Law,” June 20, 2012, Society of Int’l Economic Law, Working Paper no. 2012/6, http://www.ssrn.com/link/ SIEL-2012-Singapore-Conference.html. Peter Draper, “Africa’s Tripartite Preferential Trade Agreement and the PTA-WTO Coherence Debate: Yin and Yang,” in ICSID, Trade and Development Symposium: Perspectives on the Multilateral Trading System, December 2011, http://www.ictsdsymposium.org/en/events/ trade-and-development-symposium. Thomas Eilmansberger, “IP and Antitrust in the European Union,” Sw. J.L. & Trade Am. 13 (2007): 261. Jeffrey A. Frankel, Regional Trading Blocs in the World Economic System (Washington: Inst. for Int’l Economics, 1997). David A. Gantz, “The United States and Dispute Settlement under the North American Free Trade Agreement: Ambivalence, Frustration and Occasional Defiance,” in The Sword and the Scales: the United States and International Courts and Tribunals, ed. Cesare P.R. Romano (Cambridge: Cambridge University Press, 2009), 356–393.

358

Selected Bibliography

David A. Gantz, “Implementing the NAFTA Rules of Origin: Are the Parties Helping or Hurting Free Trade?,” Arizona J. Int’l & Comp. L. 12 (1995): 367. David A. Gantz, “Legal and Policy Implications of the NAFTA Article 303 Changes,” Denver J. Int’l L. & Pol’y 30 (2001): 1. David A. Gantz, Regional Trade Agreements: Law, Policy and Practice (Durham: Carolina Academic Press, 2009). David A. Gantz, “Settlement of Disputes Under the Central American– Dominican Republic–United States Free Trade Agreement,” B.C. Int’l & Comp. L. Rev. 30 (2007): 331–410. Zakir Hafez, The Dimensions of Regional Trade Integration in Southeast Asia (Leiden: Transnational Publishers, 2004). The Future of North American Integration, eds. Peter Hakin & Robert E. Litan (Washington: Brookings, 2002). Michael Hart, Bill Diamond & Colin Robertson, Decision at Midnight: Inside the Canada-U.S. Free Trade Negotiations (Vancouver: University of British Columbia Press, 1994). T.C. Hartley, the Foundations of European Community Law, 6th ed. (Oxford: Oxford University Press, 2007). Kenneth Heydon & Stephen Woolcock, The Rise of Bilateralism: Comparing American, European and Asian Approaches to Preferential Trade Agreements (New York: United Nations University Press, 2009). Pash L. Hsieh, “APEC as a Trans-Regional Economic Governance Architecture: A Critical Assessment with Reform Proposals,” Society of Int’l Economic Law, Working Paper no. 2012/45, July 6, 2012, http://papers. ssrn.com/sol3/papers.cfm?abstract_id=2101759. Gary Clyde Hufbauer & Jeffrey J. Schott, NAFTA Revisited: Achievements and Challenges (Washington: Inst. for Int’l Economics, 2005). Kevin C. Kennedy, “The FTAA Negotiations: A Melodrama in Five Acts,” Loyola Int’l L. Rev. 1 (2004): 121. Robert Kirk & Matthew Stern, “The New South African Customs Union Agreement,” World Econ. 28 (vol. 2, February 2005): 169. Michal Krol & Hosuk Lee-Makiyama, “A EU–Taiwan Trade Accord from EU Member States Perspective: Rebalancing Regional Trade, ECIPE Policy Briefs no. 13/2012, http://www.ecipe.org/media/publication_pdfs/ PB201213_final.pdf. Amanda Sunassee Lam, “Regional Integration in Africa  – Looking East for Inspiration,” Great Insights, November 2012, http://www.ecdpm.org/

Selected Bibliography

359

Web_ECDPM/Web/Content/Download.nsf/0/DAE17B11E7C74206C125 7ABC003E5961/$FILE/GREAT1–9%20final%20version%20(1).pdf. The Trans-Pacific Partnership: A Quest for a Twenty-First Century Trade Agreement, eds. C.L. Lim, Deborah K. Elms & Patrick Low (Cambridge: Cambridge University Press, 2012). Hosuk Lee-Makiyama, “FTAs and the Crisis in the European Car Industry,” ECIPE Policy Brief no. 02/2012, http://www.ecipe.org/media/publication_ pdfs/PB201102.pdf. Hosuk Lee-Makiyama, “Upholding Europe’s Mandate on Trade,” ECIPE Policy Briefs no. 11/2012, http://www.ecipe.org/media/publication_pdfs/ PB201212.pdf. Meredith Kolsky Lewis, “The Trans-Pacific Partnership: New Paradigm or Wolf in Sheep’s Clothing,” B.C. Int’l & Comp. L. Rev. 34 (2011): 27. William A. Lovett, Alfred E. Eckes, Jr. & Richard Brinkman, U.S. Trade Policy: History, Theory and the WTO (Armonk: M.E. Sharpe, 1999). Paolo Mengozzi, European Community Law (London: Kluwer, 1992). Thomas Andrew O’Keefe, “Economic Integration as a Means for Promoting Regional Political Stability: Lessons from the European Union and Mercosur,” Chi.-Kent L. Rev. 80 (2005): 187. Peter A. Petri & Michael G. Plummer, “The Trans-Pacific Partnership and Asia-Pacific Integration: Policy Implications,” Peterson Institute Policy Brief PB12-16, June 2012, http://www.iie.com/publications/pb/pb12-16. pdf. Michela D. Platzer, “U.S. Textile Manufacturing and the Trans-Pacific Partnership Negotiations, Congressional Research Service, October 5, 2012, Summary, accessed October 22, 2012, http://www.fas.org/sgp/crs/row/ R42772.pdf. Richard Pomfret, The Economics of Regional Trading Arrangements (Oxford: Clarendon, 1997). Rafael A. Porrata-Doria, Jr., MERCOSUR: the Common Market of the Southern Cone (Durham: Carolina Academic Press, 2005). A. Portugal-Perez & J.S. Wilson, “Why Trade Facilitation Matters to Africa,” World Trade Review 8 (2009): 379. Lay Hong Tan, “Will ASEAN Economic Integration Progress beyond a Free Trade Area?,” ICLQ 53 (2004): 935. Joel P. Trachtman, “International Trade: Regionalism,” in Research Handbook in International Economic Law, eds. Andrew T. Guzman & Allan O. Sykes (Cheltenham: Edward Elgar, 2007), 151.

360

Selected Bibliography

USTR, 2007 Comprehensive Report on U.S. Trade and Investment Policy Toward Sub-Saharan Africa and Implementation of the African Growth and Opportunity Act, May 2007, http://www.ustr.gov/sites/default/files/ asset_upload_file762_11294.pdf. John A.E. Vervaele, “Mercosur and Regional Integration in South America,” ICLQ 54 (2005): 387. Paul Vishny, European Union Law; An Introduction (Philadelphia, ALI-ABA, 2006). Sandra Ward, “The U.S. – Israel Free Trade Area: Is it GATT Legal?,” Geo. Wash. J. Int’l L. & Econ. 19 (1985). Mary T. Yeung, Nicholas Perdikis & William A. Kerr, Regional Trading Blocs in the Global Economy: The EU and ASEAN (Cheltenham: Edward Elgar, 1999). Bruce Zagaris & Elena Papangelopoulou, “An Overview of the CARIFORUM–EC Economic Partnership Agreement,” Tax Notes Int’l 49 (February 25, 2008): 689. Unilateral Reforms

Coalition for GSP, “The U.S. Generalized System of Preferences Program: an Update,” February 2008, http://www.usvtc.org/trade/other/GSP/GSP%20 Update%20Feb08.pdf. Hernando De Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (New York: Basic Books, 2003). European Commission, Managing the Agricultural Budget Wisely (2007), accessed October 20, 2011, http://ec.europa.eu/agriculture/fin/clearance/ factsheet_en.pdf. David A. Gantz, “Resolution of Investor-State Controversies in Developing Countries,” Law and Development Review 5 (2012): 83. Gary Gereffi, “Commodity Chains and Regional Divisions of Labor in East Asia,” in The Four Asian Tigers: Economic Development and the Global Political Economy, ed. Eun Mee Kim (San Diego: Academic Press, 1998), 96. Thomas Kelly, “Beyond the Washington Consensus and New Institutionalism: What is the Future of Law and Development?,” N.C. J. Int’l & Com. Reg. 35 (2010): 539. Boris Kozolchyk, “Secured Lending and its Poverty Reduction Effect,” Tex. Int’l L.J. 42 (2007): 727.

Selected Bibliography

361

Lourdes Melgar, “The Future of Pemex,” Americas Quarterly, http://www. americasquarterly.org/node/3781. Ichiro Numazaki, “The Export Oriented Industrialization of Pacific Rim Nations and Their Presence in the Global Market, in The Four Asian Tigers: Economic Development and the Global Political Economy, ed. Eun Mee Kim (San Diego: Academic Press, 1998), 61–86. Francisco Reyes, A New Policy Agenda for Latin American Company Law: Reshaping the Closely-Held Entity Landscape (Durham: Carolina Academic Press, 2012). Kwang Yeong Shin, “The Political Economy of Economic Growth in East Asia: South Korea and Taiwan,” in The Four Asian Tigers: Economic Development and the Global Political Economy, ed. Eun Mee Kim (San Diego: Academic Press, 1998). John Williamson, “A Short History of the Washington Consensus,” L. & Bus. Rev. Am. 15 (2009): 7. Carol Wise, Mexico’s Democratic Transition: the Search for New Reform Coalitions, 9 LBUSRAM 283, 305–310 (2003). WTO, Trade Policy Review: Chile, October 9, 2009, http://www.wto.org/english/tratop_e/tpr_e/tp320_e.htm. WTO, Trade Policy Review: Colombia, June 28, 2012, http://www.wto.org/ english/tratop_e/tpr_e/tp365_e.htm. WTO,Trade Policy Review: Hong Kong (Report of the Secretariat), December 3, 2010, http://www.wto.org/english/tratop_e/tpr_e/tp341_e.htm. WTO, Trade Policy Review: Republic of Korea (Report of the Secretariat), September 3, 2008, viii, http://www.wto.org/english/tratop_e/tpr_e/tp304_e. htm. WTO, Trade Policy Review: Republic of Korea, Executive Summary, September 19, 2012, http://www.wto.org/english/tratop_e/tpr_e/s268_ sum_e.pdf. WTO, Trade Policy Review: Mexico (Report of the Secretariat), February 11, 2008, http://www.wto.org/english/tratop_e/tpr_e/tp295_e.htm. WTO, Trade Policy Review: Peru (Report of the Secretariat), September 12, 2007, http://www.wto.org/english/tratop_e/tpr_e/tp289_e.htm. WTO, Trade Policy Review: Singapore (Report of the Secretariat, July 26, 2012, http://www.wto.org/english/tratop_e/tpr_e/tp367_e.htm. WTO, Trade Policy Review: Taiwan (Report of the Secretariat), May 31, 2010, http://www.wto.org/english/tratop_e/tpr_e/tp332_e.htm.

362

Selected Bibliography

Investment, Competition and Miscellaneous

Americo Beviglia & Pierre Sauve, “International Investment,” in Research Handbook in International Economic Law, eds. Andrew T. Guzman & Alan O. Sykes (Cheltenham: Edward Elgar, 2007), 215. Riyaz Dattu, “A Journey from Havana to Paris: the Fifty-Year Quest for the Elusive Multilateral Agreement on Investment,” 24 Fordham Int’l L.J. 24 (2000): 275. Andrew T. Guzman, “International Competition Law,” in Research Handbook in International Economic Law, eds. Andrew T. Guzman & Allan O. Sykes (Cheltenham: Edward Elgar, 2007), 418. Pradeep Mehta, “Towards a Multilateral Framework on Competition Policy,” 2, in ICTSD, Trade and Development Symposium: Perspectives on the Multilateral Trading System, December 2011, http://ictsd.org/downloads/2012/02/pradeep-mehta-towards-a-multilateral-framework-on-competition-policy.pdf. Peter T. Muchlinski, “The Rise and Fall of the Multilateral Agreement on Investment: Where Now?,” Int’l Law. 34 (2000): 1033. OECD/UNCTAD, “Seventh Report on G20 Investment Measures,” http:// unctad.org/en/PublicationsLibrary/unctad_oecd2012d7_en.pdf. Suzanne A. Spears, “The Quest for Policy Space in a New Generation of International Investment Agreements,” J. Int. Economic Law (2010) 13(4): 1037–1075. Andrew L. Stoler, “WTO-Plus Issues in the Multilateral Trading System,” in ICTSID, Trade and Development Symposium: Perspectives on the Multilateral Trading System, November 2011, accessed July 13, 2012, http://ictsd.org/downloads/2012/02/andrew-stoler-wtoplus-issues-inthe-multilateral-trading-system.pdf. Useful Websites

United Nations Conference on Trade and Development (UNCTAD): http:// www.unctad.org/Templates/StartPage.asp?intItemID=2068 EU – Mexico Free Trade Agreement: http://europa.eu.int/comm/trade/bilateral/mexico/fta.htm European Union, Official Website: http://europa.eu/ Financial Times: http://www.FT.com International Center for Trade and Sustainable Development (ICTSD), Bridges Weekly Trade News Digest: http://ictsd.org/news/bridgesweekly/

Selected Bibliography

363

International Trade Canada (Canadian FTAs): http://www.international. gc.ca/trade-agreements-accords-commerciaux/index.aspx?lang=en International Trade Reporter (BNA): http://www.bna.com/ international-trade-reporter-p6101/ Latin American Integration Association (ALADI): http://www.aladi.org MERCOSUR: www.mercosur.org.uy NAFTA text (complete) and NAFTA Chapter 19 and 20 decisions: http:// www.NAFTA-sec-alena.org/ NAFTA (investment disputes): http://www.naftaclaims.com Office of the U.S. Trade Representative: http://www.ustr.gov Organization of American States: http://www.sice.oas.org World Trade Online: http://insidetrade.com/ World Trade Organization: http://www.wto.org WTO Agreements (legal texts): http://www.wto.org/english/docs_e/legal_e/ legal_e.htm

Table of Cases

Appellate Body, Argentina  – Safeguard Measures on Imports of Footwear, WT/DS121/AB/R, adopted January 21, 2000 [Chapters 7, 8] Appellate Body Report, Brazil  – Measures Affecting the Importation of Retreaded Tires, WT/DS/332/AB/R, adopted December 17, 2007 [Chapters 7, 8] Panel Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/142/R, adopted June 19, 2000 [Chapter 8] Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/142/AB/R, adopted June 19, 2000 [Chapter 8] Appellate Body Report, European Communities  – Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS346/AB/R, adopted April 20, 2004 [Chapter 4] Appellate Body Report, European Communities  – Trade Description of Sardines, WT/DS231/AB/R, adopted October 23, 2002 [Chapter 10] Appellate Body Report, Turkey – Restrictions on Imports of Textile and Clothing Products, WT/DS34/AB/R, adopted October 22, 1999 [Chapter 7] Appellate Body Report, United States – Continued Suspension of Obligations in the EC-Hormones Dispute, WT/DS320/AB/R, adopted November 14, 2008 [Chapter 10] Appellate Body Report, United States  – Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248, 249, 251, 252, 253, 254, 258, 259/ AB/R, adopted December 10, 200 [Chapter 8]

365

366

Table of Cases

Appellate Body Report, United States  – Import Prohibition of Certain Shrimp and Shrimp Products, AB/WT/DS58/R, adopted December 6, 1998 [Chapter 5] Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting Services, WT/DS285/AB/R, adopted April 7, 2005 [Chapter 7] Appellate Body Report, United States  – Shrimp: Implementation Phase (Article 21.5), AB/WT/DS58/R, adopted November 21, 2001 [Chapter 5] Appellate Body Report, United States  – Subsidies on Upland Cotton, WT/ DS267/AB/R, adopted March 21, 2005 [Chapter 4]

­Index

Abe, Japanese prime minister Shinzo, 276 Acer Corp, 321 African, Caribbean and Pacific states (ACP), 240–247, 349 African Growth and Opportunity Act (AGOA), 64 African regional initiatives, 263–268 African Tripartite TPA/African Economic Community, 265–266, 349 Agreement Establishing the World Trade Organization. See WTO ­Agreement [Marrakesh Agreement] Agreement on Agriculture, 69, 71, 345–346 Agreement on Basic Telecommunications. See General Agreement on Trade in Services (GATS) Agreement on Financial Services. See General Agreement on Trade in Services (GATS) Agreement on Government Procurement. See Government Procurement Agreement (GPA) Agriculture Agricultural subsidies and market access, 33, 47, 71, 196, 248, 276, 292–295, 343–346 Tariff­-rate quotas (TRQ), 51, 70 See also Cotton and cotton subsidies Airbus, 211 Allgeier, former deputy USTR Peter, 75, 77, 199, 200 Andean Community (Andean Group), 257 Andean Trade Preference and Drug Eradication Act (ATPDEA), 52

Anti­-Counterfeiting Trade Agreement (ACTA), 88, 114–119 Antidumping Agreement (WTO Agreement on Implementation of Article VI of GATT 1994), 26 Appellate Body [WTO]). See World Trade Organization (WTO); List of Cases Apple Inc., 193 Foxconn Technology Group, 193 iPhone, 193 ASEAN, ASEAN Group. See Association of Southeast Asian Nations (ASEAN) ASEAN­-Australia­-New Zealand Free Trade Agreement (AANZ), 154, 155, 222 ASEAN + 3, 222, 261 ASEAN + 6. See Regional Comprehensive Economic Partnership (RCEP) ASEAN Way. See Association of Southeast Asian Nations (ASEAN) Asia­-Pacific Economic Cooperation Forum (APEC), 8, 48, 58, 60, 80, 84–86, 101, 110, 132, 136, 229–234, 256, 257, 261, 269, 273, 309 Asian, Pacific and Caribbean States (ACP), 240, 242–245 Association of Southeast Asian Nations (ASEAN), 238, 257, 260, 262, 263, 273 ASEAN­-China FTA (ACFTA), 122 ASEAN FTA (AFTA), 122, 159, 199, 204, 218–223, 224, 262, 349 ASEAN Way, 219, 222, ­262 Cebu Declaration, 221, 222

367

368

Association of Southeast Asian Nations (ASEAN) (cont.) Dispute Settlement, 154, 219 See also ASEAN +6, Regional Comprehensive Economic Partnership (RCEP) Asus, 321 Atkins, Ralph, 208 Auto industry, 224, 277, 291–292 Baldwin, Richard, 192 Beneficiary Developing Country. See Generalized System of Preferences (GSP) Bhagwati, Jagdish, 190 Bilateral Investment Treaties (BITs), 107–109, 148, 245 2004 U.S. Model Bilateral Investment Treaty, 110 2012 U.S. Model Bilateral Investment Treaty, 110, 150, 281, 282 Bipartisan Trade Deal (BTD) [U.S.], 288 Blair House Accord. See Uruguay Round (GATT negotiations) Bolivarian Alliance for the Peoples of Our America (ALBA), 257 Border 2020 Plan. See North American Free Trade Agreement (NAFTA) Bouzas, Robert, 48 Brady, House Ways and Means Committee Chairman Kevin, 247–248 Bretton Woods agreements, 12 BRICS (Brazil, Russia, India, China and South Africa), 8, 27, 28, 38, 80, 91, 93, 126, 127, 132, 134, 157, 348, 350 Brock, former USTR William, 129, 159 Bush, former U.S. President George W./Bush Administration, 198, 269, 270, 336 BusinessEurope, 253 “Buy American” requirements, 95, 298 Calderón, former Mexican President Felipe, 225, 227, 328 California Chamber of Commerce, 277 Cameron, UK Prime Minister David, 211, 212 Canada­-United States FTA (CFTA), 128 Caribbean Basin Economic Recovery Act (CBERA), 52, 64

­Inde

CARIFORUM States, 243 Caterpillar, Inc., 277 Cebu Declaration. See Association of Southeast Asian Nations (ASEAN) Central America­-Dominican Republic­ United States Free Trade Agreement (CAFTA­-DR), 153, 199, 281, 304–305 CGP. See Government Procurement Agreement (GPA) Chaebol. See Korea Chamber of Commerce, U.S., 247, 253, 296, 298 Chavez, former Venezuelan President Hugo, 217 Chile, 325–326, passim See also “Four Jaguars”; Trans­-Pacific Partnership (TPP); Individual Limited Liability Company (Chile) China, 39–41, 258–263, 270 China­-ASEAN FTA. See Association of Southeast Asian Nations (ASEAN) China­-Chile FTA. See Chile See also ASEAN +6, Regional Comprehensive Economic Partnership (RCEP) China­-Japan­-South Korea FTA (CJKFTA), 9, 258–261, 262, 278, 349 Chrysler Corporation, 44 Civil society, 254 CJKFTA. See China­-Japan­-South Korea FTA ­(CJKFTA) Clinton, former Secretary of State Hillary, 246, 251, 268 Colombia, 326–327 Law No. 1258/2008, 341–342 United States­-Colombia Trade Promotion Agreement, 281 See also Andrean Community (Andean Group); “Jaguars” (Chile, Colombia, Mexico and Peru); Pacific Alliance, Simplified stock corporation Comisión Federal de Electricidad (CFE) [Mexico], 285 Committee on Government Procurement (CGP). See Government Procurement Agreement (GPA)

­Inde

Committee on Private International Law (SIDIP). See Organization of American States (OAS) Committee on Regional Trade Agreements (CRTA) [WTO], 188 Committee on Trade and the Environment. See World Trade Organization (WTO) Common Agricultural Policy (CAP), 343–344 Common External Tariff (CET), 214, 215 Common Fisheries Policy (CFP). See European Union Common markets See Common Market for Eastern and Southern Africa (COMESA); European Union; Mercosur Common Market for Eastern and Southern Africa (COMESA), 265 Competition law/Agreement, 39, 88, 111–114, 249 “Competitive need” limitations. See Generalized System of Preferences (GSP) Consensus requirement (WTO). See WTO Agreement [Marrakesh Agreement] Contreras, Rodrigo, 273 Corruption, 264 Cotonou Agreements, 64, 67, 242, 243 Cotton and cotton subsidies, 36, 51, 61–64 Council on Trade in Services. See General Agreement on Trade in Services (GATS) Cuellar, U.S. Congressman Henry, 225 Customs Union. See General Agreement on Tariffs and Trade 1994, GATT Article XXIV Daimler [Benz] AG, 253 Dairy products, 274, 292, 295 De Gaulle, former French President Charles, 210 De Gucht, EU Trade Commissioner Karel, 238, 239 De Soto, Hernando, 336 Dell Computer, 321 Democratic Party of Japan (DJP), 276 Democratic Party/platform [U.S.], 47, 48, 288, 308 Developing countries, 37–39, 50–71

369

Dispute Settlement Body/Dispute Settlement Understanding [WTO], 152, 153, 154, 155, 286 Dlamini­-Zuma, Nkosazana, 246 Doha Declaration. See World Trade Organization (WTO) Doha Development Round [WTO], 30–48 Draghi, European Central Bank President Mario, 206 Duty­-Free, Quota­-Free Market Access (DFQF), 7, 51, 52, 54, 55, 56, 62, 63, 64, 68, 69, 348, 349 EC. See European ­Union EC Treaty. See European Union (EU, European Communities), Treaty of Rome Economic Cooperation Partnership Agreement. See Taiwan, Chinese Economic Integration Agreement (EIA). See General Agreement on Trade in Services (GATS) Economic Partnership Agreement [EU] (EPA), 240–247 EFTA. See European Free Trade Association EIF. See Enhanced Integrated Framework (EIF) (WTO) Electronic commerce, 88, 104–105 Elliott, Kimberly Ann, 64–65 Enabling Clause (GATT). See General Agreement on Tariffs and Trade1994, GATT Enabling Clause Enhanced Integrated Framework (EIF) (WTO), 59–60 Environmental goods, 73 Environmental protection [in trade agreements], 224, 239, 244, 279, 288–289 See also Bipartisan Trade Deal (BTD) [U.S.], Trans­-Pacific Partnership (TPP) Ethanol, 345 EU­-Canada FTA negotiations. See European Union EU­-Japan FTA negotiations. See European Union EU­-United States FTA/Transatlantic Trade and Investment Partnership negotiations, 247–255

370

Euro. See European Monetary System (EMS) European Central Bank (ECB), 204, 207, 210 European Court of First Instance [General Court], 199 European Court of Justice (ECJ/CJEU), 198 European Economic Association, 210 European Monetary System (EMS), 206 European Union (EU, European Communities), 202–212, 235–255, passim Commission, 113, 117, 118, 203, 245 Common Fisheries Policy (CFP), 76–77 Economic partnership agreements, 240–247 Enlargement, 209 EU­-Canada FTA negotiations, 236–237, 247 EU­-CARIFORUM Economic Partnership Agreement, 243–245 EU­-Chile FTA, 237 EU­-Colombia/Peru FTA (Andean Group), 237 EU­-Japan FTA negotiations, 239–240 EU­-Mercosur FTA negotiations, 238 EU­-Mexico FTA, 236, 237 EU­-Russia trade negotiations, 240 European Community Treaty, 241 European Parliament, 203, 237 Euroskepticism [U.K.], 210–212 Eurozone, 6, 204–209 Internal Market, 129 Iron and Steel Community, 188 Single European Act/Single Market Initiative, 159 Treaty Establishing the European Coal and Steel Community (ECSC), 306 Treaty of Lisbon, 108, 203, 245 Treaty of Rome,188 See also EU­-United States FTA/ Transatlantic Trade and ­Investment Partnership negotiations Eurozone. See European Union Exclusive Economic Zone (EEZ), 74, 75, 76, 77 Fast­-Track [U.S.]. See Trade Promotion Authority (TPA) Felippo, Eduardo, 214

­Inde

Fisheries subsidies, 73, 74–78, 349 Footwear,316 See also Trans­-Pacific Partnership Foreign Direct Investment (FDI). See Investment “Four Jaguars.” See “Jaguars” (Chile, Colombia, Mexico and Peru) “Four Tigers.” See Textiles and apparel, “Tigers” [four] (Hong Kong, Korea, Singapore and Taiwan) Fox, former Mexican President Vincente, 226 Foxconn Technology Group. See Apple Inc. Framework agreements, 219 Franken, U.S. Senator Al, 298, 301 Free Trade Agreements (FTAs) [generally], 145–158 See also GATT Article XXIV, individual agreements Free Trade Agreement of the Americas (FTAA), 78, 199, 200 Free Trade Area of the Asia­-Pacific (FTAAP), 232, 233–234, 271, 273 “Free­-Rider” problem, 86, 89, 134, 141 Friendship, Commerce and Navigation Treaties (FCN), 128 G­-20. See Group of 20 (G­-20) Gallagher, Kevin, 81–82 Gao, Henry, 40 Garcia, former Peruvian President Alan, 333 GATS. See General Agreement on Trade in Services (GATS) GATT. See General Agreement on Tariffs and Trade 1994 General Agreement on Tariffs and Trade 1994, 11–26, passim GATT Article V, 57 GATT, Article VIII, 57, 58 GATT Article X, 57 GATT Article XXIV, 89, 138, 139, 160, 184–187 Higher or more restrictive, 185 Notification, 186 Reasonable length of time, 185, 188 Substantially all trade, 187, 188, 248 GATT Enabling Clause, 67, 160 General Agreement on Trade in Services (GATS), 32, 89, 95, 120, 121–124, 128–132

­Inde

Council on Trade in Services, 136 Economic Integration Agreement (EIA), 135–140 GATS Article V, 89, 122, 135, 137–138, 139, 144, 152, 160, 197 GATS Article XIX, 135 Modes 1–4, 139, 145–146 Monopolies, 149 Professional services, 145, 146 See also International Services Agreement/International Trade in Services Agreement (ISA/ITSA) General Motors Corporation, 44, 211, 292 Generalized System of Preferences (GSP), 15, 51, 52, 55, 64, 64–69, 241, 242, 255, 316, 348 Beneficiary developing country (BDC), 65, ­67 Competitive need limitations, 66 Graduation, 66, 316 Gereffi, Gary, 315, 316 Global Supply Chains. See Supply Chain Management/support Gordillo, Elba Esther, 331 Government Procurement, Agreement on (GPA), 7–8, 88, 89–96, 131, 148, 149, 348, 349 Committee on Government Procurement (CGP), 155 Government Procurement Code (Tokyo Round), 89–90 Great Depression, 11 Great Recession, 313 “Green” Technology Goods, 78–86, 231, 349 Group of 20 (G­-20), 34, 41, 70, 313 Harbinson, Stuart, 1 Hauser, Christine, 194 Havana Charter/Conference, 12, 106, 111 Health Care Products and Services Agreement, 104 Heydon, Kenneth, 56 Hoekman, Bernard, 188 Hollande, French President Francois, 205, 208 Honda (American) Motor Co., Inc., 193, 340 Hong Kong, 323–324 Hoover Administration, 11 Horlick, Gary, 272

371

Hsieh, Pasha, 273 Hudec, Robert, 13, 15, 16 Hufbauer, Gary Clyde, 133, 147, 151, 155 Humala, Peruvian President Ollianta, 256, 333 Hyundai Group, 318 Individual Limited Liability Company (Chile), 342–343 Information Technology Agreement (ITA) [WTO], 2, 7, 9, 50, 86, 96–103, 348, 349 International Bank for Reconstruction and Development (IBRD). See World Bank (International Bank for Reconstruction and Development) International Centre for the Settlement of Investment Disputes (ICSID), 106 ICSID Additional Facility, 106 International Labor Organization (ILO), 288 International Monetary Fund (IMF), 12, 59, 205, 207, 263, 336 International Services Agreement/ International Trade in Services Agreement (ISA/ITSA), 2, 7, 9, 28, 140–155, 197, 250, 253, 284, 348, 349 Dispute Settlement, 155–155 Negative list approach, 123, 143, 144 Positive list approach, 123, 130, 131, 143 Professional services, 126, 131, 145, 146, 147, 148 Prudential restrictions, 131 “Real Good Friends of Services,” 123 International Trade Organization (ITO), 12 See also Havana Charter/Conference Investment, 39, 87, 88, 215 Investment Protection Agreement, 105–111, 279, 349 Intel Corporation, 193 iPhone. See Apple ­Inc. ISA. See International Services Agreement/International Trade in Services Agreement (ISA/ITSA) “Jaguars” (Chile, Colombia, Mexico and Peru), 8, 324–334, 349 See also Pacific Alliance

372

Japan, 258–263, 275–278, 310 Japan­-Chile FTA, 277 Japan­-Singapore FTA, 277 See also Asia­-Pacific Economic Cooperation Forum (APEC), Regional Comprehensive Economic Partnership (RCEP), Trans Pacific Partnership (TPP) Jensen, J. Bradford, 133, 147, 151, 155 “Just­-in­-time” Manufacturing. See Supply Chain Management/support Keller, Mark, 212 Kelly, Thomas, 337 Kennedy Round Anti­-Dumping Code, 87 Kirk, former USTR Ron, 7, 120, 235, 309 Korea, South, 317–320, 321 Chaebol, 317, 319 United States­-Korean FTA (KORUS), 123, 147, 154, 281 See also Trans Pacific Partnership (TPP), Regional Comprehensive Economic Partnership (RCEP), China­-Japan­South Korea FTA (CJKFTA) Kostecki, Michael M., 188 Kozolchyk, Professor Boris, 340 Labor rights Bipartisan Trade Deal, 288 European Union, 237, 244, 330–31 Laborde, David, 31 North American Free Trade Agreement (NAFTA), 224 Trans­-Pacific Partnership, 279 Trade Promotion Authority (TPA), 288–289 Lamb, 293, 295 Lamy, Pascal, 35, 41, 59, 60, 189, 191, 313 Lawrence, Robert Z., 196 Lee­-Makiyama, Hosuk, 199 Liberal Democratic Party (Japan), 276 Lisbon, Treaty of. See European Union Lomé Conventions, 242 London Court of International Arbitration, 106 Lovett, William, 16, 47 Maduro, Venezuelan president Nicolás, 217 Mandelson, Peter, 17, 243, 348, 362

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Marantis, Deputy USTR Demetrios, 309 Marois, Quebec prime minister Pauline, 228 Marrakesh Agreement. See WTO Agreement [Marrakesh Agreement] Marshall Plan, 12 McCain, U.S. Senator John, 306 McMillan, former UK Prime Minister Harold, 210 Mercosur, 159, 192, 199, 204, 212–218, 224, 257, 349 Bolivia, accession of, 216–218 Congressional coup [Paraguay], 213 European Union, FTA negotiations with, ­218 Venezuela, accession of, 216–218 Merkel, German Chancellor Angela, 83, 207 Mexico, 327–332, passim Foreign Investment Law (1993), 328 Mexico­-Chile FTA, 297 Mexico­-Japan FTA, 256, 275 PAN (National Action Party), 331 PRI (Institutional Revolutionary Party), 331 PROSEC Program, 100, 330 See also European Union (EU, European Communities), EU­Mercosur FTA negotiations: EU­Mexico FTA, North American Free Trade Agreement (NAFTA), Pacific Alliance MICs. See Middle income countries (MICs) Middle Income Countries (MICs), 12, 16, 27, 37, 38, 40, 198 Millennium Challenge Corporation. See United States Government/laws Model laws, 338–343 Modes 1–4, See General Agreement on Trade in Services (GATS) Monti, Italian Prime Minister Mario, 211 Most Favored Nation Treatment (MFN Treatment)/MFN tariffs, 13, 88, 97, 99, 103, 122, 130, 134, 140, 158, 184, 187, 195, 319, 326, 329, 333 Motorola, Inc., 193 Mubarak, former Egyptian President Hosni, 268 Multilateral Agreement on Investment (MAI), 106–107, 110, 136

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Multilateral environmental agreements (MEAs), 73 Multinational Enterprises (MNEs, MNCs), 47, 322, 324 Museveni, Ugandan President Yoweri, 268 National Foreign Trade Council (NFTC), 249 New Zealand New Zealand­-China FTA, 122 New Zealand­-Malaysia FTA, 122 See also ASEAN­-Australia­-New Zealand Free Trade Agreement (AANZ), Regional Comprehensive Economic Partnership (RCEP), Trans­-Pacific Partnership (TPP) Ng, Joel, 267 Non­-Agricultural Market Access (NAMA), 36 Non­-Tariff Barriers (NTB), 44, 102, 312, 314, 323, 324 North American Agreement on Environmental Cooperation (NAAEC), 224 North American Agreement on Labor Cooperation (NAALC), 224, 288–289 North American Free Trade Agreement (NAFTA), 56, 99, 100, 122, 128, 143, 154, 191, 192, 198, 199, 223–229, 272, 274, 289, 290, 292, 294, 297, 299, 301, 327, 328, 329 Border 2020 Plan, 226 Chapter 11 [investment], 281, 283 Chapter 19 [trade disputes], 307 Chapter 20 [government­-to­government disputes], 154 Free Trade Commission, 155 Modification through Trans­-Pacific Partnership, 306–307 OAS Model Secured Transactions Law (2002). See Organization of American States (OAS) Obama, U.S. President Barack/Obama Administration, 81, 82, 120, 197, 227, 251, 252, 270, 275, 286, 298, 299–301, 306, 311, 337 OECD Convention on Combatting Bribery, ­136

373

Organization for Economic Cooperation and Development (OECD), 59, 89, 107, 113, 132, 284, 318, 319, 325 Organization of American States (OAS), 338 Committee on Private International Law (SIDIP), 338 OAS Model Secured Transactions Law (2002), 338–341 P­-4 FTA, 270, 271 Pacific Alliance, 255–258, 349 Park, Korean President Geun­-hye, 320 Parti Québécois, 228 PEMEX [Petróleos Mexicanos], 226, 227, 285, 331 Peña Nieto, Mexican President Enrique, 331, 332 Peru Market liberalization, 332–334 United States­-Peru TPA, 281, 334 See also Andean Community (Andean Group); “Jaguars”; Pacific Alliance Peterson Institute (Washington), 31 Piazzi, Samuel di, 142 Piñera, Chilean President Sebastían, 255, 325 “Pivot” towards Asia. See Trans Pacific Partnership (TPP) Plurilateral Agreements, 7, 109, 132, 134 See also Government Procurement Agreement (GPA); Information Technology Agreement (ITA) [WTO]; International Services Agreement/International Trade in Services Agreement (ISA/ITSA) Preferential Trade Agreements (PTAs). See Regional Trade Agreements (RTAs) Professional Services. See General Agreement on Trade in Services (GATS) PROSEC Program [Mexico]. See Mexico Punke, Deputy USTR Michael, 36 “Quad” countries (Canada, EU, Japan and the United States), 45 Quebec, 228, 229

374

Rape of Nanking, 259 “Real Good Friends of Services.” See International Services Agreement/International Trade in Services Agreement (ISA/ITSA) Regional Comprehensive Economic Partnership (RCEP), 222, 223, 233, 238, 261–263, 270, 277, 310, 349 Regional Trade Agreements (RTAs), 158–184 Renminbi (RNB), 324 Repsol, 238 Republican Party/platform [U.S.], 47, 48, 308 Rodriguez Mendoza Michael, 18 Rome, Treaty of. See European Union Rules of Origin, 51, 54–57, 227, 289–290, 292, 296–297, 307, 309 “Yarn forward,” 227, 298 Russell, Special Assistant to the President Daniel, 310 Rwanda­-United States BIT, 281 Safeguards, 130 Samsung Group, 193, 318 Sanitary and Phytosanitary Measures, Agreement on (SPS Agreement)/ SPS­-Plus, 44, 242, 293 Sanusi, Lamido, 268 Schultz, European Parliament President Martin, 2­ 51 Schwab, former USTR Susan, 34, 104 Securities and Exchange Commission (SEC). See United States Government/laws Shaffer, Gregory, 27, 37 Shapiro, former U.S. Ambassador Charles, 275 Shin, Kwang Yeong, 315 Simplified Stock Corporation, 341–343 Single undertaking approach, 18, 46, 73, 77, 133, 201 Singapore Market Liberalization, 322–323 U.S.­-Singapore FTA, 112 See also Regional Comprehensive Economic Partnership (RCEP), Trans­-Pacific Partnership (TPP) Singapore Issues [Doha Round], 32, 42 “Single­-window” system. See Supply chain management/support

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Smoot­-Hawley Tariff Act, 11 Solar panels, 82, 83, 84 Sony Corporation, 193 South China Sea, 222, 259–260 Diaoyu/Senkakus, 259 Dokdo/ Takeshima, 259 Southerland, Peter, 5 Southern African Customs Union (SACU), 265 Southern African Development Community (SADC), 264 “Spaghetti bowl,” 190, 301, 303 Special Administrative Region [Hong Kong], 324 Special and Differential Treatment, 7 Special drawing rights, 96 SPS Agreement [WTO]. See Sanitary and Phytosanitary Measures, Agreement on (SPS Agreement)/SPS­-Plus Standstill, 231 State­-owned enterprises (SOEs), 95, 111, 150, 243, 283, 298 See also Trans­-Pacific Partnership (TPP) Stephenson, Sherry, 127, 133, 147, 151, 155 Stoler, Andrew, 42 Subsidies and Countervailing Measures, Agreement on (SCM Agreement) [WTO], 44, 77, 130, 142, 150 Sugar/sugar producers, 292, 294, 297 Sumalia, Rashid, 77 Supply chain management/support, 60, 192, 194, 232–233, 243, 296, 330 “Just­-in­-time” manufacturing, 5 “Single Window” system, 58 Sustainable development, 72 Sustainable Energy Trade Agreement (SETA). See “Green” Technology Goods Sutton, Charles, 27, 37 Taiwan, Chinese, 320–322 Economic Cooperation Framework Agreement (ECFA) (China), 320, 321 Tariffs See also Generalized System of Preferences (GSP), Duty­-free, quota free proposals Tariff Rate Quotas Tariff Rate Quotas, 69–71 Teamsters’ Union, ­292

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Technical Barriers to Trade, Agreement on (TBT Agreement) [WTO]/TBT­Plus, 44, 252 Telecommunications. See Services, International Services Agreement/ International Trade in Services Agreement (ISA/ITSA) Textiles and apparel, 54, 56, 289–291, 309, 316 See also Trans­-Pacific Partnership (TPP) “Tigers” [four] (Hong Kong, Korea, Singapore and Taiwan), 8, 314–24, 335, 349 Tobacco. See Trans­-Pacific Partnership (TPP) Tokyo Round, 15, 16, 18 Tokyo Round Codes, 18, 87, 142 Toure, President Amadou Tomani, 61 Trade Facilitation, 7, 50, 51, 57, 59, 231–232, 323, 348, 349 Trade Promotion Authority (TPA) [US] (fast­-track), 6, 300–301 Trade­-Related Aspects of Intellectual Property Rights, Agreement on (TRIPS) [WTO], 19, 46, 48, 78, 115, 119, 285 See also Trans­-Pacific Partnership (TPP) Transatlantic Economic Council, 249 Trans­-Atlantic Trade and Investment Partnership (TTIP)/US­-EU FTA, 43, 247–255, 349 Trans­-Pacific Partnership (TPP), 2, 9, 43, 48, 110, 136, 149, 154, 191, 195, 197, 221, 227, 230, 235, 238, 239, 250, 254, 256, 262, 263, 269–294, 302, 349 Agriculture, 87, 276, 292–294 Apparel and Footwear, 289–291 Automobiles and auto parts, 291–292 Canadian and Mexican participation, 274–275 Entry into force, 304–306 Intellectual property, 286–288 Investment, 280, 281–283 Japanese participation, 275–278 Legal and economic challenges, 301–306 Levels of economic development, 303–304

375

Market access, 289–295 NAFTA modification, 271, 306–307 “Pivot” towards Asia, 248, 270, 310 Regulatory coherence/cooperation, 253, 295–297 State-owned enterprises, 280, 283–285 Textiles and clothing, 280 Tobacco products, 285–286 U.S. political factors, 297–301 Transparency, 102, 115 Treaty of Lisbon. See European Union Treaty of Rome. See European Union TRIPs­-Plus, 116, 279, 286 UNCITRAL Arbitration Rules. See United Nations Commission on International Trade Law (UNCITRAL) UNCITRAL Legislative Guide on Secured Transactions. See United Nations Commission on International Trade Law (UNCITRAL) Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) [WTO]. See World Trade Organization (WTO) Unilateral trade liberalization, 8, 312–346 United Nations Commission on International Trade Law (UNCITRAL), 338, 339 UNCITRAL Arbitration Rules, 106 UNCITRAL Legislative Guide on Secured Transactions, ­339 United Nations Conference on Trade and Development (UNCTAD), 59 United Nations Development Programme (UNDP), 59 United Nations Food and Agricultural Organization (FAO), 74 United Nations General Assembly, 45 United States Government/laws Anti­-trust laws, 113 Central Intelligence Agency (CIA), 317, 322, 327 Congress, U.S., 63, 81, 111, 115, 120, 249, 254, 277, 289, 299, 300, 301, 309, 345 Customs and Border Protection (CBP), 56 Department of Justice, 113 Economic Stimulus, 44

376

United States Government/laws (cont.) Farm bill, 63 Federal Reserve, 204 Federal Trade Commission (FTC), 254 Food and Drug Administration, 294 Millennium Challenge Corporation, 336–337 Securities and Exchange Commission (SEC), 254 U.S. International Trade Commission (USITC), 102 Uniform Commercial Code (UCC), 339 United States Regional Trade Agreements NAFTA. See North American Free Trade Agreement (NAFTA) United States­-Australia FTA, 271 United States­-Canada FTA (CFTA), 160 United States­-Central America­Dominican Republic Free Trade Agreement. See Central America­Dominican Republic­-United States Free Trade Agreement (CAFTA­ -DR), this index United States­-Chile FTA, 281 United States­-Colombia Trade Promotion Agreement. See Colombia United States­-Israel FTA, 160 United States­-Jordan FTA, 300 United States­-Korea FTA (KORUS). See Korea United States­-Panama Trade Promotion Agreement, 281 United States­-Peru Trade Promotion Agreement. See Peru United States­-Singapore FTA. See Singapore United States Trade Representative, Office of the (USTR), 116, 273, 288, 297, 298, 299, 300 Uruguay­-United States BIT, 281 Uruguay Round (GATT negotiations), 1, 5, 16–19, 26, 30, 31, 45, 47, 124, 129, 158 Blair House Accord, 343 Vargo, Frank, 42

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Washington Consensus, 225–337, 333 Wind towers, 83 World Bank (International Bank for Reconstruction and Development), 12, 26, 58, 263, 312, 328, 336 Woolcock, Stephen, 56 World Customs Organization (WCO), 233 World Trade Organization (WTO) Agreement Establishing the World Trade Organization. See WTO Agreement [Marrakesh Agreement] Appellate Body, 23, 73, 140, 143, 152, ­189 Bali Ministerial Meeting (2013), 1, 50, 101 Cancun Ministerial Meeting (2003), 33, 195, 196 Committee on Trade and the Environment (CTE), 72, 73 Council on Trade in Goods, 188 Doha Declaration, 32, 78 Hong Kong Ministerial Meeting (2005), 35, 46, 53, 61, 62, 75 Information Technology Agreement Committee, 97 Seattle Ministerial Meeting (1999), 26 Singapore Ministerial Meeting (1996), 112 Waiver, 134, 135 Working Group on Trade, Debt and Finance, 40 See also individual WTO agreements, Doha Declaration, Doha Development Round [WTO] World War II, 12 WTO Agreement [Marrakesh Agreement], 17, 26 Consensus requirement, 45, 46 Preamble, 72 Yaoundé Conventions, 241 Zoellick, former USTR Robert, 6, 32, 195 Zuma, South African president Jacob, 267

Books in the series (Continued from page iii) Cambridge International Trade and Economic Law Nicolas Diebold Processes and Production Methods (PPMs) in WTO Law: Interfacing Trade and Social Goals Christiane R. Conrad African Regional Trade Agreements as Legal Regimes James Thuo Gathii The Law and Politics of WTO Waivers: Stability and Flexibility in Public International Law Isabel Feichtner Public Services and International Trade Liberalization: Human Rights and Gender Implications Barnali Choudhury International Organizations in WTO Dispute Settlement: How Much Institutional Sensitivity? Marina Foltea Domestic Judicial Review of Trade Remedies: Experiences of the Most Active WTO Members Müslüm Yilmaz The Relevant Market in International Economic Law: A Comparative Antitrust and GATT Analysis Christian A. Melischek