Regional Cooperation and Free Trade Agreements in Asia [1 ed.] 9789004279902, 9789004279858

Citation preview

Regional Cooperation and Free Trade Agreements in Asia

Brill’s Asian Law Series Series Editors Matthias Vanhullebusch (Shanghai Jiao Tong University) Weidong Ji (Shanghai Jiao Tong University) Jiaxiang Hu (Shanghai Jiao Tong University) Editorial Board Shaheed Sardar Ali (University of Warwick) Charles Booth (University of Hawaii at Manoa) William Butler (Pennsylvania State University) Simon Chesterman (National University of Singapore) Andrew Harding (National University of Singapore) Martin Lau (School of Oriental and African Studies) Penelope Nicholson (University of Melbourne) Raul Pangalangan (University of the Philippines) Jeong-Ho Roh (Columbia University)

VOLUME 1

The titles published in this series are listed at brill.com/asla

Regional Cooperation and Free Trade Agreements in Asia Edited by

Jiaxiang Hu Matthias Vanhullebusch

LEIDEN | BOSTON

Library of Congress Cataloging-in-Publication Data Regional cooperation and free trade agreements in Asia / edited by Jiaxiang Hu, Matthias Vanhullebusch. pages cm. -- (Brill’s Asian law series ; 1) Includes index. ISBN 978-90-04-27985-8 (hardback : alk. paper) -- ISBN 978-90-04-27990-2 (e-book) 1. Free trade--Asia. 2. Asia--Commercial policy. 3. Asia--Economic integration. 4. Regionalism--Asia. I. Hu, Jiaxing. II. Vanhullebusch, Matthias. HF2292.R44 2014 382’.71095--dc23 2014024625

This publication has been typeset in the multilingual “Brill” typeface. With over 5,100 characters covering Latin, IPA, Greek, and Cyrillic, this typeface is especially suitable for use in the humanities. For more information, please see www.brill.com/brill-typeface issn 2214-6547 isbn 978-90-04-27985-8 (hardback) isbn 978-90-04-27990-2 (e-book) Copyright 2014 by Koninklijke Brill NV, Leiden, The Netherlands. Koninklijke Brill NV incorporates the imprints Brill, Brill Nijhoff, Global Oriental and Hotei Publishing. All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission from the publisher. Authorization to photocopy items for internal or personal use is granted by Koninklijke Brill NV provided that the appropriate fees are paid directly to The Copyright Clearance Center, 222 Rosewood Drive, Suite 910, Danvers, MA 01923, USA. Fees are subject to change. This book is printed on acid-free paper.

Contents Preface ix Acknowledgements xv List of Contributors xvi

Part 1 China’s Role Within Regional Trade A Rising Tide Lifts All Boats? IPR Provisions in China’s Free Trade Agreements 3 Qingjiang Kong Retrospect and Prospect of the Cross-Straits Economic Cooperation Framework Agreement (ECFA) between Mainland China and Taiwan 15 Kuei-Jung Ni Bolstering Taiwan’s Regional Operations Centres through Liberalization of Trade Across the Taiwan Strait 32 Richard N. Watanabe and Robert Irish China’s FTA Practice in Europe New Features and Impacts 57 Delei Peng

Part 2 China and the Transpacific Partnership Selected Issues in TPP Negotiation and Implications for China 77 Henry Gao Look before You Leap The Case for China’s Tripartite Strategy Towards the Trans-Pacific Strategic Partnership (TPP) 99 Ming Du

vi

Contents 

Part 3 Free Trade Between China, Japan and Korea Tripartite Free Trade Agreement among China, Korea, and Japan A Step Towards Economic Integration in Northeast Asia? 123 Yong-Shik Lee and Kwangkug Kim Composing an Investment Chapter of the Korea-China-Japan FTA 146 Won-Mog Choi Industry Specific FTAs Korean FTAs Example 166 Liyu Han On the Investor-State Dispute Settlement Mechanism in the China-Japan-Korea Free Trade Agreement Lessons from Existing FTAs and Investment Treaties 191 Yasuhei Taniguchi and Tomoko Ishikawa

Part 4 Future Perspectives on Asian Regional Trade Searching for Human Rights Free Trade Agreements in Asia 219 Matthias Vanhullebusch Shanghai Free Trade Pilot Zone The Model for Future China? 246 Jiaxiang Hu Promoting Intra-Regional Trade in South Asia through Trade Facilitation Measures under the Auspices of the South Asian Association for Regional Cooperation 270 Md. Rizwanul Islam A Study on the Cooperation in Trade Remedies among the BRICS Countries 301 Shengxing Yu

Contents

The US, East Asian FTAs, and China 329 Jean-Marc F. Blanchard and Wei Liang Playing a Long Game in Their Free Trade Regime between China and the EU A Reflection on the Evolution of the MFN Clause 349 Kim Van der Borght

Conclusion Regional Trade Agreements in Context 377 Jianfu Chen Index 403

vii

Preface Despite the general rules of GATT Article XXIV to discipline free trade areas and customs unions, regional cooperation has never ceased ever since the GATT came into effect in 1947. These steps were speeded up after the World Trade Organization was established in 1995. While, in 1970, only six FTAs were reported to the GATT, 320 FTAs have been reported to the WTO by 2013. Apart from the incentives for closer economic relationships and lower thresholds for international trade, the marginalization syndrome is the unspeakable but substantive factor accounting for the proliferation of regional free trade agreements. Facing the increasing hegemony of those gigantic powers, small countries come together to rally forces to pursue their interests either within or outside the international fora. This seems more relevant in Asia as – except China, Japan and Korea, most East and Southeast Asian countries are small developing countries. This marginalization syndrome encourages policymakers to join negotiations for a closer trade regime. The development of ASEAN demonstrates just a vivid example in this regard. With the accession of China into the WTO, some small and medium enterprises in Hong Kong and Macao feared that they would lose their competitive edge over foreign companies once China’s market fully opened up. They pressed the Chinese central government and the governments of Hong Kong, Macao for maintaining the special preferential treatment for them. CEPA is the result after a series of high-level negotiations, which continues to keep Hong Kong and Macao their unique status under the legal framework of “One Country, Two Systems.” Different from CEPA, ECFA is the catalyst for closer economic exchanges between Mainland China and Taiwan, aiming at the ultimate target towards the unification of both sides. As a comprehensive framework, ECFA includes the issues of trade in goods, trade in services, investment and other economic cooperation. Different from other free trade agreements, part of the trade in goods between the two sides across the Taiwan Strait has already been liberalized even if the ECFA negotiations are still far from over. Northeast Asia has a long history of being a geographic or cultural identity for countries like China, Japan and Korea. However, the concept of a regional trade bloc is relatively new for them. Traditionally, these three countries have a similar stance in favour of multilateralism rather than regionalism. Meanwhile, they have also realized that their economic activities are already more deeply interconnected than they might have imagined. In 2002, China, Japan and Korea started to negotiate the framework of a free trade agreement. This FTA, if materialized, will be a substantial step towards one of the most

x

Preface

important regional trade blocs in view of the combined economic force of these three countries. Nevertheless, the negotiations on this tripartite FTA have not proceeded as well as expected due to the disagreement of these three countries, especially on some historical issues. To a large extent, the fate of further economic integration in Northeast Asia will be based on the peaceful resolution of these non-economic issues. With the increasing influence of China in Asia, the United States worries about the potential threats to its strategic position in this area. The on-going negotiations on the Trans-Pacific Partnership Agreement are important to the US both in political and economic terms. There is a lot of hype about TPP, from both supporters and opponents. Supporters like to talk about the fact that the negotiators comprise around 40 percent of the world economy – implying that the agreement would be hugely significant. The opponents, however, portray the TPP as a huge plot, suggesting that it would destroy national sovereignty and transfer all the power to corporations. All these assertions would be groundless without any substantive analysis. Meanwhile, whether China should seek the chance to get involved in the negotiations and actively influence the formulation of the new rules or, still hover outside of the TPP talks and keep alert of the process of negotiations, this is a big question. Only a careful study with correct methodologies could yield some meaningful conclusions. Unlike the European integration, regional cooperation in Asia started without a clear conceptual framework and a strong leadership. Rather, it went through a scattering and slow process. Following this vein, the academia has explained this issue from a variety of practical and theoretical perspectives. In this regard, the Asian Law Center of the KoGuan Law School, Shanghai Jiao Tong University, held a workshop on Asian regional cooperation and free trade agreements in December 2013 and sought to provide some of these answers. Since most of the free trade agreements and activities have been centred around China, this book therefore focuses on the following areas: China’s Role within Regional Trade (Part 1), China and the Transpacific Partnership (Part 2), Free Trade between China, Japan and Korea (Part 3), and Future Perspectives on Asian Regional Trade (Part 4). These issues, although not exhausted, are undoubtedly essential to the economic development of Asia. The insightful and illuminating study of the participants has depicted for us a comprehensive picture on the past, present and future of regional cooperation in Asia. In Part 1 on China’s Role within Regional Trade, Qingjiang Kong’s contribution focuses on China’s positioning with respect to the inclusion of protection for stronger intellectual property rights (IPRs) in its free trade agreements (FTAs) with other nations. It examines the US-style FTA which built upon the

Preface

xi

standards of the TRIPS Agreement and more recent WIPO conventions. Unlike the IPR chapters of such FTAs which secure higher levels of protection, China’s recent practice demonstrates ambiguities as to its willingness to profile itself as an innovating economy as opposed to its developing status which mandates flexibility as to the enforcement on the protection of IPRs with its trading partners. Kuei-Jung Ni’s article on the Cross-Straits Economic Cooperation Framework Agreement (ECFA) between Mainland China and Taiwan gives us an overview of the historical background, motivations and significance for both parties to enhance trade liberalization and deepen the relationship between them. In addition to an analysis regarding the legal status and nature of the ECFA, it describes the areas where such cooperation takes and can potentially take place regarding trade in goods, in services and through investment agreements as well as which are the challenges ahead. Richard Watanabe and Robert Irish give a precise account on the process and content of the ECFA between Mainland China and Taiwan. It further studies the Cross-Straits Bilateral Investment Protection and Promotion Agreement and its dispute resolution mechanisms as well as other IPR and tax agreements between both parties. Finally, it explores the growing attraction of Taiwan as a regional operation centre and the requirements it needs to pursue such ambitions, in particular the development of a properly working supply chain and the opening up of the financial and banking sectors between the two parties. In light of Chinese enterprises increasing investment in Europe, Delei Peng identifies a number of new features in the rather young practice of China regarding FTAs with its trading partners. By taking the example of more recent FTAs between China and Iceland and between China and Switzerland, it examines a distinctive practice regarding the formation, the content and implementation of these FTAs between China and those European countries. They pay particular importance to corporate social responsibility, review mechanisms, notification procedures in anti-dumping proceedings and other dispute settlement mechanisms. Part 2 on China and the Transpacific Partnership addresses diverse aspects of the Trans-Pacific Partnership (TPP) and the role of China in it. Henry Gao examines the negotiation history of the TPP and its move from the P-4 Agreement – originally between Brunei, Chile, New Zealand and Singapore – toward it. He pays particular attention to the political driving forces behind the TPP project and the difficulties which have informed the negotiation process as well as the substantive content of the agreement. This chapter also questions the role and involvement of the US in excluding China from the negotiating table for strategic and geopolitical reasons. Ming Du further examines the implication of the TPP negotiations and China’s absence from them. China’s

xii

Preface

ambivalent attitude towards the TPP renders its position increasingly more difficult within such an important regional arrangement. As a result, China will have to decide whether or not its economic ambitions can be further met in such setting or whether it is seeking to push it forward with its tripartite strategy in East Asia. The latter strategy is discussed in Part 3 Free Trade between China, Japan and Korea. Yong-Shik Lee and Kwangkug Kim situate the initiative to negotiate towards a Tripartite FTA between China, Japan and Korea (CJK FTA) within a broader context of free trade arrangements competing for larger trade blocs in the world, in particular the Regional Comprehensive Economic Partnership (RCEP) led by China and the TPP led by the US. The authors cover a variety of (geo)political and economic reasons that have shaped the integration process in Northeast Asia. They further analyse the major issues and implications of the trilateral FTA for the region and the world at large. Won-Mog Choi in his contribution evaluates the impact of the recent Korea-China-Japan Investment Promotion, Facilitation and Protection Agreement (K-C-J IPPA) upon the dispute settlement mechanisms amongst these participating countries. He argues that effective procedures contribute to more friendly investment environments within the host nation. An examination of experience and current ambiguities of some the rules in K-C-J IPPA will serve to improve a future investment chapter in the CJK FTA. Liyu Han focuses more particularly on the industry specific provisions of Korea in its FTAs concluded with its trading partners, namely Chile, the EU and the US. He concludes that the more specific provisions of regional and bilateral FTAs can complement the rules of and practices under the multilateral framework of the WTO. They can more easily accommodate the country’s more specific industrial policies and as a result contribute more effectively to the liberalization of trade amongst WTO Members. Yasuhei Taniguchi and Tomoko Ishikawa anticipate the expansion of the investor-state dispute settlement mechanism in the CJK FTA. They are concerned though about the past inconsistency in terms of the interpretation of treaty provisions in the arbitral awards as well as their unpredictability. They therefore propose to further enhance investment forums – typically advanced in FTAs as opposed to traditional investment treaties – to resolve investment disputes. Such mechanism includes the joint interpretative statements in the CJK FTA. Part 4 on Future Perspectives on Asian Regional Trade offers both other new regional perspectives in Asia and on Asia regional cooperation and FTAs as well as substantive developments regarding human rights protection standards within Asia’s FTAs. Concerning the latter, Matthias Vanhullebusch questions the expectations of developed countries on the human rights protection

Preface

xiii

in the field of labour and environmental standards to be assumed by developing nations. Developing economies contest such criticism and invoke their right to development to supersede the realization of other human rights in the first place. As a result, only a small number of Asian countries commit themselves to human rights protection within their FTAs. Jiaxiang Hu describes in his contribution the future role of the Shanghai Free Trade Pilot Zone for China. As a new experiment of the Chinese government, this project shall serve to render administrative procedures more efficiently and to decrease the number of items on the negative list for foreign direct investment as opposed to the current positive list for the rest of Mainland China. Hu further gives explanations as to why the administrative powers have to be reduced in light of China’s on-going economic reforms. Rizwanul Islam scrutinizes the trade facilitation measures adopted under the auspices of the South Asian Association for Regional Cooperation (SAARC) in furtherance of the promotion of intra-regional trade in the region. Such measures in addition to declining trade tariffs are understood to harmonize and simplify trade procedures and are extended to infrastructural issues as well. This study offers a comparative understanding on WTO rules and other trade agreements in order to draw valuable lessons for SAARC to implement trade facilitation measures in compliance with those conventions. Shengxing Yu offers a legal practitioners’ perspective on the use of trade remedies by BRICS members in countering subsidies, dumping and import surges against importing countries. As opposed to the traditional invocation of legal remedies of developed countries against developing nations, Yu examines a growing and similar practice of emerging economies and in particular of the BRICS countries against developed countries and amongst themselves. He identifies variable actions in terms of safeguarding and anti-dumping measures amongst BRICS countries and proposes reasonable solutions to promote harmonious trade relationships amongst them. Jean-Marc Blanchard and Wei Liang question the criticisms regarding the US’ position on East Asian FTAs and China. Arguments on the containment strategy of US over China are challenged, as no substantial proof appears to confirm such foreign and economic policy of the US. Instead, other economic and political considerations driven by domestic agendas and international economic institutions have to be taken into account to provide a more holistic picture of the events and positions unfolding as a result of the growing tension between major economic powers in East Asia. Kim Van der Borght gives a historical account of the development and changing interpretation of the most-favoured-nation clause as early as the end of the 19th century until its current form whose dominance has been established by the US. The practice of the clause however shows evidence contrary to the economic rationale of

xiv

Preface

international trade in favour of a conditional system which has been strengthened ever since the establishment of the WTO. Nonetheless, he argues that a return to the non-discriminatory world trade system and multilateralism is beneficial for both European Union and China – though their divergent institutional expectations often conflict especially in times of crisis. Finally, the concluding chapter of Jianfu Chen defines the proliferation of regional trade agreements as an expression of competition between existing – developed – and rising – developing – economic powers. The (new) international economic order is finally coming into being since emerging Asian economies in particular India and China are challenging the foundations, predispositions and manifestations of its current constellation. Prospects for multilateral trade liberalization however are undermined and prevent future harmonization between regional economic orders. Jiaxiang Hu and Matthias Vanhullebusch

Summer 2014

Acknowledgements This book project has been the published outcome of a workshop on Regional Cooperation and Free Trade Agreements in Asia – organized by the Asian Law Center of the KoGuan Law School, Shanghai Jiao Tong University, on 14 December 2013 in Shanghai. We would like to warmly thank the participants from various institutions and countries for their timely submission of papers, active participation in the workshop and their careful revision after it. Without the support of the committed sponsors, this event and the resulting publication would not have been possible. In particular, we are grateful to the generous support from Hiways Law Offices, Mr. Michael Shen, Sun & Hold Law Firm in Shanghai and the donation from Shanghai SOGO Leather Chemical Co, Ltd and Mr. YAO Zhonghua. Our gratitude will also go to those local institutional partners from the Shanghai WTO Law Research Association, Fudan University and the Shanghai University of International Business & Economics. Special thanks to the KoGuan Law School, Shanghai Jiao Tong University, in particular Dean Prof. Dr. Weidong Ji and Dr. Qi Gao, and the student volunteers in the organization of the workshop and our assistant editor, Ms. Yuqian Dong, as well as to our colleagues at Brill Nijhoff, Ms. Marie Sheldon and Ms. Ingeborg van der Laan for overseeing the production of this first Volume of Brill’s Asian Law Series. Jiaxiang Hu and Matthias Vanhullebusch

Summer 2014

List of Contributors Jean-Marc F. Blanchard PhD, is Assistant Dean and Professor, School of International and Public Affairs, Shanghai Jiao Tong University, Executive Director, Mr. & Mrs. S.H. Wong Center for the Study of Multinational Corporations, and Associate Director, SFSU Center for U.S.-China Policy Studies. He is a co-author of one book, the editor or co-editor of and a contributor to eight edited volumes and special journal issues, and the author of more than forty articles and book chapters. Jianfu Chen Jianfu Chen, LLM (Hon I, Sydney), PhD (Sydney), is Professor of Law, School of Law, La Trobe University, Melbourne. He teaches Australian law and international trade law. He has published widely on Chinese law and international trade law, and his recent publications include Balancing Act: Law, Policy and Politics in Globalisation and Global Trade (editor with G Walker, Sydney, Federation Press, 2004); Chinese Law: Context & Transformation (Leiden/ Boston: Martinus Nijhoff Publishers, 2008); and International Law in East Asia (editor with K Zou, UK/US: Ashgate 2011). Won-Mog Choi is a professor of Ewha Law School, Ewha Womans University at Seoul and director of the WTO Law Center. He is the President of the Korea Society of International Economic Law and the editor-in-chief of the Korean Journal of International and Comparative Law. Professor Choi is a member of editorial board of many journals including the Journal of International Economic Law (Oxford), the Law and Development Review (Sydney), Indian Journal of International Economic Law (Bangalore) and Journal of Korea Trade (Seoul), and a member of the New York Bar. He received his legal education in the United States (Georgetown Law, S.J.D. and L.L.M.) and Korea (Seoul National University, M.P.A. and L.L.B.). Prior to joining faculty of Ewha, he worked for the Foreign Ministry as a diplomat and legal officer in charge of numerous trade issues. Professor Choi has published more than 13 books and 70 articles and he is the winner of 8 academic prizes. Ming Du is a Reader in International Business Law at Lancaster University Law School in UK. He holds a DPhil in law from the University of Oxford, an L.L.M from Harvard Law School, and also law degrees from Tsinghua University in China.

List Of Contributors

xvii

He specializes in international economic law, business law and Chinese Law. He has published widely in these areas in ICLQ, JIEL, JBL, JWT and others. Dr. Du is a qualified attorney in the State of New York. His profile can be found at http://www.lancaster.ac.uk/fass/law/profiles/ming-du Henry Gao is Associate Professor of law at Singapore Management University and Dongfang Scholar Chair Professor at Shanghai Institute of Foreign Trade. With law degrees from three continents, he started his career as the first Chinese lawyer at the WTO Secretariat. Before moving to Singapore in late 2007, he taught law at University of Hong Kong, where he was also the Deputy Director of the East Asian International Economic Law and Policy Program. He has taught at the IELPO program in Barcelona and the Academy of International Trade Law in Macau, and was the Academic Coordinator to the first AsiaPacific Regional Trade Policy Course officially sponsored by the WTO. Widely published on issues relating to China and the WTO, Prof. Gao’s research has been featured in CNN, BBC, The Economist, Wall Street Journal and Financial Times. He has advised many national governments as well as the WTO, World Bank, Asian Development Bank, APEC and ASEAN on trade issues. He sits on the Advisory Board of the WTO Chairs Program, which was established by the WTO Secretariat in 2009 to promote research and teaching on WTO issues in leading universities around the world. Liyu Han is currently a professor of Law at Renmin University of China Law School, Director of International Law Teaching and Research Division, and the Research Center for WTO Law. He teaches and does research on international economic law, especially the WTO Law, and has published several monographs and articles on the US trade law and the WTO law. He received his bachelor, master and doctoral degrees of law at Renmin University. He also got a Postgraduate Diploma in Common Law from Hong Kong University. He visited several European and American Universities and International Organizations as a visiting scholar. He is Vice Secretary-General of China Law Society WTO Section, and Vice President of Beijing International Law Association. He is also on the indicative list of panellists of WTO DSB. Jiaxiang Hu Jiaxiang Hu (BA, MA (Hangzhou University), MPhil (Zhejiang University), PhD (University of Edinburgh)) is Professor of International Law and Director of the Asian Law Centre of KoGuan Law School, Shanghai Jiao Tong University,

xviii

List of Contributors

China. Visiting Professor of International Economic Law Institute, Georgetown University (October 2008–January 2009) and Harvard Law School (February– March 2009). Research fellow of the Asian Law Institute, National University of Singapore (February–March 2014). Editor-in-Chief of Asian Law Series. Authors of five books and more than one hundred articles and working papers including “The Role of WTO Law in the Development of International Law” (No. 1, 2004, JEIL), The WTO Dispute Settlement Mechanism (Zhejiang University Press, 2005). Research areas include public international law, international economic law, WTO law. Robert Irish is a Director at PricewaterhouseCoopers Legal (“PwC Legal”) and focuses on M&A, cross-border transactions, compliance and international trade & customs issues. He earned his J.D. at the University of Wisconsin Law School and has an MBA in finance from the University of Wisconsin School of Business. He has a B.A. in International Relations and Economics from Tufts University. Tomoko Ishikawa is an Associate Professor at Tsukuba University. She received an LLM from the University of Tokyo, a second LLM from the University of Cambridge, and earned her PhD in public international law from University College London (UCL). Her professional experience includes serving as a Judge at Tokyo District Court (2002–2005) and holding the position of Deputy Director in the International Legal Affairs Bureau of the Ministry of Foreign Affairs of Japan (2010–2012), where she worked on investment treaties, free trade agreements and WTO dispute settlement. Her recent publications include: “Collective Action Clauses in Sovereign Bond Contracts and Investment Treaty Arbitration – an Approach to Reconcile the Irreconcilable,” Accounting, Economics and Law: A Convivium (October 2013); and “Third Party Participation in Investment Treaty Arbitration,” International and Comparative Law Quarterly (April 2010). Md. Rizwanul Islam is currently an Assistant Professor at the School of Law, BRAC University. He obtained his doctoral degree from Macquarie University, L.L.M (in Intellectual Property & Technology Law) from National University of Singapore, and L.L.B (Honours) from University of Dhaka. Prior to joining BRAC University, Rizwan was a full-time lecturer at Faculty of Law, Northern University Bangladesh and a casual lecturer at Department of Business Law, Macquarie University. He is the author of Economic Integration in South Asia: Charting a Legal Roadmap (Leiden, Boston: Martinus Nijhoff Publishers, 2012). Rizwan twice received the Macquarie

List Of Contributors

xix

University Faculty of Arts Higher Degree Research Award for Best Candidate Publications. He has published extensively on International Trade Law. Kwangkug Kim is a researcher in competition/antitrust law and economic development. He is currently Research Fellow of the Law and Development Institute. He received L.L.B from Sogang University (South Korea) and a L.L.M from Durham University (U.K.). He graduated from the University of Manchester (U.K.) with MPhil in Law. Qingjiang Kong has been a full professor of law since November 2002. He is currently Dean of the School of International Law, China University of Political Science and Law. Specializing in international economic law, the WTO law and China issues, he has published more than 30 articles with international journals (e.g., 3 articles with Journal of International Economic Law, 2 with Journal of World Trade, 1 with International and Comparative Law Quarterly, 2 with Heidelberg Journal of International Law, 1 with Journal of Intellectual Property Law & Practice). He is the author of 4 books (3 in English and 1 in Chinese), i.e. China and the World Trade Organization: A Legal Perspective (Singapore and London: World Scientific Publishing, 2002), WTO, Internationalization of Intellectual Property Rights Regime in China (Singapore: Marshall Cavendish, 2005), China-EU Trade Disputes and Their Legal Management (Singapore and London: World Scientific Publishing, 2012) and The Legal Environment for Chinese Trade in Textiles (Beijing: China Renmin University Press, 2005). He teaches International Economic law, International Trade Law, International Law on Intellectual Property Rights and related subjects. Yong-Shik Lee is a scholar in international trade law and economic development. He is currently Professor and Chair of International Economic Law at the University of Manchester and Director of the Law and Development Institute. He has also taught and conducted academic research at leading universities throughout the United States, Asia, and Australia. He graduated in economics with academic distinction from the University of California at Berkeley and received law degrees from the University of Cambridge (B.A., M.A., PhD). He is licensed to practice law in multiple jurisdictions, including United States (Attorney at Law: California, North Carolina) and United Kingdom (Solicitor of the Supreme Court of England and Wales). Author of Reclaiming Development in the World Trading System (Cambridge University Press, 2006, reprint 2009), Safeguard Measures in World Trade: The Legal Analysis (Edward Elgar, 3rd ed., 2014), and

xx

List of Contributors

Law and Development Perspective on International Trade Law (co-authored, Cambridge University Press, 2011), Professor Lee has published over sixty scholarly articles, book volumes, chapters and shorter notes with leading publishers in North America, Europe, and Asia, in the areas of international economic law, law and development, comparative law, and international commercial arbitration. Wei Liang PhD, is associate professor in the School of International Policy and Management at the Monterrey Institute of International Studies (US). Her research interests include international political economy of East Asia, Asian regionalism, international trade negotiation and global governance. She is a co-author of China and East Asia’s Post-Crises Community: A Region in Flux? (Lexington, 2012), a co-editor of China and Global Trade Governance (Routledge, 2013), and the author of numerous journal articles and book chapters. A graduate of the Peking University (China), she received her Ph.D. in International Relations from the University of Southern California. Kuei-Jung Ni is Professor of Law and former Director of the Institute of Technology Law at the National Chiao Tung University, Taiwan. He specializes in international economic law, international environment law and bio-technology law. His present study focuses on exploring transnational regulations on biotechnology products and developments, including normative works of competent international regimes, such as WTO, WIPO and the Biodiversity Convention, and national implementations as well. He has written dozens of articles appearing in trade, environment and health law journals. Recent publications include: Science and Technology in International Economic Law, co-edited with Bryan Mercurio (Routledge, 2014). In 2013, he was awarded the grant of the Senior Fulbright Research to do research at the Petrie-Flom Center of Harvard Law School. Professor Ni received his PhD in law from the University of Edinburgh, an L.L.M from the University of California at Berkeley and an L.L.B from the National Taiwan University. Delei Peng is lecturer at the East China University of Science and Technology, and a visiting fellow at the Asian Law Center, Shanghai Jiao Tong University. He received his Joint PhD degree from Shanghai Jiao Tong University and La Trobe University (Australia). His study recently focuses on the WTO dispute settlement, trade policy review, as well as the WTO and China. In recent three years, he has

List Of Contributors

xxi

published more than 20 academic articles and a book relating to the WTO law (China University of Politics and Law Press). Dr. Peng is also a lawyer in China. He has made his legal research at the Ministry of Commence of PRC(MOFCOM) in 2011 and worked as an legal intern at the General Electric Company (China) in 2008. He has attended the WTO Chairs Programme for many times and is council member of Shanghai WTO Law Association. Yasuhei Taniguchi obtained a law degree from Kyoto University in 1957 and fully qualified as a jurist in 1959. His graduate degrees include L.L.M, University of California at Berkeley (1963) and J.S.D., Cornell University (1964). He is a former member of the WTO Appellate Body (2000–2007) and is currently acting as a member of an ICSID Annulment Committee. He taught at Kyoto University for 39 years and has been Professor Emeritus since 1998. He has also taught as Visiting Professor of Law in the United States (University of Michigan, University of California at Berkeley, Duke University, Stanford University, Georgetown University, Harvard University, New York University, University of Richmond, Santa Clara University and University of Hawaii), in Australia (Murdoch University and University of Melbourne), at the University of Hong Kong and at the University of Paris XII. He has written numerous books and articles in the fields of civil procedure, arbitration, insolvency, the judicial system and legal profession, as well as comparative and international law related to these fields. His works have been published in Japanese, Chinese, English, French, Italian, German, and Portuguese. Kim Van der Borght is Visiting Professor at the School of WTO Research and Education at the Shanghai University of International Business & Economics (formerly Shanghai Institute of Foreign Trade) (Shanghai, China) (2013–2014). He is Professor of International Economic Law at the Centre for Economic Law & Governance (Vrije Universiteit Brussel). He is Reader in Law at Westminster University (England). He is President of the Belgian Branch of the International Law Association and a member of the International Trade Law Committee of the International Law Association. He is listed on the Governmental Roster of Panellists of the World Trade Organisation (WTO). Matthias Vanhullebusch holds a PhD from the University of London and is Assistant Professor and Executive Director of the Asian Law Center at the KoGuan Law School of the Shanghai Jiao Tong University. He has an expertise in Humanitarian Law and

xxii

List of Contributors

Policy, the Middle East and Peacekeeping. He is the Managing Editor of the Asian Journal of Law and Society (Cambridge University Press) and Series Editor of Brill’s Asian Law Series (Brill Academic Publishers). He has contributed to research projects at the Centre for Law and Conflict (SOAS), the Centre for International Studies and Diplomacy (SOAS), the Committee on Islamic Law and International Law of the International Law Association, the European Inter-University Centre for Human Rights and Democratisation, the Afghanistan Analysts Network, on the ATLAS Project (EU 7th Framework Programme) and International Society for Military Law and the Law of War. He guest-lectured International Human Rights Law at SOAS, International Law at the University of Pretoria and International Humanitarian Law at the University of the Philippines. Richard N. Watanabe also known as Wu Wei-Tai, is a partner and Deputy Leader of Tax & Legal Services, and Leader of Financial Services Industry Group, and Japanese Business Development teams at PricewaterhouseCoopers (“PwC”) Taiwan. In addition, he is an Adjunct Assistant Professor at the Graduate School of Accounting (International Taxation) of National Chengchi University in Taipei, and a member of the “International Affairs” and “Finance & Taxation” Committees of Taiwan’s National General Chamber of Commerce, and an advisor to the Taiwan Coalition of Service Industries, a body equivalent to the Coalition of Services Industries in the United States that promotes development of service industries. Mr. Watanabe holds a Doctorate of Legal Science (Financial Services Law) and Masters of Jurisprudence (International Trade Law) degrees from Bond University, Australia, and Bachelor of Business from Queensland University of Technology, Australia. Shengxing Yu is a senior partner at Hiways Law Offices, while pursuing his PhD degree at Fudan University, Shanghai. Having served at the Shanghai WTO Affairs Consultation Centre, Mr. Yu started his private practice in early 2003. He mainly works for Chinese companies in the United States, EU, India and other developing countries concerning trade remedies, and also represents international clients for their business exploration in China. He once worked in a Washington D.C. law firm, and was a visiting researcher at Georgetown University Law School between 2009 and middle 2011. Mr. Yu is a law and policy adviser to government agencies at both national and provincial level. He is a member of the Board of Advisers for the Jiangsu Department of Commerce. He is an adjunct instructor for L.L.M students at the KoGuan Law School of Shanghai Jiao Tong University, and adjunct professor with several other law schools.

Part 1 China’s Role within Regional Trade

∵

A Rising Tide Lifts All Boats?

IPR Provisions in China’s Free Trade Agreements Qingjiang Kong*

I

Recent Trend of IPR Provisions in US-Style FTAs

International intellectual property (IP) standard-setting has undergone important changes in recent years as a result, in particular, of the proliferation of fora and processes dealing with IP at the multilateral, regional and bilateral level. It is not difficult to find that IP rule-making fora have been shifted more and more from multilateral (i.e., the WTO TRIPS Agreement and other multilateral forums in particular WIPO) to bilateral.1 Typical evidence is that contracting states negotiated IP rules in the context of their attempts to conclude between themselves free trade agreements (FTAs), to which the WTO’s Doha Development Agenda fallout has acted as a spur. In this regard, the United States, which is frustrated by the stalemate of Doha Agenda, is a leader of FTAs. Therefore, US-style FTAs and bilateral investment treaties (BITs) are flourishing, thanks to the US influence and push. In its Trade Promotion Authority Act of 2002, the US Congress required trade agreements to include level of IPR protection similar to that in force in the US.2 As a result, more and more US-style FTAs emerged with a rigid IP regime. In other words, US-style FTAs are characterized by the rigid IP rules that require broader and higher protection of IPRs.3 It is not difficult to find that the IPR chapter of the US-style FTA builds on the standards and disciplines of the TRIPS Agreement and recent treaties ­concluded under the auspices of the World Intellectual Property Organization (WIPO).4 It covers general provisions, trademarks, domain names in the * Professor of Law, School of International Law and Collaborative Innovation Centre for Global Governance and Rule of Law, China University of Political Science and Law. Contact: [email protected]. 1 Cottier & Foltea (2011), p. 36. 2 Yang (2011). 3 For a comprehensive study of IPR provisions in the US-style FTAs, see Fink & Reichenmiller (2006). 4 A US-style FTA normally requires that its parties shall, at a minimum, give effect to the ­following agreements: (a) the Patent Cooperation Treaty (1970), as amended in 1979; (b) the Paris Convention for the Protection of Industrial Property (1967) (the Paris Convention); (c) the Berne Convention for the Protection of Literary and Artistic Works (1971) (the Berne Convention); (d) the Convention Relating to the Distribution of Programme-Carrying Signals

© koninklijke brill nv, leiden, 2014 | doi 10.1163/9789004279902_002

4

KONG

Internet, geographical indications, copyright and related rights, patents, measures related to certain regulated products and enforcement measures. The IPR chapters in the US-style FTAs, unexceptionally, require a higher level of IPR protection. Protection of copyrights, patents, trademarks and trade secrets is state-of-the-art, going farther than previous obligations under the TRIPS Agreement. Enforcement of IPRs is also enhanced under the IPR chapter. Moreover, it requires accession to specific international intellectual property agreements and, in some instances, allows parties to implement more extensive protection than required under the FTA. Additionally, the IPR chapter addresses technological developments unforeseen during the Uruguay Round negotiations,5 particularly in the areas of copyright and related rights, domain names in the internet and enforcement.6 In order to ascertain the details of the IPR chapters in the US-style FTAs, the provisions concerning patent protection therein are examined vis-à-vis the ­relevant provisions in the TRIPS Agreement as an anatomic example of the IPR chapters. A Broader Patentability In general, Article 27 of the TRIPS Agreement defines which inventions governments are obliged to make eligible for patenting, and what they can exclude from patenting. Inventions that can be patented include both products and processes – provided that they are new, involve an inventive step and are ­capable of industrial application, and should generally cover all fields of technology. In all the US-style FTAs, however, patenting is also made available to any new uses or methods of using a known product. Arguably, this goes beyond Article 27(1) of the TRIPS Agreement, which requires that patents shall be available for any inventions.7 Transmitted by Satellite (1974); (e) the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (1989); (f) the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure (1977), as amended in 1980; (g) the International Convention for the Protection of New Varieties of Plants (1991); (h) the Trademark Law Treaty (1994); (i) the World Intellectual Property Organization (WIPO) Copyright Treaty (1996); and (j) the WIPO Performances and Phonograms Treaty (1996). 5 For example, the IPR chapter requires state parties to protect right holders of encrypted satellite signals against willful unauthorized reception and further distribution of that signal. 6 In addition to building on the TRIPS Agreements, the IPR chapter of the US-Style FTAs implements and further develops provisions of the WIPO Internet Treaties, WCT and WPPT. 7 See, for example, Novartis v. India: As part of a series of amendments to the India Patents Act that took effect on January 1, 2005, the Parliament of India adopted Section 3(d). This

A Rising Tide Lifts All Boats?

5

According to Article 27.3(b) of the TRIPS Agreement, members may exclude from patentability plants and animals other than micro-organisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. In a word, on the condition that WTO members make protection available to plant varieties, they may accord protection either by patents or by an effective sui generi system or by any combination thereof. However, the IPR chapter of the US-style FTAs only allows such exclusion from patentability where prevention is necessary to protect ordre public or morality, including to protect human, animal, or plant life or health or to avoid serious prejudice to the environment.8 Additionally, the US-style FTAs impose for the exclusion another condition that such exclusion is not made merely because the exploitation is prohibited by its law. All this in fact amounts to a clear requirement that plant varieties are patentable under the US-style FTAs.9 B Longer Patent Protection The US-style FTAs devise ways to extend longer protection to patents. For example, with regard to delays that occur in granting the patent, the IPR chapter provides for patent extensions to compensate for unreasonable delays that occur in granting the patent. Unreasonable delays include the issuance of the statutory provision has been in force for more than seven years. A challenge brought by Novartis to the constitutionality of the provision and to its compatibility with the TRIPS Agreement was rejected by the High Court at Madras in 2007. That judgment was not appealed. On 1 April 2013, the Supreme Court of India ruled on an appeal by Novartis against rejection by the India Patent Office of a product patent application for a specific compound, the beta crystalline form of imatinib mesylate. Imatinib mesylate is used to treat chronic myeloid leukemia and is marketed by Novartis as “Glivec” or “Gleevec.” Affirming the rejection, the Supreme Court confirmed that the beta crystalline form of imatinib mesylate failed the test of Section  3(d). The Court clarified that efficacy as contemplated under Section 3(d) is therapeutic efficacy. 8 The US-style FTAs provide that “[e]ach party state may only exclude from patentability: (a) Inventions, the prevention within its territory of the commercial exploitation of which is necessary to protect ordre public or morality, including to protect human, animal, or plant life or health or to avoid serious prejudice to the environment, provided that such exclusion is not made merely because the exploitation is prohibited by its law; and (b) Diagnostic, therapeutic, and surgical procedures for the treatment of humans or animals.” 9 As far as plant varieties are concerned, the provision concerning patentability, as well as the incorporation of the International Convention for the Protection of New Varieties of Plants (1991) by the US-style FTAs, consolidates the regime for protection of plant varieties.

6

KONG

patent more than four years from the date of filing of the application.10 Furthermore, with respect to any pharmaceutical product that is subject to a patent, an extension of the patent term is available to compensate the patent owner for unreasonable reduction of the effective patent term as a result of delays from marketing the approval process.11 In contrast, the TRIPS Agreement offers no compensation in the same circumstances. Article 62 of the TRIPS Agreement merely provides that where the acquisition of an intellectual property right is subject to the right being granted or registered, Members shall ensure that the procedures for grant or registration, subject to compliance with the substantive conditions for acquisition of the right, permit the granting or registration of the right within a reasonable period of time so as to avoid unwarranted curtailment of the period of protection. C Patent Revocation Criteria The TRIPS Agreement provides for no grounds for the revocation of patents, but only requires that judicial review be made available.12 In contrast, under the US-style FTAs, a patent may be revoked only on grounds that would have justified a refusal to grant the patent, thus protecting against so-called arbitrary revocation.13 Needless to say, the condition that the US-style FTAs 10

11

12 13

A US-style FTA is likely to end in providing that “[e]ach Party, at the request of the patent owner, shall adjust the term of a patent to compensate for unreasonable delays that occur in granting the patent where a third person uses the subject matter of a subsisting patent to generate information necessary to support an application for marketing approval of a pharmaceutical product.” A typical US-style FTA is phrased in the following manner: With respect to patents covering a new pharmaceutical product that is approved for marketing in the territory of the Party and methods of making or using a new pharmaceutical product that is approved for marketing in the territory of the Party, each Party, at the request of the patent owner, shall make available an adjustment of the patent term or the term of the patent rights of a patent covering a new pharmaceutical product, its approved method of use, or a method of making the product to compensate the patent owner for unreasonable curtailment of the effective patent term as a result of the marketing approval process related to the first commercial use of that pharmaceutical product in the territory of that Party. Any adjustment under this subparagraph shall confer all of the exclusive rights, subject to the same limitations and exceptions, of the patent claims of the product, its method of use, or its method of manufacture in the originally issued patent as applicable to the product and the approved method of use of the product. Article 32 of the TRIPS Agreement. According to a typical US FTA, each party shall provide that a patent may be revoked only on grounds that would have justified a refusal to grant the patent. A party may also

A Rising Tide Lifts All Boats?

7

imposes make it more difficult for patents to be revoked and thus consolidates patent protection. Introduction of Data Exclusivity in Protection of Certain Regulated Products A general practice is requiring the submission of undisclosed test or other data as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities. Article 39.3 of the TRIPS Agreement refers to the situation where governments require submission of undisclosed test or other data as a condition to grant marketing approval or sanitary permit of pharmaceuticals or agricultural chemical products.14 It requires WTO members to protect such data against unfair commercial use. The US-style FTAs deal with protection provided under TRIPS Article 39.3 differs from the TRIPS Agreement in that they impose upon country an obligation of data exclusivity for a fixed period of time, during which drug regulatory authorities shall not allow the test data of the innovator company to be used to register a equivalent generic version of that medicine. According to the IPR chapter, third parties, without having the consent of the originator (person providing the information), are prohibited to rely on the protected test data concerning safety and efficacy to market a product for a period of at least five and ten years from the date of approval for pharmaceuticals and agricultural chemical products respectively. Patent owners are entitled to information about the identity of any third party requesting marketing approval during the term of the patent. In nutshell, the IPR chapter of the US-style FTAs follows the TRIPS Agreement with respect to the protection of test or other data against disclosure except where necessary to protect the public. However, it includes additional provisions providing for linkage of the section on measures related to certain regulated products and patents with respect to pharmaceutical products that are subject to a patent. Moreover, it provides for compensation for

D

14

provide that fraud, misrepresentation, or inequitable conduct may be the basis for revoking a patent or holding a patent unenforceable. Where a party provides proceedings that permit a third party to oppose the grant of a patent, the Party shall not make such proceedings available before the grant of the patent. Article 39(3), TRIPS reads: Members, when requiring, as a condition of approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data, the origination of which involves a considerable effort, shall protect such data against unfair commercial use.

8

KONG

unreasonable curtailment of the patent term as a result of the marketing approval process. Due to the sprouting of the US-style FTAs, developing country partners are under tremendous pressure to give in to the US demands for a more rigid intellectual property rights regime in FTAs. The fact that developing countries and emerging economies are competing for the partnership to US FTAs ensures the consistency among all the IPR chapters of the FTAs. In other words, IPR chapters are imposing developing countries a TRIPS-plus obligation to protect foreign IPRs,15 regardless of their level of development. Accordingly, for developing countries, the flexibility embodied and policy space in the TRIPS Agreement16 dwindled. Will this trend raise China’s level of protection of IPR or as a Chinese saying goes “A Rising Tide Lifts All Boats?” II

IPR Provisions in Recent FTAs to which China is a Party

In the post-WTO era, up to present, China has concluded 10 FTAs with 10 WTO members (including 3 separate customs territories) while it is negotiating 16 FTAs with other WTO members.17 Seven of the ten FTAs it has concluded have provisions regarding IPRs. However, none of the 7 FTAs have IPRs provisions as sophisticated as IPRs chapters in US-style FTAs. The following is an overview of the IPR provisions in the FTAs to which China is a party. A Stereotype Discourses A noteworthy feature of the FTAs to which China is a party is the pronunciation of a few stereotype discourse or fundamental principles. One principle highlights the importance of IP in economic and social development.18 15 16 17 18

Assafa (2006), p. 378. “Flexible” means “easily led, manageable, adaptable, versatile, supple, complacent.” See Concise Oxford Dictionary (2009), p. 373. See also Correa (2000). For a general survey of the FTAs and their legal texts, see the FTA website of the Ministry of Commerce, mofcom.gov (2014). For a study of the FTA practice, see Kong (2012). For example, Article 144.1 of China Peru FTA reads: The Parties recognize the importance of intellectual property rights in promoting ­economic and social development, particularly in the globalization of technological innovation and trade, as well as the transfer and dissemination of technology to the mutual advantage of technology producers and users, and agree to encourage the development of social economic well-being, and trade.

A Rising Tide Lifts All Boats?

9

Another reaffirms the need to balance between the rights of right holders and the legitimate interests of users and the community with regard to protected subject matter.19 The cognizance may be accountable to the provision concerning abuse of IPRs.20 It remains to be seen if and how these stereotype principles will impact on the implementation of the Chinese FTAs in practice. B Relationship with TRIPS Agreement The Chinese FTAs also refer to the TRIPS Agreement and other multilateral agreement relating to intellectual property, and thus the latter are incorporated into the Chinese FTA. As a matter of fact, a WIPO treaty will only be incorporated into the FTA and thus binding on China and its partner when both parties to the FTA have already acceded to the WIPO treaty at the time of the conclusion of the FTAs between China and its partners. While the US-style FTAs incorporate nearly all the WIPO treaties, notwithstanding whether the treaties are acceded to by the US alone, a typical Chinese FTA excludes the WIPO treaty to which its FTA partner has not acceded. A typical Chinese FTA states that each party reaffirms its commitment to the TRIPS Agreement and any other multilateral agreement relating to intellectual property to which both are parties.21 Moreover, none of the 7 FTAs made further commitments beyond the TRIPS Agreement and existing multilateral Agreements to which it is a party. C Scope of Protection The Chinese FTAs are normally contented with the scope of protection embodied in the TRIP Agreement. There is no expansive scope of protection, except for genetic resources, traditional knowledge and folklore. A typical Chinese FTA provided that subject to each party’s international obligations, the parties may establish appropriate measures to protect genetic resources, traditional knowledge and folklore.22 19

20

21

22

For example, Article 144.2 of China-Peru FTA reads: The Parties recognize the need to achieve a balance between the rights of right holders and the legitimate interests of users and the community with regard to protected subject matter. The Chinese FTAs require parties will prevent practices which constitute abuse of intellectual property rights by right holders or unreasonably restrain competence or adversely affect or limit technology transfer. See, for example, Article 144.4 of the China-Peru FTA. For example, Article 144.3 of the China-Peru FTA reads: Each Party reaffirms its commitment established in existing international agreements in the field of intellectual property rights, to which both are Parties, including the TRIPS Agreement. See, for example, Article 145 of China-Peru FTA.

10

KONG

The Chinese FTAs also address the special concerns of the FTA partners about certain IPRs.23 D IPR Enforcement Another noticeable feature of the Chinese FTA is the reiteration of IPR enforcement measures. Moreover, the reiterated enforcement measures are unexceptionally concerned with a provision for border measures.24 The IPR enforcement provisions in the Chinese FTAs are intended to build up IPRs enforcement and include simplification of registration, streamlining administrative and judicial protection, and increasing transparency and accessibility of information. Nevertheless, the Chinese FTAs do not go beyond the TRIPS Agreement. E Cooperation Unexceptionally, there is a mention of cooperation in all the IPR provisions of the Chinese FTAs. The provision is specifically intended to institutionalize the cooperative mechanism in the IP field. Its specific aims are: 23 24

For example, Article 146 of the China-Peru FTA deals with the protection of listed geographic indications of both China and Peru. See, for example, Article 147 of the China-Peru FTA entitled Special Requirements Related to Border Measures, which reads: 1. Each Party shall provide that any right holder initiating procedures for suspension by the customs authorities of the release of suspected counterfeit trademark or pirated copyright goods into free circulation is required to provide adequate evidence to satisfy the competent authorities that, under the relevant laws of the Party, there is prima facie an infringement of the right holder’s intellectual property right and to supply sufficient information to make the suspected goods reasonably recognizable to the customs authorities. The sufficient information required shall not unreasonably deter recourse to these procedures. 2. Each Party shall provide the competent authorities with the powers to require an applicant to provide a reasonable security or equivalent assurance sufficient to protect the defendant and the competent authorities and to prevent abuse. Such security or equivalent assurance shall not unreasonably deter recourse to these procedures. 3. Where the competent authorities have made a determination that goods are counterfeit or pirated, a Party shall grant the competent authorities the right to inform the right holder, at the right holder’s request, of the names and addresses of the consignor, the importer, and the consignee, as well as the quantity of the goods in question. 4. Each Party shall provide that the competent authorities are permitted to initiate ­border measures ex officio, without the need for a formal complaint from a person or right holder. Such measures shall be used when there is reason to believe or suspect that goods being imported, exported or in transit are counterfeit or pirated.

A Rising Tide Lifts All Boats?

11

1.

To promote cooperation between government agencies, education institutions and other organizations on protection, enforcement and development of IPR; 2. To facilitate communications to better understand the enforcement and administration mechanisms; 3. To promote sharing of IPRs info to strengthen, inter alia, border protection. The IPR provision particularly focuses on increasing capacity building and fostering the development of IP policies and eliminating trade in goods infringing IPRs.25 III

Where Will China Head for in the Protection of Foreign IPRs?

Needless to say, it is important to identify and examine the factors affecting China’s attitudes towards IPR protection in the post-WTO era. Traditionally, China viewed the concept of intellectual property as a foreign imposition to protect Western economic interests.26 On the eve of China’s accession to the WTO however, China was found to pool its efforts to align its IP laws and regulations with the TRIPS Agreement. As result, an IPR regime up to the TRIPS standards was instituted and stronger protection of IPRs, as required by the TRIPS Agreement, was made possible in principle. Along with this drive of TRIPS compliance, China was worried about its own capacity to create IP. Competition from foreign IP holders who are aided by strengthened protection, has been felt by the Chinese authority as well as the Chinese enterprises. In this broader context, the government adopted the Guide­ lines of the National Intellectual Property Strategy to embrace a comprehensive IP strategy on 5 June 2008.27 The Guidelines of the State Intellectual Property Rights Strategy outline the following key elements of the state IPR strategy: Firstly, the issue of IPR is dealt with from “the height of a national strategy.” In other words, the IPR strategy is part of the national development strategy. Secondly, the IPR strategy is to consummate IP legislation in China in the next five to ten years with an emphasis on the enforcement of IPR. Improving IPR-related policies, laws and regulations is made part of this strategy. 25 26 27

See, for example, Article 148.1 of the China-Peru FTA. Alford (2006). The State Council, “The Guidelines of the State Intellectual Property Rights Strategy” (5 June 2008).

12

KONG

Thirdly, the IPR strategy aims to increase the number of patents in China, to match other major global economies and to study and implement the IPR strategy in selected fields. Fourthly, the strategy endorses the shift towards an innovation modality moving away from an imitation-oriented approach to a self-dependent IPRoriented one. Many Chinese enterprises have relied on imitation of imported products and equipments for their technology acquisition. The government reportedly plans to invest RMB 20 billion to focus on innovation in 12 selected important areas, aimed at achieving 2000 patents during the “Eleventh Five Year Plan” period. Lastly, the strategy encourages an active participation in the adjustment of international rules on IPR. Genetic resources, traditional knowledge and folk literature and art should also be put under IPR protection.28 These strategic considerations are reflective of China’s concerns. China’s concerns on the IP issue lie in building the capacity to create IP, of the IPR holders in utilizing and enforcing IPRs, and of the government agency in administering IPRs. Raising the levels of protection of IPRs however is no longer its priority on the IP issue.29 In this context, it is not surprising to find that many Chinese are sensitive to the TRIPS-plus obligation in IP rule-making. There seems to be a general consensus about China’s approach to TRIP-Plus obligations.30 For example, the TRIPS-plus provisions are believed to create unequal international obligations of developing countries.31 It is also argued that in practice the TRIPS-plus provisions have considerably adverse effects on developing countries’ access to essential medicines.32 It is therefore proposed that as a developing country largely depending on generic drugs, China should be cautious about TRIPS-plus provisions while making laws or negotiating free trade treaties with other countries.33 China, as a  powerfully developing country, is believed to have enough power to resist TRIPS-plus agreements which have unobtrusively negative impact on china, and should stand against global IPRs ratchet resulting from these agreements.34 28 Kong (2009). 29 Cio.com (2006). 30 Wu (2010); Zhang (2009); Zhu (2010); Zhang (2010). 31 Zhang (2009). 32 Wu (2010). 33 Ibid. 34 Zhang (2009).

A Rising Tide Lifts All Boats?

IV

13

IP Rule-Making in the Context of FTAs: Negotiation on the Basis of China’s FTA Model?

China’s FTA strategy is found to be often politically motivated.35 It is fair to further argue that China has not yet developed its own FTA model. However, it is becoming clear that the IPR provisions in the Chinese FTAs that have been concluded feature TRIPS-equivalent obligations. China is still negotiating FTAs and more FTAs can be expected. Its attitude towards IP-rule-making is worth noticing. According to Well Versed Economists, an online platform for academicians, the Chinese Government is suggested to unite with other developing countries to defend against the TRIPS-plus practice.36 It is expected that China will follow the practice in IP rule-making in the course of FTA negotiation. If a prospective FTA partner accepts the Chinese approach to IPR protection, the IPR chapters in the Chinese FTAs will be fit in the following description: For China, IPR rule-making in the course of its FTA negotiation with its partners will do no more than reiterating their obligations under the TRIPS Agreement, with a focus on building-up of cooperative and enforcement mechanism. References Alford, William P. (2006) “Understanding Chinese Attitudes Towards Intellectual Property (IP) Rights,” http://www.cio.com/article/24969/Understanding_Chinese _Attitudes_Towards_Intellectual_Property_IP_Rights (accessed 28 January 2013). Cio.com (2006) “Understanding China’s Attitudes towards Intellectual Property (IP) Rights Protection,” http://www.cio.com/article/24969/Understanding_Chinese _Attitudes_Towards_Intellectual_Property_IP_Rights (accessed 30 October 2013). Concise Oxford Dictionary (2009), Oxford: Oxford University Press. Correa, Carlos M. (2000) Intellectual Property Rights, the WTO and Developing Countries: The TRIPS Agreement and Policy Options, London and New York: Zed Books. Cottier, Thomas, & Marina Foltea (2011) “Global Governance in Intellectual Property Protection: Does the Decision-making Forum Matter?,” NCCR Trade Working Paper No. 2011/45. Endeshaw, Assafa (2006) “Free Trade Agreements as Surrogates for TRIPS-Plus.” 28 European International Property Review 374–380. 35 36

Kong (2012). thesis.cei.gov.cn (2010).

14

KONG

Fink, Carsten, & Patrick Reichenmiller (2006) Tightening TRIPS: Intellectual Property Provisions, World Bank: Washington, D.C. Kong, Qingjiang (2012) “China’s Uncharted Free Trade Agreement Strategy.” 46 Journal of World Trade 1191–1206. Kong, Qingjiang (2009) “Embracing an Intellectual Property Strategy amid WTO Compliance.” 4 Journal of Intellectual Property Law & Practice. mofcom.gov (2014) http://fta.mofcom.gov.cn (accessed 30 October 2013). thesis.cei.gov.cn (2010) “New Trend of IP Legislation in the Context of Trade Regionalization and China’s Response (in Chinese), Asia-Pacific Economies,” http:// thesis.cei.gov.cn/modules/ShowDoc.aspx?DocGUID=21399d7b35854313bc189147a3 6c24f4 (accessed 28 January 2014). Wu, Xueyan (2010) “Expansion of TRIPS-plus Provisions and China’s Countermeasures.” 5 Modern Law Science. Yang, Hong (2013) “New Trend of IP Legislation in the Context of Trade Regionalization and China’s Response (in Chinese), Asia-Pacific Economies,” http://thesis.cei.gov .cn/modules/ShowDoc.aspx?DocGUID=21399d7b35854313bc189147a36c24f4 (accessed 28 January 2014). Yang, Jing (2011) “Legislative Incentives in TRIPS-Plus Rules in US FTAs.” 27 Intellectual Property. Zhang, Jianbang (2009) “The Obligations of IPRs Protection of Developing Countries Under TRIPS.” 1 International Law Review of Wuhan University. Zhang, Zhengyi (2010) “TRIPS-Plus Clauses and Their Revelation for China’s Intellectual Property Policy.” 5 Shanghai Institute of Political Science and Law. Zhu, Gongyu (2010) “Analysis of Selected TRIPS-plus Provisions Pertinent to Health Issues and the Bilateral Trend in International IP Lawmaking.” 2 World Trade Organization Focus 41–48.

Retrospect and Prospect of the Cross-Straits Economic Cooperation Framework Agreement (ECFA) between Mainland China and Taiwan Kuei-Jung Ni* I Introduction The cross-strait relationship between Mainland China and Taiwan used to be hostile and both sides have yet ceased to use force for the unification. Though the remove of mutual political difference and antagonism may not soon be realized, to enhance trade and economic interaction and cooperation would serve their common interest. Since Mainland China engaged in economic reform in the late 1980s, Taiwan has allowed their companies to do investment in Mainland China and the amount has increased rapidly and constantly. In 2002, both parties acceded to the World Trade Organization (WTO) simultaneously. Unfortunately, the multilateral trade forum has not been availed as an effective means to promote trade liberalization across the strait. During the reign of the Democratic Progress Party (DPP) of Taiwan starting from 2000, Mainland China showed no interest in engaging in trade deals with Taiwan mainly because of worrying the DPP’s independence stance. After the Nationalist Party (KMT) regained the power in 2008, the presumed prounification President Ma Ying-jeou actively sought a trade talk with Mainland China. As the WTO Doha negotiation was in jeopardy and regional trade agreements (RTAs) and free trade agreements (FTAs) continue to flourish,1 President Ma considered the trade normalization with Mainland China would be a footstep for fulfilling the island’s economic integration bilaterally and regionally. By contrast, as the political mistrust has started to diminish between two sides, Mainland China inclined to use the trade leverage to pursue political integration and eventual unification.

* Professor of Law, Institute of Technology Law, National Chiao Tung University, Taiwan. Visiting Scholar, the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics, Harvard Law School (2013–2014). Contact: [email protected]. 1 Since 2001, more than 154 RTAs and FTAs have been concluded. See “Trade In My Backyard: Multilateral Trade Pacts Are Increasingly Giving Way to Regional Ones,” The Economist, 12 October 2013.

© koninklijke brill nv, leiden, 2014 | doi 10.1163/9789004279902_003

16

NI

After intense negotiations, both parties decided not to merely sign a FTA in prototype. Rather, they agreed to preliminarily build a framework mechanism that sets the objects and methods for pursuing eventual trade liberation in a progressive manner. The conclusion of the Cross-Straits Economic Cooperation Framework Agreement (ECFA)2 between Mainland China and Taiwan on June 29, 2010 marked a huge progress for their economic relations and beyond. Broadly speaking, the ECFA seems a kind of FTAs that have prevailed over the current trade negotiations and rule-making. But, unlike most FTAs, its economic effect cannot be fully realized until individual trade deals of the ECFA have been finalized and implemented. From the perspective of expanding global trade, the attempt to sign an ECFA demonstrates both parties’ resolve to engage in further trade liberalization with their trading partners. More importantly, given the special relationship, politically, economically and culturally, between them, the configuration of the ECFA underscores a roadmap for developing closer interaction and cooperation across the Taiwan Strait. Until recently, apart from tariff reduction, Taiwan has harvested the fruits of the ECFA in term of facilitating the signing of more FTAs. Since 2010, Taiwan has concluded FTAs with New Zealand and Singapore, and more are under negotiations especially in Asia region. However, subsequent developments of concrete trade deals under the ECFA are encountering political struggle in Taiwan. The sub-agreement on trade in services has been opposed by the DDP and some domestic industry in Taiwan. The objection may cast uncertainty concerning the progress of the ECFA and make the agreement less promising. This chapter will first reveal the background and significance of the ECFA, especially by looking at to what extent the signing of the pact facilitates Taiwan’s efforts to pursue more FTAs. Part III analyses the legal framework and implications of the ECFA. As the agreement aims to deepen the bilateral relationship and will continue to grow, Part IV will examine the progress and challenges following the effectiveness of the ECFA, especially regarding the recent conclusion of an agreement on trade in services. Part V concludes.

2 Cross-Straits Economic Cooperation Framework Agreement, adopted on 29 June 2010, 50 ILM 442 (2011) [hereinafter ECFA].

THE ECFA BETWEEN MAINLAND CHINA AND TAIWAN

II

17

The Background and Significance of Concluding the ECFA between Mainland China and Taiwan

Political and Economic Relations between Mainland China and Taiwan before Singing the ECFA: A Nutshell After China Communists won the civil war against KMT and established the People’s Republic of China (PRC) in 1949, China was separated into two areas: the PRC in Mainland China and the Republic of China in Taiwan. Both sides stick to “One China Policy” subject to their own interpretation. Politically, it had been a long policy for Taiwan to implement the policies of no contact, no negotiation and no compromise. The military hostility across the Taiwan Strait has never ceased to end. Despite the rivalry, it appears hard to halt the civil and commercial interaction between the two areas. Their economic exchange has been in a rapid growth since Mainland China engaged in ­economic reform in 1979. The increasing interaction, even non-political, ultimately demands the involvement of both governments to safeguard rights and interests of their people and companies. As official contact remains prohibited, the “Straits Exchange Foundation” in Taiwan and the “Association for Relations Across the Taiwan Straits” in Mainland China were established and authorized by the two governments to manage their mutual relations and certain issues. As Mainland China’s economic power arises and its market becomes huge, Taiwan that largely depends on exportation to sustain its economic growth has increasingly relied on the Chinese market. Mainland China has become Taiwan’s largest investment host and exporting country.3 In 2002, Mainland China and Taiwan almost simultaneously acceded to the WTO.4 Yet, the membership actually did not bring their mutual trade measures consistent with WTO free trade commitments.5 Both sides failed to remove discriminatory policies against each other. Taiwanese service providers, like legal professionals, were precluded from enjoying the same treatment under the Mainland China’s commitments of WTO General Agreement on Trade in Services (GATS).6 On the other hand, many products of Mainland China are prohibited from importing into Taiwan.7 A

3 See report of Taiwan Bureau of Foreign Trade, Ministry of Economic Affairs (2014). 4 See website WTO (2014a). 5 For a discussion of how the trade measures of both Mainland China and Taiwan adopted toward each other were incompatible with WTO trade rules, see Hsieh (2011). 6 Ibid., p. 125. 7 Ibid., p. 128.

18

NI

Taiwan’s attempt to use WTO, a multilateral mechanism, as a forum to legalize their trade relations and to solve relevant disputes seemed not fruitful.8 As the DDP was in power from 2000 to 2008, there was no meaningful progress in normalizing their trade and investment relations across the Taiwan Strait mainly because Mainland China was skeptical to the DDP’s Taiwan independence position. Mainland China alternatively built the “Cross-Strait Economic, Trade and Culture Forum” jointly with KMT, the major opposition party then, as a bridge to influence Taiwan’s policy. In 2008, KMT took the power back by winning the presidential election. President Ma undertook a pragmatic approach on the Mainland China policy by setting aside the controversy over the issue of sovereignty and decided to engage in dialogue with Mainland China. Since then, the Straits Exchange Foundation and the Association for Relations Across the Taiwan Straits have resumed talks and negotiations. Until 2013, they have signed eighteen agreements, including the ECFA and a pact of direct flights.9 Significance and Impact of Concluding the ECFA: Economically, Politically, International Geographically Few will disagree that the completion of a trade and economic pact between Mainland China and Taiwan on June 2010 is a landmark progress across the Taiwan Strait. The conclusion of the ECFA can be considered as one of the most important accomplishments within the first term of Ma’s presidency. Singing the ECFA between Mainland China and Taiwan underscores clear political, economic and external impact. Politically speaking, the agreement may ease, even not resolve, the long term political disputes and military tensions across the Taiwan Strait for decades. Under the one China policy, Mainland China has constantly blocked the accession of Taiwan to the United Nations and its affiliated originations. Mainland China also refuses to adopt duel recognition, which prevents many countries from building formal foreign relationship with Taiwan.10 Militarily, Mainland China has yet relinquished the use of force as one of options for the

B

8

9 10

As Mainland China imposed safeguard measures against Taiwan’s steel products in 2005, Taiwan expected the former to observe the WTO dispute settlement rules in relation to consultation. Yet, the former was unwilling to treat Taiwan as an equal member and delayed the official contact. See Davidson observes the two parties “are gradually managing to interact on an equal basis under the WTO framework.” See Davidson (2011). See the website of the Straits Exchange Foundation (2014). Only twenty something countries maintains formal foreign relations with Taiwan. Most of the countries are small and located in Central America and Africa.

THE ECFA BETWEEN MAINLAND CHINA AND TAIWAN

19

unification with Taiwan. This unfriendly policy of course displeases or even angers the people in Taiwan. Nevertheless, as mentioned, the trade and investment between two sides have increased rapidly since Mainland China’s engaging in economic reform and opening its market to the world. There is a strong desirability to normalize and legalize their economic interactions so as to enhance commercial stability and security. As the political disagreement remains, the normalization of economic relations by concluding an ECFA signals the possibility and ability of two parties to set aside their difference and move their interaction in a more pragmatic and mutually beneficial direction. Indeed, it remains to be seen whether the initiation of an ECFA will lead to further political reconciliation between two sides. As Mainland China’s attempt to unify Taiwan is unchanged, Mainland China may reasonably expect that establishing a strong economic tie with Taiwan would remove the obstacles for ultimate political integration.11 Thus, not surprisingly, Mainland China considers the conclusion of the ECFA a political achievement, which is observed as “the most strategic move that Mainland China has taken so far in using the FTA as a vehicle of change…”12 By contract, there have differential interpretation concerning the political implications brought by the fulfilment of the ECFA in Taiwan. Some worry that the ECFA will force Taiwan to increasingly rely on the Mainland China’s market so as to lose its autonomy gradually.13 On economic impact, few will challenge the economic benefits and effects of concluding such a trade pact. The economic benefits are particularly significant and obvious to Taiwan. According to an economic model analysing the effects of the ECFA, the trade liberalization of both sides will make Taiwan increase its GDP by about 4.5 percent by 2020 after the ECFA was implemented.14 Further, the ECFA effects will add more benefits to Taiwan as regional free trade agreements, like ASEAN+Mainland China and ASEAN+3, have been implemented, which may account for 0.8 percent increase for Taiwan. Thus, there would be 5.3 percent GDP increase for Taiwan by 2020 upon a deepened economic integration in Asia.15 11 12 13

Rosen & Wang (2010a,b). Wang (2011). “Taiwan Parliament Approves China Trade Deal,” New York Times, 18 August 2010. See also Mann, (2013), arguing that Taiwan may suffer from the loss of political self-determination, though the economic benefits on Taiwan are momentous. 14 Rosen & Wang, supra note 11, p. 2. 15 Ibid.

20

NI

The ECFA, like most FTAs, primarily aims at the reduction of tariffs at an initial stage. In accordance with the Early Harvest Arrangement in the ECFA, Mainland China agrees to reduce tariffs on Taiwanese 539 categories of products that cost USD 13.84 billion. Taiwan will cut tariffs on 267 items of goods imported from Mainland China worth USD 2.9 billion.16 In particular, under the scheme, Taiwan is provisionally not required to lift the trade ban on thousands of Chinese goods. Therefore, under the initial arrangement, Taiwan obviously will benefit from the ECFA more than that to Mainland China.17 Of course, both parties may expect further economic advantage to be formulated after specific good and service trade agreements are concluded in the future.18 Apart from bilateral political and economic positive effects brought by the ECFA, to articulate an ECFA may create momentum to facilitate Taiwan to pursue more FTAs. As major trading countries have successfully networked one another in producing a variety of FTAs or RTAs in the first decade of twentyfirst century, Taiwan has relatively slow progress19 to live up with the trend partly because many countries that have strong political and/or economic ties with Mainland China may be cautious to the response of Mainland China on Taiwan’s developing more FTAs with them.20 Trade normalization across the Taiwan Strait that implies certain degree of reconciliation could eliminate the political barriers that give the excuse to Mainland China in objecting Taiwan’s FTA initial with its trading partners.21 Upon the conclusion of the ECFA, President Ma and its ruling party had great expectations that the agreement can help accessing to free trade communities, especially in Asia.22 Taiwan’s integration into bilateral or regional 16 17

18 19

20 21

22

ECFA, Annex I: Product List and Tariff Reduction Arrangements Under the Early Harvest for Trade in Goods. See Wang, supra note 12, p. 512; Rosen & Wang, supra note 11, p. 2–3 (observing the gains resulting from the ECFA are disproportionate between Taiwan and China given the economic strength of the latter). ECFA, Arts. 3, 4 (both parties agree to conduct consultations on agreements on trade in goods and services no later than six months after the entry into force of ECFA). Taiwan started FTA negotiations with countries with which Taiwan has formal diplomatic relations. Prior to signing the ECFA, Taiwan concluded FTAs with El Salvador, Honduras, Guatemala, Nicaragua and Panama respectively. The trade amount between Taiwan and these countries are relatively small. “Taiwan’s Economic Isolation Desperately Seeking Space: A Free-trade Deal Is Greeted by China with a Surprising Lack of Fuss,” The Economist, 13 July 2013. See Davidson, supra note 8, p. 66–67 (quoting the Beijing official statement that upon the signature of ECFA, Beijing would not oppose Taiwan’s concluding FTAs with other countries). Chien-Hale (2011).

THE ECFA BETWEEN MAINLAND CHINA AND TAIWAN

21

trade blocs by first seeking an ECFA with Mainland China was also recognized by the WTO.23 After the conclusion of the ECFA, some countries have expressed their willingness to engage in free trade talks with Taiwan. For instance, India had considered the feasibility to sign a FTA with Taiwan.24 Japanese merchants in Taiwan felt optimistic on closer trade and investment ties between Japan and Taiwan.25 More importantly, apart from rippling economic implications of the ECFA in Asia, Rosen and Wang believe that “the geo-economic implications are significant enough to demand strategic attention from the United States and underscore as well as anything the importance of securing US economic engagement […] in Asia.”26 Thus, they suggest the United States (U.S.) will be likely to energize its ongoing talks under the Trade and Investment Framework Agreement (TIFA) with Taiwan.27 As the ECFA has been in force for nearly four years, it may be appropriate to examine the external effects of the ECFA for Taiwan. After the conclusion of the ECFA in 2010, Taiwan has made efforts to sign more FTAs in the region. The predication that the ECFA may help Taiwan in making more FTAs is actually realized. In 2013, Taiwan has succeeded in concluding two FTAs with New Zealand and Singapore respectively. On July 10, 2013, Taiwan signed the “Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation (ANZTEC).”28 The Congress of New Zealand finished the review process in September. Then, on October 29, Taiwan’s Parliament rectified the trade deal. ANZTEC is considered as “a high quality and comprehensive economic cooperation agreement that will liberalize and facilitate trade in goods, services and investment between the two markets.”29 ANZTEC comprises of twenty-five chapters and eight annexes. In addition to essential free trade rules, the agreement also governs trade-related 23

For WTO’s response to ECFA, see its recent trade review on Taiwan: Report by the Secretariat, Trade Policy Review of the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu xiii, WTO Doc. WT/TPR/S/232 (31 May 2010). 24 Chien-Hale, supra note 22, p. 440. 25 Ibid. Taiwan signed an investment agreement with Japan on 22 September 2011. See Moea. gov.tw (2014a). Later, both parties concluded an E-commerce agreement. 26 Rosen & Wang, supra note 11, p. 3. 27 Ibid. See also Chou (2010), indicating the expectation of the American Institute in Taiwan (AIT) on the possible realization of a FTA between the US and Taiwan upon the effectiveness of the ECFA. 28 The Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation, signed 10 July 2013. See NZCIO. com (2014a). [hereinafter ANZTEC]. 29 See NZCIO.com (2014b).

22

NI

issues, including intellectual property, trade and labour, trade and environment, and competition. More interestingly, it extends cooperation to matters of cultural exchanges, such as film industry and indigenous peoples.30 ANZTEC is a milestone trade deal for Taiwan and highlights a fruitful leap for Taiwan’s endeavour to pursue meaningful FTAs mainly because ANZTEC is the first FTA whose counter party is a developed OECD country and has no official foreign tie with Taiwan. The success indicates, apart from the ECFA, the ability of Taiwan to engage in a deeper economic integration. To conclude an ANZTEC also means the ECFA has squarely served a catalyst31 or springboard32 to trigger more FTAs for Taiwan. More recently, on 7 November 2013, Taiwan concluded the “Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership” (ASTEP)33 after two-year negotiations. The FTA later was rectified by Taiwan on December 27, 2013. Like ANZTEC, ASTEP is a comprehensive economic and trade deal, which eliminates tariff and non-tariff barriers upon effectiveness and aims to enhance mutual economic cooperation. Given Singapore is Taiwan’s fifth-largest market and Taiwan is her eighth-largest trade partner, the FTA is expected to augment bilateral economic interests.34 Apart from the economic effects brought by ASTEP, the Taiwan officials admitted that the strategic significance of ASTEP is more obvious than economic advantage.35 As Singapore is a party to ASEAN, it is expected that the success of ASTEP may assist Taiwan to access to the ASEAN free trade zone. Also, Taiwan has finalized the feasibility study of signing FTAs with India and Indonesia.36 While pursuing more bilateral FTAs by Taiwan has been promising, the developments, maintained by the Taiwan government, will create beneficial conditions on which the accession to regional free trade zones, such as 30 ANZTEC, supra note 28, chapters. 18–19. 31 “Taiwan Parliament Approves China Trade Deal,” supra note 13. 32 Wang, supra note 12, p. 513. 33 The Agreement between Singapore and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu on Economic Partnership, signed 7 November 2013. See Moea.gov.tw (2014b). [hereinafter ASTEP] 34 Taiwan Ministry of Economic Affair’s Press Release on the Signing of ASTEP. See Moea. gov.tw (2014c). 35 In terms of tariff reduction, Singapore will benefit from ASTEP than that to Taiwan because tariffs imposed by Singapore have already been low and Taiwan is required to reduce the tariffs upon products from Singapore under ASTEP. 36 See Moea.gov.tw (2014d).

THE ECFA BETWEEN MAINLAND CHINA AND TAIWAN

23

Trans-Pacific Partnership Agreement (TPP) and Regional Comprehensive Economic Partnership Agreement (RCEP), could be realized. Of course, joining RTAs should be more complex than signing FTAs. The accumulation of experience in engaging in bilateral FTAs definitely will boost the confidence on both Taiwan and her trading partners that Taiwan is eligible to gain the membership in such trade blocs. At present, it seems uncertain about the real impact of the ECFA on the trade integration between Taiwan and the U.S. Indeed, the TIFA talk has been resumed after Taiwan eased import restrictions on U.S. beef in 2012. But, no meaningful progress has yet been made under TIFA. Whether the closer economic interaction across the Taiwan Strait may push the U.S. to enhance ­economic tie with Taiwan by, inter alia, signing a FTA or supporting Taiwan’s bid for TPP remains to be seen. III

The Legal Status and Implications of the ECFA Context

A The Nature and Status of the ECFA The trade relationship between Mainland China and Taiwan has yet been normalized until the conclusion of the ECFA, although both parties acceded to the WTO a decade ago. It would be practically difficult to establish a cross-Strait free trade zone immediately as the political tension was just to be eased. By choosing the title as a “framework agreement,” the ECFA is not designed to be a typical FTA per se37 that normally underlines clear and definite commitments for trade liberalization. Rather, the ECFA sets the “initial stage”38 and foundation for the future developments of a real free trade area across the Taiwan Strait. Thus, more detailed and specific agreements under the ECFA need to be negotiated and concluded subsequently. Practically speaking, the real commitments on economic integration and trade normalization subject to future confirmation. From the standing point of the WTO on RTAs,39 it is interesting to observe how the ECFA interacts with WTO and its status under the latter. In accordance with the GATT 1994 and the GATS, WTO allows its members to conclude RTAs subject to the compliance with certain rules.40 37 E.g. Davidson, supra note 8, p. 51, 69. 38 Wang, supra note 12, p. 512. 39 WTO defines RTAs as reciprocal trade agreements between two or more partners. See WTO (2014b). RTAs may refer to custom unions or FTAs. 40 1994 GATT, Art. XXIV; GATS, Art. V.

24

NI

Technically, the WTO shall not prohibit members from pursuing customs unions or free trade areas by entering into RTAs. Nonetheless, with respect to substantial matter, the GATT requires tariffs and national regulations being implemented in free trade areas shall not be higher or more restrictive than the corresponding items set previously in the areas.41 The requirement mandates a GATT plus for WTO members in designing their RTAs on trade in goods. By the same token, the GATS obliges RTAs on services to engage in substantial elimination of all discriminations.42 Given the ECFA, apart from the arrangement of the early harvest program, does not intend to realize trade liberalization either on goods or services in a straight and prompt manner, the ECFA arguably is not governed by the rules mentioned above. Therefore, the ECFA is not kind of RTAs characterized by the WTO in a ­narrow sense. On procedural rule, any contracting party needs to make a prompt notification to WTO relevant sub-organs regarding their intention to formulate RTAs and agreements in question.43 In fact, the ECFA was notified to the WTO in 2010 and placed within the “List of RTAs for which an early announcement has been made.”44 Due to its distinction from a formal RTA, it was not listed in so called “List of notified RTAs in force.”45 Of WTO statistics on the number of RTAs, the ECFA thus would not be counted in. B The Implications of the ECFA Context As a framework agreement, the ECFA underlines several goals and agendas to  be fulfilled in the future. The objectives of the ECFA consist of the following:46 1. 2. 3.

To strengthen and advance the economic, trade and investment cooperation between the two Parties; To promote further liberalization of trade in goods and services between the two Parties and gradually establish fair, transparent and facilitative investment and investment protection mechanisms; To expand areas of economic cooperation and establish a cooperation mechanism.

41 1994 GATT, Art. XXIV, para. 5(b). 42 GATS, Art. V, para. 1. 43 1994 GATT, Art. XXIV, para. 7; GATS, Art. V, para. 7. 44 See WTO (2014c). 45 Ibid. 46 ECFA, Art. 1.

THE ECFA BETWEEN MAINLAND CHINA AND TAIWAN

25

Overall, in addition to the Early Harvest Commitments, the ECFA covers three major substantial areas: liberalization of trade in goods and services, establishment of investment mechanism and enhance of economic cooperation. It also emphasizes the bilateral trade and economic relations should be advanced progressively.47 The Early Harvest Program constitutes the most concrete and fruitful economic benefits to be reaped by the parties. On trade in goods, the immediate effects are tariff reduction on products listed in Annex I to the ECFA.48 Both parties are required to implement the program within six months after the entry into force of the ECFA. Annex II provides the provisional rules of origin applicable to products in Annex I.49 Annex III specifies the safeguard measures for goods covered by Annex I. On trade in services, the Early Harvest Program liberalizes certain sectors and measures implemented by the parties. In contrast to goods, the service liberalization in the program shall be applied expeditiously.50 Annex IV defines sectors and liberalization measures under the program. The definition of service suppliers in Annex V applies to sectors and measures under Annex IV.51 As mentioned, the ECFA lays out the roadmap for the eventual trade liberalization across the Strait. With respect to trade in goods, both parties basing on the Early Harvest Program are required to seek an agreement on trade in goods by engaging in consultations for the following matters:52 (1) modalities for tariff reduction or elimination; (2) rules of origin; (3) customs procedures; (4) non-tariff measures, including but not limited to technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures; (5) trade remedy measures, including measures set forth in the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, the Agreement on Subsidies and Countervailing Measures and the Agreement on Safeguards of the World Trade Organization, and the safeguard measures between the two Parties applicable to the trade in goods between the two Parties. In accordance with the principle of progressiveness in fulfilling trade liberalization, the proposed trade in goods agreement shall divide goods into three 47 48 49 50 51 52

Preamble to the ECFA [emphasis added]. Annex I: Product List and Tariff Reduction Arrangements Under the Early Harvest for Trade in Goods. ECFA, Art. 7, para. 2(2). Ibid., Art. 8, para. 1. Ibid., Art. 8, para. 2(2). Ibid., Art. 3, para. 2.

26

NI

categories: goods subject to immediate tariff elimination, goods subject to phased tariff reduction, and exceptions or others.53 Like trade in goods arrangements, the ECFA requires both parties to conduct consultations for concluding an agreement on trade in services with a view to seeking (1) gradually reduce or eliminate restrictions on a large number of sectors in trade in services between the two Parties; (2) further increase the breadth and depth of trade in services; (3) enhance cooperation in trade in services between the two Parties.54 The principle of progressiveness also applies to the proposed service trade agreement as the ECFA simply mandates a gradual reduction of restrictions on a large number, but not all, of sectors of services. The inclusion of an investment issue reflects the intention of both parties to address mutual relations more deeply as Taiwan has long sought a proper protection offered by Mainland China onto its huge amount of investment in the territory. Of course, as Mainland China’s economic power grows rapidly, Mainland China will be eager to persuade Taiwan to deregulate its investment restrictions toward Mainland China’s capital. In line with trade in goods and services arrangements, both parties consent to engage in consultations to reach an investment agreement that include, inter alia, (1) establishing an investment protection mechanism; (2) increasing transparency on investmentrelated regulations; (3) gradually reducing restrictions on mutual investments between the two Parties; (4) promoting investment facilitation.55 The third area promoted by the ECFA is on economic cooperation, which comprises a variety of programs, including intellectual property, financial, customs, e-commerce, industrial, small and medium-sized enterprises cooperation etc.56 It should be noted that no fixed format is required concerning the result of consultations on the matters.57 On procedural matter, the two parties are obliged to seek a dispute settlement agreement by which any dispute arising from the interpretation, implementation and application of the ECFA can be resolved. In addition to pledging to negotiate trade and investment agreements with substantial binding commitments and to develop cooperative agendas, the ECFA institutionally mandates the establishment of a permanent organ, the Cross-Straits Economic Cooperation Committee. The Committee’s function 53 54 55 56 57

Ibid., Art. 3, para. 3. Ibid., Art. 4, para. 2 [emphasis added]. Ibid., Art. 5, para. 2. Ibid., Art. 6, para. 1. Ibid., Art. 6, para. 2.

THE ECFA BETWEEN MAINLAND CHINA AND TAIWAN

27

and competency mirror those of the WTO Ministerial Conference, the General Council, the Trade Review Mechanism and the Dispute Settlement Body as a whole. In effect, the Committee appears quite powerful because it undertakes the duty of engaging in consultations (legislation), monitoring the implementation (administration) and doing interpretation and settling disputes for certain period (adjudication).58 IV

Subsequent Developments and Challenges of the ECFA

The ECFA by nature is a framework agreement and now in a preliminary stage for the realization of trade normalization across the Strait. Whether major goals and objects set by the ECFA can be achieved hinges on the subsequent conclusion and implementation of individual agreements. Since the ECFA came into force in late 2010, both parties have engaged in a serial of consultations and negotiations according to the roadmap underlined in the ECFA. After intense consultations on areas of goods, services and dispute settlement, an agreement on trade in services was the first pact to be finalized. During the ninth round of cross-strait talks, the “Cross-Strait Agreement on Trade in Services” was signed on June 21, 2013.59 The contents of the new agreement reflect and synopsize the GATS with the view to further reducing restrictions on service sectors. More importantly, both sides commit themselves to liberalizing their respective service markets in Annex I60 where Taiwan allows Chinese to access to its service market for 64 sectors and Mainland China will open more sectors of services to be run by Taiwanese companies. The liberalization centres on the mode 3 of trade in services, namely “commercial presence.”61 Overall, both sides largely enjoy WTO-plus benefits because they agree to entail each other better commercial competition conditions and status than other trade partners. The Chinese openness on service sectors will benefit Taiwan finance, telecommunication, computer and medical service providers in which Taiwan has more competitive advantages. By contrast, it is interesting to observe that on finance and banking sectors, Taiwan’s market remains restrictive to Chinese companies but agree to eliminate such limitation expeditiously.62 In contrast to Mainland China’s commitment on liberalizing 58 Ibid., Art. 11, para. 1. 59 Cross-Strait Agreement on Trade in Services (Chinese version) (2014). 60 Ibid., Annex I Table on Specific Commitments. 61 Ibid. 62 Ibid., p. 26.

28

NI

­ rofessional services to Taiwan, Taiwan’s market in this area remains close to p Mainland China. Therefore, to some extent, the service trade pact is not of an exact WTOplus for the Mainland China’s interest, but appears a WTO-minus on certain sectors, especially on finance. The special arrangement indicates certain degree of departure from the spirit of FTAs that normally lead to additional trade liberalization better than WTO members’ original commitments. Nonetheless, the political compromise is understandable. Like the Closer Economic Partnership Arrangements (CEPA) with Hong Kong63 and Macao,64 the service trade pact underscores Mainland China’s willingness to allow Taiwan to harvest more economic gains in exchange for building a stronger and closer economic tie with Taiwan, which certainly may deepen Taiwan’s reliance on Mainland China’s market. The service deal obviously favouring Taiwan more should have been ratified by the parliament of Taiwan swiftly if following the previous path for passing the ECFA.65 Yet, the review of the agreement has yet been arranged in the agenda by the parliament due to the strong boycott by the DPP and local service industry. They criticized the pact for lacking transparency and prior consultations, and requested the review of the agreement on a clause-by-clause basis.66 Worrying the delay of adopting the agreement will affect future trade promotion across the Strait, the Ninth Cross-Strait Economic, Trade and Culture Forum jointly hosted by the KMT and the Chinese Communist Party (CCP) on October 2013 called for facilitating the implementation of the service deal.67 Given the increasing controversy on the service agreement, the parliament decided to hold several public hearings for enhancing the transparency of the deal and keeping the public well informed about the costs and benefits of concluding the agreement.68 The delay of ratifying the agreement on trade in services definitely would cast shadow on the prospect of fulfilling ECFA objects. But, the disagreement over the pact in the island should be seen as a normal scenario given Taiwan is a democratic country in which people may feel free to express concern about the disadvantage and costs brought by the agreement that requires Taiwan to 63 64 65 66 67 68

See website Government of the Hong Kong Special Administrative Region (2014). See website Macao Special Administrative Region (2014). The ECFA was ratified by the Taiwan’s parliament in three months after its signing. Wang (2013) “Quickly Ratify Service Pact, Former KMT Officials Urge,” Taipei Times, 28 October 2013, p. 3. Mo (2013) “KMT, CCP Agree to Prioritize Service Trade Agreement,” Taipei Times, 28 October 2013, p. 1. See website Taiwan Parliament (2014).

THE ECFA BETWEEN MAINLAND CHINA AND TAIWAN

29

open its service market to Mainland China. It should not be over pessimistic about the eventual passage of the deal. Taiwan would be used to the domestic strife over FTAs in the future as regional economic integration will increase in depth and width. In addition to the cross-strait service agreement, consultations on agreements on goods and dispute settlement are nearly finished. To facilitate the realization of a free trade area across the Taiwan Strait, the Ma administration should seek consensus internally and communicate with people in good faith concerning the necessity and advantage of further accessing to Mainland China’s market. Of course, providing genuine support to local industries suffering the trade liberalization should proceed. V

Concluding Remarks

The significance of concluding an ECFA across the Taiwan Strait cannot be over-exaggerated. By building this economic platform, Taiwan has an opportunity to harvest more economic gains as the ECFA creates more political leverage for Mainland China to influence Taiwan’s policy. It remains to be seen whether the ECFA as a whole can bring Taiwan substantial economic benefits given specific agreements under the ECFA have yet been fully finalized and implemented. Nonetheless, the predication that signing an ECFA will accelerate and facilitate Taiwan’s economic integration in the region to certain degree has been fulfilled as New Zealand and Singapore have concluded FTAs with Taiwan. Many people would argue that a closer cross-Strait economic tie may generate geo-economic implications for U.S.-Taiwan relation. Yet, it seems unclear whether the ECFA can serve a useful catalyst to push the U.S. to treat TIFA more seriously so as to sign a FTA with Taiwan or support her bid to join the TPP in the future. It is worth reminding that the ECFA like other FTAs is not a panacea for Taiwan’s economy, irrespective of how many FTAs may possibly be concluded by Taiwan. The ECFA that serves a platform for mutual dialogue can constitute a useful means for consultations, rule-making, monitoring of implementation and settling disputes. As subsequent agreements are to be finalized and implemented, the effective operation of the ECFA from legal point of view may help legalizing trade interactions across the Taiwan Strait and allow their exchange to proceed under the rule of law. The domestic strife over the ratification of a service trade agreement in Taiwan surely may cast uncertainty about the future of the ECFA. The current

30

NI

deferral of validating the agreement should be a tentative phenomenon and the pact would be implemented eventually. For the subsequent consultation on trade in goods, it is predictable that Mainland China’s favourable concessions to Taiwan, like the service trade deal, will continue to apply. To realize the ECFA’s goals for building a free trade zone expeditiously, both sides should endeavour to persuade their people harder that the ECFA and subsequent agreements as a whole will make their life better. References Chien-Hale, Elizabeth (2011) “Introductory Note to the Cross-Straits Economic Cooperation Framework Agreement.” 50 International Legal Materials 440–446. Chou, Chi-An (2010) “A Two-Edged Sword: the Economic Cooperation Framework Agreement between the Republic of China and the People’s Republic of China.” 6 Brigham Young University International Law & Management Review 1–20. Cross-Strait Agreement on Trade in Services (Chinese version) (2014), http://www.ecfa .org.tw/SerciveTradeAgreement1.aspx?pid=7&cid=26 (accessed 7 February 2014). Davidson, Paul J. (2011) “The Cross-Straits Economic Cooperation Framework Agree­ ment: Legal Issues.” 29 Chinese (Taiwan) Yearbook of International Law and Affairs 44–69. Government of the Hong Kong Special Administrative Region (2014), http://www.tid .gov.hk/english/cepa/legaltext/cepa_legaltext.html (accessed 7 February 2014). Hsieh, Pasha L. (2011) “The China–Taiwan ECFA, Geopolitical Dimensions and WTO Law.” 14 Journal of International Economic Law 121–156. Macao Special Administrative Region (2014), http://www.economia.gov.mo/web/ DSE/public?_nfpb=true&_pageLabel=Pg_CEPA_Index&locale=en_US (accessed 7 February 2014). Mann, Shannon (2013) “Taiwan is Moving Closer to China, So Why Isn’t the US Freaking Out?,” http://www.policymic.com/articles/69297/taiwan-is-moving-closer-to-china -so-why-isn-t-the-u-s-freaking-out (accessed 23 October 2013). Mo, Yan-Chih (2013), “KMT, CCP Agree to Prioritize Service Trade Agreement,” Taipei Times, 28 October. Moea.gov.tw (2014a), https://www.moea.gov.tw/TJI/main/content/ContentLink.aspx? menu_id=3613 (accessed 7 February 2014). Moea.gov.tw (2014b), http://www.moea.gov.tw/Tse/main/content/ContentLink.aspx? menu_id=3601 (accessed 7 February 2014). Moea.gov.tw (2014c), http://www.moea.gov.tw/Tse/main/news/News.aspx?kind=1&menu _id=40&news_id=19 (accessed 7 February 2014). Moea.gov.tw (2014d), http://www.moea.gov.tw/Mns/otn/content/Content.aspx?menu _id=5457 (accessed 7 February 2014).

THE ECFA BETWEEN MAINLAND CHINA AND TAIWAN

31

NZCIO.com (2014a). http://www.nzcio.com/webfm_send/59 (accessed 7 February 2014). NZCIO.com (2014b), http://nzcio.com/webfm_send/75/ (accessed 7 February 2014). Rosen, Daniel H. & Zhi Wang (2010a) Deepening China-Taiwan Relations through the Economic Cooperation Framework Agreement, Washington: Peterson Institute for International Economics, Policy Brief, Number Pb10–16. Rosen, Daniel H. & Zhi Wang (2010b) The Implications of China-Taiwan Economic Liberalization, Washington: Peterson Institute for International Economics. Straits Exchange Foundation (2014), http://www.sef.org.tw/lp.asp?CtNode=3810& CtUnit=2083&BaseDSD=7&mp=19&lporderbyvalue=xpostDate&lporderby=desc (accessed 7 February 2014). Taiwan Bureau of Foreign Trade, Ministry of Economic Affairs (2014), http://www .trade.gov.tw/Pages/Detail.aspx?nodeID=289&pid=437047&dl_DateRange=all&txt _SD=&txt_ED=&txt_Keyword=&Pageid=0 (accessed 7 February 2014). Taiwan Parliament (2014), http://www.ly.gov.tw/01_lyinfo/0109_meeting/meeting WeekList.action (accessed 7 February 2014). “Taiwan’s Economic Isolation Desperately Seeking Space: A Free-trade Deal is Greeted by China with a Surprising Lack of Fuss,” The Economist, 13 July 2013. “Trade In My Backyard: Multilateral Trade Pacts Are Increasingly Giving Way to Regional Ones,” The Economist, 12 October 2013. Wang, Chris (2013) “Quickly Ratify Service Pact, Former KMT Officials Urge,” Taipei Times, 28 October. Wang, Guiguo (2011) “China’s FTAs: Legal Characteristics and Implications.” 105 American Journal of International Law 493–516. WTO (2014a), http://wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm (accessed 7 February 2014). WTO (2014b), http://wto.org/english/tratop_e/region_e/region_e.htm (accessed 7 February 2014). WTO (2014c), http://rtais.wto.org/UI/PublicSearchByMemberResult.aspx?MemberCode =158&lang=1&redirect=1 (accessed 7 February 2014).

Bolstering Taiwan’s Regional Operations Centres through Liberalization of Trade Across the Taiwan Strait Richard N. Watanabe and Robert Irish* I Introduction The Economic Cooperation Framework Agreement (hereafter “the ECFA”) was concluded in 2010. It was the product of improved political relations across the Taiwan Strait1 and has been described as the most meaningful agreement reached between China mainland and Taiwan. The further liberalization of trade and investment between the two sides that has followed the improved relations provides Taiwan with the opportunity to revisit its long held goal of becoming a regional operations centre in Asia, but this is an opportunity with a short shelf life. Many of the potential advantages earned or forthcoming under the ECFA and its related agreements will only hold value for Taiwan as long as the concessions granted Taiwan remain ahead of the general movement towards liberalizing the economy in the Chinese Mainland and as long as Taiwan is able to connect meaningfully with the growing trend towards bilateral and regional free trade agreements. With this in mind, Taiwan will have to move quickly to ratify Services Agreement, work to reach a conclusion to the

* Mr Watanabe, also known as Wu Wei-Tai, is a partner and Deputy Leader of Tax & Legal Services, and Leader of Financial Services Industry Group, and Japanese Business Development teams at PricewaterhouseCoopers (“PwC”) Taiwan. Contact: richard.watanabeA@tw .pwc.com. Robert Irish is a Director at PricewaterhouseCoopers Legal (“PwC Legal”). Contact: robert [email protected]. The views expressed in this article are the personal views and opinions of the authors and do not reflect the opinion or viewpoint of PwC, PwC Legal or the partners thereof. The information contained in this article was accurate as of January 15, 2014 but as much that is covered in this article remains the subject of negotiations, substantial changes to details and information contained herein should be expected. The authors wish to thank Kent Chong, Emily Chang and Jerry Chiu of PwC Taiwan for their assistance with the research and Prof. Charles Irish for his review and input into the article. 1 Relations between China mainland and Taiwan are often referred to as “cross-Strait” relations in reference to the Taiwan Strait that divides the two.

© koninklijke brill nv, leiden, 2014 | doi 10.1163/9789004279902_004

BOLSTERING TAIWAN’S REGIONAL OPERATIONS CENTRES

33

on-going negotiations over the ECFA Agreement on Goods and focus additional attention on its on-going efforts to reach bilateral free trade agreements with some of its important trade partners and seek access to the negotiating table of the regional trade agreements now being discussed. This article will start with a brief overview of some of the major components of the ECFA and its related agreements. What will follow then is a discussion of the resulting circumstances and advantages the parties have from the liberalization of trade across the Strait as Taiwan seeks to remodel itself as a regional operations centre and China mainland works to modernize aspects of its economy. This part also will look at what must be done to better position Taiwan as a regional operations centre. II

ECFA and the Related Agreements

A ECFA: An Overview The ECFA represents the efforts of the two negotiating parties to establish an agreed upon process for opening trade and investment across the Strait and is not, in and of itself, a fully-fledged free trade agreement. As noted in the preamble of the ECFA, the purpose of the ECFA and the anticipated subsequent agreements is to: […] gradually reduce or eliminate barriers to trade and investment for each other, create a fair trade and investment environment, [and] further advance cross-Straits trade and investment relations…and establish a cooperation mechanism beneficial to economic prosperity and development across the Straits.2 To those not familiar with the history of discussions between the two parties, the ECFA may seem to be an agreement short on detail, but many who have followed talks view the ECFA as a major breakthrough, with some even calling it the most important agreement reached between the two sides since 1949.3 The significance of the EFCA perhaps lies not in the details of the agreement, but more in the spirit of the document in itself in that the parties had reached an agreement on how they were going to talk about improving economic ­relations across the Strait.

2 ECFA, Preamble. 3 See, e.g., “No Such Thing as a Free Trade,” The Economist, 25 June, 2010.

34

WATANABE and IRISH

The ECFA focused on four areas of future negotiation, with the idea being that using the framework established by the ECFA, the two parties then would conclude agreements on the following areas affecting trade and investment across the Strait: • The reduction or elimination of tariff and non-tariff barriers on a substantial majority of the goods traded between the parties; • The reduction or elimination of restrictions on a large number of sectors in trade in services between the two parties; • The provision of investment protection and promotion of two-way investment; and • Promoting trade and investment facilitation and industry exchange and cooperation. While there is a potential for a number of agreements to flow from the ECFA, the parties have focused their efforts on four specific agreements: • • • •

Agreement on Trade in Goods, Agreement on Trade in Services, Bilateral Investment Agreement, and Agreement on Dispute Resolution Mechanism.

As noted above, the ECFA by itself contains only limited trade liberalization measures. However, should the parties successfully complete the negotiations on the four trade and investment agreements, the end result will be a comprehensive agreement governing most cross Strait economic relations. In addition to serving as the procedural base for the four agreements above, the ECFA included an “Early Harvest” program in goods and services, the purpose of which was to accelerate the roll out of some of the liberalizations as they related to goods and services prior to reaching formal agreements. Both the Early Harvest in Goods and the Early Harvest in Services will be discussed more in depth below Section I.B below. The annexes to the ECFA covered provisional rules for both country of origin determinations and provisional definitions of what constitutes a service provider, both of which are subject to potential revision upon the adoption of the relevant final agreement. With the exception of the Early Harvest in Goods and Services, there is no timeline for when the various agreements were to be reached and, as of the drafting of this article, only the Early Harvest program for goods and services along with a bilateral investment agreement have been finalized and passed into law by both parties. The Agreement on Trade in Services has been finalized by the

BOLSTERING TAIWAN’S REGIONAL OPERATIONS CENTRES

35

Straits Exchange Foundation and the Association for Relations across the Taiwan Straits, but has faced serious scrutiny in the Taiwanese legislature and still remains the subject of intense debate with an uncertain future.4 The agreements on the trade in goods and the agreement on dispute resolution mechanism are on-going and it is unclear at this time when these negotiations shall be concluded. B

ECFA: Goods & Services

1 Trade in Goods While the negotiations over the trade in goods agreement is on-going, the earliest liberalizations under the ECFA were in the Early Harvest for Trade in Goods (“Goods Early Harvest”) with the Goods Early Harvest being agreed upon at the same time as the ECFA and going into force in January 2011. Under the Goods Early Harvest, tariffs on a total of 539 categories of goods from Taiwan were either put on a scheduled reduction or completely eliminated while tariffs on a total of 267 categories of goods from China mainland were either eliminated or reduced.5 Taiwanese duties were lowered or eliminated on a number of different types of goods including: mineral fuels, chemicals and rare-earths, dyes, pigments, brightening agents, essential oils and perfumes, plastics, adhesives, rubber, cotton and other textiles, glass, tool and die, certain machinery, electronics, bicycles, optical lenses, sporting equipment and ball point pens and crayons.6 In China mainland, tariffs were reduced or eliminated on a wide range of goods including: fish, orchids, cement, petroleum products, chemicals, dyes, pigments, plastics, rubber, leather goods, textiles and apparel, glass, steel and other base metals, aluminium, tools, machinery, electronics, vehicle parts, bicycles, camera lenses, and golf clubs.7 The tariff reductions or eliminations were based upon a straightforward pair of matrixes based upon the tariff rates of the goods as of 2009 (Tables 1 and 2). As of the drafting of this article, the Early Harvest program has nearly completed its third year and, as such, all of the tariffs on the goods subject to the Early Harvest have now been completely eliminated. Included in the Goods Early Harvest were a set of provisional rules for determining country of origin for the purposes of applicability of the Early Harvest tariff rates. It is important to note that while little change is expected, these 4 See, e.g., Wei (2013). 5 “A Different Kind of Free-Trade Protest,” The Economist, 28 June, 2010. 6 ECFA, Annex 1, supra note 2. 7 Ibid.

36 Table 1

WATANABE and IRISH Early Harvest Tariff Rate (Taiwan Tariff Reduction)8

Import Tariff in 2009 (X%)

1st Year of Early Harvest Implementation

2nd Year of Early Harvest Implementation

3rd Year of Early Harvest Implementation

0