Safeguard measures in RTAs and Proposals for the KCJ FTA

Abstract

The surge in RTAs has continued unabated until now. RTAs are successful because they provide the parties of the agreement with the ability to limit potentially injurious trade between them. They do this through the application of safeguard regulations. With regard to the relationship between the WTO and RTAs in terms of safeguards applications, one of the intriguing issues would be whether safeguard measures are part of the general elimination of ‘restrictive regulations of commerce’ between partners of the agreement under Articles XXIV of GATT. In other words, the issue is whether safeguard measures may or may not be imposed upon partners of RTAs under the WTO.With respect to safeguard measures, many RTAs have gone beyond the WTO framework, either by eliminating the possibility of using these measures, or by strengthening WTO rules to minimise the opportunity of using them in a protectionist manner. Safeguard regulations in RTAs are usually divided in rules regarding the application of bilateral or regional safeguard measures and those that regulate the application of global safeguard actions.Northeast Asia has been drawing increasing attention from the international community because of the region's dynamic economic power and strategic value. The three countries of the region are now considering the KCJ (Korea-China-Japan) FTA. Although there may be several obstacles, the prospects of this FTA are bright.Bilateral safeguards can be regulated in more detailed articles of the KCJ FTA. Global safeguard measures may also be allowed in the FTA, just reaffirming the WTO rules. Although many RTAs in the Northeast Asian region do not regulate this, there are some possibilities for the KCJ FTA to provide regional safeguard measures in their free trade area. However, it will be difficult to imagine producing the special treatment rule for small/developing economy countries.Regarding the issue of requirements for safeguards, the KCJ FTA may allow that it does not require ‘unforeseen development’ to take the action. Many RTAs in the Northeast Asian region are in this position and the three countries will prefer protecting their domestic industry. In contrast, the KCJ FTA must require that imports should be a substantial cause of injury for the safeguard action. It is because the Parties will require a more substantial concept linking imports and injury to avoid disputes among the Parties. Conclusively, the standard of requirement for safeguard measures in the KCJ FTA can be such that the imports substantially cause serious injury or threat thereof to the domestic industry producing a like or directly competitive product.The forms of safeguard measures in the KCJ FTA may include suspension of the further reduction of customs duty under the FTA schedule. Furthermore, it may allow for the rate of customs duty to be increased with specific limitations such as the WTO MFN principle. The duration of the safeguard measure in the KCJ FTA must be as long as necessary to prevent or remedy injury with specific period limitations. One year or two years with the same possible period of extension can be considered to be those specific period limitations. The KCJ FTA will provide the consultation and the compensation processes. Many RTAs have rules on the compensation issues. Most RTAs allow the exporting party to apply compensation or practise specific retaliation immediately after the safeguard measure is applied by the importing Party. Regarding the consultation and compensation procedure, the KCJ FTA shall permit various methods. Basically, the importing country proposing to apply a safeguard measure must provide trade liberalizing compensation in other areas with the agreement of the exporting country as a first step. If they cannot reach agreement, the exporting country of the KCJ FTA must have the right to suspend other concessions by retaliation. Finally, the KCJ FTA may also consider providing articles preventing the Party from exercising any of these two steps for a specific period.