FTA Negotiations Research Articles

Transparency Standards in International Investment Agreement Negotiations: A Chinese Lawyer's Perspective on the UNCITRAL Rules

The 47th Session of the UNCITRAL finalized the draft Convention on Transparency in Treaty-based Investor-State Arbitration. It aims to provide a mechanism to allow the UNCITRAL Rules on Transparency to be applied to investment dispute arbitrations mandated by investment treaties concluded before April 1, 2014. This paper intends to examine these UNCITRAL Rules on Transparency and the draft Convention on Transparency. It is particularly in contrast with the relevant rules in the NAFTA, the U.S. Model BIT 2012 and the ICSID Rules 2006, to see if transparency can be enhanced in treaty-based investor-State arbitrations and to extrapolate the implications of the Rules on Transparency and the draft Convention for China’s strategy in BIT or FTA negotiations amid the trendy advancement of transparency standards.

The Impact of Japan’s Rivalry with China on Its Willingness to Pursue Free Trade Agreements

This study explores the main causes that have led Japan to conclude an FTA with ASEAN. This paper appraises Japan‐ASEAN relations and shows that closer relations between Japan and ASEAN have provided momentum for the launch of Japan's FTAs with ASEAN. Consequently, this paper explores the origins and progress of Japan‐ASEAN FTA, as well as the strategies and initiatives embraced by Japan in its FTA negotiations with ASEAN. By examining the domestic, regional, and global factors that led to the launch of the Japan‐ASEAN FTA, this paper concludes that the strategies adopted were primarily aimed at its main rival, China. The rivalry has resulted in both positive and negative consequences for East Asian Regional economic environment. The negative consequences include the creation of a “spaghetti bowl”, which increases costs for Japanese firms operating abroad, and “slows down the progress of the creation of an effective single regional institution”.

Strategy for Entering China's Regional and Provincial Domestic Markets

This paper aims to present comprehensive strategies for promoting export and investment and advances in Chinese consumer markets and production bases in response to the new Chinese policy boosting domestic demand and changes in provincial economic climate. By analyzing the characteristics of China's consumer markets and industries, the characteristics of Korea's export market for China's domestic consumption, and the trend of Korea's investment in China by region, this paper suggests methods for advancement in regional Chinese domestic markets and considers the competitive composition of the Chinese import market as a strategy for FTA negotiation further market access. Also, it recommends Chinese efforts to reduce non-tariff barriers and legal discordance between central and local governments and between local ones. In addition, it urges the Korean government to build support systems for small and medium enterprises (SMEs), renew the current export support programs, and provide specialized information on local markets.

Fdii (Effects of Trade and Investment Liberalization on Korea's FDI)

Korean Abstract: 한국은 2004년 한ㆍ칠레 FTA 발효를 시작으로 2013년 현재까지 미국, EU 등 거대경제권을 포함하여 총 47개국과의 자유무역협정(FTA)을 체결하였으며, 현재도 인도네시아, 중국, 베트남, 호주, 뉴질랜드 등 많은 국가들과 협상을 진행 중이다. 자유무역협정을 통한 무역자유화가 급속도로 진행되어 가는 과정에서 지속적인 자유무역협정 추진과 함께 조심스럽게 현재까지 체결된 협정에 대한 평가의 필요성과 앞으로의 비전 및 추진전략의 중요성이 조금씩 부각되고 있다.하지만 현재까지 대부분의 자유무역협정에 대한 연구는 사전적인 경제적 영향 평가 위주였으며, 대부분 상품부문에 한정되어 있었다. 반면 한ㆍ미 FTA와 한ㆍEU FTA 등 우리나라가 체결한 대부분의 자유무역협정은 상품뿐만 아니라 투자와 서비스 분야도 포함하고 있어 경제적인 영향이 클 것으로 예상되므로, 자유무역협정의 사후적 영향에 대한 포괄적이고 심층적인 연구가 필수적이라 하겠다. 특히 해외투자부문의 변화는 상품교역과 직ㆍ간접적으로 깊은 연관관계를 가지고 있다는 점에서 자유무역협정 체결은 해외투자부문에서도 중요하다. 이와 관련하여 본 보고서에서는 자유무역협정이 해외직접투자 유입(IFDI: Inward Foreign Direct Investment)과 유출(OFDI: Outward Foreign Direct Investment)에 어떻게 영향을 미치고 있는지에 대해 분석하였다.English Abstract: After Korea-Chile FTA became effective since 2004, Korea has made multiple free trade agreements with 47 countries including United States and European Union, and is currently negotiating upcoming free trade agreements with other countries, such as Indonesia, China, Vietnam, Australia, and New Zealand. Along with the global spread of trade liberalization, it is necessary to evaluate the post-effects of FTA that came into effect and the strategies for the upcoming FTAs. However, prior reports and papers analyzing the effects of FTA were mainly focused on evaluating its economic effects on goods, while most of FTAs are influential not only on product sector but also on investment and service sectors. In particular, since foreign direct investment (FDI) is directly and indirectly related to goods trade, FTA is also associated with foreign direct investment sectors. This report analyzes the effects of FTA on outward and inward foreign direct investment (IFDI and OFDI) of Korea. Our report provides detailed analysis on the contents of FDI openness in the trade agreement and construct FDI openness indices by dividing investment sectors from the previous 8 free trade agreements that became effective into 5 sectors and 25 sub-sectors and quantifying FDI openness based on those sub-sectors. By adding our constructed FDI openness indices to the regression, we find that FTA significantly increases both IFDI and OFDI in the short run. Examining the effects of investment liberalization on IFDI and OFDI, the results indicate that investment liberalization from FTA increases IFDI. In particular, its magnitude becomes larger as investor-state dispute settlement is included in the chapter of agreement. On the other hand, the results imply that FTA has heterogeneous effects on OFDI from different industry sectors on the basis of investment related articles. For instance, OFDI from manufacturing sectors is likely to increase to FTA partner as agreement involves high FDI openness articles in general, while OFDI from wholesale and retail sectors is more likely to increase as agreement involves FDI openness articles on service related sectors. Furthermore, based on the relative GDP per capita difference between Korea and its FTA partner, we find that IFDI flow increases from FTA partners that have similar GDP per capita with Korea, while GDP per capita difference and FDI openness indices have interaction effects on OFDI flow from different industry sectors. For instance, we find that FDI openness indices have significant and positive effects on OFDI from manufacturing sectors to FTA partners that have higher income-level but small GDP per capita difference with Korea. Alternatively, OFDI from wholesale and retail sectors are likely to increase to FTA partner as a country has higher income-level and large GDP per capita difference with Korea, with high FDI openness on service sectors included in the agreement.Based on the results, our report provides policy implications for expanding Korea's OFDI and IFDI. We find that Korea’s OFDI and IFDI have increased at the aggregate level and they are positively affected by trade and investment liberalization. As our results indicate that FTA significantly increases OFDI and IFDI, we should carry forward upcoming FTAs more aggressively. In particular, upcoming FTA negotiations should focus on including FDI openness in service sectors, FDI regulation and protection, and investor-state dispute settlement provision. Furthermore, as trade and investment liberalization are known to have different effects on OFDI and IFDI based on the GDP per capita difference between Korea and its FTA partner, upcoming negotiations should be proceed by considering country’ GDP per capita relative to Korea and the agreement should include investment related articles that could have positive effects on OFDI and IFDI from different industry sectors.

The Sustainable Development Clauses in Free Trade Agreements of the EU with Asian Countries: Perspectives for ASEAN?

The paper shows that the present EU GSP Plus arrangement is to be considered as showing the level of aspiration of the EU for future FTA partners regarding international rules of sustainability and good governance. Following its 2007 East Asia Policy Guidelines, the EU started negotiations on an interregional EU–ASEAN FTA and on the FTA with South Korea.The EU–Korea FTA and the European Commission's reactions to the consultant's advice on sustainability provide evidence of the negotiation strategy regarding the sustainability chapter in such FTAs with Asia. We evaluate this chapter of the EU–Singapore FTA, concluded in December 2012 against this background and find that they are highly similar. We conclude that the EU–Singapore FTA sustainable development provisions can be considered as a benchmark for the on-going FTA negotiations with Malaysia, Vietnam and Thailand, and as a baseline for such provisions in a future EU–ASEAN FTA.

Constructing Regionalism in South America: The Cases of Transport Infrastructure and Energy within UNASUR

This paper seeks to contribute to the study of contemporary South American regionalism focusing on the emergence and development of sectoral cooperation and policy coordination within the Union of South American Countries (UNASUR). To do so the paper analyzes two policy areas -- transport infrastructure and energy integration -- from the inception of cooperation in 2000 until 2014, addressing two questions: (i) why regional cooperation has emerged despite the absence of economic interdependence and market-driven demand for economic integration, and (ii) why policy outcomes are evident in some areas (i.e., transport infrastructure) while limited in others (i.e., energy). Bringing together insights from rationalist and constructivist approaches in IR and IPE, it is argued that the emergence of regional cooperation as well as the sharp variation in policy outcomes between areas can be largely explained by the articulation of a regional leadership and its effect on the convergence of state preferences. The paper shows how the Brazilian leadership, incentivized by the effects of the US-led FTAA negotiations and the financial crises that hit the region in the late 1990s, made state preferences converge towards a regionalist project encompassing all South American countries by making visible the mutual benefits of cooperation on transport infrastructure and energy. Furthermore, the paper illustrates how in spite of significant changes in South American states’ cooperation preferences the Brazilian leadership was able to adapt the cooperation process in the transport infrastructure sector to the new circumstances of regional politics permitting not only the institutionalization of sectoral cooperation, but also the implementation of several infrastructure transnational projects. In the case of energy, instead, the emergence of a second regional leadership project – pursued by Chavez’s Venezuela – and the deep divergence of state preferences led energy cooperation into a gridlock.

The EU’s New FTA Adventures and Their Implications for China

With the EU having an adventure in FTA negotiations after the serious setback from the Doha Round trade negotiations, China becomes increasingly concerned about the potential trade diversion effects and the possible G2 domination by the EU and the US in terms of rule-making power in world trade. This article offers both a quantitative and qualitative analysis of the potential impact on China from the EU's two major FTA negotiations - one with the US and the other with Japan. Chinese intellectuals who are paying attention to these two FTAs, however, have very mixed opinions, which can be characterized as positive, negative or what can be termed as 'marginal impact'. On the basis of the analysis of the mixed opinions, the authors make further predictions about the possible responses of the Chinese government towards new FTA strategy of the EU, and suggest that the EU's FTAs need to exhibit sign of greater amicability and accepting of differing opinions and most importantly, they should form building blocks, instead of stumbling blocks, for the multilateral trading system.

ASEAN (Trade Patterns and Determinants of Vertical and Horizontal Intra-Industry Trade between ASEAN and China)

Korean Abstract: 중국과 아세안은 세계의 공장과 세계의 부품생산기지로 부상함과 동시에 각각 한국의 1위와 2위 교역파트너라는 점에서 매우 중요한 시장으로 평가 받고 있다. 이에 더해 중국과 아세안 간의 교역 역시 급증하고 있다. 특히 중국은 2007년을 전후해 아세안의 최대 교역파트너로 등장하였고 2012년에는 양 지역 간 교역 규모가 4,000억 달러를 넘어섰다. 중국 측에서도 아세안은 3대 교역파트너로 자리잡았다. 이러한 시점에 중국과 아세안 간의 산업별 및 생산공정별 역내교역과 분업구조가 그동안 어떻게 변화하여 왔는지, 또 변화를 이끈 결정요인이 무엇인지를 분석해보았다. English Abstract: This research attempts to analyse composition of trade patterns and determinants of Horizontal and Vertical Intra-industry Trade between ASEAN and China. We decompose trade in goods into three parts: one-way trade, vertical intra-industry trade, and horizontal intra-industry trade based on the methodologies proposed by Fontagn and Freudenberg (1997) and Greenaway, Hine and Milner (1994). According to the results, one-way trade has continued to take substantial part in total trade between China and ASEAN, while the vertical intra-industry trade has been increased significantly over the past two decades. Especially, this trends appears in trade between Indonesia, Malaysia, Thailand and Vietnam and China. Our empirical analysis shows that the intensified vertical specialization structure between ASEAN and China over the period from 1992 to 2012 is caused by foreign direct investment between the two regions as well as other variables such as bilateral distance (trade costs), common language, economic size and income differences. The main findings of this paper provide the following implications for Korea. First, as ASEAN and China are the first and second export markets to Korea, Korea needs to put more effort to expand its export and market share in China and ASEAN by conducting policy relative to trade facilitation including the reduction in trade cost. Second, since ASEAN’s export to China is increasing especially in the electronic and machinery sectors, Korea needs to develop a strategy to diversify its relative production network. Third, to maintain and expand Korea’s proportion in the East Asian intra-trade, Korea should further develop its parts and components industry and make efforts to sufficiently benefit from the East Asian production networks. Last but not least, Korea could utilize the on-going FTA negotiations with China and ASEAN countries to develop a closer link among the structure of Korea-China-ASEAN division of labors.

The Changing Face of International Dispute Resolution: An Analysis of Factors Driving Trends in Investor-State Dispute Resolution and the WTO Dispute Resolution Mechanism

This paper provides a landscape analysis of international arbitration trends, and places special attention on the proliferation of investor-state dispute resolution (hereinafter “ISDR”) in free trade agreements (hereinafter “FTAs”) and, more widely, in international investment agreements (hereinafter “IIA”). The dispute settlement provisions of the proposed and pending Trans Pacific Partnership Agreement (hereinafter “TPP”) help provide context for these developments. This paper sources opinions and data from a number works, with a special attention to those capturing statistics on how ISDR changes the dynamic of international trade disputes and FTA negotiation. Over the past decade, FTA’s have increasingly segregated dispute resolution responsibility away from centralized World Trade Organization (hereinafter “WTO”) processes. Passage of an ISDR provision in the TPP would substantially further this trend by binding eleven more countries to ISDR requirements similar to those in sister agreements, including NAFTA, the Energy Charter Treaty and the Argentina-United States Bilateral Investment Treaty (hereinafter “BIT”). However, recent national sovereignty and public interest concerns over ISDR may mean a tapering off of this trend and a return to the WTO Dispute Settlement Mechanism (hereinafter “DSM”) and preference for judicial review by national courts. An analysis of whether ISDR infringes on national sovereignty and the public interest is provided to help frame and guide this discussion.

(China's Green Growth Strategy and Implications for Trade between Korea and China)

(China's Green Growth Strategy and Implications for Trade between Korea and China)

Legal Issues of Korea-China FTA negotiation -Focusing on Transparency, Implementation, and Dispute Settlement Mechanism-

Legal Issues of Korea-China FTA negotiation -Focusing on Transparency, Implementation, and Dispute Settlement Mechanism-

Dispute Settlement Systems in Asian FTAs: Issues and Problems

Asian countries have actively engaged in global FTA races and led rule development in terms of FTA negotiations. While proliferating FTAs raise concern for growing inconsistency problems between the WTO and FTAs, this paper shows diverging approaches in Asian FTAs in relation to dispute settlement systems that are the core element of the legal basis for FTAs. Broadly speaking, many Asian FTAs adopt a “WTO type” dispute settlement system. Asian FTAs involving the United States, however, have invariably employed the “NAFTA type” dispute settlement system that puts more emphasis on prompt implementation by unilateral retaliation, monetary settlement, and numerical limit for special disputes typically concerning labor and the environment. Since more Asian countries are negotiating FTAs with the United States, this divergent approach toward dispute settlement systems in FTA should be thoughtfully realigned to ensure a coherent development between WTO and FTA systems.

A Study on the Korea-China FTA Service Negotiation Strategies: Focused on the Implications from China-Hong Kong Cepa Service Concessions

This study analyzes China’s service concessions under the General Agreement on Trade in Services (GATS), as well as the service concessions included in the FTAs that China has signed so far, including the CEPA with Hong Kong. The objective is to determine the extent to which the Chinese service sector is opened and to derive implications for the Korea-China FTA negotiations over services. 1. China-Hong Kong CEPA and Korea-China FTA2. Negotiation Process and Features of the China-Hong Kong CEPAA. Annual Supplementary AgreementsB. Guangdong as the Pilot Basis for the CEPAC. Comparing the CEPA to the ECFA3. China’s Service Concessions in the CEPA4. Implications of the CEPA for the Korea-China FTA A. Examples of Designing Service con-cessions from China-Hong Kong CEPAB. Strategic Suggestions for the Korea-China FTA Service NegotiationC. Possible Service Sectors to be Opened in the Korea-China FTA

Japonia i Unia Europejska w obliczu nowej fali liberalizacji handlu światowego

The EU‑ Japan relations and a new wave of international trade liberalization
 The European Union and Japan have clearly been the heavyweights of international trade for decades. They are the first and the fourth largest economies in the world, respectively. Together they account for nearly one third of the global GDP and almost a quarter of all international trade. And yet their bilateral trade has been underperforming in recent years. Trade in goods actually declined since 2000 – both in relative and absolute terms – and trade in services, as well as foreign direct investment, clearly do not reflect the clout of these two advanced economies. However, since 2010 there have been serious attempts from the Japanese government and the European Commission at finding a way to revive and foster the EU‑Japan bilateral trade and economic relationship. In March 2013 they decided to launch negotiations in order to establish a comprehensive free trade area, or FTA. This article describes developments leading up to that point and presents an analysis of problems affecting the EU‑Japan trade. It does so in the context of a recent surge of international activity as regards trade liberalization through FTA negotiations following the effective failure of global trade talks in the World Trade Organization forum.

China's Green Growth Strategy and Implications for Trade between Korea and China

China's Green Growth Strategy and Implications for Trade between Korea and China

Strategy for Entering China's Regional and Provincial Domestic Markets

This paper aims to present comprehensive strategies for promoting export and investment and advances in Chinese consumer markets and production bases in response to the new Chinese policy boosting domestic demand and changes in provincial economic climate. By analyzing the characteristics of China's consumer markets and industries, the characteristics of Korea's export market for China's domestic consumption, and the trend of Korea's investment in China by region, this paper suggests methods for advancement in regional Chinese domestic markets and considers the competitive composition of the Chinese import market as a strategy for FTA negotiation further market access. Also, it recommends Chinese efforts to reduce non-tariff barriers and legal discordance between central and local governments and between local ones. In addition, it urges the Korean government to build support systems for small and medium enterprises (SMEs), renew the current export support programs, and provide specialized information on local markets.

An analysis on the EU's FTA strategy by framework of three-level games theory - Focus on the Korea-EU FTA, EU-ASEAN FTA and EU-Japan EPA -

This paper applied the existing two-level game theory and introduced a three-level game theory in order to analyze the FTA negotiation strategy of the EU. This paper hypothesized the characteristics as follows when a regional cooperative union receives exclusive rights to common commercial policy and enters into commercial agreements such as FTAs and extracted propositions.<BR> In conclusion, a regional union which adopts a common commercial policy orients itself toward market liberalization and openness as pursued by multilateralism such as the WTO and induces FTA negotiations in the same way. This verifies well that multilateralism and regionalism which seems to carry out exclusive objectives in the short run works toward one positive goal, which is outlined in GATT Article 24 of allowing territorial application, customs union and free-trade areas. Therefore, the development direction of multilateralism, regionalism, and bilateralism may be found using the analysis in this paper as a foundation. Furthermore, it may be estimated that this may serve as a theoretical foundation for finding an appropriate response strategy by gauging beforehand the FTA negotiation strategies of advanced regional unions.

China's Nonferrous Metals Industry and Implications for Korea-China FTA Negotiations

Korea and China have promoted a bilateral FTA since 2005 to upgrade their economic relationships. If the Korea-China FTA is concluded, then trade between the two countries is likely to involve substantial changes both quantitatively and qualitatively. Offer lists submitted by Korea include steel, petrochemicals and machinery and those by China include some agricultural and marine products as well as nonferrous metals. Korea's interest in the Korea-China FTA has focused mainly on damage to the agricultural sector and there have been a lot of studies on the effects of the FTA on Korean agricultural sector. However, little is known about why China includes the nonferrous metals industry for early voluntary liberalization and its implications for the domestic economy. Nonferrous metals industry is one of China’s national strategic sectors and has a large supply excess in the country. This study targets the survey of Chinese nonferrous metals industry and trade structure and considers the problem of nonferrous metals in the context of negotiations for the Korea-China FTA and its implications for a higher-quality Korea-China FTA.

(Creative Industries' Export and Internationalization Strategies of Selected Countries and Their Policy Implications)

Korean Abstract: 최근 노동, 자본, 토지와 같은 전통적인 생산요소 외에 지식이나 창의성과 같은 비가시적 생산요소의 중요성이 높아지고, 탈제조업화로 대표되는 경제구조의 변화가 진행되고 있다. 이에 따라 본 연구에서 검토한 영국, 핀란드, 독일, 일본을 비롯한 많은 국가들이 새로운 성장동력과, 일자리 창출원으로서 창조산업에 주목하고 있다. 창조산업은 중소기업이 밀집된 분야로 고용증대에 미치는 영향이 크며, 혁신적인 제품을 개발함으로써 새로운 소비자와 시장을 개척하는 첨병 역할을 한다. 또한 창조산업의 해외진출 확대는 국가간의 문화적 거리감을 완화하고 여타 분야의 수출 확대와 국가 브랜드 제고에 기여하는 효과가 있다. 본 연구는 상기 국가들의 정책 사례를 검토하였다. English Abstract: Along with the emergence of knowledge-based economy, importance of nonvisible production factors, such as knowledge and creativity is widely recognized. With the spread of such recognition, the concept of creative industries has been diffused over the world. Identifying creative industries as an individual industrial sector, countries have come to find that creative industries are new sources of job creation and have the potential to lead cross-industry innovation. As creative industries play a role of pioneering new markets by developing innovative goods and services, internationalization strategy takes a core position in the relevant policies. In this sense, it is necessary to develop a unique Korean concept of creative industries which expands the current category of cultural content industries by including design, architecture, and some ICT and R&D services. As creative industries have high concentration of SMEs and micro firms, it is necessary to exert efforts on supporting competent SMEs. It is also important to reinforce competitiveness of creative services, such as architecture, R&D, and design. Architecture and R&D service markets, which account for the largest share of creative services trade, expand rapidly in emerging countries. Creative firms give positive effects on identification of new consumer demands, provision of new solutions and concepts, creation of new approaches to known problems, joint development of innovative ideas, etc. The government needs to select competitive creative firms and help them link with domestic/foreign firms in various sectors, and give incentives for such activities. Compared to industrial sectors such as manufacturing, creative firms (especially SMEs) face bigger difficulties in exporting. Accordingly, the government needs to provide export funding and foreign market information specialized for creative industries, support creative firms' participation in international trade shows and formation of networks, and include competitive creative firms in business delegations. An important feature of strategies for creative industries’ internationalization is to expand the number of target countries. Such feature includes not only expansion of trade among developed countries but also diversification of target countries into emerging countries. Countries studied in this report select strategic target countries among emerging countries based on various factors, such as market size, growth potential, maturity of bilateral economic relationship, cultural intimacy, etc. MOU is an effective means of helping creative industries enter emerging counties in that it can contain various interests through inter-discipline and inter-department cooperation. Cooperative relationship through MOU can also contribute to building a basis for emerging countries' creative industries. As intellectual property right is a core of creative industries, it is needed to increase the level of intellectual property right protection of emerging countries through bilateral dialogue channels including FTA negotiations. As creative industries are important components of a country's soft power, they require utilization and attention on the government level. Especially, it is required to establish a comprehensive country brand marketing strategy that utilizes Korea's core assets including creative industries.

China's Nonferrous Metals Industry and Implications for Korea-China FTA Negotiations

Korea and China have promoted a bilateral FTA since 2005 to upgrade their economic relationships. If the Korea-China FTA is concluded, then trade between the two countries is likely to involve substantial changes both quantitatively and qualitatively. Offer lists submitted by Korea include steel, petrochemicals and machinery and those by China include some agricultural and marine products as well as nonferrous metals. Korea’s interest in the Korea-China FTA has focused mainly on damage to the agricultural sector and there have been a lot of studies on the effects of the FTA on Korean agricultural sector. However, little is known about why China includes the nonferrous metals industry for early voluntary liberalization and its implications for the domestic economy. Nonferrous metals industry is one of China’s national strategic sectors and has a large supply excess in the country. This study targets the survey of Chinese nonferrous metals industry and trade structure and considers the problem of nonferrous metals in the context of negotiations for the Korea-China FTA and its implications for a higher-quality Korea-China FTA.