Understanding Categories of FTA Provisions in International Trade Agreements

Topic 2-3FTA Plus Issues – Overall DiscussionsTopic 2-4 FTA as Vehicle for Other Public Goods – Overall Discussions Professor Chang-fa Lo

Topic 2-3 WTO-plus again

WTO-plus • Yesterday we have discussed the types of WTO-plus subject matters • Today, we will broadly categorize the types of FTA provisions so as to know the context of WTO-plus in an FTA. This is also to review what we learned about the rules governing FTAs.

Categories/types of FTA provisions • The first category is those provisions dealing with the matters which are required by the GATT 1994 to be included in the FTAs. • If there were no such provisions or contents included, the trade agreements would not be considered as FTAs under WTO and thus the agreements cannot be the basis for constituent members to depart from the MFN requirements. • Provisions concerning tariff elimination and the elimination of restrictive regulation of commerce between FTA parties are of this kind. • The basic question to be discussed under this category is that to what extent tariffs and other restrictive regulations of commerce are to be eliminated. • Article XXIV of the GATT 1994 requires that they are to be eliminated with respect to substantially all the trade between the FTA members. Thus a critical issue is about the criteria for the requirement of “substantially all the trade”.

Categories/types of FTA provisions • The second category includes those FTA matters, which are not required by the WTO, but are allowed or admitted by explicit WTO provisions or not denied by WTO practices. • The matters explicitly allowed to be included in FTAs are those listed in the parenthesis of GATT Article XXIV, paragraph 8(a)(i). They include those permitted under GATT Articles XI, XII, XIII, XIV, XV and XX. • A difficult issue is that whether those matters not listed in the parenthesis, especially the anti-dumping, countervailing and safeguard provisions in FTAs, are also permitted. • Most FTAs allow different kinds of trade remedies (including antidumping, countervailing and safeguard measures) with or without specific provisions. Only a limited number of FTAs do not adopt trade remedy rules to be applied to trade between their constituent members.

Categories/types of FTA provisions – third type • The third category includes those matters not covered by the WTO or, although covered by the WTO, not allowed by the WTO to be an exception to the MFN principle. • The IP provisions in FTAs are basically the subject covered by the WTO but without specific authorization under the TRIPS Agreement to make such provisions in the FTAs as exceptions to the MFN obligation in this agreement. From the perspective that the inclusion of IP protection in the FTAs is not required by the GATT, it is a WTO-plus subject. • These higher levels of protection or additional protections are generally called TRIPS-plus, which is broadly defined as “the provisions beyond the minimum obligations set in the TRIPS Agreement, or the imposition of a higher level of IPR protection than the level which exists in current IPR legislation or TRIPS, inclusion of new areas of IP, increased harmonisation and weakening of flexibilities and special and differential treatment.”

Categories/types of FTA provisions – third type • Different kinds of TRIPS-plus provisions in FTAs could have different legal implications from the obligations under the TRIPS Agreement. • The question about whether a particular IPR is covered by the TRIPS Agreement is relevant to the analysis of the status of TRIPS-plus provisions. • If it is covered by the TRIPS Agreement, it would be subject to the obligations under the agreement and the benefit arising from TRIPS-plus provision would have to be extended to non-FTA members under MFN provision. • While, if it is not covered by the agreement, WTO Members would have discretion about whether and how to incorporate such TRIPS-plus clauses in their FTAs without extending the benefits to non-FTA members. • Thus, if two WTO Members enter into an FTA providing that they are to grant higher level of IP protection for those categories covered by the TRIPS to the nationals of each other, they will have to grant similar protections to nationals of other WTO Members because of the MFN provisions in Article 4 of the Agreement.

Categories/types of FTA provisions – third type • There is no legal difficulty for FTAs to incorporate the type of TRIPS-plus provisions incorporating new types of intellectual property not covered by the TRIPS Agreement. • As to the types of TRIPS-plus provisions giving up flexibilities which were supposed to be available to developing countries under the TRIPS Agreement, and expanding the contents of protection for the subjects covered by the TRIPS Agreement, it is clear that they are subject to two basic obligations: • (1) the obligation under Article 1, paragraph 1 of the TRIPS Agreement not to contravene the provisions of the TRIPS and • (2) the obligation under Article 4 to accord MFA to the nationals of all other Members. • Thus the only way for the FTA members to implement such TRIPS-plus obligation is to multilateralize the TRIPS-plus provisions and make them universally applicable, i.e., applicable to all WTO Members. Of course, this would allow non-FTA members to free-ride the benefits arising from FTA negotiations of other countries.

Categories/types of FTA provisions – third type • Another important WTO-plus is government procurement matters. There is the Government Procurement Agreement, which is a plurilateral agreement under the WTO. The inclusion of government procurement provisions or government procurement chapters in FTA is not required by the WTO. It is thus a WTO-plus subject. • Since government procurement matters are excluded from the basic provisions of Articles I and III of the GATT 1994, such government procurement chapter providing procurement opportunities to goods and suppliers from FTA members does not contravene the GATT provisions. • There is basically no need for an FTA member to rely on Article XXIV to have a defence against its deviation from the MFN or national treatment requirements concerning government procurement matters. In other words, the inclusion of government procurement chapter in the FTA is certainly a WTO-plus that would not contravene WTO obligations.

Categories/types of FTA provisions – third type • Other WTO-plus issues include competition, investment, environmental protection and labour protection. • These are all under the third type of FTA provisions, which can be generally considered as purely WTO-plus matters not regulated by WTO rules. • For instance, for the purpose of establishing an FTA, it is not necessary to have or not to have competition legislations from the perspective of GATT Article XXIV. And thus competition chapter in FTA is definitely a WTO-plus permitted by both the WTO and the GATT 1994. • The inclusion of an investment chapter or the non-inclusion of an investment chapter would not be considered as having maintained the “restrictive regulation of commerce”. • Investment chapter in FTA as a WTO-plus is definitely permitted by both the WTO and the GATT 1994.

Categories/types of FTA provisions • Although the preamble of the WTO Establishing Agreement has stated the goals of establishing the WTO being also to protect and preserve the environment and the “Decision on Trade and Environment” adopted by the WTO also deals partly with the relations between trade and environment, it is clear that there are basically no substantive environmental protection provisions in WTO agreement. Environmental protection provisions or environment chapters in FTAs are basically not covered by WTO agreement. Therefore, chapters or provisions specifically for environmental protection are not a necessary part for the purpose of concluding an FTA under Article XXIV of the GATT 1994. The inclusion of an environment chapter/provision or the non-inclusion of such environment chapter/provision would not be considered as having maintained the “restrictive regulation of commerce”. Environment chapter in FTA as a WTO-plus is permitted by both the WTO and the GATT 1994.

Asia practice of WTO-plus • It is not surprising that WTO-plus matters are not just promoted by United States and Europe in their FTAs with their trading partners in other regions; • Asian countries also widely adopt WTO-plus chapters in their FTAs among themselves and with other parts of the world. For instance, the Agreement between Japan and Singapore for a New-Age Economic Partnership Agreement (JSEPA) also includes chapters on investment, intellectual property, government procurement, competition. For instance, the Korea-Singapore FTA (KSFTA) also has similar chapters. • The WTO-plus elements are not just found in the FTAs between developed and developing countries. • They can also be easily found in those between or among developing countries, although the extent of the plus aspects could be lowered.

Topic 2-4 FTA to serve as vehicle to fulfil public policy or to carry public goods

Global public goods or policy goals of higher value: • Everyone depends on public goods – examples;clean environment, health, knowledge, property rights, peace and security • Examples for explanation • Health (public health) • Human rights • Fair/clean business environment (anti-corruption)

FTA as vehicle for public health • One of the policy goals is to use FTA as the tool to enhance cooperation in health matters. • The IHR (2005) is about the control of infectious diseases. It was newly enacted to improve the ways and means of dealing with diseases of international concerns. One approach adopted in the IHR is the emphasis on international cooperation. • There are different options available for the purpose of international cooperation. There could be bilateral cooperation, regional cooperation, cooperation under the intervention of the World Health Organization (hereinafter WHO), and cooperation between Member States and the WHO. • Traditionally, the bilateral or regional cooperation on health matters are not conducted in a frequent and constant manner. Since the conclusion of the new IHR, the need of having some kinds of bilateral or regional cooperation arrangement is more imminent. I try to argue that the use of FTA as a vehicle to conduct bilateral or regional cooperation is appropriate.

FTA as vehicle for public health • I argue in my book that a health chapter should be a very positive WTO-plus to be included in FTAs. In other words, an FTA should be an appropriate vehicle to enhance bilateral or regional health cooperation. The purpose is to promote the idea that FTA should be expended in its coverage so as to include health chapter as its basic content. • First, the practice of FTA has been that it has already dealt with some health issues. There has been so many health related provisions in FTAs to allow countries to establish appropriate level of protection for human, animal or plant life or health. • It should be appropriate to expect that an FTA chapter could also deal with the matters concerning exchange of public health information, the health measures to be applied to international coastal traffic and to international traffic in waters within their jurisdiction and in contiguous territories of different States at their common frontier, arrangements for carrying affected persons or affected human remains by means of transport specially adapted for the purpose, and treatment designed to render goods free of disease-causing agents.

FTA as vehicle for public health • In addition to the exchange of information suggested above, the sharing of experience and other programs focusing on surveillance, prevention, control, response, and care and treatment in respect of infectious diseases, and vaccines against them might all be appropriate matters under an FTA. • One way for Asian countries to make substantial contribution is to use FTAs as a vehicle to carry cooperative arrangement on health matters due to the very facts that the issues concerning international health are also more and more important and that that globalization and trade liberalization in the past decades have led to more persistent and frequent movement and exchanges of people, goods and services. Such larger volumes of movement of people and goods have caused more health issues, which have attracted worldwide attentions and concerns. This is particularly a challenge to Asia. Thus I argue that an FTA can be made and can be considered as regional economic integration organization under the IHR (2005).

FTA as vehicle for human rights protection • The North American Agreement on Labor Cooperation (NAALC) signed in 1993 and made effective from 1994 as a side agreement of the North America Free Trade Agreement (NAFTA) • Since that, all FTAs negotiated by the United States include labor provisions.

FTA as vehicle for human rights protection - trend First, more and more FTAs include human rights related provisions/chapters. • The main promoters: US, EU, and Canada. • The number of FTAs being negotiated and concluded by these countries (especially the United States and the European) is large and the importance of many of their FTAs is high (from economic and symbolic perspectives)

FTA as vehicle for human rights protection – trend Second, the human rights provisions/chapters are mainly to protect the fundamental rights of labors: • Currently, the provisions are basically not expended to cover overall human rights protections, with limited exceptions where human rights (instead of labor rights) are specifically mentioned.

FTA as vehicle for human rights protection – trend Third, the reason that FTAs are basically deal with labor rights (instead of the full range of human rights)? • These rights have close connection with international trade • There is genuine fear that cheap labor in the counterpart countries will become a threat to the countries where labors are more strictly protected.

FTA as vehicle for human rights protection – trend Fourth, the original idea of human rights protection under the FTAs is “altruistic” in the sense that it is to help other countries to improve their human rights status or “egoistic” in the sense that it is to enhance the trade interests of countries of the countries promoting the inclusion of labor provisions in FTAs? • It is basically to protect the jobs and interests of the workers in the requiring country. • The original idea of human rights protection under the FTAs is not “altruistic”, but “egoistic”.

FTA as vehicle for human rights protection – trend Fifth, the human rights provisions in FTAs are either of binding or non-binding nature. • Some labor provisions (such as those in those FTAs to which the United States is a Party) are given with hard obligations to be imposed on countries (teeth). • Some others labor protection under FTAs are merely of voluntary nature. For instance, the “Memorandum of Understanding on Labour Cooperation” between New Zealand and China alongside the NZ-China FTA

FTA as vehicle for human rights protection – trend Sixth, some countries or regions have adopted domestic policy to promote human rights protection through trade agreements. • For instance, the United States has adopted the “New Trade Policy with America” in May 2007 to require its FTAs to have core labor standards provisions • EU also adopted its Lisbon Treaty to requires EU to uphold and promote its values and interests and contribute to the protection of its citizens

Types of Human Rights Provisions in FTAs • Three types of labor provisions • Parallel agreement (side agreement) • A labor chapter • A labor memorandum • What are the pros and cons from various perspectives of these types?

NAACL is a side agreement of NAFTA • The labor rights being mentioned in NAALC include

Recent US/EU Models Forms • US: a Labor Chapter • EU: a “Trade and Sustainable Development” chapter

Recent US/EU Models Linked with trade? • US: Some substantive obligations are imposed without referring to whether or not the bilateral trade between the two countries has been affected as a result. • But Article 19.2, paragraph 2: “Neither Party shall waive or otherwise derogate from, or offer to waive or otherwise derogate from, its statutes or regulations implementing paragraph 1 in a manner affecting trade or investment between the Parties, where the waiver or derogation would be inconsistent with a fundamental right set out in that paragraph.”

Recent US/EU Models Linked with trade? • EU: the labor protection is placed under the Sustainability Chapter • Article 13.2: “Except as otherwise provided in this Chapter, this Chapter applies to measures adopted or maintained by the Parties affecting trade-related aspects of labour … issues in the context of Articles 13.1.1 and 13.1.2.” Hence, if a measure does not affect “trade-related aspects of labor issues”, the chapter will not apply.

Recent US/EU Models Int’l labor standards cited? • US: ILO standards • EU: ILO standards (including the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up)

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The anti-corruption provisions in the TPP are quite detailed. Main obligations: • ratifying or acceding to the United Nations Convention against Corruption of 2003 (UNCAC); • adopting or maintain necessary measures to establish as criminal offences for natural and legal persons; • adopting or maintaining necessary measures to prevent irregularities regarding maintenance of books, records, and financial statement; • promoting integrity among public officials; • effectively enforcing TPP Parties’ anti-corruption laws; • taking appropriate measures to promote the active participation of individuals and groups outside the public sector in the fight against corruption; • not affecting the rights and obligations under some related anti-corruption treaties; and • applying dispute settlement mechanism to the anti-corruption provisions of the TPP.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The broad scope of the Coverage • However, in the TPP, the subject matter coverage of anti-corruption provisions is broad.It does not limit to government procurement matters. It also covers other trade and trade-related matters, such as competitive, labor, and environment matters. • Also since the TPP’s has a full coverage of investment matters, as provided in Chapter 9, its anti-corruption provisions are applied to investment matters. Article 26.6.2 thus provides: “The scope of this Section is limited to measures to eliminate bribery and corruption with respect to any matter covered by this Agreement.”

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • Although the scope of subject matter coverage is broad, there are still limits to confine the application of the TPP’s anti-corruption provisions. • First, geographically, although there are 12 participating countries, the TPP is still a plurilateral agreement. There are far more countries outside the geographical scope of the TPP not being governed by its anti-corruption provisions. However, it is hopeful that the TPP’s anti-corruption approach or its specific provisions can be a good example for other FTAs to adopt.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • Second, for those matters which are not covered by or linked to the TPP, they are not within the scope of application of the TPP’s anti-corruption provisions. • There could be an issue about whether those activities which are subject to exceptions are covered by the anti-corruption provisions. • For instance, there are general exceptions and security exceptions provided in Chapter 29 of the TPP (including Articles 29.1 and 29.2). If there is a TPP measure which is subject to such exceptions (say, for instance, trade in arms and ammunitions between TPP Parties) and if there are corruptions involved in such trade activities, a possible issue is whether such exempted trade matters are still within the scope of “any matter covered by this Agreement” as provided by Article 26.6.2. • One possible interpretation is that the matter is still covered by the TPP. It is merely the some obligations are exempted for the Parties. Hence, a bribery provided in connection with trade in arms and ammunitions should still be covered by the anti-corruption provisions in Chapter 26 of the TPP.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The obligation to join the UNCAC and not to affect other treaties’ rights and obligations • Article 26.6.4 of the TPP provides that: “Each Party shall ratify or accede to the United Nations Convention against Corruption, done at New York on October 31, 2003 (UNCAC),” This is beyond the requirement in the new GPA, which only indicates in its preamble the parties’ recognition of the importance of avoiding corrupt practices in accordance with international instrument, such as the UNCAC. • The requirement of ratifying or acceding to the UNCAC is meaningful in that all UNCAC’s provisions and practices will be incorporated into the operation of the TPP. Although many provisions in the UNCAC are similar or have similar functions with the anti-corruption provisions in the TPP, the dual obligations of TPP Parties (one in the TPP and another one in the UNCAC) would help ensure TPP Parties’ discharge of their anti-corruption obligations.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The obligation to criminalize corruptive practices in 26.7.1 and .3 • There must be measures necessary to criminalize the listed corruptive practices. • The criminalized practices must be those which affect international trade or investment covered by the TPP. • Both the bribing persons and the bribed persons are subject to the criminal punishments. • The prohibited actives include not only the actual giving (by the bribing persons) and acceptance (by the bribed persons) of bribery, but also the mere promise or offering (by the bribing persons) and solicitation (by the bribed persons) of bribery. • The punished activities include both bribing domestic and foreign public officials.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • Very importantly, the punished activities also include bribing an official of public international organization. • In this regard, there could be some additional issues: • An official of public international organization could be subject to immunity. Hence, it would be more difficulty to engage in investigation so as to reveal the corruptive acts.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The obligations concerning tax deduction and companies’ record • The TPP has two further requirements concerning not allowing tax deduction for the bribery expenses and concerning the maintenance of financial records. • Article 26.7.4 is to require TPP Parties not to allow tax deduction for the “expenses” spent as bribery. From the bribing companies’ perspective, such expenses could be called “public relations expenses”, which could be treated as deductible expenses if there were no such prohibition. • Article 26.7.5 is to prohibit irregularities concerning books, records and financial statement. The prohibited irregularities include the “off-the-book” practices and incorrect recording expenditure or liabilities, the use of false documents and destruction of bookkeeping documents. Companies always use such irregularities to fund, to assist or to cover-up their bribing activities. The prohibition of such bookkeeping irregularities helps prevent possible corruptions and help identify the corruptions already occurred.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The obligation to promote integrity • The main features in 26.6.1 and 26.8 include providing adequate procedures for the selection, training and rotation of officials; promoting transparency in the exercise of public functions, managing conflicts of interest; making declarations regarding public officials’ outside activities and assets; facilitating reporting of acts of corruption to appropriate authorities; adopting codes of conduct; establishing procedures to remove accused officials; and strengthening integrity among members of the judiciary. • It should be noted that the obligations are softer. • Except Article 26.8.4 (which uses the mandatory term “shall”), other provisions use “should”, “shall endeavor” or “shall consider”.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The obligation to enforce anti-corruption law • First, TPP Parties are required not to fail to effectively enforce the anti-corruption obligations provided in Article 26.7.1 mentioned above. • Second, TPP Parties still have the right for the law enforcement and judicial authorities to exercise their necessary discretions. The Parties also have discretion to decide the allocation of resources. • Third, the Parties are to cooperate with each other to combat corruptive activities.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The obligation to promote private sectors’ participation • Private sectors’ participation is also of importance to the prevention of corruptive activities. • Under Article 26.10, TPP Parties are to promote participations of individuals, civil society and NGOs through public education programs; to assist enterprises in developing internal controls; to encourage companies to publicly disclose their internal controls; to protect the freedom to disseminate corruption information; to encourage private enterprises to adopt internal auditing controls to prevent corruption; and to ensure that a TPP Party’s anticorruption bodies are known to the public. • The involvement of private sectors would help TPP Parties to carry out their duties and to more effectively enforce anti-corruption measures.

FTA as vehicle for clean business environmentAnti-corruption Provisions in TPP • The application of dispute settlement mechanism to anti-corruption provisions • Article 26.12 of the TPP is of high importance for the purpose of ensuring the compliance of the duties assumed by its Parties. • In essence, the dispute settlement can be applied to certain limited extent. • Since Article 26.12.3 excludes recourse to dispute settlement for matters arising under the provisions enforcement of anti-corruption laws under Article 26.9, and also since the obligation for promotion of integrity among public officials under Article 26.8 is relatively soft (as explained above), the remaining core obligations of TPP Parties which are subject to the dispute settlement mechanism are the required legislative and other measures to combat corruption (pursuant to Article 26.7) and the required promotion of participation from private sectors (pursuant to Article 26.10).

Understanding Categories of FTA Provisions in International Trade Agreements