logo logo

Big trading blocs moving at breakneck pace to raise free trade standards

Intellectual Property Watch | 22 May 2013

Special report: Big trading blocs moving at breakneck pace to raise free trade standards

By Monika Ermert for Intellectual Property Watch

The pace to negotiate bilateral or plurilateral free trade agreements has been accelerating rapidly over the last month as the big trading blocs seem eager to position themselves in the race for market access and standards.

China, Japan and Korea in March hurried to open their first official round of negotiations (CJK), just in time to edge ahead of Japan’s joining the negotiations of an enlarged Trans-Pacific Partnership Agreement (TPP) and also ahead of the official start of a Transatlantic Trade and Investment Partnership (TTIP) announced by the European Union and the United States earlier this year. Meanwhile, a concerned Association of Southeast Asian Nations (ASEAN) rushed to counter these ventures with their own competitive bid by starting detailed talks on a Regional Comprehensive Economic Partnership (RCEP) in Brunei Daressalam last Friday.

For years, China and Korea had been reluctant to negotiate the CJK FTA, said Junji Nakagawa, professor of international economic law at the Institute of Social Sciences of the University of Tokyo. Research on the CJK started in 2003, with an official study begun in 2010 and finalised only last spring.

Is TPP and Japan’s Joining a Stimulus for the CJK?

Trade deficits between China and Japan (and to a lesser degree Korea and Japan) were at the core of concerns responsible for the slow path. Plus, China had suspected, Nakagawa said, that “Japan would urge for liberalization of investment and ask for more stringent protection of IPR.” The Japanese academic told Intellectual Property Watch that “Japan’s move to join the TPP must have made them change their mind.”

Japan in March announced it would join the controversial TPP. During the negotiating round in July the East Asian country will for the first time participate as an official party to the treaty. Japan took its time wrestling with the impact on its agricultural products before deciding “to catch the bus” to the “mega FTA,” said Nakagawa. Besides being a stimulus for the CJK, Japan’s entering the TPP group may also have prompted other countries to reconsider their next steps in joining FTA negotiations, including the TPP, Nakagawa said

At the same time there are experts pointing out that China’s and Korea’s announcement last year to go ahead might have been a strong incentive for Japan to go ahead with the trilateral agreement.

Not only the TPP, but also the TTIP is being watched closely by Chinese economists. Fan Gang, director of the National Economic Research Institute, said in an interview with the Chinese newspaper First Financial Daily recently: “The start of free trade negotiations between the United States and Europe has not only a significant impact on the U.S. and European economies, it can also be seen as an attack to the economies in Asia.”

A combined free trade zone with the United States and Europe, coupled with the North American Free Trade Agreement (NAFTA) members Mexico and Canada, would create a large free market and put other economies under pressure, he said. For Fan, the CJK and the regional FTA agreement therefore should be put very high, in fact on top of the political agenda of Asian countries. Asian countries should strive to be in the driver’s seat of free trade development, instead of being driven by others, he said.

Countries Negotiating on Both Sides

In order to counterbalance the impacts from the TPP and TTIP, China also supports the RCEP negotiations that officially started Friday in Brunei Daressalam and will be continued in September.

The sudden rise of the RCEP was in fact due to the many concerns Asia has about the TPP, wrote Jianmin Jin, senior fellow at Fujitsu Research Institute, in his analysis of the poker-like moves.

RCEP brings together even more partners than the TPP, 16 altogether. In their official statement during the first round, negotiators underlined that RCEP would take a step beyond the existing ASEAN plus 1 FTAs, yet at the same time be “taking into consideration the different levels of development of the participating countries.” Instead of reaching for the elimination of all exemption of taxes, for example, a more gradual integration is being eyed. At the same time, the RCEP drags some countries into the middle between the different negotiations.

Singapore, Brunei, Vietnam and Malaysia (all members of the ASEAN 10) joined the TPP, arguing as Singapore did that both agreements would be “complementary.” Australia and New Zealand are parties to both TPP and the RCEP, as they previously signed FTAs with ASEAN. And Japan gets it all: RCEP, TPP and CJK and at the same time is starting negotiations with the EU, giving Japanese negotiators quite a busy schedule.

Is there a risk of entering into different, and even conflicting, provisions? “That is certainly possible,” agreed Nakagawa. Yet in his opinion, not only had studies shown that Japanese companies are clever in using the FTAs, but TPP and CJK also differ in their end goals.

TPP Going for an IPR TRIPS-Plus “Gold Standard”

Nakagawa sees the TPP with the US in the driver seat as the “most ambitious FTA” being put on the negotiating table – and the CJK as more general and focussed on market access. The TPP is “possibly the biggest FTA in the world” with a clear TRIPS-plus agenda, he said. The US government is, for example, asking for the extension of copyright from 50 to 70 years and also pushing for data exclusivity and the protection of test data.

While the requests reflect US business interests, Nakagawa said more stringent IPR protection is a common goal of the US and Japan. For the CJK agreement, on the other hand, the inclusion of IPR protection still has to be battled out. Chinese negotiators so far have not agreed to build a dedicated CJK IPR working group. Another troublesome issue, according to Nakagawa, is the regulation of state-owned enterprises, which was negotiated in the TPP competition chapter.

The declared targets were Vietnamese state-owned enterprises, explained Nakagawa, acknowledging at the same time that the ultimate target of the US in this regard was China. According to experts from universities and also the Fujitsu Research Institute, China had been considering joining the TPP, but has complained that “many conditions are being written into the TPP in order to make it difficult for China to join and thus exclude it from the agreement.” The CJK talks, parallel talks between China and Korea, and the RCEP negotiations allow for an Asian counter-strategy.

For Japan, entering negotiations in both directions while potentially ending on different or conflicting levels of standardisation, is still beneficial, Nakagawa said. Having liberalised its economy to a considerable extent, relatively small steps would provide access to additional markets. And while there is resistance in Japan, for example from farmers, the Japanese policy can be read as a “the more market access, the better, the more FTAs, the better.”

A similar strategy drives the European Union’s list of FTAs. The EU Commission is, at the same time, negotiating half a dozen bilateral FTAs and also supports another new plurilateral agreement focussed on services, the Trade in Services Agreement (TISA). The most buzz recently has been on the US-EU FTA that will start official negotiations in the coming weeks. The EU also is and has been reaching out to TPP/RCEP/CJK-partners, in an obvious effort not to lose ground against the trans-Pacific or Asian initiatives. As China is looking West, the EU certainly is looking East.

No Chance for the WTO Processes

Marietje Schaake (see her TTIP FAQ), member of the EU Parliament for the Liberal Party group and a supporter of an ambitious EU-US agreement, pointed out: “Emerging trade blocs are evolving into powerhouses wishing to play increasingly active and competitive roles on the world stage.” With China and Iceland signing a bilateral FTA, it was “the first time the Asian giant has entered into such a deal with a European country. Beijing has also been knocking on Brussels’ doors to revamp direct trade and investment talks.”

Schaake also touched on the much-debated issue of a stalled Doha Round as the root cause for the FTA monopoly. To her the accelerated pace of negotiations indicate that “far from dead, as the Doha round’s stalemate suggests, global trade is getting a make-over.”

Nakagawa, and even Chinese economist Fan seem to agree that the run for the regional standards is not a terminal threat to the multilateral trade system. Fan in his interview with First Financial Daily said the Doha Round might come back to life from the death.

Nakagawa said that while countries have “shifted their forces to the FTA races,” the WTO still is a far better forum than any other combination of mega-FTAs. Yet multilateral consensus with the shifting weights of trading partners had been difficult to manage for some years. He expects that, “for the coming five or six years major countries will concentrate their resources in major regional trade agreements. With major mega trade agreements concluded five six years from now countries will have to think about new directions and a re-vitalization of the WTO.”

Multilateralising whose Standards?

Japanese officials harbour – like officials in the EU regarding the TTIP by the way – the hope that standards developed in the TPP will find their way into WTO negotiations somehow. EU Commissioner Karel de Gucht in a commentary for the Parliament wrote that “transatlantic standards could be embryos of future world standards,” and “an ambitious transatlantic agreement would be in effect a global public good.” But the question of who can father the future common WTO standards might only be postponed.

Pierre Sauvé, director of external programmes and academic partnerships and a faculty member at the World Trade Institute (WTI) at the University of Bern, said the race for standards outside the WTO is an expression of a high degree of frustration about the Geneva process. Sauvé, a senior economist in the OECD Trade Directorate and past staff member of the General Agreement on Tariffs and Trade (GATT), analyzed the potential of the Trade in Services Agreement (TISA) for the European Parliament’s International Trade Committee. TISA is a multilateral answer from the group of the “really good friends in services” to the stalled GATS talks.

Sauvé, while a free trade proponent, called “pure fiction” the idea of the TISA negotiators – who met last week for their second round in Geneva – to have the standards of one of the groups multilateralised later. And he goes a step further calling “shocking” the “we against them” positioning expressed during a TISA hearing by Deputy US Trade Representative and US Permanent Representative to the WTO Michael Punke.

“If you exclude people from the table telling them you’re not sufficiently liberalised, what is the likelihood that they afterwards will just sign on the dotted line? It will never happen,” Sauvé said.

Innovative steps in preferential agreements could be positive, he said, but the closed door nature of talks like TISA – like the ones on the ACTA in the past – were “very damaging to the collective spirit and very saddening.” Sauvé also warns that the former heavyweights should not misjudge their strength. Somehow, the crisis-ridden EU and US might wage one fight too many in the current race like the aging Muhammad Ali losing in the attempt to become world boxing champion just one more time.

 source: IP Watch