Ministry of Finance of the State of Japan

02/27/2020 | Press release | Distributed by Public on 02/26/2020 20:35

Financial Review: Diverse Perspectives on the Conventional Regimes for Free Trade in the Current Int

Dynamism of Trade Liberalization Negotiations
-Interaction between Multilateral, Plurilateral, Bilateral and Regional Liberalizations-

By NAKAGAWA Junji (Professor, Faculty of Liberal Arts, Chuo Gakuin University)

At a time when the Doha Round negotiations under the World Trade Organization (WTO) have remained stagnant for an extended period of time, there are ongoing efforts to explore a new framework of trade liberalization negotiations that could replace the framework of multilateral trade negotiations. In recent years, major countries have shifted the emphasis of trade liberalization negotiations to bilateral and regional free trade agreements (FTAs). In particular, significant results have been achieved in terms of trade liberalization through geographically broad FTAs that involve many countries, such as the Trans-Pacific Partnership (TPP). Some results have also been achieved in plurilateral trade liberalization negotiations, whereby like-minded countries negotiate the liberalization of trade in specific products and services under the WTO framework, with the negotiation results applied to all WTO member countries based on the most favored nation principle. This paper considers how the increasingly diverse frameworks of trade liberalization negotiations affect each other. It also considers how the WTO will be able to regain its position as a multilateral forum for liberalization negotiations.

Keywords: WTO, free trade agreement (FTAs), TPP, CPTPP, plurilateral agreements
JEL Classification; F13, F53

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Data Localization Measures and International Economic Law
-How do WTO and TPP Disciplines apply to These Measures?-

By ABE Yoshinori (Professor, Faculty of Law, Gakushuin University)


Remarkable development of the data economy and growing awareness of the importance of data in recent years have driven some countries to strengthen their control over data flow. Measures restricting cross-border data transfer or requiring data to be stored within national borders, such as China's 2017 Cybersecurity Law, are known as data localization measures. This article argues that these data localization measures may constitute a breach of the market access commitment or the national treatment commitment under the General Agreement on Trade in Services (GATS), while there is a fair possibility that these measures are justified under GATS general or security exceptions. It also shows that the E-Commerce Chapter of the Trans-Pacific Partnership (TPP) is applicable to cross-border data transfer by companies in non-service sectors as well and contains specific provisions concerning cross-border data transfer and location of computing facilities. This means that the TPP established clearer rules than GATS with respect to data localization measures. However, as the TPP E-Commerce Chapter has specific exceptions for measures implemented to achieve a legitimate public policy objective, such exceptions could provide broad justification for data localization measures.

Keywords: digital trade, cross-border data transfer, international economic law, WTO, GATS, TPP/CPTPP
JEL Classification; F13, K33

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Dynamics between Multilateralism and Regionalism in Relation to Trade Liberalization and Culture

By KODERA Satoshi (Professor, Department of Law, Seinan Gakuin University)


This paper revisits the conflict of trade liberalization and culture, both of which are basic values or interests, from the viewpoint of the relationship between multilateralism and regionalism. By doing so, this paper clarifies the relationship between multilateralism and regionalism, two forces that govern international economic relationships.

For this purpose, this paper analyzes the relationship between trade liberalization and culture as divided into three phases. First, this paper looks at this relationship within the framework of multilateralism as embodied by the General Agreement on Tariffs and Trade (GATT), mainly with respect to the Uruguay Round of negotiations. Second, it examines the relationship of tension between two organizations embodying multilateralism, namely, the World Trade Organization (WTO) and the United Nations, Education, Scientific and Cultural Organization (UNESCO). Third, this paper looks at the transition from multilateralism to regionalism, which is epitomized by the implementation of the protocol on cultural cooperation by the EU.

As a result of the analysis of these three phases, it becomes clear that between trade liberalization and culture, there is not only a relationship of conflict as exemplified by a shift of regionalism toward multilateralism, the fragmentation of multilateralism, and a shift of multilateralism toward regionalism, but also a dynamic and complementary relationship.

Keywords: WTO, Convention on the Protection and Promotion of the Diversity of Cultural Expressions , UNESCO, regionalism, multilateralism, FTA
JEL Classification: F13,K33

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Characteristics of the Process for Securing Compliance with Labour and
Environmental Provisions Included in Free Trade Agreements (FTAs)

By AKIYAMA Kohei (Research Associate, Waseda University, Faculty of Law)


The greatest issue of contention regarding the inclusion of labour and environmental provisions in FTAs is whether or not to set legal obligations and authorize the adoption of economic measures against the violation of the obligations through a dispute settlement process. While the United States authorizes the adoption of economic measures (sanctions approach), the EU does not grant authorization but requires offenders to formulate action plans (cooperative approach). Sufficient empirical analysis has not yet been conducted to evaluate which of these two approaches is superior. It is said that the implementation of labour and environmental obligations needs to be continuously monitored and that if compliance with international rules is to be secured, it is necessary to secure the legitimacy of the rules through the involvement of civil society. In other words, the threat of sanctions alone would not ensure the effectiveness of labour and environmental provisions. In fact, it may be pointed out that the process for securing compliance with labour and environmental provisions should be accompanied by the dispute settlement process and the process for securing implementation. The adoption of labour and environmental provisions under multilateral frameworks depends on individual countries' political will. However, it is important to complement the negative aspect of trade liberalization with FTAs and strengthen multilateral frameworks by recognizing the diversity of measures to secure compliance and adopting provisions suited to the needs of signatory countries.

Keywords: free trade agreement (FTA), labour provision, environmental provision, dispute settlement process, process for securing implementation
JEL Classification: F13, F16, F18, F53

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Achieving Regionalization Immediately after the Occurrence of Outbreak of Infectious Livestock Diseases
-Cooperative Relationship between Bilateral Frameworks and the WTO Framework-

By ISHIKAWA Yoshimichi (Lecturer, School of International Relations, University of Shizuoka)


When an outbreak of an infectious livestock disease occurs in an exporting country, it is usual for importing countries to immediately ban imports of relevant products (e.g. livestock meat) from the whole of the exporting country in order to prevent the entry and spread of the disease in their domestic markets. However, under the World Trade Organization (WTO) Agreement, Members are obligated to permit imports of relevant products from disease-free areas within the contaminated Member under certain conditions (regionalization). Upon the request from the exporting country, importing countries undertake an assessment of whether the alleged areas are disease-free, and then they permit imports from the areas that are confirmed to be disease-free. However, these procedures tend to take years to complete. Given that the import ban from the contaminated country continues during this process , its delay results in having a serious impact on international trade. This paper attempts to show the existence of a cooperative relationship between bilateral frameworks and the WTO framework for requesting importing countries to permit imports from disease-free areas even immediately after the occurrence of an outbreak of an infectious livestock disease. For this purpose, it will overview Japan's practice of concluding animal health requirements with exporting countries on sanitary conditions for fresh pork, and analyze the recent WTO dispute between the EU and Russia over fresh pork trade.

Keywords: SPS Agreement, regionalization, request for lifting an import ban, animal health requirements, swine fever
JEL Classification: F13, K33

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Can We Secure Consistency between Rules of Origin and Measures to Prevent
Circumvention of Anti-Dumping Measures Under the WTO Framework?
-With Special Focuse on the Recent Administrative and Judicial Trends in the U.S.-

By KOBAYASHI Tomohiko (Professor, Department of Law, Otaru University of Commerce)


Securing international regulation of anti-dumping (AD) measures and pursuing to create Harmonized Rules of Origin (HRO) have been considered as two separate legal agendas within the framework of the World Trade Organization (WTO). What kind of rules of origin (ROO) to establish and apply with respect to AD measures and whether or not to apply HRO to AD measures have also been considered as separate issues.

In reality, however, those issues are becoming increasingly interrelated and interdependent with each other, in terms of both applications of existing rules as well as negotiations for new rules. Thus, gaps between the international rules on ROO and AD are growing concerns for WTO laywers. If this problem is left unattended, it could prevent the WTO from securing effective regulations of trade restrictive measures in the fields of AD and ROO. Up until now, few comprehensive legal studies on this problem have been conducted. Therefore, as the first step to address the problems, this paper analyzed structural background of the rising problems by focusing on the administrative actions and case laws in the United States. The analysis revealed that the United States is becoming increasingly active in using ROO for the sake of enforcing the AD measures. To address this trend, this paper cast light on the importance of multi-faceted analysis that covers both AD and ROO.

Keywords: anti-dumping duties, rules of origin, prevention of circumvention, World Trade Organization (WTO), regional trade agreements (including RTA: free trade agreements (FTAs) and economic partnership agreements (EPAs)).
JEL Classification: F13, F53, H26, K33, K41

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The Current State of Diversity and Complexity of Preferential Rules of Origin and Moves toward Convergence
-Role of Multilateral Frameworks in Simplification of Preferential Rules of Origin-

By HASWGAWA Jitsuya (Director, Post Clearance Audit, Investigation and Intelligence Division, Tokyo Customs, Ministry of Finance)


While the impact of the growing diversity and complexity of preferential rules of origin (RoO) due to the development of free trade agreements (FTAs) and economic partnership agreements (EPAs) is attracting attention, there are moves to achieve the convergence of complex preferential RoO in light of the experiences gained by individual countries through the enforcement of RoO under FTAs/EPAs, and the geographical expansion of FTAs/EPAs and the development of mega-FTAs/EPAs. This paper examines the current state of diversity and complexity of RoO and the moves toward convergence by conducting a comparative analysis of RoO under EPAs concluded by Japan and FTAs concluded by major countries with respect to a selection of typical products in major sectors and considers whether it is possible to simplify RoO in order to reduce the diversity and complexity. It also considers what role multilateral frameworks, such as the World Trade Organization (WTO), can play in the simplification of RoO.

Keywords: rules of origin, preferential rules of origin, FTAs, EPAs
JEL Classification: F13, K33

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Possibility of Developing and Expanding the Regulation of Subsidies through Free Trade Agreements (FTAs)
-Analysis Focusing on a Trend in FTAs Concluded by the EU-

By SEKINE Takemasa (Professor, Faculty of Economics, Nagoya University of Commerce and Business)


In the absence of progress in the revision of the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures, the European Union (EU) is making efforts to develop and disseminate rules on subsidies through free trade agreements (FTAs). What is particularly noteworthy about this initiative is that the EU seeks to link the regulation of subsidies with competition law. The specifics vary depending on the circumstances of counterparties to agreements, but as a general trend, the agreements include a provision that encourages the regulation of subsidies through the framework of state aids and competition law. Among other rules that have been recently introduced are those concerning the expansion of prohibited subsidies, redefinition of permissible subsidies, and the regulation of the scope of subsidies related to trade in services. The fact that the EU has succeeded in introducing those new rules under a substantial number of agreements indicates the possibility that those rules may be adopted on a plurilateral or multilateral basis. On the other hand, in light of the small number of agreements concluded with countries that are expected to be unwilling to accept the rules, it may be too early to reach that conclusion. Even so, how the trend in regional agreements will play out will be one of the key points in the future.

Keywords: World Trade Organization (WTO), free trade agreements (FTAs), subsidy disciplines, state aids, services-related subsidies
JEL Classification: F13, K21, K33

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The Function of Dispute Settlement Systems under Bilateral or Regional Agreements to Complement the WTO's Dispute Settlement System
and the Reform of the Dispute Settlement System
-Focusing on Disputes Related to Environmental Matters, Including Renewable Energy-

By SUETOMI Junko (Attorney at Law, Admitted in Japan and New York, USA Baker & McKenzie (Gaikokuho Joint Enterprise) Part time Lecturer, Waseda University)


In recent years, there have been arguments hoping for dispute settlement systems under regional agreements to complement the WTO's dispute settlement system. In particular, at a time when there are vacancies on the WTO Appellate Body, which undermines the functions of the organization's dispute settlement system and prevents the WTO Dispute Settlement Body from functioning properly, some people are hoping that dispute settlement processes under bilateral or regional agreements will substitute for the WTO's dispute settlement process.

Indeed, in some previous cases, the same dispute was referred to the WTO Dispute Settlement Body while being in the process of resolution through a dispute settlement process under a regional agreement or a bilateral investment treaty (e.g., the Mexico Soft Drinks case and the Philip Morris v. Australia government case). In many cases where there was an investment agreement between an investing country and an investee country, investors and the host country resolved their dispute through the dispute settlement process under that agreement.

In particular, since the investor-state dispute settlement (ISDS) provision has come to be included in regional agreements, hopes have grown further for international investment arbitration. In Japan as well, when discussions were held on the inclusion of the ISDS provision in the Trans-Pacific Partnership (TPP) agreement and the Japan-Europe economic partnership agreement (EPA), there was a growing mood to prepare for the provision because of the possibility that both the government and companies would become parties to international investment mediation cases. However, the author feels that there is something strange with this course of events and is inclined to think that we should appreciate the fact that the Japanese government and companies have rarely become parties to international investment arbitration cases and should maintain this situation. On this point, even if a dispute arises between investors and the host country, it is of primary importance to resolve it based on the interpretation of the contracts between investors and the host country and through negotiation, rather than using the investment arbitration system. It would be desirable for investors and the host country for the use of the investment arbitration system to be avoided and be reserved as a last-resort option. This paper considers this point by focusing on cases related to renewable energy.

If a dispute cannot be resolved through the interpretation of changed circumstances or other means under a contract, the process of the WTO Dispute Settlement Body, which uses government -to-government negotiations, is still considered to be more desirable than investment arbitration between investors and the host country in some cases.

Therefore, even though the dispute settlement system under a bilateral or regional agreement may have complemented the WTO's dispute settlement system in some cases, it cannot serve as a substitute. Rather, the WTO's dispute settlement system has a raison d'etre of its own, so we should make efforts to maintain it with a view to a future reform. The time may have arrived when parties to disputes should devote more efforts to resolving the disputes through negotiation or compromise before resorting to a dispute settlement system while using the presence of the system as leverage. Furthermore, it is desirable to use a arbitration or dispute settlement process not only as a means to achieve its original purpose, which is to have a third party make the final judgment, but also as a system whereby a third party offers cooperation toward reconciliation. At the same time, the paper examines alternative options, including the use of arbitration under Article 25 of the Dispute Settlement Understanding (DSU) as a means to prevent a freeze on the use of the WTO's dispute settlement system.

Keywords: dispute settlement system, WTO, regional agreement, FTA, WTO, reform of the dispute settlement system, disputes related to renewable energy, dispute related to environmental matters, international investment arbitration, Appellate Body
JEL Classification: F13, F18, F53, Q42, Q56

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Procedural and Normative Competition between the WTO's Dispute Settlement and the Investor-State Arbitration
-Focusing on the National Treatment Principle-

By YAMASHITA Tomoko (Associate Professor of International Law School of Foreign Studies Aichi Prefectural University)


The history and reality of international dispute settlement required the international community to develop two independent mechanisms for trade and investment. However, in recent years, there is an increasing number of cases in which the same dispute is simultaneously dealt by the WTO and by the investor-state dispute settlement (ISDS), namely, investor-state arbitration under international investment agreements (IIAs). As a result, more and more normative overlaps and practical interactions are observed between the two legal systems.

Against this backdrop, the present paper considers how the international mechanisms of trade and investment legally compete, co-exist and interact each other in the procedure and reality of dispute settlement. First, it examines procedural and technical duplication between the WTO's dispute settlement and ISDS. Then, with a special focus on the national treatment principle, a fundamental rule common to both the systems, it makes clear how the WTO and ISDS concur for the protection of substantial rights of foreigners in actual dispute settlements.

Keywords: WTO agreement, international investment agreements (IIAs), ISDS clause,investor-state arbitration, national treatment principle, Article 23 of the Dispute Settlement Understanding (DSU)
JEL Classification: F13, F21, F53, F55, K33

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The Development of Investment Treaties Defining 'Liberalization'

By INOSE Takamichi (Associate Professor, College of Liberal Arts and Sciences, Kitasato University)


Investment liberalization under investment treaties is defined in terms of the expansion of the definition of investment, expansion of the scope of matters subject to substantial provisions, and expansion of the scope of matters subject to dispute settlement (scope of potential investors and damage suffered in pre-establishment activities). In particular, investment treaties and investment chapters of free trade agreements (FTAs) and economic partnership agreements (EPAs) concluded in recent years have made progress in developing substantial rules intended to lower entry barriers that obstruct investment liberalization, such as restrictions on foreign investment.

However, in order to make investment liberalization more substantive, it is necessary to establish and improve institutional systems between Contracting States because there are limits to the pursuit of liability (damage claims) by investors using the investor-state dispute settlement (ISDS) provision, which has until now been used as a means to address the violation of investment treaties on established investment.

Keywords: investment treaties (investment agreements), free trade agreements (FTAs), economic partnership agreements (EPAs), investment liberalization, restrictions on foreign investment, performance requirements, ISDS provision, ICSID Convention
JEL Classification: F02, F21, F23

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FTAs in the WTO Dispute Settlement

By HIRAMI Kenta (PD Research Fellow of Japan Society for the Promotion of Science, Institute of Social Science, the University of Tokyo)


Although the co-existence of the World Trade Organization (WTO) and free trade agreements (FTAs) has now become normal, the legal relationship between them is unclear from many aspects. In this respect, in light of the relevant WTO jurisprudence, the following points can be mentioned with respect to the status of FTAs in the WTO dispute settlement proceedings. First, the jurisdiction of WTO panels is firmly based on the Dispute Settlement Understanding (DSU) from the viewpoints of their review obligation on the one hand and members' right to use the dispute settlement system on the other hand. Therefore, even if a dispute referred to a WTO panel is related to an FTA, the presence of the panel's jurisdiction is not denied. This also applies to the assessment of the consistency of FTAs themselves with the Article XXIV of the General Agreement on Tariffs and Trade (GATT). Even so, secondly, in specific cases, the presence of an FTA could affect the exercise of a WTO panel's jurisdiction. To be more specific, it is theoretically possible for countries that are parties to an FTA to abandon their right as WTO members to refer disputes to the WTO dispute settlement system when they adopt an alternative option in that FTA, such as a 'mutually agreed solution' as referred to under the DSU and the forum selection clause. Attention needs to be paid to how the relationship between the WTO dispute settlement system and FTAs explained above will affect specific FTA negotiations and the interpretation of FTA rules, and how much the WTO dispute settlement system will be able to contribute to the ordering of the legal relationship between the WTO and FTAs under the current multi-layered economic governance structure.

Keywords: WTO, FTAs, WTO dispute settlement, DSU, panels, Appellate Body, Peru-Agricultural Products case, standard of review
JEL Classification: F13, K33

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