7253tp.indd 2 11/26/09 1:37:21 PM World Scientific Studies in International Economics (ISSN: 1793-3641) Series Editor Robert M. Stern, University of Michigan, USA Editorial Board Vinod K. Aggarwal, University of California-Berkeley, USA Alan Deardorff, University of Michigan, USA Paul DeGrauwe, Katholieke Universiteit Leuven, Belgium Barry Eichengreen, University of California-Berkeley, USA Mitsuhiro Fukao, Keio University, Tokyo, Japan Robert L. Howse, University of Michigan, USA Keith E. Maskus, University of Colorado, USA Arvind Panagariya, Columbia University, USA Published* Vol. 4 The Rules of Globalization (Case Book) edited by Rawi Abdelal (Harvard University, USA) Vol. 5 Institutions and Gender Empowerment in the Global Economy edited by Kartik Roy (University of Queensland, Australia), Hans Blomqvist (Swedish School of Economics and Business Administration, Finland) & Cal Clark (Auburn University, USA) Vol. 6 Globalization and Systemic Risk edited by Douglas D. Evanoff (Federal Reserve Bank of Chicago, USA), David S. Hoelscher (International Monetary Fund, USA) & George G. Kaufman (Loyola University Chicago, USA) Vol. 7 Fostering Monetary and Financial Cooperation in East Asia edited by Duck-Koo Chung (North East Asia Research Foundation, South Korea) & Barry Eichengreen (University of California, Berkeley, USA) Vol. 9 Globalization and International Trade Policies by Robert M Stern Vol. 10 The First Credit Market Turmoil of the 21st Century: Implications for Public Policy edited by Douglas D Evanoff (Federal Reserve Bank of Chicago, USA), Philipp Hartmann (European Central Bank, Germany) & George G Kaufman (Loyola University, USA) Vol. 11 Free Trade Agreements in the Asia Pacific edited by Christopher Findlay (University of Adelaide, Australia) & Shujiro Urata (Waseda University, Japan) Forthcoming Vol. 8 Challenges of Economic Development in the Middle East and North Africa Region by Julia C Devlin *The complete list of the published volumes in the series, can also be found at http://www.worldscibooks.com/series/wssie_series.shtml Sandhya - Free Trade Agreements.pmd 2 1/13/2010, 1:58 PM 11 edited by Christopher Findlay University of Adelaide, Australia Shujiro Urata Waseda University, Japan World Scientific NEW JERSEY • LONDON • SINGAPORE • BEIJING • SHANGHAI • HONG KONG • TAIPEI • CHENNAI 7253tp.indd 1 11/26/09 1:37:20 PM Published by World Scientific Publishing Co. Pte. Ltd. 5 Toh Tuck Link, Singapore 596224 USA office: 27 Warren Street, Suite 401-402, Hackensack, NJ 07601 UK office: 57 Shelton Street, Covent Garden, London WC2H 9HE British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library. FREE TRADE AGREEMENTS IN THE ASIA PACIFIC World Scientific Studies in International Economics — Vol. 11 Copyright © 2010 by World Scientific Publishing Co. Pte. Ltd. All rights reserved. This book, or parts thereof, may not be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system now known or to be invented, without written permission from the Publisher. For photocopying of material in this volume, please pay a copying fee through the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA. In this case permission to photocopy is not required from the publisher. ISBN-13 978-981-4271-38-7 ISBN-10 981-4271-38-1 Typeset by Stallion Press Email: [email protected] Printed in Singapore. Sandhya - Free Trade Agreements.pmd 1 1/13/2010, 1:58 PM November 17, 2009 14:4 9in x 6in B-763 b763-fm PREFACE In recentyears,there has been a rapidincreasein the number offree trade agreements (FTAs). Concluded throughout the world, these FTAs occupy adominantpositioninthe internationaltraderegime.While FTAs expand the level of trade between member countries, they are likely to divert and reduce trade with non-members, thereby affecting the economies of both member and non-member countries. This research, conducted by the FTA Study Group at the Research Institute of Economy, Trade and Industry (RIETI) in fiscal years 2006 and 2007,examined major FTAs in the world to analyse their impact on trade and domestic economies. The method used consisted of pre-FTA analysis of data from the period prior to the establishment ofan FTA, and post-FTA analysis basedonactual observed data. As for Japan’s FTAs, the project also analysed the utilisation rate of the FTAs by Japanese firms. The results obtained from these analyses haveservedtoidentifyareasofnecessaryimprovementinindividualFTAs, while also providing useful information for the design of future FTAs. We areverypleasedtoseethepublicationofthisresearchinbookform,asthis will allowa broaderinternationalaudience to accessthe valuable results of this research. ThisresearchprojectwasledbyProfessorUrataShujiro,FacultyFellow of RIETI and Professor of the Graduate School of Asia-Pacific Studies, WasedaUniversity.Ibelievetheuniqueorganisationalsupportprovidedby RIETI is indispensable to this type of research project that involves the gathering of long-term economic and trade-related data on a global scale. RIETI was established in 2001 by the Ministry of Economy, Trade and Industry as a new policy-making platform aimed at promoting the link between academia and politics. While maintaining a certain degree of independence from government agencies, RIETI makes the best use of its location in the Kasumigaseki district in central Tokyo — the heart of Japanese politics and economics — to bring together policy makers, v November 17, 2009 14:4 9in x 6in B-763 b763-fm vi Preface industryleaders,academicexperts,andeminentresearchersfromJapanand overseas. For the five-year medium-term plan between 2006–2010, RIETI has set up the following four major policy research domains as an over- arching framework of research themes in which individual researchers and study groups are freely engaged in researchactivities: (i) Maintaining Economic Dynamism under the Adverse Demographic Conditions of Low Fertility and Aging Population, (ii) Promoting Innovation and Strengthening International Competi- tiveness, (iii) Formulating Japan’s Strategy in Response to Globalization and Deepening Economic Interdependence in Asia, and (iv) Compilation of the History of Japan’s Trade and Industry Policy. To undertake these research projects, it is crucial to enlist a diverse arrayofexpertstosystematicallyexamineresearchthemes,gatherand structure essential data, and form networks of researchers including those based overseas. In its role as a policy-making platform, RIETI has its greatest strength in such inter-organizationalresearch. As Chairman of RIETI, I extend my thanks to Professors Urata and Findlay, the editors of this publication, as well as to the members of the FTA Study Group and contributors to this volume. In March 2007, the Group played a key role in organising a RIETI Policy Symposium entitled“AssessingQualityandImpactsofMajorFreeTradeAgreements”. Itakethisopportunitytonotethatthecommentsandsuggestionsreceived from the participants of the symposium were very useful in deepening the research in this project. Last but not least, I extend my thanks to the RIETIstaffwhosehardworkfacilitatedthesmoothprogressofthisresearch project, and to the staff members of World Scientific Publishing Co., Pte. Ltd, the publisher of this volume. Oikawa Kozo, Chairman Research Institute of Economy, Trade and Industry, IAA November 17, 2009 14:4 9in x 6in B-763 b763-fm CONTENTS Preface v Overview xiii 1. Rules of Origin and Agricultural Trade Liberalisation in Major Free Trade Agreements 1 I. Cheong and J. Cho 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Descriptive Overviews of ROO . . . . . . . . . . . . . . . . . 2 2.1. Theoretical survey on ROO . . . . . . . . . . . . . . . . 2 2.2. Descriptive analysis of ROO in major FTAs . . . . . . . 6 2.2.1. ROOs in the US and EU FTAs . . . . . . . . . . 6 2.2.2. ROOs in East Asian FTAs . . . . . . . . . . . . . 7 3. Empirical Assessment of ROOs . . . . . . . . . . . . . . . . . 9 3.1. Analysis on index components . . . . . . . . . . . . . . . 10 3.2. Assessment of restrictiveness of ROO . . . . . . . . . . . 13 3.2.1. Existing studies . . . . . . . . . . . . . . . . . . . 13 3.2.2. Restrictiveness of ROO in FTAs by Japan and Korea . . . . . . . . . . . . . . . . . . 16 4. Agricultural Liberalisation in Major FTAs . . . . . . . . . . . 19 4.1. FTAs by Western countries . . . . . . . . . . . . . . . . 20 4.2. FTAs by Japan and Korea . . . . . . . . . . . . . . . . . 22 4.3. ASEAN–China FTA . . . . . . . . . . . . . . . . . . . . 23 5. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 vii November 17, 2009 14:4 9in x 6in B-763 b763-fm viii Contents 2. Services in Free Trade Agreements 29 R. Ochiai, P. Dee and C. Findlay 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2. Form and Content . . . . . . . . . . . . . . . . . . . . . . . . 30 2.1. Regional characteristics of form . . . . . . . . . . . . . . 30 2.2. Negative-list versus positive-list approach — Contents . . . . . . . . . . . . . . . . . . . 33 2.3. The GATS template versus the NAFTA template . . . . 40 3. Domestic Regulation . . . . . . . . . . . . . . . . . . . . . . . 42 4. Market Access and National Treatment . . . . . . . . . . . . 43 5. Comparison Between Bilateral and Multiple Member Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 6. Rules of Origin . . . . . . . . . . . . . . . . . . . . . . . . . . 45 7. Overall Evaluation on Liberalisation . . . . . . . . . . . . . . 45 8. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 3. Analysis of the Restrictions on Foreign Direct Investment in Free TradeAgreements 81 S. Urata and J. Sasuya 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 2. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 3. Results and Discussion . . . . . . . . . . . . . . . . . . . . . . 85 3.1. Degrees of restrictions . . . . . . . . . . . . . . . . . . . 85 3.2. Assessment by country . . . . . . . . . . . . . . . . . . . 90 3.3. Types of restrictive measures . . . . . . . . . . . . . . . 95 3.4. Restrictions on different sectors . . . . . . . . . . . . . . 96 4. Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . 97 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 November 17, 2009 14:4 9in x 6in B-763 b763-fm Contents ix 4. A Comparison of the Safeguard Mechanisms of Free Trade Agreements 131 A. Kotera and T. Kitamura 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 2. Bilateral and Regional Safeguard Mechanisms . . . . . . . . . 132 2.1. The basic idea and structure of safeguard mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . 132 2.2. The intrinsic nature of bilateral and regional safeguard mechanisms . . . . . . . . . . . . . . . . . . . 135 2.3. Analysis and evaluation of the selected safeguard mechanisms . . . . . . . . . . . . . . . . . . . 138 2.3.1. Indicators for analysis and their descriptions . . . 138 2.4. Analysis of the selected bilateral and regional safeguard mechanisms . . . . . . . . . . . . . . . . . . . 142 2.4.1. NAFTA . . . . . . . . . . . . . . . . . . . . . . . 142 2.4.2. EFTA . . . . . . . . . . . . . . . . . . . . . . . . 143 2.4.3. AFTA . . . . . . . . . . . . . . . . . . . . . . . . 144 2.4.4. EC–Mexico . . . . . . . . . . . . . . . . . . . . . 145 2.4.5. Australia–New Zealand . . . . . . . . . . . . . . 146 2.4.6. US–Singapore . . . . . . . . . . . . . . . . . . . 146 2.4.7. US–Australia . . . . . . . . . . . . . . . . . . . . 147 2.4.8. Japan–Mexico . . . . . . . . . . . . . . . . . . . 147 2.4.9. Japan–Singapore . . . . . . . . . . . . . . . . . . 148 2.4.10. Korea–Chile . . . . . . . . . . . . . . . . . . . . 149 2.4.11. Korea–Singapore . . . . . . . . . . . . . . . . . . 149 2.4.12. China–ASEAN . . . . . . . . . . . . . . . . . . . 149 3. Classification of the Selected Bilateral and Regional Safeguard Mechanisms . . . . . . . . . . . . . . . . . . . . . . 150 3.1. No general safeguard type . . . . . . . . . . . . . . . . . 150 3.2. Quasi-globalsafeguard type . . . . . . . . . . . . . . . . 151 3.2.1. WTO type . . . . . . . . . . . . . . . . . . . . . . 151 3.2.2. GATT type . . . . . . . . . . . . . . . . . . . . . 151 3.2.3. NAFTA type . . . . . . . . . . . . . . . . . . . . 152 3.2.4. European type. . . . . . . . . . . . . . . . . . . . 152 4. Final Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . 153 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163