Regional TradeAgreements

Law, Policy and Practice

David A. GantzSAMUEL M. FEGTLY PROFESSOR OF LAW,

JAMES E. ROGERS COLLEGE OF LAW,

UNIVERSITY OF ARIZONA

CAROLINA ACADEMIC PRESS

Durham, North Carolina

Summary of Contents

Preface and Acknowledgments xixTable of Cases xxi

List of Abbreviations xxvPart I Introduction to RTAs

Chapter One Approach and Methodology 5Chapter Two History, Pros and Cons of Regional Trade Agreements 11Chapter Three RTAs under the GATT/WTO System 31

Chapter Four A Survey of RTAs and RTA Provisions 57Part II U.S. Regional Trade Agreements

Chapter Five Political, Legal and Policy Considerations for U.S. FTA Negotiations 81Chapter Six The North American Free Trade Agreement 105Chapter Seven CAFTA-DR and the FTA as a Development Tool 159Chapter Eight U.S. Regional Trade Agreements in the Middle East

and North Africa 207Chapter Nine Other Recent U.S. FTAs 243Chapter Ten The United States-Vietnam Bilateral Trade Agreement 273

Part III Other Significant Regional Trade AgreementsChapter Eleven The European Union 303Chapter Twelve The Southern Cone Common Market (MERCOSUR) 365Chapter Thirteen Central American Common Market 393Chapter Fourteen ASEAN and the ASEAN Free Trade Agreement 411Chapter Fifteen Southern African Customs Union 435Chapter Sixteen Conclusions 457Annex IA General Agreement on Tariffs and Trade — Article XXIV 459Annex IB Understanding on the Interpretation of Article XXIV of the

General Agreement on Tariffs and Trade 1994 463Annex IC Transparency Mechanism for Regional Trade Agreements 467Annex ID General Agreement on Trade in Services 471Annex IE Differential and More Favourable Treatment, Reciprocity and

Fuller Participation of Developing Countries (Enabling Clause) 473Annex II Selected Bibliography 475Annex III Useful Websites 483About the Author 485Index 487

Contents

Preface and Acknowledgments xix

Table of Cases xxi

List of Abbreviations xxv

, Part I Introduction to RTAs

Chapter One Approach and Methodology 5

Chapter Two History, Pros and Cons of Regional Trade Agreements 11

I. Historical Perspectives 11A. The United States as an RTA 11B. Latin American Economic Integration, 1950s-1970s 13C. Demonstration Effect of European and United States'

Embrace of a Dual-Track Trade Policy 14II. The Benefits and Costs of Regionalism 17

A. Likely Benefits 17B. Disadvantages and Costs 20

1. Inherent Discrimination 202. Rules of Origin 213. The "Spaghetti Bowl" Problem 224. Negotiating Imbalances, Administrative Costs and Geography 23

III. Comparing Customs Unions and Free Trade Agreements 25IV. Non-Trade Objectives of RTAs 26V. Non-Reciprocal Alternatives to RTAs 27

Chapter Three RTAs under the GATT/WTO System 31I. History of GATT Article XXIV 32II. Requirements of Article XXIV and the Review System 33

A. Definitional Issues 34B. Substantive Requirements 35

1. "Substantially All" Trade 362. "Reasonable Period of Time" 373. Effects on Non-Members — "Higher or More Restrictive" 38

C. Procedural Requirements 401. Notification, Information and Consultations 402. Negotiations 41

IX

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D. Special Standards for Developing Countries — The "Enabling Clause" 42E. RTAs and the General Agreement on Trade in Services 43

III. Conflicts Between the WTO and RTAs 45A. Scope of the Article XXIV Exception 45

1. Turkey — Textile Restrictions 462. Brazil — Tyres 473. Canada — Autos 494. Argentina — Footwear and US — Steel Safeguards 50

B. Conflicts between WTO and RTA Dispute Settlement Mechanisms 521. Mexico — Tax Measures on Soft Drinks and Other Beverages 522. NAFTA, U.S. Safeguards — Brooms 543. The Softwood Lumber Dispute 55

IV. Conclusion 56

Chapter Four A Survey of RTAs and RTA Provisions 57I. RTAs Notified to the WTO 57II. Content — Common Provisions of RTAs 58

A. The Challenge 58B. Explanation of the Categories 59C. List of RTAs Covered in Table 4.1 66

Table 4-1. Provisions Contained in Selected RTAs 68Table 4-2. RTAs, Notified and in Force 70

Part II U.S. Regional Trade Agreements

Chapter Five Political, Legal and Policy Considerations for U.S. FTA Negotiations 81I. The Politics of Trade Negotiations in the United States 82

A. Factors Threatening Continued U.S. Leadership in Freer Trade 82B. Prospects and Concerns for 2008-2009 87

II. Trade Promotion/Fast-Track Negotiating Authority 91A. TPA Considerations Generally 91B. Negotiating Objectives of Trade Promotion Authority (2002) 92

1. Overall Negotiating Objectives 932. Protection of Investment 933. Labor and the Environment 95

III. The Bipartisan Trade Deal of 2007 97A. Labor Issues 98B. Environmental Issues 99C. Intellectual Property 100D. Investment 101E. Security 102

IV. Conclusions 103

Chapter Six The North American Free Trade Agreement 105I. Antecedents to NAFTA 107

A. The United States-Canada Free Trade Agreement 107B. The Decisions to Negotiate and Conclude NAFTA 108

II. The NAFTA Agreement 109A. Overview 109

CONTENTS xi

B. Objectives and Definitions (Preamble, Chapters 1-2) 110C. NAFTA Tariff Reduction (Chapter 3) 112D. Rules of Origin and Harmonized Customs Procedures (Chapters 4-5) 113E. Energy and Basic Petrochemicals (Chapter 6) 116F. Agriculture and Sanitary and Phytosanitary Measures (Chapter 7) 117G. Emergency Action/Safeguards (Chapter 8) 118H. Technical Barriers to Trade (Chapter 9) 119I. Government Procurement (Chapter 10) 120J. Investment Protection and Dispute Resolution (Chapter 11) 121

1. The NAFTA Context . . 1212. Summary of Investor Protections 1243. Investor-State Dispute Resolution 126

K. Cross-Border, Telecommunications andFinancial Services (Chapters 12-14) 127

1. Cross-Border Services 1282. Telecommunications 1293. Financial Services 129

L. Competition, Monopolies and State Enterprises (Chapter 15) 131M. Temporary Visitors for Business (Chapter 16) 131N. Intellectual Property (Chapter 17) 132O. Publication, Notification and Administration of Laws (Chapter 18) 133P. Resolution of Unfair Trade Practice Disputes (Chapter 19) 133

1. Antecedents and Rationale 1342. Scope and Application 1353. Problems and Controversy 1374. The Future 138

Q. Interpretation and Application of NAFTA — Government toGovernment Disputes (Chapter 20) 139

1. The Rationale for Chapter 20 1392. Scope and Application 1403. The Case Law 1424. An Unloved but Necessary Mechanism? 143

R. Exceptions and Final Provisions (Chapters 21-22) 144III. NAFTA, the Environment and Labor 146

A. NAFTA and the Environment 1461. Environment-Related Provisions within NAFTA Itself 1472. North American Agreement on Environmental Cooperation 1473. NADBank and BECC 148

B. NAFTA and Labor 149IV. NAFTA in 2008 and in the Future 151

A. Assessing NAFTA's Performance Generally 151B. Widening and Deepening or Otherwise Modifying NAFTA 153C. Internal Reforms in Mexico 156

Chapter Seven CAFTA-DR and the FTA as a Development Tool 159I. Pro-RTA Policies in North and Central America 159II. U.S. Motivations for CAFTA-DR 162III. Interpreting and Applying CAFTA-DR 163

A. Underlying Themes and Timing 164

CONTENTS

B. Initial Provisions (Preamble, Chapter 1) 165C. General Definitions (Chapter 2) 166D. Trade in Goods (Chapter 3) 167

1. Tariff Elimination 1672. Waiver of Customs Duties 1683. Temporary Admission of Goods 1684. Import/Export Restrictions, Fees, etc. 1685. Agriculture 1696. Textiles and Apparel 170

E. Rules of Origin (Chapter 4) . 171F. Customs Administration and Trade Facilitation (Chapter 5) 174G. Sanitary and Phytosanitary Measures (Chapter 6) 174H. Technical Barriers to Trade (Chapter 7) 175I. Safeguards and Unfair Trade Remedies (Chapter 8) 176

1. Safeguards 1762. Dumping and Countervailing Duty Actions 177

J. Government Procurement (Chapter 9) 177K. Investment (Chapter 10) 178

1. Coverage and Key Definitions 1792. National Treatment and Most Favored Nation Treatment 1803. Minimum Standard of Treatment 1814. Expropriation 1825. Performance Requirements 1836. Other Investor Rights 1847. Investor-State Dispute Settlement 1848. Appellate Mechanism 188

L. Cross-Border Trade in Services (Chapter 11) 189M. Financial Services (Chapter 12) 191N. Telecommunications (Chapter 13) 192O. Electronic Commerce (Chapter 14) 192P. Intellectual Property Rights (Chapter 15) 193Q. Labor (Chapter 16) • 194R. Environment (Chapter 17) 195S. Transparency (Chapter 18) 196T. Treaty Administration and Trade Capacity Building (Chapter 19) 197U. Dispute Settlement (Chapter 20) 197

1. Antecedents 1972. Scope, Coverage and Choice of Forum 1983. Rosters 1994. Transparency 1995. Implementation 2006. Labor and Environmental Dispute Resolution 2017. Commission Advice on Domestic Judicial Proceedings 2028. Ban on Private Causes of Action Based on CAFTA-DR 2039. Alternative Dispute Resolution for Commercial Disputes 203

V. Exceptions (Chapter 21) 204W. Final Provisions (Chapter 22) 204

IV. Conclusions 205

CONTENTS xiii

Chapter Eight U.S. Regional Trade Agreements in the Middle Eastand North Africa 207

I. U.S.-Israel Free Trade Agreement 208A. Antecedents and Rationale 208B. Key Provisions of the Agreement 211

1. Preamble 2112. Establishment of an FTA 2123. Trade in Goods Generally: Elimination of Tariffs;

Rules of Origin; Export Subsidies; Licensing Requirements;Specific Duty Adjustments and Nomenclature Changes 212

4. Safeguards 2145. Agriculture (IFTA and Supplemental Agreements) 2146. General, Security and Balance of Payments Exceptions 2157. Food, Health and Safety 2168. Infant Industry and Performance Requirements 2169. Intellectual Property 21710. Government Procurement 21711. Services 21812. Administration, Notification and Dispute Settlement 218

C. Exports from Qualified Industrial Zones 219II. U.S.-Jordan Free Trade Agreement 220

A. Antecedents and Rationale 221B. Substantive Provisions of the JFTA 223

1. Preamble 2232. Relationship to Other Agreements 2243. Trade in Goods; Rules of Origin, Customs Cooperation, Safeguards 2244. Services 2265. Intellectual Property Rights 2266. Environment 2277. Labor 2298. Electronic Commerce 2309. Visa Commitments 23010. Government Procurement 23011. Exceptions 23012. Economic Cooperation and Technical Assistance; Joint Committee 23113. Consultations and Dispute Settlement 23114. Miscellaneous and Final Provisions 234

III. Morocco and Other Middle East/North African FTAs 234A. Context of the Morocco FTA 235B. Summary of the MFTA 236

1. Trade in Goods: Rules of Origin and Customs Provisions 2372. Investment and Services 2383. Intellectual Property 2394. Labor Rights 2395. Environment 240

. 6. Dispute Settlement 240C. FTAs with Bahrain and Oman 241

IV. Assessing Middle Eastern and North African FTAs 242

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Chapter Nine Other Recent U.S. FTAs 243I. Chile and Singapore — The Clinton Legacy? 243

A. Antecedents and Rationale 243B. The U.S.-Chile FTA 244

1. The Context 2442. General Observations 245

C. U.S.-Singapore FTA 2471. The Context 2472. General Observations 249

II. U.S.-Australia Free Trade Agreement 251III. FTAs with Peru, Panama, Colombia and South Korea 254

A. Brief Overview of the Agreements 2551. Peru, Panama and Colombia TPAs 2552. U.S.-Korean FTA 257

B. Status of Peru, Panama, Colombia and Korean FTAs 2591. Peru Trade Promotion Agreement 2602. Panama and Colombia Trade Promotion Agreements 2613. KORUS 262

IV. The FTAA: An Idea Whose Time Has Come — And Likely Gone 263A. Introduction 263B. The Constraints facing the FTAA 264

1. Legal and Practical Considerations 2642. The Relevance of the Doha Development Round 2653. A Network of U.S. FTAs 2664. Politics in the United States, Brazil and Mexico 266

C. Suspension of the FTAA Negotiations 268D. Alternatives and Costs 269

1. A Middle Ground between the FTAA and Bilateral FTAs? 2692. The Costs of Abandoning the FTAA 270

E. Conclusions 272

Chapter Ten The United States-Vietnam Bilateral Trade Agreement 273I. Introduction 274II. Creating an Economic Crisis, 1975-1985 275III. Doi Moi and the Economic Opening, 1986-1995 277IV. Negotiating and Concluding the VBTA, 1996-2000 278V. The VBTA and Related Issues 281

A. Trade in Goods (Chapter I) 282B. Intellectual Property (Chapter II) 284C. Trade in Services (Chapter III) 285D. Investment (Chapter IV) 286E. Business Facilitation (Chapter V) 289F. Transparency and Right to Appeal (Chapter VI) 290G. General Articles (Chapter VII) 290H. VBTA Treatment of Textiles and Apparel 291I. Exclusion of Coverage of Unfair Trade Actions 292J. Implementation Challenges 294K. VBTA and WTO Concordance 295

VI. Vietnam's Accession to the WTO, 2001-2007 296

CONTENTS xv

A. The WTO Implementation Process Generally 296B. Vietnam's Accession Odyssey 296

VII. Conclusion 299

Part HI Other Significant Regional Trade Agreements

Chapter Eleven The European Union 303I. Overview of the European Union 305

A. Evolution of the EU 305B. The Legal Structure ' . . 307

1. Principal Accords 3072. Types of Legislative Acts 3093. Areas of EU/EC Competence 310

C. Political and Administrative Institutions 3111. European Commission 3112. Council of the European Union (Council of Ministers) 3123. European Parliament 3134. The Legislative Process 3145. Other Institutions 315

D. The EU Judiciary 316II. Functioning of the EU 319

A. Free trade, the Common External Tariff and the Single European Act 319B. Common Agricultural Policy 321C. Competition and Trade Remedies 323D. Intellectual Property 326E. Investment 328F. Labor, Employment and Establishment Rights 330G. Services 331H. European Monetary Policy 332I. Environment 334

III. Enlargement of the EU 337TV. Beyond the Common Market: Human Rights, Security,

Criminal Law and Foreign and Security Policy 340V. Treaty of Lisbon and the Future 341

A. The Constitutional Treaty 342B. Treaty of Lisbon 343C. Challenges 344

VI. The EU's Preferential Trade Relations 345A. The European Economic Area Agreement 346B. EU Economic Partnership Agreements — The Context 346C. The EU-CARIFORUM EPA 349

1. Trade Partnership for Sustainable Development 3512. Trade in Goods 3513. Investment, Services and E-Commerce 3524. Competition, Intellectual Property and Public Procurement 3545. Environment, Labor and Data Protection 3556. Dispute Settlement 3567. General Exceptions, Institutions and Final Provisions 357

D. The EU-Mexico Free Trade Agreement 359

xvi CONTENTS

1. Rationale for the EU-Mexico FTA 3592. Scope and Trade in Goods 3593. Government Procurement and Competition 3614. Dispute Settlement 361

E. Other EU RTAs 361

Chapter Twelve The Southern Cone Common Market (MERCOSUR) 365I. Introduction 365II. Antecedents of MERCOSUR 367III. MERCOSUR in Law and Practice . 368

A. The Legal Structure 368B. Trade in Goods Generally 370C. Trade in Goods — Trade Remedies and Competition 371D. Trade in Goods — Rules of Origin 373E. Dispute Settlement 374

1. State-to-State Disputes 3742. Non-State Party Arbitration 377

F. Services 379G. Investment 380H. Intellectual Property 382

IV. Expansion of MERCOSUR Preferential Trade 383A. Chile, Bolivia and Peru 385B. Andean Group — MERCOSUR FTA 388C. Venezuelan Accession to MERCOSUR 388D. Other FTA Activity 390

V. Conclusions 391

Chapter Thirteen Central American Common Market 393I. History and Early Years 395II. SIECA, SICA and the Institutional Structure 397III. Status of the Common Market, 2002-2008 400

A. Completing the Customs Union 4001. Elimination of Internal Tariffs 4012. Common External Tariff 4023. Harmonized Customs Laws and Regulations 4024. Mechanism for Distributing Customs Revenues 403

B. Other Trade in Goods Provisions 4041. Rules of Origin 4042. Trade Remedies 4053. Technical Barriers to Trade and Sanitary Measures 406

C. Investment 407D. Dispute Settlement 407

1. Mechanism for the Solution of Commercial Disputes 4072. Central American Court of Justice 408

IV. The Future 408

Chapter Fourteen ASEAN and the ASEAN Free Trade Agreement 411I. Introduction 411II. ASEAN Evolution, 1967-1992 * 414

CONTENTS xvii

A. The Early Years 414B. Early Efforts to Reduce Intra-Regional Trade Barriers 415

III. Creating and Expanding the ASEAN FTA 416A. The ASEAN FTA, 1992-2003 417B. Twenty-First Century Efforts to Deepen Integration, 2003-2008 418

1. Bali Concord and ASEAN Economic Community 4182. ASEAN Charter 419

IV. Expanding Services Coverage under AFTA 421V. Dispute Settlement 422VI. Evolution of Investment Protection and Encouragement 423VII.China-ASEANFTA 427

A. Rationale for an ASEAN-China FTA 428B. The Framework Agreement and "Early Harvest" 429C. Trade in Services 431

VIII. The Future 432

Chapter Fifteen Southern African Customs Union 435I. History and Antecedents 436II. The SACU Agreement of 1969 438III. The 2002 SACU Agreement 440

A. Institutions, Trade Policy and Dispute Settlement 440B. Trade in Goods Generally 442C. Trade Remedies 444D. Import and Export Restrictions; Industrial and Agricultural Policy 445E. Revenue Pooling and Sharing Arrangements 446F. The "Missing" Provisions 447

IV. External Trade Relations and the Spaghetti Bowl Effect 448V. U.S.-SACUFTAandAGOA 449

A. U.S. Efforts to Negotiate an FTA with SACU 450B. African Growth and Opportunity Act 452

VI. The Future 455

Chapter Sixteen Conclusions 457

Annex IA General Agreement on Tariffs and Trade — Article XXIV 459

Annex IB Understanding on the Interpretation of Article XXIV of the

General Agreement on Tariffs and Trade 1994 463

Annex IC Transparency Mechanism for Regional Trade Agreements 467

Annex ID General Agreement on Trade in Services 471

Annex IE Differential and More Favourable Treatment, Reciprocity andFuller Participation of Developing Countries (Enabling Clause) 473

Annex II Selected Bibliography 475RTAs, the WTO and Trade Generally 475United States' Trade/FTA Policy and Related Materials 476

xviii CONTENTS

NAFTA 476CAFTA-DR 477Western Hemisphere (except NAFTA and CAFTA-DR) 478Middle East 479European Union 479Africa 481ASEAN and AFTA 481Vietnam 482

Annex III Useful Websites 483

About the Author 485

Index 487