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How to Design, Negotiate, and Implement a Free Trade Agreement in Asia

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How to Design, Negotiate, and Implement a Free Trade Agreement in Asia About How to Design, Negotiate, and Implement a Free Trade Agreement in Asia This reference book, intended to complement the training courses on free trade agreements (FTAs) conducted by ADB, aims to increase the knowledge and capacity of officials who are actively involved in designing, negotiating, and implementing FTAs. Building on international trade theories and good practices and FTA experience of countries worldwide, the book explains important facts and benchmarks to be How to Design, Negotiate, and Implement a considered when preparing, negotiating, and enforcing FTAs in Asia. How to Design, Negotiate, and Implement a Implement and Design, to Negotiate, How About Asian Development Bank Free Trade Agreement in ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries substantially reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to two thirds of the world’s poor. Nearly 1.7 billion people in the region live on $2 or less a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance. In 2007, it approved $10.1 billion of loans, $673 million of grant projects, and technical assistance amounting to $243 million. ASIA Free Trade Agreement in Asia in Agreement Trade Free Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org Publication Stock No. BBK-119108 ISBN: ISBN 978-971-561-684-3 Printed in the Philippines How to Design, Negotiate, and Implement a Free Trade Agreement in Asia Office of Regional Economic Integration April 2008 © Asian Development Bank All rights reserved. Published April 2008. Printed in the Philippines. Publication Stock No. BBK119108 ISBN 978-971-561-684-3 Cataloging-In-Publication Data Asian Development Bank. How to design, negotiate, and implement a free trade agreement in Asia. Mandaluyong City, Phil.: Asian Development Bank, 2008. 1. Trade agreement. 2. Asia. I. Asian Development Bank. The views expressed in this book do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Use of the term “country” does not imply any judgment by the authors or the Asian Development Bank as to the legal or other status of any territorial entity. ADB encourages printing or copying information exclusively for personal and noncommercial use with proper acknowledgement of ADB. Users are restricted from reselling, redistributing, or creating derivative works for commercial purposes without the express, written consent of ADB. Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines Tel: +63 2 632 4444 Fax: +63 2 636 2444 www.adb.org For orders, please contact: Department of External Relations Fax: +63 2 636 2648 E-mail: [email protected] Foreword he continuing spread of free trade agreements (FTAs) in the developing world—particularly T in Asia—has spurred intense debate. Viewed pragmatically, against the backdrop of slow progress in global trade talks, FTAs can promote continued trade liberalization, induce structural reforms in the economies concerned, and widen market access across a vibrant economic region, where the demand for greater intra- regional trade is rapidly increasing. On the negative side, the proliferation of bilateral FTAs can create the so-called “noodle bowl” effect as multiple rules of origin arising from overlapping agreements cause harm particularly to small and medium enterprises with limited capacity to comply with them. The resulting market fragmentation would be more costly even for major multinational companies because of rising transaction costs and regulatory barriers. The flow of foreign direct investment and the associated transfer of technology and know-how to smaller economies would also decline. Nevertheless, FTAs are a growing reality. If we recognize that and hope to foster regional trade agreements as building blocks of global trade and investment integration, we cannot stand idly by and wait for a comprehensive global resolution. We strongly support the Doha negotiation process, while recognizing the need to consolidate and streamline regional and bilateral FTAs into an eventual Greater Asian FTA. The recent proliferation of FTAs in Asia and the Pacific is placing mounting strain on the region’s FTA negotiating capacity and on the knowledge and technical skills of government officials. The areas of interest now go beyond conventional trade in goods and services and extend to intellectual property rights, government procurement, and labor and environmental issues, among others. iv | HOW tO DESIGN, NEGOTIATE, AND IMPLEMENT A FREE tRADE AGREEMENT IN ASIA The capacity constraints are especially With this reference book, we expect to acute in poorer countries, which also lack help shape common perspectives among the institutions to train their officials. government officials in Asia and the This reference book is intended to be Pacific on what a desirable FTA should used mainly in present and planned FTA be, as we look forward to the eventual training courses of the Asian Development harmonization of FTAs in this region. This Bank, to increase the knowledge and comprehensive version is the first step capacity of officials who are active in in that direction. We hope this reference designing, negotiating, and implementing book will serve the increasing demand for FTAs. Building on theories of international FTA knowledge in the region. trade economics and the good-practice FTA experiences accumulated by both front-runners and late beginners in this area, the book explains important facts and benchmarks to be considered when JONG-WHA LEE preparing, negotiating, and enforcing FTAs. Head Rather than going into the details of specific Office of Regional Economic Integration topics, this reference book covers the overall FTA process and its main features. Acknowledgments he Office of Regional Economic Integration (OREI) of the Asian Development Bank (ADB) has T conducted training courses in free trade agreements (FTAs) for mid-level government officials in Asia since October 2006. Starting with the second program in July 2007, we expanded participation to all ADB developing member countries to meet the growing demand for FTA training in the region. Around 100 government officials from all over Asia participated in the training. From the outset, we felt a need for a reference book on FTA for the training course. Drafting a structured text material for the courses was the main objective of this project. But this book serves other purposes as well. Government officials who are or will be involved in FTA negotiations can get background knowledge and guidelines on practical issues from this reference book. The general public, including the academe and students who are interested in practical aspects of FTA, can also benefit from this. It avoids excessively academic or technical terms and is written in language that is accessible to everyone with basic, common-sense ideas about economics, international trade, and FTAs. Negotiating free trade agreements: a guide, prepared by the Australian Department of Foreign Affairs and Trade, was the benchmark for this project. Nevertheless, we have tried to cover a wider scope of issues ranging from fundamental theories to actual components and practical issues related to FTAs. Jong Woo Kang, Economist, OREI, organized this project and coordinated the overall production of the publication. Michael Plummer of Johns Hopkins University was overall editor of the project. A group of international experts, ADB professional staff, and consultants contributed to this reference book. Michael Plummer of Johns Hopkins University and Ganeshan Wignaraja, Jong Woo Kang, and Rosechin Olfindo (staff consultant) of ADB wrote Part I: Economics of a Free Trade Agreement. vi | HOW tO DESIGN, NEGOTIATE, AND IMPLEMENT A FREE tRADE AGREEMENT IN ASIA Several academics and experts Dorothea Lazaro, ADB consultant on trade contributed to Part II: Coverage of a Free facilitation. Trade Agreement. Rachel MacCulloch Finally, Part III: Negotiating, of Brandeis University wrote on trade in Implementing, and Evaluating Free Trade goods and on environmental and labor Agreements was written by Jong Woo standards; William James of ADB, on rules Kang and Dorothea Lazaro of ADB. of origin; Christopher Findlay of Adelaide Special thanks go to those who University, on trade in services (with responded to our FTA questionnaire and substantial contribution from Aik Lim to the resource persons and participants Hoe of the World Trade Organization); who gave valuable comments on Part III Arthur Appleton of Appleton Luff Inc., on during the FTA training courses. intellectual property, dispute settlement mechanisms, sanitary and phytosanitary standards, and technical barriers to trade; Siow Yue Chia of the Singapore Institute of International Affairs, on investment and JONG WOO KANG FTA-plus issues, including government Project Manager and Economist procurement and competition
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