OVERVIEW. Reasons for Discussing Economic Partnership Agreements in this Report. Establishment of Disciplines on Formation of Economic Partnerships

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1 OVERVIEW Establishment of Disciplines on Formation of Economic Partnerships Reasons for Discussing Economic Partnership Agreements in this Report Recently, the number of Free Trade Agreements ( FTAs ) and Economic Partnership Agreements ( EPAs ) entered into has been rapidly increasing. The number of notifications to the WTO regarding FTAs/EPAs that were in force sharply increased from 27 in 1990 to 261 in 2009(9/30). 1 It is also believed that there are many FTAs/EPAs that are not notified to the WTO. We presume that such increase in the number of FTAs/EPAs goes beyond the intentions of the drafters of GATT, which considered FTAs and customs unions as exceptions. Such rapid increase in FTAs/EPAs can be attributed to several factors. It is likely that the establishment of the EU and its expansion inspired the establishment of NAFTA and AFTA (the ASEAN Free Trade Area). The establishment of a customs union or an FTA/EPA gives non-member countries that are disadvantaged thereby an incentive to enter into a regional trade agreement with such customs union or FTA/EPA. With respect to countries such as Singapore, Mexico, or Chile, which have entered into FTAs/EPAs with relatively many countries, the extent of the disadvantage in competition to non-member countries becomes large; and therefore, the incentive for non-member countries to enter into regional trade agreements is likely to be greater. Thus, the FTA/EPA network expands through a snowball effect. It is attractive for countries to enter into a regional trade agreement with an FTA/EPA which consists of a large economic area (i.e., AFTA, which came into effect in 1993). East Asia is experiencing a trend of economic partnership, where, in addition to China-ASEAN, which already is in effect (Agreement on Trade in Goods came into effect in 2005), Korea-ASEAN, which is already signed (Agreement on Trade in Goods signed in 2007), and Japan-ASEAN (which came into effect in January 2008), India-ASEAN (Agreement on Trade in Goods) and Australia-New Zealand-ASEAN came into effect in January 2010 (See the next section Global Trends of Economic Partnership for global trends in FTAs/EPAs.) Thus, taking a global view, the trend of developing regional trade agreements in the big three trade areas (centering on the United States, EU, and Asia), and the

2 trend of regional cooperation advancing in the Asia Pacific region with APEC as an axis, are expected to complement the WTO framework for multilateral trade liberalization and ultimately contribute to the liberalization of trade and investment throughout the world. As indicated above, the efforts toward multilateral trade policies in the WTO and the efforts for bilateral agreements in EPAs are complementary. However, subject to international economic rules, under the WTO framework (which sets forth most-favored nation treatment as the primary principle), EPAs (which provide for special agreements for certain areas) are persistently positioned as an exception. In addition, GATT and GATS provide requirements relating to establishing FTAs for goods and for the purpose of preventing FTAs from eroding the WTO s multilateral trade framework. (See Part II, Chapter 15 Regional Trade Agreements.) Japan has been aggressively attempting to enter into EPAs since the Japan-Singapore EPA, which came into effect in If FTAs are strictly understood to eliminate import duties on goods or liberalize trade in services within the region, the EPA concept may more widely include maintenance of the investment environment, reinforcement of intellectual property protection, technical cooperation, and the like. Furthermore, Bilateral Investment Treaties (BITs), which are part of EPAs and provide for investment protection, liberalization, transparency, and so forth, have been increasing globally. Japan has accelerated its efforts to conclude BITs in recent years. Focusing on investment treaties, there were said to be 2,676 BITs in the world as of the end of As of July 2009, Germany, China, Switzerland, the United Kingdom and the United States had entered into 135, 123, 113, 105 and 47 BITs respectively. 3 Many BITs provide investment-related terms as part of FTAs/EPAs. In addition, although under the WTO Agreements, the TRIMS Agreement and GATS regulate measures related to investment to a limited extent, it is important, as with FTAs/EPAs, to secure compliance with investment treaties and to secure harmonization of such investment treaties with the WTO Agreements. While Parts I and II of this Report assess trade policies of major countries from the viewpoint of rights and obligations under the WTO Agreements, it is important to focus also on securing national governments' compliance with rules provided by the rapidly increasing number of FTAs/EPAs and BITs and ensuring their consistency with the WTO Agreements. Part III explains the contents of the disciplines for international economic rules and examines relevant measures taken in each country, regarding FTAs/EPAs and BITs that Japan has concluded. It also introduces recent examples of FTAs/BTAs and BITs signed between thirdparty countries. 2 UNCTAD Recent developments in international investment agreements (2006 June 2007)

3 Global Trends of Economic Partnership (as of February2010) (1) Global Trends Since the 1990s, regional integration has accelerated, and the number of regional trade agreements (including free trade agreements ( FTAs )) notified to the World Trade Organization ( WTO ) that were in force reached 261 as of September 30, 2009, rising from 27 in Since the Seattle WTO Ministerial Conference, new trends have emerged with regard to FTAs and EPAs. Following the collapse of the non-western cold war regimes, and with the pursuit of a new international economic system, western countries began accelerating regional integration. With the establishment of a single market through the intra-regional market integration plan within the European Economic Community ( EEC ) (1992) and the inauguration of the North America Free Trade Agreement ( NAFTA ) (1994), European and North American countries actively promoted efforts aimed at: (i) increased corporate income through market expansion and productivity improvements;, and (ii) economic structural reforms through high-level trade and investment liberalization and facilitation with those neighboring regions with which they had close economic relationships. The breakdown of the Seattle WTO Ministerial Conference (1999) revealed the difficulties of promoting multilateral free trade within the WTO, and further accelerated the trend of pursuing bilateral or regional FTAs and EPAs. Since the meeting, new trends have emerged with regard to FTAs and EPAs. First, there were more agreements involving, not only the elimination of tariff and non-tariff barriers to trade, but also the establishment of rules in new areas (such as investment, competition, environment, economic cooperation and the movement of natural persons). (One such example is the fact that Japan has concluded wide-ranging EPAs covering matters such as the elimination of border controls and domestic restrictions and the reconciliation of various economic frameworks to further liberalize and facilitate the movement of goods, services, persons, and capital.) An advantage of FTAs/EPAs over WTO multilateral negotiations is that, under FTAs/EPAs, it is possible to establish international economic rules promptly and flexibly while taking into consideration actual economic conditions among the contracting parties with respect to the rules of various areas that are not covered by WTO agreements. A second feature of recent FTAs/EPAs is that they are likely to be among countries and regions that are not neighbors for example, the EU-Mexico FTA, EFTA-Mexico FTA, Korea-Chile FTA and EU-South Africa FTA. We presume that the motivations underlying such FTAs/EPAs between non-neighboring countries are to: (i) function as a trade hub by obtaining favorable conditions in connection with access to economically important countries/regions; (ii) increase employment by enhancing the attractiveness of a member country as a target for investment; and (iii) remove disadvantages that would exist in the absence of an FTA/EPA. A third feature is that regional integration -type FTAs/EPAs have increased. Certain trends in regional integration type FTAs/EPAs can also be seen. Remarkable progress has been made in the Americas after the breakdown of the Cancun WTO Ministerial Conference (September 2003). In November 2003, 34 countries in the Americas agreed on a framework 661

4 to establish the Free Trade Area of the Americas ( FTAA ) (negotiation thereof is currently suspended). In December 2003, the Southern Cone Common Market and the Andean Community (the MERCOSUR/MERCOSUL ) signed a framework agreement aiming to establish free trade areas (currently in the process of being ratified). The FTA between the United States and five Central American countries and the Dominican Republic ( CAFTA- DR, ) was signed in August 2004 and has since come into effect. In East Asia, where efforts had previously stalled, regional integration is rapidly progressing. This is especially true for the Association of Southeast Asian Nations ( ASEAN ). With regard to ASEAN intra-regional trade, promotion of the ASEAN Free Trade Area was agreed upon in 1992 and tariff reduction commenced the following year. There are plans to establish an economic community among member countries of the ASEAN by Moreover, the ASEAN Charter came into effect in December With the charter maintaining the principles of consensus and non-intervention and the ASEAN countries agreeing on the establishment of the ASEAN Human Rights Organization, it can be said that regional integration in East Asia has entered a new phase of sharing the same values. In February 2009, the ASEAN Trade in Goods Agreement (ATIGA) was signed, replacing the CEPT Agreement (See 3) (a) below), as was the ASEAN Comprehensive Investment Agreement (ACIA), which integrated and revised the ASEAN Agreement on the Promotion and Protection of Investments (IGA). The ASEAN investment region framework agreement, was also signed. On January 1, 2010, six ASEAN countries (Brunei, Thailand, Malaysia, Indonesia, Singapore, and the Philippines) totally eliminated intra-regional tariffs. ASEAN countries have also actively promoted efforts with non-asean member countries and regions. ASEAN and China began to reduce tariffs in July 2005 based on the Agreement on Trade in Goods, and, as of January 2010, eliminated tariffs on 90% of ASEAN goods covered by the agreement. In July 2007, Agreement on Trade in Services came into effect, and in August 2009 the ASEAN-China Investment Agreement was signed. ASEAN and the Republic of Korea began to reduce tariffs in June 2007 based on the Agreement on Trade in Goods, which was signed in August In November 2007, ASEAN countries (with the exception of Thailand) signed an Agreement on Trade in Services with the Republic of Korea and the agreement came into effect in May Thailand and the Republic of Korea signed protocols for agreements on trade in goods and agreements on trade in services in February In June, a Korea-ASEAN investment agreement was signed. Furthermore, an agreement on trade in goods with India and an FTA with Australia and New Zealand (Australia New Zealand Free Trade Agreement (CER Agreement)) came into effect. Japan s EPA with ASEAN came into effect in December Japan also focuses on bilateral EPAs with ASEAN countries; EPAs with Singapore, Malaysia, Thailand, Brunei, Indonesia, the Philippines and Vietnam are already in force. (See 3. Efforts in Japan. ) In East Asia, various efforts to establish broad regional economic partnerships are being made in a multi-layered manner through the following frameworks: ASEAN+1 (as mentioned earlier), ASEAN+3 (ASEAN plus Japan, China and the Republic of Korea), and ASEAN+6 (ASEAN+3 plus India, Australia and New Zealand). (See ➂ (d), (i) (ii) below) In the Asia-Pacific region, a comprehensive quadripartite agreement among New Zealand, Singapore, Brunei and Chile (Trans-Pacific Strategic Economic Partnership (TPP)) came into effect in November Because of the progress of efforts regarding regional integration in the regions of the American States, East Asia, Oceania, and so on, the Best Practices for FTAs was adopted at the APEC Ministerial Meeting held in November FTAs entered into by the APEC 662

5 member countries are expected to be consistent with both APEC s principles and the WTO Agreements (featuring comprehensiveness, transparency, trade facilitation, and the like). In addition, in November 2006, a plan to establish a free trade area in the Asia-Pacific region (FTAAP) was proposed at the APEC Economic Leaders Meeting, stimulating discussions on regional economic integration in the area. In 2007, methods for promoting regional economic integration were reported to the APEC leaders and they agreed to examine existing bilateral and multilateral FTAs in the Asia-Pacific region. In the following year, a progress report was submitted to the APEC summit in Regarding the TPP, the United States announced in September 2008 that it would expand the scope of negotiations to all fields, and Australia and Peru announced their intention to take part in negotiations at a meeting of APEC leaders held in Peru in November. Later, Vietnam expressed its intention to participate in the negotiations in the future. (2) Summary of Major Regional Integration and Trends in Individual Countries 1) The Americas (a) Overview of the North American Free Trade Agreement ( NAFTA ) NAFTA, the regional FTA between Canada, the United States and Mexico), was signed in December 1992 and came into effect in January This agreement provides for the regulation of commerce in goods and services (including the elimination of intra-regional tariffs and quantitative restrictions, and the unification of rules of origin), and rules in respect of investment, intellectual property, and competition policies. NAFTA has been reinforcing relationships with Latin American countries. All three NAFTA member countries have entered into FTAs with Chile. (b) Overview of the Free Trade Area of the Americas (FTAA) The idea behind the FTAA is to establish a free trade area among the 34 countries in the Americas (excluding Cuba). These countries negotiated with the aim of concluding an agreement by December Negotiations progressed slowly because Brazil opposed the treatment of investment, intellectual property rights, labor, the environment, and other areas supported by the United States, and because the United States opposed the elimination of agricultural subsidies, which MERCOSUR/MERCOSUL demanded, claiming that this should be dealt with under the WTO framework. At the Miami Ministerial Conference in November 2003, the FTAA participant countries agreed to aim for the conclusion of FTAA Light, which was to provide for minimal obligations to be applied commonly to all the agreeing countries, and required individual negotiation between countries for liberalization beyond such requirements. However, the discussions regarding the negotiation method for FTAA Light reached a deadlock at the 17th Trade Negotiations Committee in February 2004, and were suspended. No substantial negotiations have been conducted thereafter. At the Summit Implementation Review Group (SIRG) of the Summit of the Americas (34 American countries excluding Cuba) held in Mar del Plata in November 2005, MERCOSUR/MERCOSUL opposed promotion of the FTAA stating that there were differences in economic strength within the Americas, and therefore the conditions necessary 663

6 for a fair FTAA did not exist. Venezuela also rejected the idea of an FTAA and insisted that a program different from the FTAA should be pursued. Consequently, FTAA negotiations have ceased, and it is unknown if or when they will restart. (c) Overview of the Southern Cone Common Market (MERCOSUR/MERCOSUL: Mercado Comun del Sur/Mercado Comun du Sul) MERCOSUR/MERCOSUL, which came into effect in January 1995, is a customs union of five countries - Brazil, Argentina, Uruguay, Paraguay, and Venezuela. Venezuela was required to adopt the common external tariff and to eliminate its intra-regional tariffs. It entered into the Acuerdos de Complementación Económica (Economic Complementarity Agreements) with Chile and Bolivia in 1996, with Peru in 2003, and with Colombia and Ecuador in 2004, each such country being an associate member of MERCOSUR/MERCOSUL. There is currently an initiative to include Mexico as an associate member of MERCOSUR/MERCOSUL. With respect to the integration of MERCOSUR/MERCOSUL, Uruguay and Paraguay have expressed dissatisfaction with the imbalance within the region, stating that they have not been able to enjoy the benefits of MERCOSUR/MERCOSUL. Uruguay is independently seeking FTAs with the United States, China, India, and others. Furthermore, taking into account Venezuela s entry into MERCOSUR/MERCOSUL, which appears primarily politically motivated, MERCOSUR/MERCOSUL is now facing questions of how it should maintain, expand, and cultivate integration. FTA negotiations between MERCOSUR/MERCOSUL and the EU reached a deadlock with respect to the treatment of agricultural products, but at the EU-Mercosur Ministerial meeting of September 2005 it was agreed that the negotiations would continue. However, no substantial negotiations have occurred. Many believe that this situation exists because both sides decided to watch the progress of the agricultural negotiation in the WTO rather than continue the FTA negotiations. MERCOSUR/MERCOSUL and the Andean Community entered into an FTA in December 2003, and at the MERCOSUR/MERCOSUL summit meeting in June 2005, it was confirmed that members of each agreement would treat the members of the other agreement as associate member countries, reinforcing the South American common market. In addition, an FTA negotiation between MERCOSUR/MERCOSUL and Israel has been underway since December 2007, and efforts for possible future FTA negotiations are being made through Preferential Trade Agreements (PTAs) negotiations and cooperative research with China, the Republic of Korea, India, Pakistan, the Gulf Cooperation Council ( GCC, the members of which are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates), Egypt, Morocco, Canada, Mexico, Panama, Cuba, the Commonwealth of Dominica, the Central American Integration System ( SICA - Sistema de la Integración Centroamericana; comprised of Guatemala, El Salvador, Costa Rica, Nicaragua, Honduras, Panama, and Belize), and the Caribbean Community ( CARICOM ; comprised of 14 Caribbean countries and one region). With respect to MERCOSUR/MERCOSUL s member countries relationships with Japan, at its 11th meeting in May 2005, the Japan-Brazil Economic Cooperation Committee released a Joint Communiqué regarding the establishment of a joint workshop for a Japan- Brazil EPA. The economic organizations of both countries (Nippon Keidanren (Japan Business Federation) and Brazilian National Confederation of Industry) agreed to make efforts to execute a Japan-Brazil EPA. The Japan-Argentina FTA workshop of the Japan 664

7 Chamber of Commerce and Industry in Argentina and the Japanese Commission of the Japan- Argentina Economic Commission submitted a request for early execution of the Japan- MERCOSUR/MERCOSUL FTA to the Japanese government in March (d) Overview of the Andean Community ( CAN - Comunidad Andina) The Andean Community, established in 1996 by a reorganization of the Andean Subregional Integration Agreement (which came into effect in 1969), is a customs union consisting of: Colombia, Peru, Bolivia and Ecuador. Venezuela announced its withdrawal in April 2006, but the commerce-related system has remained in force and continues to apply to Venezuela for five years from the date of its withdrawal. MERCOSUR countries (Argentina, Brazil, Paraguay and Uruguay) joined the CAN as associate members in July Chile joined the CAN as an associate member in September Colombia, Bolivia and Ecuador eliminated intra-regional tariffs by Peru commenced reductions of tariffs in 1997 and achieved complete elimination thereof at the end of December The free trade area started in January Under CAN, a new common external tariff with four levels was planned to be applied by 2004, but the discussion temporarily stalled due to conflicting interests among the member countries, and due to Colombia, Peru, and Ecuador conducting FTA negotiations with the United States. Agreement was reached to suspend the implementation of common external tariffs until January 31, In June 2006 at their summit, the four member countries of CAN signed a letter addressed to the head of EU, requesting the commencement of negotiations for an EPA; and they have been conducting negotiations for conclusion of an FTA since September In November of 2006, Colombia signed FTAs with the United States and in February 2009 the Peru-U.S. FTA came into force. However, Ecuador s negotiations with the United were suspended due to the cancellation of a concession agreement with a United States petroleum company, which occurred in May (e) Major Movements of Countries Regarding Regional Integration (i) United States Prior to the establishment of the Trade Act of 2002 (which included Trade Promotion Authority (TPA)), the U.S. had entered into only two FTAs (Israel in 1995; and Jordan in 2000) and the North America Free Trade Agreement (NAFTA). Since then, the U.S. has signed FTAs with Chile, Singapore, Australia, Morocco and Bahrain. This trend has been accelerating following the failure to reach an interim agreement on the Doha Development Agenda at the Cancun WTO Ministerial Conference in September The United States does not consider FTAs merely from the economic viewpoint of trade liberalization, but also as tools to establish political alliances both to support countries emerging from poverty and to conduct economic reform and implement security and anti-terrorism measures. The United States has shown its intention to enter into FTAs on a global scale, covering areas such as Latin America, Asia/Oceania, the Middle East and Africa. The United States, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua signed the CAFTA-DR in August FTAs with the six countries are now in force as the FTA with Costa Rica came into effect in January

8 Negotiations were completed with respect to an FTA with Oman in January With respect to FTAs with the Andean countries, the FTA with Peru was signed on April, 2006; and the FTA with Colombia was signed in November Negotiations with Ecuador were suspended in May The U.S. completed negotiations for FTA s with Panama and the Republic of Korea in All are currently pending Congressional approval. The following FTAs are under negotiation: the FTAA (the 34 countries of the Americas, excluding Cuba); the Southern African Custom Union (Botswana, Lesotho, Namibia, South Africa, and Swaziland); and FTAs with Thailand, Malaysia and the United Arab Emirates. In November 2006, the United States proposed the establishment of a free trade area in the Asia Pacific region (FTAAP), and in September 2008 the country announced that it would launch negotiations to participate in the Trans-Pacific Strategic Economic Partnership (TPP: Singapore, New Zealand, Brunei, Chile) in all fields(see 3) (d), (iii) for FTAAP trends). President Barack Obama announced his involvement in the TPP in November 2009, and notified the Congress of the start of negotiations in December. The first negotiation meeting is slated for March (ii) Mexico In addition to the Japan-Mexico EPA, which came into effect in April 2005, Mexico has entered into FTAs with the United States, Canada, the EU (see the section referring to the EU), EFTA, Israel, and some Latin American countries. Mexico also agreed with the Republic of Korea to complete a Strategic Economic Complementation Agreement in September The two countries began negotiations in February 2006 but failed to make progress in three rounds of negotiations that ended in June 2006, as the Republic of Korea was focusing on its FTA negotiations with the United States. However, after the inauguration of the new government led by President Felipe Calderon in December 2006, Mexican trade policy has become more open and in August 2007 Mexico and the Korea announced that they have agreed to upgrade the Strategic Economic Complementation Agreement and to commence negotiations for conclusion of an FTA. (iii) Chile Chile has FTAs in effect with Canada, Mexico, Costa Rica, El Salvador, the EU, the United States, the Republic of Korea, EFTA, China, Panama, Peru and Colombia, Australia; an economic framework agreement with the EU and the P4 (Singapore, New Zealand and Brunei), and Economic Complementarity Agreements or partial tariff agreements with other Latin American countries and India. Chile signed an FTA with Turkey in July 2009 and has also commenced negotiations with Malaysia and Vietnam. Negotiation for entering into an EPA with Japan commenced in February 2006 and an agreement in such respect was signed by Chile and Japan in March 2007 and came into effect in September the same year. 2) Europe (a) Overview of the European Union (EU) The EEC, which was established in January 1958 by the Treaty of Rome, aimed to establish a common market, and led to a customs union and common agricultural policy by 666

9 1968. Following the elimination of intra-regional barriers to trade and liberalization of the movement of goods, persons, services and capital, the Treaty of Maastricht (which promotes economic/currency integration as well as integration in political phases) came into effect in November 1993, and the European Union ( EU ) (consisting of 12 countries) was born. In January 1995, Austria, Finland, and Sweden joined the EU and the number of member states became 15. In addition, the Treaty of Amsterdam and the Treaty of Nice, which were amendments to the Treaty of Maastricht, came into effect in May 1995 and February 2003, respectively. Ten countries, mainly from Central and Eastern Europe (Poland, Hungary, Czech, Slovakia, Slovenia, Estonia, Lithuania, Latvia, Cyprus, and Malta), joined the EU and became official member states thereof in May Negotiations for the membership of Croatia and Turkey commenced in October Romania and Bulgaria joined the EU and became member states thereof in January 2007, bringing the EU to a 27 country regime. As part of the steadily expanding EU, the Treaty Establishing the Constitution for Europe was adopted in 2004 with the purpose of maintaining forward momentum and deepening integration. In October of the same year, that Treaty was signed by all EU member states. Each member state was then to ratify the Treaty, subject to its domestic laws, but referendums in France and the Netherlands rejected ratification of the Treaty. Accordingly, in June 2007, member states agreed to draft a Reform Treaty which basically maintains the content of the Constitution of Europe while excluding elements peculiar to a Constitution. At the informal European Summit in June 2007 the Reform Treaty was adopted. The Treaty came into effect on December 1, 2009 after going through the process of ratification by all member countries. (b) Trends of the EU Regarding New FTAs The EU has actively promoted FTAs with neighboring countries. In January 1994, the EU established the European Economic Area ( EEA ) with the EFTA Member States (Norway, Iceland and Liechtenstein, excluding Switzerland), and then non-member states of the EU Sweden, Finland, and Austria, with the intention of reinforcing and expanding cooperation in the areas of free movement of persons, goods, capital, and services; research and development; environment; and so forth. This was broader in scope than a free trade area. The EU is increasing its efforts to reinforce economic relationships with the Mediterranean countries. To replace the agreements entered into in the 1970s, the EU is advancing negotiations for new FTAs with the Mediterranean countries. These agreements will provide for trade liberalization, and liberalization of investment and services. The EU is aiming to establish a free trade area with the Mediterranean countries by There is also a trend to establish regional cooperation relationships in wide areas with member countries other than neighboring Member countries. The EU and the 77 countries of the African, Caribbean and Pacific states (the ACP states) entered into the Cotonou Agreement in June It replaced the Lomé Convention, through which the EU had maintained economic assistance relationships with the ACP states since The purpose of the Cotonou Agreement, which consists of an FTA and a Generalized System of Preferences (GSP), was to form a new cooperative relationship between the EU and the ACP states. Pursuant to this agreement, negotiations between the EU 667

10 and the regional integration groups within the ACP states (four regions in Africa, the Caribbean region, and the Pacific countries region); commenced in September There are plans to maintain and reinforce several regional integrations within the ACP, to enter into EPAs with integrated regions by the end of With respect to Latin American countries, the EU-Mexico FTA, which also includes political cooperation came into effect in July This is a comprehensive agreement including intellectual property rights, governmental procurement, competition, and investment. In the area of market access, non-agricultural products are fully liberalized, and services are mostly liberalized (except for audiovisual services, air transport services, and marine transport services). However, the liberalization schedule varies depending on the sensitive nature of the domestic industry. The schedule also reflects the divergent level of economic development of the EU and Mexico. Since Mexico is a member country of NAFTA, the Mexico-EU FTA allowed the EU to gain a foothold, not only in Latin America, but also in NAFTA. On the other hand, Mexico can now reduce excessive dependence on the United States, as well as expect further expansion of trade and investment, serving as a trade hub, by entering into FTAs with two large markets (the United States and the EU). An economic framework cooperation agreement between Mexico and Chile, including an FTA, came into effect in November The EU and MERCOSUR/MERCOSUL signed the Inter-regional Framework Cooperation Agreement, with a view to preparing for an EU-MERCOSUR FTA, which aims at comprehensive political and economical partnership including improvement of the legal environment for promoting both technical cooperation and investment. The agreement came into effect in December Because of a significant difference in opinion regarding opening the agricultural products market, negotiations came to a temporary deadlock. At the EU-Mercosur Ministerial meeting of September 2005, the two sides agreed to continue negotiations. While the EU requests MERCOSUR/MERCOSUL to make larger concessions on investment and services, MERCOSUR/MERCOSUL requests the EU to further open the markets for agricultural and food products. The EU and the GCC commenced FTA negotiations in At the EU-GCC Ministerial meeting in 2005, it was agreed to accelerate negotiations by: (i) focusing on the areas of trade in services, import duties on industrial goods and public procurement; and (ii) conducting negotiations in a Single Undertaking method, which requires agreement in all areas for settlement. As for Asian countries, the EU put high priority on FTA negotiations with Korea, ASEAN and India in the Global EUROPE competing in the world, which mentioned foreign strategy of European Committee in October With respect to India, at the EU- India Summit held on October, 2006, the EU endorsed commencing negotiations for a comprehensive trade and investment agreement. With respect to ASEAN, the EU commenced negotiations in May 2007 but suspended them in March 2009 and instead shifted to bilateral negotiations with individual countries, starting with Singapore in December (See 3. Efforts in Japan for Japan-EU trends). With Canada, the EU commenced negotiations in October 2009, following an agreement on the start of negotiations at an EU-Canada summit meeting in May

11 3) Asia (a) Overview of the ASEAN Free Trade Area (AFTA) AFTA, a free trade area covering the 10 member countries of the ASEAN, has now been virtually established. It was agreed upon at the ASEAN Summit of January Tariff reduction commenced in January Pursuant to the Common Effective Preferential Tariff (CEPT) framework, the plan was to gradually reduce the intra-regional tariff, from 0-5% over the next 10 years, and eliminate quantitative restrictions for CEPT products, both by However, at the ASEAN Summit in December 1998, it was agreed to expand the scope of CEPT products and to accelerate the reduction of intra-regional tariffs on CEPT products by one year (from 2003 to 2002). Subsequently, at the AFTA Council in September 2002, the target to reduce the intra-regional tariff for the Philippines, Thailand, Malaysia, Singapore, Brunei and Indonesia (the ASEAN-6) was achieved on January, The ASEAN Industrial Cooperation (AICO) scheme came into effect in November 1996, preceding the CEPT. Under this system, 0-5% preferential tariff rates were mutually applied to trade between two or more countries within the region with respect to products which the member countries authorized as AICO Products that met certain conditions (including a minimum 30% national equity requirement (for manufacturers) and a minimum 40% ASEAN country local content requirement). At the ASEAN Economic Ministerial Meeting in 2002, Brunei, Cambodia, Indonesia, Malaysia, and Singapore agreed to reduce the AICO tariff rate to 0% by January In April 2004 at the ASEAN Economic Ministerial Meeting, a protocol was signed and the process for implementation is currently underway in each member country of the ASEAN. Additionally, at the ASEAN Summit and the ASEAN Economic Ministerial Meeting held in 1999, the following were declared for the first time: targets to eliminate intra-regional tariffs among the ASEAN-6 by 2010, and to eliminate them among the remaining four countries of the ASEAN (Cambodia, Laos, Myanmar and Vietnam) by At the ASEAN Summit held in November 2004, with a view to establishing the ASEAN Economic Community (AEC), it was agreed that out of 11 priority sectors (wood-based products, automotives, rubber-based products, textiles and apparel, agro-based products, fisheries, electronics, IT, healthcare, air travel and tourism), intra-regional tariffs for the nine manufacturing business sectors (i.e., those other than air travel and tourism) would be eliminated by 2007 for the original member countries of the ASEAN, and by 2012 for the new member countries. This accelerated the original plan by three years. Furthermore, at the ASEAN Economic Ministerial Meeting held in September 2005, it was agreed to complete liberalization by 2015 in all service areas. With respect to the ASEAN economic integration, it was agreed in 2003 to establish the ASEAN Economic Community by At the ASEAN Summit in January 2007, it was agreed to accelerate the establishment of an ASEAN Community, including an economic community, by changing the deadline to The legally binding ASEAN Charter was signed at a meeting of ASEAN leaders in November 2007 and it came into effect in December While maintaining the principle of consensus, which so far has resulted in the characterization of ASEAN as a loose association, the EU and ASEAN agreed to take flexible approaches with respect to economy-related issues. In February 2009, the ASEAN Trade in Goods Agreement (ATIGA) was signed, replacing CEPT agreements. The ASEAN 669

12 Comprehensive Investment Agreement (ACIA), which integrated and revised the ASEAN Agreement on the Promotion and Protection of Investments (IGA) and the ASEAN Investment Region Framework Agreement, was also signed in February In 2010, intraregional tariffs among six ASEAN countries were totally eliminated. (b) Recent Events Related to the ASEAN (Efforts of ASEAN+1 ) Recently, in addition to the United States, the EU and Japan, China, the Republic of Korea, India, and Australia and New Zealand (ANZ-CER) are also actively working to enter into FTAs/EPAs with the ASEAN in order to revitalize their respective economies by benefiting from the ASEAN s growing economic power. (i) China-ASEAN FTA At the summit between China and the ASEAN countries leaders held in November 2000, Premier Zhu Rongji proposed a China-ASEAN FTA. At a subsequent meeting in November 2001, it was agreed to: 1) build an economic cooperation framework between China and the ASEAN, and establish a China-ASEAN Free Trade Area (FTA) within 10 years; and 2) conduct consultations to determine the items in respect of which liberalization measures would be accelerated ( early harvest measures). Working-level meetings commenced in January 2002, and in June of the same year discussions were held by the Trade Negotiation Committee. In November 2002, the Framework Agreement on Comprehensive Economic Co-operation was signed. It included the establishment of a China-ASEAN FTA within 10 years. The framework agreement became effective in July, In November 2004 China and the ASEAN, signed an agreement on the liberalization of the trade in goods provided for in the Framework Agreement on Comprehensive Economic Co-operation. Tariff reduction commenced in July In June 2007, the China-ASEAN FTA on Trade in Service signed in January 2007 came into effect. China also signed China-ASEAN Investment Agreement in August Korea ) (ii) Korea-ASEAN FTA (references to Korea refer to the Republic of The Korea-ASEAN FTA Experts Group Meetings were held from March until August of Later, at the Korea-ASEAN Summit in November 2004, it was agreed to commence negotiations with a view to eliminate tariffs on 80% of all products by January 1, 2009 (separately set for Cambodia, Laos, Myanmar and Vietnam). Following eight rounds of negotiations that began in February 2005, the Framework Agreement on Comprehensive Economic Cooperation was signed at the Korea-ASEAN Summit in December Also, the Agreement on Dispute Settlement Mechanism was signed at the Korea-ASEAN Economic Ministerial Conference, which was held during the same period. Apart from this, the ASEAN countries (excluding Thailand) and the Republic of Korea agreed on a tariff reduction method for the FTA on goods and started reducing tariffs in June The ASEAN countries (excluding Thailand) and the Republic of Korea also signed services trade agreements in November Thailand and the Republic of Korea signed a protocol concerning agreements on trade in goods in February 2009 and signed an investment agreement in June. 670

13 (iii) India-ASEAN FTA In November 2002, at the first summit between the ASEAN and India, it was agreed to reinforce economic cooperation and to set liberalization of trade and investment as a longterm objective. They established an intergovernmental task force, signed a Framework Agreement in October Although negotiations over the number of products exempted from liberalization by India deadlocked at one point, India and ASEAN reached an agreement in August 2008 and signed the agreement in August The agreement came into effect in January India and ASEAN are also conducting negotiations in the area of investment and services. (iv) Australia-New Zealand (ANZ-CER)-ASEAN FTA At the ASEAN-CER Economic Ministerial Meeting in September 2002, Australia-NZ (CER) and ASEAN signed the AFTA-CER CEP Joint Ministerial Declaration. (The agreement did not include an FTA between the parties.) Establishment of the framework to promote trade, investment, and regional economic integration was agreed to by the ASEAN and CER and it was agreed that by 2010, cooperate in each field with the purpose of doubling the trade and investment between the ASEAN and CER. At the ASEAN-Australia and New Zealand Commemorative Summit held in November 2004, it was agreed to commence negotiations for an FTA between the ASEAN and Australia-NZ. Negotiations commenced in February In August 2008, ASEAN and Australia/New Zealand reached an agreement on FTA including services, investment, and intellectual property, in addition to goods, and signed the FTA in February The FTA came into effect in January (c) Major Movements of Countries Aiming for Regional Integration (i) Singapore Singapore is aggressively pursuing the objective of entering into FTAs/EPAs. The FTAs/EPAs it has entered into include New Zealand (January 2001), Japan (November 2002), EFTA (January 2003), Australia (July 2003), the United States (January 2004), Jordan (August 2005), India (August 2005), the Republic of Korea (March 2006), Panama (July 2006) Peru(August 2009) China(January 2010). The country has also concluded a Trans-Pacific Strategic Economic Partnership (TPP) with Brunei, New Zealand and Chile (New Zealand in May 2006, Brunei in July 2006, and Chile in November 2006). It signed an FTA with the Gulf Cooperation Council (GCC) in December 2008 and is conducting negotiations with Pakistan, Canada, Ukraine and India. However, negotiations with Mexico remain suspended. Singapore agreed to commence negotiations with Egypt and Cost Rica, but has yet to do so. (ii) Thailand Thailand has been active in reinforcing economic partnerships with many countries. In July 2004, Thailand signed an agreement with Australia, which came into effect in January An agreement with New Zealand came into effect in July 2005 and with Japan came into effect in November Thailand has entered into framework agreements with Bahrain, Peru and India. However, the agreement with Bahrain was derailed as the GCC did not allow Bahrain to conduct FTA negotiations singlehandedly. Negotiations with Peru are 671

14 underway (the Early Harvest (EH) portion has already been signed), and plenary negotiations with India are underway (the Early Harvest (EH) has already been implemented). Thailand also commenced negotiations with the United States (June 2004) and EFTA (October 2005). (iii) Malaysia Following the commencement of EPA negotiations with Japan in January 2004, Malaysia has been promoting efforts for EPA negotiations. The FTA/EPA with Japan came into effect in July 2006, and that with Pakistan in January Malaysia commenced negotiations with New Zealand in March 2005 and signed an agreement in October The agreement is expected to come into effect in The country has also commenced FTA negotiations with Australia (May 2005), the United States (June 2006), Chile (June 2007), and India (February 2008). It is taking part in efforts being made by the ASEAN as a whole. (iv) The Republic of Korea In order to respond efficiently to the trend of FTA/EPA expanding worldwide, the Republic of Korea established the FTA Roadmap in 2003 and confirmed its policy to promote high-level FTAs covering comprehensive areas such as tariff elimination, service investment, intellectual property rights and government procurement at the same time with different countries. The Republic of Korea accelerated the execution of its FTAs/EPAs by establishing an FTA Bureau under the Ministry of Foreign Affairs and Trade in December 2004 for the purpose of efficiently responding to the global proliferation of FTAs/EPAs. Accordingly, from 2005, it was simultaneously negotiating FTAs/EPAs with numerous countries and regions. At present, the Republic of Korea has signed FTA/EPAs with three countries (Chile, Singapore, and India) and 2 regions (EFTA, ASEAN) already have entered into force, signed FTA/EPA with the United States, and provisionally signed FTA/EPA with the EU. Negotiations commenced with the United States in June 2006 and arrived at an agreement in April Although the agreement was signed in June the same year, it has yet to be ratified due to a difference of opinions within the United States. The Republic of Korea commenced negotiations with the EU in May 2007 and signed an interim agreement in October The agreement is expected to come into force by the end of The country commenced negotiations with India in March 2006 and signed an agreement in August The agreement came into effect in January Besides Japan, with which negotiations remain suspended, the Republic of Korea has been conducting negotiations with Canada, Mexico, the GCC, Peru, Australia, New Zealand and Colombia. The country has agreed on joint studies or agreed to start joint studies with four countries (China, Turkey, Russia and Israel) and three regions (Japan-China-Korea, MERCOSUR and SACU). (v) China China aggressively promotes the reinforcement of economic partnerships with many countries and regions. To date, China has concluded FTAs between Hong Kong (June 2003), Macao (October 2003), ASEAN (November 2004), Chile (November 2005), Pakistan (November 2006), New Zealand (April 2008), Singapore (October 2008) and Peru (April 2009) (dates in parenthesis reflect month of signature). In April 2008, China concluded an 672

15 FTA with New Zealand after 15 rounds of negotiations. It was the first FTA that China concluded with an advanced country. China has been conducting negotiations with SACU (the Southern African Customs Union), GCC (Gulf Cooperation Council), Australia, Iceland, Costa Rica, and Norway. The country has completed joint studies regarding the possibility of an FTA with India, and has been conducting intergovernmental studies and industrygovernment-academia joint research with the Republic of Korea and Switzerland. Japan, China and the Republic of Korea have agreed to commence joint research. (vi) India India entered into the Framework Agreement on Comprehensive Economic Cooperation with ASEAN, and commenced FTA negotiations in October India entered into a similar agreement with Thailand, commenced FTA negotiations simultaneously, and conducted an early harvest with respect to 82 specified products in September The CECA between India and Singapore came into effect in August The South Asian Association for Regional Cooperation (SAARC) Summit was held in January 2004, and the seven member countries signed the South Asian Free Trade Area ( SAFTA ) framework agreement. This agreement came into effect in January It provides for establishing a South Asian Free Trade Area by 2016 (discussed later). India concluded a comprehensive economic partnership agreement (CEPA) with Sri Lanka in July The country also concluded an FTA with the GCC; FTA framework agreements with South Africa, SACU (South AFRICAN CUSTOMS Union), and BIMSTEC (discussed later); and PTAs (preferential tariff agreements) with MERCOSUR/MERCOSUL, Afghanistan and Chile. In addition, India held workshops for FTAs/EPAs with Australia and Russia, and agreed to hold FTA/EPA workshops with Egypt. In January 2008, India concluded a workshop with China. India began CEPA negotiations with the Republic of Korea in March 2006, and signed an agreement in August The India-Korea CEPA came into effect in January India has been negotiating for a CEPA with the EU since June India also commenced EPA negotiations with Japan in January 2007 (see the section, Efforts in Japan ). (vii) Australia Australia has been actively promoting FTA negotiations with other countries, and has so far concluded and put into effect FTAs with New Zealand, Singapore, the United States, Thailand, Chile and ASEAN-NZ. Currently, the country is in the process of negotiating with Japan, China (negotiations started in May 2005), the Republic of Korea (negotiations started in May 2009), and Malaysia (negotiations started in May 2005). Australia has implemented joint study programs with India and Indonesia. In November 2008, Australia announced its participation in the Trans-Pacific Strategic Economic Partnership(TPP) aimed at 100% elimination of tariffs by (viii) New Zealand New Zealand has so far signed FTAs with Australia, Singapore, Thailand, China and ASEAN-Australia. The country also put into effect TPP with Singapore, Brunei and Chile. New Zealand signed an FTA treaty with Malaysia in June 2009, and agreed to conduct 673

16 negotiations with the GCC in October 2009 and Hong Kong in November In June 2009, the country commenced negotiations with the Republic of Korea. (ix) SAFTA In January 2004, the South Asian Association for Regional Cooperation (SAARC) Summit was held, and the SAFTA Framework Agreement was signed by seven member states (India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan, and Maldives). This agreement came into effect in January Under it, the Non-LDC states (India, Pakistan, and Sri Lanka), were to reduce the maximum tariff rates to 20% by the end of 2007 except in respect of certain exceptional items. The least developed countries ( LDC states) similarly were to reduce maximum tariff rates to 30%. The agreement states that the member states will establish a South Asian free trade area by 2016, under which the maximum tariff rates will be reduced to 0-5%. (x) BIMSTEC BIMSTEC is comprised of seven countries: Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal, and Bhutan. In February 2004, the FTA Framework Agreement was entered into by all member countries except Bangladesh, and in June of the same year was signed again, with Bangladesh included. BIMSTEC planned to commence tariff reduction in July (d) Broad Regional Economic Partnerships in East Asia/Asia Pacific Region In the Asia Pacific region (with East Asia being the center), various efforts to establish broad regional economic partnerships are being made in a multi-layered manner through the following frameworks: ASEAN+1 (as mentioned earlier), ASEAN+3 (Japan, China, the Republic of Korea and ASEAN), ASEAN+6 (ASEAN+3, India, Australia and New Zealand), and APEC (Asia-Pacific Economic Cooperation). (i) East Asian Community (ASEAN+3 and ASEAN+6) The trend of economic integration and political cooperation in East Asia was triggered by the East Asia Economic Centre ( EAEC ) framework proposed by Malaysia in In 1997, the year of Asia s financial crisis, the first ASEAN+3 Summit was held; thereafter it was established as a standing summit. At the third ASEAN+3 Summit, the Joint Statement on East Asia Cooperation, which provided for the basic policy for future cooperation in East Asia, was issued. The East Asia Vision Group ( EAVG ) was formed to advise the ASEAN+3 Summit with respect to institutionalization for the purpose of establishing an integrated East Asian community. In 2002, the East Asia Study Group ( EASG ) advised on specific measures, including 17 measures which should be achieved in the short term and 9 measures which should be achieved in the medium and long term. Thus, the impetus to establish the East Asian Community grew. The Tokyo Declaration was adopted at the ASEAN-Japan Commemorative Summit held in It confirmed the intention to deepen cooperation for the establishment of the East Asian community as one of the common strategies between Japan and the ASEAN. 674

17 In December 2005, pursuant to the agreement at the ASEAN+3 Summit of the preceding year, the first East Asia Summit ( EAS ) was held with the ASEAN+6 as participating countries. A joint declaration was issued at the summit confirming, that the EAS would be convened regularly and that it would play a significant role in establishing a community in this region (the third EAS was held in November 2007). The ASEAN+3 Summit was also held, and in its joint declaration, stated that ASEAN+3 was the main vehicle for establishing the East Asian Community. In the discussion at the EAS, Japan and Singapore insisted that both the EAS and the ASEAN+3 are important vehicles through which to establish the East Asian community. In the fourth EAS held in October 2009, the participants welcomed the decision made at a meeting of economic ministers to conduct intergovernmental discussions and studies on the results of private research on the Comprehensive Economic Partnership in East Asia (CEPEA). (ii) East Asian Economic Integration (EAFTA, CEPEA, ERIA) The EASG report mentions the East Asia Free Trade Area ( EAFTA ) as a goal to be met in the medium to long term. In April 2005, based upon China s proposal, research regarding the feasibility of EAFTA by experts of the ASEAN+3 commenced. In July 2006, they completed a report stating that discussions between governments should be launched in order to establish an FTA for the ASEAN+3. At the ASEAN+3 Economic Ministers Meeting held in August 2006, many representatives of the member countries expressed the view that discussions between governments were premature, and at the ASEAN+3 Summit held in January 2007, it was decided that further research should be undertaken by experts. The research began in May 2007 and its progress was reported to the ASEAN+3 Summit held in November 2007 and ASEAN+3 Economic Ministers Meeting held in August A final report was submitted to the ASEAN+3 Economic Ministers Meeting held in August An agreement was also reached to submit the final report to ASEAN leaders and to propose that they commence inter-governmental discussions on proposals made by experts. In October the same year, a final report was submitted to the meeting of ASEAN+3 Summit, where the leaders welcomed the decision made at the Economic Ministers Meeting to start discussions between governments on private research proposals. With respect to the ASEAN+6, firmer connections in the form of actual economic conditions (such as rapidly increasing trade within the region, and expansion of a transnational production network) have been established. There is a strong impetus to attempt institutionalization of such economic conditions, and efforts towards FTAs/EPAs between the ASEAN and Japan, China, the Republic of Korea, India, Australia and New Zealand are progressing. Because it is able to attempt broad regional economic partnerships based on such FTAs/EPAs, in August 2006, Japan proposed a study to be conducted on the Comprehensive Economic Partnership in East Asia ( CEPEA, an East Asian EPA) by the ASEAN+6. With respect to the commencement of research by experts, which was agreed upon by the leaders of the Second EAS held in January 2007, six rounds of meetings were held by June 2008 and a report was compiled. With respect to the agreement to continue research, which was agreed upon at the ASEAN+6 Economic Ministers Meeting in August 2008, the study group met four times during the period from November 2008 to July A final report was submitted to the ASEAN+6 Economic Ministers Meeting in August 2009 and an agreement was reached, as in the case of EAFTA, to submit the final report to the ASEAN leaders and to propose that they commence inter-governmental discussions on the experts 675

18 proposals. At the meeting, in keeping with the move towards the economic integration of East Asia, Japan proposed holding workshops on rules of origin, and the ministers present at the meeting expressed their approval of the plan. In the fourth EAS, held in October 2009, the leaders welcomed the decision by economic ministers to conduct inter-governmental discussions and studies on the results of private research on the Comprehensive Economic Partnership in East Asia (CEPEA). The decision represented a confirmation of their intention to shift the discussions to inter-governmental levels, in the same vein as discussions on the EAFTA proposal. Japan also proposed the establishment of the Economic Research Institute for the ASEAN and East Asia ( ERIA ), to provide support (such as policy proposals) regarding policies for the purpose of East Asia s sustainable growth. It was approved at the Second EAS. In the Third EAS held in November 2007, the leaders of participating countries formally agreed on the establishment of the ERIA. Based on the agreement, the ERIA held its inaugural meeting in June 2008 and commenced research activities in earnest. In the Fourth EAS held in October 2009, leaders expressed appreciation for ERIA s contribution to regional cooperation and called on the ERIA to collaborate with the ADB and ASEAN secretariats to accelerate the move toward the completion of a Comprehensive Asian Development Plan. ASEAN and East Asian EPA ASEAN is making efforts at FTAs/EPAs with Japan, China, Korea, India, and Australia and New Zealand. (iii) APEC (Asia-Pacific Economic Cooperation) APEC is a regional cooperation framework in Asia and the Pacific established in 1989 by countries led by Japan and Australia. At the Economic Leaders Meeting held in Bogor, Indonesia in 1994, APEC set as a goal ( Bogor Goal ) free and open trade and investment 676

19 among the industrialized economies by 2010 (and by 2020 for developing economies). FTAs are an effective measure to achieve the Bogor Goal. As a specific effort to improve the quality of FTAs within the region, model measures for FTAs have been developed to serve as a reference for FTA negotiations with regard to major areas of FTAs. (As of the end of 2009, 15 chapters had been completed.) Furthermore, at the Economic Leaders Meeting held in November 2006, it was agreed to consider methods for promoting regional economic integration (including an FTAAP) as a long-term objective. Since then, discussions concerning regional economic integration in APEC have progressed rapidly. At the Economic Leaders Meeting in 2007, a report on the results of the discussions was presented and the leaders agreed to conduct research on existing bilateral and multilateral FTAs. At the Economic Leaders Meeting in 2008, a progress report on the research was presented and the leaders agreed that work should continue. Japan, as the chair country of APEC, is scheduled to host a series of meetings in 2010, ranging from APEC summit and ministerial meetings to expert-level meetings. The meetings will provide a valuable opportunity for Japan to promote economic integration in the region. Therefore, Japan is required to contribute to the stability of the region by promoting economic integration not only in the field of goods and services but also in the field of funds, human resources, and information. Stratified Framework in Asia Pacific (iv) Trans-Pacific Strategic Economic Partnership (TPP) In 2005, Singapore, New Zealand, Chile and Brunei signed an Trans-Pacific Strategic Economic Partnership (TPP) agreement. The TPP is an FTA which is in principle designed to eliminate 100% of tariffs by It is equipped with wide-ranging provisions from services to intellectual property systems and cooperation. In March 2008, the United States took part 677