Sun, Mar 10, 2013 - Page 8 News List

Thinking strategically about FTAs

By Eric Chiou 邱奕宏

The global trade and investment landscape has changed dramatically in recent years. With the virtual demise of the Doha-round trade negotiations between WTO members, various regional and bilateral free-trade agreements (FTAs) have been on the rise.

This phenomenon reveals a noticeable trend that countries, either collectively or individually, are competing to sign FTAs with other countries to facilitate trade while attempting to gain strategic commanding heights in the global economy.

The latest news regarding the launch of a Transatlantic Trade and Investment Partnership between the US and the EU, as well as Japanese Prime Minister Shinzo Abe reaffirming Japan’s willingness to join the Trans-Pacific Partnership (TPP) negotiations, are vivid examples of this fierce race.

Some may be puzzled as to what drives countries to feverishly devote enormous effort to this FTA battle and why it gives such importance to a country’s economy, since the level of tariffs worldwide has been significantly reduced over the past decades.

The unspoken answer lies in that the scope and depth of the latest FTA negotiations, either bilateral or regional, have gone beyond the traditional concept of trade liberalization by reducing tariffs “on-the-border,” but convey a more profound and encompassing impact on “behind-the-border” issues.

As a result, newly initiated FTA negotiations are usually pledged to be “WTO-plus” or “21st-century” trade agreements, since these treaties not only include ambitious goals of eliminating all tariffs and no tariff barriers to trade and investment, but also contain wide-ranging issues, such as investment facilitation, regulatory coherence, protection of intellectual property rights, promotion of competition policy, government procurement, etc, topics not typically covered in FTA negotiations.

The ongoing TPP negotiations have demonstrated the extreme complexity of modern FTAs. It is believed that related subjects discussed in this negotiation process cover more than twenty chapters, outnumbering those of conventional FTAs, such as the North American Free Trade Agreement, and including numerous behind-the-border and next-generation issues, such as labor, environment, digital economy, state-owned enterprises, etc.

The overarching goals of the TPP indicate the US’ ambition to utilize it as an illustrated template to establish a new model in shaping the rules of the game in the global trade arena. This mindset has also been reflected in the US’ latest initiative in pursuing the transatlantic FTA with the EU.

As US President Barack Obama publicly announced in his State of the Union address last month, the Transatlantic Trade and Investment Partnership is designed to go beyond the classic approach of removing tariffs and opening markets to investment, services and public procurement, but instead places more emphasis on aligning regulations and technical product standards, which are widely regarded as the most significant hurdles to transatlantic trade.

Despite the multifaceted economic repercussions of FTAs, it is important to recognize that they are more than an economic instrument for a state to expand its commercial interests in other states. They also connote political and strategic meanings.

US FTA strategy, for example, is a prudently designed product of sophistication, broadly taking its domestic and overseas interests into account.

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