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Power of discourse in free trade agreement negotiation

  • Yan Wang (a1)

Abstract

This article illustrates the power of discourse in free trade agreement (FTA) negotiation, elucidating the concept from the perspective of a country’s abilities of rule control, rule assimilation and rule contestation. To enhance rule control, the G2 (the US and EU) have chosen their FTA partners, designed the FTA rules, and offered offensive-defensive exchange strategically. They have approached weak or trade-dependent parties first in FTA negotiation, innovated new rules to accelerate FTA negotiation, skillfully constructed intentional ambiguity and exemptions to remove rule discrepancies and made offensive-defensive exchange with their negotiating parties. Some of these strategies have been copied by China although in a different way. Further, a template approach for negotiating an FTA and exporting domestic laws and normative values to others contributes to the G2’s rule assimilation. A de facto FTA template has also been established by China recently, but its legal culture and political stance have led it to sign incomplete contracts and tolerate rule differences with its negotiating parties instead of transposition of domestic law. In facing the rival rules adopted by their competitors, the G2 have incorporated counteractive rules in their FTAs with their competitors’ close trading nations. China has also contested rules treating China as a non-market economy in its FTAs, but its stance toward state-owned enterprises (SOE) disciplines and rules forbidding forced technology transfer is milder due to its lack of experience in dealing with unfavourable rules.

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Copyright

Footnotes

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The article is funded by the National Social Science Fund of China (Grant no. 18FFX062) and Characteristic Innovative Project of Guangdong Provincial Department of Education (Grant no. 2017WTSCX030). Much gratitude is extended to the reviewers and editors of Leiden Journal of International Law.

Footnotes

References

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1 The Information Technology Agreement became one of the World Trade Organization’s covered agreements in 1997, and the Agreement on Basic Telecommunications became the fourth protocol of the General Agreement on Trade Services in 1998. The Trade Facilitation Agreement entered into force on 22 February 2017.

2 Fleury, J. S. and Marcoux, J. M., ‘The US Shaping of State-Owned Enterprise Disciplines in the Trans-Pacific Partnership’, (2016) 19 Journal of International Economic Law 445.

3 Wang, G., ‘China’s FTAs: Legal Characteristics and Implications’, (2011) 105 American Journal of International Law 498, 508; Z. Xiaotong, Z. Ping and Y. Xiaoyan, ‘The EU’s New FTA Adventures and Their Implications for China’, (2014) 48 Journal of World Trade 525.

4 See Working Report of the Fifth Plenary Session of the 18th Chinese People’s Congress, available at www.zx.chengdu.gov.cn/Item/110020187.aspx (accessed 15 December 2018).

5 Wang, Z., On Foucault [福柯] (1999), 182.

6 The article does not differentiate realism and neo-realism strictly, as it is not relevant regarding whether the power comes from the state or structure.

7 Katzenstein, P. J., Keohane, R. O. and Krasner, S. D., ‘International Organization and the Study of World Politics’, (1998) 52 International Organization 645, at 655.

8 Krasner, S. D., ‘Global Communications and National Power: Life on the Pareto Frontier’, (1991) 43 World Politics 336; S. Strange, ‘Cave! Hic Dragones: A Critique of Regime Analysis’, in S. D. Krasner (ed.), International Regimes (1983), 337, at 345.

9 Evans, T. and Wilson, P., ‘Regime Theory and the English School of International Relations: A Comparison’, (1992) 21 Millennium Journal of International Studies 329, at 330; J. J. Mearsheimer, ‘The False Promise of International Institutions’, (1994) 19 International Security 5, at 13.

10 See R. Gilpin, War and Change in World Politics (1981).

11 Abbott, K. W., Theory of International Politics (1979), 191; J. J. Mearsheimer, The Tragedy of Great Power Politics (2001), 56–7.

12 Abbott, K. W., ‘International Relation Theory, International Law, and the Regime Governing Atrocities in Internal Conflicts’, (1999) 93 AJIL 361, at 365.

13 Keohane, R. O., After Hegemony: Cooperation and Discord in the World Political Economy (1984), 67.

14 See Abbott, supra note 12, at 366.

15 See generally J. Nye, Soft Power: The Means to Success in World Politics (2004).

16 See generally R. Sil and P. J. Katzenstein, Beyond Paradigms: Analytic Eclecticism in the Study of World Politics (2010).

17 See Strange, supra note 8.

18 B. Allison, From Traditional to Institutionalized Hegemony, G8 Governance (February 2001), available at www.g8.utoronto.ca/scholar/bailin/bailin2000.pdf (accessed 20 February 2017).

19 Gilman, E., ‘Legal Transplant of Trade and Investment Agreements: Understanding of Exportation of U.S. Laws to Latin America’, (2009) 41 Georgetown Journal of International Law 263, 271.

20 Pedersen, T., ‘Cooperative Hegemony: Power, Ideas and Institutions in Regional Integration’, (2002) 28 Review of International Studies 677, 681.

21 See Keohane, supra note 13, at 19.

22 See Nye, supra note 15.

24 See the WTO database, available at rtais.wto.org/UI/PublicAllRTAList.aspx (accessed 30 November 2018).

25 See Pedersen, supra note 20, at 686.

26 See J. T. Gathii, ‘The Neoliberal Turn in Regional Trade Agreements’, (2011) 86 Washington Law Review 421, 422.

27 See K. N. Waltz, Theory of International Politics (1979); D. Baldwin (ed.), Neorealism and Neoliberalism: The Contemporary Debate (1993).

28 Gilpin, R., The Political Economy of International Relations (1987), 215–21. See also Mearsheimer, supra note 9, at 20; Pedersen, supra note 20, at 679.

29 Finnemore, M. and Sikkink, K., ‘International Norm Dynamics and Political Change’, (1998) 52 International Organization 887, 901.

30 Sunstein, C. R., ‘Social Norms and Social Roles’, (1996) 96 Columbia Law Review 903, 912.

31 Wunsch-Vincent, S., The WTO, the Internet and Trade in Digital Products: EC-US Perspectives (2006), 207.

32 US-Chile FTA, Art. 16.4.3.

33 US-Singapore FTA, Art. 12.3.

34 TPP, Art. 17.4.

35 Lester, S. and Mercurio, B., Bilateral and Regional Trade Agreements (2009), 54.

36 Pedersen, supra note 20, at 682.

37 See Lester and Mercurio, supra note 35, at 54.

38 Adlung, R. and Mamdouh, H., ‘How to Design Trade in Service Agreement: Top Down or Bottom Up?’, (2014) 48 Journal of World Trade 191, 197.

39 Kelsay, J., Serving Whose Interest: The Political Economy of Service Trade (2008), 56.

40 USMCA, Arts. 33.4, 33.5.

41 Siemens A.G. v. The Argentine Republic, ICSID Case No. ARB/02/8, Decision on Jurisdiction (3 August 2004).

42 Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Award (27 August 2009).

43 JEEPA, Art. 8.9; also see CETA, Art. 8.7.

44 The technique of ‘constructive ambiguity’ was first used by US Secretary of State Henry Kissinger in dealing with the Tai Wan issue in China-US Joint Communique in 1972. W. Isaacson, Kissinger: A Biography (1992), 481–2.

45 Messerlin, P. A., Siwek, S.E. and Cocq, E., The Audiovisual Sector in the GATS 2000 Negotiations (2004), 5, 11, available at core.ac.uk/download/pdf/6240250.pdf (accessed 5 July 2017).

46 Consolidated version of the Treaty on European Union and of the Treaty establishing the European Community, Art.151, para. 4.

47 See Wunsch-Vincent, supra note 31, at 146–7.

48 US-Singapore FTA, Art. 14.3, para. 1; US-Chile FTA, Art. 15.3.

49 Burri, M., ‘New Legal Design for Digital Commerce in Free Trade Agreements’, (2017) 107(3) DigiWorld Economic Journal 1, 10.

50 Agreement on Subsidies and Countervailing Measures, Art. 1.1; see R. Ding, ‘“Public Body” or Not: Chinese State-owned Enterprise’, (2014) 48 Journal of World Trade 167, at 167.

51 AB Report, US – Anti-dumping and Countervailing Duties (China), DS379/WT/AB/R, para. 317.

52 TPP, Art. 17.1: definitions.

53 Koremenos, B., ‘Contracting around International Uncertainty’, (2005) 99 American Political Science Review 549.

54 China’s protocol to enter into the WTO, Sec. 15(d). If Chinese governments or enterprises can prove that market economy prevails in that industry in China, then the sales prices in China would be used. Nevertheless, Sec. 15(a) shall expire upon 15 years of China’s entry into the WTO.

55 See Fleury and Marcoux, supra note 2, at 445.

56 TPP, Art. 17.2.

57 TPP, Art. 17.13.

58 See ibid.

59 See TPP, Ann. 17 D.

60 TPP, Art. 17.2.

61 See Lester and Mercurio, supra note 35, at 36.

62 Morning Edition: US Trade Representative Robert Zoellick Comments on CAFTA (National Public Radio broadcast 28 May 2004).

63 Conditions of the GSP plus system can be seen on the European Commission’s website, ec.europa.eu/trade/import-and-export-rules/import-into-eu/gsp-rules/gsp+/ (accessed 20 December 2018).

64 By December 2017, the 15 FTAs China concluded are with Hong Kong SAR and Macau SAR, Chile, Pakistan, New Zealand and Singapore, ASEAN, Peru, Costa Rica, Iceland, Switzerland, Australia, Korea, Georgia, and Maldives, available at fta.mofcom.gov.cn (accessed 20 December 2018).

65 See Xiaotong, Ping and Xiaoyan, supra note 3, at 521.

66 See Wang, supra note 3.

67 China is now negotiating an RCEP, a China-Japan-Korea FTA, and also FTAs with the Gulf Cooperation Council, Norway, Sri Lanka, Mauritius, Moldova, Papua New Guinea, Israel, and Pakistan. China is updating its FTAs with Singapore, Korea, New Zealand, and Pakistan.

68 China’s FTA feasibility studies are with Colombia, Fiji, Nepal, Canada, Bengal, Mongolia and Switzerland for FTA negotiation or update.

69 Ibid., at 259–60. See also Y. Huang and T. Khanna, ‘Can India Overtake China?’, Foreign Policy, 1 July 2003, at 8; T. N. Srinivasan and S. D. Tendulkar, Reintegrating India with the World Economy (2003).

70 See G. Chin, ‘Two-Way Socialization: China, the World Bank and Hegemonic Weakening’, (2012) 19 Brown Journal of World Affairs 211, 223. See also M. D. Harpaz, ‘China’s Coherence in International Economic Governance’, (2016) 21 Journal of Chinese Political Science 123, 139.

71 Wang, J., ‘China, India, and Regional Economic Integration in Asia: The Policy and Legal Dimensions’, (2006) 10 SYBIL 269, 288.

72 See China-Korea FTA, Arts. 17.8, 17.11.

73 See TPP, Art. 17.10.

74 China has adopted negative lists on foreign investment regulation in Shanghai, Guangdong, Fujian province, and Tianjin since 2015.

75 See China-Australia FTA, Art. 9.

76 See China-Australia FTA, Art. 16; China-Canada Investment Promotion and Protection Agreement, Art. 28. China’s BITs are available at tfs.mofcom.gov.cn/article//201111/20111107819474.shtml (accessed 15 December 2018).

77 For example, in the China-Australia FTA, Australia offered China a negative list on investment liberalization, while China offered Australia a positive list but promised to re-negotiate the list based on a negative listing approach in the following years.

78 For example, China-Pakistan FTA negotiation has undergone six stages. It was developed from a preferential trade arrangement reached in 2003. Then, the early harvest program was adopted in 2005. In 2006, the China-Pakistan FTA was concluded. In 2008 and 2009, two additional agreements on investment and trade in service were reached. See Wang, supra note 3, at 498.

79 See generally the TPP, Ch. 12.

80 See China-New Zealand FTA, Ch. 10, Ann. 1.

81 See TPP, Ann. 12-A-Australia, Ann. 12-A-Canada.

82 See J. Kurlantzick, Charm Offensive: How China’s Soft Power Is Transforming the World (2007).

83 See Wang, supra note 71, at 286. This is because all ASEAN products in Chs. 1–8 of the Harmonized System have been covered by preferential tariff rates, while not all Chinese products have been covered. The ASEAN countries are allowed to list items that they would not grant tariff concessions on to China.

84 The background of the China-Australia FTA can be found on China’s MOFCOM website, available at fta.mofcom.gov.cn/Australia/australia_special.shtml (accessed 8 August 2017).

85 Alschner, W. and Skougarevskiy, D., ‘Mapping the Universe of International Investment Agreement’, (2016) 19 Journal of International Economic Law 561, 563.

86 Taylor, C. O., ‘Of Free Trade Agreements and Models’, (2009) 19 Indiana International and Comparative Law Review 569, 586–90.

87 Ibid., at 590.

88 Vandevelde, K. J., U.S. International Investment Agreements (2009), 109.

89 Lavranos, N., The New EU Investment Treaties: Convergence Towards the NAFTA Model as the New Plurilateral Model BIT Text?, at 3, available at papers.ssrn.com/sol3/papers.cfm?abstract_id=2241455 (accessed 20 June 2018).

91 CETA, Ann. 8-B.

92 Baker, M., ‘No Country Left Behind: The Exporting of US Legal Norms under the Guise of Economic Integration’, (2005) 19 Emory International Law Review 1321, 1324. See Gilman, supra note 19, at 267.

93 See C. G. Garcia, ‘All the Other Dirty Little Secrets: Investment Treaties, Latin America, and the Necessary Evil of Investor-State Arbitration’, (2004) 16 Florida Journal of International Law 301, 483. See also Gilman, supra note 19, at 267.

94 See TPP, Art. 18.63.

95 TPP, Art. 18.37.

96 TPP, Art. 18.82.

97 See I. Krizic and O. Serrano, ‘Exporting Intellectual Property Rights to Emerging Countries: EU and US Approaches’, (2017) 22 European Foreign Affairs Review 57, 58.

98 See UNCTAD, World Investment Report 2015: Reforming International Investment Governance (2015), 110.

99 Higgot, R., ‘American Unilateralism, Foreign Economic Policy, and the ‘Securitisation’ of Globalisation’, 2003 Center for the Study of Globalisation and Regionalisation Working Paper No. 124/03, at 12, available at wrap.warwick.ac.uk/1997/1/WRAP_Higgott_wp12403.pdf (accessed 29 September 2017).

100 See Baker, supra note 92, at 1363.

101 Ibid., at 1364.

102 Berger, A., ‘Investment Rules in Chinese PTIAs – A Partial “NAFTAization”’, in Hofmann, R., Schill, S. W. and Tams, C. J. (eds.), Preferential Trade and Investment Agreements: From Recalibration to Reintegration (2013), 297333.

103 China-Australia FTA, Chapter of Investment, Art. 8.

104 China-Korea FTA, Art. 12.16.

105 See P. Yu, ‘Sinic trade agreements’, (2011) 44 University of California, Davis Law Review 953, 1011–18; Harpaz, supra note 70.

106 See Harpaz, ibid., at 130.

107 They are FTAs between China and New Zealand, Switzerland, Singapore, Peru, Iceland, Costa Rica, Korea, Australia, George, and Maldives.

108 Apart from a framework agreement, the ASEAN+1 FTA consists of three separate agreements relating to trade in goods, trade in service, and dispute settlement. The original China-Pakistan FTA only covered trade in goods, but its second-stage negotiation covered trade in service.

109 The Investment Chapter also appeared in China-Sweden FTA after 2008, but there were almost no substantive rules in these two FTAs. The China-Georgia FTA did not contain the Investment Chapter.

110 The principle ‘seeking commonality while reserving difference’ was first proposed by China’s Prime Minister Zhou Enlai in the Asian-African conference. ‘Non-interference’ was one of the five principles raised in that conference. See dangshi.people.com.cn/n/2015/0415/c85037-26846224.html (accessed 17 October 2018).

111 P. Yu, supra note 105; Harpaz, supra note 70, at 139.

112 TPP, Art. 18.32.

113 See CETA, Art. 20.19.

114 See EU-Vietnam Free Trade Agreement, Ch. 12, Arts. 12.24, 12.25, 12.27, available at trade.ec.europa.eu/doclib/press/index.cfm?id=1437 (accessed 12 May 2019).

115 EU-Vietnam Free Trade Agreement, Ch. 12, Art. 6.7.

116 EU Operation Treaty, Art. 174.2.

117 Anderson, F. et al., ‘Regulatory Improvement Legislation: Risk Assessment, Cost-Benefit Analysis and Judicial Review’, (2000) 11 Duke Environmental Law & Policy Forum 89.

118 See Appellate Report European Communities – Measures Concerning Meat and Meat Products, adopted 13 February 1998, WT/DS26/AB/R; Panel Report European Communities – Measures Affecting the Approval and Marketing of Biotech Products, adopted on 21 November 2006, WT/DS291/R.

119 See TPP, Art. 25.5.

120 See CETA, Arts. 21.6, 21.4.

121 Ibid., Art. 21.5.

122 See CETA, Ch. 24, Trade and Environment, Art 24.8.

123 Cotula, L., ‘Do Investment Treaties Unduly Constrain Regulatory Space’, (2014) 9 Questions of International Law 19, 25.

124 President Barack Obama, Press Conference by the President, White House, available at www.whitehouse.gov/the-press-office/2013/10/08/press-conference-president (accessed 20 June 2018).

125 See Ch. 17 of the TPP; Ch. 18 of the CETA.

126 See TPP, Ann. 17B, Art. 28.3.

127 See C. Malmström, Investment in TTIP and Beyond - The Path for Reform: Enhancing the Right to Regulate and Moving from Current ad hoc Arbitration Towards an Investment Court, Concept Paper (2015), available at trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF (accessed 20 December 2018).

128 CETA, Art. 8.27.

129 Ibid., Art. 8.28.

130 Y. Wang, “The Rule Contesting of Investor-State Dispute Settlement Mechanism by US and EU” [国际投资仲裁机制改革的美欧制度之争], 2 Global Law Review [环球法律评论] 118 (2017).

131 Schultz, T. and Dupont, C., ‘Investment Arbitration: Promoting the Rule of Law or Over-Empowering Investors? A Quantitative Empirical Study’, (2015) 25 European Journal of International Law 1147.

132 USMCA, Chs. 14, 14-C, 14-D, and 14-E. Any new investor-state dispute between America and Canada shall not be brought to the ISDS.

133 Wu, M., ‘The “China, Inc.” Challenge to Global Trade Governance’, (2016) 57 Harvard International Law Journal 261, 268.

134 See J. Y. Qin, ‘Trade, Investment and Beyond: The Impact of WTO Accession on China’s Legal System’, (2007) 191 The China Quarterly 720, 723.

135 Trade Preference Promotion Act, 19 USC 2101, Sec. 504. Regulation (EU) 2016/1036 of the European Parliament and of the Council of 8 June 2016, Art. 2.7. A. Polouektov, ‘Non-market Economy Issues in the WTO Anti-dumping Law and Accession Negotiation: Revival of Two-tier Membership?’, (2002) 36 Journal of World Trade 1, 10.

136 See Qin, supra note 134, at 724.

137 See Polouektov, supra note 135, at 4.

138 Memorandum of Understanding Between the Department of Foreign Affairs and Trade of Australia and the Ministry of Commerce of the People’s Republic of China on the Recognition of China’s Full Market Economy Status and the Commencement of Negotiation of a Free Trade Agreement Between Australia and the People’s Republic of China, para. 2 (18 April 2005), available at www.dfat.gov.au/geo/china/fta/mou_aust-china_fta.pdf (accessed 5 July 2018).

139 China-Korea FTA, Art. 7.1; China-Georgia FTA, Art. 3.

140 The dropping of the special safeguard clause was recorded in the negotiation process of the China-Korea FTA, available at fta.mofcom.gov.cn/korea/korea_special.shtml#1F (accessed 5 July 2018).

141 See China-Canada FIPA, Arts. 6, 7.

142 The asset transfer of an SOE needs to be approved by the State-Owned Assets Supervision and Administration Commission (SOASAC) in China. If the enterprise loses its SOE identity after the transaction, the transaction needs to be approved by the government. The directors and supervisors of SOEs should be appointed by the SOASAC. See State-Owned Assets Administration Act, Arts. 22, 53, available at www.xuexila.com/fanwen/banfa/2766538.html (accessed 10 July 2017).

143 See China-Canada Investment Facilitation and Protection Agreement, Art. 8, available at tfs.mofcom.gov.cn/article/Nocategory/201111/20111107819474.shtml (accessed 10 July 2017).

144 USMCA, Art. 22.6.

145 2012 U.S. Model BIT, Art. 8, P 1(f), (h). CETA, Art. 8.5.

146 Sino-Japan-Kora Investment Promotion, Facilitation and Protection Agreement, Art. 7.2.

* The article is funded by the National Social Science Fund of China (Grant no. 18FFX062) and Characteristic Innovative Project of Guangdong Provincial Department of Education (Grant no. 2017WTSCX030). Much gratitude is extended to the reviewers and editors of Leiden Journal of International Law.

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