Quo Vadis the WTO? The Future of the Doha Round and the Management of the International Trade Regime

The five presentations made in this session covered the issues noted below. These presentations combined institutional studies of RTAs with a trade policy perspective to examine whether regional trade agreements (RTA) could function as an alternative regime to the WTO. In particular, the relation between the WTO and rapidly increasing RTAs was examined from various angles.

What are the legal structures supporting FTA negotiations on tariffs and market access?

How can the problems of overlapping WTO and RTA jurisdictions in dispute settlement and contradictory rulings be adjusted and resolved?

What are the features of the intellectual property provisions of RTAs when compared to the TRIPS Agreement? How should these features be evaluated from the perspective of intellectual property policies and trade policies?

What policy considerations operate in rules for Mode 4 trade in services? What kind of relation is desirable between RTA and GATS rules in this regard?

How have FTAs in the Asian region, including Japan, been expanding? In this environment, what objectives is Japan pursuing in concluding economic partnership agreements (EPA)?

Free trade agreements (sometimes referred to as "preferential trade agreements") are derogations from the most-favored-nation (MFN) clause in that they provide preferential treatment to the other member countries of the FTA. It is estimated that the total number of FTAs, including those without notification to the WTO, will reach 300 by the end of 2007. The fact is that the WTO has become particularly concerned with the rapid increase in the number of non-notified FTAs. From a geographic perspective, the move toward FTAs, which first emerged in Europe, is now proliferating in the Asia-Pacific region. In addition to the European Union as a European hub and the United States as a North American hub, ASEAN is emerging is emerging as an Asian hub for a network of FTAs.

With the rapid increase of FTAs, the exclusionary effect works to the disadvantage of countries left outside of FTAs. Moreover, the proliferation of FTAs makes it more difficult to lower tariffs through multilateral negotiations.

For an FTA to be consistent with the WTO, it must comply with the following provisions of GATT Article XXIV. First, intra-regional tariffs on substantially all trade of goods between FTA partners must be eliminated. Second, FTAs must not raise the level of external barriers to non-members. The definition of "substantially all trade" is not clear, and the general practice has been to achieve more than 95 percent elimination in terms of trade value or tariff lines. However, there are some FTAs with a scope of coverage of goods that fall short of 80 percent. The current rules of the WTO allow for the conclusion of FTAs providing for preferential treatment permitted under the enabling clause only between developing countries. However, the fact of the matter is that such FTAs have been concluded between developed and developing countries. This is a source of concern for the WTO.

Moving next to actual FTA negotiations, a mutual balance in exchange of market access benefits has to be reached in FTA negotiations. In this process, negotiators tend to take a mercantilist approach of measuring benefits in terms of increased market access to the partner country, and costs in terms of home market access granted to the partner. Under GATT Article XXIV and the most-favored-nation clause, FTA negotiations should ultimately result in the reciprocal exchange of benefits. In some cases, such as the China-ASEAN FTA, reciprocity is explicitly provided for with regard to certain products, such as bicycles.

Another aspect of FTAs is the inclusion of various provisions for protecting market access benefits. Some FTAs contain a most-favored-nation clause enabling a party to receive the same benefits as its counterpart may extend to its future FTA partners. This measure prevents present market access deals from being undermined by future actions by one of the parties. In another example, some FTAs contain provisions for joint countermeasures against subsidized importing by a third country.

Full details of the various mechanisms for negotiating FTA tariff agreements cannot be given here. However, one of the characteristics of FTA negotiations is their mercantilist nature. This is reflected in reciprocity provisions and FTA-specific MFN clauses. Such measures increase the exclusionary effects of FTAs and make it more difficult to spread the benefits of tariff reduction.

FTAs become more entrenched because countries benefiting from existing FTAs see less merit in negotiating in multilateral trade rounds, and also because the benefits obtained through FTAs are protected into the future. There are no provisions under the normal type of FTAs to allow accession by non-parties to existing FTA deals. Consequently, it is more difficult for non-parties to obtain benefits from a specific FTA unless they conclude separate agreements with those parties to that FTA.

What factors existing on the WTO side have affected the proliferation of FTAs?

There has been a sharp increase in the number of FTAs since the late 1980s. The conclusion of the Uruguay Round, signifying the conclusion of a successful multilateral round, did not slow the tide of FTA proliferation. Thus, maybe the reasons for proliferation lie somewhere other than in the GATT/WTO. Preferential trading agreements did exist before the establishment of the GATT, and this provided the rationale for establishing the GATT. The question is whether a successful WTO Round can stop the further spread of FTAs. Based on past experiences, I am doubtful of this.

My concern is that the binding power of current GATT provisions is weak. GATT Article XXIV was intended to make it difficult to conclude preferential trading agreements, but has failed to do so because there was no consensus on what it meant to achieve "substantially all" tariff liberalization. A full-fledged FTA is meant to be a comprehensive agreement covering a wide range of areas including intellectual property. However, the essence of an FTA lies in tariff negotiations and, as I have mentioned, there is considerable freedom of choice in the level of liberalization. Further, exchange in market access other than trade in goods can be included. This packaging of deals presents a sweet deal for most countries. Therefore, I think that this spreading tide of FTAs will not stop, even if a Round is successfully concluded.

Some regional trade agreements (RTAs) provide for judicialized dispute settlement procedures. Furthermore, in terms of substantive norms, there is extensive overlapping between RTAs and rules under the WTO, such as those for trade and services. As a result, a single dispute can come under the rules and dispute settlement jurisdictions of an RTA and the WTO. This creates the possibility of obtaining different legal interpretations on virtually identical or similar rules. Considering the increasing number and complexity of RTAs, this is becoming a real concern.

In the eyes of law, a single dispute constitutes two separate disputes when adjudicated separately under the WTO and an RTA. This situation cannot be resolved through public international law principles such as res judicata , i.e., exclusion of judgment of any subsequent forum. Therefore, a legislative solution is needed. The forum choice clauses of RTAs can be classified into the following four categories: (1) "first forum first," as adopted by many RTAs, including Japan's EPAs; (2) "RTA comes first," as adopted by NAFTA; (3) "WTO comes first," where disputes pertaining to FTA obligations that in substance correspond to WTO obligations are referred to the WTO; and (4)"No priority adjustments." Almost all RTAs fall into category (1) or (4).

However, these contain the following problems as systems for the coordination of jurisdiction with the WTO.

A "first forum first" type choice of law clause cannot function as a statutory means for the coordination of forums because it cannot stop the subsequent referral of cases to the WTO for dispute settlement, nor can it stop dispute settlement proceedings under the WTO as a second forum. According to the WTO's Appellate Body, a panel is obliged to rule on any case that has been brought before to it, and it is the right of all member states to refer a matter to the WTO for a ruling. In other words, there is very little room for a WTO dispute settlement panel to avoid making a ruling on the grounds that RTA procedures are already in motion. Moreover, an analysis of the rules of RTAs belonging to this category indicates that many legal and interpretative issues remain concerning the two following questions. For disputes to be deemed identical, is it necessary for both the facts and the reasons for the claims to be the same? Or, is it sufficient for only the facts to be the same?

Next, let us consider RTAs that contain no provisions for priority adjustments and have quasi-statutory properties. In this case, interpretations of rights and obligations under the WTO law which are completely different from judgments of WTO may become accumulated under a separate system. For example, consider RTAs of some African nations that contain a juridified dispute settlement system. The accumulation of differing interpretations concerning provisions that are similar to those of the WTO could render the WTO agreement ineffective in a considerable portion of this region.

Thus, disputes concerning matters governed by WTO law should, as a rule, be referred to the WTO. On the other hand, RTAs should take on ADR functions, or should restrict the scope of their rulings to WTO-Plus provisions and to areas not covered by WTO rules. The following reasons can be given for this. First, once a dispute is brought before a WTO panel, there are very scant legal grounds for avoiding a ruling on the grounds that RTA procedures are already in motion. The second reason has to do with judicial policy. In weighing the development of the dispute settlement procedures of the WTO and RTAs, from the perspective of maintaining order in international trade, it is more convenient to prioritize the WTO's dispute settlement system. Attention should be paid to the fact that, at the present stage, it would be more costly if the cohesiveness and consistency of WTO rules were to be undermined.

1. Who selects the members of the Appellate Body and panels, and what criteria are used in selection process?

2. Does Japan adopt the first forum first clause or the res judicata clause in its EPAs?

3. With the increasing number of dispute settlement mechanisms, the coordination of jurisdictions has become an issue in international law in general as well. Going a step forward from the classifications, do you have any suggestions on how this matter can ultimately be resolved? For instance, in the sphere of international law in general, the suggestion has been made that the International Court of Justice (ICJ) should function as an appellate court where rulings are ultimately unified. Can the WTO perform this function for the world economy?

4. It is also possible to adopt the following approach. Policy formation can start on the regional level, resulting in a series of fait accompli that would serve as a basis for discussion on a universal level. This process can be seen in the EU. That is, it appears that the EU advocates a position on a universal level after it has discussed the matter internally and arrived at a strong position. Would it be possible for Japan to consider this type of approach?

1. Basically, members of a WTO dispute settlement panel are selected as follows. Each member country provides the WTO with a set of suggested candidates for registration and inclusion in the roster of panelists. Panelists to serve on a specific panel are nominated by the WTO Secretariat based on this roster with the approval of the disputing countries. However, in individual cases, it frequently happens that a consensus cannot be reached in the appointment of panelists. In such cases, the WTO Secretariat presents the disputing countries with names of candidates. If opposition is voiced to a candidate, the Secretariat presents the names of alternative candidates. This process is repeated several times until the panel is finalized. However, if this process fails to produce a consensus, either one of the disputing countries can file for arbitration by the WTO Director-General regarding the composition of the panel. In a considerable number of cases, finalization of the panel has had to rely on arbitration by the Director-General.

2. Japan has concluded a total of four EPAs, three of which are already in effect. In all instances, the first forum first clause has been adopted.

3. For political as well as resource reasons, it is unrealistic to adopt the WTO as an appellate organization for all RTAs. Regarding methods for the coordination of jurisdictions, I believe the WTO should have comprehensive priority. In cases of inter-forum competition, the RTA side should exercise consideration. Any method that would undermine the integrity of the trade laws established by the WTO will have an extremely high cost.

4. On the subject of dispute settlement procedures, there is a problem of transparency pertaining, for example, to the participation of NGOs and the treatment of amicus briefs. Because many member states have not consented to the transparency proposals in the WTO's DSU negotiations, the supporters of the transparency proposals, such as the United States and many countries in Europe, have incorporated these in their own FTAs.

The following points are important in designing intellectual property systems. First, it is necessary to maintain an appropriate balance between the protection of rights and freedom of use. Second, because intellectual property systems contain both trade promoting and trade obstructing measures, efforts must be made to arrive at an appropriate level of protection based on the characteristics of intellectual property, benefits accruing to rights owners and users, and the impact on domestic and international markets. In this report, I examine intellectual property provisions of RTAs from the perspective of the WTO and trade policies, and from the perspective of international intellectual property policies.

Intellectual property is subject to two common international principles: territoriality and sovereignty. To overcome the limitations imposed by these principles, international negotiations have been conducted to achieve international harmonization of national intellectual property systems and to move toward one unified system. This has been a history of repeated bilateral, intra-regional and multilateral negotiations. The multilateral TRIPS Agreement was concluded following the realization of the problems inherent in bilateral approaches. However, at the present time, we are again seeing growing activity in bilateral and intra-regional undertakings.

The TRIPS Agreement was the first multilateral agreement to adopt the MFN principle. Consequently, provisions contained in bilateral agreements on intellectual property are applied to other WTO member states under the same conditions. However, the TRIPS Agreement covers only a limited range of intellectual property, and the MFN principle does not apply to intellectual property that lies beyond this range. This provides room for RTAs to develop their own intellectual property systems. Intellectual property provisions of RTAs can be categorized as follows: TRIPS-Plus provisions that go beyond the provisions contained in multilateral agreements; and, provisions regarding commitment to intellectual property rights enforcement, accession to and compliance with multilateral agreements, and cooperation on patent examination and other matters. The latter category consisting of provisions not included in TRIPS-Plus, such as commitment to ensuring effective border control and other forms of intellectual property rights enforcement, basically does not create any problems. However, the former category, consisting of provisions pertaining to the substance of rights, may lead to discriminatory treatment among WTO member states and may obstruct international harmonization of intellectual property systems. In certain RTAs, we see a move to establish fait accompli in areas of protection where international consensus has not yet been reached. As a result, members of the relevant RTAs may lose their negotiating flexibility in multilateral negotiations. In the case of some countries, provisions for the protection of rights differ among the various agreements to which they are signatories, with RTAs serving as channels for the proliferation of disparate systems. Finally, in certain cases, concessions made in RTA negotiations may exceed necessary levels. In such instances, it cannot be said that a proper process for intellectual property policy formation is being followed.

The following conclusions can be drawn from the above. The intellectual property provisions of RTAs do include some beneficial policy measures from the perspective of the WTO and international intellectual property policies. However, at the same time, these may obstruct the realization of these policy objectives. This represents a problem that may deepen the conflict among WTO member states in the areas of intellectual property systems and TRIPs, and ultimately affect confidence in the entire WTO system. In particular, it is necessary to recognize that TRIPS-Plus provisions that pertain to the substance of the protection of rights can also affect the global trading regime and intellectual property system.

1. The EU has its own special internal patent system. Should this also be looked at critically?

2. There are two available pathways to intellectual property negotiations: TRIPS and global treaty conferences organized at the level of patent authorities. Is it right to view TRIPS as absolute under all conditions? Is it possible to say that global negotiations among the national and regional patent offices are better?

1. It is difficult to judge whether regional systems will promote or obstruct international harmonization. Regarding the EU system, basically this can be judged to have a positive effect on harmonization. The establishment of a common EU patent system should be welcomed as an important step toward the establishment of an international patent system.

2. In response to the question, I would like to express the view that it will be difficult to create new rules within the framework of TRIPS. I believe it would be better to separate intellectual property from trade issues, and to treat intellectual property independently.

1. Would it be possible to contest TRIPS-Plus provisions using the WTO's dispute settlement procedures? Do any of Japan's EPAs contain TRIPS-Plus provisions? Do these provisions pertain to the enforcement of intellectual property, or do they pertain to the substance of rights?

2. Under the Doha Round, it has become possible to export HIV/AIDS drugs manufactured under compulsory licenses. Rwanda has come forward as the first country to use this system. However, it is reported that the United States is exerting pressure to exclude compulsory licensing of pharmaceuticals from FTAs and FTA negotiations with developing countries. What do you think of the concern that FTAs may destroy the compulsory licensing agreement that was finally reached in the WTO?

3. Policy formation can start on the regional level, resulting in a series of fait accompli that would serve as a basis for discussion on a universal level. For instance, the EU advocates a position on a universal level after it has discussed the matter internally and arrived at a strong position. Would it be possible for Japan to consider this type of approach?

1. As stated in Article 1 of the TRIPS Agreement, the TRIPS Agreement establishes a minimum level. Therefore, the adoption of substance and procedures that exceed TRIPS provisions cannot be contested in dispute settlement procedures so long as these additional provisions do not contravene the principles of national treatment and most-favored-nation treatment. Some but not many of Japan's EPAs contain TRIPS-Plus provisions that pertain to the substance of rights. For instance, there are provisions concerning domain names and provisions embodying the provisions of the Paris Convention in the area of unfair competition.

2. I cannot comment on the specific case referred to in your question. However, generally speaking, RTA restrictions on flexibility in compulsory licensing as provided under TRIPS Article 31 are frequently cited as an example of TRIPS-Plus. Such cases are frequently seen.

3. I did not intend in my presentation to necessarily reject regional policymaking on intellectual property. However, it is difficult to establish standards for either positively or negatively evaluating the intellectual property provisions of any RTA. The EU's common intellectual property system was developed through a process of very careful discussion on what such a system should look like. Perhaps the substantive aspects of this policymaking process can be used as an evaluation standard. Intellectual property arrangements under the EU and those under recent RTAs are essentially different, and we cannot treat them alike.

Mode 4 of trade in services is defined as the supply of a service by a service supplier of one country through presence of natural persons in the territory of another country, followed by the return of the persons to their home country (GATS Article 1). However, broader phenomena of cross-border movements of natural persons are becoming increasingly diverse and complex. Countries have mainly relied on their traditional immigration laws to respond to these developments. Mode 4 liberalization under the GATS will inevitably become intertwined with policy considerations of the immigration policies of various countries. In other words, natural persons entering and staying in a foreign country and coming under its immigration laws are much more than the abstraction referred to as "workforce." They are in fact individual human beings. Consequently, the long list of such problems as their direct impact on the domestic labor market, their human rights as foreign workers during their period of stay, problems related to immigration of family members in case of prolonged period of stay, problems of social and cultural integration in the host country in case of prolonged period of residence, problems of re-integration into home society upon return following prolonged period of residence, and problems of illegal immigration all become related to the liberalization of trade in services. Therefore, it is necessary to have an international regulatory framework from the perspective of government management of all processes of Mode 4 movement of people. Moreover, international regulation of the cross-border movement of natural persons requires the adoption of regulations that correspond to the diversity in national and regional characteristics and types of work. This means that cooperation between sending and receiving countries in the cross-border movement of natural persons is absolutely essential. The GATS has yet to fully establish this type of international regulatory framework. It has been argued that the ability to respond with flexibility to these requirements constitutes one of the advantages of RTAs.

Therefore, it is desirable to develop mutually complementary relations between RTAs and the GATS. Article 5 of the GATS, which governs the relation between RTAs and the GATS, defines the necessary conditions for RTAs to be exempted from most-favored-nation obligations in the area of trade in services. It has been pointed out that, at the present time, these rules are not effectively functioning. However, in the near future, these GATS consistency requirements may become serious legal obstacles to efforts by the GATS and RTAs to play mutually complementary roles in regulating and liberalizing the cross-border flow of natural persons. In this context, the point of crucial importance in future negotiations at the WTO is that member countries make efforts to clarify as much as possible the scope of Mode 4 subject to liberalization that is compatible with or justifiable under the principle of MFN.

As discussed earlier, the various problems that must be taken into consideration in immigration policies must also be inevitably accounted for in Mode 4 movement. Furthermore, because Mode 4 movement involves a series of processes of entry, stay and exit of service suppliers, it must comply with the immigration laws and regulations of individual countries. This means that many lessons must be learned from past experiences in the area of immigration law. Taking the characteristics of Mode 4 movement into consideration, it is clear that trade liberalization based on MFN can be advocated only over a limited range. For matters that fall beyond this range, it will be necessary to create mechanisms for detailed international cooperation. GATS and RTAs must play mutually complementary roles in coping with this challenge, and judicial measures will have to be taken to facilitate this process.

1. It was pointed out that the movement of natural persons differs from the standard case of trade in goods. This observation probably also applies to other areas of trade in services. For example, communication services and financial services are fundamentally different from trade in goods. Is the intent of the presentation to say that Mode 4, i.e., the movement of natural persons, should not be treated as trade in services, or to say that there is something special about the movement of natural persons, which poses problems that are different from other forms of trade in services like financial or communication services?

2. An alternative to treating the movement of natural persons in FTAs is to consider this to be an issue that comes under bilateral immigration agreements. In that case, the argument can be made that the matter should be handled through bilateral agreements. What is your thinking on this?

1. There is a certain degree of rationality in separating the movement of natural persons from other forms of trade in services. Communication and financial services represent areas of considerable liberalization under GATS. This reflects the progress in liberalization that has already been made in the real economy. By contrast, in certain categories of the movement of natural persons (e.g., movement of unskilled labor), national immigration laws have actually been tightened and have changed in an opposite direction to liberalization. As such, there are some difficulties in treating the issues of natural persons within the framework of the liberalization of "trade in services." Of course, with regard to the movement of natural persons who pose low risks for illegal residence, liberalization should be discussed in GATS on the basis of MFN.

2. Issues that cannot be properly handled in discussions of trade liberalization should be deemed to constitute issues of immigration. I agree with the position that such issues should be treated within the international regulatory framework of immigration policy, such as in bilateral immigration agreements. However, RTAs are regimes that go beyond trade policies. In fact, they can be characterized as "vessels" capable of regulating a wide range of policy issues. For example, the EPA between Japan and the Philippines partially allows the movement of nurses and caregivers. Traditionally, this would have been handled through bilateral immigration agreements. In other words, it is fully possible to include in the RTA vessel various matters that were traditionally handled by bilateral immigration agreements. This provides the grounds for treating the issues of cross-border movement of natural persons in the RTA framework.

In observing the developments in the FTAs of the Asian region, including those of Japan, a good starting point would be to consider the prevailing economic conditions of the Asian region. A review of intra-regional trade ratios points to the following. The European Union has the highest ratio, while that of NAFTA has been gradually climbing. As for the Asian region, the intra-regional trade ratio was already beginning to rise in the 1980s even before the establishment of any FTAs in this region. In other words, Asian FTAs were concluded to catch up with the economic realities that preceded them. This is probably the most salient feature of FTAs in the Asian region. Another feature of FTAs in Asia is that ASEAN has led the way in negotiations among the countries of the region. The general picture that emerges for FTAs in the Asian region is that of ASEAN serving as a hub for negotiations and this has provided a basis for the ASEAN+3 and ASEAN+6 initiatives. Nevertheless, diverse possibilities exist for the conclusion of agreements in the Asian region. An example of this can be seen in the ongoing discussions on free trade agreements within the APEC framework.

Japan's approach to FTAs can be characterized as follows. Except for the agreement concluded with Mexico, Japan has been concluding, or seeking to conclude, bilateral agreements with countries in Asia, in particular, individual ASEAN countries such as Singapore. And only after that, or based on that foundation, has Japan proceeded to negotiate an agreement with the whole of ASEAN. This progression from bilateral agreements with individual countries to a region-wide agreement covering the same countries is not common, but does reflect the prevailing economic conditions in the Asian region and in Japan's partner countries. That is to say, countries concluding EPAs with Japan tend to be countries that have not previously concluded FTAs with any developed country. Here we see a pattern of starting with bilateral EPAs for the purpose of gaining experience in concluding and managing agreements, and moving on to the next step from there. This pattern can be said to suit the prevailing conditions in the Asian region. Given this historical pattern, it was both natural and inevitable for the Asian region to follow this progression from bilateral EPAs to a region-wide EPA.

Furthermore, Japan's concluding an EPA with the whole of ASEAN in addition to bilateral agreements has the following significance. Throughout the ASEAN region, rapid growth has been seen in businesses engaged in processing and/or assembling key components imported from Japan into finished goods for export. In light of this development, there is sound economic rationale in turning to multilateral agreements to take care of those aspects of trade that are not fully covered by bilateral EPAs. Thus, we can say that Japan's FTA network will develop into a meaningful and useful network from a business perspective by founding it on bilateral agreements and overlaying it with multilateral agreements covering the ASEAN region.

However, the following matters must also be taken into consideration. The Asian regional economy is strengthening its ties with other regions, such as the EU and the United States. Given that the countries of the region are pursuing their FTA strategies with this reality in mind, FTAs must not be aimed at creating closed economic blocs. As a matter of fact, the region is not pursuing the creation of an economic bloc, but is rather focused on developing FTA networks that will simultaneously facilitate the evolution of ties with the external world. In this context, last year Japan proposed what we call CEPEA, a comprehensive EPA under the framework of ASEAN+6.

1. In Europe and the Americas, EPAs and RTAs are moving forward at a faster pace than in Japan. Compared to them, Japan and ASEAN are lagging behind. What disadvantages have Japanese companies experienced from the fact that Europe and the Americas are leading the process of regional integration?

2. Whenever Japan tries to negotiate an EPA, it comes up against the problem of domestic agriculture. How are the Ministry of Agriculture, Forestry and Fisheries and the Ministry of Economy, Trade and Industry cooperating on these issues?

1. Regarding the impact of regional integration on Japan, in the past, there was much discussion that Japanese companies would be placed at a disadvantage as a result of the progress of EU integration and the establishment of NAFTA. What actually happened was that Japanese industries responded to growing regional integration through foreign direct investment. In the cases of Mexico and Chile, which had concluded FTAs with numerous countries, Japanese companies were in fact placed at a trade disadvantage because Japan had not concluded FTAs with these countries. For this reason, Japan proceeded to negotiate a FTA with Mexico.

2. Coordination of the Japanese government's agricultural policies is undertaken through decisions made by the Council on Economic and Fiscal Policy and by the Cabinet. The government has mechanisms in place for policy coordination during the course of specific negotiations. These are based on the policy guidelines of the Cabinet.