2008-E-5
Competitive Regionalism in East Asia: Legal Context
Junji Nakagawa
The Institute of Social Science (ISS),
University of Tokyo
June, 2008

This paper presented at the International Symposium “Competitive Regionalism,” Ibuka
International Conference Hall, Waseda University, Tokyo, Japan. May 30 to 31, 2008.

Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

Competitive Regionalism in East Asia: Legal Context
Junji Nakagawa (Institute of Social Science, University of Tokyo)
Introduction
Legalization of international economic relations draws more and more
attention of international relations scholars. The success of the WTO disputesettlement mechanism and the proliferation of investor-state arbitration are
the two major features of the contemporary international economic relations.
Another trend that attracts academics is the regionalization of international
trade and investment relations. An increasing number of FTAs and BITs areconcluded either within regions or cross-regionally.
East Asia lagged behind these trends (both legalization andregionalization) until fairly recently. Many countries in East Asia preferred
informal dispute management to adjudication of trade and investment
disputes. Also, they preferred multilateral trade liberalization (WTO and
APEC, in particular) to preferential trade arrangement. However, they
finally made a policy shift toward legalization and regionalization in theearly 2000s (Section 1). Why did East Asian countries join the global trends?
The author argues that the key to the answer lies in the failure and/or
stalemate of multilateral rule making (Section 2). The author also argues
that there exists a nuance in legalization/regionalization in East Asia; there
exists a contrast between modest and aggressive legalism in the sense thatthe latter prefers high level legal rule making in regionalization, while theformer prefers more modest rule making (Section 3).
Finally, the author examines the implication of legal competition on thecoherence of regional integration in East Asia. It concludes that a coherent
East Asian regional integration should be aimed at as a mid-term goal,
rather than a short-term goal to be realized in the near future (Section 4).
1. Legalization in International Economic Relations and the Possible Use of
FTAs for Competitive Rule Making
Legalization of international economic relations: why and to what extent?
Legalization of international relations in general, and legalization ofinternational economic relations in particular, draws more and more

1Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)attention of academia these days. By ‘legalization’ we mean obligation,
precision and delegation.1 Obligation means that states or other actors arelegally bound by a rule or commitment in the sense that their behavior
thereunder is subject to scrutiny under the general rules, procedures, anddiscourse of international law, and often domestic law as well. Precisionmeans that rules unambiguously define the conduct they require, authorize
or proscribe. Delegation means that third parties have been granted
authority to implement, interpret and apply the rules; to resolve disputes;
and possibly to make further rules.
As Abbott et al. put it,2 international trade relations as exemplified by
the WTO fall within the situations near the ideal type of full legalization in
the sense that the WTO administered a remarkably detailed set of legallybinding international agreements; it also operates a dispute settlement
mechanism, including an appellate tribunal with significant authority tointerpret and apply those agreements in the course of resolving particular
disputes.
The unwillingness of developing countries to sign on to new rules onthese issues in the absence of far more substantial agricultural liberalizationin developed nations has in many ways contributed to the current stalemateof the Doha Development Agenda (hereinafter the ‘DDA’). In turn, thestagnation of the WTO negotiation process has created a strong incentive fornations to resort to regional and bilateral trade negotiations as an“insurance mechanism.”3 This hedging strategy revolves around not only
keeping the momentum for more tariff liberalization, but also at afundamental level to deepen the liberalization process through the inclusionof the new rules on trade and investment.
The US. has been one of the most active practitioners of this‘bottom-up’ approach to international trade and investment rule-making. An
early example of this strategy at work was the incorporation in NAFTA of the
cutting-edge issues that would later on be incorporated in the WTO, such as
intellectual property protection (TRIPs Agreement) and service liberalization(GATS). NAFTA went even farther with the adoption of a host state-investor
dispute arbitration mechanism (Chapter 19) that has not been incorporated
Abbott et al.(2001:17-18).
Ibid., p.21.
3 Mansfield and Reinhardt(2003).
1
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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

at the multilateral level4 and environmental and labor side agreements.5
More recently, the US’ response to the stagnation of the DDA has been astrategy of ‘competitive liberalization,’ whereby bilateral trade negotiations
with countries that agree to negotiate on the issues of critical interest to theUnited States receive a much greater priority.6
Japan has seen the benefit of FTA negotiation for international
rule-making, too; take for instance the argument advanced by the leadingbusiness association that: “using the network of FTAs to disseminate fairer
rules on anti-dumping out to other countries would help strengthen Japan’s
position in the next WTO negotiations.” 7 China is another country
dissatisfied with current multilateral rules on anti-dumping and has used its
cross-regional FTA negotiations to reward nations willing to recognize China
as a market economy. 8 In this way, China is strengthening its WTO
campaign to scrap the application of the Communist economy methodologythat facilitates the imposition of ad hoc and politically motivatedanti-dumping duties on Chinese exports.9
Legalization in East Asia: shift from low- to higher-level
If North America provides an implicit benchmark for high legalization,
the Asia-Pacific and East Asia offered an important example of low
legalization or even an explicit aversion to legalization until recently. 10
Before the end of Cold War, the Asia-Pacific region had produced few formal
multilateral institutions. A modest wave of institution building in the 1990
(ASEAN and APEC) narrowed the institutional difference with other regions,but the density of institutions spanning the regions remains lower than thatin Europe or the Americas. More importantly, those regional institutions
Hufbauer & Schott(2005:210-213).
Ibid., Chapters 2 and 3.
6 Feinberg(2005).
7 Keidanren(2000:6).
8 Article 2.2 of the WTO Anti-Dumping Agreement (hereinafter the ‘ADA’) provides that“(w)hen, because of the particular market situation.., such sales do not permit a propercomparison, the margin of dumping shall be determined by comparison with acomparable price of the like product when exported to an appropriate third country”.
Judging from the special market conditions of China, many countries including US. EC
and South Africa regard it as ‘non-market economy’ and applied third country export
price methodology. This has allegedly contributed to the higher dumping margins
against Chinese products. See Brink & Kobayashi(2007:225-226).
9 Hoadley and Yang(forthcoming).
10 Kahler(2001).
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constructed with Asian participation remained highly informal and explicitly
rejected legalization in their design. Formal rules and obligations werelimited in number; voluntary codes of conduct or general principles havebeen favored over precisely defined agreements; and disputes have been
managed, if not resolved, without delegation to third-party adjudication.11
Why legalization was low in Asia? One explanation widely accepted isthat ASEAN and APEC are set apart from ‘Western-style’ institutions on thebasis of radically different Asian legal culture and institutions.12 However,this argument fails for several reasons. Most Asian societies, particularly inSoutheast Asia, display legal pluralism rather than monolithic legal culturesand homogenous legal institutions. What appear to be cultural differences
may in fact represent strategies pursued by political actors. The ‘ASEAN (orAsian) way’ of managing disputes or favoring informal institutions may
result not only from the construction of social myths about harmony and anational past untouched by Western influence but also from conscious
political programs to dampen adversarial conflict internally andinternationally.13
The reluctance to legalization in Asia seems to have expired in the 2000s,
however. Asian countries are increasingly resorting to the WTO disputesettlement mechanism, though with country-specific nuances.14 East Asian
countries are finally joining the regionalization race through EPAs (economic
partnership agreements), FTAs and BITs (bilateral investment treaties).
Especially active are the ASEAN countries, which agreed in October 2003 to
economic integration by 2020.15 In addition, ASEAN and China signed anagreement in November 2004 to liberalize trade in goods.16 Between ASEAN
countries and Korea, basic agreement was signed for FTA frameworks in
December 2005.17 A similar agreement is being negotiated between ASEAN
Ibid., p.165.
Ibid., pp.176-177.
13 Id.
14 Nakagawa(2007).
15 See Declaration of ASEAN Concord II (Bali Concord II), done in Bali, 7 October 2003.
http://www.aseansec.org/15159.htm
16 Framework Agreement on Comprehensive Economic Cooperation between the
Association of South East Asian Nations and the People’s Republic of China, signed 6
October 2003, entered into force 21 December 2004. WTO Doc. WT/COMTD/N/20,
WT/COMTS/51.
17 Framework Agreement on Comprehensive Economic Cooperation Among the
11
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and India.18
Starting with the EPA with Singapore (signed in January 2002),19 Japan
has since concluded EPAs with chapters on the promotion and protection of
investment with the Phillippines (September 2005),20 Malaysia (December2005), 21 Thailand (April 2007), 22 Brunei (June 2007) 23 and Indonesia(AugUSt 2007). 24 It is also negotiating EPAs with India, 25 ASEAN, 26
Vietnam27 and Korea.28 Besides EPAs, Japan has accelerated negotiation of
BITs. Before 2000, it had concluded BITs with only two East Asian countries(China (1988)29 and Hong Kong (1997)30). Since 2000, it concluded BITs with

Governments of the Member Countries of the Association of Southeast Asian Nations
and the Republic of Korea, signed 13 December 2005.
http://www.aseansec.org/18063.htm
18 Trade Policy Bureau, METI(2006:458).
19 The Japan-Singapore Economic Partnership Agreement, signed 13 January 2002,
entered into force 30 November 2002.
http://www.mofa.go.jp/region/asia-paci/singapore/jsepa.html; Protocol Amending theAgreement between Japan and the Republic of Singapore for a New-Age Economic
Partnership, signed 19 March 2007.
http://www.mofa.go.jp/region/asia-paci/singapore/jsepa_a/index.html
20 Agreement between Japan and the Republic of the Philippines for an Economic
Partnership, signed 9 September 2006.
http://www.mofa.go.jp/region/asia-paci/philippine/epa0609/index.html
21 Agreement between the Government of Japan and the Government of Malaysia for
an Economic Partnership, signed 13 December 2006, entered into force 13 July 2007.
http://www.meti.go.jp/policy/trade_policy/epa/html/malaysia_epa_text_e.htm
22 Agreement between Japan and the Kingdom of Thailand for an Economic
Partnership, signed 3 April 2007.
http://www.mofa.go.jp/region/asia-paci/thailand/epa0704/index.html
23 Agreement between Japan and Brunei Darussalam for an Economic Partnership,
signed 16 June 2007. http://www.mofa.go.jp/region/asia-paci/brunei/epa0706/index.html
24 Agreement between Japan and Indonesia for Economic Partnership, signed 20
August 2007. http://www.mofa.go.jp/region/asia-paci/indonesia/epa0708/index.html
25 Negotiation was started in January 2007.
26 On 25 August 2007, Japan and the ASEAN reached agreement on the substantive
part (tariff reduction, etc.) of the Comprehensive Economic Partnership Agreement.
27 Negotiation was started in January 2007.
28 Negotiation was started in December 2003, but it has stalled, due mainly to thedisagreement on the modalities of agricultural trade liberalization, since November
2004.
29 Agreement between Japan and the People’s Republic of China for the Promotion and
Mutual Protection of Investment, signed 27 August 1988, entered into force 12 May
1989. http://www.meti.go.jp/policy/trade_policy/asia/china/html/investment_treaty.html
30 Agreement between the Government of Japan and the Government of Hong Kong for
the Promotion and Protection of Investment, signed 15 May 1997, entered into force 18
June 1997.
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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

Korea, 31 Vietnam 32 and Cambodia. 33 In addition, it is negotiating atrilateral BIT with China and Korea 34 and a BIT with Lao People’s
Democratic Republic.35
Japan’s emphasis on regional/bilateral trade and investment rule-making
can be understood within the context of its huge trade and investment
interests in East Asia. Its FDI in the region rapidly increased in the 1990s.
In 1997, when the Asian Financial Crisis broke out, it culminated to 1.58
trillion yen, comprising over 50% of its total FDI.36 This trend continued
after the Asian Financial Crisis, and Korea and the ASEAN 10 followed suitsince the early 2000s. From 2000 to 2005, FDI flow from Japan, Korea and
ASEAN 10 to East Asia increased from $8.77 billion to $23.88 billion, while
the world’s total FDI flow decreased from $1.34 trillion to $0.93 trillion.37
Trade relationship within the region has also grown rapidly. The ratio of
intra-regional trade (export and import combined) in East Asia grew from
35.7% in 1980 to 55.8% in 2005, nearing that of EU 25 (62.1%). 38 The
deepening trade relationship in the region is reinforced by the increasing
intra-regional FDI, in the sense that a substantive amount of FDI aims atexporting manufactured goods within the region. For those companies ofEast Asia investing in the region, protection of investment through clear andtransparent rules and their enforcement through investor-state arbitration
are of critical importance. As these are not provided through multilateral
forum, they lobbied their governments to secure them through BITs, EPAs
and FTAs.
On the side of host countries of FDI in East Asia, committing themselves
31 Agreement between Japan and the Republic of Korea for the Promotion andProtection of Investment, signed 22 March 2002, entered into force 1 January 2003.
http://www.mofa.jp/mofaj/kaidan/s_koi/korea02/toUShikyoutei/gaiyo.html
32 Agreement between Japan and the Socialist Republic of Vietnam for the
Liberalization, Promotion and Protection of Investment, signed 14 November 2003,
entered into force 19 December 2004.
http://www.mofa.jp/region/asia-paci/Vietnam/agree0311.pdf
33 Agreement between Japan and the Kingdom of Cambodia for the Liberalization,
Promotion and Protection of Investment, signed 17 June 2007.
34 Negotiation was started in March 2007. See
http://www.mofa.jp/mofaj/gaiko/investment/jck.html
35 Negotiation was started in March 2007. See
http://www.mofa.jp/mofaj/gaiko/investment/j_laos.html
36 Trade Policy Bureau, METI, supra n.18, Chapter 3, Section 2, Figure 3-3-17.
37 METI 2007, p.96, Figure 2-1-9.
38 Ibid., p.98, Figure 2-1-13. The ratio of intra-regional trade of the NAFTA was 43.0%
in 2005. Id.

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to the promotion and protection of investment was deemed necessary to
attract FDI. As Elkins, Guzman and Simmons (2006:812) lucidly put it,
potential host countries are competing for credible property rights
protections that foreign investors require. BITs, EPAs and FTAs (withinvestment chapters) are one of the most salient means for showing suchcredibility, though many studies assert that pulling power of BITs, EPAs and
FTAs is limited, because foreign investors take into consideration manyother factors in deciding where and whether to invest.39 Both pushing andpulling powers thus functioned as catalyst to the proliferation of BITs, EPAs
and FTAs in East Asia.
Why, then, East Asian countries joined the global race toward regionalism?
The author argues that the key to the answer lies in the failure ofmultilateral rule making.
2. Legal Competition in East Asian: Multilateral versus Regional/Bilateral
Rule Making
Multilateral versus regional/bilateral rule making: investment rules
Two failed attempts of multilateral rule-making for the promotion andprotection of foreign investment in the late 1990s triggered theregional/bilateral rule-making in East Asia. One was the failed attempt toconclude the Multilateral Agreement on Investment (MAI), sponsored by theOECD (Organization for Economic Cooperation and Development) in 1998.40
The other was the failed attempt to add ‘trade and investment’ to the agendaof the first negotiating round of the WTO at its 1999 Seattle Ministerial
Conference.41
The failure of the MAI negotiation fermented the impression thatdeveloping countries, though they had been willing to conclude BITs on an
individual basis,42 were still reluctant to commit themselves to multilateralSee, for example, Neumayer & Spess(2005); Salacuse & Sullivan(2006).
See OECD, Multilateral Agreement on Investment.
http://www.oecd.org/document/35/0,2340,en_2649_201185_1894819_1_1_1_1,00.html
41 See WTO, The Third WTO Ministerial Conference.
http://www.wto.org/English/thewto_e/minist_e/min99_e/min99_e.htm
42 The number of BITs began to increase in the late 1980s and the pace was accelerated
39
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rules for the promotion and protection of foreign investment. On the other
hand, the Members of the WTO, at its First Ministerial Conference held in
Singapore in December 1996, agreed to establish a working group to examine‘the relationship between trade and investment’ at the first negotiatinground of the WTO.43 However, the Seattle Ministerial Conference failed toestablish the working group, and the Hong Kong Ministerial Conference
finally dropped ‘the relationship between trade and investment’ from theagenda of the DDA in December 2005.44
These failed attempts forced the developed countries in East Asia andtheir global firms to shift the forum for investment rule-making frommultilateral to regional/bilateral forum. In Japan, the Keidanren published apolicy statement titled ‘Challenges for the Upcoming WTO Negotiations andAgenda for Future Japanese Trade Policy’ in May 1999.45 While expressing
expectations of the upcoming WTO negotiations, it emphasized theimportance of strengthening Japanese governmental efforts to develop a
network of BITs and FTAs because they are ‘extremely important in terms of
the foreign business activities of Japanese companies’.46 In response, theJapanese Ministry of Economy, Trade and Industry (hereinafter the ‘METI’),
for the first time in its history, officially admitted in its White Paper on
International Trade 200047 that regional integration through BITs and FTAs
could have economic value for Japan, and that it should be pursued ‘as a
supplement to the multilateral trading system’.48 In August 2000, the METI
published a special report titled ‘The Economic Foundations of JapaneseTrade Policy – Promoting a Multi-Layered Trade Policy.’49 It advanced thepolicy stance expressed in the White Paper on International Trade 2000 a
step further. While admitting that ‘Japan continues to promote international
rule-making on the multilateral level, with policy based on strengthening the
WTO-centered multilateral trading system’, it noted that Japan ‘has alsoin early to mid-1990s. See UNCTAD(2000).
43 WTO, Singapore Ministerial Declaration, 13 December 1996, para.20.
http://www.wto.org/english/thewto_e/minist_e/min96_e/wtodec_e.htm
44 WTO, Hong Kong Ministerial Declaration, 18 December 2005.
http://www.wto.org/english/thewto_e/minist_e/min05_e/final_text_e.htm
45 http://www.keidanren.or.jp/english/policy/pol102/index.html
46 Ibid., Section 3(1). For the role of Keidanren in the policy shift of the Japanese
government, see Yoshimatsu(2005) and Nakagawa(2006).
47 Online available. http://www.meti.go.jp/english/report/index.html
48 Ibid., p.39.
49 Online available. http://www.meti.go.jp/english/report/index.html
8Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

begun to develop bilateral investment liberalization frameworks’, andannounced that Japan would henceforth promote a ‘multi-layered trade
policy’ with efforts to strengthen the multilateral trading system andpromote regional cooperation.50
This ‘multi-layered trade policy’, whose focus was clearly on investment
rule-making at regional/bilateral level, has since been repetitively
emphasized by the Japanese government. And, as was seen in Section 1
above, Japan accelerated negotiations of BITs and EPAs with investment
chapters with East Asian countries where Japanese companies have large
investment interests.
Multilateral versus regional/bilateral rule making: anti-dumping and tradefacilitation
The rivalry between multilateral rule-making and regional/bilateralrule-making has another aspect in East Asia. The advancement ofregional/bilateral rule-making in the region may have regressive effects on
the ongoing and future multilateral rule-making. This is especiallyprominent in those areas of trade rules currently under negotiation within
the framework of the DDA where the WTO rules are allegedly insufficient orinadequate, so that their reform is needed. The most salient example is therules on trade remedies (anti-dumping, counter-subsidies and safeguards),
and particularly rules on anti-dumping.
Many East Asian countries, notably China, Korea and Japan, have been
the most frequent targets of the foreign anti-dumping actions, mostly by the
US and the EU. These countries have been alleging that the US and the EU
are abusing their anti-dumping laws in violation of WTO Anti-Dumping
Agreement (hereinafter the ‘ADA’). Korea and Japan have resorted to the
WTO dispute settlement procedure against these laws and practices.51 They,
together with Hong Kong, Singapore, Thailand and Mexico, also joined theso-called ‘friends’ of the rules negotiation of the DDA, and have been making
systematic proposals for the revision of the ADA.52
Ibid., Chapter 2, Section 3.
See Nakagawa(2007).
52 See, for example, the paper titled “Anti-Dumping: Illustrative Major Issues”
submitted to the Negotiating Group on Rules of the DDA on 26 April 2002 (TN/RL/W/6)
by Brazil, Chile, Columbia, Costa Rica, Hong Kong, Israel, Japan, Korea, Mexico,
Norway, Singapore, Switzerland, Thailand and Turkey.
50
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With the stalemate of the DDA, some of these East Asian countries began
to insert special rules on trade remedies which are more stringent than thoseof the ADA in their FTAs. For instance, Article 6.2 of the Korea-Singapore
FTA,53 while maintaining the parties’ rights and obligations under Article VI
of GATT 1994 and the ADA (Article 6.2.1), provides for two special rules to be
applied between them which are more stringent than those of the ADA: (1)prohibition of the so-called ‘zeroing’54 (see Article 2.4.2 of the ADA); and (2)the lesser duty rule (see Article 9.1, second sentence of the ADA). Also, theKorea-European Free Trade Association (EFTA) FTA, 55 while retaining
basically all the rights and obligations under the ADA, adopted the lesser
duty rule (Article 2.10.1(b)).56 In addition, the Korea-EFTA FTA stipulates
that the Parties ‘shall endeavor to refrain from initiating anti-dumping
procedures against each other’ and consult ‘with the other with a view tofinding a mutually acceptable solution,’ though it does not mandate any
specific additional legal requirements (Article 2.10.1(a)). These rules
correspond to the proposals of the ‘friends’ of the rules negotiation of the
DDA. Ahn (2007: 218) predicts that such ‘rule diversification’ may constituteimportant precedents for the ongoing DDA negotiation and the developmentof the trade remedy system under the WTO.57
Another area of ‘rule diversification’ is trade facilitation. Tradefacilitation, sometimes called simplification of customs clearance procedure,is the only survivor of the so-called ‘Singapore issues’ of the DDA.58 By the‘July Package,’ the Members of the WTO agreed on 1 August 2004 to
53 Korea-Singapore Free Trade Agreement, signed 4 August 2005, entered into force 2
March 2005.
http://www.iesingapore.gov.sg/wps/wcm/connect/resources/file/ebbeeb417fbd629/KSFTA_final_KSFTA.pdf?MOD=AJPERES
54 ‘Zeroing’ is the methodology of calculating dumping margin by which theinvestigating authority does not include in the numerator used to calculate weighted
average dumping margins any amounts by which average export prices in individual
averaging groups exceeded the average normal value for such groups. The dumping
margin is thus calculated higher than otherwise. See Pandey(2005:3).
55 Signed 15 December 2005.
http://secretariat.efta.int/Web/ExternalRelations/PartnerCountries/Korea
56 It provides that “the Party taking such a decision, should apply the ‘lesser duty’ rule,by imposing a duty which is less than the dumping margin where such lesser duty
would be adequate to remove the injury to the domestic industry”.
57 Also see Kawashima(2006) on the regulation of anti-dumping in regional integration.
58 See Messerlin & Zarrouk (2000: 586) on trade facilitation at Singapore Ministerial
Conference.

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commence negotiations on trade facilitation within the framework of the
DDA. 59 Annex D of the ‘July package’ set the modalities of negotiation.
Under this mandate, Members are directed to clarify and improve GATT
Article V (Freedom of Transit), Article VIII (Fees and Formalities connectedwith Importation and Exportation), and Article X (Publication and
Administration of Trade Regulations), 60 and to identify their tradefacilitation needs and priorities.61 Since then, many Members of the WTO
submitted proposals for the clarification and improvement of GATT Articles
on trade facilitation,62 as well as communications on their facilitation needs
and priorities.63
In parallel with the DDA negotiation on trade facilitation, the East Asian
countries have been incorporating special rules on trade facilitation in their
FTAs. Even before the start of the WTO, trade facilitation was a priority
issue for rule-making/rule-clarification in the region. The APEC took up
trade facilitation as one of its ‘pillars’ from its start, and has been conducting
a series of research and discussion on it.64 The Bogor Declaration, adopted at
the third APEC Leaders’ Meeting in November 1994, emphasized theimportance of trade facilitation because ‘trade liberalization efforts alone areinsufficient to generate trade expansion.’ 65 And the Manila Action Plan
(Part 3: Collective Action) adopted at the fourth APEC Leaders’ Meeting inNovember 1996 listed collective action plan for trade facilitation, including:(1) harmonization of tariff nomenclature among APEC members to the six
digit level through the adoption of the WCO Harmonized System(HS); (2)provision of a publicly available information manual on APEC members’
Customs laws, regulations, administrative guidelines, procedures and

WTO, Decision Adopted by the General Council on 1 August 2004, para.1(g).
Ibid., Annex D, para.1.
61 Ibid., para.4.
62 For the most recent compilation of such proposals, see WTO, Trade Negotiation
Committee, Negotiating Group on Trade Facilitation, WTO Negotiations on Trade
Facilitation Compilation of Members’ Textual Proposals, TN/TF/W/43/Rev.12, 25 July
2007.
63 For a recent list of such communications, see WTO, Trade Negotiation Committee,
Negotiating Group on Trade Facilitation, List of Documents, Note by the Secretariat,
Revision. TN/TF/W/106/Rev.3, 20 December 2006, pp.11-12.
64 Ravenhill(2000).
65 APEC Economic Leaders’ Declaration of Common Resolve, Bogor, 15 November 1994.
http://www.apecsec.org.sg/apec/leaders__declarations/1994.html
59
60

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rulings; and (3) computerization of APEC Customs procedures.66
As the APEC process slowed down in the late 1990s, 67 East Asian
countries, in particular Japan, shifted the priority negotiating forum on
trade facilitation to EPAs. Japan’s first EPA with Singapore68 shared two
chapters on trade facilitation. In Chapter 4 – Customs Procedures, eachParty shall (a) make use of information and communications technology, (b)simplify its customs procedures, and (c) make its customs procedures
conform to relevant international standards (e.g., those made under theWorld Customs Organization (WCO)).69 In Chapter 5 – Paperless Trading,each Party recognized that paperless trading70 will significantly enhance theefficiency of trade through reduction of cost and time, and shall co-operatewith a view to realizing and promoting paperless trading between them.71
Similar provisions were adopted in the following Japan’s EPAs; with
Malaysia72 (Chapter 4), with the Philippines73 (Chapter 4), with Thailand74(Chapter 4) and with Indonesia75 (Chapter 4).
Other FTAs concluded in the region followed suit. For instance, Chapter 5of the Korea-Singapore FTA,76 titled ‘Customs Procedures’, provides that theParties shall co-operate on, among others, paperless customs clearance(Article 5.13(b)). For this purpose, the Parties shall: (1) simplify andstreamline customs procedures through the domestic integration of customs
systems with other controlling agencies, with a view to enhancing paperlesscustoms clearance; and (2) endeavor to provide an electronic environmentthat supports business transactions between their respective customs
66 APEC, Manila Action Plan for APEC (MAPA 1996) Volume III, A. Overview.
http://www.mofa.go.jp/policy/economy/apec/1996/mapa/vol3/vol3over.html
67 This does not mean that APEC process has stalled since the late 1990s. See, forinstance, APEC Economic Leaders’ Declaration, Shanghai, 21 October 2001, Appendix 1,
Shanghai Accord, II. Clarifying the Roadmap to Bogor, Follow up on the Trade
Facilitation Principles.
http://www.apec.org/apec/leaders__declarations/2001/appendix_1_-_shanghai.html
68 Supra n.19
69 Ibid.,Article 36.
70 ‘Paperless trading’ was defined as ‘trading using electronic filing and transfer of
trade-related information and electronic versions of documents such as bills of lading,invoices, letters of credit and insurance certificates.’ Ibid, Article 40.
71 Id.
72 Supra n.21.
73 Supra n.20.
74 Supra n.22.
75 Supra n.24.
76 Supra n.53.

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administrations and their trading communities (Article 5,13(b)(i) and (ii)).
Enhancing rules on trade facilitation, in particular simplification andstreamlining of the customs procedure through paperless trade, andcooperation aiming at this goal has thus become priority target of FTA
negotiations in the region.
Trade facilitation yields large economic benefits, especially when the levelof tariffs is low.77 As multilateral negotiation on trade facilitation under the
DDA has been slow, partly because of the involvement of many developing
countries and the need for ‘capacity building’ and ‘special and differential
treatment (S&D)’, building-up rules and commitments on enhanced tradefacilitation through bilateral/regional channels is an effective way of
improving trade facilitation. Moreover, such rules and commitments may
have regressive effects on the rule-making on trade facilitation under the
DDA (e.g., simplified customs clearance, harmonization of tariff headings,etc.), and they should do so because regional fragmentation of rules on tradefacilitation will generate considerable amount of regulatory cost on bothgovernments and firms (‘spaghetti bowl’).
In effect, Japan and other East Asian countries have made many
proposals reflecting their rule-making efforts in the region at the DDA
negotiation on trade facilitation. To mention a few: Japan, together with
Mongolia and Switzerland, made a proposal on (1) prompt publication of alllaws, regulations, judicial decisions and administrative rulings relating totrade in goods and (2) establishment of enquiry points 78 ; Hong Kong,
together with Switzerland, made a proposal on the reduction/limitation offormalities and documentation requirements (revision of Article VIII of
GATT 1994)79; Korea made a proposal on single window/one-time submissionof customs documents (revision of Article VIII of GATT 1994).80 Thoughthese are confined to the subject matter which falls within the ambit of the
77 Wilson, Mann & Otsuki(2003:18) estimates that 0.55% improvement of Port
Efficiency indicator, 5.5% improvement of Customs Environment indicator and 3.7%
improvement of E-business indicator would generate an increase in trade equal tocomplete elimination of tariffs in the APEC region, whose applied rates in the advalorem term is 6.5% in the region.
78 WTO, Negotiating Group on Trade Facilitation, Communication from Japan,
Mongolia, and Switzerland, 7 June 2006. TN/TF/W/114.
79 WTO, Negotiating Group on Trade Facilitation, Communication from Hong Kong,
China and Switzerland, 4 July 2006. TN/TF/W/124.
80 WTO, Negotiating Group on Trade Facilitation, Communication from Korea, 21 July
2006. TN/TF/W/138.

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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

revision of existing WTO rules on trade facilitation, the other rules coveredby the bilateral/regional rule-making on trade facilitation, in particular
those relating to electronic or paperless customs clearance procedures, may
be taken up at the DDA trade facilitation negotiation in due course. In thissense, trade facilitation, alongside with trade remedies rules, has become
another area of ‘rule diversification’ for East Asian countries, aiming at
having regressing effects on the ongoing DDA.
Multilateral versus bilateral/regional rule making: intellectual property
Finally, the author would like to mention one more subject matter where
the fit between multilateral and bilateral/regional rules is of great
importance: protection of intellectual property rights (hereinafter ‘IP’). The
TRIPs Agreement did a great job in enhancing multilateral rule making on
the protection of intellectual property rights. However, that was not the endof the story. Some of the recent EPAs and FTAs by East Asian countries
contain chapters on IP, whereby additional and more stringent protection ofIP, as well as intergovernmental cooperation on the enforcement of thoserights, are provided.
For instance, Chapter 10 of the Japan-Singapore EPA81 provides for anenhanced co-operation in the areas of IP protection through (1) exchanging
information and sharing experiences on IP and on relevant IP events,
activities and initiatives organized in their respective territories, (2) jointly
undertaking training and exchanging of experts in the field of IP, and (3)disseminating information, sharing experiences and conducting training on
IP enforcement (Article 96.3). It also provides for the facilitation of patenting
process whereby Singapore shall, in accordance with its laws and regulations,take appropriate measures to facilitate the patenting process of an
application filed in Singapore that corresponds to an application filed inJapan (Article 98.1). Such ‘TRIPs plus’ provisions are also contained in theother EPAs and FTAs concluded by Japan,82 and Korea.83
See supra n.19.
See, for instance, Chapter 9 of the Japan-Malaysia EPA (supra n.21), Chapter 10 of
the Japan-Philippines EPA (supra n.20), Chapter 10 of the Japan-Thailand EPA (supran.22) and Chapter 9 of the Japan-Indonesia EPA (supra n.24).
83 See, for instance, Chapter 17 of the Korea-Singapore FTA (supra n.53) and Chapter
18 of the Korea-US. FTA (Free Trade Agreement between the United States of America
and the Republic of Korea, signed 30 June 2007.
http://www.UStr.gov/Trade_Agreements/Bilateral/Republic_of_Korea_FTA/Final_Text/S
81
82

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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

As there has been no negotiation conducted within the framework of the
DDA for the enhancement/strengthening of the TRIPs Agreement,84 such
‘TRIPs plus’ provisions of the EPAs and FTAs will be the only measuresavailable for the enhancement/strengthening of IP and their enforcement.
3. Legal Competition among Different FTA Models in East Asia
Modest versus aggressive legalism
Finally, there exists another aspect of legal rivalry in the regionalism inEast Asia, namely, the rivalry between more legalistic approach taken by
Japan, Singapore and Korea and less legalistic approach taken by ASEAN
countries except Singapore and China.
As C. Fred Bergsten lucidly points out,85 most of the intra-Asian FTA todate, especially those including China, are of relatively low quality in termsof issue coverage while the US consistently seeks (even if it does not always
obtain or even accept itself) “good standard” FTAs with comprehensive
coverage over trade and investment. Our concern lies in whether there is adiscrepancy on the extent of legalization within intra-Asian FTAs and EPAs,
and the answer seems to be affirmative.
Let us start with the China-ASEAN FTA.86 This FTA, besides the broad
commitment for comprehensive economic cooperation (Articles 1 and 2) andliberalization of trade in goods (Article 3) and trade in services (Article 4)
and investment (Article 5), does not contain hardly any legal rules for thepromotion and protection of trade and investment in the region. 87 The
China-Chile FTA,88 another FTA concluded by China, contains some legal
rules, but their coverage is far more limited than that of the EPAs and FTAs
concluded by Japan, Singapore and Korea. For instance, the former contains
chapters on rules of origin (Chapters 4 & 5), trade remedies (Chapters 6),
ection_Index.html)
84 To the contrary, WTO member countries agreed to loosen the obligations of the TRIPs
Agreement relating to compulsory licensing for drugs for the sake of developing
countries. See Decision of the General Council on the Amendment of the TRIPs
Agreement, 6 December 2005. WT/L/641, 8 December 2005.
85 Bergsten(2007:2).
86 See supra n.19.
87 For instance, the Framework Agreement does not contain preferential rules of origin.
88 Free Trade Agreement between the Government of the People’s Republic of China
and the Government of the Republic of Chile, signed 18 November 2005, entered into
force 20 January 2007. WTO Doc. WT/REG230.
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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

sanitary and phytosanitary measures (Chapter 7) and technical barriers totrade (Chapter 8), but does not contain chapters on IP, competition law andpolicy, trade facilitation and investment, all of which are the common
features of the EPAs and FTAs concluded by Japan, Singapore and Korea.
In this sense, the EPAs and FTAs concluded by Japan, Singapore andKorea are more highly legalized than those concluded by ASEAN countries
except Singapore and China. These former are more akin to those concludedby the US in terms of issue coverage. Why is it so?
One plausible explanation is that ASEAN countries except Singapore andChina are not ready for such legalization. These countries are latecomers inlegalization of international economic relations. The so-called ‘ASEAN way’of informal and gradual liberalization has long been maintained.89 China
acceded to the WTO only as late as December 2001, and has since been
trying hard to come up with its obligations under the WTO Agreement andits Accession commitments.90 It has not yet been ready to commit itself to‘WTO plus’ legalization.
Another explanation is that Japan, Singapore and Korea, like US.,
Mexico and Chile, have been making use of their EPAs and FTAs forenhancing/strengthening legal rules for the promotion and protection of
trade and investment. As we saw in the preceding sections, under thecurrent stalemate of the DDA, bilateral/regional rule making through EPAs,
FTAs and BITs is the only viable means for achieving such purpose. These
countries in East Asia are trading countries with huge trade and investment
stakes abroad, and enhancing/strengthening legal rules for the promotion
and protection of trade and investment is their priority goals in theirinternational economic diplomacy.
China’s transitional review mechanism will expire in 2011.91 It will not
be until then, at the earliest, that China will start moving toward ‘WTO plus’
legalization at regional/bilateral level.
The situation is different in the case of the ASEAN countries other thanSingapore. Individually, these countries have committed themselves toKahler(2001:167-171).
See, Protocol on the Accession to the People’s Republic of China, Annex 1A.
Information to be provided by China in the context of the Transitional Review
Mechanism. WT/L/432, 23 November 2001.
91 Ibid., Article 18.4.
89
90

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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

enhancing/strengthening
legalization.
For
instance,
Thailand, 92
Philippines 93 and Malaysia 94 signed EPAs with Japan, whereby they
committed themselves to many ‘WTO plus’ legal obligations. Vietnam95 andCambodia96 concluded BITs with Japan and the Lao People’s Democratic
Republic is negotiating a BIT with Japan. 97 As ASEAN-wide regional
integration initiative such as ASEAN+398 or ASEAN+699 is painstaking andis not plausible at least in the near future, these member countries of theASEAN have opted themselves to individual commitment for higher
legalization with their East Asian trading partners.
US/EU versus Japan: rivalry in competition law and policy
Finally, we should mention another aspect of legal rivalry in theregionalism in East Asia which goes beyond the region, namely, the rivalry ofrules originated in US/EU and those originated in Japan. This is taking
place in an area beyond the coverage of the current multilateralrule-making; competition law and policy.
Multilateral rule-making on competition law and policy has occasionallybeen attempted, but has never been successful.100 The most recent attempt
was the WTO Singapore Ministerial Declaration, whose paragraph 20
announced the WTO Members’ agreement to establish a working group to
study ‘the interaction between trade and competition policy.’ However,
together with ‘the relationship between trade and investment’, 101 this‘Singapore issue’ was dropped from the agenda of the DDA in December
2005.
While the multilateral rule-making attempts repetitively failed ever since
the early post-WWII period, EU and US have been active in theformation/strengthening their own competition law and policy and its global
diffusion.
See supra n.22.
See supra n.20.
94 See supra n.21.
95 See supra n.32.
96 See supra n.33.
97 See supra n.35.
98 ASEAN plus Japan, China and Korea.
99 ASEAN+3 plus India, Australia and New Zealand.
100 For the past attempts of multilateral rule-making on competition law and policy, see
Nakagawa(2004a), (2004b).
101 See supra n.44 and corresponding text.
92
93

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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

Contemporary competition law has its origins in the US Sherman
Anti-Trust Act (1890). After the WWII, US pressured its European allies
such as the UK and Australia and the recently defeated Japan and Germany
to adopt anti-trust laws. 102 With the intensifying international business
transactions, extraterritorial application of US anti-trust laws caused
international conflicts.103 In order to prevent such conflicts, US has beenconcluding bilateral anti-trust cooperation agreements with its major
trade/investment partners (e.g., West Germany (1976), Australia (1982),
Canada (1984, revised in 1995), EC (1991, supplemented in 1998) and Japan(1999)), under which US anti-trust authorities abstain from applying its
anti-trust law extraterritorially (positive comity).104
While these movements were based on the premise that each contracting
party maintain its own competition law, EU and US have been trying todiffuse its own competition law and policy globally since the 1990s.
EU has been inserting a clause requiring enactment of competition law
according to EU competition law in its Association Agreements with Central
and Eastern European countries, and providing them technical assistancefor that purpose. This has been explained as a precondition on the part ofthese countries to join the EU.105
On the other hand, US took the initiative in establishing theInternational Competition Network (hereinafter the ‘ICN’) in 2001.106 The
ICN has established working groups on such key issues of international
concern as cartels, mergers, advocacy and telecom, and has been producing
recommendations or ‘best practices,’ though individual competition
authorities decide whether and how to implement them, through unilateral,bilateral or multilateral arrangements, as appropriate. 107 As of January
2008, 103 competition authorities of 92 jurisdictions are the members of theICN,108 which means most of those jurisdictions which have competition
Jones(2006:25-26).
See the epoch-making judgment of the US Federal Circuit Court on ALCOA case. US
v. Aluminium Co. of America (ALCOA), 148 F.2d 416 (1945).
104 Pitofsky(1999:405-409).
105 Nakagawa(2004b:31)
106 Ibid., pp.36-37.
107 See ICN, About the ICN.
http://www.internationalcompetitionnetwork.org/index.php/en/about-icn
108 ICN Membership contact list (January 2008).
http://www.internationalcompetitionnetwork.org/pdf/ICN_Contact_List.pdf
102
103

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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

laws are its members. Through this multilateral forum and other channels,
US has been trying to diffuse its own competition law and policy globally as‘international best practices’.
Japan, while actively participating in these movements (ICN, bilateralanti-trust cooperation agreements, etc.), has been trying to diffuse its
Antimonopoly Act to East Asia. Japan’s EPAs with East Asian countries
contain chapters on competition law and policy,109 whereby Japan offers
technical assistance and information exchange the enactment andimplementation of competition law and policy according to Japan’s
Antimonopoly Act. 110 Japan’s Fair Trade Commission (hereinafter the‘JFTC’) has been providing technical assistance (‘capacity building’) to,among others, Korea, Thailand, China, Malaysia, Mongolia, Indonesia,
Vietnam, Philippines, Myanmer and Laos. 111 It also took initiative inlaunching East Asian Competition Policy Forum (EACPF), website forum
which provides a platform for sharing and exchanging information andexperiences on competition law and policy in East Asia, in 2003.112
These activities have so far achieved results to some extent. In particular,
the JFTC provided extensive technical assistance to China in enacting its
Anti-monopoly Law in August 2007,113 whose basic principles and rules arequite similar to Japan’s Antimonopoly Act. Also, Japan’s technical assistanceto Vietnam has contributed to the enactment of Vietnamese Law on
Competition.114
An increasing number of countries/jurisdictions have come to enact
competition laws, and EU and US have been most influential in this process.
However, Japan has achieved a moderate success in diffusing JapaneseAnti-Monopoly Act in East Asia.

109
110

See, for instance, Chapter 12 of the Japan-Singapore EPA (supra n.19)
Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (ActNo.54 of 14 April 1947).
111 Japan, Fair Trade Commission, Technical Assistance Projects Provided.
http://www.jftc.go.jp/eacpf/05/technical-a.pdf
112 East Asia Competition Policy Forum, Profile. http://www.jftc.go.jp/eacpf/about.html
113 Adopted 30 August 2007, scheduled to enter into force 1 August 2008. As an
explanation in Japanese, see http://www.jftc.go.jp/worldcom/html/country/china2.html
114 Adopted 9 November 2004, entered into force 1 July 2005. As an explanation in
Japanese, see http://www.jftc.go.jp/worldcom/html/country/vietnam.html
19Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

4. Implications of Legal Competition on the Coherence of Regional
Integration in East Asia
Will legal competition contribute to the coherent regional integration of East
Asia?
Katzenstein & Shiraichi argue that porous regional dynamics in East Asia
tend to discourage a ‘national model’ to dictate the regional integration. 115
Is that the case for EPAs and FTAs in East Asia? The answer seems to be yes
and no.
As was shown in section 3 above, there has been a discrepancy between
high legalization and low legalization in East Asia. Given this, at least in theforeseeable future, regional/bilateral networks of FTAs, EPAs and BITs will
not form a coherent and integrated set of legal rules for the protection andpromotion of trade and investment in the region. To the contrary, a moreplausible future would be an accumulation of scattered and contradictory
legal rules in the region with gross country bias (few rules in China and
ASEAN except Singapore and more and more detailed rules in Japan,
Singapore and Korea and their counterparts). This might be a worst
scenario.
A better scenario would be brought about by the policy change of China
and ASEAN countries other than Singapore to the direction of higher
legalization. We already pointed out such symptom in ASEAN countries in
the last section. Individually, these countries have agreed to higher
legalization through FTAs, EPAs and BITs. And Japanese government isplanning to conclude either EPAs or BITs with all the members of ASEAN 10
except Myanmar.116 Although it takes at least a few years in achieving this,the day will surely come when almost all the ASEAN countries commit
themselves to high level legalization on trade and investment.
Another positive symptom is the recent visit of Chinese President Hu
Jintao to Japan (6 to 11 May 2008). The Joint Statement of 7 May
announced that “(t)he two sides resolved to engage particularly in thefollowing areas of cooperation so that Japan and China, which have a major
Katzenstein & Shiraishi(2006).
METI, Japan’s Policy on FTAs/EPAs, March 2005, slide no.9. (Available fromhttp://www.meti.go.jp/english/policy/index_externaleconomicpolicy.html) Also see METI,The Report of the Joint Study Group on the Possible Trilateral Investment Agreements
among China, Japan, and Korea (November 29, 2004).
115
116

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Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

influence on the world economy, can contribute to the sustainable growth of
the world economy: ･･･
To promote mutually beneficial cooperation and expand common
benefits in a wide range of fields, including trade, investment,
information and communication technology, finance, food and productsafety, protection of intellectual property rights, business environment,
agriculture, forestry and fisheries industries, transport and tourism,
water, and healthcare.”117 (Italics added by the author)
If both governments are to think seriously about this commitment, theymight resume negotiation of currently stalled Japan-China-Korea trilateral
investment agreement, 118 or even they might think seriously about
ASEAN+3 (not to say ASEAN+6119) FTA.120 At the end of the day, this willlead East Asia to a coherent regional integration with highly advanced
legalization.
It is, however, too optimistic to imagine the early realization of such
scenario. Even now, the unorganized accumulation of FTAs, EPAs and BITs
in the region is producing incoherent network of trade and investment rules(‘spaghetti bowl’). In order for a coherent regional integration to come into
existence, there is a strong need of an institutional mechanism forcoordinating and fine-tuning the existing FTAs, EPAs and BITs. As there is apersistent conflict between Japan and China as to such mechanism(ASEAN+3 or ASEAN+6?),121 such a mechanism will not be formed in thenear future. The best one can say is that a coherent East Asian regional
integration should be aimed at as a mid-term goal.

117 Joint Statement between the Government of Japan and the Government of thePeople’s Republic of China on Comprehensive Promotion of a “Mutually Beneficial
Relationship Based on Common Strategic Interests.” 7 May 2008.
http://www.mofa.go.jp/region/asia-paci/china/joint0805.html
118 See MOFA, On the fourth negotiation of Japan-China-Korea Investment Agreement,
held in Tokyo on 12-13 March 2008.
http://www.mofa.go.jp/mofaj/gaiko/investment/jck2/04_gh.html
119 See Kawai & Wignaraja(2007).
120 See The fifth ASEAN economic ministers and the ministers of People’s Republic ofChina, Japan and Republic of Korea consultation, 14 September 2002, Bandar Seri
Begawan, Brunei Darussalam, Joint Press Statement. (Available fromhttp://www.meti.go.jp/english/policy/index_externaleconomicpolicy.html)
121 See Kawai & Wignaraja(2007).

21

Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

Conclusion
Given the stalemate of the DDA and the manifest failure of the MAI
negotiation, we cannot foresee the resurrection of multilateral rule making
for the promotion and protection of trade and investment. The current trendof regional/bilateral rule making through FTAs, EPAs and BITs will continue
to prevail at least for a foreseeable future. East Asia is no exception.
Legalization through regional/bilateral means has both advantages anddisadvantages. It is faster than multilateral rule making, and one
strategically can pick and choose like-minded partners. On the other hand, it
may bring about intricate and contradictory network of rules which ispractically applicable (‘spaghetti bowl’). Also, it may enlarge the discrepancy
between modest and aggressive legalism in the region, and may thus havedetrimental effect on both multilateral rule making and coherent regional
integration.
To avoid such disastrous outcome while seeking advantages ofregional/bilateral rule making, there is a strong need of an institutional
mechanism for coordinating and fine-tuning the existing FTAs, EPAs and
BITs in East Asia. Both Japan and China should cooperate for theestablishment of such a mechanism. Pragmatic and forward looking
leadership is most required in international economic diplomacy in East
Asia.

22

Competitive Regionalism thematic chapter: Law, Ver.2 (Nakagawa)(May 2008)

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