The Policy Making Process in FTA Negotiations: A Case Study of Japanese Bilateral EPAs

This paper analyzes Japanese bilateral EPA negotiations, focusing on the areas that each country decided were most important, as well as which actors played the most important roles in each set of negotiations. The negotiations with Mexico and Thailand, which tried to increase agricultural exports to Japan through FTAs, will be discussed. Japan, one should note, still seeks to protect its agricultural sector in spite of the spread of liberalization. The Philippines, Thailand and Malaysia’s efforts to improve and compete in developing their automotive industries, in the face of the completion of AFTA in 2010, are also examined. In addition, this paper discusses whether economic cooperation, the essential Japanese strategy in EPA negotiations, alters the negotiation process in any significant way.

How serious is the omission of bilateral tariff rates in gravity?

In this paper, using the worldwide dataset of bilateral tariff rates, we explore how serious the omission of bilateral tariff rates in gravity is. Our findings are as follow. Firstly, the omission of bilateral tariff rates seems not to be so serious in terms of omitted-variable biases because the coefficients for the usual gravity variables do not change before or after their inclusion. Secondly, while the widely-used dummy variable of regional trade agreement could not play an alternative role in place of tariff rates, the inclusion of time-invariant pair fixed effects in addition to the time-variant importer fixed effects and exporter fixed effects accounts for the omission of tariff rates. The inclusion of those fixed effects makes the coefficient for bilateral tariff rates insignificant.

The Japan-Peru FTA : antecedents, significance and main features

The Economic Partnership Agreement (EPA) between Japan and Peru came into effect on March 1, 2012. This paper provides background information about this agreement's significance, mostly from a Peruvian point of view. It focuses on the following subjects: the statistical trends showing Peru's declining shares in Japan's trade and investment flows with Latin American countries between the mid-1970s and mid-2000s, the main explanatory factors of such a deterioration in Peru's economic position over that period, the changes of trade policy strategy in both countries since the 2000s, and the EPA negotiation process and some of its key results as featured in the text of the agreement.

Impact of diagonal cumulation rule on FTA utilization : evidence from bilateral and multilateral FTAs between Japan and Thailand

In this paper, we empirically investigate the effect of diagonal cumulation on free trade agreement (FTA) utilization by exploring Thai exports to Japan under two kinds of FTA schemes. While the one scheme adopts bilateral cumulation, the other scheme does diagonal cumulation. Comparing trade under these two kinds of FTAs, we can examine the effect of diagonal cumulation without relying on not only the variation in cumulation rules across country pairs but also the variation across years. In short, our estimates do not suffer from biases from time-variant elements and country pair-specific elements. As a result, our estimates show around 4% trade creation effect of diagonal cumulation, which is much smaller than the estimates in the previous studies (around 15%).

FTA utilization : certificate of origin data versus customs data

This paper empirically examines what kinds of elements affect the gap in free trade agreement (FTA) utilization with regard to customs data and certificates of origin (CoOs) data. We focus on Thai exports to Korea under the ASEAN-Korea FTA in 2011. As a result, we found that the products with the higher demand volatility or those with a larger number of tariff-line products within the same harmonized system (HS) six-digit code have the larger gap. Another important finding is that the difference between the HS version at the time of the FTA negotiation and the current HS version does not have significant association with the gap. These findings have important implications.

Impacts of common rules of origin on FTA utilization

This paper examines empirically the impacts of sharing rules of origin (RoOs) with other ASEAN+1 free trade agreements (FTAs) on ASEAN-Korea FTA/ASEAN-China FTA utilization in Thai exports in 2011. Our careful empirical analysis suggests that the harmonization of RoOs across FTAs play some role in reducing the costs yielded through the spaghetti bowl phenomenon. In particular, the harmonization to "change-in-tariff classification (CTC) or real value-added content (RVC)" will play a relatively positive role in not seriously discouraging firms’ use of multiple FTA schemes. On the other hand, the harmonization to CTC or CTC&RVC hinders firms from using those schemes.

New measures of FTA liberalization level

This paper proposes new measures of the liberalization level of free trade agreements (FTAs). Our measures take three issues into account. First, in order to identify the differences in FTA liberalization level over time, we compute the annual liberalization level rather than the level during the whole period. Second, our measure includes information on tariff margins, i.e. the difference between FTA rates and most favoured nation rates. Third, the restrictiveness of rules of origin (RoOs) is also taken into account in order to penalize the liberalization level of products with more restrictive RoOs. In this paper, we compute such measures of FTA liberalization level for three FTAs in Thailand.

FTA in international finance : impacts of exchange rates on FTA utilization

This paper investigates how exchange rates affect the utilization of a free trade agreement (FTA) scheme in trading. Changes in exchange rates affect FTA utilization by two ways. The first way is by changing the excess profits gained by utilizing the FTA scheme, and the second way is by promoting the compliance of rules of origin. Our theoretical models predict that the depreciation of exporters' currency against that of importers enhances the likelihood of FTA utilization through those two channels. Furthermore, our empirical analysis, which is based on rich tariff-line-level data on the utilization of FTA schemes in Korea's imports from ASEAN countries, supports the theoretical prediction. We also show that the effects are smaller for more differentiated products.

Is FTA/EPA effective for a developing country to attract FDI? : simulation analysis based on an extended knowledge-capital model

To prepare an answer to the question of how a developing country can attract FDI, this paper explored the factors and policies that may help bring FDI into a developing country by utilizing an extended version of the knowledge-capital model. With a special focus on the effects of FTAs/EPAs between market countries and developing countries, simulations with the model revealed the following: (1) Although FTA/EPA generally ends to increase FDI to a developing country, the possibility of improving welfare through increased demand for skilled and unskilled labor becomes higher as the size of the country declines; (2) Because the additional implementation of cost-saving policies to reduce firm-type/trade-link specific fixed costs ends to depreciate the price of skilled labor by saving its input, a developing country, which is extremely scarce in skilled labor, is better off avoiding the additional option; (3) If a country hopes to enjoy larger welfare gains with EPA, efforts to increase skilled labor in the country, such as investing in education, may be beneficial.

Approximation to EU Technical Standards with and without the Promise of Membership: the Cases of Slovakia and Ukraine. EU Diplomacy Paper 02/2013

This paper aims to identify the extent to which the non-promise of membership of the European Union (EU) precludes the motivation of Ukraine as European Neighbourhood Policy country to adopt EU policies in the field of market access, namely technical standards and regulations. Its approximation approach is compared to the fast-tracked accession of Slovakia, which was driven by a clear-cut membership promise. Furthermore, the paper elaborates whether the conclusion of an Association Agreement between the EU and Ukraine, including a Deep and Comprehensive Free Trade Agreement, provides sufficient incentives for Ukraine to continue reforming its quality infrastructure in order to gain access to the Single European Market. Finally, scenarios of possible developments of EU-Ukraine relations are deliberated in the context of the EU-Ukraine-Russia triangle. The paper argues that market access provides sufficient stimulus for third countries to adhere to EU technical standards – even in the absence of a clear and credible promise of future EU membership. Yet, in the case of Ukraine, the country’s relations with Russia appear to compete with its EU approximation process, resulting for the time being in Ukraine attempting to pursue a balanced dual cooperation with both the EU and Russia.

Putin’s grand design to destroy the EU’s Eastern Partnership and replace it with a disastrous neighbourhood policy of his own. CEPS Commentary, 17 September 2013

This new Commentary by Michael Emerson and Hrant Kostanyan shows how the pressure exerted by President Putin on Armenia to withdraw from the Deep and Comprehensive Free Trade Agreement it had negotiated with the EU and to join the Belarus, Kazakhstan and Russia customs union is but the most recent in a long series of ongoing moves by Russia to destroy the Eastern Partnership. In their view, the message to be hammered home to those unsure of the economic arguments is that you do not have to have an exclusive customs union to enjoy deep integration for goods, services, people and capital, and of course even less for hard security relationships. High-quality free trade agreements are the logical instrument for those who want excellent relations with more than one big neighbour.

Triangular Geopolitics in Europe’s Eastern Neighbourhood. CEPS Commentary, 2 December 2014

Over the last few months, Russia has employed a number of economic and security measures to derail the Deep and Comprehensive Free Trade Agreement (DCFTA) between the EU and Ukraine. Russia’s opposition to the Agreement was based on the argument that it would damage its economy and weaken its trade ties with Ukraine. Russia’s actions ultimately led to war in Ukraine, but did not succeed in reversing Ukraine’s EU integration policies; instead there are now trilateral negotiations between the EU, Ukraine and Russia on mere technical trade aspects of the DCFTA. The Kremlin is using similar rhetoric and, to some extent, similar coercive measures against the DCFTAs with Moldova and Georgia. But the small scale of Moldovan and Georgian trade with Russia is not a legitimate reason for the EU to replicate the Ukraine ‘trialogue’ on the DCFTAs in these countries. Instead, Moldova’s heavy dependence on Russia’s energy and the former’s transit role for the EU offers a greater possibility to set up trilateral negotiations, similar to the recently finalised gas trialogue between the EU, Ukraine and Russia.

2016 already puts its mark on the economic map of Europe. CEPS Essay No. 22/8 January 2016

The start of 2016 brought highly symbolic changes to the trade policy map of Europe between the EU- and Russian-led blocs, as the EU’s Deep and Comprehensive Free Trade Area (DCFTA) with Ukraine entered into force provisionally, while Russia moved in precisely the opposite direction by scrapping its free trade agreement with Ukraine. However the ongoing changes go far wider and deeper. The energy sector and major industries see disengagement between Ukraine and Russia, and Russia’s share in Ukrainian trade is falling substantially. New transport corridors with China may offer synergies with trade opportunities for all three DCFTA states, with Georgia first in line. Visa liberalisation for the entire DCFTA space is now firmly in prospect. Divergent macroeconomic trends between a recovering eurozone and recession in Russia will accentuate the changes in trade structures. A better organisation of the pan-European economic space is surely desirable, but prospects for links between the EU and the Eurasian Economic Union remain problematic.

National independence; or, A common-sense policy,

Employment demands protection.--Why any exclusive policy?--The free trade trap.--Protection enriched us, not free trade.--Free trade poisons patriotism.--Kill industries and commerce dies.--Theories are dangerous guides.--Industrial displacements spell ruin.--Independence the only policy.--The fatal policy of laissez faire.--"Cheap and nasty."--Our unearned increment.--Free trade a spiteful mistress.--The fertility of character.--We cultivate weakness, not strength.--Britons can manage British business.--Second markets.--The country's average wage.--If trusts, then British trusts.--Labour's true interests.--Germany and her navy.--Class-hatred is suicide.--The tax on wheat.--The little-Englander rat.--The seeds of decay.--Education and patriotism.--Intemperate legislators.--National strongholds.--Futile scheming.--The balance of power.--The suffragette among nations.--Naval warfare in the future.--Universal service.--Broken reeds.

Internationalisation as a democratic tool:revisiting Mexico's double transition

Mexico's double transition—democratisation and internationalisation—offers a good case study to analyse the interaction between internationalisation processes and domestic developments during transitions to democracy. This article explains how the specific way in which Mexico linked with North America worked as a causal mechanism during the country's democratisation. In the end, an inadequate project of internationalisation—spearheaded by the North American Free Trade Agreement (NAFTA)—failed to fulfill its democratising potential.