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Midori Narazaki

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The Fear of FreeTrade Agreements

Midori Narazaki
Professor, Faculty of Law, Chuo University
Areas of Specialization: International Economic Law, Private International Law

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1. Protest Movements against Free Trade Agreements

In Taiwan, university students against a free trade agreement on services with the People’s Republic of China (the Cross-Strait Agreement on Trade in Service) occupied the floor of the Legislative Yuan from March to April of this year. The Taiwanese students barricaded themselves inside the Legislative Yuan to prevent deliberations attempting to force the ratification of the agreement through the legislature. The protest movement, known as the Sunflower Student Movement, drew the support of many citizens worried about massive amounts of Chinese capital flowing into Taiwan.

In South Korea as well, there were vehement protests against the South Korea-U.S. Free Trade Agreement (KORUS FTA). It took over four years for the agreement to be ratified after it was signed. Another free trade agreement currently being negotiated with China (The China-Korea FTA) is also being protested by Korean farmers.

And in Japan, negotiations on the TPP (Trans-Pacific Strategic Economic Partnership Agreement) have triggered debates over its pros and cons. Why do free trade agreements provoke such vehement opposition?

2. What Is Promised in a Free Trade Agreement?

Traditionally speaking, trade liberalization is the negotiation of a reduction in tariffs. The requests for tariff reduction Japan receives are focused on the agricultural sector, where a high tariff barrier remains. On the other hand, country negotiating with Japan have high tariffs on automobiles and automotive parts . If the two countries are able to agree to each other’s requests the free trade agreement is signed.

The free trade agreement does not always mean an even balance of privileges. For example, a “MFN (Most Favored Nation)” favored by a free-trade state will simply maintain current conditions, because its tariffs are already enough reduced. On the other hand, a MFN favored by a protectionist state receives promising profits in proportion to the reduction in tariffs of that state. However, a free-trade state signs many free trade agreements, forming a hegemonic system, and the participating in that system allows a contracting state to enjoy stable alliances.

Free trade agreements also lay out procedures for resolving disputes when they arise. For example, in the dispute settlement procedure for when a country sues another country, the country not upholding the promises it made in the agreement is issued a recommendation for corrective action. How it actually corrects the problem, however, is left to the country to decide. Even if damages arise due to the violation of the agreement, compensation for these damages is not required. On the other hand, in the arbitration procedure for investor-state dispute settlement (ISDS), a company (investor) that suffers damages due to a country’s violation of an agreement can seek compensation for the damages and refer the matter to the arbitrator for decision.

3. Why the Claim that FTAs Violate National Sovereignty and Legislative Power?

The essence of a treaty is the exchange of privileges and the binding of both parties to their respective obligations. Each country signs treaties on the basis of its national sovereignty, so the act of signing a treaty is not in itself an infringement of national sovereignty.

However, forces that feel distrustful of their government fear it will sign imbalanced treaties that trade domestic industry for the development of closer cross-national ties with the governments of foreign countries. From this standpoint, national sovereignty denotes a country’s independence and right of self-determination, and the government of one’s country may be regarded as an unfit embodiment of national sovereignty. Sometimes, these forces can cause a country to revoke a treaty or withdraw from negotiations by overthrowing the government or inducing a change of government.

Likewise, the possibility of being sued by a foreign country or coming under the review of an arbitrator, etc. does not in itself violate national sovereignty, for the review of one’s legislation, etc. during the dispute settlement procedure to determine if it is in violation of the agreement is consented to beforehand when the agreement is signed on the basis of national sovereignty.

However, if the government inhibits the creation of institutions and policies inherently needed for the good of the country out of fear of being sued by a foreign country or company, it creates the sense that policymaking is being swayed by the foreign country. For example, from the perspective of a foreign company, a tax system that only allows tax breaks for products that prevent environmental pollution can seem like an institution set up to eliminate foreign competition. Vast amounts of damages are claimed as compensation for a country not observing the privileges promised in an agreement. This possibility alone can lead to the contraction of government and the suppression of social legislation. The claim that free trade agreements allowing for investor-state arbitration infringe on legislative power expresses a fear of the possibility that the government may stifle the development of needed institutions.

4. Free Trade Agreements Are the Products of Bargaining

Free trade agreements are primarily established for countries to grant each other what they respectively want, exchanging promises within a range of maximum balance. Another feature of free trade agreements is the scattered presence of hidden exceptions to the promised obligations. Consequently, a lot of proof is required just to determine if a country is in violation of the agreement in the dispute settlement procedure.

The fear of free trade agreements waxes and wanes depending on people’s trust in their government. When a country negotiates a free trade agreement, the government must also launch efforts at home to change existing policies and legislation that protect domestic industry. Could we calculate the dynamic impact the combined energy from the thrust for domestic change and the forces against change have on a country during free-trade agreement negotiations? If this value could be calculated, I imagine it could be used as an indicator of the government’s credibility.

Midori Narazaki
Professor, Faculty of Law, Chuo University
Areas of Specialization: International Economic Law, Private International Law
Professor Narazaki was born in 1969. She withdrew from the Doctoral Program at the Graduate School of Law, Chuo University, and received her bachelor’s degree from the Faculty of Law and Economics, Chiba University. After working as an associate professor on the Faculty of Commerce at Otaru University of Commerce, she became an associate professor on the Faculty of Law, Chuo University in 2005 and assumed her current position in 2014.
Her current areas of research are international aspect of financial regulation and state jurisdiction. In recent years, she has renewed her interest in a historical theme of the relationship between countries and companies.