Student blog post: On the basis of the Article ‘Port of Rotterdam Reveals Scale of Brexit Challenge’ discuss the legal issues relating to non-tariff barriers and trading standards imposed on imported goods.

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This post (edited for publication) is contributed to our blog as part of a series of work produced by students for assessment within the module ‘Public International Law’. Following from last year’s blogging success, we decided to publish our students’ excellent work in this area again in this way. The module is an option in the second year of Bristol Law School’s LLB programme. It continues to be led by Associate Professor Dr Noelle Quenivet. Learning and teaching on the module was developed by Noelle to include the use of online portfolios within a partly student led curriculum. The posts in this series show the outstanding research and analytical abilities of students on our programmes. Views expressed in this blog post are those of the author only who consents to the publication.

Guest author: Victoria Meller

One of the most discussed phenomena of recent times is the decision of the United Kingdom to leave the European Union, i.e. Brexit. While the exact implications of Brexit will only become apparent once the UK officially leaves in 2019, the departure will undoubtedly have consequences on the economic relations of the UK with the EU as well as with the rest of the world.

The focus of this blog post is on the effect of Brexit on trading standards, i.e. tariffs and non-tariff barriers on imported and exported goods. I will examine the challenges that UK businesses and consumers might face.

Tariff and Non-tariff Barriers

Tariffs are external taxes paid on imported and exported goods as they cross the border whereas non-tariff barriers are trading requirements on goods, such as certain quality certificates which need to be shown at the border, or quantitative measures such as quotas. States usually prefer to pay tariffs to abiding by non-tariff barriers as the latter can limit or prevent a certain type of product from entering a State.

One fundamental principle of international economic law is the principle of non-discrimination. It is imposed by the World Trade Organization on all its members and consists of two components: the Most Favoured Nation (MFN) treatment (Article I GATT 1994) which states that each trading partner must be treated equally and the national treatment (Article III GATT 94) which stipulates that foreign goods shall be treated in the same way as national goods. Exceptions to the principle (Article XIV) include preferential treatment towards developing nations (which goes against MFN but is for the greater good of disadvantaged nations) and being part of a regional free trade agreement. The UK, as a member state of the EU, is part of the single market and customs union, which operates as a tariff-free trade zone and applies the national treatment principle within its borders though it does discriminate against non-EU goods but is allowed to do so as it is a regional trade agreement.

In light of the article by Acton (Financial Times, 28 December 2017) this blog post highlights specific issues relating to the import of agricultural goods into the UK as it is claimed that 70% of imported food comes from the EU.

Price Rises

If the UK is unable to negotiate a free trade deal with the EU, then Brexit will result in the UK adopting the universal WTO tariffs as well as having the EU common external tariff of 2.3%  being imposed on it. This may result in price rises on foods such as fruits, vegetables, and wine which cannot be produced in the UK and are primarily imported from other EU States. As demonstrated in the table below, tariffs on e.g. dairy produce might rise to 39.9% on EU exports and 39.4% on UK exports. The higher prices would be caused by not only higher tariffs being placed on imports from the EU but also international imports entering the EU before reaching the UK. As the article explains, the latter situation is likely to happen since the UK does not have sufficiently large ports in comparison to EU ports such as Rotterdam.

 

Source: J Protts, ‘Potential Post-Brexit Tariff Costs for EU-UK Trade’, Civitas, October 2016, available here.

Double Control

Goods imported from outside the EU will go through a double border control which will inevitably cause delays. This will have the greatest impact on goods which rely on the just-in-time production system, such as food manufacturers (e.g. Kellogg’s). The just-in-time inventory system relies on manufacturers producing enough to meet demand, and only storing a limited amount of excess goods in inventory. Hence quick delivery onto shelves is essential. Double border control will mean double tariffs and non-tariff barriers such as certifications. This will affect the time they reach consumers and thus create costs for businesses.

As for non-tariff barriers, these will have huge implications on agricultural goods, as they are subject to stricter regulations and sanitary standards because of their public health consequences and fragile nature.

Non-tariffs 

Non-tariff barriers are believed to be 2-3 times the cost of tariffs on goods. With that in mind, sanitary standards and rules of origin (see Article IX GATT) of exported goods should remain strict for the UK post-Brexit. This will be to prevent the UK from acting as a ‘back door route for goods into Europe’. Since the UK will no longer be an EU member it may decide to relax trading standards, e.g. allow imports of chlorinated chicken which is banned across the EU. However, I think that the UK will nonetheless uphold most of the EU trading regulations and replicate them into its domestic law. This is because the majority of those regulations were voluntarily upheld by EU member states, as opposed to being imposed on them. In addition, as aforementioned, the UK does not possess sufficient ports for trading and so will likely continue to rely on EU ports. 

Source: Michael Acton ‘Port of Rotterdam Reveals Scale of Brexit Challenge’, Financial Times, 28 December 2017, available here.

Uncertain Future

Regardless of the many challenges that may initially arise due to Brexit, I think the UK could possibly benefit in the long run from withdrawing from the EU as it will no longer be restrained by the EU in terms of product standards and consequently be able to negotiate free trade deals on its own terms with any State and freely decide which tariffs and trading requirements to impose. I believe the UK will learn to adapt to this new set of circumstances, but only time will tell.

Student blog post: Common Reporting Standards – Criminal Information Nowhere to Hide?

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This post (edited for publication) is contributed to our blog as an excerpt from an LLM Dissertation by Yen Lai. Views expressed in this blog post are those of the author only who consents to the publication.

Our financial world today remains as a black hole whereby the illicit capital flow or unreported assets of financial criminals are utterly difficult to gauge on its extent, especially in the tax haven. The real magnitude of criminal use of tax haven is always uncertain, because of its bank secrecy facilitates criminal activities like tax evasion, money laundering and conceal the illicit money trail related to other white collar crimes.  The tax scandals such as Panama Paper and Paradise Paper could be tip of the iceberg. The aftermath revealed the inefficiency of authorities when tax information is needed to be “leaked” by financial firms because it is extremely hard to keep track on the money trail with intention to hide over the world.

Currently, the most extensive feature of the Common Reporting Standard by OECD consists of a model of Multilateral Competent Authorities Agreement that allows information to be exchange automatically after a jurisdiction signs into it. This Automatic Exchange of Information is particularly useful in transmitting information such as the money flow between jurisdictions, the changes of residence, the purchase or disposition of property, value-added tax refunded, etc.  This will provide timely information on non-compliance where tax has been evaded. However, there is a foreseeable problem of too much or too little information being exchanged between jurisdiction and how the investigators process and utilise the data will be highly concerned.

Firstly, the US as one of the major economy and ranked as second most secrecy jurisdiction, is not a signatory to CRS, but adopted own FATCA. There will be too many bilateral or multilateral Competent Authority Agreements (CAAs) become available to facilitate the automatic exchange of information within the CRS.  The matter of cost and efficiency arise with the problem of too much information.  Secondly, there is lack of provision to demand a jurisdiction to sign a CAA with another jurisdiction, even if the latter complies with confidentiality and data protection safeguards.  A secrecy jurisdiction can be a signatory to CRS, upholding its reputation, by choosing another secrecy jurisdictions or major financial centres to exchange information.  Thirdly, there is incompleteness in the non-reciprocity mechanism for developing countries as there is no provision of a timeframe on when a full reciprocity would be required.  Fourthly, it is a big obstacle to require a consensus from the jurisdictions that have signed the CRS before accepting a new jurisdiction.  It indicates a risk of secrecy jurisdiction acts on self-interest purpose.  Fifthly, non-reciprocity is offered to jurisdictions without an income tax, which means secrecy jurisdictions can send information but not receiving information from another jurisdiction.  This can promote the status quo and corruption of a secrecy jurisdiction because the prosecution of financial criminals will be hard without the information on its residents’ foreign income from another jurisdiction.

It is perceptible that CRS is a voluntary scheme that mainly depends on a jurisdiction to fulfil its commitment through their national legislation. The UK has passed numerous legislation in tackling tax evasion while complying the CRS. The problem with the UK legislation is that it is too hard to prosecute a company for the facilitation of tax evasion by their customers or suppliers.  Moreover, the Big Four accounting firms involved in numerous scandals outbreak show a growing consensus in facilitating the wrongdoing of their clients.  Hence, Criminal Finances Act 2017 has significant reform that introduces two offences to held account for ‘fail to prevent’ the facilitation of UK tax evasion and far-reaching to the evasion of foreign tax that was assisted by any firms incorporated in the UK; rather than trying to attribute the criminal acts in proving the “directing mind” of the firm.  The new offences come with greater powers for law enforcement to regulate the risk profile of financial sector and professional services firms in relation to tax evasion issues and their compliance programmes.  Other than that, the UK lawmakers passed several regulations in complying the CRS, such as extending the Data-gathering Powers Regulations 2016, International Tax Compliance Regulations 2015 and the Client Notification Regulations 2016.

In conclusion, CRS does not aim to change a secrecy jurisdiction’s fiscal policies but merely to eliminate the secrecy through exchange of information. Positive movement can be seen in the increasing number of jurisdictions that have signed up to the CRS, compliment by the progress in the law-making of each jurisdiction. CRS’s automatic exchange of information demonstrates a transparency improvement and certainly better than previous exchange information on request. Notably, the CRS will not be a succession until all jurisdictions implement it, as of the nature of tax evasion and facilitation of tax haven involve uncountable complexity network.

Bibliography

Primary source:

Statutes and statutory instruments:

Criminal Finances Act 2017, ss 45-46

Data-gathering Powers (Relevant Data) (Amendment) Regulations 2016, SI 2016/979

Foreign Account Tax Compliance Act (2010) 26 USC § 6038D; 26 USC §§ 1471-1474

International Tax Compliance (Client Notification) Regulations 2016, SI 2016/899

International Tax Compliance Regulations 2015, SI 2015/878

Secondary source:

Reports:

European Parliament, ‘Organised Crime, Corruption, And Money Laundering: Recommendations on Action and Initiatives to Be Taken’ (CRIM Special Committee 2013)

Knobel A and Meinzer M, ‘Automatic Exchange Of Information: An Opportunity For Developing Countries To Tackle Tax Evasion And Corruption’ (Tax Justice Network 2014)

Knobel A and Meinzer M, ‘”The End Of Bank Secrecy”? Bridging The Gap To Effective Automatic Information Exchange’ (Tax Justice Network 2014)

OECD, ‘Standard For Automatic Exchange Of Financial Information In Tax Matters: Implementation Handbook’ (OECD Publishing 2017)

Mitchen A and Sikka P, ‘Tax Dodging Is Their Business’, The Pin-Stripe Mafia: How Accountancy Firms Destroy Societies (Association for Accountancy & Business Affairs 2011)

Teka R and Donaldson R, ‘Corporate Liability For Economic Crime: Submission From Transparency International UK’ (Transparency International UK 2017)

 

Journal articles:

Ambrosanio M and Caroppo M, ‘Eliminating Harmful Tax Practices In Tax Havens: Defensive Measures By Major EU Countries And Tax Haven Reforms’ (2004) 53 Canadian Tax Journal 685

LeVine R, Schumacher A and Zhou S, ‘FATCA And The Common Reporting Standard: A Comparison’ [2016] Journal of International Taxation

van Duyne P, ‘Money-Laundering: Pavlov’s Dog And Beyond’ (1998) 37 The Howard Journal of Criminal Justice 359

Websites:

Christensen J, ‘Panama: The Making Of A Tax Haven And Rogue State – Tax Justice Network’ (Tax Justice Network, 2016) <http://www.taxjustice.net/2016/03/30/panama-the-making-of-a-tax-haven-and-rogue-state/> accessed 4 September 2017

Fitzgibbon W, ‘EU Encouraged To Name European States In Tax Haven ‘Blacklist’ – ICIJ’ (ICIJ, 2017) <https://www.icij.org/investigations/paradise-papers/eu-encouraged-name-european-states-tax-haven-blacklist/> accessed 4 December 2017

Fowler N, ‘The OECD Information Exchange ‘Dating Game’ – Tax Justice Network’ (Tax Justice Network, 2016) <https://www.taxjustice.net/2016/10/25/oecd-information-exchange-dating-game/> accessed 1 November 2017

Martin N, ‘The Common Reporting Standard: Are You Ready?’ (PwC, 2016) <https://www.pwc.co.uk/who-we-are/regional-sites/london/insights/the-common-reporting-standard-are-you-ready.html> accessed 10 February 2018

 

 

Student blog: What Are the (Dis)Advantages of a Collective Security Mechanism Based on ‘an attack upon one… is an attack upon…. all’ as Enshrined in Article 5 of the NATO Treaty?

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This post (edited for publication) is contributed to our blog as part of a series of work produced by students for assessment within the module ‘Public International Law’. We offer this module in the second year of Bristol Law School’s LLB programme. It is led by Associate Professor Dr Noelle Quenivet. Learning and teaching on the module includes the use of online portfolios within a partly student led curriculum. The posts in this series show the outstanding research and analytical abilities of students on our programmes. Views expressed in this blog post are those of the author only who consents to the publication. Continue reading “Student blog: What Are the (Dis)Advantages of a Collective Security Mechanism Based on ‘an attack upon one… is an attack upon…. all’ as Enshrined in Article 5 of the NATO Treaty?”

Student blog: How Can a State Control Pollution around its Landmass?

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Author: Adrianna Nowak

This post (edited for publication) is contributed to our blog as part of a series of work produced by students for assessment within the module ‘Public International Law’. We offer this module in the second year of Bristol Law School’s LLB programme. It is led by Associate Professor Dr Noelle Quenivet. Learning and teaching on the module includes the use of online portfolios within a partly student led curriculum. The posts in this series show the outstanding research and analytical abilities of students on our programmes. Views expressed in this blog post are those of the author only who consents to the publication.

For many years states marginalised the problem of pollution caused by shipping. The International Maritime Organization in the beginning of its work dealt mainly with maritime safety. In the 1950s, States started recognizing the issue of oil spills. The result was the International Convention for the Prevention of the Pollution of the Sea by Oil. The Convention established prohibited zones with limits of discharge. Still, pollution was a minor concern of the International Maritime Organization. Torrey Canyon, the biggest oil spill up to that time, raised the question about the necessity of further regulations. Accordingly, after the IMO’s extraordinary session, in 1973 the International Convention for the Prevention of Pollution from Ships  (MARPOL) was adopted. My post aims to discuss how a State can control pollution caused by shipping using MARPOL and the United Nations Convention of the Law of the Sea (UNCLOS), the main focus being on pollution caused by oil (see video on the extent of the problem). The adoption of these two conventions was indeed the start of States properly addressing the issue of pollution. However because of the lack of cooperation between well developed countries with developing ones, full effective control of pollution still remains difficult (see eg the issue of the flag of convenience).

The Issue of Enforcement

Oil spills, which are less frequent than other causes of sea pollution, have nevertheless devastating effects. The consequences of this kind of incident are twofold: irreversible damage to marine life and very high costs of cleaning up the polluted area (see eg Exxon Case before the US Supreme Court). Annex I of MARPOL deals with the prevention of pollution by oil. This part of the Convention incorporates the oil discharge criteria, the requirements of the equipment and the mandatory obligation of the Oil Record Book for every cargo vessel. Each State is responsible individually for the implementation of domestic regulations which comply with the rules of the Convention. As the International Maritime Organization has however no power to enforce its rules (Szepes, ‘MARPOL 73/78: The Challenges of Regulating Vessel-Source Oil Pollution’ (2013) 2 Manchester Student Law Review 73, 87), it is very important for States to control pollution around their landmass by monitoring foreign flagged vessels around their territory. Even if there is no legal body to enforce MARPOL’s rules, it is yet necessary for the International Maritime Organization to be aware which vessels are the main causes of the pollution as this can lead to consultations with States which violate the Convention.

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Office of Response Restoration, 25 Years Later: Timeline of Recovery from the Exxon Valdez Oil Spill

Jurisdiction of a Coastal State and its Need for Cooperation

Ships are able to be a subject of more than one system of law, which can be national, regional and/or international. The example set by Torrey Canyon showed that the application of domestic law by an injured State over its territorial waters alone is not enough to control the emission of pollution by foreign flagged vessels. As a matter of fact, the disaster revealed an issue regarding the operation of the law around a coastal state. Initially, the UN Convention on the Law of the Sea gave a coastal state the power to enforce its national legislation only within its territorial waters (Article 2 UNCLOS). As a result of the French and British reactions to the Torrey Canyon disaster, a coastal state can now enforce domestic law within its exclusive economic zone (Article 56 UNCLOS). UNCLOS extended the jurisdiction of a coastal state over its exclusive economic zone but only when a vessel which violated law in the Exclusive Economic Zone, entered that State’s port (Article 220(1) UNCLOS). Coastal state is also empowered in special situations to arrest and detain a vessel which violated its law (Article 220(6) UNCLOS). The degree of a coastal state’s power seems to be high but without the cooperation of flag states, being successful in controlling pollution is not possible. The jurisdiction of a coastal state within its exclusive economic zone is limited and applies only when the violation is serious. In all scenarios where an infringement is not significant a coastal state depends on the flag states’ jurisdiction (Szepes, ‘MARPOL 73/78: The Challenges of Regulating Vessel-Source Oil Pollution’ (2013) 2 Manchester Student Law Review 73, 94-96)On the high sea, jurisdiction always shifts to the flag state and it is rather alarming that only a small percentage of investigations result in convictions and fines (Szepes, ‘MARPOL 73/78: The Challenges of Regulating Vessel-Source Oil Pollution’ (2013) 2 Manchester Student Law Review 73, 91).

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Garry Taylor, ‘The Law of the Sea and “Creeping Jurisdiction” of Coastal States’, 21 July 2015

MARPOL and UNCLOS are the most important treaties that define the legal framework governing States’ ability to control pollution. When properly implemented by their parties, they can be successful instruments of control of pollution. The problem is that because of economic convenience, owners of world’s merchant tonnage do not register their vessels in States where environmental protection is an important matter. A high percentage of representatives of the world’s trade industry argues that the costs related to the registration of vessels in developed countries are too high and thus reduce their ability to make profits. For many States, applying high standards of environmental protection is still difficult and the only way to be successful in this area is to cooperate and support developing countries. Small steps, like increasing environmental awareness in developing countries, can help with the improvement of the control of pollution; without it, the world might be in the near future be faced with the problem of the mass extinction of certain marine species.

Student blog: The UWE Freedom of Speech Policy and the European Convention on Human Rights

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Author: Xavier Baker

This post (edited for publication) is contributed to our blog as part of a series of work produced by students for assessment within the module ‘Public International Law’. We offer this module in the second year of Bristol Law School’s LLB programme. It is led by Associate Professor Dr Noelle Quenivet. Learning and teaching on the module includes the use of online portfolios within a partly student led curriculum. The posts in this series show the outstanding research and analytical abilities of students on our programmes. Views expressed in this blog post are those of the author only who consents to the publication.

In recent years, freedom of expression on university campuses has been a hot topic. Political figures, prominent journalists and spirited students have waged into the heated discussion, fanning the flames of the debate and polarising opinion.

On the surface, UWE appears to be compliant with the European Convention on Human Rights (ECHR), defining the extent of free speech in the Freedom of Speech Policy. However, I will be arguing that there are numerous flaws within university policies and practices that hinder their ability to fulfil key societal roles.

‘Freedom of expression is a fundamental British value…’ (see video) and a qualified right found in Article 10 of the ECHR. This includes the freedom to hold opinions and receive and impart information; each element is crucial to the functioning of higher education facilities.

However, I believe that in the modern day universities have lost sight of their role in society. They should be institutions that secure free speech, expand public knowledge, stimulate ideas and develop global leaders for the future. This is being compromised by limitations on free speech.

In my view, UWE’s policy raises several concerns, thus reducing the extent to which the university complies with Article 10 of the ECHR. The most controversial section of the policy is paragraph 6 (2) which states that reasons for refusing access to premises ‘…include, but are not limited to…’ the list within paragraph 6, and at the discretion of senior members of staff (paragraph 10). This suggests that, although unlikely, UWE has the potential to not allow any events, regardless of the potential offence caused. Despite Article 10 (2) permitting restrictions to freedom of expression in a democratic society that relate to ‘public safety’ and ‘prevent disorder or crime’, I feel that UWE’s document lacks clarity. Consequently, the extent of compliance is muffled by the level of ambiguity. Moreover, the Court’s jurisprudence (see eg Özgür Gündem v Turkey, 16 March 2000, paragraph 43) displays the vital importance of free expression for the well-functioning of democratic societies.

Looking at paragraph 6 of the UWE Free Speech Policy in more depth uncovers further areas of controversy. For example, paragraph 6 (2) iii explains that UWE refuses access to premises where events are ‘…likely to give rise to an environment in which people will experience, or could reasonably fear…’ abuse, violence and/or intimidation. The case of Ceylan v Turkey (8 July 1999, paragraph 34) supports the argument that UWE’s policy complies with the Court’s interpretation because ‘a wider margin of appreciation’ is said to be given to States if expressions incite violence. However, the Court has continually reiterated that Article 10 protects expressions ‘…that offend, shock or disturb.’ (Handyside v UK, 7 December 1976, paragraph 49). Students Unions banning pop song Blurred Lines throughout 2013 epitomizes the result of inconsistencies in the interpretation of Article 10 by the Court, and the extent to which receiving and imparting information in universities has been restricted (see here). Nevertheless, UWE is only compliant with the Court’s interpretations of Article 10 where access to facilities for events is denied due to genuine risks to public safety and possibilities of disorder or crime.

As a consequence of questionable policies and practices, many students claim a ‘right’ not to be offended. From a legal perspective this strongly conflicts with securing freedom of expression, an opinion supported by Baroness O’Neill. As a panellist at Theos Annual Lecture in 2015, O’Neill explained that there cannot be a human right ‘not to be offended’ because ‘offence’ is subjective (see here). Echoing O’Neill’s opinion, I oppose the Safe Spaces and No Platform policies that UWE is subject to as a member of the NUS, as explained by current NUS president in this video.

I feel that the Safe Spaces policy is an example of the NUS crumbling under government pressure to protect Britain against the rising threat of extremism and terrorism. This has unfortunately occurred at the expense of freedom of expression. The Counter-Terrorism and Security Act 2015 (Section 31) adds further legal responsibilities to an extensive list of statutes that influence university policies (see diagram below). The 2015 Act encourages universities to interact with the Prevent Strategy, referenced by paragraph 2 of UWE’s policy. However, government reasoning is flawed because although statistics show that one third of Islamism-related terrorist offences between 2005-2015 were committed by graduates, this is in line with the proportion of the general population that have attended higher education institutions (see here, paragraph 10).

 

xavier
© Xavier Baker

I will always condemn expressions that cause offence, and I am sympathetic towards universities as they are under pressure to provide safe, comfortable learning environments. However, I feel that universities should be facilitating debate, equipping students during their studies with skills that enable them to confidently combat hate speech. Therefore, despite being largely compliant with Article 10 of the European Convention on Human Rights and its interpretation, because UWE is subject to numerous laws and policies, students and academics are overprotected to the extent that the residues of free speech are constrained.

Student blog: What Are the Key Characteristics and Legal Achievements of the ASEAN Economic Community (AEC)?

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Author: Mohammed Motara

This post (edited for publication) is contributed to our blog as part of a series of work produced by students for assessment within the module ‘Public International Law’. We offer this module in the second year of Bristol Law School’s LLB programme. It is led by Associate Professor Dr Noelle Quenivet. Learning and teaching on the module includes the use of online portfolios within a partly student led curriculum. The posts in this series show the outstanding research and analytical abilities of students on our programmes. Views expressed in this blog post are those of the author only who consents to the publication.

Having been formally established in 2015 by the Association of Southeast Asian Nations, the ASEAN Economic Community is classified as a single market with a rising star status (video below). With the purpose of fulfilling the economic elements of ASEAN (see Article 1(2) of the ASEAN Charter), the AEC required a blueprint setting out goals and ambitions of a successful ASEAN Economic Community. Bearing in mind the age of the ASEAN Economic Community (AEC), fair competition is pivotal in developing each ASEAN Member State’s markets (Cassey & Fukunaga, ‘ASEAN Regional Cooperation on Competition Policy’ (2014) 35 Journal of Asian Economics 77, 78); as well as attracting Foreign Direct Investments. The four characteristics, and more particularly the second one, of the AEC are closely linked to competition. Accordingly, I will explain the four characteristics of the AEC, and subsequently discuss the astute approach taken by ASEAN in terms of competition policy and whether this approach can be deemed a legal achievement.

The Four Characteristics

The decision to create the AEC can be described as a milestone in the history of ASEAN. In effect, this has led ASEAN closer to replicate the successful characteristics of the European Union, i.e. free movement of goods, people and the elimination of import tariffs between Member States. In order for the AEC to reach the heights of the European Union, the AEC should bear similar characteristics. These features are highlighted within the Blueprint (see picture below).

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Kong Ying, ‘What are the AEC’s Four Pillars’, 5 April 2015

The first characteristic of the AEC comprises of five elements (see A1- A5). All five elements are to be achieved through the reduction in tariffs (paragraph two), the adoption  of mutual recognition agreements such as architectural services and the creation of an ASEAN single window to aid the liberalisation of trade and investment flow. The second characteristic on the other hand refers to the regulation/deregulation of the region through the development of strengthening consumer protectionintellectual property rights and, most importantly, competition policy (see 1.13).

The third and fourth characteristics relate to overarching ideas. The third characteristic deals with improving the development of both SME’s (definition) and macroeconomic conditions within AEC Member States through SME initiatives whilst the fourth tackles the increasing role of ASEAN within the international community (a characteristic which is being addressed through Regional Comprehensive Economic Partnership negotiations).

Competition Policy 

ASEAN’s soft law approach to competition is at present effective; however, long term the approach appears futile. Thus, the European Union’s hard law approach should be considered. Classified under the second characteristic of the AEC, the blueprint (see part B) refers to competition policy through the use of a variety of modes: discussion forums, regional guidelines on competition policy and the ASEAN Experts Group on Competition. This is in complete contrast to the EU  where EU bodies implement and enforce supranational law, with the goal of allowing firms to compete on a level playing field in all EU Member states (Sivalingam, ‘Competition Policy and Law in ASEAN’ (2006) 51 Singapore Economic Review 241, 302).

So why is ASEAN’s approach effective at present? By taking a soft law approach, ASEAN has considered several factors uncommon to the EU such as the fractured development levels of its Member States. If the opposing EU approach were taken, whereby the ASEAN implements generic competition law for all of the ASEAN Member States based upon the same level of competence (second Copenhagen criterion), irrespective of the Member State having developed, developing or undeveloped markets, this could have a detrimental effect on the AEC Member States, in fact, potentially, supressing certain Member States’ growth.

For example, the situation of Brunei, a State with a debt amounting to 3.17% of the State’s GDP can be contrasted to that of Indonesia, with a debt amounting to 27% of the State’s GDP. It is submitted that imposing a set of complex supranational law in addition to an enforcement agency would worsen the various the AEC Member States’ economic situations (dependent upon the funding of the agency i.e. proportionate State contribution (see ‘contracting costs’ section in Abbott & Snidal, ‘Hard and Soft Law in International Governance’ (2000) 54 International Organization 421). Alternatively, when one looks at the non-pecuniary loss such as a loss of sovereignty with regard to the competence of negotiating and concluding international trade agreements (see Article 3(2) of the Treaty on the Functioning of the European Union), some AEC Member States may encounter potential political problems (see ‘sovereignty’ section in Abbott & Snidal, ‘Hard and Soft Law in International Governance’ (2000) 54 International Organization 421).

Choosing such an approach has allowed AEC Member States to develop competition law at their own pace to level the playing field (Huda, Nugraheni & Kamarudin, ‘Harmonizing Competition Law in the ASEAN Economic Community’ (2016) 9 International Journal of Business, Economics and Law 48, 52) with the aid of ASEAN through the use of guidelines and the ASEAN Experts Group on Competition (Cassey & Fukunaga, ‘ASEAN Regional Cooperation on Competition Policy’ (2014) 35 Journal of Asian Economics 77, 87). This has ensured that each Member State is able to tailor its competition laws to the State e.g. Singapore allowing vertical agreements (see 2.12 in the Competition Commission of Singapore Guidelines on the Section 34 Prohibition) whilst other States such as Malaysia prohibiting them (Section 4 of the 2010 Competition Act 2010 of Malaysia), reducing the likelihood of stagnating growth within potentially vulnerable markets.

For all the merits of using soft law, a hard law approach similar to the EU is the most effective. EU law is uniform as the EU has exclusive competence in ‘the establishing of the competition rules necessary for the functioning of the internal market’ (Article 3 of the Treaty on the Functioning of the European Union) and thus discrepancies under competition law are rare (in contrast, see table below for a comparison with AEC Member States). In return, what you achieve is a sustainable single market, the ultimate goal of the AEC.

table 7
Sivalingam G, ‘Competition Law and Policy in ASEAN’, (2006) 51 Singapore Economic Review 241, 249

In conclusion, the route taken by the ASEAN to encourage a competitive AEC is one that was wisely thought out and clearly addressed problems that would be encountered if taking a hard law approach. However, it is argued that to adopt this soft law approach long term would be nonsensical. The adoption of the hard law approach is by nature the most effective approach providing each of the ASEAN with the possibility to reach a benchmark level of development.

 

 

Student blog post: What are the (dis)similarities between a Free Trade Area and a Customs Union?

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This post (edited for publication) is contributed to our blog as part of a series of work produced by students for assessment within the module ‘Public International Law’. We offer this module in the second year of Bristol Law School’s LLB programme. It is led by Associate Professor Dr Noelle Quenivet. Learning and teaching on the module includes the use of online portfolios within a partly student led curriculum. The posts in this series show the outstanding research and analytical abilities of students on our programmes. Views expressed in this blog post are those of the author only who consents to the publication.

What are the (dis)similarities between a Free Trade Area and a Customs Union?

Author: Karen Kisakye

Introduction

Though there are not that many, the (dis)similarities between a free trade area and a customs union are very clear. In this post I will focus on the internal and external elements, taking a broad approach to their application.

I have derived the definitions of a free trade area and a customs union from the World Trade Organization (WTO) as it is the largest organization that regulates trade today across most, if not all, States. The definitions are contained in Article XXVI (8)(a) and (b) of GATT 47.

Both a free trade area and a customs union have no borders within their blocks (ie among the Member States). This is the internal element. However, all Member States of a customs union have a common external tariff against third parties. This is the external element (see Herdegen, International Economic Law (OUP 2013) 274).

Using these elements, this blog will explore the effectiveness of a free trade area versus a customs union. The effects of these (dis)similarities will highlight their (dis)advantages which I shall use to show their irrelevance in regards to both developing and developed countries today.

Achievements

The rules that govern free trade areas and customs unions are contained in what forms them, ie a free trade agreement (see table below). Though each free trade agreement may be slightly different from one another, the WTO Trading Overarching Fundamental Principles govern them. With these principles, the common aim of free trade areas and customs unions is to increase trade and boost economic growth through the reduction or elimination of tariffs and I believe they have achieved this (see video on Free Trade v Protectionism).

Karen kisakye
Free trade agreements © Karen Kisakye

Effectiveness

The effectiveness of free trade areas and customs unions is better explored through their (dis)advantages. The main advantage of both is increased economic growth. How is this achieved?

The internal element earlier addressed enables block Members to trade with lesser or no tariffs. This boosts sales and profits as well as domestic competitiveness.

However, the lack of a common external tariff in a free trade area means that member States of such a block will be free to charge different tariffs on non-member States. This enables them to protect growing domestic industries; however, it creates an uneven playing field as non-member States will import to States with the lowest tariffs (Herdegen, International Economic Law (OUP 2013) 274) only or if not, at least first. This diverts trade (at 3 para 1) and begins to crack the economic system of the free trade area block, thereby not really increasing trade (fairly). Consequently, States tend to change their free trade area into a customs union (see eg CARICOM in Herdegen, International Economic Law (OUP 2013)275).

However, customs union members are not allowed to negotiate individual trade deals with third countries. This makes it impossible for a State to benefit from strong State alliances with non-members and can thus lead to a State being unable to target economic growth accordingly.

Relevance

However, while the advantage of increasing trade has been proven in practice, it is argued that the system of free trade agreements in the form of free trade areas and customs unions has been exhausted.

Due to the overwhelming evidence before us, it is generally assumed that free trade equals economic growth. That obviously seems to be true for the developed States today. However, I disagree with this assumption when it comes to developing States today.

I do not disagree with the fact that free trade that takes place through these blocks does indeed promote economic growth. Rather, free trade areas like MERCOSUR (at 1, para 1) and the Common Market for Eastern and Southern Africa (consisting of developing member States), have only achieved this in part and in fact have not managed  to fully reflect the economic growth of the developed States today. Why is it so?

First, today’s developing environment is different from the one when the developed countries were developing. Developing States today face different challenges or factors than yesterday’s developing and now developed countries (Lester, World Trade Law: Text, Materials and Commentary (Hart 2012) 27).

Free trade areas and customs unions may promote economic growth but in today’s political and economic environment, for developing countries, letting borders down for free trade means anything from sacrificing protection of weak industries to risking security, both of goods and persons.

I stand with the free traders who argue that the developed countries of today, historically did not rely on free trade areas or customs (see videos Free Trade Does not Make Countries Richer and Ha-Joon Chang on IMF, WTO, World Bank and Protectionism) to develop their industries and are now denying developing countries the same courtesy (Lester, World Trade Law: Text, Materials and Commentary (Hart 2012) 26, 41-51).

Secondly, the WTO does not provide enough protection for the industries of developing countries through Articles XII, XI:2, XII OR XIII:B of GATT 47 or other means (see eg European Union–Developing Country FTAS, 1563)

In conclusion, the key similarity is the elimination of internal borders and the promotion of trade and the difference is the absence or existence of a common external tariff. This is dependent on States abiding by the rules which they do not always do and is also subject to restrictions that States do not fancy.

Consequently, these cracks, together with the minimal or slow progress in the economic growth of developing countries, reflect the need for a new system. Different era means different issues and challenges and thus different mechanisms.