The China-Europe freight train from Tangshan in North China’s Hebei Province arrives at Antwerp Port, Belgium, on May 12, which will contribute to the construction of the Silk Road Economic Belt, part of the “Belt and Road” initiative.

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The report to the 19th CPC National Congress observed accelerating changes in the global governance system and the international order, noting that relative international forces are becoming more balanced. China follows the principle of achieving shared growth through discussion and collaboration in engaging in global governance, advocates the building of a community with a shared future for mankind, and strives to make economic globalization more open, inclusive and balanced so that its benefits are shared by all.

In this context, it is essential to develop ideas from existing international rules and institutions to provide legal and moral basis for proposed topics and rules, thereby elaborating on the intent of the “Belt and Road” (“B&R”) initiative.

As a legitimate exceptional mechanism of the World Trade Organization (WTO), free trade agreements (FTAs) can promote economic development along the Belt and Road and contribute to the building of a community with a shared future for mankind and a fairer, more reasonable global governance system.

 

Significance of B&R construction
In March 2015, the National Development and Reform Commission, Ministry of Foreign Affairs, and Ministry of Commerce promulgated the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, known as the “Belt and Road” (“B&R”) initiative.
 

The initiative is first of all economically significant, as “it is aimed at promoting orderly and free flow of economic factors, highly efficient allocation of resources and deep integration of markets; encouraging the countries along the Belt and Road to achieve economic policy coordination and carry out broader and more in-depth regional cooperation of higher standards; and jointly creating an open, inclusive and balanced regional economic cooperation architecture that benefits all.”

From the perspective of international economic and political relations, the initiative can facilitate the construction of a community with a shared future for mankind. In the contemporary international system, economic and trade issues remain the economic foundation of the global political and military landscape while the “B&R” initiative can play a fundamental role in stabilizing international relations.

 

Functions of FTAs
The FTA mechanism allows WTO members to, based on the most-favored-nation treatment principle, sign FTAs on diverse topics and rules with each other and build free trade zones (FTZs) with markets open and trade liberalized to varying degrees.

In other words, WTO members within FTZs are entitled to grant zero tariffs or lower than most-favored-nation tariffs and cut trade restrictions. However, such trade preferences are restricted to contracted parties, while non-FTZ members must obey higher tariffs or more stringent trade policies. In this sense, the FTA mechanism is apparently discriminatory. Nonetheless, signatories of the agreements have stronger clout in international negotiations.

Moreover, FTAs can help improve and create international rules. First, the WTO stipulates that agenda setting in FTAs is not subject to prohibitive restrictions, so the agenda is changing in practice, which lays an objective groundwork for forming new rules.

For example, all of service trade, investment and labor rules in the North American Free Trade Agreement (NAFTA) signed in 1994 went beyond the scope of the General Agreement on Tariffs and Trade (GATT). Topics pertaining to trade, such as trade-related intellectual property rights, have gradually become integrated into multilateral trade rules from bilateral agreements. It incarnates the development of regional FTA rules and the evolution of global rules with the recognition of most countries.

In addition, FTAs have an impact on geopolitics. The motive of FTAs is fundamentally economic, yet political motives are diverse and complicated, varying from country to country. The most overt political objective is to realize regional economic integration and gain geopolitical advantages through the FTA model.

In today’s world, peace and development are closely related. The economic and social development of a country are inseparable from security and stability, so many countries capitalize on the model to attain security goals.

For instance, most FTAs involving the United States are concerned with strategic security. The country has signed FTAs with Australia, South Korea and Singapore. The former two nations are allies of America. Though Singapore is not, it is the US military base in Southeast Asia.

The Transatlantic Trade and Investment Partnership (TTIP) under negotiations between the United States and the European Union aims to prevent the North Atlantic Treaty Organization (NATO) from being marginalized in the EU system, meanwhile entrenching America’s overall presence in the European Union by leveraging NATO’s existing military alliance relations.

 

Advancing B&R via FTAs
Fifty-one out of 64 countries and regions along the Belt and Road are WTO members, observing the law of the organization in international trade cooperation. On this basis, FTAs represent an effective way under the framework of the current international law to deepen market integration and enhance regional cooperation proposed by the “B&R” initiative.

When signing FTAs with WTO members along the Belt and Road, economic and geopolitical factors should be taken into full consideration. First, FTAs are conducive to forming a healthy, orderly international market. China signed FTAs later than developed economies like the European Union and the United States. However, it has so far inked and implemented 15 FTAs.

When it comes to building FTZs along the Belt and Road, the country has signed agreements with ASEAN, Pakistan and Georgia. Another five are under negotiation, including the Regional Comprehensive Economic Partnership and the agreements with the Gulf Cooperation Council, Maldives, Sri Lanka and Israel. Four are being researched, respectively with Nepal, Bangladesh, Moldova and Mongolia. FTAs are also a legal means by which harmonious geopolitical and diplomatic relations are established.

Also in FTAs with WTO members along the Belt and Road, markets can be opened and trade liberalized to varying degrees through agenda setting since the countries differ from each other in terms of national conditions as well as advantageous and disadvantageous industries.

Specifically, topics and rules included in the FTZs that China has carried out suggest it opens its arms to the international market in related areas, so they can be incorporated into FTAs concerning B&R construction.

Similarly, those that have yet to be included indicate that the fields are not open to the world. As it is emphasized in the report to the 19th Party congress, China adheres to the fundamental national policy of opening up and pursues development with its doors open wide. Therefore, it is critical to accelerate the accession into the Agreement on Government Procurement. When condition permits, the country should actively negotiate with FTA signatories along the Belt and Road over the government procurement market to make it open on a reciprocal and equal basis.

In fact, the “B&R” initiative has provided an important platform for China to help create regional, even global rules and become popular in the international community. For example, in terms of solving disputes in international investment, China is a member state of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States and has signed 104 bilateral investment agreements with arbitration articles, nonetheless problems and challenges loom large in the current investment arbitration mechanism.

To cope with the challenges, the UN Conference on Trade and Development highlighted the urgency of reforming the current investment dispute settlement mechanism and proposed alternatives in the World Investment Report 2015. The European Union also advocated setting up a standing international investment court and dispute appellate mechanisms in early 2015 and has incorporated the investment court mechanism into the FTAs with Vietnam and Canada.

As the largest destination for foreign investment and the second-largest outward investor, China should seize the vital international platform of the Belt and Road to guide and promote the reform of the investment dispute mechanism on the level of rules, thus protecting national sovereign interests as well as Chinese investors’ rights and interests overseas on each side.

 

Li Xixia is deputy director of the Editorial Board of the Chinese Review of International Law sponsored by the Institute of International Law at the Chinese Academy of Social Sciences.

(edited by CHEN MIRONG)