Disciplining Subsidies Through Free Trade Agreements (FTAs): Emerging Developments in Japan’s FTAs and Their Implications

Abstract The international economic order is undergoing significant change. Most recently, key countries have been seeking to increase their level of economic security, including through increased industrial subsidies. Regulating subsidies is controversial, but undisciplined subsidy payments could be harmful for the healthy functioning of markets and balanced development among nations. In this regard, the GATT-WTO has regulated subsidies, but it has not been fully functional in recent years, and reform efforts do not appear to be bearing fruit soon. Therefore, in parallel with WTO reform efforts, reliance on other approaches, such as discipline through free trade agreements (FTAs), should be considered. Disciplining subsidies through FTAs is inherently difficult, given the cross-border nature of subsidies on the one hand and the geographical limitations of the FTA’s scope of application on the other. In recent years, however, such disciplines in FTAs have begun to appear, starting with EU FTAs. Thus, this article explores the possibilities and limitations of the discipline of subsidies through FTAs, using Japan’s FTAs as a case study, to approach the path to international control of subsidies. Accordingly, this article first reviews the range of related issues and developments, including characteristics of subsidies, the rationale for subsidy discipline in trade agreements, recent challenges to multilateral subsidy discipline, the current status of subsidy discipline through FTAs, and the background of subsidy discipline in EU FTAs. The article then identifies the WTO-plus elements that are distinct to subsidy disciplines in EU FTAs and discusses their implications. Through these, it highlights the perspectives needed when considering subsidy discipline through FTAs, examines Japan’s FTAs in light of these perspectives, and presents the findings and implications thereof. Considerations are given to Japan’s FTA/trade policy as a background for its subsidy discipline through FTAs, the current status and characteristics of subsidy disciplines in Japan’s FTAs, the Agreement Between the European Union and Japan for an Economic Partnership’s (JPN-EU) subsidy-related provisions as drastic change, the effects on the Asia-Pacific region, and future prospects.