TY - JOUR
AU - Park, Tae Jung
AB - Abstract This article analyses the utility and advantages of employing side letters in the investment chapter in Preferential Trade Agreements (PTAs). Even thoughparties to a PTA often use side letters, particularly in relation to the investment chapter, the literature has paid little attention to their utility and advantages. This article develops a typology based on the three functions of the side letter (ie clarification, correction, and consensus on a new term) and explains the detailed letter exchange procedure of the letter exchange. It then discusses the three advantages (ie cost efficiency, flexibility, and transparency) of using side letter. 1. INTRODUCTION International investment law has traditionally been associated with Bilateral Investment Treaties(BITs), however, in recent years, governments have become increasingly averse to BITs, preferring, instead, to conclude PTAs in a bid to protect foreign investments.1 Approzimately one in four investment treaties signed in 2012 was a regional one; moreover, the annual number of newly concluded BITs in 2013 dropped to pre-1990 levels.2 The regionalization of investment law occurs intra-regionally, either as part of an organization’s wider economic integration agenda such as ASEAN’s Comprehensive Investment Agreement (ASEAN CIA), or in an ad hoc manner, as was the case with the China–Japan–South Korea Investment Treaty.3 The trend toward regionalization also encompasses inter-regional agreements, as evidenced by the TPP,4 an African Tripartite Agreement,5 and the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US.6 The investment chapters in the PTAs, however, appears to have a serious problem, in that it is missing several articles addressing investment protection.7 For instance. the China–Australia Free Trade Agreement came into force force on 20 December 2015, despite failing to incorporate important investment protection provisions such as expropriation and the minimum standard of treatment.8 Even though such omission could impair each country’s ability to attract foreign investment, both parties decided against incorporating investment protection terms. preferring, instead, to include a renegotiation clause. China and Australia are not the only countries that have failed to complete their investment chapter in PTAs. India and Japan similarly concluded an incomplete PTA,9as have several Latin American countries.10 New Zealand recently concluded an incomplete PTA with China.11 To resolve this issue, parties can complete the investment chapter of the PTAs either in the domestic implementation phase (ie after a conclusion and before an official signing of an PTA) by exchanging a side letter,12 or after a ratification of an PTA through a renegotiation clause. In the Hong Kong-ASEAN Free Trade Agreement (FTA), for instance, the parties inserted a renegotiation clause to complete the PTA,13as they had failed to conclude certain tems — the schedule of reservations, the article on expropriation and compensation, a definition of ‘natural person of a Party’, and the Articles on the Settlement of Investment Disputes. The parties are now obligated to renegotiate these listed articles and the reservation list once the PTA has been ratified. By contrast, the U.S. and Singapore used a side letter to complete the investment chapter of the PTA.14 The article in the concluded Investment chapter stated that the countries would exchange letters to resolve the following four missing articles: Customary International Law, Expropriation, Land Expropriation, and Appellate Mechanism. Each of the exchanged letters stated that the parties agreed on the contents of the letter during negotiation and, as such, the letter shall become an integral part of the PTA.15 Even though the renegotiation clause is routinely used to complete the PTA, this article focuses on the circumstances and reasons that prompt parties to use a side letter instead. Analysing the advantage of a side letter is a very timely issue, as such letters are being used increasing in recently concluded PTAs.16 The article begins by developing a typology based on the functions of a side letter (ie clarification, correction and consensus on a new term). The parties to a PTA exchange the letter to clarify ambiguous terms, correct erroneous terms and even reach new consensus. If major issues related to the form and substance of the matter are resolvedduring the main negotiation itself, it would suffice for the parties to conclude minor ,pending items over conference calls or email. However, if the parties fail to reach a consensus on the form and substance of the missing provisions at the negotiation stage, subsequent efforts to arrive at a consensus would likely entail face-to-face communication. Such in-person meeting can take place at different times, such as during the legal scrubbing phase or through a parallel negotiation in an ongoing PTA.17 The article next introduces three major advantages of using a side letter (ie cost-efficiency, flexibility, and transparency) that prompt parties to use it to complete a PTA. First, the letter entails lower transaction costs18compared to a formal renegotiation process. The article shows that the letter exchange invovles less burdensome administrative steps (eg a public hearing or reporting to the legislative body) than a formal renegotiation process. The letter, however, cannot remedy all types of incomplete provisions. If the parties fail to conclude a substantial portion of the terms of the treaty (eg the investment chapter is concluded with a single renegotiation clause without any articles), then the letter exchange may not be an efficient option due to high transaction costs. Secondly, because the domestic implementation process is the last opportunity to complete the treaty before it is officially signed, a flexible letter can accurately reflect any last-minute deals. For instance, the letter can be used to modify the effective date of a completed article. This is particularly helpful when the parties invovled have already concluded a certain article in the main text, but want to ratify it several years after the ratification of the PTA to postpone the legal effect of the article. The letter can even be used to include a renegotiation clause to avoid incomplete provisions in situations where the parties have failed to reach an agreement before the official signing but aware that a formal renegoaition provess is imminent. Lastly, the letter enhances the transparency of the reservation list. In practice, many parties frequently leave domestic laws incomplete (eg unspecified or missing articles) in the investment chapter of the PTA, owing to ongoing legal reforms. Following the Washington Consensus,19 many developing host nations undertook domestic reform to determine the most appropriate economic and legal policies (economic and legal rules and regulations that fits to the local context and socio-political cultures).20 As the rules and regulations are typically in the process of being reformed at the time of concluding a PTA, host nations leave provisions incomplete as it is difficult for them to gather data and pinpoint which domestic laws should interact with the PTA and which domestic laws should be carved out. In such situations, to avoid leaving domestic laws incomplete, the letter could be used to elaborate a reform schedule for domestic laws to enhance their transparency, benefiting both host and home countries. This study makes two principal contributions. First, it develops a typology based on the functions of the side letter. After reviewing the general literature on the side letter, the article shares examples of how parties clarify and correct the previously agreed terms and reach consensus on new ones. Moreover, the article discusses the detailed procedure of exchanging letter, which is widely known to practitioners but not in academia. Secondly, the article contributes to the literature by shining light on a relatively new phenomenon in the PTA, the incomplete provisions, and suggesting letter exchange as a potential solution.The article shares examples of various treaties with incomplete provisions and discuesses how the letter could help resolve the problem of such incomplete provisions. Section 2 classifies three functions of the side letter in the investment chapter of the PTA and explains the detailed procedures of exchanging the letter. Section 3 introduces three legal characteristics that attract parties to complete the treaty. Section 4 concludes. 2. BACKGROUND This section classifies three functions of the side letter. The parties frequently clarify the ambiguous meanings of the terms in the text and correct the errors that they have made. More importantly, the parties often reach new consensus through the letter after the conclusion of the treaty. The section then examines the detailed procedure of how parties exchange the letter after the conclusion of the treaty. A. Types of Side Letters in Investment Chapter of the PTA: Clarification, Correction and Consensus on a New Term States may express their consent to be bound by an ‘exchange of letters or notes’.21 Article 13 of the Vienna Convention on the Law of Treaties provides that the consent of states to be bound by a treaty constituted by instruments exchanged between them is expressed by that exchange when (i) the instruments provide that their exchange shall have that effect; or (ii) it is otherwise established that those states agreed that the exchange of instruments shall have that effect.22 Generally, the purpose of exchanging letters is to simplify the treaty conclusion process. This simplification, highlighted by increased flexibility and efficiency as well as the immediate certainty as to the commitments entered into, is a primary reason the exchange letter is so popular.23 Treaties consented to through such exchanges are regarded as treaties in ‘simplified form’, as opposed to ‘formal’ or ‘solemn’ treaties.24 Exchange instruments have no particular denomination.25 In fact, they may appear in a variety of forms, including notes, letters, correspondences, communications, messages or memoranda. A major characteristic of an exchange letter is the absence of formalism with the exception of the requirement that it takes the form of a written document. The diplomatic practice of exchanging such letters varies by country. Sometimes nations do not require separate ratification procedures. Consequently, the conclusion of a treaty is immediate and in the simplified form. However, most nations strictly require a ratification or approval procedure for the letter to be in force. In this case, the exchange of instruments is not the mode of conclusion; instead, the treaty is concluded only through ratification or an approval procedure.26 A treaty concluded by the exchange of instruments enters into force on the date of exchange of the instrument.27 However, the parties can agree to the date of the letter for this purpose (ie the date of ratification). In practice, the instrument usually contains provisions relating to its entry into force.28 The treaty itself can also provide that it enters into force on the date of the confirmative note,29 on the date of receipt of the confirmative note, or 15 days after the date of receipt of the confirmative note.30 Essentially, a treaty concluded by an exchange of instruments can enter into force immediately, retroactively,31 or on a certain32 or uncertain33 future date. In the PTA world, parties often use a ‘side letter’ for various purposes. The North American Free Trade Agreement (NAFTA), for instance, revised NAFTA’s initial sugar provisions by adding one additional factor to the formula to be used to determine how much sugar Mexico could export to the United States through 2008. The side letter effectively lowered the amount of sugar that Mexico can sell to the US market.34 Recently, New Zealand has recently signed side letters to exclude compulsory Investor State Dispute Settlement (ISDS) with five members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)—Brunei Darussalam, Malaysia, Peru, Vietnam and Australia.35 New Zealand fully exclude an investor’s right to ISDS in the Peru and Australia side letters. As for three remaining nations, in case of a dispute, an investor should make a written request for consultations and negotiations, briefly describing the facts regarding the measure(s) at issue. The state and the investor will then try to resolve the dispute amicably within six months by using non-binding third party procedures, including good offices, conciliation and mediation, failing which the dispute may be submitted to arbitration in accordance with Chapter 9 of the CPTPP, provided, however, that the state consents (and, in case of the Vietnam side letter, ‘specifically consents’) to its application.36 In this respect, the below classifies how the letter can be used to clarify terms, correct errors, or reach a new consensus. (i) Clarification Parties may exchange a side letter to clarify terms stipulated in the investment chapter of the PTA. Parties frequently identify textual ambiguities only after they have concluded the treaty. To rectify this, the parties can supplement clear and concise meanings for those terms through a letter, as seen in the Korea–US FTA side letter.37 That letter confirmed that the term ‘tangible or intangible property right’ in paragraph 1 of Annex 11-B (Expropriation) in the Investment chapter included rights under the contract and all other property rights in an investment, as defined in Article 11.20 (Definition) of the Investment chapter. The letter also states that the parties had a mutual understanding of the meaning of the term during the main negotiation. In other words, the parties, having already reached consensus on the meaning of the term in the negotiation, decided to exchange the letter to legalize the consensus. Accordingly, this letter constitutes an integral part of the FTA. The parties decided to exchange the letter between the conclusion of the FTA and its official signing. The parties concluded the treaty on 2 March 2007, and conducted two additional meetings before the official signing. First, they conducted a legal scrubbing process for 10 days between 29 May and 6 June 2007, in Washington DC. They held another meeting on 21–22 June 2007, in Seoul, Korea, officially signing the FTA on 30 June 2007. During these two meetings, the parties agreed to clarify the term ‘tangible or intangible property right’ by exchanging the letter. Finally, the letter was exchanged on 30 June 2007, when the parties officially signed the FTA. Five years later, on 15 March 2012, the Korea–US FTA was ratified. The letter became part of the agreement and is ratified along with the rest of the agreement.38 (ii) Correction A side letter can also be used to correct a term in the text of the treaty. The Korea–Chile FTA is a good example of this.39 The letter purported to correct a term that Chile erroneously interpreted, after finding the error in their Spanish text of the treaty. The term ‘importer’ in the first line of paragraph 5 of Article 5 was supposed to be ‘exporter’. As the letter states, the English and Korean text had no error. The Chilean negotiator made a mistake in interpreting the term and put the wrong word in the Spanish text of the treaty. Through an exchange of letters, the error was corrected, and the letter was ratified on the date of receipt of the letter.40 The letter was not intended to amend the language of the treaty, and simply expressed an interpretation by the government of the meaning of the treaty. However, the letter in fact made a ‘correction’ to the terms of the treaty. (iii) Consensus on a new term Parties may also reach a new consensus by exchanging a side letter. For example, parties can use an exchange letter to make a new policy carve-out. The United States and Costa Rica employed this tactic to permit the right to carve out their domestic laws in the regulation of sportsbooks and gambling activities.41 As the letter indicates, both parties reached a consensus on this issue during the course of negotiation. They could have carved out their policy space either through general exception42 or in a reservation list. However, they decided to use exchange letters to confirm this understanding after the treaty was signed.43 Now the treaty is in force, and both the United States. and Costa Rica have successfully carved out their policy spaces with respect to sportsbook and gambling regulations. The letter could allow the parties to insert new articles. The investment chapter in the US and Singapore FTA is a good example.44 The negotiation of the US–Singapore FTA was concluded on 16 January 2003, with the official signing on 6 May 2003. The article in the concluded Investment chapter stated that both the US and Singapore would exchange letters to resolve the following four articles: Customary International Law, Expropriation, Land Expropriation and Appellate Mechanism. Each of the exchanged letters stated that the parties agreed on the contents of the letter during negotiation and, as such, the letter shall become an integral part of the FTA.45 The parties then exchanged the letter on 6 May 2003, the official signing date. Thus, between 16 January and 6 May 2003, the parties successfully concluded the four missing articles, finalizing them with the letter exchange.46 B. The Procedure of the Side Letter Exchange This section addresses the processes by which parties can use side letters to reach agreement after the conclusion of a treaty. The process described below is a procedure followed by most countries negotiating in practice.47 Certain types of communication, including informal means such as email, conference calls, or in-person conversations, are used routinely, with the selected type often depending on the level of incompleteness of the investment chapter of the PTA. For example, if most of the form and substance of the matter is completed during the main negotiation process, then conference calls or email exchanges addressing minor leftover terms can be sufficient to arrive at an agreement. However, if the parties fail to reach a consensus on most of the form and substance of the missing articles, in-person communication is preferred. This can take place in various settings, including the legal scrubbing phase and parallel negotiations in an ongoing PTA. The legal scrubbing phase typically involves the parties meeting to edit the text of their agreement. However, their work on the text need not be limited to merely editing the grammar and sentence flow. They can use this time as an informal renegotiation to discuss the incomplete terms in the treaty. The parties even can add an entirely new article that the main negotiations did not address. Simply put, the legal scrubbing phase can be considered an additional round of primary negotiations. Many countries rely on legal scrubbing to modify the text of their treaties in ways that significantly affect the rights and obligations of all parties involved. For instance, a TPP member was recently criticized for changing the term ‘paragraph’ to ‘subparagraph’ in the chapter on intellectual property during a legal scrubbing phase without subsequently updating the text on the treaty’s webpage. The changed term dramatically broadened the criminal penalties for copyright infringement, which the public failed to recognize.48 Ongoing multilateral PTAs present opportunities for the parties to complete previously concluded bilateral agreements. Given that bilateral and multilateral PTAs are often conducted simultaneously, parties can discuss incomplete provisions in previously concluded treaties during their ongoing multilateral negotiation. This happens so frequently that it is common to meet the same counterparty negotiators in different contexts. In the RCEP negotiations, many countries, including Australia and China (participating members in the RCEP), met frequently in private to discuss incomplete provisions of their previously concluded bilateral PTAs. Such informal meetings help the parties address leftover issues, and, in turn can result in an exchange of letters. One question that arises is why a consensus becomes easier to arrive at during a shorter domestic implementation period rather than during the main negotiation period. More succinctly, the question is how all the obstacles that hindered the main negotiations can be overcome so easily through the exchange of letters. The parties reach a consensus during the domestic implementation phase because they know that it is the last opportunity to complete their PTA before ratification. During the main negotiations, the parties know that they have other opportunities, particularly in the domestic implementation phase, to complete their PTA. Thus, they tend to keep their options open until the end. However, once the negotiation is concluded, the atmosphere around their negotiation process changes. The parties know that a lack of consensus in domestic implementation directly results in a costly renegotiation process, including substantial administrative costs. Therefore, both parties do their best to arrive at a consensus before the treaty is officially signed. If most substantive issues were already discussed in the main negotiation, as it happens in many cases, the parties can quickly exchange letters to complete their PTAs. 3. ADVANTAGES OF THE LETTER EXCHANGE This section introduces three legal characteristics of the letter that attract parties to use it to complete a treaty. The letter is cost-efficient because it is a cheaper way to complete a treaty than the formal renegotiation process. The flexible nature of the letter allows the parties to make commitments that cannot easily be made through the main text or a reservation list. Lastly, the letter enhances the transparency of the domestic laws in the PTA. The following illustrates this in detail. A. Cost Efficiency Exchanging letters is a cost-effective way to complete treaty because it lowers the transaction cost.49 The transaction costs associated with exchanging letters is substantially less than proceeding with a formal renegotiation. Emailing, conference calls, and in-person meetings are all less expensive than establishing a formal renegotiation process. Generalizing the renegotiation process is difficult due to its country-specific nature, but in most cases, the ministry responsible for the negotiation (eg Ministry of Trade, Ministry of Foreign Affairs, etc.) holds a public hearing and provides treaty objectives, detailed schedules, and the expected effects of the treaty to the legislative body for approval etc. In Korea, for instance, the Act on the Conclusion Procedure and Implementation of Commerce Treaties (No 14840, 26 July 2017) (hereinafter the ‘CPICT Act’) governs the renegotiation process.50 The CPICT Act requires the parties to complete several steps before the negotiation begins. First, the Ministry of Trade, Industry and Energy, the entity responsible for trade negotiations, must hold a public hearing and take account of the opinions presented there51 to formulate a plan for concluding a treaty.52 The Minister of Trade, Industry and Energy must present information on the objectives of the treaty, detailed schedules governing the treaty, and the expected effects of the treaty,53 and report promptly to the National Assembly.54 The ministry must also arrange for the heads of relevant administrative agencies or other government-funded research institutes55 to assess the economic feasibility of the treaty. The reporting requirements under the CPICT Act continue even after the renegotiation begins. Upon the National Assembly’s request, the government must submit reports or documents (eg negotiation history, strategies, or concluded texts) on ongoing negotiations. This is mandatory unless the negotiating partner requests non-disclosure on the ground that the information affects its national interests or that the disclosure is likely to infringe upon Korea’s national interest or impede the negotiation substantially.56 At the end of every round of renegotiation, the government must summarize the results and makes them publicly available on its website. Once the treaty is concluded, the Ministry must conduct an impact assessment to examine the overall effect of the treaty on domestic employment and national finance, specifically describing the domestic industries involved.57 Following this, the ministry must submit a report detailing the progress of the negotiation and the main terms of the treaty as concluded, to the National Assembly and makes a copy available to the general public.58 Internal reporting within the Ministry also raises transaction costs. Before the renegotiation begins, the chief negotiator, usually the Director-General of the FTA negotiation team, must hold a meeting for each director in the working group. For instance, a director of the Trade in Goods division, a director of the Trade in Services and Investment division, and a director of the Trade Remedy division must be called upon to explain their negotiation strategies. After the internal meeting, the Director-General must hold another meeting for line ministries and presents the directors’ negotiation strategies to them, and gives them an opportunity to respond. For instance, an officer from the Ministry of Agriculture may offer an opinion on the tariff level in agricultural goods, while an officer from the Ministry of Land, Infrastructure and Transport may express concerns about protecting sovereignty in the expropriation article in the PTA. Once the directors of each division complete the negotiation, they must report the results to the chief negotiator who then reports the results to the Deputy Minister of Trade and Minister of Trade. In addition to reporting, setting up the renegotiation itself involves substantial transaction costs. First, fixing an appropriate place and time for the renegotiation is difficult because each party has its own priorities. For many parties, renegotiation itself may not be important, as there may be many other ongoing negotiations for other PTAs taking place simultaneously. Agreeing upon a place is a challenging task because the parties generally prefer to hold renegotiations in their home countries for the sake of convenience or out of financial concerns. In contrast, the administrative and reporting requirements applicable to a formal renegotiation do not constrain an exchange of letters. Public hearing requirements from media and the legislative body only apply at the time that negotiations are launched. All communication between governments in the domestic implementation process is likely to be confidential. Parties consider domestic implementation as a continuation of the negotiation process, and the exchange of letters occurs within the boundaries of completing the negotiation process. Internal reporting requirements may exist but are not as extensive as those that apply to a formal renegotiation process. In Korea, the director of a working group on investments needs a confirmation and approval from his/her superior, including the Director-General, Deputy Minister, and Minister for Trade. The minister knows that he/she must sign his/her name on the letter in addition to the main treaty text at the official signing ceremony. However, the line ministries need not meet, as only some ministries are relevant to the letter. If the letter relates to land measures, for example, only the Ministry of Land must approve it. Once the director gets agreement from the relevant Ministry, he/she reports to the upper level officers and receives their approval. Last, identifying a place, time, and agenda for the negotiation is not necessary. E-mail or conference calls may allow the relevant officials to stay in their offices and complete the treaty. If a face-to-face meeting is needed, ongoing PTA negotiations or legal scrubbing, which have pre-planned mandatory meetings for both parties, can be used as forums. Simply put, an exchange of letters is easier to carry out than a formal renegotiation process. It is efficient, however, only when the parties have already absorbed the costs associated with negotiation. Once the parties have reached a sufficient level of agreement and confidence in each other, such that they can reduce the agreement to words, the letter becomes an efficient and flexible tool for reducing the number of incomplete provisions and completing the treaty. This point, however, does not mean that the letter cannot be used to resolve new articles that were not discussed in the primary negotiation. Legal scrubbing or participating in other PTAs may allow the parties sufficient time to discuss these matters. Parties can arrive at a consensus on many substantive questions in these informal meetings. At the same time, resolving problems based on missing text or missing reservation lists presents a challenge that requires more time and resources. Therefore, informal communications may not work to resolve these particular forms of incompleteness in PTAs. In the case of missing text in the ASEAN–Japan EPA or the Trans-Pacific Strategy Economic Partnership Agreement (TPSEPA), none of the articles was concluded in the PTA except for a single renegotiation clause.59 In the case of missing reservation list in the ASEAN–India CECA60 or the New Zealand–Malaysia FTA,61 none of the reservation list was concluded in the PTA except for a single renegotiation clause. Given the enormity of these matters, it would have been extremely difficult for the parties to arrive at consensus without formal renegotiations. In such circumstances, renegotiation would likely be the most practical and cost-effective option as it might be cheaper for the parties to actually meet and begin filling up the investment chapter of PTA, especially if the parties have not already agreed on anything. B. Flexibility A letter offers an exit plan for both parties to avoid leaving an incomplete provision. Once the negotiation is concluded, the parties exchange the letter to reflect their last-minute deal. The flexible nature of the letter allows various types of deals. A letter could modify the effective date of a previously concluded article or even include a renegotiation clause. For instance, in the main negotiation of the US–Singapore FTA, the parties knew that they could not complete the four articles and so inserted an article agreeing that they will exchange letters to complete the four articles at the official signing.62 Interestingly, the letter modified the effective date of the previously concluded expropriation article. The parties already concluded the expropriation article in the main text, but the letter included ratifying the expropriation article three years after the ratification of the FTA. Paragraph 4 of the letter states that ‘Article 15.6(Expropriation) shall not take effect until three years after the date of entry into force of the Agreement, unless prior to that time Singapore is found to be in breach of the obligation in Paragraph 1 of this letter’.63 Paragraph 1 of the letter states that ‘Singapore has no plans to expropriate any land of an investor of the United States or a covered investment. Singapore undertakes an obligation not to expropriate any land of U.S. investor or a covered investment for three years after the Agreement enters into force’.64 That is, unless Singapore actually expropriates the land of a US investor or a covered investment, the expropriation article will not be in force until three years after ratification of the treaty. The letter even includes a renegotiation clause to avoid incomplete provisions. Once the parties failed to reach agreement before officially signing, the parties knew they were left with a costly renegotiation but promised to renegotiate anyway to avoid any possible postponement or delay. The letter in the Australia–China FTA is a good example. The parties failed to reach consensus before officially signing and exchanged the letter to renegotiate after ratification of the treaty. The parties disagreed as to the application of the United Nationals Commission on International Trade Law (UNCITRAL) Rules on Transparency in Treaty-based Investor–State Arbitration (UN Doc A/CN.9/783) (the UNCITRAL Transparency Rules’). Pursuant to Article 1 of the UNCITRAL Transparency Rules, the UNCITRAL Transparency Rules shall automatically apply to ISDS initiated under the UNCITRAL Arbitration Rules pursuant to a treaty concluded on or after 1 April 2014, unless the parties have agreed otherwise.65 The UNCITRAL Arbitration Rules apply to the Australia–China FTA because the FTA was concluded after 1 April 2014,66 but the Parties agreed not to apply the UNCITRAL Transparency Rule and initiated renegotiation of the application within 12 months of the treaty ratification.67 Simply put, the letter became a renegotiation clause to complete the treaty. C. Transparency The side letter enhances the transparency and predictability of vague domestic laws stipulated in the investment chapter of PTA. In reality, many host developing nations fail to include complete versions of domestic laws, either including no domestic laws at all or leaving laws without any specifications (eg article numberings). Following the Washington Consensus,68 many developing host nations reformed their domestic measures to determine the most ‘appropriate economic and legal policies (i.e. economic and legal rules and regulations that fits to the local context and socio-political cultures)’. 69 Because the rules and regulations are undergoing reform, host nations leave incomplete provisions because it is difficult for them to gather data and pinpoint which domestic laws should interact with the PTA and which domestic laws should be carved out.70 In the Korea–US FTA, the parties exchanged a letter stating that Korea’s local alcohol act was not subject to the Prohibition on Performance Requirement provision.71 The specifics of the local alcohol act had not been ready at the time of the negotiation phase. However, the ministry successfully relayed the proper law with a detailed numbering of articles before the treaty was officially signed. Likewise, in the US–Peru FTA, the Peruvian ministries finally came up with a specifics of domestic law before officially signing. The letter states that nothing in the investment chapter prevents Peru from maintaining the ‘the underwriting by the Instituto Nacional de Cultura of costs associated with supervising archaeological research projects and emergency projects led by Peruvian archaeologists pursuant to Resolucion Suprema No. 004-2000-ED, Reglamento de Investigaciones Arqueologicas, Article 20’. In the same letter, Peru also carved out the ‘granting of monetary prizes exclusively to Peruvian cinematographic works’ and the ‘granting of tax credits and refunds that provide benefits for publishing activities in Peru’ with the specifics of domestic law through the letter.72 Japan and India, for example, failed to identify domestic laws in their Economic Partnership Agreement’s reservation list.73 The measures and the descriptions are not specified at all; the text merely indicates ‘any existing or current regulation or measures’. The Singapore and New Zealand Closer Economic Partnership is another example.74 Singapore carved out its regulatory power in the areas of printing and publishing, the manufacture and repair of transport equipment, and the power/energy sector but failed to insert the domestic laws that reflect the carved-out area. In addition to these missing domestic laws, host developing nations frequently include the name of an act or law without referring to particular articles or sections. For instance, in the Japan–India EPA, India carved out the ‘acquisition of land’ through the reservation list but omitted detailed information on the domestic measures falling within the reservation, such as the Transfer of Property Act of 1882 or the Registration Act of 1908. Likewise, in the Australia–Singapore FTA, Singapore included the ‘Companies Act, Cap 50’ without reference to specific articles.75 The reservation states that only Singapore citizens, Singapore permanent residents, or Singapore employment pass holders can register a business without appointing a local manager.76 However, Singapore failed to specify the relevant section of the law; instead of adding ‘Division 1, 19 (registration and incorporation)’ of the Companies Act, Cap 50, Singapore simply listed the Companies Act, Cap 50, as a whole.77 The letter may include a detailed description of the reform schedule of domestic law, if the law is currently being reformed or revised. For instance, the side letter for the Korea–US FTA set out specific commitments pertaining to the supply of express delivery services, and Korea agreed to amend its Postal Services Act to expand the exceptions to the Korean Postal Authority’s monopoly over express delivery services.78 The letter stated that the Korean government promised to reform the current Postal Service Act within five years of the ratification of the KORUS FTA. The letter specifically detailed the process that the Korean government intended to follow in revising its Postal Services Act. It also stated that the reform would be implemented with due consideration of the prevailing domestic market conditions, while drawing from the experience of countries with postal liberalization. The commitments detailed in the letter allowed the Korean government five additional years to establish appropriate economic and legal policies in its postal services market after the ratification of the KORUS FTA. Korea successfully revised its Postal Services Act on 15 March 2012, three months before the deadline.79 This letter avoided the problem of incomplete provisions because at the time of the negotiation, Korean negotiators were not able to narrow down the Postal Services Act because it was pending before a legislative body. As a result, they could not pinpoint the exact article that reflected the exceptions to the Korean Postal Authority’s monopoly. Had Korea decided to place the entire Postal Services Act in the reservation list, it would have included the name of the Act without focusing on any specific article, thereby having an incomplete reservation list with missing or ambiguous measures. The detailed reform schedules enhanced transparency and the predictability of Korea’s domestic laws. It is important to note, however, that whether the advantage of transparency accrues will be a function of whether these side letters are published. The parties might choose to outsource certain provisions to side letters precisely because these do not become publicly available, or at least not as easily accessible as the main agreement. The parties can hide their deals through the letter because they have no legal obligations to upload the letter until official signing since the letter is not part of the text yet. The letter is legally incorporated into the text on the day of official signing, as the letter states. In practice, many Asian developing nations or Latin American countries never uploaded their side letters even after the official signing, while the main texts are available on their government websites. The article’s argument on the transparency of the letter is only guaranteed when it is transparently available to the treaty users. 4. CONCLUSION In sum, a side letter is a cheaper instrument with various advantages. Because it reflects the last-minute deal, it may possess various types of consensus, such as modifying the effective date of a previously concluded article or even functioning as a renegotiation clause. It may include a description of the domestic law in the PTA. It is important to note that the letter exchange is not only for investment chapter and can be applied to different chapters of PTAs or other multilateral trade agreements such as goods, intellectual property rights, labour, the environment, government procurements, investment and services such as financial services, telecommunications and electronic commerce. In practice, parties fail to complete provisions in any of the above categories of chapters, and the letter exchange can be a cost-effective tool to complete a treaty to avoid extensive renegotiation. The flexible nature of the letter could help parties to reach a consensus that may not be possible in the main negotiation text. For instance, the different chapters’ working groups may also suffer from the problem of incomplete domestic laws, and the letter could encourage the parties to flesh out more of the information of the domestic laws to make both parties better off. I greatly appreciate Paul B. Stephan, Michael Gilbert and Christopher Ryan for valuable comments and suggestions. The views or opinions expressed herein are the author’s alone and do not reflect the views or opinions of the Ministry of Justice or the Ministry of Trade, Industry and Energy of the Republic of Korea. All remaining errors and misconceptions are entirely my responsibility. Footnotes 1 UNCTAD, World Investment Report 2013: Global Value Chains: Investment and Trade for Development 103-7 (Geneva: United Nations, 2013); Hamed El-Kady, ‘An International Investment Policy Landscape in Transition: Challenges and Opportunities’ (2013) 10 Trans Disp Mgt (TDM), <http://www.transnational-dispute-management.com/article.asp?key1/41978> accessed 11 May 2019. 2 UNCTAD, World Investment Report 2013 at 101 (At the end of 2012, over 2200 BITs were reported to be in force, over 2850 signed, and only a fraction of the 339 until the end of 2012 were PTAs with investment chapters). 3 Ministry of Foreign Affairs Japan, ‘Signing of the Japan-China-Korea Trilateral Investment Agreement’ Press release, 13 May 2012 <www.mofa.go.jp/announce/announce/2012/5/0513_01.html> accessed 11 May 2019. 4 For more information see <www.ustr.gov/tpp> accessed 11 May 2019. 5 For more information see <www.comesa-eac-sadc-tripartite.org/> accessed 11 May 2019. 6 For more information see <http://ec.europa.eu/trade/policy/in-focus/ttip/> accessed 11 May 2019. 7 See Generally, Timothy Meyer and Tae Jung Park, ‘Renegotiating International Investment Law’ (2018) 21 J Int’l Econ L 655, 655; For reference in Services Chapter of the PTA, See Tae Jung Park, ‘Incomplete Agreement on Trade in Services: Causes, Problems – Applying Incomplete Contract Theory’ (2017) 54 Tulsa L Rev. 8 See, eg the text of the China-Australia FTA, Investment Chapter, art 9.9 (Future Work Program): 1. With a view to progressively liberalising investment conditions, the Parties shall regularly review the legal framework relating to investment and the investment environment, consistent with their commitments in international agreements […] 3. Unless the Parties otherwise agree, the Parties shall commence negotiations on a comprehensive Investment Chapter, reflecting outcomes of the review referred to in paragraphs 1 and 2, immediately after such review is completed. The negotiations shall include, but are not limited to, the following: amendments to Articles included in this Chapter; the inclusion of additional Articles in this Chapter, including Articles addressing: Minimum Standard of Treatment; Expropriation; Transfers; Performance Requirements; Senior Management and Board of Directors; Investment-specific State to State Dispute Settlement; and The application of investment protections and ISDS to services supplied through commercial presence […] 9 Incomplete PTA between Japan and India. <http://www.mofa.go.jp/region/asia-paci/india/epa201102/pdfs/ijcepa_ba_e.pdf> accessed 11 May 2019. 10 Incomplete PTA between Ecuador and other Latin American countries. <http://investmentpolicyhub.unctad.org/IIA/CountryOtherIias/61#iiaInnerMenu> accessed 11 May 2019. 11 Incomplete PTA between China and New Zealand. <http://investmentpolicyhub.unctad.org/IIA/CountryOtherIias/42#iiaInnerMenu> accessed 11 May 2019. 12 The Plot, ‘Legal scrubbing or renegotiation? A text-as-data analysis of how the EU smuggled an investment court into its trade agreement with Canada’ (the article argues that the negotiators negotiate the concluded treaties in the domestic implementation phase. In the case of the CETA investment chapter, the article found that the text released at the end of negotiations in 2014 and the version that came out of legal scrubbing in February 2016 diverge by 19%. The vast majority of changes consist of material alterations of the treaty text – a de facto renegotiation.) <http://www.the-plot.org/2016/03/24/legal-scrubbing-or-renegotiation/> accessed 11 May 2019. 13 art 22 (Work Programme) of the Agreement on Investment among the Governments of the Hong Kong Special Administrative Region of the People’s Republic of China and the Member States of the Association of Southeast Asian Nations reads: Article 22 Work Programme The Parties shall enter into discussions on: Annex 1 (Schedules of Reservations); procedures for the modification of Annex 1 (Schedules of Reservations); the application of Article 10 (Expropriation and Compensation) to taxation measures that constitute expropriation; the definition of ‘natural person of a Party’; and Article 20 (Settlement of Investment Disputes between a Party and an Investor).[…] 14 The article in US-Singapore FTA reads: Article 15.26: Status of Letter Exchanges. The following letters exchanged […] Customary International Law; Expropriation; Land Expropriation; and Appellate Mechanism shall form an integral part of the Agreement. 15 The four letters can be found at the following website: <https://ustr.gov/trade-agreements/free-trade-agreements/singapore-fta/final-text> accessed 11 May 2019. 16 Walter Goode Negotiating free-trade agreements: A Guide (Australia Department of Foreign Affairs and Trade, 2005) 104. 17 For PTAs, See <https://fta.go.kr/main/> accessed 5 September 2020, For BITs, see <http://www.mofa.go.kr/www/brd/m_4060/list.do> accessed 5 September 2020. 18 Oliver E Williamson, The Economic Institutions of Capitalism (1985) 15–32 (Williamson refined the concept of transaction costs. According to him, transaction costs are the costs of negotiating a contract ex ante and monitoring it ex post as opposed to production costs, which are the costs of enacting the contract. To be specific, ex post costs include: ‘(1) the maladaption costs incurred when transactions drift out of alignment… . (2) the haggling costs incurred if bilateral efforts are made to correct ex post misalignments, (3) the setup and running costs associated with the governance structures (often not the courts) to which disputes are referred, and (4) the bonding costs of effecting secure commitments.’ This view is accepted by many economists, and now, the concept of transaction costs encompasses all of the impediments to bargaining, including: (i) search costs; (ii) bargaining costs; and (iii) enforcement costs. Search costs are required for determining whether one’s preferred goods or negotiating partners are available in the market. Bargaining costs are the costs that require one to complete an acceptable agreement with the other negotiating partners to the transaction. The negotiation and legal expertise for drafting an agreement could be an example of a bargaining cost.). 19 Narcis Serra and Joseph E Stiglitz define the Washington Consensus as a set of policies regarding effective development strategies that have come to be involved with Washington-based institutions: the IMF, the World Bank, and the US Treasury. See The Washington Consensus Reconsidered (2008) 3 (The Washington Consensus is based on three underlying principles: a market economy, openness to the world market, and macroeconomic discipline. Generally, the Washington Consensus has a view toward ‘market fundamentalism’, where one looks to the market as the best solution to most economic problems). Oxford University Press. 20 Appropriate economic and legal policies refer to the policies that are tailored to local environments or to the culture of a society. See generally Dani Rodrik, who argues that ‘Appropriate Economic and Legal Policies’ are critical elements for developing nations in order to achieve further economic growth. Dani Rodrik, One Economics, Many Recipes: Globalization, Institutions and Economic Growth (2008) 229. See also Dani Rodrik, ‘Second-Best Institutions’ (2008) 98 Am Econ Rev 100, 100–04. Princeton University Press ; Dani Rodrick, The Globalization Paradox (2011) 171. Oxford University Press; Joseph E Stiglitz, Globalization and Its Discontents (2002). Oxford University Press; Jagdish Bhagwati, In Defense of Globalization ( 2004). Oxford University Press. 21 For the definition of the exchange of letters, see United Nations Treaty Collection Glossary: Exchange of letters or notes, <https://treaties.un.org/pages/overview.aspx?path=overview/glossary/page1_en.xml> accessed 11 May 2019. See Oliver Corten and Pierre Klein, The Vienna Convention of Law of Treaties, a Commentary (2011) 246–86 (examining the general characteristics (eg objective and purpose) and validity problems of exchanging letters). Oxford University Press; Oliver Dörr and Kirsten Schmalenbach, The Vienna Convention on the Law of Treaties: A Commentary (Springer 2012) 175–79 (examining the negotiation history of art 13 and the legal effect of the letter); see also, ME Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Martinus Nijoff 2009); A Bolintineanu, ‘Expression of Consent to be Bound by a Treaty in the Light of the 1969 Vienna Convention’ (1974) 68 Am J Int’l L 672. 22 art 13, The Vienna Convention of Law of Treaties. Malgosia Fitzmaurice, ‘The Identification and Character of Treaties and Treaty Obligations between States in International Law’ (2002) 73 The British year book of international law 149 (The VCLT itself does not specify any particular written form for an international agreement to constitute a treaty, the ILC includes exchange of letters within the definition of a treaty in their draft). 23 Corten and Klein (n 21) at 249. 24 Treaties in simplified form have two categories: (i) those concluded by signature; and (ii) those concluded by exchange of instruments. For more on simplified forms in general, see L Wildhaber, ‘Executive Agreements’ in R Bernhardt (ed), Encyclopedia of Public International Law (1999). 25 Corten and Klein (n 21) at 259. 26 ibid at 265. 27 See generally, JL Weinstein, ‘Exchange of Notes’ (1952) 29 BYBIL. 28 H Blix, ‘The Requirement of Ratification’ (1953) BYBIL 366 (calculating that the League of Nations Treaties Series contained 4831 treaties, of which 1078 were concluded by the exchange of letters. Blix argued that 75 of letters (ie only 6.9%) did not contain any ratification provisions. That is, the majority of the treaties were concluded with ratification provisions.) 29 See, eg the exchange of notes of 30 July and 10 December 1982, constituting an agreement between the United States and Israel concerning general security of military information (2001 UNTS 4-11). 30 See, eg the exchange of notes of 19 April 1996, and 6 October 1997, constituting an agreement between Austria and the Netherlands concerning the legal status of Austrian employees at the Europol Drugs United (1998 UNTS 80-1). 31 See, eg the exchange of notes of 17 and 25 March 1949, constituting an agreement between the United States and Peru superseding the Agreement of 9 March and 4 August 1944, relating to a cooperative programme for anthropological research and investigation in Peru (89 UNTS 12-22). 32 See, eg the exchange of notes of 18 December 1996, constituting an agreement between Latvia and Denmark on the readmission of persons entering a country and residing there without authorization (1999 UNTS 388-94). 33 See, eg the exchange of notes of 16 December 1996, constituting an agreement between Spain and Bulgaria on the abolition of visas for holders of diplomatic passport (1996 UNTS 36-7 and 42). 34 Gary Hufbauer and Jeffrey Schott (2005) NAFTA Revisited: Achievements and Challenges (Institute for International Economics, Washington DC, 2005),320. 35 Raphael Solomon, ‘Segmentation and Side Letters: New Zealand’s Experience with ISDS in the CPTPP’ Victoria University of Wellington Legal Research Paper, Student/Alumni Paper No 31/2019. 36 See <https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/cptpp/comprehensive-and-progressive-agreement-for-trans-pacific-partnership-text-and-resources/> accessed 5 September 2020. 37 The letter reads Side letter in the Korea–US FTA 30 June 2007 […]For purposes of the Agreement, the term “tangible or intangible property right” in paragraph 1 of Annex 11-B (Expropriation) includes rights under contract and all other property rights in an investment, as that term is defined in Article 11.28 (Definitions). […] Sincerely, 38 The Korea–US FTA was ratified on 15 March 2012. For reference on the detailed implementation process of the Korea–US FTA, see <http://www.fta.go.kr/us/info/2/> accessed 11 May 2019. 39 The letter reads Side letter in the Korea-Chile FTA … An examination of the Spanish text of the Agreement reveals that the use of the word "importer" in the first line of paragraph 5 of Article 5.4 (Obligations Regarding Exportations) is not consistent with the English and Korean language text where the word equivalent for "exporter" is used. The Government of the Republic of Chile believes that the use of the word "importer" is an error, and that it should be substituted. In this regard, the Ministry has the honour to propose that the word "importer" be substituted with "exporter", and that the Spanish text shall be deemed to be corrected as follows: … 40 The letter expressed an interpretation by the governments of the meaning of the treaty, which is not the same thing legally as amending the language of the treaty. 41 The letter in the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR) reads 28 May 2004 … the following understanding reached between the delegations of the United States and Costa Rica in the course of negotiations regarding Chapters Ten (Investment) … Nothing in Chapter … prevents the United States or Costa Rica from adopting, maintaining, or enforcing any measure consistent with the Agreement relating to sportsbooks or other gambling activities within their respective national territories. Robert B Zoellick 42 The use of the public moral exception under the WTO general exception is an option. US-Gambling found that a measure of restricting cross-border gambling services could justifiably be subject to the public moral exception. See Jeremy C Marwell, ‘Trade and Morality: The WTO Public Morals Exception after Gambling’ (2006) 81 NYU L Rev 802, 828. 43 The letter was exchanged on 28 May 2004, and the treaty was ratified on 2 August 2005. 44 The article in US-Singapore reads Article 15.26: Status of Letter Exchanges.  The following letters exchanged […] Customary International Law; Expropriation; Land Expropriation; and Appellate Mechanism  shall form an integral part of the Agreement. 45 The four letters can be found at the following website: <https://ustr.gov/trade-agreements/free-trade-agreements/singapore-fta/final-text> accessed 14 February 2017. 46 For more information on the procedures, see <http://www.sice.oas.org/TPD/USA_SGP/USA_SGP_e.ASP> accessed 15 March 2017. 47 See EU commission, Negotiating EU trade agreements, who does what and how we reach a final deal, <https://trade.ec.europa.eu/doclib/docs/2012/june/tradoc_149616.pdf> accessed 3 September 2020). 48 Quiet ‘legal scrub’ of TPP makes massive change to penalties for copyright infringement without telling anyone, Tech dirt (18 February 2016, 9:29 AM), <https://www.techdirt.com/articles/20160217/18172633627/quiet-legal-scrub-tpp-makes-massive-change-to-penalties-copyright-infringement-without-telling-anyone.shtml> accessed 11 May 2019. 49 Williamson (n 18) above note at 15–32 50 Enforcement date 26 July 2017. 51 art 8 (Presentation of Opinions by Citizens) of the CPICT Act. 52 art 7 (Holding Public Hearings) of the CPICT Act. 53 para (1) 1–5 of art 6 (Formulation and Reporting of Plans for Concluding Commerce Treaties) of the CPICT Act. 54 para (2) of art 6 of the CPICT Act. The National Assembly refers to the Trade, Industry, Energy, SMEs, and Startups Committee of the National Assembly. 55 art 9 (Assessment of Economic Feasibility and Other Aspects of Concluding Commercial Treaties) of the CPICT Act. 56 art 4 (Disclosure of Information). 57 art 11 (Impact Assessment). 58 art 12 (Reporting, etc. of Outcome of Negotiation). 59 The renegotiation clause in the TPSEPA reads: Article 20.1: Investment Negotiations Unless otherwise agreed, no later than 2 years after entry into force of this Agreement the Parties shall commence negotiations with a view to including a chapter on investment in this Agreement on a mutually advantageous basis. 60 The renegotiation clause in the Investment Chapter of the CECA reads: Article 6 Work Programme The Parties shall enter into discussions on: Schedules of Reservations to this Agreement; and Procedures for the modification of Schedules of Reservations. … Schedules of Reservations referred to in paragraph 1 of this Article shall enter into force on a date agreed to by the Parties. 61 The renegotiation clause in the Malaysia–New Zealand FTA reads: Article 10.17 Work Programme 1. The Parties shall enter into negotiations on Schedules of non-conforming measures within three months of entry into force of this Agreement, unless the Parties otherwise agree. … 4. Articles 10.4 (National Treatment), 10.5 (Most Favoured Nation Treatment) and 10.11 (Non-Conforming Measures) shall not apply until the Parties’ Schedules of non-conforming measures have entered into force in accordance with paragraph 3. 62 The article in the US-Singapore FTA reads as follows: Article 15.26: Status of Letter Exchanges. The following letters exchanged this day on: Customary International Law; Expropriation; Land Expropriation; and Appellate Mechanism  shall form an integral part of the Agreement. 63 The letter of the land expropriation reads as follows: […] During the negotiation of the Investment chapter of the Agreement (Chapter 15), Singapore and the United States (Collectively, the ‘Parties’) discussed Article 15.6 (Expropriation) and the Government of Singapore’s land acquisition law. Based on those discussions, I have the honor to confirm the Parties’ shared understanding that: Singapore has no plans to expropriate any land of an investor of the United States or a covered investment. Singapore undertake an obligation not to expropriate any land of a U.S. investor or a covered investment for three years after the Agreement enters into force. There shall be recourse to the dispute settlement provisions of Chapters 15(Investment) and 20 (Administrative and Dispute Settlement) of the Agreement if an investor of the United States or the United States file a claim that Singapore has breached the obligation in paragraph 1 of this letter. If Singapore is found to be in breach of the obligation in paragraph 1 of this letter, Singapore commits to pay the fair market value of the expropriated land, as provided in Article 15.6(Expropriation) Paragraph 2 of this letter shall not take effect until the date on which the first claim is filed (under Articles 15.15 (submission of a Claim to Arbitration) or 20.4(Additional Dispute Settlement Procedures)) that alleges a beach of the obligation in paragraph 1 of this letter after the Agreement enters into force. In relation to expropriation by Singapore of land of an investor of the United States or a covered investment, Article 15.6(Expropriation) shall not take effect until three years after the date of entry into force of the Agreement, unless prior to that time Singapore is found to be in breach of the obligations in paragraph 1 of this letter. I have the honor to propose that this understanding to be treated as an integral part of the Agreement. 64 ibid. 65 art 1 of the UNCITRAL Rules of Transparency reads. The UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (‘Rules on. Transparency’) shall apply to investor-State arbitration initiated under the UNCITRAL Arbitration Rules pursuant to a treaty providing for the protection of investments or investors (“treaty”)* concluded on or after 1 April 2014 unless the Parties to the treaty** have agreed otherwise. 66 Australia–China FTA is concluded on 17 November 2014. <https://dfat.gov.au/trade/agreements/in-force/chafta/negotiations/Pages/conclusion-of-chafta-negotiations.aspx> accessed 11 May 2019. 67 The letter in the Australia–China FTA reads as follows: ‘In connection with the signing on this date of the China-Australia Free Trade Agreement (the “Agreement”), I have the honour to confirm the following understandings reached between the delegations of Australia and China during the course of negotiations regarding Chapter 9 (Investment) of the Agreement: The Parties shall enter into consultations within 12 months of the date of entry into force of the Agreement on the future application of the United Nations Commission on International Trade Law (UNCITRAL) Rules on Transparency in Treaty-based Investor-State Arbitration (UN Doc A/CN.9/783) (the “UNCITRAL Transparency Rules”) to arbitrations initiated pursuant to Section B of Chapter 9 (Investment). Unless the Parties otherwise agree, the UNCITRAL Transparency Rules shall not apply to arbitrations initiated pursuant to Section B of Chapter 9 (Investment). I have the honour to propose that this letter and your letter in reply confirming that your Government shares these understandings shall constitute an integral part of the Agreement.’ 68 Narcis Serra and Joseph E Stiglitz define the Washington Consensus as a set of policies regarding effective development strategies that have come to be involved with Washington-based institutions: the IMF, the World Bank, and the US Treasury. (n 19) 3 (The Washington Consensus is based on three underlying principles: a market economy, openness to the world market, and macroeconomic discipline. Generally, the Washington Consensus has a view toward ‘market fundamentalism’, where one looks to the market as the best solution to most economic problems). 69 Appropriate economic and legal policies refer to the policies that are tailored to local environments or to the culture of a society. See generally Dani Rodrik, who argues that ‘Appropriate Economic and Legal Policies’ are critical elements for developing nations in order to achieve further economic growth. Rodrik (n 20) 229. See also Rodrik, (n 20) 100, 100–04; Rodrick (n 20) 171; Stiglitz (n 20); Bhagwati (n 20). 70 Meyer and Park (n 7) 671 above. 71 Side letter in KORUS FTA reads I have the honor to confirm the following understandings reached between the delegations of the Republic of Korea and the United States of America during the course of negotiations regarding Chapters Eleven (Investment) and Twelve (Cross-Border Trade in Services) of the Free Trade Agreement between our two Governments signed this day: […] (5) During the negotiations, the Parties discussed a measure that may establish requirements regarding the types and quantities of raw materials for producing liquor under the Liquors Act (Law No. 7841, Dec. 31, 2005) and its subordinate regulations. The Parties shared the understanding that such measure is not inconsistent with Article 11.8 (Performance Requirement), provided that it is applied in a manner consistent with the WTO Agreement on Trade-Related Investment Measures. […] I have the honor to propose that this letter and your letter in reply confirming that your Government shares these understandings shall constitute an integral part of the Free Trade Agreement. 72 The letter in US-Peru FTA reads […] For greater certainty, nothing in Chapters Ten or Eleven prevents Peru from maintain the following. measures: The underwriting by the Instituto Nacional de Cultura of costs associated with supervising archaeological research projects and emergency projects led by Peruvian archaeologists pursuant to Resolucion Suprema No. 004-2000-ED, Reglamento de Investigaciones Arqueologicas, Article 20 The granting of monetary prizes exclusively to Peruvian cinematographic works pursuant to Ley N 26370, Ley de la Cinematografia Peruana, Articles 3, 11, and 12 and Decreto Supremo N, 042-95-ED, Reglamento de la Ley de la Cinematografia Peruana, Articles 22 and 23; and The granting of tax credits and refunds that provide benefits for publishing activities in Peru pursuant to Ley N 28086, Ley de Democratizacion del Libro y de Fomento de la Lectura, Articles 17 and 18, and Decreto Supremo No, 008-2004-ED, Reglamento de la Ley de Democratizacion del Libro y de Fomento de la Lectura, Articles 24, 25, 37 and Annex A I would be grateful if you would confirm, by an affirmative letter in response, that these understandings are shared by your government. 73 The missing domestic measures in the reservation list in the EPA reads: Sector       All Sector Sub-Sector:     National(Article85)              Most-Favored Nation treatment (Article 86)              Prohibition of Performance Requirements (Article 89) Description     Any existing measures framed by the State Governments/              Union territories/local governments are not subject to either              National Treatment, Most-Favored nation Treatment or              Prohibition of Performance Requirement obligation. Reservation Measure Any existing or current regulations or measures in force on             the date of entry of this Agreement 74 The renegotiation clause in the CEP reads. Sector             Printing&Publishing             Manufacture & Repair of Transport Equipment             Power/Energy Types of Limitation: National treatment (Article 29) Legal Citation: Description:    More favourable treatment may be accorded to Singapore             nationals and permanent residents in the             above sectors. 75 The Singapore’s reservation list in the Australia–Singapore FTA is available at <https://www.iesingapore.gov.sg/∼/media/IE%20Singapore/Files/FTA/Existing%20FTA/Singapore%20Australia%20FTA/Legal%20Text/Chapter%207/4IB2020SingaporeS20Reservations.pdf> accessed 11 May 2019. 76 ibid. 77 The Act has a variety of regulations including incorporation, allocation of power, shares, titles and transfer, management and administration, account and audit, etc. 78 KORUS-FTA, Annex 12-B; Exchange of Letters between US Trade Representative Susan C Schwab and Korean Trade Minister Hyun Chong Kim, 30 June 2007. The letter reads as follows: ‘The delegation of the Republic of Korea and the United States of America discussed the regulatory reform processes that their respective governments are contemplating or currently undertaking with regard to postal services and how those processes might affect competitive express delivery services. In the context of those discussions, Korea indicated the following aspects, among others, of its postal reform plan: Korea intends to expand gradually the exceptions to the Korean Postal Authority’s monopoly to increase the scope of private delivery services that are permitted and to establish a scheme ensuring the independence of Korea’s postal regulatory system. This will be done through amendments to the Postal Services Act, related laws, or their subordinate regulations. […] In determining the nature and extent of such amendments, Korea will consider various factors, including domestic market conditions, experiences of other countries with postal liberalization, and the need to ensure universal service. Korea plans to implement these amendments within the next five years. […]’ In applying these reformed criteria and regulatory system, Korea will provide non-discriminatory opportunities to all postal and express delivery services suppliers in Korea. 79 Yonggui and others, ‘Korea-U.S. FTA and its Three Years of Implementation Process’ (2015) 15 Korea Inst Econ Pol (KIEP) 1, 14. © The Author(s) 2021. Published by Oxford University Press. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - The Uses and Advantages of Side Letters in the Investment Chapters in Preferential Trade Agreements
JO - Journal of International Dispute Settlement
DO - 10.1093/jnlids/idaa024
DA - 2021-04-30
UR - https://www.deepdyve.com/lp/oxford-university-press/the-uses-and-advantages-of-side-letters-in-the-investment-chapters-in-XHyRu2xOKZ
SP - 84
EP - 103
VL - 12
IS - 1
DP - DeepDyve
ER -