Trans-Hemithean Economics and Trade Association

The Trans-Hemithean Economics and Trade Association (THETA) is a free trade agreement negotiated among the major economic powers of northern and eastern Hemithea during the 2010s. It is scheduled to come into force on January 9th, 2019. Its seven current members, in alphabetical order, are Argentstan, Dayashina, Dzhungestan, the Republic of Innominada, Menghe, Polvokia, and Themiclesia. Hanhae will also be grandfathered into THETA membership when its transition to full independence from Dayashina is complete.

With its current membership, THETA includes the second-largest and fourth-largest economies in Septentrion, and unites all major economies in East Hemithea with the exception of Maverica, the People's Republic of Innominada, and Altagracia, which were excluded due to geopolitical tensions with Menghe and Dayashina. Accession negotiations with Nukkumaa began in 2015, but have been delayed due to conflicting obligations with its economic relationship with Rajland. So far there has been no discussion of whether to expand THETA by including the Organized States, the largest economy in Septentrion.

THETA is a free trade area, as opposed to a customs union, common market, or economic union, which would commit their members to additional obligations. Trade within THETA is not entirely free, but members pledge to reduce internal tariffs to zero on 90% of all product categories, and to bring other tariffs sufficiently low that the average tariff level is 0.5% or lower. Stringent rules of origin prevent outside countries from using trans-shipment to bypass individual THETA members' external tariffs. Members of THETA also commit to improving environmental and labor regulations and streamlining, though not eliminating, travel across borders.

Background

THETA serves as a capstone for a number of existing agreements on trade and investment on the Hemithean continent. Menghe and Themiclesia signed a bilateral trade and investment treaty in 1997, and Menghe and Dayashina reached a similar agreement in 2003, the latter coming two years after the resolution of the Renkaku Islands dispute. These agreements reduced tariffs on most raw materials and manufactured goods, and reduced barriers to FDI, encouraging Themiclesian and Dayashinese companies to set up factories in Menghe and take advantage of its lower wages.

In 2010, Menghe launched the Central Hemithean Economic Community, or CHEC. This small free trade area consisted of Menghe, Polvokia, and Dzhungestan. Though its global impact was very small - Polvokia and Dzhungestan collectively accounted for less than a fifth of Menghe's nominal GDP, and already counted Menghe as their main trading partners - the agreement dramatically improved Menghe's access to the abundant natural resources in northeast Hemithea. Reduced barriers to investment allowed Menghean companies and in many cases Menghean workers to expand mines, gas fields, pipelines, and railroads, with much of the new infrastructure channeling goods down to the Menghean border. Prices of consumer goods and construction products also fell substantially in Polvokia and Dzhungestan, improving the local quality of life but also forcing many manufacturing enterprises out of business.

The idea for a broader free trade zone grew out of negotiations on the Trans-Hemithea High-Speed Railway, which required investment and population movement provisions across member states. Themiclesian diplomats were the first to suggest a wider trade agreement, bringing it up during talks in 2014; after an initial period of ambivalence, Menghean policymakers seized on the idea, promoting it as part of the government's broader "Northern Road" initiative to improve trade with its neighbors. The first round of formal talks took place in Dörözamyn, capital of Dzhungestan, and at regular meetings rotating across national capitals, representatives of the five (later six, including the Republic of Innominada) inaugural member states hammered out the more detailed terms.

Now that negotiations have concluded, the resulting Trans-Hemithean Economics and Trade Association will enter into force on January 9th, 2019.

Members

The following countries are founding members of THETA:

Country name	GDP (nominal, 2017)	GDP/C (nominal, 2017)	GDP (PPP, 2017)	GDP/C (PPP, 2017)
Dayashina	$4,800,000,000	$41,702	$5,433,000,000	$47,200
Dzhungestan	$9,000,000	$2,313	$20,000,000	$4,934
Republic of Innominada1	$152,000,000	$6,173	$236,000,000	$9,585
Menghe	$7,504,000,000	$14,027	$13,657,000,000	$25,529
Polvokia	$643,000,000	$11,832	$898,000,000	$16,525
Themiclesia	$1,800,000,000	$45,000	$2,000,000,000	$50,000
1: 2017 figures for the Republic of Innominada include Argentstan.

During the original negotiations, Menghe and Themiclesia invited Nukkumaa, the westernmost country on the Trans-Hemithean High-Speed Railroad project, to join. Nukkumaan diplomats initially expressed strong interest in the agreement, but they came under pressure from Rajland to withdraw, as membership in a separate free trade area would violate the terms of Nukkumaa's customs union with Rajland and the universal outward tariff schedule. So far, there has been no serious talk of integrating Rajamaa and the other customs union members into THETA, but dialogue is continuing between Nukkumaa and THETA members on measures to improve trade in compliance with treaty restrictions.

Although Hanhae was under Dayashinese suzerainty at the time of the negotiations, and thus did not send an independent representative, Dayashinese diplomats and the transitional leadership in Hanhae agreed that Hanhae would be grandfathered into full THETA membership when it becomes independent.

A similar agreement was reached with regard to Argentstan, which seceded from the Republic of Innominada during the Innominadan Uprising and formally gained independence in July 2018, months before the agreement was scheduled to come into force. This required that all other THETA member states extend formal diplomatic recognition to Argentstan, even though the presence of Menghean troops in the country during the vote and the violent crackdown on anti-separatist Innominadans which followed have cast doubt on the legitimacy of its secession.

Terms

Trade barrier reduction

The main purpose of the Trans-Hemithean Economics and Trade Association is to reduce barriers to trade between member countries. To this end, signatories have agreed to reduce tariffs to zero on at least 90% of all listed categories of goods and services. Tariffs are permitted on the remaining 10%, to protect especially vulnerable sectors or ease the costs of adjustment, but all signatories are committed to keeping the average tariff rate, weighted by volume of trade, below 0.5% for every year after the agreement comes into force. Signatories are strongly discouraged from applying import quotas, and in cases where they do, the tariff-equivalent value of the quota is incorporated into the 0.5% average tariff limit.

Unlike a customs union, THETA does not have a common external tariff schedule; each member state can levy its own tariffs on goods from non-member countries. To prevent a trans-shipment loophole, whereby a non-member country could evade member A's higher tariffs by shipping goods through member B and then moving them within THETA, the agreement requires that goods meet stringent rules of origin in order to qualify for zero-tariff shipment. Automobiles, for instance, must have 65% of their value produced within any combination of THETA member states, or else they will be subject to the non-member tariff on automobiles.

THETA also includes less overt measures to facilitate trade. Although countries are still permitted to operate customs checkpoints at their borders and inspect incoming goods to ensure that they qualify for the internal tariffs, member governments agree to take steps to streamline the customs procedure, by publishing internal tariff schedules and customs forms online in all members' official languages. Members also set up an expedited customs review option for express shipments, such as those carried aboard cargo trains of the Trans-Hemithea High-Speed Railway network.

Notably, THETA does not prevent countries from exercising discrimination in government spending. Member states' national and sub-national governments are still permitted to source their procurement orders from domestic firms when cheaper foreign alternatives are available, even though explicit requirements for domestic sourcing are forbidden.

Foreign direct investment

THETA members agree to reduce barriers to FDI, including cross-border mergers and acquisitions and the establishment of factories and offices abroad. Protections for free investment, however, are not as loose as protections for trade and travel, leaving signatories with considerable leeway to block mergers that violate domestic anti-trust laws and regulate speculation in the financial sector. Likewise, while the agreement encourages communication between central banks to limit beggar-thy-neighbor policies, it does not create any binding constraints for monetary policy or alleged exchange rate manipulation. Finally, in keeping with loose procurement restrictions described above, national and provincial governments are still permitted to favor domestic companies over foreign-owned ones when awarding contracts for public works projects or allocating conditional subsidies. Thus, while member states are "encouraged" to consider foreign-owned companies in government spending decisions, there is no binding provision requiring them to apply equal treatment.

Intellectual property

Despite initial fears that Menghe would push for weak intellectual property protection in THETA negotiations, the opening provisions are relatively secure, helping firms or government agencies in member states to pursue court cases against foreign entities which violated their copyright protection. Signatories with weak intellectual property laws, including Menghe, have also committed to raising their standards and improving enforcement.

An exception exists for medicines and pharmaceutical products, with terms which are generally friendly to generic-drug producers. The strongest provision states that members cannot grant patent protection to drugs which represent minor changes to an already patented compound, preventing the long-term renewal of drug patents. Advocates for this change, including representatives of Menghe's large generics industry, have argued that it will drive down costs for easily synthesized compounds, making medicine more affordable and reducing expenses on publicly funded medical programs. Critics say that it could reduce incentives for new innovation, or drive pharmaceutical companies overseas to other advanced economies.

Population movement

All members of THETA agree to allow citizens of other member states a 90-day period of visa-free travel within their countries, provided that they have a valid passport upon entry. If two countries already have a bilateral agreement allowing for a longer visa-free stay, the longer period remains in effect. Notably, this does not make THETA a free travel zone, as travelers must still cross at designated border checkpoints and ports of entry and clear customs there. Depending on a member's domestic regulations, travelers may also require a separate visa or permit in order to seek employment or enroll in a school in the destination country, though THETA encourages the streamlining of the approval process for in-THETA applicants. As such, the visa-free provision is mainly intended to encourage tourism and business travel.

Due to security risks over extremist groups like Gokudo and the FPLI, member states have also agreed to set up horizontal information-sharing channels between their customs, security, and intelligence agencies. Work has begun on a shared no-travel list for high-risk persons, such as those with known contact to terrorist organizations, so that they can be denied entry to other countries or subjected to additional screening.

Menghe, Themiclesia, Dzhungestan, and Polvokia have also set up a special permit category for members of nomadic tribes living near border areas, building on a 2008 bilateral program between Menghe and Dzhungestan. These permits are issued to anyone who can demonstrate membership in a registered nomadic tribe, and allow the holder to freely cross THETA borders with no limit on the length of stay in the destination country. In Menghe and Polvokia, this free travel is limited to administrative divisions on the border (Sŏsamak and Baeksan Provinces in Menghe and the Sirivan and Ketchvan Autonomous Oblasts in Polvokia), and like the visa-free travel program travelers are still required to cross at border checkpoints and cannot seek employment outside of a traditional nomadic livelihood. Proponents of this agreement have argued that it will help preserve the free movement central to nomadic tribes' cultural heritage, and that it will reduce overgrazing and environmental strain on border areas by allowing herds to seek out better conditions.

Labor regulations

In addition to reducing trade and travel barriers, THETA member states have agreed to a common set of minimum standards for labor rights and workplace safety, in order to ensure that increased trade does not result in a "race to the bottom" in wages and benefits. Dayashina and Themiclesia already surpass these standards, which are mainly targeted at Dzhungestan, Innominada, and to some extent Polvokia. Menghe, which already meets most of the minimum standards in terms of its formal legal provisions, has committed to improving enforcement and integrating migrant workers into the formal economy.

Environmental regulations

The final area covered by the THETA agreement is environmental regulation. As in labor, these provisions are mainly intended to ensure that increased competition and growth does not intensify damage to the environment. Yet in some areas, they go above and beyond the existing average level of protection in member states, signaling a broader effort to reduce emissions and contain climate change.

Natural resource producers must meet stringent regulations to limit soil and freshwater contamination from mine tailings and pipeline leaks, which have been a source of particularly egregious problems in Polvokia and Dzhungestan. Members also promise to implement sustainable resource management practices in forestry, grazing, and farming, to prevent problems related to deforestation and erosion. This includes increased funding for wildlife reserves and natural parks where enforcement is weak.

Members of THETA also pledge to reduce carbon emissions. One of the hopes of the planners is that lower barriers to cross-border investment and collaboration between firms will lead to greater progress in developing efficient, affordable green energy sources. Menghean diplomats have floated the idea of setting a common THETA-wide carbon tax, to prevent polluting companies from relocating within THETA to pursue lower costs, though so far this has not been put into practice. Feasibility studies are also underway for a series of large-scale wind or solar projects in barren areas of Dzhungestan, with long-distance connections to energy markets in Menghe and Themiclesia.

See also

• Trans-Hemithea High-Speed Railway