Wednesday, May 11, 2022

What kind of globalization would prevail?

A sobering piece by Dani Rodrik on a "better globalization" replacing the era of hyper globalization is here in this Project Syndicate piece. 

He argues that the answer to the retreat to hyper-globalisation need not be autarky but a more equitable, distributive globalization that takes care of the losers of globalization.

"Yet, it is also possible to envisage a good scenario whereby we achieve a better balance between the prerogatives of the nation-state and the requirements of an open economy. Such a rebalancing might enable inclusive prosperity at home and peace and security abroad.

The first step is for policymakers to mend the damage done to economies and societies by hyper-globalization, along with other market-first policies. This will require reviving the spirit of the Bretton Woods era, when the global economy served domestic economic and social goals – full employment, prosperity, and equity – rather than the other way around. Under hyper-globalization, policymakers inverted this logic, with the global economy becoming the end and domestic society the means. International integration then led to domestic disintegration."

He also alludes to the importance of a multipolar world instead and new rule makers. Graham Allison has talked about the Thucydides Trap when a rising power threatens to displace a ruling power, war is inevitable. Dani Rodrik opines:

For great powers, and the US in particular, this means acknowledging multipolarity and abandoning the quest for global supremacy. The US tends to regard American predominance in global affairs as the natural state of affairs. In this view, China’s economic and technological advances are inherently and self-evidently a threat, and the bilateral relationship is reduced to a zero-sum game.

How globalization will play out in terms of international economic law rule making will depend on what approaches to trade major economies would take in the coming decade? Would it based more in the region rather than global? Would there be different trading blocs? Would domestic concerns and priorities shape trade policy leading to tensions at the WTO? Would trade increase but trade rules stagnate? 

I had the privilege of moderating a session recently with Prof.Dani Rodrik on avoiding one-size fits-all solutions. the video recording is here. We find some answers here.

Friday, April 15, 2022

Animal welfare as subjects of trade agreements?

I had blogged a few weeks ago about chapters in FTAs that are usually not seen in traditional trade agreements. This was in the context of New Zealand.

This time it is "animal welfare" that has taken its position in an FTA chapter as a separate chapter. the new UK-New Zealand FTA has, inter alia, a chapter on animal welfare. As per Article 6.1 of the FTA, the purpose of the provisions on animal welfare in a trade agreement is "to enhance cooperation between the Parties on animal welfare of farmed animals." It states that animals are sentient beings and protection and welfare of animals may be in the interest of a party's trade objectives.

The chapter recognises the right of parties to regulate with respect to animal welfare, not derogate from their animal welfare laws, exchange information, expertise, and experiences in the field of animal welfare with the aim of improving understanding of each other’s regulatory systems, policies, and strategic approaches, and enhancing animal welfare standards and also set up a working group to work on animal welfare issues.

The chapter is innovative in the sense that it places animal welfare as a "trade issue". It pretty much opens the door for any issue to be a trade agreement chapter. For those countries that are cautious about the scope of trade agreements, this can be problematic. For others, there is no limit to what trade can impinge upon.

The soft landing perhaps is the exclusion of the application of the dispute settlement provisions to the animal welfare chapter. One way of introducing innovative chapters in free trade agreements is to exclude it from the scope of dispute settlement. It takes enforcement out of the debate, but does push the agenda that both parties are interested in pursuing. Sensitivities on both sides taken care of perhaps?

Tuesday, April 12, 2022

Global norms, local initiations?

I had commented on the EU CBAM and it's potential challenge under the WTO dispute settlement system here. The other question it raises is setting of standards outside multilateral fora. Since carbon tariffs or penalties on imports based on carbon content are not being negotiated in any multilateral fora, individual countries are going ahead with their own set of rules. While the compatibility to international trade rules is one issue, how these standards ultimately will become global norms is another interesting arena of research. Will these rules, ipso facto, force trade reliant emerging economies to adopt them despite no legal need to do so?

Harvard Law Review has this piece on the reality of carbon tariffs and their impact on trade and how countries would react to them. Though carbon tariffs have an ambiguous status under international law, it argues that it seems to be the only way forward to address the issue of climate change. Pointing towards the indirect benefit carbon tariffs may have on other economies, it states:

As access to large and valuable markets like the United States and the European Union becomes predicated on a showing that comparable climate policies are at work in the exporting state, more and more trade-dependent economies that might not otherwise adopt rigorous climate policies will be compelled to show that they too are complying with the Paris targets, further expanding the body of state practice. These effects may not produce a critical mass of state practice and legal obligation and may not overcome the inertial effects of persistent objectors, but they will almost certainly move the needle in the right direction.

Will the EU CBAM lead to the widespread adoption of carbon tariffs in emerging economies? Will they be challenged in the WTO? Will it lead to re-negotiation of the Paris Climate Agreement commitments? How ultimately are international standards set? My initial moves by large developed economies and inevitable adoption by others or in a more structured multilateral way? 

What lessons does this have for internet governance and the rules around it? Who will set the rules for internet governance, digital tax, digital governance, privacy and trade? Will it take a similar route of a few taking the initiative and others following suit?

Friday, April 8, 2022

Restoring the Appellate Body

I had blogged here about appealing into the void at the WTO. 

For anyone interested in WTO dispute settlement and a possible solution to the impasse of the Appellate Body crisis, a detailed piece in the PIIE blog by the former Deputy Director General of the WTO Alan Wm Wolff on the history, tensions, alternatives and possible way forward is an exhaustive read. It lays down the history of the dispute settlement system, the US view on what is wrong with it, the fundamental difference between the US and EU on the way it should function as well as what can be done to resolve the issue.

A must read for an inner ring view of how the Appellate Body is viewed in the United States.

Monday, April 4, 2022

Some trade news

Some interesting news from the trade front:

1. India and Australia signed off on a Free Trade Agreement - the text of the agreement is here. Christened the "India-Aus Economic Co-operation and Trade Agreement". It covers substantial tariff reductions on the goods side and services trade liberalisation. Justin Brown writing earlier this week for the Lowly Institute highlighted the importance of trade policy for Australia in it's overall foreign policy and stated:

First, negotiating free trade agreements (FTAs) and trade facilitation arrangements must remain a priority to promote export diversification. Comprehensive FTAs with India and the EU will be difficult to land in the near term; the government’s efforts to strike an early progress agreement with India is a pragmatic way forward.

There would be merit in considering bilateral trade facilitation arrangements in sectors that are key to our economic resilience, such as critical minerals and the green economy/manufacturing.

After the UAE, it is India's second back to back trade agreement in recent times.

2. How important is standard setting in regional trade agreements? Should one participate in it to be rule-setters rather than rule-receivers? Should we be concerned if we are not at the table negotiating these deals? Do we lose an opportunity to shape them or is that fear over-exaggerated. 

Evan A. Feigenbaum, vice president for studies at the Carnegie Endowment for International Peace makes a forceful point on the importance of being at the negotiating table in large regional trade arrangements. Commenting on the Indo-Pacific Economic Framework and the US, he testified:

And so we should be rediscovering our role as a standard-setting nation. But somehow, we now manage to find ourselves on the outside of agreements—the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP), and the Digital Economy Partnership Agreement (DEPA)—that could set standards in Asia for a generation.

How important is rule-making in a multilateral setting? Who should frame them and what motivations should drive this agenda?

3. Trade agreements for the metaverse? Metaverse has been in the news - for creating this virtual reality where a parallel professional and personal life can be re-created. What about trade in this metaverse? Would they be subject to trade rules? Who will make these rules? Trade Policy Expert, Sam Lowe, has some thoughts on how trade rules will ultimately require to catch up with the meta-universe and its virtual trade realities, whether it is in services or goods. Reacting to a question on whether we can have a trade treaty on this subject, he realistically notes:

That’s the other thing we haven’t actually discussed. How do you govern? If you have a global metaverse, you also then have to govern trade within it. So the exchange of digital property – tokens, or you could have your own house – who do you buy it from, how do you get a legal guarantee to it?

 We’ve got a pretty good treaty in place, when it comes to trading goods under the auspices of the WTO. There are provisions relating to services, but they’re very undeveloped. No one’s really managed to make any multilateral progress on anything new or modern. You do get some in bilateral contexts – say, the U.K. and Singapore, most recently, reaching a digital economy agreement that has sorts of commitments to refrain from data localization, placing duties on data flows and the like, but it’s very piecemeal. 
My view is that in terms of how this will develop, individual countries, and particularly the larger ones – the U.S., European Union, India, China – will introduce their own piecemeal approach to all of this and it won't be a collective vision. It won’t be, "We will think about how we regulate the metaverse," it will just be, "Well, we’ll think about how we regulate the fact that we’ve got all of these people providing consulting services from the other side of the world and displacing our local consultants." And the regulation you introduced to deal with that has an impact on what you can do in the metaverse.

Not many people are thinking about trade rules to govern this new reality - a shot in the dark? 

Tuesday, March 1, 2022

Taahiraa Pai! How innovative can FTA's get?

Taahiraa Pai (good step) in Maori. 

Is there any topic that is not relevant to trade agreements? Apparently not! 

News of a UK-NZ FTA is out. And one of the chapters in this FTA is one on Maori Trade and Economic Co-operation. I haven't been able to get hold of the text of the agreement, but this is the synopsis:

26. Māori Trade and Economic Cooperation

This chapter contains provisions for cooperation activities to strengthen the trade relationships between UK, New Zealand and Māori enterprises. This will help Māori enterprises maximise the opportunities arising from the FTA, alongside New Zealand and UK enterprises.

The chapter also recognises the importance and value of the Māori to New Zealand’s economy and society. In addition to the unique relationship between the UK, New Zealand and the Māori.

Though it is in "co-operation activities" language, it definitely signals an innovation in trade agreements - of addressing issues related to Maoris that are not the traditional preserve of FTAs - Tariffs, Services, Rules of Origin, Digital Trade, Investment and dispute settlement.

It seems that there are truly no limits to integration of trading opportunities of local communities in the globalized world. A way to address the backlash against globalization?

Sunday, February 20, 2022

How globalised should one get?

Carnegie Europe in a latest report by Suyash Rai and Anirudh Barman have brought out a comprehensive overview of India's engagement with globalization in trade, climate negotiations, data sovereignty, global finance and digital taxation. 

Titled India:Testing Out New Policies on Globalization", it concludes that India's engagement with the global order has changed since 2010 - towards a more inward looking strategy. 

What should a country's strategy be with respect to global economic engagement? Should it be based purely on national interest or working towards a larger "global good"? How much must one liberalise and when? How should we decide on the pace of liberalisation? How do we account for the winners and losers of globalization? Should internal regulatory reform in sectors be driven by an outward looking reform oriented policy or an inward looking policy? Should domestic reform be driven by external pressures? How important are national champions in a country's growth trajectory? Should they grow in a protected environment or facing the globalized world? How does one set the agenda in global rule making? Will being inward looking disengage a country from crafting the rules? Is there a balance that can be brought between becoming globally competitive and liberalisation?