Thursday, September 17, 2020

What kind of reforms at the WTO - this time for Africa?

 The selection of the next Director General is on everyone's agenda. atleast in trade circles. While the debate on whether a political leader or a technocrat should head the organisation gains pace, talks of the inevitability of "reforms" is rasied by many members. What exactly is the shape and form of these reforms? There are different perceptions of how the WTO should transform itself for the 21st century.

Project Syndicate carried a piece on what Africa needs from a reformed WTO. Hippolyte Fofack and Pat Utomi argue that the multilateral trading organisation ahs not served the interests of Africa thus far and needs to have an agenda that is more fair. In "Making the WTO work for Africa", the three pillars of their reform agenda are:

1. Tariff escalations and stringent technical standards hinder export of goods from Africa

2. Policy space - Developing countries are not allowed to design industrial policies that encourage their domestic sectors, a strategy that the developed world used effectively in the past

3. Agricultural subsidies maintained by large developed countries which depress world prices that impact farmers in Africa.

Arguing that Africa wants to be a player in the multilateral setting, a robust private sector in Africa seeks access and opportunity.

Africa is now a mature global player, with a private sector ready to drive development and take its rightful place alongside firms in more advanced economies. All we ask is that the WTO remove the artificial barriers and prejudicial hindrances that prevent Africans from unleashing their creative and productive energies.

A fairer, more equal, and more accessible global trade system must be at the top of the next director-general’s reform agenda. A WTO that is fit for purpose will also allow governments of smaller developing countries to act on behalf of their private sectors without fear or favor. Africa will support Azev√™do’s successor, provided that the WTO serves Africa in the same way it serves the rest of the world.

Will this reform agenda be the driving force of the new WTO? Well, not everyone in the WTO has this notion when speaking about reforms. One will have to see a real convergence of ideas for reform to make a thriving fora for future negotiations.

Thursday, September 10, 2020

The importance of treaty language and doing it right!

Legally binding treaties that impose enforceable obligations must be negotiated and concluded with great care. Many a times what is intended is not reflected in the language of the treaty text while in many cases the ambiguity in the provisions of the treaty give wide scope for arbitral tribunals/dispute settlement panels to interpret obligations in ways that were not conceived by the treaty negotiators. Now a days a lot of importance is given to State parties being vigilant about treaty provisions they are entering into.

The debate on how many developing countries entered into international investment agreements without comprehending the full extent of obligations is well documented. This led to steps by States to rescind or rethink on their investment treaty negotiation strategy. Old age treaties have given way to new age treaties where State parties have been more circumspect in assuming obligations.

A classic account of how important treaty text is while negotiating is emphasized by this CCSI paper by George A. Bermann, N. Jansen Calamita, Manjiao Chi, and Karl P. Sauvant on the overlap between the interplay of the WTO Investment Facilitation Framework (Framework) and bilateral investment treaties of WTO members. Can the obligations assumed under the Framework be used by investors or State parties to butress their cases in ISDS cases under international treaties. Since both are separate legal regimes under different institutional set ups one would come to a conclusion that obligations under wither of the settings cannot be used in the other.

However, the paper outlines the importance of having clear, explicit treaty text in the Framework to exclude that possibility. A series of legal language is proposed to ensure that the Framework obligations are not imported as an interpretative tool to expand the rights and obligations under investment agreements. 

Some examples of such language suggested are as follows:

A future Framework can be expected—and needs to state expressly—that it does not cover “market access, the treatment and protection of investment or investors, and ISDS.

A determination that there has been a breach of this Framework shall not establish the breach of any rules on investment protection or investor-state dispute settlement.

For greater certainty, obligations arising from other treaties do not in themselves constitute ‘treatment’ and thus are excluded for the purpose of assessing a breach of this Article. Conversely, only measures adopted by a Member pursuant to those obligations shall be considered ‘treatment’. Furthermore, the obligations in this Framework shall not constitute ‘treatment’ under any other treaty.

This Framework cannot and shall not serve as a means to interpret any rules on investment protection or investor-state dispute settlement

So what seemed to be a non-issue is not exactly that straight-forward. Creative interpretations can upset carefully crafted balance in treaties. It can also lead to unintended consequences. 

Unintended and unwanted interaction between a Framework and IIAs is possible. WTO negotiators should therefore seriously consider including provisions.

The above piece only illustrates, once again, the importance of treaty negotiators to be aware of such consequences, create capacity to deal with the challenge of interpretation and exercise utmost caution. Quite often States leave this to their lawyers. However, this problem is much more than a legal one. It is one of State capacity that policy makers must have. It is a necessary toolkit in such challenging environs!



  

Wednesday, September 9, 2020

Digital trade rules - where are we headed?

Digital trade has captured the imagination of policy makers, both domestic and international.While some argue that the present legal architecture is insufficient to address the internet of things, others argue that national priorities must prevail when pursuing the ecommerce agenda. For some global trade rules is a must. For others it is anathema.

Touching on this theme, Dani Rodrik, in his inimitable way, highlights the tensions that digital trade and data bring to the fore in international economic policy making. Writing in the Project Syndicate, he highlights the three core challenges of new digital developments - issue of national security wherein digital technologies are perceived as being able to impact internal domestic security, the issue of data privacy where some countries value the principle more than others and the issue of economics where large technology players benefit from first mover advantage.

The WTO is definitely not well placed to address these issues - but should it be the multilateral fora where digital trade rules should be negotiated? Do developing economies that are still at the base of the ladder agree to multilateral trade rules that enable technology companies of the developed world to dominate. What about consumers? Should they not benefit irrespective from where the service is provided?

So are global rules the answer? Should we harmonise rules on data localisation, cross border data flows and standards? Who would benefit. Dani Rodrik states:

The benefits of common rules are clear. In their absence, practices such as data localization, local cloud requirements, and discrimination in favor of national champions create economic inefficiencies insofar as they segment national markets. They reduce the gains from trade and prevent companies from reaping the benefits of scale. And governments face the constant threat that their regulations will be undermined by companies operating from jurisdictions with laxer rules.

But in a world where countries have different preferences, global rules – even when they are feasible – are inefficient in a broader sense. Any global order must balance the gains from trade (maximized when regulations are harmonized) against the gains from regulatory diversity (maximized when each national government is entirely free to do what it wants). If hyper-globalization has already proved brittle, it is in part because policymakers prioritized the gains from trade over the benefits of regulatory diversity. This mistake should not be repeated with new technologies.

So the answer lies in a minimalist global rule framework where core national interests are protected:

Global governance and multilateralism will often fail, for both good and bad reasons. The best we can expect is a regulatory patchwork, based on clear ground rules that help empower countries to pursue their core national interests without exporting their problems to others. Either we design this patchwork ourselves, or we will end up, willy-nilly, with a messy, less efficient, and more dangerous version.

But do exporters of such technologies agree that there needs to be minimal global trade rules. There is a belief that harmonisation is beneficial to the world at large. The debate in the coming years would be how economies view global trade rules in ecommerce - as factors enabling their integration and development or one that hinders there digital and industrial road map.


Tuesday, September 8, 2020

Digital competitiveness, digital trade and indicators

Digital trade and digital competitiveness are the new kids (no longer new) as far as multilateral trade rules are concerned. There are growing demands for new rules on ecommerce that can spur digital trade and growth across the globe.

I found this interesting report on digital competitiveness called the Digital Riser Report 2020 done by the European Center for Digital Competitiveness which ranks countries of the globe based on how digitally competitive or ready they are. I wasn't interested in the ranking - was more interested in the methodology and the indicators used to decide who is up and who is down.

The Report lists out two sets of parameters to determine digital competitiveness - ecosystem related and mindset related. The effort was to examine whether the right conditions exist where digital growth and entrepreneurship could flourish.

The Ecosystem related indicators asked the following set of questions:

1. Venture capital availability -  “In your country, how easy is it for start-up entrepreneurs with innovative but risky projects to obtain equity funding?”

2. Cost to start a business -  Expressed as a percentage of the economy’s income per Capita

3. Time to start a business - Number of calendar days needed to complete the procedures to legally operate a business

4. Ease of hiring foreign labour - "In your country, how restrictive are regulations related to the hiring of foreign labour?” 

5. Skillset of graduates -  “In your country, to what extent do graduating students from secondary education possess the skills needed by businesses?” and “In your country, to what extent do graduating students from university possess the skills needed by businesses?” 

The Mindset indicators asked the following questions:

1. Digital skills among active population - “In your country, to what extent does the active population possess sufficient digital skills (e.g. computer skills, basic coding, digital reading)?” 

2. Attitudes towards entrepreneurial risk - “In your country, to what extent do people have an appetite for entrepreneurial risk?”

3. Diversity of workforce - “In your country, to what extent do companies have a diverse workforce (e.g. in terms of ethnicity, religion, sexual orientation, gender)?” 

4. Mobile-broadband subscriptions - Number of active mobile-broadband subscriptions per 100 Population. 

5. Companies embracing disruptive ideas - “In your country, to what extent do companies embrace risky or disruptive business ideas?” 

Broadly, the indicators thrust is to understand what is the ease of doing business, what is the skill set involved,  how good is the availability of venture capital to start innovative companies, what is the cost to start a business, how easy is it to employ qualified foreign labour, what is the internet penetration and what is the attitude of the population towards digitalisation.

Very relevant set of indicators. What I found interesting is that the country's regulatory framework for digital tarde - bth internal or external in terms of rules on data privacy, localisation requirements, cross border trade flows, intellectual property law enforcement, performance requirements, do not form part of the indicators. How relevant are they to digital competitiveness? Do they matter at all? Or are they relevant to increase global competitiveness when one is a digital powerhouse themselves? Of course some of the indicators related to ease of doing business do have a co-relation to investment rules but that is a broader question. In fact, the indicator on foreign labour, calls for a more freer flow of high skilled labour across countries. Do countries have the appetite for that now?

Friday, September 4, 2020

Reform narratives, global innovation index and some random thoughts

Some readings this week:

Jennifer Hillman, former member of the Appellate Body, writing in the Council for Foreign Relations website on the future of the WTO and the challenges for the new Director General opined:

They will inherit a WTO that has failed to reach any significant pacts (other than the Trade Facilitation Agreement) since its founding in 1995. Critical agreements are needed to curb fishery subsidies that are contributing to the depletion of the world’s supply of fish, and to write rules of the road for e-commerce and digital trade. These are “must-do” items, along with fixing the WTO’s dispute settlement system following a U.S. decision to destroy its Appellate Body, which could allow countries to avoid complying with decisions they do not like. The director-general will also need to find ways to address growing concerns over China’s unfair trade practices.

The reform agenda seems to be centred around fisheries, ecommerce rules, addressing concerns around China and fixing the AB. They have been called "must-do" items. I am not sure if there is consensus on the reform agenda itself amongst the 164 WTO members leave alone agreeing on what needs to form the substantive response to this agenda. Some members feel the agenda narrative is not in their interest and the WTO needs to be addressing more "inclusive" agenda items including reduction of agricultural subsidies as well as ensuring interests of developing and least developed countries are protected in future global trade rules. Can the Members get consensus on what the agenda is first?

The Global Innovation Index for 2020 is out.Switzerland tops it once again. 

Some excerpts:

Sovereign Wealth Funds and Innovation - An interesting observation on the impact of geopolitics and the behaviour of SWFs:

However, while geopolitics remains a major consideration for SWFs investing in foreign technology companies, there is a new frontier for political considerations—those of major global technology companies. As firms such as Alphabet, Facebook, and Amazon gather ever more data about their users, they are increasingly shaping people’s lives and politics. For a government-owned investor looking to back major new technologies in an era where start-ups can quickly emerge as dominant global players—and big data can have unforeseen or unintended consequences—it is essential that they look ahead to these considerations and understand the potential reputational and political implications, both for them as an investor and for their government as an owner. 

I found the chapter on government funding of innovation by Josh Lerner interesting as it  raises the difficulties government officials have in handling the innovation bubble - the different world of entrepreneurship, innovation and venture capital!

The final challenge reflects the nature of people who often are associated with the greatest entrepreneurial success. Government officials may have many valuable talents and play incredibly important roles, but the skill sets associated with successfully identifying and funding entrepreneurial businesses are very different from those encountered in their typical daily work. The ambiguity, complexity, and specialization associated with these ventures make these tasks quite challenging. 

In many instances, officials may be manifestly inadequate to selecting and managing entrepreneurial or innovative firms. Many examples can be offered of government leaders who did not think carefully about realistic market opportunities, the nature of the entrepreneurs and intermediaries being financed, and how the subsidies they offered would affect behavior. Whether they affect the ability of firms to accept outside financing, offshore routine coding work, or the response to shifts in customer demand, well-intentioned officials can make rules that prove to be very harmful to those they mean to help. 

But beyond the inability of governments, much of economists’ attention has been focused on a darker problem that affects these and similar programs: the theory of regulatory capture. This hypothesis suggests that entities, whether part of government or industry, will organize to capture the direct and indirect subsidies that the public sector hands out. Subsidies geared towards entrepreneurial firms are no exception.

These issues are exacerbated by the fact that the most creative entrepreneurs are often outsiders. For instance, extensive literature has documented the disproportionate representation of immigrants in U.S. entrepreneurship, both in general and among high-potential enterprises.These may be people who are less likely to be well connected or less able to lobby successfully for public grants.

Solutions like independence of decision making in selecting innovation projects, insisting on matching funds (from informed funders and not government entities!) by the private sector are some of the solutions provided to overcome the government deficit in understanding the innovation world! Good lessons for government's around the world.



 

Wednesday, September 2, 2020

To appeal or not to appeal is the question

Simon Lester has a succinct account of the Appellate Body (AB) crisis at the WTO and what alternative arrangements in place now can offer to resolve the impasse. With the AB dysfunctional presently and an alternative ad hoc arbitration mechanism in place adopted by about 10% of the WTO's 164 members, one needs to wait and watch on how the Multi Party Interim Arbitration arrangement(MPIA) will pan out.

The MPIA still does have challenges - its limited following, secretarial and funding support, how it will address the issue raised on the AB's overreach, issue of interpretation, "law making instead of clarifying the rights and obligations of WTO members and how much deference it will show to domestic authorities' decisions.

As Simon points out:

Just as there was uncertainty about the Appellate Body in 1995, there is uncertainty about the MPIA now. In addition to the points noted above, there are other questions: What approach will the MPIA take regarding the interpretation of core WTO principles such as the nondiscrimination obligation and public policy exceptions? How often will the MPIA appeal process be used? What kind of legal culture will develop around it, including the approach of the arbitrators and of the litigants themselves? How much deference will the MPIA show toward politically sensitive domestic laws and regulations? How much deference will the MPIA show toward the findings and reasoning of WTO panels? Will the MPIA avoid novel and controversial issues that are put before it or take them on? Only practical experience will give us clear answers.

However, the issue is much more than compliance and enforceability. It is an issue inherent in judicial interpretation. The power to interpret carries with it the inherent possibility of expansive or restrictive interpretative approaches. The language of the law is not always clear and unambigious. The Vienna Convention on the Law of Treaties does provide guidance but the same articles of the VCLT have provided scope of varying interpretation according to the text, object and purpose or context.

The issue is whether sovereign countries are willing to accept a neutral arbiter with the power of enforcement in international trade disputes. It is inherent in such processes to have the arbiter have the final word on interpretation and jurisprudence, of course within limits. One sees the tension in investment arbitration where States seek joint interpretative notes to control the interpretative jurisprudence of treaty text. The irony is that in the arena of international investment arbitration, the debate is about having an appellate system - a Multilateral Investment Court, partly because there is a perceived inadequacy of the ad hoc arbitral tribunal system leading to incoherent jurisprudence.

Tuesday, September 1, 2020

Trade negotiations - who does one listen to?

Trade negotiations and stakeholders have been a tricky issue always. Who does one consult when arriving at trade deals. Who are the stakeholders in business and society that need to be consulted? How do sub-national and local authorities figure in the process? What should the mechanisms be for effective input sharing and arriving at negotiating positions? What kind of businesses get access to air their views? What about civil society groups and workers?

The UK has set up several Trade Advisory Groups (TAGs) to help the government in negotiating their trade deals in sectors ranging from professional advisory services to life sciences.The purpose is "to provide the blend of strategic and technical expertise required to ensure the United Kingdom’s trade negotiations are able to progress at pace."

The issue of who needs to be consulted and what interests dominate trade negotiations is as old as trade deals itself. Not everyone is happy with how stakeholders are consulted, as is evident in this voicing of concern that workers views  are not getting enough priority in trade deals.

Unions bosses warned “workers will suffer” if the Government failed to involve them in talks.

Animal welfare campaigners such as the RSPCA and consumer groups have also been left out - despite concerns that a US trade deal could slash food standards by allowing chlorinated chicken in British shops.

In another part of the world, concerns of how a trade deal could hurt local jobs in Singapore is a critique of the need for such trade deals. Mobility of labour across geographies pursuant to a trade deal is also seen as very sensitive. 

Trade deals involve extremely complex trade-offs, winner and losers as well long standing impacts on economies. Some sectors stand to gain while others may lose out due to the competition from outside. How the political economy of these realities are understood, negotiated and managed is critical in any trade negotiating strategy. Of course consultation of all those going to be impacted is always the first step towards that goal!