World Trade Law after Doha

A paper titled "World Trade Law after Doha:Multilateral, Regional and National Approaches" by David Gantz focuses on the future of the multilateral legal trading regime in the context of the failure of the Doha round. The paper has explored the future growth of multilateral trade rules and growth in international trade plurilaterally, regionally and by national measures nothwithstanding the failure of the Doha round of trade negotiations.

The paper concludes

"While multilateral trade negotiations may well be the best route to the reduction of tariffs and non-tariff barriers for agricultural and manufactured goods, and increased market access for services, among others, in the absence of the political among WTO Members to move forward other options are likely to become more popular. Most observers would agree that some trade liberalization is better than no trade liberalization, or increased protection. The vehicles for “some liberalization” include new or expanded regional trade agreements, “plurilateral” accords among a willing sub-group of the WTO memberships, and increased attention as to how members can increase their own competitiveness and trade through changes in national laws and policies. There are risks in all of these alternatives, but the failure of Doha has given members who seek expanded trade and the benefits accruing therefrom no other choice."

A fait accompli with the failure of Doha? 

The Third wave of Globalisation

(Image courtesy IPPR website)

A study by the Institute for Public Policy Research titled "The Third Wave of Globalisation" attempts to explain the complexity of the present trend of globalisation and its impact on economies.

Explaining what the third wave means it says,

"The world now stands at the start of a third wave of globalisation. As during the first and second waves, advances in technology and falling transport and communication costs will continue to make the world increasingly connected. It will be defined by different models of trade, continuing the trend of the last decade which has seen the rise of intra-company trade – effectively, the creation of cross-border supply chains – as an important mode of international trade. This drives home the need for advanced economies, like those in Europe, to focus on their strengths in high end technology and component goods across international chains of production. This third wave of globalisation holds out considerable economic opportunity but it will also be – indeed, it already is – the subject of intense criticism and anxiety, especially in the developed world."

Arguing for a more nuanced understanding of globalisation and its positives and negatives, the study elaborates on the pros and cons of the present trend of globalisation. What is relevant for me was the comment on the multilateral trading system.

About the role of the WTO it has this to say,

" In the absence of a multilateral trade liberalisation deal, the WTO should focus on how trade can be used to meet development objectives.This agenda includes tackling resource scarcity by encouraging water abundant countries to trade more water intensive goods, reducing tariffs on green technologies and services, promoting food security through a reduction in distortionary barriers and production subsidies for goods such as cereals, and examining which forms of aid for trade are most effective (te Velde 2011).

Trade reforms must also ensure a level playing field for all those competing in the global economy. This will mean intellectual property protection and enforcement provisions, open and non-discriminatory government procurement practices, and non-preferential treatment for state-owned enterprises (Ezell and Atkinson 2011) while allowing for proactive growth and industrial policies that foster structural transformation and help develop sustainable new capabilities (Rodrik 2011b).

         ... 

With Doha stalled, small groups of interested and ambitious states should move forward within the WTO machinery with open plurilateral agreements in selected sectors, such as services, and with a clear understanding that any other state could join these agreements in future should they wish. Above all, the WTO should be preserved as the preeminent forum for global trade rules and negotiations on future trade liberalisation.

The WTO should increasingly focus on how trade can be a solution to development issues such as resource scarcity and food security. They should also provide more technical support to help the least developed countries and civil society organisations to participate in trade policymaking."

While this list is quite a wishlist which many would argue is difficult to achieve in the present impasse, the study itself argues for a "middlepath" in the globalisation path that countries are taking by taking advantage that increased global trade and competition have to offer with the right set of domestic, economic policies to minimise the impact of globalisation. This would require a lot more nuanced understanding of the impact of global trade, how to remain WTO compliant as well as how to further one's legitimate domestic interests. A tight rope walk?

Trade, Security and a National Strategy

As reported here, the United States released a paper called the National Strategy for Global Supply Chain Security which highlights the importance of the international supply chain in the context of international trade today. Weaving national security, international trade, global supply chains and domestic policy interests into one continuum, this Strategy does not view national security and increasing economic growth and economic efficiency as necessarily contradictory.

The two main goals of this strategy being promoting the efficient and secure movement of goods and fostering a resilient supply chain, the paper argues,

"International trade has been and continues to be a powerful engine of United States and global economic growth  In recent years, communications technology advances and trade barrier and production cost reductions have contributed to global capital market expansion and new economic opportunity The global supply chain system that supports this trade is essential to the United States’ economy and is a critical global asset,

 Through the National Strategy for Global Supply Chain Security (the Strategy), we articulate the United States Government’s policy to strengthen the global supply chain in order to protect the welfare and interests of the American people and secure our Nation’s economic prosperity  Our focus in this Strategy is the worldwide network of transportation, postal, and shipping pathways, assets, and infrastructures by which goods are moved from the point of manufacture until they reach an end consumer, as well as supporting communications infrastructure and systems."

 Laying down a detailed roadmap of how the strategy will be implemented across stakeholders, it concludes thus,

" The global supply chain system that we seek will support innovation and prosperity by expeditiously, securely, and reliably moving goods and services within our domestic borders and around the world  This Strategy stands as testimony to partners, as well as warning to adversaries, that our efforts to strengthen this vital system will continue  We will build upon the solid foundation of previous efforts but also look ahead to the future we are working to create  Our Strategy is therefore one of continuity and of change The threat of natural disasters remains, and the global supply chain and its components continue to be attractive targets for terrorist attacks and criminal exploitation  And while the security of our citizens and our nation is the paramount concern, we must work to promote America’s future economic growth and international competitiveness by remaining open for businesses to the world."

International supply chains in the globalised trade world are common. However, this is perhaps the first "national strategy" addressing it in the context of national security. It is rare to come across a document piloted by the Department of Homeland Security about international trade and supply chains. Strange bedfellows in the context of changing times? Will the implementation of this strategy have an impact on multilateral trade rules?

Dispute Panel constituted for Canada's FIT program

The WTO website has announced the constitution of a panel for the dispute regarding the Feed-in Tariff program of Canada which the EU brought to the WTO. It has been clubbed with an earlier case which Japan had brought before the WTO in the same matter. The announcement is found here:

"DS426: Canada — measures relating to the feed-in tariff program

The DSB established a panel following the EU’s first-time request (WT/DS426/5).

The EU said that consultations with Canada were useful to set out and explain both parties’ interests and concerns, but they failed to result in a satisfactory adjustment of the matter. The EU was seriously concerned about the measures at stake considering the EU’s significant commercial interest in the area of renewable energy technologies, including in the Canadian market, and the negative effects that this kind of measure would have on the world-wide deployment of low-carbon technologies for the generation of electricity. Feed-in-tariff (FIT) programmes should be designed and implemented in a way that does not discriminate against foreign goods.

Canada expressed disappointment regarding the EU’s request for the establishment of a panel. The consultations held with the EU were helpful, but they did not seem to have been sufficient to satisfy the EU’s concerns. According to Canada, the Ontario FIT programme was established to increase the supply of renewable energy in that province and it supported Ontario’s committed transition from coal-fired electricity generation. Canada said it was confident that its FIT programme was consistent with its WTO obligations. Canada mentioned that at Japan’s request the DSB had recently established a panel (WT/DS412) to consider the same measures now challenged by the European Union. Canada had held consultations with the EU, Japan and the existing panel in the other dispute to determine whether harmonization of the timetables would be feasible. According to Canada, as a result of those consultations, in order to allow the proceedings in the two disputes to be promptly harmonized, Canada had agreed to the establishment of a panel and would move quickly with the EU to compose the same panel.

Japan said that it was supportive of the principle of harmonization and informed the DSB that the panel in WT/DS412 had decided to harmonize the timetables in both cases by postponing the first substantive meeting by almost two months. Japan regretted the panel’s decision. Japan added that a two-month delay could not be considered as minimum or insignificant. Japan said that it could object to the establishment of the panel to preserve its rights but had decided not to do so in a spirit of co-operation and on the understanding that the timetable subsequent to the first meeting would be expedited so as to compensate the initial delay in the case WT/DS412. Japan said that it trusted the panel’s assurance that any new harmonized timetable would be drafted with a view to keeping the delay in WT/DS412 to a minimum.

China, Japan, Australia, India, the US, Chinese Taipei and Saudi Arabia reserved their third-party rights."

Will be looking forward to the arguments very carefully.

Officials and Trade issues - USTR and Citrus fruits

It was recently reported that grapefruit from Florida might face a ban from Europe since it consists of a grove where canker (a bacterium) exists.

"Dan Richey, president of Riverfront, said the EU doesn't allow Florida grapefruit to be shipped unless the grove is certified canker-free and the fruit is inspected by the U.S. Department of Agriculture and no canker is found. It's becoming more and more difficult to find a grove with no canker.

"We did research and got very good results with four experts who found fruit is not a pathway to spread this disease. The rest of the world accepted it. With the EU this is purely a stalling tactic and a non-tariff trade barrier," Richey said."

This is viewed by the Citrus fruit industry n Florida as "protectionist" and imposing an unjustified technical barrier on trade. 

This blog piece wanted to highlight another point. It was also reported that the chief agricultural negotiator with the office of the USTR visited the citrus fruit producing areas in Florida to assess the situation and devise a strategy. 

"While Siddiqui told the Indian River District group he could not make promises, he said he would get the Office of the Trade Representative and the U.S. Department of Agriculture to develop more scientific data to present to the EEU to get the barriers lowered.

If that approach is unsuccessful, Siddiqui said, he could appeal to the World Trade Organization, which will examine the issue based on the scientific data and not political reasons.

"We are in tune with what their plight is and will do what we can to help their industry," Siddiqui said."

This piece highlights the active role that the trade policy strategists take in articulating and protecting domestic trade interests. It requires a high level of interaction and collaboration to effectively articulate the domestic position int he international fora. For example, in this case, the Citrus Growers association cannot represent their interests directly in the WTO. Their interests have to be represented and claimed by the U.S. National interests and local industry interests must coalesce. It is another matter that the local domestic industry interests may not necessarily be the "national interest".

 Another point highlighted here is the use of scientific data to bolster one's case in the WTO. Proving that a particular action of a member country affected local industry in violation of the WTO obligation cannot be done purely on rhetoric or legalese. It has to be backed by data and evidence of a substantial injury. This again requires immense co-ordination between local industry, experts in the field and the officials who are representing the country at the international fora. It also requires a mindset that domestic industry interests are a nation's interest. This might look obvious but may not be the case in another instance!

China and luxury watches

I had earlier blogged about China being the largest importer of luxury cars. I chanced on this piece - China is the world number one market for luxury watches too.

"According to a new report by the Digital Luxury Group, a digital market research firm specializing in the luxury watch industry, demand for luxury watches in China has overtaken the United States for the first time. Slated to become available at the 2012 Baselworld trade fair, the Digital Luxury Group’s annual WorldWatchReport covers 20 markets worldwide and 40 brands, including 15 in the haute horlogerie category, where China really stands out. However, as always, the report’s findings should be approached cautiously, as they are based not on sales figures but rather on demand — as tabulated by “intentions expressed independently and anonymously by consumers searching for luxury watch brands through the world’s leading search engines (Google, Bing, Yandex and Baidu).”

Still, the fact that the study analyzed not “the Greater China region” but (mainland) China and Hong Kong separately makes the findings somewhat more significant. Other recent studies ranking China as number one in luxury demand, such as HSBC’s September 2011 paper, failed to break the region down into individual regions."

Need to watch out for this space!

The interpretation of WTO Agreements

The role of the WTO as a multilateral trading body focusing on negotiations and the politico-economic dimensions of trade vis a vis a judicial body (Panels and Appellate Bodies) adjudicating on the rights and obligations of sovereign members states has been a subject of intense debate over the years.

 This aspect has been brought to light recently by Lucasz Gruszczynski in his paper titled "Customary Rules of Interpretation in the practise of WTO Dispute Settlement Bodies" which discusses, inter alia,  the principles of interpretation adopted by the panels and Appellate Bodies of the WTO in multilateral trade agreements.

Referring to the over-reliance on a "textual interpretation" of the agreements as against a "broader" contextual interpretation, the article succinctly notes,

"The occasional over-reliance by the WTO dispute settlement bodies on the text of a treaty (to the exclusion of other elements) should not come as a surprise. The WTO, as a relatively young international organisation, is particularly vulnerable to the accusation of overstepping its mandate. The establishment and maintenance of authority (of the AB as an international adjudicating body in trade matters and WTO law as system of reference for such controversies) seem to be more important in the early years of a particular organisation than later. If one adds to this that a considerable number of disputes which emerge in the WTO context relate to highly sensitive issues, the caution expressed by the panels and the AB is even more understandable.

...

 An additional difficulty is added by the fact that the WTO system remains to great extent a type of unfinished contract. Specific provisions are formulated in general language, while the system as such has numerous gaps that have to be filled in by the WTO dispute settlement bodies. Employment of strictly textual methods may be seen as a way which helps to defend against charges of having exceeded their authority to act, particularly if a dispute is highly politicised. At the same time, the interpretative results obtained through such a method seem to be more easily acceptable by WTO Members as compared to other methods. As expressly admitted by the former member of the AB, ‘the heavy reliance on the “ordinary meaning to be given to the terms of the treaty” has protected the Appellate Body from criticism that its reports have added to or diminished the rights and obligations provided in the covered agreements’.

In other words, deciding disputes at a technical level, with text playing the central (or even exclusive) role in the interpretative process, allows, at least on its face, to depoliticise the controversy. Such an approach denies the relevance of policy considerations in the dispute settlement process, since it assumes that a particular issue is decided on the basis of a neutral text and does not require the dispute settlement bodies to make difficult normative decisions. The logical consequence of strict textualism is to deny any policy-making role to dispute settlement bodies. In consequence, textualism acts as a shield against the governments of WTO Members. A similar observation is made by Van Damme, who notes the AB’s ‘excessive use of dictionaries ... was probably instigated by the need to assert its judicial function against the backdrop of a not fully-developed institutional model and under-developed procedural rules in the DSU’.One may also expect that once the WTO becomes more mature, its dispute settlement system will depart more and more from strict textualism, openly accepting the existence of a political dimension to its decisions, and becoming more receptive to other rules of international law.

There is indeed some evidence of movement in this direction. As has been noted by one scholar, ‘since the very beginning of its mandate, the Appellate Body has been very adamant in strengthening its legitimacy underpinnings (eg, by adopting the very narrow textualist approach to treaty interpretation from which it is now trying to emancipate).’This is also reflected in the more recent practice of the AB, where the reference to dictionaries, although present, is not as frequent as previously. The practice of the panels still seems to fall behind, but also here changes are visible."

The WTO Dispute Settlement mechanism is generally positioned as an important element of a rule-based system of enforcing trade rules as against a system where the economic power of a member country prevails. The interpretation of agreements in Dispute Settlement Bodies are supposed to be "neutral", "independent" and devoid of politico-economic considerations or ideological underpinnings. This approach of a strict legalistic interpretation "legitimises" the decisions of the Dispute Settlement Bodies in a highly political world. To what extent member countries, especially the big economic trading powers, accept this "independent" judicial mechanism against continuing challenge to domestic interests will be a test of the multilateral institution itself in the coming years.

International Trade and Prosperity

An interesting piece in the Huffington Post by Stan Sorscher, labour representative for the Society of Professional Engineering Employees in Aerospace/IFPTE on the relationship between trade and prosperity, and what domestic trade policy ought to be, is found here:

"I work for a labor union in the aerospace industry. We are 100% in favor of trade. We make products the rest of the world wants to buy.

With increased trade we expect more prosperity. Instead, we see the American economy de-industrializing and job security at historic lows. So, what’s going wrong?

Figure 1. US Trade in goods since 1992.

Figure 1 tells the story. Since NAFTA and WTO took effect around 1995, our trade deficit has widened steadily, except for the 2008 crash, which cut imports more than exports.

The language for trade is deceptive. We speak of “free trade agreements,” which sounds like freedom, and evokes the image of prosperity. Maybe we should call them “trade deficit agreements,” since that’s what they do.

We have alternatives. Today, many countries take a different approach to trade, and they run trade surpluses. Japan, Korea, Singapore, and Germany run trade surpluses and they have high living standards. China’s very effective industrial policies are the opposite of free trade. Their growth is phenomenal. It could be even more impressive if workers and communities in China had more say in how their gains were allocated. (Please finish this post, then get a cup of coffee, sit down and listen to this sensational radio piece.)

When America industrialized, we rejected free trade (trade deficit agreements), and our living standard rose dramatically.

Since NAFTA and WTO took effect, factories in America closed, entire industries declined, and millions of good jobs moved offshore. China’s industrial policies are a credible threat to our aerospace industry – one of the last bright spots in our trade profile. Technology and capital for new industrial capacity goes to China, India, and Russia, rather than Michigan, California or Pennsylvania.

In America, workers are pressured to accept wage cuts, loss of job security, elimination of pensions, and more shifting of medical costs. Maybe we should start calling free trade agreements “de-industrialization agreements.”

Why do we insist on an underperforming trade policy that enriches a few, and undermines civil society in America and abroad, while doing little good or real harm to workers and communities?

What if we could have trade AND prosperity? We should be thinking about different and better trade agreements, not more NAFTA-style de-industrialization agreements.

A different trade policy should reflect our own values and history. We forbid child labor and sweatshops. We have minimum wage laws and labor laws with basic worker protections that helped build a strong middle class. We protect clean air and clean water, which are essential for public health. We regulate food and drugs, which builds trust in the most basic interactions between businesses and consumers. We set a high standard (maybe not high enough) for regulation of banks and financial markets. As we industrialized, we chose policies and values for our own domestic economy that created a prosperous middle class and raised living standards.

Free trade policies create trade deficits because they are designed to protect U.S. companies who want to move production to countries that ignore human rights, punish workers for forming unions, silence dissent, pollute the environment, and put public health of their own citizens at risk. The Korea-US trade deficit agreement specifically strips away legitimate and prudent financial controls enacted by Korea to prevent financial bubbles. Maybe we could call free trade agreements “agreements to undermine civil society at home and abroad.”

Each time we pass a new trade deficit agreement, we are endorsing bad behavior that we would never accept in our domestic policy. Worse than that, we are putting our own domestic producers at a disadvantage for keeping their production in America.

Remember: the question is not free trade versus protectionism. Members of my union and everyone I know, really, are 100% in favor of trade. We support exporting apples, wheat, airplanes and cars. We support importing coffee, and flat screen TVs. We support foreign investment in new industrial capacity. We are 100% in favor of trade.

The question is good trade policy with an upward spiral, or bad trade policy with a downward spiral. Other countries are doing a good job of playing the cards they were dealt; we are playing our cards badly. We look like the sucker at a poker game.

American trade negotiators are working on the next big trade deal, called the Trans-Pacific Partnership. Already, multinational companies are demanding that worker protections in TPP be as weak as possible. They prefer no protections at all.

Respected mainstream economists argue that under our “agreements to undermine civil society at home and abroad,” low-wage countries will eventually enjoy prosperity, perhaps with civil unrest and violence along the way. Probably so. Wouldn’t we prefer that developing countries achieved a better life because of our good trade policy, rather than in spite of our bad trade policy?

When we ask for trade policies that encourage investment in our domestic economy, and set reasonable standards for human rights, labor rights, the environment, public health and legitimate financial regulation, we are helping ourselves by balancing the interests of workers and communities in America and elsewhere, with the interests of businesses and investors. That’s the way we built a strong middle class in America. It should be the foundation of our trade and economic policies."

This is not "protectionism", is it? 

Google, China, India and censorship!

With the topical issue of internet freedom and censorship soaring across the world including India, this paper on internet censorship in China and its consistency with its WTO obligations makes interesting reading. 

Henry S.Gao argues in this paper titled "Google's China problem: A case study on Trade, Technology and Human rights under the GATS"   that in the context of internet censorship of Google in China, the WTO would not be the right forum for the US (representing Google's interests) to address issue of "human rights" in the international trade law forum.Making an extensive, technical analysis of China's obligations under GATS (since internet service would be covered by this Agreement), the paper argues that the results of a WTO dispute will most likely not favour Google in this battle against Chinese internet censorship.

It would be interesting to see the analogy this has to the current debate in India about internet freedom and "objectionable" material on the internet. Are Indian laws consistent with India's specific commitments under GATS? Could a law, regulation or government measure that is constitutionally valid in India still be inconsistent with India's obligations under the WTO? Sometimes it is easier to just pose questions than offer answers!

Kudos to the Trade, Law and Development Journal

Kudos to the Trade, Law and Development Journal team of National Law University, Jodhpur, India. I have not come across any other Journal from the Indian legal academicia (unless I am missing something!) that focusses brilliantly on international trade law issues like this one does.


Keep up the good work!

Non-compliance in WTO Disputes

The role of the Dispute Settlement mechanism has been debated in the overall context of the efficacy of the world trading system. Zimmermann's article titled "Temporary Non-compliance in WTO Dispute Settlement" on the nature of the obligations of WTO members vis a vis WTO Agreements as well as the decisions of the Dispute Settlement Bodies is an interesting read.


Since the WTO Agreements allow for the "breach and pay" principle (a WTO member may not comply with a rule or decision subject to bearing the cost of the countermeasure), why do we see such high compliance in the dispute settlement mechanism? Is temporary non-compliance sufficient? Is the cost of the permanent non-compliance greater than compliance?


The article explains-

"It is important to stress at this point that the cost of remaining in non-compliance with WTO law is not limited to the value of compensation or of proportional countermeasures as determined under the rules of the DSU. The reputational cost of persisting in non-compliance in a legal system characterized by an overall strong compliance record is generally regarded as a powerful incentive to comply. As succinctly phrased by Guzman, “[a] reputation for compliance with international law is valuable because it  allows states to make more credible promises to other states. This allows the state to extract greater concessions when it negotiates an international agreement”.  This reputational cost can be expected to increase with the duration of non-compliance. Article 21.6 of the DSU plays an important role in this respect since it stipulates that the issue of implementation of the DSB’s recommendations or rulings shall be placed on the agenda of DSB meetings after six months following the date of establishment of the reasonable period of time according to Article 21.3 of the DSU, and shall remain on the agenda of DSB meetings until the issue is resolved. The final sentence of Article 21.6 of the DSU obliges all WTO members concerned to provide a written status report on their progress with respect  to the implementation of the DSB’s recommendations and rulings ahead of each such DSB meeting, and every other WTO member can comment on this report at the meeting.  This rule has certainly not prevented some WTO members in the past from presenting dozens of status reports containing little news on progress with the implementation.  It seems obvious, however, that in a legal system with permanently on-going negotiations at various levels, being perceived as a notorious rule-breaker comes at a considerable present and future cost for any member, including the most powerful ones. Article 21.6 of the DSU is certainly a significant factor in this dynamic."

Terming the temporary non-compliance as a safety valve, the article concludes

" It appears convincing to conclude from the excellent compliance record of the WTO’s dispute settlement mechanism, as presented in the introduction, that the seemingly weak back-up enforcement under the rules of the DSU, as strengthened by powerful informal remedies such as reputational concerns operate as a reasonably balanced and very effective incentive for WTO members to comply. It is reassuring for WTO Members to know that they will neither be expelled from the WTO altogether nor have to face massive trade retaliation or face an order to pay punitive ‘damages’ in the event that they find it temporarily impossible to comply with, for whatever reason, the DSB’s recommendations and rulings. This temporary toleration of non-compliance constitutes a valuable systemic safety valve in the absence of which the international community may be faced with a less liberalized global trading system. Here again, the system’s excellent compliance record seems to indicate that WTO Members do not make excessive use of this safety valve, but that they rely on it only under truly exceptional circumstances."

A thumbs up for the Dispute Settlement mechanism!

Public hearing and the WTO

A WTO release indicated that the panel meeting on Renewable Energy dispute between Canada and Japan will be open to the public at the request of the parties to the dispute. The release said

"This public session is expected to start at 10.00 on Thursday 2 February 2012. The public viewing will take place through a real time closed-circuit television broadcast. The public session of the Panel meeting with the parties may continue at 15.00 on Friday 3 February 2012 if the Panel so decides.

The Panel will also meet in a session to hear the third parties on Friday 3 February 2012, at 10.00. The Panel will start this session by opening a portion of it to public viewing, where third parties wishing to make their oral statements in a public session will be invited to do so. Public viewing will take place through a real time closed-circuit television broadcast.

...

WTO accredited journalists and non-governmental organizations wanting to attend should indicate their interest by using the email address above. They do not need to complete the registration form.

The general public to whom seats have been allocated will need to present a valid official photo identification on-site to access the meeting room. Members of the public allocated a seat are requested to arrive in good time as security checks may delay access to the viewing room.

Please note that any form of recording or filming is prohibited and that mobile phones should be switched off during the public viewing.

The WTO cannot offer any support, including financial, for accommodation, flight arrangements and visas."

It would be an interesting study to find out how many Panel disputes are open to the public and what are the considerations behind the parties making it open to the public. An analysis of members agreeing to public hearing as well as the types of disputes could throw up interesting insights. Are these hearings webcast? 

China in WTO Disputes - Reluctant participant to active litigant?

An interesting data-rich study by Wei Zhuang titled " An Empirical Study of China's Participation in the WTO Dispute Settlement Mechanism: 2001-2010" on how China has fared in the WTO Dispute Settlement mechanism makes interesting reading. Commentators have commented upon the growth of China as an economy after it entered the multilateral trading system in 2001. This study, however, analyses China;s active participation in the rule based dispute resolution system of the WTO.

The paper makes an interesting point on why China is less of a complainant compared to its volume of trade

" There are several reasons for China’s relative inactivity in the WTO DSM. First, deeply influenced by non-litigious  legal traditions, China prefers to settle disputes behind closed doors, without a public ‘loss of face’ for either party. Second, China’s legal capacity is relatively low in comparison to that of developed countries, such as the U.S.  and the EU, and even some emerging economies like Brazil. In these countries,  there is a long tradition of formal litigation in courts, and an abundance of lawyers who are proficient in the WTO official languages (English, French and Spanish). Third, many countries have developed formal and informal private and public partnerships to identify foreign trade barriers, prioritize them according to their impact, and mobilize resources for WTO complaints. China does not yet have such strong and effective mechanisms. Finally, China’s accession package greatly limits the country’s right to complain, imposing discriminatory limits to market access for Chinese goods in foreign markets:  

• China agreed to a transitional product-specific safeguard mechanism (TPSSM), allowing other WTO Members  to impose restrictions on Chinese imports when it causes or threatens to cause market disruption rather than serious injury to the domestic industry for 12 years after accession.   

• China also accepted a discriminatory provision in anti-dumping cases brought against its goods  in other markets—allowing the importing WTO Member to use a methodology not based on a strict comparison to domestic prices or costs in China—until 10 December 2016.  

• WTO Member reservations incorporated in the accession protocol also inhibit China from initiating WTO complaints. For example, Mexico listed some measures—subject to neither WTO Agreement provisions nor the anti-dumping provisions of the accession protocol—that would remain in effect for six years following China’s accession."

China has been subject of increasing criticism of "protectionist' policies in recent times. It has modelled its domestic trade and industrial policy to boost domestic industry often to the chagrin of globalised, free trade suppporters. It is not surprising to find a large percentage of dispute settlement  cases China is involved in pertaining to Subsidies. As the study notes,

" China has frequently designed measures that potentially constitute subsidies or trade-related investment measures to develop domestic manufacturing capability or  promote certain industries to produce domestic goods with greater added value. One example is the 2004 policy on Development of Automotive Industry, which was challenged in China-Auto Parts. Another example is the 2005 China-Grants, Loans and other Incentives dispute, in which measures to support the development of famous export brands were challenged.  

Furthermore, the industries that China supports are often those in which developed countries are or want to become competitive on the world market, such as the automotive industry and renewable energy sector. For instance, in December 2010, the U.S. brought a complaint against China’s financial support to wind power equipment manufacturers." 

The paper concludes by noting,

"The study has shown how a major developing country has used the WTO dispute settlement system. Through December 2010, China was a party in 28 of the 419 WTO cases. Since 2007, the annual share of cases involving China as a party has been about one third. Half of the 2009  disputes included  China as a party.

Therefore, whether active or passive, China has become a frequent user of the WTO DSM. This demonstrates China’s trust towards the rules-based world trading system, and its willingness to peacefully settle international trade disputes through an independent third party under internationally agreed-upon rules."

Is this a case of a reluctant participant to an active litigant?

Role of the WTO Secretariat in the context of the Doha negotiations

Petros C. Mavroidis in his article "Doha, Dohalf or Dohaha? The WTO licks its wounds" written prior to the Ministerial Conference predicted the likely scenarios of the Doha negotiations. He alluded to the role the WTO Secretariat must play in the emerging scenario -

"In my view, the role of the WTO Secretariat is to administer the WTO: make sure dispute settlement functions well and the committees are adequately served. The WTO should, upon request, also be there to serve the trading nations, being a common agent for many principals. However, the key word in the sentence is ‘upon request’. A pro-active attitude can, besides personal perks, be translated into credit for the institution in case of success, but might be quite costly in case of failure. There were enough warning signals to dissuade the WTO Secretariat from emulating past examples and mimicking, for example, the ‘Dunkel Draft’ through a ‘Lamy Draft’. The former did not win the argument the day it was presented but managed to gather momentum and provide the quintessential elements of the Marrakesh Agreement; there was absolutely no guarantee that the latter, had it seen the light of day, could have even come close. Moreover, Dunkel produced his draft knowing that it would not be accepted as such by the trading nations. But he wanted them to have something to think about and negotiate upon. We are not in a similar situation now. 

 On the other hand, the WTO has a very important mandate which is independent of the success/failure of  rounds - discussions in the various committees that manage to produce better communication across trading nations and resolve many disputes as well. A look into the Technical Barriers to Trade Committee for example, suffices to persuade the observer that dozens of specific trade concerns are being resolved at this level without the need to go to dispute settlement and the ensuing administrative cost for the WTO.

 Servicing negotiators next to all this  is stretching existing administrative capacity to its limits. Making the Secretariat co-responsible for the observed failure to conclude negotiations is unfair. Those arguing that this is a member-driven institution should be prepared to assume the consequences of their understanding of the WTO.  

 In a nutshell, the WTO would be better served if it were limited to preparing ‘useful papers’ for its principals, the WTO Members."

Arguing against a pro-active WTO Secretariat as against its members, he tends to limit the role to 'advise' on request as well as administering the existing Agreements. This also highlights the role of the Dispute Settlement mechanism in the overall context of the WTO who view the failure of the Doha round as bringing to an end the role of the WTO. It is a fact that trade rules if not amended over time would not reflect the realities of a complex globalised trade world. This could have a bearing on the legal interpretations of the WTO Agreements (to make it more receptive to trade realities) which in turn might raise tensions between the "quasi-judicial" powers of the WTO and its members. Nevertheless, the issue of the extent to which the Secretariat itself should be the proponent of change and reform is a debatable one.

Rethink on Global rules of trade?

Dani Rodrik in his latest Project Syndicate piece alludes to the need for the change of the way we look at the rules of global governance in a "leaderless" world. 

"Going back to basics, the principle of “subsidiarity” provides the right way to think about global governance issues. It tells us which kinds of policies should be coordinated or harmonized globally, and which should be left largely to domestic decision-making processes. The principle demarcates areas where we need extensive global governance from those where only a thin layer of global rules suffices.

Economic policies come in roughly four variants. At one extreme are domestic policies that create no (or very few) spillovers across national borders. Education policies, for example, require no international agreement and can be safely left to domestic policymakers.

At the other extreme are policies that implicate the “global commons”: the outcome for each country is determined not by domestic policies, but by (the sum total of) other countries’ policies. Greenhouse-gas emissions are the archetypal case. In such policy domains, there is a strong case for establishing binding global rules, since each country, left to its own devices, has an interest in neglecting its share of the upkeep of the global commons. Failure to reach global agreement would condemn all to collective disaster.

Between the extremes are two other types of policies that create spillovers, but that need to be treated differently. First, there are “beggar-thy-neighbor” policies, whereby a country derives an economic benefit at the expense of other countries. For example, its leaders restrict the supply of a natural resource in order to drive up its price on world markets, or pursue mercantilist policies in the form of large trade surpluses, especially in the presence of unemployment and excess capacity.

Because beggar-thy-neighbor policies create benefits by imposing costs on others, they, too, need to be regulated at the international level. This is the strongest argument for subjecting China’s currency policies or large macroeconomic imbalances like Germany’s trade surplus to greater global discipline than currently exists.

Beggar-thy-neighbor policies must be distinguished from what could be called “beggar thyself” policies, whose economic costs are borne primarily at home, though they might affect others as well.

Consider agricultural subsidies, bans on genetically modified organisms, or lax financial regulation. While these policies might impose costs on other countries, they are deployed not to extract advantages from them, but because other domestic-policy motives – such as distributional, administrative, or public-health concerns – prevail over the objective of economic efficiency.

The case for global discipline is quite a bit weaker with beggar-thyself policies. After all, it should not be up to the “global community” to tell individual countries how they ought to weight competing goals. Imposing costs on other countries is not, by itself, a cause for global regulation. (Indeed, economists hardly complain when a country’s trade liberalization harms competitors.) Democracies, in particular, ought to be allowed to make their own “mistakes.”

Of course, there is no guarantee that domestic policies accurately reflect societal demands; even democracies are frequently taken hostage by special interests. So the case for global rule making takes a rather different form with beggar-thyself policies, and calls for procedural requirements designed to enhance the quality of domestic policy making. Global standards pertaining to transparency, broad representation, accountability, and use of empirical evidence, for example, do not constrain the end result.

Different types of policies call for different responses at the global level. Too much global political capital nowadays is wasted on harmonizing beggar-thyself policies (particularly in the areas of trade and financial regulation), and not enough is spent on beggar-thy-neighbor policies (such as macroeconomic imbalances). Over-ambitious and misdirected efforts at global governance will not serve us well at a time when the supply of global leadership and cooperation is bound to remain limited."

 A need for a rethink on the global rules of multilateral trade as epitomised in the WTO Agreements?

The B and C of BRICS

Brazil and China are two crucial partners of the BRICS conglomeration (along with Russia, India and South Africa). I had earlier blogged about Brazil's moves to protect its domestic auto-industry. An interesting insight into Brazil-China trade tensions has been summarised by The Economist here. It states :

"OPPOSITE Rio de Janeiro’s best-known shopping mall, just before the tunnel that takes drivers to the beach resorts of Copacabana and Ipanema, stands a gleaming new showroom for JAC Motors, a state-owned Chinese car maker. The prominence of the location is appropriate: imported Chinese cars have suddenly become a visible presence on Brazil’s roads. This has alarmed Brazil’s car industry and President Dilma Rousseff’s government. Last month a 30-percentage-point tax increase on cars with less than 65% local content took effect, taking the tax on some imported models to a punitive 55%—on top of import tariffs. 

The tax increase is an unusually blatant act of protectionism. It almost certainly violates the rules of the World Trade Organisation, of which Brazil is normally an enthusiastic supporter. It shows how sensitive the government of President Dilma Rousseff is to claims that the country is suffering “de-industrialisation”.

 Although the latest figure shows industrial production increasing slightly, it has been broadly flat for more than a year. Economic growth has fallen sharply. But consumer demand remains robust, rising 4.1% last year, says the Central Bank. A bigger share of the market is going to importers—China in particular. Imports of Chinese cars rose almost fivefold last year; the new year has brought complaints of dumping of Chinese mobile phones and shoes.

With extraordinary speed, China has become Brazil’s most important economic partner: total trade between the two countries has risen 17-fold since 2002. But frictions are increasing almost as fast. Although Brazil enjoys a big overall trade surplus with China, most of its exports are of commodities (mainly iron ore, soya beans and crude oil). It has a big deficit in manufactures (see chart)."

The trading relationship between Brazil and China is captured in this graph:

Commentators have called the Brazil China relationship as a "difficult partnership". In this paper the future of the relationship is summarised.

"Despite some localized criticism, space for a strategic relationship between Brazil and China can still be perceived, especially if the Brazilian government pushes for greater diversification of Brazil’s export agenda to that country, encouraging the development of new productive partnerships beyond traditional sectors and using the minimum protection is necessary to guard national producers. 

In the political field, Brazilian-Chinese relationships could also surpass the realm of the UN and be consolidated in other multilateral forums, such as the WTO, the World Bank, and the IMF, despite both countries’ increasing divergence concerning foreign market entry."

This is one relationship that will be keenly watched in the world trading system.

Will the USTR go away?

The President of the U.S. is seeking to bring in the Consolidation Authority Act which would give him the power to reorganise the federal government departments by merging and consolidating them. It is proposed to be used first in the field of trade and business.

This release from the office of the U.S. President summarises the proposal:

"The President will also lay out his first proposed use of that authority: consolidating six agencies into one more efficient department to promote competitiveness, exports and American business. The President knows this is a make or break moment for the middle class and those trying to reach it.  The President’s proposed reorganization would help small businesses grow and, in doing so, would help get more Americans back to work.

...

The President’s first focus under the Consolidation Authority Act would be to make it easier for America's small businesses – which are America’s job creators – to compete, export and grow.  

Currently, there are six major departments and agencies that focus primarily on business and trade in the federal government.  The six are: U.S. Department of Commerce’s core business and trade functions, the Small Business Administration, the Office of the U.S. Trade Representative, the Export-Import Bank, the Overseas Private Investment Corporation, and the U.S. Trade and Development Agency.  

This is redundant and inefficient. Small businesses often face a maze of agencies when looking for even the most basic answers to the most basic questions. There is a whole host of websites, toll-free numbers and customer service centers that at times offer them differing advice. The result is a system that is not working for our small businesses.  

The President is proposing to consolidate those six departments and agencies into one Department with one website, one phone number and one mission – helping American businesses succeed. 

One Department: there will be one Department where entrepreneurs can go from the day they come up with an idea and need a patent, to the day they start building a product and need a warehouse, to the day they are ready to export and need help breaking into new markets overseas. 

The new Department will lead the development and implementation of an integrated, strategic, government-wide trade effort and have a focused capacity to help businesses grow and thrive."

The proposed move has been criticised citing the efficiency of the functioning of the USTR presently. Will the USTR whither away? India has a similar model of a combined agency - the Ministry of Commerce which deals with all matter relating to trade policy and implementation, including multilateral negotiations.

An interesting aspect of the rationale for the merging of the different agencies is the emphasis on the role Government has to play in furthering the interests of trade and domestic business interests in the global world.It visualises a proactive Government promoting American industry to boost exports and facilitate breaking into new market oversees. It is another pointer that while the WTO multi-lateral trading system does lay down the framework for reduction fo trade barriers and a globalised world, it does not imply that Governments should not play an assertive and interventionist role to promote domestic industry to compete in the international market. This assertive and interventionist role is definitely limited by the country's WTO commitments. However, there would be enough scope to creatively utilise this space.