Internationalisation of "domestic" monetary policy?

This analysis shows that what we think is essentially in a "domestic policy space" is internationally co-ordinated like global trade rules! Monetary Policy, in recent times of financial crisis, seems to be a highly internationally co-ordinated actvity.

"  With the IMF cutting its global growth forecasts and signs of slowing evident in the dramatic contraction in World Trade Volume in the last few months, it is perhaps no surprise that the central banks of the world have embarked upon what Goldman Sachs calls an 'Unprecedented Alignment of Monetary Policy Across Countries'.  

... 

 

... 

There are two basic kinds of monetary policy alignment: explicit coordination of actions (when central banks actually agree to carry out plans simultaneously) and coordination that occurs implicitly (when central banks respond to their own cycles, which are often synchronized, and the monetary impulse from others). Since the Fall of 2008, we have seen both in practice, which is not common by historical standards. We assess the magnitude of this global policy alignment with the following considerations:

Recent coordination agreements are unprecedented. In previous episodes---like at the end of the Bretton Woods system and through the late 1970s---the US did engage in coordinated actions with Japan, Germany, and other countries to fight inflation, but these pacts fell very short of recent actions. To name a couple of examples, the coordinated rate cuts by six major central banks in October 2008 were completely unprecedented (with the closest case being an isolated same-day cut announced by the Fed and the ECB in 2001); so have been measures aimed at liquidity provision, such as the exchange rate swap lines the Fed established with 14 countries back in 2008 (and as recently as in November 2011 with BoC, BoE, BoJ, ECB, and SNB).

There are tradeoffs. As with other types of international macroeconomic policies, central banks face tradeoffs when engaging in coordinated actions. A common scenario is that of a monetary expansion in one country that causes a real depreciation of the domestic currency and erodes the competitiveness of another. While this may boost domestic output temporarily, possible side effects include inflation, capital outflows, and distortions across sectors in the economy. In a context of global turmoil, and especially for open economies, the tradeoff becomes particularly cumbersome. In that case, coordination becomes the optimal strategy to alleviate funding stresses, liquidity problems, credit crunches, and similar pressures. Since many of the shocks in recent years have been large and global in nature, the tradeoff has been mostly resolved in that direction. ..."

Is this Globalisation of monetary policy? 

Globalisation - Tale of two cities

An interesting story of two cities affected by globalisation - Arlington, USA and Shenzhen, China is found here.

" Cities like Arlington and Shenzhen have become global centers by virtue of their strategic importance and adaptive capabilities. Resources, both human and technological, have converged, localized, and united to create a common global identity.

Both Arlington and Shenzhen had much smaller populations 20 years ago; both cities thrived under the development of public transportation infrastructure. In Arlington, the “smart development” in transportation depended on its metro stations. Shenzhen thrived under the development of one of the largest ports in the world, which brings in commerce and supplies fuel for economic activities to the city.

Technology was at the core of these developments, which brought people to the cities in search of employment and to build communities. Lewis Mumford, the renowned historian and political scientist, said that in order for cities to thrive an energetic mass of people must be assembled under a strong leadership “for regimenting men and mastering nature, directing the community itself to the service of the good.”

Stressing on the primacy of innovation, technology and investment in the globalised world, the two cities are characterised by the commonality of investment in high quality educational institutions.

"  Arlington and Shenzhen are not two cities divided by their geographical boundaries. The confluence of innovation, technology, and competition has connected their two continents – Asia and North America.This interconnectivity redefines the nature of global relationships. According to Khanna, this new relationship is called “inter-imperial relations – not international or inter-civilizational,” and it is these relationships that shape the world.

 The two cities hold more similarities than differences. Both are thriving as a result of technological innovation, free market activities, and growth of their human capital. And both cities are now united under a common banner of globalization which promotes growth and prosperity. For cities across the globe to prosper, they must embrace innovative technologies. The adaptation requires continued investments in high-caliber educational institutions and a diverse population."

The critics of globalization argue that it leads to homogenisation of the world, its cultures and lifestyles. The tale of these two cities is a good example of this? Is homogenisation bad per se if it leads to better living standards and incomes? Is diversity, albeit unequal better than a homogenised, global world?

Understanding the WTO

Questioning the "rationalist" understanding of the WTO, Sungjoon Cho in this scholarly piece "Beyond Rationality: A Sociological Construction of the World Trade Organization" in the Virginia Journal of International Law has attempted to explain the WTO in the context of a sociological construct rather than a "rationalist" institutional choice.

Questioning the "Law and Economics" approach as providing all the answers to understanding the WTO the article concludes,

"This  Article argued that the rationalist framework  Shaffer and Trachtman adopt in their analysis of the WTO cannot provide a complete picture of the WTO because it excludes the WTO’s social dimension. In response to this dilemma, the Article offered a sociological (constructivist) paradigm that  recognizes the existence of reflective,  diverse communication amongst WTO members  that serves as a norm-building process. Under this new paradigm, the WTO is viewed as a community (Gemeinschaft) and not as a mere contractual tool to be used to carry out predetermined choices. 

This Article and the sociological framework that it presents can be used to  shed light on the  current Doha crisis, which  is suffering from mercantilist competition concerns that may be justified on rationalist grounds, but not on normative ones. Pursuing “rational” bargains may not deliver us to the goal of a development round. Perhaps we should reorient ourselves from a logic of calculation to the logic of discourse. The power of discourse and communication can close the gaps between trade norms and trade realities. Therefore, the new paradigm may disabuse WTO constituencies of a fatalistic yet erroneous conviction that “legal provisions can be nothing other than reflections of unstable and shifting interest constellations among powers” and help reinstate the “inspirational notions of virtue and of humans as social beings.” In this sense, the new paradigm proposed in this Article may generate a “moral” thesis that advocates human progress in the WTO."

 Is it time to rethink the underpinnings of the WTO to be an institution not merely an institution based on "rational" choices but far more complex with sociological underpinnings?

Trouble brewing for EU ETS?

Trouble seems to be brewing for the EU ETS scheme regarding allowance of emission of greenhouse gases in the airline industry.The scheme levies a charge on flights landing and taking off in any aerodrome in the European Union based on its carbon emissions.  In a Joint declaration, 26 countries, including India, have condemned this scheme. I had earlier blogged here that China had expressed serious reservation against the scheme.

In the joint declaration signed in Moscow the signatories affirmed:

" 

Considering that the inclusion of international civil aviation in the EU-ETS leads to serious market 

distortions and unfair competition;

Decided to:

a) Adopt this Joint Declaration as a clear manifestation of their unanimous position that the EU and its Member States must cease application of the Directive 2008/101/EC to airlines/ aircraft operators registered in third States;

b) Strongly urge  the EU Member States to work constructively forthwith in ICAO on a multilateral approach to address international civil aviation emissions;

c) Consider  taking actions/ measures set forth in Attachment A to this Joint Declaration including, for example, a proceeding under Article 84 of the Chicago Convention and barring participation by their respective airlines/aircraft operators in the EU ETS;

d) Exchange  information on the measures adopted and to be adopted, particularly to ensure better coordination, by each non-EU Member State after this Meeting in future;

e) Continue their intensified common efforts to make progress at ICAO to address international civil aviation emissions;

f) Request the Russian Federation, on their behalf, to communicate this Joint Declaration to the EU and its Member States; and

g) Invite any other State to associate itself with this Joint Declaration and, in this connection, request the Russian Federation to extend this invitation."

Amongst the basket of measures that were intended to be taken was to assess "whether the EU ETS is consistent with the WTO Agreements and taking appropriate action".

It would be interesting to see if the EU shows sign of being flexible to suspend the operations of the scheme till a consensus is reached. Would the scheme force nations to go for a "global agreement " on emissions in the aviation sector? Would it lead to a retaliatory trade war? Would it lead to a WTO dispute?

An interesting counter-insight is provided in this comment by Jeffrey Gazzard, Board member of the Aviation Environment federation. 

"Time for a reality check to offset the notion that the entire aviation industry is a collection of anti-environment ETS-refuseniks. They aren’t: there are already a significant amount of global airlines in full compliance with the EU Aviation ETS regulations.

In fact, “significant” in this case means 100%, as every single airline that flies in and out of the EU has already registered under every aspect of the ETS with their respective regulator in each EU member state; they have met every deadline along the way; and many are active in carbon markets. They have effectively already surrendered."

Is the opposition only rhetorical with international airlines (except China) falling in line? Another issue that is raised by the opponents of the EU ETS scheme is the unilateral nature of the EU measure that has an international impact. Another thumbs up for the need for multilateralism in trade and issues revolving around them?

Global trade flows - Data visualisation

Brillliant data visualisations of trade flows across the globe in these graphics below. This is part of a project details of which are found here - 

The application shows the development of imports and exports in 40 selected countries over the last decade. The raw data was acquired from the UN comtrade database and comprise the self-reported import and export statistics for each country. 

Brazil seeks access in Chinese market

Brazil recently was in the news for raising the pitch on "protectionism". I had blogged about this in a couple of blogposts here.


BBC reported here that Brazil was seeking more market access to China.

"Brazil has asked China to allow more of its manufactured goods in to the Chinese market as it seeks to tap into the country's growing economy.

The call comes as Brazil's trade surplus with China has been rising, hitting $11.5bn (£7bn) last year.

Brazil has also asked China to reduce its exports amid concerns that the influx of low-cost Chinese goods was hurting its manufacturing sector.

China is Brazil's biggest trading partner."

Brazil and China are strong trading partners. While raising the import tariffs on auto imports Brazil justified it as a protection of its domestic players against a surge of imports. While seeking access in China, the arguments have turned. While this can be viewed as a normal trade policy strategy to further one's domestic industry, it brings to the fore contradictory stands taken by countries in different situations. While the local economy is hurt due to competitive imports, free trade and WTO are seen as institutions endangering domestic economies.On the other hand, when domestic products need market access internationally, the virtues of free trade and multilateralism are espoused. This oscillation is fine as long as it is within the confines of one's WTO obligations. Contravening WTO obligations when it suits one's interests while demanding adherence from others would not be a respected strategy. 


This contradiction is brilliantly brought out by Peter Mandelson in the New Statesman here,

"Because globalisation itself is not really the problem. The pre-globalised world was not a secure and egalitarian paradise. Every politician who has ever uttered the words "export-led recovery" has acknowledged the reality that Britain and Europe need to sell to global markets to prosper. Our huge European single market and the growing markets of the emerging world are critical to our economic future.

However, you cannot realistically be pro-exports but anti-imports in an international economy built on global supply chains, as much of what we import we transform into goods that we then sell abroad. Every politician who has ever worried about the cost of living must have noticed that international production models have lowered the costs of the basics of life to levels that have no precedent in economic history."

A more detailed analysis of the approach to the present challenges of globalisation is found in the The Third Wave of Globalisation about which I blogged here. 

Child labour, globalisation and WTO

This report titled "Small World, Big Responsibility" highlights the condition of the use of child labour in global production networks. It brings out the "dark side of globalisation" wherein globalisation has led to the expansion of outsourcing and increased access to products manufactured around the world. As a result, many children suffering the worst forms of child labour are producing goods for the world economy. At the same time, companies releasing these goods on to the market are unaware or ignore the fact that exploited children are procuring raw materials or manufacturing components for their products.

The report highlights the use of child labour in the globalised world.

" In the last few decades, global rates of consumption have grown rapidly alongside high levels of economic growth. The global economy is still growing even now, despite the slowdown in growth from the economic recession (gross world product increased by 0.3 percent in 2009, compared to a yearly average increase of 6.6 percent from 2000–08).Globalisation has led to the expansion of outsourcing and increased access to goods and products manufactured globally by both consumers and manufacturers/distributors. This has led to increasing concern about the use of child labour in supply chains with many children in the worst forms of child labour producing goods for the global economy.

Indeed, in its annual Child Labour Index, designed to enable companies to identify the risk of child labour being used within their supply chains, the risk analysis firm, Maplecroft, classifies 40% of the 197 countries included as posing an ‘extreme risk’ (see map below).The top 10 countries identified as posing an extreme risk are: Myanmar, North Korea, Somalia, Sudan, Democratic Republic of Congo, Zimbabwe, Afghanistan, Burundi, Pakistan, and Ethiopia.

A number of products that involve child slavery, forced child labour or work in extremely hazardous conditions have links to the UK.  For example, significant amounts of tobacco from Malawi, notorious for their use of child labour in production, end up in the UK. In 2010, the UK imported 3,205,400 tonnes of tobacco from Malawi, the value of which was around £8 million. 

There are also strong links between the production of electronics to meet a growing demand and hazardous labour. 

...

The production of mobile phones requires an array of minerals, including coltan or tantalum (which is heat resistant and is the material that enables phones to be hand-held), cassiterite (tin ore used for soldering components together) and tungsten (which enables phones to vibrate). Children are often involved in the extraction of these minerals. For example, it is estimated that up to 40% of workers in many of the DRC’s artisanal mines, which produce tantalum, cassiterite and tungsten, as well as copper, gold and diamonds, are children.In some areas of Eastern DRC armed groups prey on the mining sector and children who have been conscripted into armed groups have to undertake mining activities."

The report recommends measures for the citizen, company and government to undertake to address this serious issue. The WTO has traditionally stayed away from addressing issues of human rights, environment, child labour. Would it be WTO consistent for a country to impose restrictions through laws that ban the import of products that engage child labour? Would it be permissible for a regulation to mandate "labelling" of imports and domestic products as being "child labour" free? Would this be a unreasonable technical barrier to trade and hence violative of the TBT Agreement. Is the problem to be addressed outside the WTO by countries insisting that child labour practises will not be tolerated and countries will take conscious time bound steps to eradicate it. Would the child labour agenda be used by the developed world to hurt developing countries trade interests in the name of protection of human rights? This is not to condone the use of child labour in global production chains. It is to recognise that the solution offered should not lead to an unfair advantage to the developed world while actually hurting the interests of those whom it seeks to protect.While it is nobody's case that the issue must not be addressed immediately and forcefully, whether the WTO and trade rules are the right fora for this is debatable.

Obama visits Boeing

Recent reports of President Obama visiting the Boeing plant in Washington made an interesting read.






 This NYT report said,

" President Obama, wrapping himself in one of the country’s most glamorous exports, Boeing’s new 787 Dreamliner, vowed on Friday to boost government help for American companies seeking to sell their goods overseas.

“I want us to sell stuff,” Mr. Obama said as he finished a trip to the West Coast, calling on Congress to continue supporting export financing agencies and announcing an array of plans aimed at helping manufacturers.

As this is an election year, Mr. Obama went for the ultimate photo op, using the spectacle of a new United Airlines Dreamliner as his backdrop to ask Congress not to cut financing for the Export-Import Bank, the American export credit agency."

Another report suggested,

" Obama, on the final stop of his three-day swing through California and Washington, will tour a Boeing production facility and speak to a crowd of several hundred workers inside the final assembly building for the company's new 787 Dreamliner.

Boeing has become a poster child for a thriving manufacturing sector and American export business, and one Obama will use to highlight a battery of steps he believes will help nudge large and small businesses to achieve similar success.

Obama is directing the Export-Import Bank, which helps finance U.S. companies that want to sell their goods abroad, to more aggressively support firms that face competition from foreign businesses unfairly subsidized by their governments in violation of "international disciplines."

As part of that effort the Bank will also launch a new pilot program for small businesses, providing 6-12 month loans of up to $500,000 to help them grow their exports, officials said Thursday night."

The reports were interesting for a number of reasons: The President identified the interests of Boeing with US national interests. Thus growth in manufacturing and exports which is part of the national trade policy is fuelled by domestic industry's growth. Is the "export" financing initiative in consonance with the SCM Agreement? In the backdrop of the Airbus-Boeing dispute (blogged about it earlier here and here) that has plagued the industry for long, it is surprising that the President did not allude to it (atleast the reports did not make mention of them, unless I have missed something). Any reactions from Airbus on the visit? Any visit of top European leaders to the Airbus plant in Europe?

Competition policies and international trade

Pascal Lamy recently spoke about the interlinkage between competition policies and international trade, 

"Let me mention three examples:

First, very important synergies exist between market-opening trade measures in government procurement markets and the enforcement of competition or antitrust laws. If governments fail to put in place tough measures to address bid rigging, the welfare gains made possible by market-opening measures — facilitated, for example, by the WTO Agreement on Government Procurement (GPA) — will surely be jeopardized. Conversely, opening procurement markets to foreign participants — while certainly not making antitrust enforcement redundant or unnecessary — can undeniably make collusion more difficult, thereby also making good performance more likely. It is for this reason that the WTO Secretariat takes care to reflect the importance of competition law enforcement in this sector. This indeed seems like a fruitful area for collaboration between the relevant international organizations.

Second is the relationship between competition policy and intellectual property rights, already recognized in the WTO Agreement on Trade-Related Intellectual Property Rights but meriting input and reflection from diverse institutional actors. I recognize that this relationship is a delicate and subtle one, and I am not advocating any rash approaches in this area. Nonetheless, the TRIPS Agreement itself refers to the harm that may be caused by anti-competitive practices in this area, and permits governments to take appropriate remedial measures. This begs important questions — for example, what kinds of restrictive licensing practices are genuinely harmful to economic welfare, and what remedies are appropriate for these practices? These questions, it seems to me, cannot be answered by any organization acting in isolation. Rather, they call for joint reflection and deliberation by organizations such as WIPO, the OECD, UNCTAD, the International Competition Network (ICN) and the WTO, in addition to national competition agencies with experience in this field.

A third area of policy interaction brings us back to the subject of international cartels, whether in primary products or other markets. The point here is that, when cartels are permitted to operate, they directly undermine the intended benefits that more open trade can bring, in the form of expanded supply, employment gains, lower prices, and expanded choices for consumers. Instead, supply, and therefore employment, will be restricted; prices will rise and consumer choice will be reduced. For this reason, it seems to me that all participants in the world trading system have a stake in ensuring that cartels, abuses of dominance and other harmful anti-competitive practices are not tolerated."

The issue of opening up Government procurement to foreign competition brings to the fore the same question - primacy of domestic policy space vis a vis international obligations. Should it be the prerogative of  a national government to decide it's procurement policies or should it be liberalised and open to competition. Should the goal of the efficiency of international competition have primacy over domestic producer interests? Is domestic cartelisation a lesser evil than foreign competition since the latter has the potential to hurt domestic interests? Does international competition always lead to increased competition or does it open up a country to the vagaries of international cartelisation?

China, subsidies and State Owned Enterprises - WTO compliant?

The issue of permissible subsidies, domestic policy space and the SCM Agreement is often a grey area. The SCM Agreement prohibits certain subsidies while makes others "actionable" under certain conditions. This was alluded to in the context of China here.

Trade Reform carried a piece about Chinese State Owned Enterprises, their practices and impact on WTO rules. It referred to a testimony by Elizabeth Drake of Law Offices of Stewart and Stewart before the US - China Economic and Security Review Commission which highlighted the strategy the US should undertake in the context of State Owned Enterprises of China.

Providing policy options to address Chinese State owned and controlled enterprises the testimony outlines three areas which the U.S. can take steps to help level the playing field between American industries and Chinese SOEs: 

1)  confronting Chinese government subsidies to SOEs, including subsidized loans, export credits, debt forgiveness, grants, equity infusions, and preferential access to key inputs such as land, utilities, and raw materials;

2)   challenging Chinese SOEs’ use of purchasing and joint venture agreements to favor domestic suppliers, goods, and services over foreign suppliers, goods, and services or to leverage technology transfers and other concessions from U.S. firms; and

3)   addressing anti-competitive and unfair trade practices by SOEs, including in China’s own market as well as in countries that are increasingly targeted for overseas expansion by SOEs.

The testimony deals with the SCM Agreement and GATT principle of national treatment and argues that a more vigorous pursuit of enforcement of WTO rules might be the answer to address some of the measures undertaken by China in the context of the WTO.

"Chinese SOEs pose a major challenge to U.S. firms and workers seeking to compete in China’s market, in the U.S. market, and in third countries.  Fortunately, many rules already exist that could be more energetically enforced to neutralize the unfair advantage Chinese SOEs enjoy.  These include subsidy disciplines and non-discrimination rules at the WTO, as well as specific WTO commitments China has made to ensure its SOEs act consistently with commercial considerations and in a non-discriminatory manner when making purchasing and sales decisions, not to influence the commercial operations of SOEs, and not to require local content or technology transfers as a condition of investment approvals."

This testimony is interesting since it is claiming that many of the practices that are undertaken by China and its State owned enterprises can be challenged within the existing WTO rules itself. This would require a thorough collation of data, objective evidence and also establishing a causal link between the measure and serious prejudice in certain cases.

WTO law is simple

Multilateral trade rules are contained in a series of Agreements that would be a lawyer's delight. I was going through the Agreement Establishing the WTO. The wording of Article X relating to Amendments caught my attention:

" ... If consensus is reached, the Ministerial Conference shall forthwith submit the proposed amendment to the Members for acceptance. If consensus is not reached at a meeting of the Ministerial Conference within the established period, the Ministerial Conference shall decide by a two-thirds majority of the Members whether to submit the proposed amendment to the Members for acceptance. Except as provided in paragraphs 2, 5 and 6, the provisions of paragraph 3 shall apply to the proposed amendment, unless the Ministerial Conference decides by a three-fourths majority of the Members that the provisions of paragraph 4 shall apply."

Simple? To understand this provision, you need to decipher paragraphs 2,3, 5,6 and 4 and the various provisos therein.

Time for Oil Sands again

I had earlier blogged about the Tar sands controversy here. The issue comes to the fore again due to a proposed vote on a draft law by EU officials in February, 2012 regarding labelling oil from tar sands as more carbon intensive. 

(A scarecrow lies in a tailings pond in front of the Suncor oil sands extraction facility near the town of Fort McMurray, Alberta. The European Union is expected to vote on a law that would designate oil sands crude as more polluting than other forms of oil.Photograph by: Mark Ralston, AFP/Getty Images)

It was reported briefly here.

" European Union officials are expected to vote on Feb. 23 on a draft law that would label fuel produced from oilsands as more polluting than that from other forms of oil, according to a draft agenda seen by Reuters.

The proposal from the EU's executive to include oilsands in a ranking designed to enable fuel suppliers to identify the most carbon-intensive options has stirred up intense lobbying by Canada.

Home to the world's third-largest oil reserves, almost all of which are in the form of oilsands, Canada has argued the EU is unfairly discriminating against it.

Previous EU meetings have repeatedly failed to get as far as a vote, but the agenda for a fifth meeting of the fuel quality committee later this month schedules a vote on an amendment to the Fuel Quality Directive proposed by the European Commission."

 This dispute looks like a long winding one before it reaches the doorsteps of the WTO, if at all.

India, subsidies and WTO

Here is my op-ed with Gulzar in livemint.com  on the complex nature of domestic policies in the context of WTO commitments.

More on India's request for consultation with Turkey

I had blogged yesterday about India's consultation request with Turkey over cotton yarn imports. India's request for consultation with Turkey over imposition of definitive and provisional safeguard measures on cotton yarn imports revolves around the alleged violation of Turkey's WTO obligations relating to the Agreement on Safeguards (AoS). 

India's request for consultation is found here.

" (a) With regard to the definitive Safeguard Measures imposed with effect from 15 July 2008, 

Turkey acted inconsistently with the provisions of - 

(i) Article XIX:(1(a) of GATT 1994 and Articles 3.1 and 4.2(c) of the AoS as Turkey did not establish that increased imports causing serious injury to the domestic industry were as a result of unforeseen developments and of the effect of GATT obligations; 

(ii) Articles 2.1, 3.1, 4.1(c), 4.2(c) of the AoS as Turkey did not consider data relating to domestic producers whose  collective output constituted a 'major proportion' of total domestic production of like or directly competitive articles; 

(iii) Articles 2.1, 3.1, 4.2(b) and 4.2(c) of the AoS as Turkey failed to demonstrate, on the basis of objective evidence, the existence of causal link between increased imports and serious injury; 

(iv) Article XIX:1(a) of the GATT 1994 and Articles 3.1, 4.2 (c), 5.1 and 7.1 of the AoS as Turkey failed to establish that the measure was necessary for a period of three years to 'facilitate adjustment' as the investigation report did not consider this aspect at all;

          ... 

(c) With regard to the definitive measures applied on 28 January 2012 retroactively with effect from 15 July 2011, Turkey acted inconsistently with the provisions of- 

(i) Article XIX:1(a) of the GATT 1994 and Articles 3.1 and 4.2(c) of the AoS as Turkey did not establish that increased imports causing serious injury to the domestic industry were as a result of unforeseen developments and of the effect of GATT obligations;   

(ii) Article 7.2 of the AoS as Turkey extended the period of application of measures on 28 January 2012 after the expiry of the measures on 14 July 2011, and without making a prior determination  in conformity with the procedures set out in Articles 2, 3, 4 and 5 of the AoS that the safeguard measures continue to be necessary to prevent or remedy serious injury to its domestic industry, that there is evidence that the industry is adjusting, and provided that the pertinent provisions of Articles 8 and 12 having been observed.   

(iii) Article 7.5 of the AoS as the initial application period of safeguard measures expired on 14 July 2011 and Turkey made the fresh application of measures on the same product on 28 January 2012 without waiting for the mandatory period  as required under Article 7.5 of the AoS;  

(iv) Article 7.2 of AoS as the determination made by Turkey did not meet the requirements of Articles 2, 3, 4 and 5 of AoS regarding determinations with respect to domestic industry, like or  directly competitive articles, serious injury or threat thereof, causal link and that the safeguard measures continued to be necessary to prevent or remedy  serious injury and that there was evidence that the industry was adjusting."

The thrust of India's argument is that Turkey has not supported it's safeguard measures with "objective" evidence and data that establishes a causal link between the rise of imports and serious injury to domestic producers. Will await this space to see Turkey's reaction. Will this issue result in a full fledged WTO dispute or an amicable compromise pursuant to consultations?

India takes on Turkey over cotton

The WTO website carried an announcement recently that India has requested for consultations under the dispute settlement mechanism concerning the safeguard measures undertaken by Turkey against the import of cotton yarn from India.





The media in India itself have not extensively covered this dispute. The Economic Times carried this piece in 2011,

"India will soon file a complaint with the World Trade Organization against "illegal" duties imposed by Turkey on cotton yarn imports. The commerce and industry ministry is consulting lawyers to file a case before WTO's Dispute Settlement Body, a senior official said.

India says Turkey has randomly extended safeguard, or additional, import duties of 12%-17% on cotton yarn, making Indian textiles uncompetitive in their sixth largest export market.

"India may approach the dispute settlement board soon," a government official said. "Consultations are on with lawyers on the validity of the extended safeguard duties." Turkey had imposed a safeguard duty on cotton yarn imports in July 2008.

As a result, the import levy on yarn in the country had risen 13%-20% from 5%, which was the bound import duty rate or its commitment to WTO. Under the WTO norms, a safeguard duty could be imposed only for three years.

A country seeking to extend this duty beyond this period has to establish through a review that it still needs to protect domestic producers against a surge in imports."

Another report here gives the bare details. International Law Curry carried this piece.


Unfortunately, not much information about the genesis of this dispute is in the public domain. It would be interesting to see how India puts forth it's claims in the dispute settlement forum. Is India alleging that Turkey has violated Article 2 of the Agreement on Safeguards which stipulate the conditions under which a safeguard measure may be applied?


India has not been an active participant lately in the dispute settlement forum as compared to other developing countries, especially China, which is gradually recognising the importance of the rule-based dispute settlement mechanism. This lack of participation could  be attributed  to either a lack of instances of WTO violation against India by its trading partners or a lack of engaging in the dispute settlement mechanism.

The initiation of this case is a positive indication of the willingness of India to engage with the multilateral forum to seek one's rights. Whether the case would finally succeed would depend on the merits of the case. However, the mere willingness to use the multilateral dispute settlement system to protect one's domestic interests is a good sign. After all the dispute settlement mechanism is a transparent, rule based system not based on the power relations between trading partners but on a judicial interpretation of existing treaty obligations. And of course, it is the cornerstone of the WTO system.

WTO's future course - Small but pragmatic steps?

One had wondered as to the reason for the uncharacteristic silence of the WTO after the 8 MC. The general tendency in the media was to pronounce the decline of the multilateral trading system with the rise of regional trade agreements and increasing trends of protectionist announcements.

Finally yesterday, Pascal Lamy, Director General of the WTO made a statement that could signal the first steps that would be taken post-Doha to revive the near collapse state of negotiations. Lamy said,

"Let me now offer you my own views about how I see us moving forward.  The current political environment dictates that the most realistic and practical way forward is to move in small steps, gradually moving forward the parts of the Doha Round which are mature, and re-thinking those where greater differences remain.  I believe that non-prescriptiveness is the right thing to do in the present cool temperature.  Of course we can raise the temperature degree by degree as we progress, but for now, let us begin low which is where we are."

Essentially he envisages progress on the issues of Trade facilitation, dispute settlement mechanism and market access. Referring to the constitution of a Panel of Multi-stakeholders of the WTO he elaborated,

"Changing now my hat and speaking as Director-General and not as Chair of the TNC, you will recall that at MC8 I indicated my intention to convene a "Panel of Multi-stakeholders of the WTO" to look at the real drivers of today's and tomorrow's world trade, at today and tomorrow's obstacles to trade, at today and tomorrow's trade patterns, and, at how to keep transforming trade into development, growth, jobs and poverty alleviation.  I see these as the terms of reference for the panel, convened under my responsibility and comprising business leaders, trade politicians, civil society and academics with deep knowledge of the multilateral trading system.  I see the output of the panel as a pragmatic contribution to offer to you, the Members of the WTO, on what will be the driving forces of trade in the years to come.  I will keep Members informed about developments on this front. "

It would be interesting to see the composition of this panel. It should undoubtedly have diverse representation from different countries, ideologies as well as persuasions. The diversity of views would definitely help the multilateral organisation in redefining its goals, re-orienting its strategies and taking forward its critical role in the coming years. With countries re-establishing the need to exercise domestic policy dominance along with a wide array of regional trade agreements, the multilateral trade regime is in for a serious stress test. how it would fare in assessing the risks and accommodating views would play a crucial role in its increased relevance in the coming decades.

International Trade and Food Security

Pascal Lamy, Director general of the WTO had this to say about the interlinkage between international trade and food security, 

"International trade plays an important role in global food security.  By fostering greater competition, trade allows food to be produced where this can be most efficiently done.  With the climate crisis, whose beginnings we are now beginning to witness, it will become imperative that we produce food in the right places, and not where we would be wasting scarce water or other natural resources..

 ...

International trade allows food to move from countries with a surplus to countries with a deficit.  It is a “global transmission belt”, if you will.   From a purely ethical point of view, it is vital that we allow, and even facilitate, the ability of a country to sell food to another, in particular when that other is suffering from a drought or another natural disaster.  Food must travel.

...

While trade in agricultural products is only 7% of world trade, we are nevertheless dealing with a much more integrated global food market.  Two-thirds of all countries in today’s world are net food importers, and only one-third are net exporters.  Furthermore, trade in food is more sophisticated today, with about two-thirds of international trade being in processed products.  The bulk of international trade in food, though, remains regional, like the rest of international trade.  Seventy per cent of Europe’s trade is with Europe, not just in food, but in all products, and 50% of North America’s and Asia’s trade is intra-regional. Twenty-five per cent in the case of Latin America.  Africa, as I said earlier, stands out for its difference in this regard.

...

But just as poor policies hold agricultural production back, poor policies are also holding back the necessary revisions of the global rule-book on agricultural trade.  In other words, the WTO rule-book, or Bible as some call it.  The conclusion of the Agreement on Agriculture in the Uruguay Round in 1994 was a historic event, no doubt.  It brought agriculture firmly under the purview of world trade rules.  But it was, nevertheless, unfinished business, as evidenced by the rendezvous that countries gave themselves for further negotiations. 

Today, high trade-distorting subsidies persist in many developed countries, and so do some extraordinary tariff peaks.  This is what led to the formation of the G-20 coalition of developing, agricultural exporting, countries in the WTO. They want to redress the continued imbalance in WTO rules. 

Worse, the problem of food export restrictions finds almost no place in that global rule-book today.  Export restrictions, unfortunately, can be none other than “starve-thy-neighbour” policies, bringing importing countries on their knees to plead for food security.  In particularly thin international markets, like the rice market, where only 7% of global production gets traded, such restrictions can prove catastrophic.  And let us not forget that export restrictions were right at the heart of the 2008 so-called “food price crisis”, with one restriction triggering another through the panic buying and hoarding of food."

Many issues have been raised in this address. Food security has been, and will continue to be one of the foremost "domestic" agendas of national governments. Free trade in agricultural goods has been seen by many as a threat to domestic food security as well as a challenge to one's sovereignty. Will the "rationale" of international trade prevail over the heavily gurded domestic policy space of national food security? Are the objectives of global food security and "national" food security incompatible? What stand should developing countries with a large population dependent on "subsistence" agriculture take in such situations. Varied interests of domestic consumers and local producers have to be balanced.

Russia and the WTO

A piece by Abdur Chowdhury in the EastAsiaForum highlights the impact joining the WTO would have on the Russian economy.

"In the short run, reducing tariffs and other protective measures for import-sensitive industries, such as cars and aircraft, and opening up key financial service industries — banking and insurance — to foreign competition could lead to the loss of jobs in those areas. As such, the Russian government may need to provide unemployment insurance and other adjustment assistance. But globally competitive industries, such as the raw-material producers, could see international markets opening up and an increase in foreign investment as accession forces Russia to restructure its economy.

In the long run, evidence from economies that have gone through similar transitions suggests that trade liberalisation will lead to a more efficient Russian economy and better living standards for the average Russian citizen. New industries will probably emerge over time, helping to diversify the Russian economy.

Until now, Russia has been the largest and most populous country not party to the WTO. Russia’s accession will significantly expand the geographical coverage of WTO rules to all major economies, bringing a larger degree of stability and transparency to the international trading system. At the same time, Russia’s entry into the WTO would continue a trend in which, as the WTO becomes larger and more diverse, it becomes more difficult for that membership to reach a consensus on important issues. In addition, trade disputes between Russia and its trading partners will be brought to the WTO for resolution rather than being addressed bilaterally, adding to the WTO’s ever-growing caseload.

Still, to become a truly open economy, Russia will need to use WTO membership as a springboard for wider economic change. It still looks likely that Putin will be the one to face the tough realities of implementing WTO commitments, but he leads an elite that has long favoured protectionism and subsidy over serious reform. The long-term benefits of membership should nevertheless outweigh its initial costs. Russia will have to make courageous decisions on which industries are truly sustainable, and take measures to protect the population from the costs of adjustment."

It is well documented that China has benefitted tremendously from its membership of the multilateral body. However, China has pursued an aggressive domestic policy to take advantage of its accession to the WTO. It would be interesting to see what impact the WTO would have on the political and economic landscape of one of the world's largest trading partners.

China takes on EU ETS regulation

I have earlier blogged about the EU ETS. While it was not certain whether other countries outside the EU would follow the regulations, it was clear that China would take a more strident position. The Chinese viewpoints across the stakeholder spectrum is found in various pieces of the Global Times, a Chinese Daily. 

It was reported that the Civil Aviation Administration of China (CAAC) said on February 6, 2012 that China's airlines are not allowed to pay a charge on carbon emissions imposed by the European Union(EU), and neither to hike freights nor to add other fees accordingly without government permission.

The Global Times reported on February 7, 2012:

"Civil aviation authorities Monday ordered the nation's airlines not to comply with the EU's Emission Trading Scheme (ETS), sending out China's "most concrete signal of opposition" to the unilateral carbon emission tax scheme. 

"China objects to the EU's decision to impose the scheme on non-EU airlines, and has expressed its concerns through various channels," the Civil Aviation Administration of China (CAAC) said in a statement after releasing the directive.

The CAAC said it had been authorized by the State Council to notify all domestic airlines of the order. Under the directive, Chinese airlines are also prohibited from increasing fares or charging items on the grounds of the ETS.

The order came shortly after the scheme took effect January 1, which required international flights departing from or landing at the airports of the bloc's 27 nations to pay for the carbon emissions."

On February 6, 2012, a local internet newspaper reported,

"China's airlines are not allowed to pay a charge on carbon emissions imposed by the Europe Union(EU), and neither to hike freights nor to add other fees accordingly without government permission, the Civil Aviation Administration of China (CAAC) said Monday.

The CAAC said in a statement that it had been authorized by the State Council, China's Cabinet, to notify the ban to all domestic airlines.

The statement said the EU's decision to charge flights into and out of EU airports for carbon emission "runs contrary to relevant principles of the United Nations Framework Convention on Climate Change and the international civil aviation regulations."

This piece in the Global Times titled "EU cannot act as sole toll bearer of the skies" was harsh on EU's unilateral step.

"In essence, the EU decision to charge for carbon emissions from flights is a unilateral decision that could only be met with opposition. Such a decision could act as a kind of trade barrier. 

The EU should wake up to the fact that a program that has no support among other countries could hardly be operable. 

Curbing global warming is our shared goal. There is still some time to negotiate to find a solution."   

An interesting debate in the Chinese intellectual space with respect to the ETS is found here. Overall, the Chinese media has been rather strident in their opposition to the EU ETS. Whether this stridency would lead to a Chinese challenge internationally or the backtracking by the EU is to be seen. The environment, trade interests and domestic policy seem to be having a heady interplay here!

Future of the world economy

A grim picture of the future of the world economy is depicted here. 

"Globalization, it turns out, is a double-edged sword. It raises living standards by promoting trade and spreading modern technology around the world. But it also causes disruptions and deepens downturns. The future of the world economy hinges heavily on whether this instability is modest and tolerable or massive and intolerable. As Bergsten asks: "Are we on a path not only of crises but also of crises of increasing frequency and rising severity?"

We don't know. What we do know is that mutual dependencies have grown. For years, U.S. trade deficits promoted globalization by boosting other countries' exports. Ideally, emerging-market countries would now return the favor. Their fast economic growth would swell demand for U.S. and European exports, making it easier for these countries to pay their debts and reduce unemployment. The odds of this happening seem no better than 50-50.

What countries see as their narrow self-interest may subvert their collective interest in a stable world economy. Political power has fragmented along with economic power. The currency dispute with China is a case in point. For years, American presidents have failed to persuade China to stop undervaluing its currency and, thereby, subsidizing exports and penalizing imports. Indeed, some economists argue that China's trade surpluses -- converted into dollars and invested in U.S. bonds -- fueled America's financial crisis by driving down interest rates. Low rates then encouraged riskier mortgage loans."

Is the answer to this uncertainty more "protectionist" policies as well as "reclaiming" the domestic policy space? To understand domestic policy makers' reservations against a multi-lateral trading system that "hurts" domestic industry interests, this letter from a U.S. Congressman to the USTR Kirk summarises it all," ...

In the last decade six million American manufacturing jobs and 55,000 plants have been lost.We must stop China's abusive practices that cost countless American jobs and contribute to our enormous trade deficit.Stronger U.S. manufacturing will help keep America a place of world leading innovation with a strong middle class"

Recent statements of China (in the context of the Ban on Exports case at the WTO), actions of Brazil (imported car tariffs), thrust of the US's "Inshoring policy" point towards the trend that countries are gradually re-visiting the notion of free trade and reduction of barriers. Are these trends temporary in reaction to certain events or a more permanent paradigm would be the question to ask.