BRICS - Delhi Declaration and WTO

The Fourth BRICS Summit concluded in India recently. I have blogged about BRICS earlier here.The result of the Summit was a declaration called the Delhi Declaration. References to the multilateral trading system and the WTO in the declaration are worth a look:

"15. Brazil, India, China and South Africa congratulate the Russian Federation on its accession to the WTO. This makes the WTO more representative and strengthens the rule-based multilateral trading system. We commit to working together to safeguard this system and urge other countries to resist all forms of trade protectionism and disguised restrictions on trade. 

16. We will continue our efforts for the successful conclusion of the Doha Round, based on the progress made and in keeping with its mandate. Towards this end, we will explore outcomes in specific areas where progress is possible while preserving the centrality of development and within the overall framework of the single undertaking. We do not support plurilateral initiatives that go against the fundamental principles of transparency, inclusiveness and multilateralism. We believe that such initiatives not only distract members from striving for a collective outcome but also fail to address the development deficit inherited from previous negotiating rounds. Once the ratification process is completed, Russia intends to participate in an active and constructive manner for a balanced outcome of the Doha Round that will help strengthen and develop the multilateral trade system. 

17. Considering UNCTAD to be the focal point in the UN system for the treatment of trade and development issues, we intend to invest in improving its traditional activities of consensus-building, technical cooperation and research on issues of economic development and trade. We reiterate our willingness to actively contribute to the achievement of a successful UNCTAD XIII, in April 2012. 

18. We agree to build upon our synergies and to work together to intensify trade and investment flows among our countries to advance our respective industrial development and employment objectives.We welcome the outcomes of the second Meeting of BRICS Trade Ministers held in New Delhi on 28 March 2012. We support the regular consultations amongst our Trade Ministers and consider taking suitable measures to facilitate further consolidation of our trade and economic ties..."

Several interesting policy statements in this declaration:

1.  All forms of "protectionism" and disguised restrictions on trade resisted -  This is good news for the multilateral system but this would also require Brazil, Russia, India, China and South Africa to shun all forms of protectionism and disguised restrictions.

2. Continue efforts for successful completion of the Doha round - Mere rhetoric or achievable?

3. Against plurilateral efforts via a vis multilateral efforts at trade negotiations -  Again, good news for multilateral trade, but realities indicate that plurilateralism is increasingly becoming mainstay.

The positives of the declaration vis a vis the WTO regime is a re-affirmation in the principles of multilateral trade and institutional mechanisms supporting it. How much this would translate into reality and action, only time will tell.

EU ETS - The controversy refuses to die down

The controversy around the EU ETS scheme never seems to die. The Huffington Post had this piece by Gerard Wynn that captured the contours of the dispute. Attributing the measure of the EU as a result of a failure of international agreement, it states,

"The EU will almost certainly stand firm and foreign carriers will pay up. The main prospect for compromise would be for the EU to relent and not count emissions outside its airspace, which at present seems unlikely.

The EU says it must include all emissions on a flight because it's impractical to measure those only from the moment a plane enters European airspace. And that would also dilute the environmental purpose of the scheme since a large part of emissions are on take-off.

Regarding the notion that its charges are a tax on jet fuel (not allowed under the 1944 Chicago Convention on aviation), it says emissions permits are not the same thing because an airline can avoid paying at all if it undercuts its free quota by becoming more efficient.

On both these counts the bloc won a landmark case at the European Court of Justice in a judgment favouring Brussels against U.S. carriers last December.

The bloc of countries most wedded to a multilateral approach at the United Nations, the European Union, now feels compelled to use unilateral action.

The present spat could be a sign of things to come in climate politics, where progressive countries unite from the bottom up, at least until an over-arching treaty comes into force at the end of the decade."

The coming together of  "progressive countries" was highlighted in the joint declaration of 26 countries against the EU ETS in Moscow. It was not only this group of countries opposing the scheme. Recently Airbus along with eight other airlines also opposed the scheme on the ground that it hurt its trade interests with reports of China reconsidering its options of purchasing Airbus carriers due to the EU measure. The opposition to the scheme found strange bedfellows. Boeing supported Airbus' stand on the EU ETS but refused to come to an agreement on the WTO dispute related to subsidies. India also joined the opposition by asking its  airlines not to adhere to the emission scheme.

It would be interesting to see where this dispute goes. Will the EU temporarily suspend the scheme subject to more international negotiations? Will the business interests of Airbus and other European airlines prevail over the climate concerns of the EU? Will the joint signatories of the declaration against the EU ETS be able to diplomatically persuade the EU to reconsider the scheme till international consensus is arrived at? Will the threat of Chinese "business" retaliation force the EU to step back? Will it lead to a WTO dispute? Testing times for the interplay of international climate rules, international trade, national sovereignty and business interests in the aviation sector.

World Bank on Russia and WTO

The World Bank in a Report in 2012 titled "The World Bank in Russia" has a separate chapter on the WTO and Russia wherein the opportunities for Russia after joining the WTO are discussed. 


The Report paints a rosy picture for Russia and projects gains in GDP, incomes, wages and productivity as a result of its WTO accession. Outlining the benefits Russia would experience on acceding to the WTO and impacts it would have sector-wise the Report concluded:

"WTO accession is a unique and important opportunity to move the country forward toward an outward-looking model of economic development. As Russia seeks to diversify and modernize its economy, how will it achieve its objectives?  The studies cited above indicate that Russia will reap substantial gains from WTO accession and that the benefits are widespread and will reduce poverty. The examples of fast growth or ― "development miracles" in the past half century, such as South Korea, Singapore, Hong Kong, Taiwan (China), Chile, China and Mauritius, were all countries whose rapid growth was led by export growth. Import tariffs, however, act as a tax on exports and impede the movement toward and open economy or export led model of economic development.  In a business as usual scenario, concentrated forces who want protection in their sectors will lobby to defeat liberalization, while there are many who gain from liberalization, the gains are not concentrated and typically they do not lobby for liberalization. The uneven lobbying often leads to excessive protection compared to what is beneficial for the country.  WTO accession involves foreign business interests and foreign governments in the negotiations on the level of home protection. Then policy-makers at the highest levels of government must engage in the process, and the result is usually a broader and deeper set of reforms than could be achieved without the accession process. Ratification by Russia for the Protocol on its Accession to the WTO would thus be an important step in reform of the Russian economy.  It would be important to leverage the benefits that will be achieved from reforms as part of the WTO accession package with further steps to improve the investment and business climate. Diversification, modernization and growth will be all the stronger if WTO accession is complemented with improvements in the business climate for all firms doing business in Russia, Russian and foreign."

The FT blog has commented on this report here. An interesting point made in the conclusion is that "globalisation" has no lobbyists unlike "'concentrated" protectionism. Is this true? While domestic interests and impacts are more visible, is it correct to say that opening up one's economies is not guided by interests and pressures? Russia will have to deal with its accession to the WTO strategically. Apart from the commitments in the WTO Agreements, Russia would also have to abide by the commitments in its Accession protocol, which is specific to Russia. China, in the context of a challenge to its export restrictions, is facing a similar issue of commitments in it Accession protocol. Russia would have to balance domestic interests, play by international rules as well as gain from the benefits international trade has to offer. Domestic business interests will be both positively and negatively impacted.It would be a tight rope walk as sectors open up and the economy faces international competition. One would not be surprised to see Russia knocking the doors of the dispute settlement mechanism as well as being taken to the adjudication forum in the coming years. Membership in the WTO would bring with it benefits as well as serious challenges. Would Russia be able to seize the opportunity to uniquely benefit?

WTO dispute settlement as Trade Wars - A false alarm?

Whenever there is a request for consultation under the WTO dispute settlement system or a request for a panel to be constituted, headlines scream that a "trade war" is imminent. I had blogged about this issue briefly in the context of the request for consultations the U.S., EU and Japan have made with China in the matter relating to export restrictions of rare earth in this blogpost.

"3. The U.S is well within its rights to seek for consultations under the WTO. Countries would be expected to protect their domestic interests in the multilateral fora when they perceive a measure to be discriminatory or going against international trade rules. Viewing the consultation as a "trade war" may not be appropriate. After all, this is the mechanism to settle disputes in international trade disputes. Whether the U.S's stand is legally sustainable is different from the right to invoke the dispute settlement mechanism in the WTO. China should view it as a normal trade dispute that will inevitable lead to the WTO deciding on the issue. It is the same mechanism that China would rely on to challenge discriminatory U.S. trade practices."

This piece in the Free Malaysia Today carrying the statement of WTO Director General Pascal Lamy fortifies my view:

"The head of the World Trade Organisation today played down a dispute over China’s controls on exports of rare earth minerals, saying it was unlikely to escalate into a trade war.

The US, European Union and Japan have lodged a complaint with the WTO against China over its curbs on the shipments of the commodities, which are vital in the manufacture of high-tech goods.

But Pascal Lamy said: “Since the dispute settlement has been set up, no trade dispute has generated a trade war. That’s the experience of the past.

“I have no reason to doubt that… it will be different now.

“I do understand that the headline about trade wars (is) better than the headline about trade frictions. But that’s not a reality so far.”

"Trade Wars" carry more news value than a "Request for consultations" at the WTO! The WTO's dispute settlement mechanism is considered one of the strongest points of the WTO system ensuring reliability, rule based decision making and respect for the rule of law. One could argue on the effectiveness and success of the system but on the whole it has acted as an effective forum to air grievances and disputes related to international trade obligations. 

Is it a safety valve that prevents the "trade wars" which would have otherwise erupted due to a lack of a grievance handling mechanism? Should it not be viewed in a positive light rather than assuming that engaging with the dispute settlement mechanism, ipso facto, results in a  possibility of a trade war and retaliation?

Mapping provincial interests to international trade

In an earlier post I had highlighted the mapping of the benefits of international trade to the "sub-national level" in the context of the USTR. Normally the impact of  international trade is analysed in terms of the benefit a country derives at the national level. However in a federal system such as India it would be useful to go to the next level of governance - the States and see how international trade has an impact on employment and growth at the State level as well as the dependency of the businesses at the State level on international trade.

The USTR website has the benefits of trade mapped to individual states. The Economic Survey of India 2011-2012 details out the exports of 15 states in India. It also highlights the inter state variance in growth as well as the difficulty in obtaining data about exports relating to the origin of states.

"Policy for Promoting State-wise Exports

7.45 Two States, namely Gujarat and Maharashtra,account for 46 per cent of exports from India as per the data on state of origin of exports of goods. If Tamil Nadu, Karnataka, and Andhra Pradesh, the next three states with more than 5 per cent share, are added to the top two, the share of the top five states would be 65.7 per cent. In 2010-11, the growth of exports from states was robust. Only Goa had negative export growth due to fall in ore exports owing to a ban on exports of iron ore by the Karnataka government. High export growth was registered by Odisha followed by West Bengal and Gujarat. In the first half of 2011-12 there was robust export growth in case of Karnataka, Uttar Pradesh, and Tamil Nadu.

7.46 The state-wise exports given in Table 7.16 are only indicative as there are many weaknesses in the data. These include the following. The figures are compiled as per the reporting from customs and no validation is done at the DGCI&S end. Only one state of origin code can be given by the exporter in a single shipping Bill. In case of shipping bills with multiple invoices containing items originating from more than one state, there is no provision for making different entries. In the customs daily trade returns (DTRs) the non-reporting of state of origin (STON) is considerable and exporters have a tendency to report the state to which they belong/ the state to which the port (through which the export has taken place) belongs/ the state from where they ‘procured’ the goods as the state of origin for those particular goods instead of the actual state of origin of goods. The problem is acute in the case of non-manufacturing exporters, who only know the place of procurement and not production of the goods. These weaknesses need to be rectified to improve the quality of data."

Building a state-specific database of exports and imports would help in analysing the benefits of global trade on sub-national interests. Since many domestic policies are driven by the provincial governments, this analysis would be useful to make meaningful domestic policy at the provincial level that can assess and utilise the benefits international trade offers. It would also require a high degree of co-ordination between the central and provincial governments. In the Indian context while there is a lot of debate at the national level about the multilateral trade rules and their impact on the domestic economy, similar interest and engagement at the provincial level is not seen. Only a joint collaboration of all tiers of government domestically can effectively engage with the international trading system and take advantage of the rules to create employment, growth and trade at the local level.

 

 

Dani Rodrik on the relevance of the Nation State

One of the several questions that recur in the debate on globalisation is the relevance of the nation state vis a vis globalisation. Has the nation state lost its relevance in the context of multilateral trading rules? Has the domestic policy space shrunk in the context of globalised trade? Are policy choice options increasingly be taken by nations compelled by international rules rather than domestic interests? The critics of globalisation argue that the nation state is under tremendous pressure and the forces of globalisation would have a devastating impact on the existence and relevance of the nation state.

Project Syndicate has a piece on the relevance of the nation state vis a vis globalisation by Dani Rodrik titled "The Nation-State Reborn" which questions the underlying myths and assumptions in this regard.

"One of our era’s foundational myths is that globalization has condemned the nation-state to irrelevance. The revolution in transport and communications, we hear, has vaporized borders and shrunk the world. New modes of governance, ranging from transnational networks of regulators to international civil-society organizations to multilateral institutions, are transcending and supplanting national lawmakers. Domestic policymakers, it is said, are largely powerless in the face of global markets."

Arguing that the nation state has not lost its relevance in the context of the financial crisis as well as the realities of international trade, a strong case for relying on the nation state has been made.

"Geographical distance is as strong a determinant of economic exchange as it was a half-century ago. Even the Internet, it turns out, is not as borderless as it seems: one study found that Americans are much more likely to visit Web sites from countries that are physically close than from countries that are far away, even after controlling for language, income, and many other factors.

The trouble is that we are still in the grasp of the myth of the nation-state’s decline. Political leaders plead impotence, intellectuals dream up implausible global-governance schemes, and the losers increasingly blame immigrants or imports. Talk about re-empowering the nation-state and respectable people run for cover, as if one has proposed reviving the plague.

To be sure, the geography of attachments and identities is not fixed; indeed, it has changed over the course of history. That means that we should not entirely dismiss the likelihood that a true global consciousness will develop in the future, along with transnational political communities.

But today’s challenges cannot be met by institutions that do not (yet) exist. For now, people still must turn for solutions to their national governments, which remain the best hope for collective action. The nation-state may be a relic bequeathed to us by the French Revolution, but it is all that we have."

Globalised trade and the existence of multilateral trade rules are often viewed as antithetical to nation states'interests. Call for protectionism are often raised in the context of measures that affect domestic interest. The WTO is seen as an omnipotent multilateral organisation interfering with domestic policy space. However, there are a few lessons one has to consider. inspite of the strengthening of multilateral trade rules, the nation state is the "fulcrum" around which they operate. The nation state is the only actor that represents various "domestic interests" at the WTO be they business, public, workers, local industry, environmental or multinational. Thus, while global trade rules may be viewed as effecting the nation state's sovereignty (though the nation state has agreed to them), it is undisputed that the nation state is the most prominent actor in the international trading system to influence it's course. The nation state, though, has to reinvent itself. While domestic legitimacy issues plague it in various forms, it has to ensure that a balance between domestic interests (with the characteristic of being equitable) and international trade is maintained. This is a complex task in a complex world, but who said governance was easy anyway?

Economists and EU ETS - Time for International Trade Lawyers to comment?

In an interesting development on the EU ETS Scheme, a few Nobel Economists from Universities including  Harvard, Stanford, Columbia, Princeton, and Berkeley wrote a letter to the U.S. President requesting the U.S. administration to support the global adoption of the EU ETS Scheme and to also not oppose the Scheme in the present form. The EU ETS is essentially a carbon emission reduction scheme applied to airline emissions. I have blogged about it here, here, here, here and here.

The gist of the letter is here:

"We implore you to support the European Union’s innovative efforts to place a price on carbon from aviation through the emissions trading system (EU ETS), or, at the very least, to stop actively opposing these efforts.  The aviation sector represents a large and growing global source of carbon emissions.  Addressing emissions in this sector by negotiating a global pricing system through the International Civil Aviation Organization (ICAO) would send an important signal that carbon pricing is an effective way to correct a major market failure—the growing concentration of greenhouse gases in the atmosphere.

As you know, the uncontrolled flood of carbon emissions into the atmosphere is driving climate change and increasing the risk of catastrophic outcomes. It is time we recognize this risk by putting an appropriate price on carbon emissions, in aviation and in all other sectors. The EU’s ETS is a first step in that direction. Your administration should endorse the EU’s efforts, not oppose them.

          ...

Today the US is leading a coalition of unwilling countries on a course of refusing to price this risk in the commercial aviation sector.  Rather than opposing the EU, we urge your administration to support their efforts to price carbon in the context of the ICAO.  In order for the world to achieve its climatic objectives at tolerable cost, a cooperative approach among nations is essential. While we recognize that there are numerous obstacles to setting a uniform, global price on all carbon emissions, pricing them in the aviation sector would be a good start.  In particular, we urge you to drop the US opposition and to support the EU’s efforts to deal with this global problem." 

 Some of the eminent signatories include Professors Kenneth Arrow and William F.Sharpe. I found it quite surprising that leading economists had written on this issue to the President. Issues like the Boeing-Airbus subsidies imbroglio or Canada's tar sands oil or seal trade did not receive similar treatment.

The U.S Administration is a signatory to a rather strong joint declaration undertaken by 26 countries in Moscow recently against the EU ETS scheme. The declaration was categorical in its rejection of the scheme and explored options of taking the EU to an international fora to undo the measure.

"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."

The primacy of the  issue of environmental concerns in international trade is at the core of the debate. While the opponents of the scheme, inter alia, argue that the EU ETS in the aviation sector leads to serious "market distortions" and unfair competition, the above economists have argued that if climate change is to be slowed appreciably at tolerable cost, it is wise to use the market to provide incentives for individuals and firms to reduce greenhouse gas pollution. In addition to the economic perspective, there is an issue of international law - whether the measure is consistent with EU;s international obligations irrespective of the economic rationale of the measure. Again, a heady mix of environmental economics and international law at play! Would be interesting to see an open letter to the U.S President from the leading lights in international trade law with regard to the way forward.

Law Blogs - Is scholarship a victim?

This is not about the WTO. Found this old, interesting piece titled 'Why blogs are bad for legal scholarship" in the Yale Law Journal Online on the standard of law blogs in the blogosphere. Brian Leiter is rather critical of the proliferation of law blogs and their impact on legal scholarship:

"The best legal scholarship is increasingly interdisciplinary in nature, and its successful production, evaluation, and distribution generally requires multi-disciplinary expertise at a reasonably high level. Unfortunately, the Internet in general, and blogs in particular, eviscerate and obscure expertise because the Internet’s most distinctive feature is the elimination of mediating boundaries: of distance, experience, education, and intelligence. While the elimination of the first is an advantage, the elimination of the others poses problems for serious scholarship."

Referring to the "availability casacade" he says:

"Any second-rate scholar can have an opinion, however ignorant or confused, about the merits of someone’s work, and express that opinion in an e-mail to a colleague elsewhere. Now imagine that same ignorant or confused opinion broadcast to thousands: that is what blogs make possible. Indeed, blogs do more than that: they make possible the repeated and systematic broadcast of non-expert opinions, opinions that can then be picked up and amplified by other non-expert blogs."

While agreeing with the point that the standard of legal blogs might vastly differ and have an impact o the quality of legal scholarship, there is no doubt that the internet in general and blogs in particular has been a leveller of sorts bringing together a proliferation of ideas. Distances and intermediaries have been challenged. Atleast, I have found it extremely empowering!

Child labour, International trade rules and WTO

I had blogged here about the relationship about child labour and international trade rules. The WTO is faced with the constant question as to whether it should tread into non-trade domains like the environment, labour issues and human rights. Those in favour argue that the multilateral trading rules must support and espouse universal labour standards, human rights and environmental standards as a part of a liberalised, fair trading regime while those opposing argue that the WTO is not the right fora for this discussion and inclusion of these issues would infringe on legitimate domestic policy space.

I found this interesting piece in the NYT blog regarding the relationship between child labour and trade.

"In my Economic Scene column on Wednesday I discussed how anti-sweatshop campaigns in the West to improve the lives of workers toiling in dismal conditions in the third world often do more harm than good — turning low-wage workers into no-wage workers by inducing multinational companies to pick up shop and move somewhere else.

Child labor offers perhaps the best example that big improvements in the workplace are always driven from pressure from within. Banning imports of products made by minors might make the people of San Francisco happy, but it has done very little to improve the lot of poor children overseas.

“There is very little evidence supporting any connection between trade and child time allocation other than through the impact of trade on the living standards of the very poor,” writes Eric V. Edmunds, an economist at Dartmouth College who directs the Child Labor Network at the Institute for the Study of Labor."

It essentially argues that a ban on trade in products based on child labour would do more harm to those families who are engaged in child labour than address their issue by forcing the children to work in areas not covered by trade or by losing out on employment.

Another piece titled "Child labour: Is International Activism the solution or the problem?" questions the effectiveness of imposing international labour standards to address the issue of child labour. Arguing that stronger domestic policy action is required to tackle the problem, it states:

"Our findings question the effectiveness of current international pressure tactics, such as consumer boycotts or imposing international labour standards, in reducing child labour in the long term. Since such policies also carry short-term costs for developing countries, the rationale for their use should be reconsidered.

The international community still can, and should, help address the child-labour problem in developing countries. We are critical of interventions that work through restricting trade. Such policies have the potential to displace working children into informal employment, with negative repercussions for the prospects for future political reform. A more promising alternative would be policies that reward parents for choosing education over child labour for their children (a successful example of this sort is the PROGRESA program in Mexico). Such policies reduce economic dependence on child labour without inducing detrimental displacement effects. Likewise, policies that create incentives for developing countries (e.g., through conditional aid) to restrict child labour anywhere in the economy (rather than just in the export sector) would be useful, although these may be difficult to enforce."

Kaushik Basu and Homa Zarghamee in this paper have argued that product boycotts on the grounds of the use of child labour can be counterproductive. 

Should the WTO get involved in multilateral trade rules espousing labour standards that can be enforced through the dispute settlement mechanism? Would this be counter productive? Would this be "protectionism" through the back door? While there is no question that strong national policies should be in place to address the menace of child labour, is internationalisation of enforceable rules to ban child labour an answer? With the Doha round at a stalemate, I don't see this issue gaining precedence. However as a principle of the contours of multilateral trade law, the issue of "non-trade" matters being considered is still a very live debate.

Trade and Development report - Some thoughts

Every year the United Nations Conference on Trade and Development (UNCTAD) publishes the Trade and Development Report (TDR). The list of TDRs is found here. The TDR 2012 is expected in September. An interesting debate about the role of the TDRs in the context of multilateral trade rules is found here.

"Experts marking the 30th anniversary of one of the world´s more influential economic annuals said Monday that themes long sounded in UNCTAD´s Trade and Development Report retain current prominence - particularly those citing the questionable wisdom of unbridled free markets. Other prominent themes concerned the persistence of trade imbalances, the risks of overdependence on commodities exports, the risks of premature liberalization of capital flows, the need for new mechanisms to deal with sovereign debt, and the problems posed by income inequality.

...

The Trade and Development Report "is UNCTAD´s original flagship report," said Anthony Mothae Maruping, President of the organization´s Trade and Development Board, as he opened the meeting.

Rubens Ricupero, former Secretary-General of the organization, termed the Trade and Development Report "an encyclopedia of development thought" and said that over the years, as neoliberal economic reforms swept the world, the publication often was a lonely voice calling for an "active role of the State" in spurring the kind of stable economic growth that leads to rising living standards in poor countries.

...

"The reasoning is that you need a State, a government, to have an idea, a plan for the economy, a design, and an economic policy strategy that makes sense, given the domestic and international constraints," explained Heiner Flassbeck, Director of UNCTAD´s Division on Globalization and Development Strategies and principal author of the last eight editions of the report. "That is the basic argument of the Trade and Development Report in recent years."

Carlos Fortin contextualised the Report in the shadow of the multiplicity of international organisations - UN, IMF, WB and WTO here.

" The Report is regarded as the main alternative in the United Nations system to the mainstream approach represented by the World Bank, the IMF, the WTO and the OECD."

Without going into the ideological positions highlighted here, the role of the State in the development paradigm of a country is undisputed. The extent and nature is generally disputed. Carlos Fortin concludes this interesting debate on the role of State supported monopolies (SOEs) with a valid point:

" What came closest to a majority opinion is that developing country governments should not forgo the option of supporting national companies, particularly for purposes of making them internationally competitive, but should only exercise it with two significant caveats:

        1.support should not be a blank cheque, but contingent on performance; 

        2.support should be consistent with international obligations and disciplines, notably those of the World Trade Organization."

The issue whether a support is consistent with a country's WTO obligations is a legal minefield of interpretations and counter factuals. Many disputes in the context of the SCM Agreement precisely deal with this point. However, the point is well taken that a country's domestic policy choice should be limited by its international obligations.

Data and its uses - The UN Statistical Database

The United Nations Economic Commission for Europe (UNECE)  now contains indicators that give a snapshot of economic globalization in the countries of the region. The indicators are available for every year dating back to 1990. Though limited to European countries, this statistical database does offer an interesting tool to assess countries' performance with the use of data. 

I tried a little bit of experimenting with the indicators (one can choose between a number of indicators for these countries) and this is what I could come out with

I. This indicates the growth rate in total trade of the UK and US. The slump in 2009 is not surprising.

II. This indicates the percentage growth rate of exports and imports of Spain, Switzerland and Sweden from 2006 to 2010.

III. This indicates the percentage of total trade to GDP in Finland, France, Georgia, Germany and Greece. France, surprisingly has the lowest figure in this. Is France more localised than the rest of Europe?

Ukrainian complaint against Australia's Tobacco Plain Packaging

 

The recent Ukranian measure of requesting for consultations in a dispute relating to plain packaging of tobacco products has raised several interesting questions. I have earlier blogged about Australia's plain packaging measure here, here and here.


Australia, through a legislation, has mandated that tobacco sold in Australia should be with only the specified plain packaging and the legislation prevents tobacco advertising and promotion on tobacco products and tobacco product packaging by making it an offence to sell, supply, purchase, package or manufacture tobacco products or packaging for retail sale that are not compliant with plain packaging requirements.

The measure has been defended by Australia on the grounds of public health. Recently Ukraine has initiated the dispute settlement mechanism at the WTO with this request for consultation.

"Australia's measures, especially viewed in the context of Australia's comprehensive tobacco regulatory regime, appear to be inconsistent with a number of Australia's obligations under the TRIPS Agreement, the TBT Agreement, and GATT 1994, including but not limited to the following provisions of these agreements:

 Articles 1.1, 2.1, 15, and 16 of the TRIPS Agreement and Articles 6quinquies, 7, and 10bis of the Paris Convention as incorporated in the TRIPS Agreement because the measures, which discriminate against tobacco-related trademarks based on the nature of the product, fail to give effect to the trademark holder's legitimate rights with respect to the trademark, fail to accord effective protection of the trademark "as is," and fail to prevent acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor; 

 Article 20 of the TRIPS Agreement because the measures constitute an unjustifiable encumbrance on the use of trademarks; 

 Article 1 of the TRIPS Agreement because Australia has failed to give effect to Article 20 of the TRIPS Agreement in Australia's domestic laws and regulations; 

 Article 27 of the TRIPS Agreement because by regulating the physical features of the patented packs, the measures prevent the normal exploitation and thus the enjoyment of the patent rights for tobacco products in a manner that discriminates based on the field of technology;

 Article 2.2 of the TBT Agreement because the measures constitute an unnecessary obstacle to trade and are more trade restrictive than necessary to achieve the stated health objectives; and

 Article III:4 of the GATT 1994, Article 3.1 of the TRIPS Agreement, and Article 2.1 of the TBT Agreement because the measures fail to respect the national treatment requirement set out in these provisions by not providing equal competitive opportunities to imported tobacco products and foreign trademark right holders as compared to like domestic tobacco products and trademark right holders.  

 These violations nullify or impair the benefits accruing to Ukraine under the aforementioned Agreements."

While the main challenges to the Australian measure are on the grounds of it being in violation of the TRIPS, TBT and GATT provisions, what is interesting is that Ukraine has initiated this request for consultation. The involvement of Ukraine has evoked considerable media attention here and here. The issue of the rationale for Ukraine having filed the complaint is being raised since Ukranian tobacco exports to Australia are minimal. Other domestic compulsions of tightening of tobacco advertising (surprisingly) are being touted as the underlying cause for Ukraine to be the complainant as a quid pro quo measure to the Tobacco industry. A very critical analysis of the Ukranian tobacco industry is found here in this campaign material.

Irrespective of the underlying motivations for the complaint, Australia would have to defend its move at the WTO. The dispute brings to the fore many interesting issues:

1. What would be the interpretation of the public health exception in the context of the TRIPS, TBT and GATT vis a vis barriers to international trade?

2. The varying and complex domestic interests involved in a WTO dispute are playing out here? Are the interests of multinational tobacco companies operating in Ukraine the same as the "Ukranian" national interest? Since exports from Ukraine would be affected thus affecting workers interests in the Ukranian units, does this constitute "domestic interest"? What is the position of the Government vis a vis consumer interests in Ukraine against tobacco on health grounds?

3. Subsidisation of WTO disputes is another interesting area of debate? Who bears the cost of this WTO dispute in Ukraine? The country or the tobacco manufacturing companies? Are there formal processes to handle this?

While one awaits Australia's formal response to the request for consultations, the interplay of the above externalities would be as interesting!

China rare earth - U.S., EU and Japan knock at the WTO

In three identical requests for consultations the U.S,  EU and Japan have set the stage for consultations at the WTO with China on China's export restrictions on rare earths. I had blogged about the dispute here.

The gist of the request for consultations is as follows:

" China imposes export duties on various forms of rare earths, tungsten and molybdenum.  

 China imposes quantitative restrictions such as quotas on the export of various forms of rare earths, tungsten and molybdenum.   

 China imposes additional requirements and procedures in connection with the administration of the quantitative restrictions on various forms of rare earths, tungsten and molybdenum, including but not limited to fees and formalities, restrictions on the right to export such as prior export experience requirements and minimum capital requirements, and other conditions that appear to treat foreign-invested entities differently from domestic entities. 

 China imposes other restrictions such as licensing requirements on the export of various forms of rare earths, tungsten and molybdenum, including in connection with the administration of the quantitative restrictions that China imposes on the export of various forms of rare earths, tungsten and molybdenum.  

 China maintains a minimum export price system for the export of various forms of rare earths, tungsten and molybdenum and also requires the examination and approval of export contracts and export prices, including in connection with the administration and collection of the export duties for various forms of rare earths, tungsten and molybdenum.    

 China administers all these export restrictions on various forms of rare earths, tungsten and molybdenum and the requirements and procedures in connection with these export restrictions through,  inter alia, its ministries and other organizations under the State Council and various chambers of commerce and industry associations. Furthermore, it appears that China administers these export restrictions on various forms of rare earths, tungsten and molybdenum and the requirements and procedures in connection with these export restrictions in a manner that is not uniform, impartial, reasonable, or transparent. 

 It appears that China imposes and administers these restrictions on exports of various forms of rare earths, tungsten and molybdenum also through measures that are not published."

Invoking the provisions of the GATT as well as the commitments in China's Accession Protocol the request for consultation argues that the export restrictions are in violation of China's international obligations:

" China's measures appear to be inconsistent with the following provisions: 

 Articles VII, VIII, X, and XI of the GATT 1994, and, 

 Paragraphs 2(A)2, 2(C)1, 5.1, 5.2, 7.2, 8.2 and 11.3 of Part I of the Protocol on the Accession of the People's Republic of China (WT/L/432)(“Accession Protocol”), as well as China's obligations under the provisions of paragraph 1.2 of Part I of the Accession Protocol (which incorporates commitments in paragraphs 83, 84, 162, and 165 of the Report of the Working Party on the Accession of China)(WT/MIN(01)/3).

 China's measures also appear to nullify or impair the benefits accruing to the European Union directly or indirectly under the cited agreements. "

China is yet to provide it's response to the request for consultations. It would be interesting to see how China justifies these measures in the context of the GATT, its Accession Protocol as well as the decision of the WTO panel in the China Raw Materials case. 

There are several other implications that this case could bring to the fore:

1. What is the nature of export restrictions and under what circumstances can they be imposed by a member country in the context of the WTO Agreements?

2. What is the impact of the Accession Protocol for China vis a vis its international obligations?

3. What are the permissible exceptions and defences available to China to impose export restrictions as challenged in the request for consultations?

4. What implication does this have on the domestic policy space of China in particular and other developing countries in general to regulate the exploitation of and trade in exhaustible natural mineral resources?

5. What implication does the case have on control of one's national resources for development and growth in the context of a deeply interconnected world?

The Chinese response would perhaps have some of the answers! As the WTO website says "Consultations Coming soon..."

Tonga , globalisation , WTO and discontent

 

Tonga is one of the world's smallest economies with a population of approximately 116,000 and an area of 748 sq km. Trade accounts for 54% of GDP. Its annual growth reached 1.9% in 2006 and its major Industries are agriculture (41% of GDP) and fisheries (20% of exports). Tonga's main trading partners are Japan, the United States, New Zealand and Australia. It became the 151st member of the WTO in 2007.

A recent piece in the Epoch Times titled "Tonga questions WTO membership amid global recession" caught my attention.It said:

"Less than five years after joining the World Trade Organization, the once promising South Pacific Island nation of Tonga, is floundering under the weight of the global recession.

Tonga, which consists of 169 islands, joined the WTO in June 2007 despite a local survey showing that 89 percent of Tongans expressed qualms over the terms.

“A requirement for Tonga to join the WTO was a reduction in their import tariffs to a top tariff of 20 percent—far below the top tariffs charged by most of the countries that formed the working party for Tonga’s accession,” says Barry Coates, executive director of Oxfam New Zealand.

“This requirement represented a sharp reduction not only in the bound tariff [the agreed tariff ceiling], but in the actual tariffs. So the impact on government revenue of this tariff cut was significant,” says Coates."

While Tonga's accession to the WTO was seen as an opportunity to integrate into the world economy, the above report indicates the possible effects of globalisation on a small country. While the accession protocol of Tonga would not be as detailed and "onerous" as that of China, it would be interesting to study the impact of joining the WTO on trade, economic growth and development of the small island nation. A trade policy review, which would give a reasonable idea of the status of the country's trade policy and economy,  of Tonga has not yet been undertaken by the WTO. The piece highlights the vulnerability of small developing countries to face the interconnected, globalised world. While joining the WTO is with an objective of gaining from a more integrated world, the impact of lowering of tariffs and reduced spending on basic infrastructure is a recipe for disaster. How a country should tread in these circumstances by taking advantage of the world economy as well as "legitimately" protecting one's domestic interests, industry and workers is a huge challenge.

China, Accession Protocol and WTO

Leila Choukroune (et al.) in this report titled "EU-China Trade relations" details out the EU-China trade landscape  (EU is the largest export destination for China) and the context in which China's growth in the WTO should be studied. The Report makes a threadbare, realistic analysis of China's trade policies in the context of its WTO obligations. It also recommends the position EU should take with respect to China and how it needs to engage China in its policy discourse.

An interesting aspect highlighted in this report is the Chinese Protocol of Accession to the WTO. China has acceded to many conditions that other developing countries have not while joining the WTO in 2001. Some of them are as follows:

"WTO-plus commitments include:  

“Rule of Law” obligations 

Transparency, judicial review and uniform administration of trade: these are the special commitments developed in China’s Protocol under the article X of the GATT 1994 (Publication and Administration of Trade Regulations).  These special provisions have never been used before and remain quite unique in their nature and implications. Of course, it was the nature of the Chinese authoritarian regime that explains the instance of US and EU negotiators on inserting such atypical provisions. For many years the rule of law or governance issues had represented a major hurdle in trade relations with China and remain as complex as problematic today. 

Obligations to progressively practice a market economy 

WTO rules assume a market economy, but nothing in the Agreement prescribes the participation of non-market economies (NME). China’s Protocol of Accession, in contrast to what is (not) imposed on other Members, establishes special market economy obligations for China. China is obliged to allow the market to determine prices for a number of domestic goods and prohibited from using price controls except for specifically listed categories of products. Moreover, China has to liberalise foreign trading rights and not influence decisions of the State Owned Enterprises (SOEs). This, of course, is particularly tricky to implement in a “socialist market economy” in which the role of the State still pervasive. So it is easy to understand the complexity and, to some  extent, hypocrisy involved in implementing such 

provisions.

Obligations to eliminate export tariffs 

WTO Members are free to levy tariffs/taxes on their exports. But in a departure from this general rule,China is required to “eliminate(s) all taxes and charges applied to exports except for those specifically provided in the Annex 6 of the Protocol”.  

Special obligations on foreign investment 

Here again, the China Protocol departs from normal WTO disciplines. China, for instance – and this is very controversial today - may not make approval of foreign investment conditional upon the existence of domestic competitors or, more importantly, on any performance requirement including technology transfer or obligations to conduct research and development activities in China. Furthermore, foreign investors and foreign owned enterprises are entitled to national treatment  with respect to all their China activities. As will be shown below in the section on trade barriers, these requirements have yet not been fully accepted nor applied by China.  

Additional Transitional Review Mechanisms 

A special transitional review mechanism is  established  by  the  Protocol  to  review  China’s 

implementation every year during the first eight years after accession as well as year ten.  This special scrutiny regime was unique and was additional to regular trade policy reviews conducted for all WTO Members at regular intervals.   

WTO-minus provisions cover the following issues:  Special anti-subsidy 

China’s Protocol permits an importing WTO Member to use non-market economy (NME) methodologies to calculate Chinese subsidies and possibly take measures against them. This is not subject to a time limit. There are also special rules for government subsidies to state owned enterprises (SOEs) that again depart from normal WTO rules. These include an  additional ownership criterion when defining the specificity of government/public support. Under this criterion, subsidies granted to Chinese SOEs are considered to satisfy the requirement of specificity thus making them actionable under WTO rules on subsidies. Curiously, China is not allowed to make use of a very interesting WTO provision allowing developing countries to provide subsidise to companies that are directly linked to a privatisation programme, even though one could imagine such a  rule would promote the existing privatization policy for Chinese SOEs. The lack of coherence in these measures makes application of China’s Protocol of Accession more difficult. 

Special anti-dumping rules 

China’s Protocol allows WTO Members to treat China as a non-market economy (NME) for 15 years .i.e. until 2016. In WTO law, dumping is determined when a product is exported at less than its “normal value” and causes or threatens to cause material injury to an industry of the importing country. As long as China is considered as a NME, importing WTO Members can argue that the Chinese domestic prices cannot be used to assess the dumping margin and that generally higher priced equivalents in a third country should be used.  Tensions over the NME status of China seem set to continue as there is no clear definition of a non-market economy in WTO law and  WTO Members applying anti-dumping measures have the right to determine whether the exporting country is or nor a market economy. China is likely to see itself as a victim of unfair anti-dumping methodologies while the EU  and US will more often target China for anti-dumping measures. It is equally easy to understand why China is pushing the EU and the US to obtain a market economy status.  

Special safeguards 

The China Protocol contains a special set of safeguard provisions in addition to the existing WTO safeguard regime that can be invoked until 2013. WTO members can apply safeguards selectively against products of Chinese origin if they can show “market disruption” and causality with increased imports, an easier test than the normal injury test for safeguards under the WTO. Furthermore, an importing country does not even have to prove the “injury” and “causal link” if it argues that there is “trade diversion” as a result of another member’s safeguards against China. One can clearly see the risks of this sort of spillover effects. There was also a special safeguard mechanism applicable to textile and clothing products of Chinese origin up to 2008. This allowed WTO members to impose quotas if they could show that imports of Chinese textile and clothing products caused …”market disruption, threatening to impede the orderly development of trade in these products.” This safeguard provided the basis for bilateral textile agreements between China and the EU and US in 2005. Of course, these rules were accepted by China during the course of the WTO accession negotiations and one need to bear in mind that they are extremely difficult to implement for both technical and political reasons."

While it is argued that China does not fully comply with its accession protocol, it is interesting to analyse the extent to which China agreed to special terms and conditions, even some would argue which is detrimental to Chinese interests,  to gain accession to the WTO. Several of these obligations are not even followed by other WTO members. It would be an interesting analysis to study the degree of compliance of there special provisions in the past ten years of China's accession. With the China raw material case being decided as well as the request for consultations in the rare earth case against China, the increasing impact of the obligations undertaken by China in its Accession Protocol will be open to scrutiny. This piece in the Hindu Business Line highlights the Chinese strategy within the WTO. Does Russia, which is the latest entrant into the WTO have similar WTO plus commitments? The website of the WTO has a list of protocol accessions of members since 1995. Would be worthwhile to do a comparative analysis of accession protocols.