Jagdish Bhagwati on the future of Dispute resolution at the WTO

Painting a dismal picture of the failure of the Doha round of trade negotiations, Jagdish Bhagwati highlights the advantages of a multilateral trading system compared to Preferential Trade Agreements (PTAs) in this piece in Project Syndicate.

"The failure to achieve multilateral trade liberalization by concluding the Doha Round means that the world lost the gains from trade that a successful treaty would have brought. But that is hardly the end of the matter: the failure of Doha will virtually halt multilateral trade liberalization for years to come."

He argues that PTAs will inevitably reflect the "power relations" between trading partners and the rule based system that hinges on a fair deal to countries irrespective of trading power will be replaced by a more unequal trading regime of agreements favouring the more powerful trading nations.

"Now, however, with the era of multilateral trade rounds and system-wide rules behind us, the PTAs are the only game in town, and the templates established by the hegemonic powers in unequal trade treaties with economically weaker countries will increasingly carry the day. In fact, such templates now extend beyond conventional trade issues (for example, agricultural protection) to vast numbers of areas unrelated to trade, including labor standards, environmental rules, policies on expropriation, and the ability to impose capital-account controls in financial crises."

 The more damaging indictment is that the PTAs will overshadow the pride of the WTO - the Dispute Settlement Mechanism (DSM). He visualises PTA-driven dispute resolution undermining the DSM at the WTO.

"Unfortunately, this insidious attack on the second leg of the WTO also extends to the third leg, the dispute-settlement mechanism. The DSM is the pride of the WTO: it is the only impartial and binding mechanism for adjudicating and enforcing contractual obligations defined by the WTO and accepted by its members. It gives every member, big or small, a platform and a voice.

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Once PTA-based DSMs are established, however, adjudication of disputes will reflect asymmetries of power, benefiting the stronger trade partner. Moreover, third countries will have little scope for input into PTA-based DSMs, though their interests may very well be affected by how adjudication is structured."

Are the fears of inequitable PTAs taking over trading relations real? While the failure of the Doha round is a matter of serious concern for those who have invested time and energy in developing multilateral trade rules, is there a serious threat to the multilateral trading system because of PTAs? Is it an alarmist stand? What is the extent to which PTAs cover international trade? Are we seeing an end to the WTO as an influential international institution that has compelling powers in international law epitomised by its "binding" nature of dispute resolution? Are all PTAs inequitable and usurped by powerful trading partners? Is there scope to democratise PTAs and ensure developing conutries interests are protected? if this can be done and PTAs become the preferred route for trade rule making, does WTO lose its relevance. More importantly, if the PTAs have their own dispute resolution mechanisms, will the "crown jewel" of the WTO too face a serious threat? I had blogged earlier of a bright future for the WTO? Is it realistic to presume that the authority of the WTO as a negotiating and dispute resolution body will wane over the years?

France, Globalisation and Protectionism - Where will the dice roll?

(Courtesy: Chris Riddell, The Observer, 2009)
With a new government in place in France, I read with great interest this interview of the new Industry Minister  of France Arnaud Monteburg who had strong reactions against globalisation and seemed pro-protectionist. Some excerpts:

"We need above all to protect ourselves. [Globalisation] is an extremism because, without loyalty or law, without any limit, it has placed our territories, our industrial system, enterprises, wage-earners — in direct competition with countries which have wages 30 times lower than ours.

Social protection there is virtually absent, whilst wage earners [in France] after two centuries of social struggle have fair working conditions. And this competition has destroyed our industrial system. Furthermore, it has not greatly progressed emerging countries either. Some countries have escaped [poverty] and others have not. They have become poor."

Speaking about the need for unilateral Protectionism, he continued:

" To start with, this is a European strategy. And Francois Hollande, besides, in his campaign expressed himself very strongly on the necessity that Europe, if she is to be ‘Open’ should not be ‘offered’ [like a sacrifice]. Today we are unprotected against globalisation. [He uses the metaphor of a 'globalisation sieve'].

Even the European Commission is now recommending greater protection than any that existed before. Let us be clear. It is about re-orienting the European Union which is currently as ineffective as a sieve against globalisation. And we will need to ask for reciprocity: that which the Chinese, the Americans, the Brazilians…

The Brazilians have just decided come up with an incredible strategy: they have decided to tax every iPhone made by Apple in China that comes across Brazilian borders. The consequence is that Apple has decided to build a factory in Brazil. It is obvious that the European Union alone in our European continent has the power to do that. Therefore …”

Are we going to see a new wave of "protectionist" measures from France in the light of these observations? Are the measures proposed consistent with France's obligations under the WTO? Though there are no specific measures to analyse here, is the general trend of "reciprocity" in free trade, ie. engaging in protectionism against countries which do not follow free trade policies themselves, acceptable under the multilateral trading system? Can France selectively impose barriers to trade against those countries that it perceives are being protectionist? Does this not violate the principle of "most favoured nation" treatment under the GATT? France is also not a very active player in the dispute settlement mechanism of the WTO as compared to the US or China. Does this indicate the general reluctance to engage with an international dispute resolution mechanism that may have an impact on national sovereignty?

This detailed paper by Sophie Meunier titled "France, Globalisation and Global Protectionism" in 1999 (in the context of the Seattle opposition to the WTO Ministerial) gave a detailed analysis of France's attitude towards globalisation as well as the reasons for it. Is the opposition rooted in France's opposition to Anglo-Saxon and American dominance? It also brought out the dichotomy of France's participation in the globalised world economy as well as it's opposition to it.

"If politicians want to bolster their claims to a different, more democratic, more just world economy, they should work with their European partners on providing a sensible alternative. The main reason why they are not really doing this is the paradox that I stated at the beginning of this article: France is increasingly resisting globalization, while at the same globalization can be identified as the main driving force behind the recent success and modernization of the French economy. As long as politicians have not  found a way to resolve this fundamental tension, French opposition to globalization  will remain purely rhetoric –with clear domestic consequences, but little chances of affecting the rest of the world. "

This general resentment against globalisation in France has been explained in this piece in the YaleGlobal Online titled "Has European Protectionism Finally Triumphed Over Free Trade? French style of reciprocal protectionism wins new fans in Europe" by Justin Stares who explained the dominance of France's thinking in the European Union.

"The French believe they are under no obligation to trade freely with countries that are themselves not believers in free trade. "What we want is reciprocity," says Gael Veyssiere, spokesman for the French permanent representation to the European Union. "We believe in fair free trade. Why should we be the only ones to be completely open when others are not?" he tellsPublicServiceEurope.com. French ministers take this protectionist reflex to Brussels, where they find support from similar-minded nations such as Italy. They attempt to block takeovers on the grounds that certain French companies are strategic assets; they talk up "Buy European" campaigns such as the one now promoted by French President Nicolas Sarkozy, who is seeking re-election. "Europe has for too long been the idiot of the global village," former French foreign affairs minister Hubert Vedrine told Belgian newspaper Le Soir. "This has to stop," he said earlier this month. "Open your eyes: lots of countries that were yesterday aid recipients have today become dragons and huge competitors. We have to re-establish more balance between countries in the west and the emerging countries. Tensions will be inevitable. So what? We mustn't be afraid."

Is France's opposition more rhetoric than action? In the globalised world and the existence of multilateral rules, is a stand of getting back to protectionist measures just a mirage or a real threat? Will  France take concrete measures that can be perceived  as "protectionist" and how will its trading partners react? While Argentina is being accused of following a protectionist path recently with its import licensing procedures, will it be France next on the line? Will we see a WTO dispute against France soon?

Developing countries and the WTO

Chiedu Osakwe's article titled "Developing Countries and GATT/WTO Rules" in the Minnesota Journal of International Law throws light on the complex nature of engagement of developing countries in the multilateral, rule based trading system. He argues that developing countries in recent years have gradually implemented liberalizing and trade policy reform as against protectionist tendencies earlier. It has been argued that developing countries have shifted tracks from inward looking protectionist policies to a more open, rule based system of trade policy due to the multilateral trading system.

The role of the WTO in encouraging this change on policy behaviour has been highlighted. 

"The effect of the rules-based Multilateral Trading System in particular has been underestimated. The architecture of the WTO has operated to secure rule-compliant, trade-reformist behavior and exercised systemic constraints on individual Members to check and counter protectionism. This architecture rests on the pillars of enforceable rules, under the DSU, periodic Trade Policy Reports and monitoring reports, within the framework of the TPRM, and the accumulating effects of the terms of accession of RAMs, pursuant to Article XII accession negotiations. This architecture, renovated by periodic trade rounds, has acted in combination with domestic growth priorities, in developing countries, to generate and sustain the momentum for trade liberalization."

Particularly interesting are the observations on the Dispute Settlement mechanism of the WTO. 

"The DSU is the foundation of the rules-based Multilateral Trading System. It ensures that trading rules are enforced, that WTO Members operate on the basis of the rule of law and that the trading system is secure and predictable. Recourse to and frequency of invocation of the DSU suggests deeper institutional engagement in the rules-based system. Greater recourse to dispute settlement is associated with trade opening behavior and commitment to domestic reforms. The data suggests that in the fifteen-year period between 1995 and 2010, developing countries, taken together, have increased recourse to dispute settlement as “complainants.” As a group, they are now fairly active users of the system. Increased recourse to dispute settlement would suggest greater sensitivity to the content of trade measures and the effects they carry for consistency or inconsistency with the rules of the trading system.

 ...

 Regardless, what is more important is the fact that developing countries have been respondents in cases regarding the WTO-consistency of measures taken.This increases awareness and sharpens sensitivity that trade measures that developing countries take (as with other Members) should aspire to be WTO-consistent."

The increasing use of the DSU by developing countries is an encouraging sign. As Pascal Lamy had opined, every initiation of a dispute at the WTO should not be seen as a "trade war". In fact, it acts as a safety valve to air grievances and sort out differences. However, developing countries need to augment their capacities to engage with the DSU. The decisions of the Panel and Ab indicate the detailed analysis of fact and law. Most of the cases rely on complex issues of data, economic analysis and judicial interpretation. The need for a "law and economics" approach is vital to sustain one's claims. The teams involved must be multidisciplinary with  government officials, trade policy experts, data analysts, trade economists and international trade lawyers. Developing countries can expect a large number of disputes as they integrate into a rule based system both from fellow developing countries as well as the developed world. While developing countries coalitions do exist it must be remembered that when "national" domestic interests are involved, the coalitions will not be able to sustain itself. The increasing heterogeneity of developing countries interest was also brought to light in the article:

"The composition and role of developing countries in the Multilateral Trading System is complex and evolving. The group is heterogeneous. It is neither a monolith nor is it unitary. Its interests are mixed, uncertain, and in some cases, divergent.

...

In the Doha Round, various developing country negotiating coalitions have emerged that provide snapshots of the diversity of the trade and economic interests of developing countries in the Doha Round. For instance, in the agriculture negotiations, several groups are operative. These include the Commodities Group; the Cotton-4; the G20 of Members committed to ambitious liberalization in agriculture; the G3-33 with defensive orientations in agriculture; the G-90; the LDCs; the RAMs; small and vulnerable economies (SVEs-Agriculture); and the Tropical and Alternative Products Group. Although the Cairns Group of agricultural  exporters includes developed Members such as Australia, Canada, and New Zealand, its other Members are developing countries. For instance, Mauritius, a Member of the African Group is designated a developing country, but participates in the Doha Round Agriculture negotiations with developed Members in the G-10, with high levels of domestic support and low ambition levels in the agriculture negotiations. This is in contrast to South Africa, another developing country member of the African Group, participating with other developing countries in the G-20 group, with low levels of domestic support and high levels of ambition in the agriculture negotiations."

Increasingly countries will pursue their domestic national trade interests within legitimate limits and seek remedies. The example of Brazil taking on Argentina's import restrictions  is only one example of a developing country questioning each other's policies. This in itself need not be seen as a negative development. The body of jurisprudence built around the WTO Agreements by the Panel and AB decisions is an indication of an increasing involvement and willingness of countries to engage with a rule based system without foreclosing the "negotiated" route.

World Bank, Free trade and Globalisation - Some questions

The World Bank in a recent Report has summarised the costs and benefits of free trade to a country's economy. Elaborating on the benefits it said:

"For participating countries the main benefits of unrestricted foreign trade stem from the increased access of their producers to larger, international markets. For a national economy that access means an opportunity to benefit from the international division of labor, on the one hand, and the need to face stronger competition in world markets,on the other. Domestic producers produce more efficiently due to their international specialization and the pressure that comes from foreign competition, and consumers enjoy a wider variety of domestic and imported goods at lower prices.

In addition, an actively trading country benefits from the new technologies that “spill over” to it from its trading partners, such as through the knowledge embedded in imported production equipment. These technological spillovers are particularly important for developing countries because they give them a chance to catch up more quickly with the developed countries in terms of productivity. Former centrally planned economies, which missed out on many of the benefits of global trade because of their politically imposed isolation from market economies, today aspire to tap into these benefits by reintegrating with the global trading system."

Recognising the risks of free trade, the report continued:

" But active participation in international trade also entails risks, particularly those associated with the strong competition in international markets. For example, a country runs the risk that some of its industries—those that are less competitive and adaptable—will be forced out of business. Meanwhile, reliance on foreign suppliers may be considered unacceptable when it comes to industries with a significant role in national security. For example, many governments are determined to ensure the so-called food security of their countries, in case food imports are cut off during a war.

In addition, governments of developing countries often argue that recently established industries require temporary protection until they become more competitive and less vulnerable to foreign competition. Thus governments often prohibit or reduce selected imports by introducing quotas, or make imports more expensive and less competitive by imposing tariffs."

 It is increasingly seen that as a country integrated into the global economy its ratio of trade to GDP increases. In the developed world this ratio is upto 40% while it is less than 10% in the developing countries.  Globalisation and integration into world markets with an increase in trade and integration has immense benefits but it also brings with it concomitant risks. Can a country understand the dual effects and craft domestic policy to address the challenges in an integrated world? While trade would benefit certain sectors of the economy, it is beyond doubt that inefficient industries and sectors would wither away under international competition. This would inturn have disastrous consequences to domestic constituencies in terms of local economies, jobs and growth. One has to address this dichotomy in the overall strategy to globalise. Further the whole issue of "equitable globalisation" is extremely relevant. While people from different countries will increasingly access markets and the world economy will get globalised, a large segment will remain untouched. The State would remain as a strong provider of access to opportunity for those left out by the markets. However, trade policy experts must think of making global markets more inclusive in terms of giving a stake for a large section of population. Adoption of a free trade system must not necessarily mean the withdrawal of the State. One must tread the middle patha nd find the truth somewhere in between. the balance is not easy to find. Of what relevance is world trade and globalisation to a tribal woman in an interior village in Africa? Of what relevance is it to a marginal farmer in a developing country? How could the small, entrepreneur in a city benefit from international trade? How would an unorganised worker in an informal sector in an underdeveloped country visualise his or her stake in an international economy? International trade is not only about mega corporations or countries engaging in trading of products. It has far more strategic implications. To address issues and challenges of the 21st century we must ask ourselves how a less protectionist and liberal trade environment would benefit multiple stakeholders with multiple problems and issues. Answers to these questions perhaps would help assuage strong resentment within domestic constituencies about the ill effects of free trade and globalisation. There are no easy answers. But we need to recognise that the questions exist.

Australia's Tobacco Plain Packaging row - Whose interests really?

The International Business Times had an interesting piece on Australia's position on the Tobacco Plain Packaging row. I have blogged about it here, here, here and here.

"The Australian government vowed to repeal efforts by giant tobacco firms to frustrate its aim of further limiting the flow of cigarette products in the country.

These efforts, according to Health Secretary Jane Halton, include the deployment of lawyers by tobacco companies to give out legal assistance to Honduras and Ukraine, two countries that had apparently launched legal challenges on Australia's soon-to-be implemented cigarette plain packaging law."

Two interesting issues come out in this position:

1. Subsidisation: It is apparent that interests of large Tobacco Companies are at stake here and their business interests have propelled the disputes at the WTO. Is it alright for national teams to comprise of lawyers from these tobacco companies? Is this an example of multiple interests being accommodated in the national position - Government lawyers, trade specialists, industry lawyers and lawyers of companies directly affected by the measure. Ukraine and Honduras seem to have adopted this approach. Who foots the bill for this dispute? Would it be legitimate for Ukraine and Honduras to take assistance from the Tobacco companies in this regard?

2. Trade interests: Ukraine and Honduras do not have extensive trade relations with Australia. Why did they initiate the dispute then? Are tobacco exports from these two countries substantial to justify this action? As per the Observatory of Economic Complexity, Ukraine exports 1.1% of world cigarette exports. While Australia imports substantially from China (20%), Ukraine does not figure in the list of countries engaged in exporting to Australia.

This brings us to the question - What motivated Ukraine to file a WTO complaint against Australia which it does not significantly export to? Was it prospects of a future market? Was it about taking  a stand against plain packaging which may affect it"s trade interests if larger trading partners adopted the same measure? Or were "national" interests and "business" interests of large tobacco companies coalescing? Should private parties be allowed directly to initiate disputes at the WTO at their own cost? Though this is not permitted by the present legal framework, would it in effect obliterate the need for seeking "national" interests to pursue purely business interests? What is at stake for the people of Ukraine and Honduras in this dispute? 

EU takes Argentina to the WTO - Legal battle or political settlement ahead?

News of the EU filing a complaint in the WTO against Argentina's import licensing procedures started trickling in. The WTO website announced that EU had filed a formal complaint. The details of the complaint are awaited and will be available on the WTO website soon. The EU is essentially complaining against the import licensing requirements which it alleges violates the WTO Agreement. News reports in Buenos Aires Herald, Chicago Tribune carried the broad contours of the dispute.This has not come as a surprise. I had blogged about this issue here and here. 

The Agreement on Import Licensing Procedures would  need to be interpreted for clarity on the matter. There have been 34 cases at the WTO on this subject. The gist of the complaint against Argentina which was earlier raised by many countries in the Import Licensing Committee meeting in April 2012 was as follows:

"Australia, Turkey, the EU, Norway, Thailand, the US, New Zealand, Costa Rica, Colombia, Peru, Chinese Taipei, Japan, Rep. Korea, Switzerland and Canada said their producers and traders reported that their exports to Argentina have declined or been delayed by Argentina’s licensing processes and requirements, which some described as “protectionist”.

Among the complaints were:

• Almost 600 products are now covered either explicitly or in practice, each requiring individual approval in order to be imported

• Non-automatic licences are issued as part of a “trade-balancing” policy, on condition that the importer also exports or invests in local production

• Processing an application can take considerably longer than the 30-60 days maximums for non-automatic licensing set in the agreement’s Art.3.5(f)

• The licensing is more burdensome than necessary and raises problems under other agreements such as those on technical barriers to trade, sanitary and phytosanitary measures (food safety and animal and plant health), and customs valuation, as well as the General Agreement on Tariffs and Trade (the umbrella agreement for trade in goods)

• Argentina as a member of the G-20 group of leading economies is not living up to the group’s declarations against increasing protectionism."

It would be interesting to see whether the EU has raised some additional points in the request for consultations. Interestingly, one of Argentina's main English newspaper Buenos Aires Herald carried a report of the meeting of Argentina's Foreign Minister with WTO Director General Pascal Lamy to complain about "protectionist" measures by developed countries in the guise of "protecting the planet". Was he referring to the EU ETS scheme of the EU which was extended to the aviation sector recently? Argentina was one of the 26 signatories in Moscow to the joint declaration against the EU ETS scheme coverage of the aviation sector. I have blogged about the EU ETS controversy here, here, here and here. 

As per the Observatory of Economic Complexity, around 15 % of Argentina's exports and imports  in 2010 were to and from the EU respectively.There are substantial trade interests between the two parties. Will this dispute go the whole way to the Panel and AB or will a "political compromise" be worked out? Did the recent events in Argentina of the nationalisation of YPF which affected Spain aggravate this complaint? Are we in for a prolonged legal battle or a negotiated, political settlement. After all, international trade is not all about legal rules and judicial interpretation. The political economy of trade is equally influential.

WTO, globalisation and democracy - Heady mix?

Read an interesting blog piece here on the relationship between WTO and democratisation of nation states. Is the WTO a catalyst for democratisation? The piece tended to argue that more economic integration and membership to the multilateral trading organisation enhanced the chances of propelling the forces of democracy (in whatever form). Thus, countries that were acceding as members of the WTO were more likely to get more democratic, reform oriented rather than being closed, non-democratic states. is it safe to assume that liberal democracy and globalisation are natural allies? Does the adoption of multilateral rules encourage rule based reforms within the country that includes a more transparent, non-discriminatory process as compared to closed economies? Does economic interdependence foster democratic change? Do examples of existing members of the WTO indicate this kind of a causal relationship between democratic values and membership? Can dictatorships/autocratic states be at the forefront of globalisation?

In a related paper titled "Globalization and Political Trust" , Justina A V Fischer, with the help of complex statistical models argues that globalisation lowers the "political trust" of citizens in their respective domestic governments due to the decreasing control over domestic policy.

"This article provides an empirical test  of whether  or not  there is erosion of political trust caused by economic globalization. In a pseudo micro-panel consisting of 260’000 individuals living in 80 countries, interviewed between 1981 and 2007, I detect that globalization lowers political trust in the population, as predicted. Effects are more pronounced for the politically uninformed and, thus, for those who are  possibly  not aware of the policy constraints globalization imposes on domestic politicians, compared to someone who keeps track of new political and economic developments. This erosion of political trust through globalization is observable in both developing and developed countries likewise. In developed countries, persons with  low (high) educational levels experience globalization as more (less) trust lowering  compared to the medium-educated  – an alternative explanation is based on their worse (improved) wage  prospects  as their country becomes more integrated into the world economy.

This analysis suggests that understanding the relentlessness of the forces of globalization and how these disempower domestic governments is, in the presence of globalization, important for NOT developing  trust  too low  in the domestic political institutions. Indeed,  it is  the politically  ignorant  who  appear to  particularly  view  government’s policies (compelled by globalization) as underperformance  and non-responsiveness to  her wishes and preferences. Recent examples include the riots and protests on the  streets in Athens against the debtcutting policies of the Greek government (in response to the Euro crisis), or the protests in Germany in 2008 against cutting down the initially generous welfare programs  by a leftist government (as competitiveness-increasing measure). My analysis suggests that, as the forces of economic globalization get stronger, not only the average man, but even more  the politically and economically uninformed tend to view the government as being in breach of its psychological contract with the citizenry."

The author advocates that countries should have a robust communication mechanism to  inform the citizens on how globalisation impacts on domestic policy choice in order to reduce the trust deficit.

Dani Rodrik in the Globalisation paradox has argued that hyper globalisation, democracy and national autonomy cannot co-exist. Having two of them would preclude the third. Does that mean, then that an autocratic state (since democracy would not be a possible triad) can engage in globalisation with a fair deal of national autonomy? The debates about loss of sovereignty and domestic regulatory space are central to the WTO discourse. Does integration into the globalised world enhance democracy or challenge it? Are democracies in a better position to adjust to difficult issues posed by the integration of economies into the globalised world or is it easier for autocracies to deal with serious challenges to integration from domestic opposition? Is the WTo and multilateral rules themselves a manifestation of sovereign will under International law between consenting countries? Or is this "consent" shrouded in the inevitability of market and interdependence? Can a country walk out of the WTO to maintain its domestic autonomy, democratic rights and economic interdependence? is it economically and politically feasible? 

More to Blogging!

This post is not about international economic law and policy. Neither is it about the WTO.

I found two pieces on blogging that I found relevant and highly reassuring! Modeled Behaviour  carried a blog piece titled "Academic Credit for Blogging"  which seemed to suggest the positive impact of blogging to boost one's academic pursuits.

"Thus there is a complete loop between the larger world and the academic world, ensuring that the things academics work on are not only based on things people care about but circle back to influence the general state of knowledge.

Not only that but the format lends itself beautifully to intellectual history. At relatively low cost the entire academic blogosphere could be recorded and stored as a fully functional web with timestamps, links and everything else.

This in theory allows us trace the evolution of an idea almost precisely and possibly to understand better how and why certain ideas win out over others."

The Chronicle  had this piece on the "Virtues of Blogging as Scholarly Activity" . Recognising the complexity of rating blogs for scholarly purposes it says:

"In terms of intellectual fulfillment, creativity, networking, impact, productivity, and overall benefit to my scholarly life, blogging wins hands down. I have written books, produced online courses, led research efforts, and directed a number of university projects. While these have all been fulfilling, blogging tops the list because of its room for experimentation and potential to connect to timely intelligent debate. That keeps blogging at the top of the heap."

As a novice blogger, I absolutely agree. Blogging has helped to express my views, however basic and amateurish, to the open world! It has increased my confidence in theorizing and articulating views which were, hitherto, the preserve of my mind!

Blogging is truly a leveller as well as a motivator. Sometimes you wonder as to how you could have churned out such a well thought blog piece! But the icing on the cake is when luminaries in the field acknowledge and read your blog – no substitute for this thrill! Glad to know that it is slowly being recognized in academic circles. More to blogging!

Where do your consumer goods come from?

Found this interesting visual in Chris Blattman's blog titled - "Where your consumer goods come from". Would be interesting to further dissect some of these goods in terms of where they are made - that would be a mosaic of the world. 

WTO, public morals, domestic space and protectionism

The debate on domestic policy space and exercise of national sovereignty in the context of WTO Agreements is often a contentious one. While proponents of the WTO argue that multilateral trade rules are necessary to create a level playing field to ensure smooth, non-discriminatory flow of goods and services across national borders, its opponents tend to accuse the system of severely curtailing State rights and regulatory independence. There is also an argument that the WTO Agreements allow for sufficient domestic policy space "within" the Agreements itself and that goes often unnoticed. Where does the truth lie?

Further, there is an increasing clamour to include certain non-trade issues within the ambit of WTO rules such as global labour standards, human rights, environmental standards to name a few. Can States take unilateral restrictive measures to enforce these standards on the grounds of the necessity to protect "public morals'? While the provision provides for domestic policy space, does it also have the scope of being "abused" to enforce standards that impact trade?

The debate around Article XX GATT (General Exceptions) is often raised in this context. Providing justifications for a State to act in its "domestic interest" Article XX, inter alia, provides:

"Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

(a)      necessary to protect public morals;

..."

This is commonly know as the Public Morals clause. A country can suo moto take trade restrictive measures which are not arbitrary, unjustifiably discriminatory between countries where the same conditions prevail and which are not a disguised restriction on international trade in order to protect "public morals". Isn't this an example of domestic regulatory space, albeit specific, within the WTO legal framework?

Mark Wu in the Yale Journal of International Law has analysed in great detail the scope and ambit of this clause in Free Trade and the Protection of Public Morals: An Analysis of the Newly Emerging Public Morals Clause Doctrine. Highlighting the increasing relevance of this clause he states:

"In recent years, the public morals exception has increasingly drawn the attention of academics and international organizations. Since the late 1980s, calls for the global trade regime to take a more proactive stance in enforcing certain transnational norms have grown louder. GATT Article XX lent support for countries to restrict trade in favor of certain norms such as environmental protection, cultural protection, and prison labor norms. However, for other norms, such as human rights, gender equality, or labor standards outside of prisons, no explicit exception exists in the text. Therefore, several academics began calling for a broader reading of “public morals” that would permit trade restrictions fostering such norms."

Mark Wu traces the history of the doctrine, its legislative history and judicial interpretation by the Appellate Body of the WTO in great analytical detail. He advocates a "middle path" approach wherein "public morals" exception can be interpreted to include universal standards subject to more stringent conditions and evidentiary proof. In conclusion he states:

"Several possibilities exist as to how the public morals doctrine can evolve as these questions are answered. To many, by far the most attractive possibilities to activists are expansive approaches that emphasize the unilateral right of countries to delineate their own morals and/or the importance of transnational norms. This Note suggests that while these are noble approaches, they entail inherent dangers. Such  doctrinal evolutions, if not implemented carefully, may ultimately lead to unintended consequences that threaten the stability and legitimacy of the WTO regime. Yet at the same time, to wait for textual amendments to the GATT/WTO legal documents that would affirmatively enumerate members’ rights to exercise restrictions based on concerns of human rights or labor standards is to wait largely in vain. Calls for such additions to date have been ignored or met with skepticism.  If we are to move beyond U.S.-Gambling to affirmatively recognize a right to exercise a public morals exception for human rights, labor standards, and other rights, we must do so through judicial interpretation in a careful, limited manner. This Note has suggested a bifurcated approach, in which countries are given greater leeway to enact restrictions that protect their own citizens, but must concurrently meet more stringent requirements if they seek to impose restrictions that affect citizens in other WTO member states. This proposed approach recognizes the right of countries to shape their own norms rather than have them imposed through trade leverage, but at the same time demands that those that make normative commitments actually follow them."  

The public morals exception clause has not been extensively interpreted by the WTO DSM though it has been widely debated and interpreted by international trade law scholars. There is a fine line between upholding certain universal values of human rights, gender equality and labour rights and allowing States to use these values to restrict trade. The motivations to use these values are guided mainly by geopolitical or trade interests rather than protecting the value itself. The difficult arises when countries use it as disguised protectionism which then gets entangled in complex judicial interpretation. Since disputes itself take time to get resolved at the WTO the purpose of restricting trade sometimes get served. While one may argue that Article XX gives domestic policy space to States it is debatable whether the overriding purpose of unhindered trade can be restricted by expanding he scope of the exception to include universal standards. Further, other international institutions in the area of labour rights and human rights are playing a proactive role in pursuing their agendas. Would an expanding interpretation of the GATT be an unnecessary overlap? The developing countries see an expanding interpretation as a threat by the developed world to introduced unimplementable standards. Is there a middle path one can tread here?

Globalisation and Sovereignty - Incompatible or Complementary?

The Library of Law and Liberty website referred to in an Opinio Juris piece had an interesting debate on the interplay of sovereignty, globalisation and international law. It is often argued that globalisation characterised by increasing inter-connectedness and international trade rules has a devastating impact on nation states and domestic, national sovereignty. The WTO and other international institutions are often accused of trampling on national autonomy and domestic regulatory space.

John Yoo in his "Debating Sovereignty: Globalisation, International Law and the United States COnstitution" argues that globalisation and the rise of international economic orders characterised by the WTO and other institutions has a devastating impact on sovereignty and national autonomy. He states:

"These efforts aim at nothing less than the erosion of American national sovereignty. Anne-Marie Slaughter, a former Princeton dean and Obama State Department Official, argues that networks of foreign and international officials and institutions will develop independent, common legal standards that will be imposed on nations.  According to her, “where the defining features of the international system are connection rather than separation, interaction rather than isolation, and institutions rather than free space, sovereignty as autonomy makes no sense.” Or, as Harvard scholars Abram and Antonia Chayes have written a “new sovereignty” has emerged where the international order is governed not by independent nation-states but by a “tightly woven fabric of international agreements, organizations, and institutions that shape their relations with one another and penetrate deeply into their internal economics and politics.”

These responses to globalization pose the most direct challenges to the fundamental principle underlying the system of government in the United States: popular sovereignty. Unlike other nations, which locate ultimate power in a nation, in a monarch, or in a government, the U.S. Constitution locates sovereignty in the People of the United States.  The various institutions of the U.S. government are merely agents of the People, whose powers are delegated exclusively through the U.S. Constitution. The American people hardwired two principles into the U.S. Constitution’s structure: the separation of powers and federalism."

Arguing for the balance of globalisation with the traditional constitutional scheme in the US of separation of powers and federalism,  he concludes:

" America’s decentralized government, both between the national and state governments and between the executive, legislative, and judicial branches, discourages a rush into radical reforms or sweeping alterations of the basic rules of the political system. The American Constitution may allow grievous injustices—such as slavery and segregation—to persist for long periods of time, but it also creates a risk-averse political system that prevents the United States from swinging wildly in one direction or another. Altering federalism and the separation of powers to allow for greater international cooperation may seem desirable now, but the long-term benefits may not exceed the costs, if those costs are likely to weaken the Constitution’s governing principles in domestic affairs. The American system can accommodate the demands of globalization within existing doctrines of the separation of powers and federalism, but with some difficulty. That is worth the price to preserve the constitutional principles that have served the nation so well, for so long."

Roger Alford in response in his piece titled "Bolstering American Sovereignty with Treaties" provides a divergent view stating that international law, globalisation and international treaties are not a threat to national sovereignty. In fact they epitomise the effectuation of national will.

"While there are legitimate concerns about a nascent global administrative state, one should recognize that treaties are rarely a threat to national sovereignty.  Indeed, treaties should be seen as an expression of sovereign will to protect and advance our national interests.

Treaties are optional commitments, freely entered into by political actors in order to achieve mutually-beneficial results.  Like contracts, the first principle of treaties is party autonomy.

Sovereign nations negotiate the terms of a treaty and ultimately decide whether or not to join a treaty.  The United States, for example, was intimately involved in the drafting of the treaty establishing the International Criminal Court, but ultimately decided not to become a member because the final text included unacceptable terms.  The same could be said of dozens of other treaties"

Referring to the WTO and sufficient domestic space to protect national interests and sovereignty, he continues:

"The WTO and many bilateral investment treaties have incorporated self-judging national security exceptions, essentially rendering key questions of national sovereignty non-justiciable political questions beyond the purview of international courts.  The WTO also designed the dispute settlement process in a manner that anticipates the possibility that member states will rationally decide to engage in an efficient breach of their obligations."

Strongly supporting international treaties and their minimal influence on national sovereignty, he concludes:

" In conclusion, we have little to fear from treaties.  Treaties are hardwired to protect national sovereignty.  The process of formation, performance and termination of treaties was designed to advance sovereign interests.  Occasionally there are unanticipated consequences that flow from adherence to treaties, but these risks to sovereignty are manageable.  Widespread adherence to treaties reflects a political calculus that the benefits of membership outweigh the costs."

Finally, John Cerone in his piece titled "Facilitating and not Hindering American Compliance with International Law" sees no contradiction between international law and national constitutional order.

"Today’s international legal system is a strongly positivist, consent-based system.  In general, states are not bound by any rules of international law that they have not themselves created or otherwise consented to.  While states have chosen to greatly expand the scope and substance of international law, most of its rules remain in the form of broadly formulated obligations that leave the manner of their implementation in the broad discretion of states."

It would be interesting to study the impact of international law, especially international trade law in the context of constitutional systems and federal structures. Federalism and democratic decentralisation bring in multiple levels of decision making and autonomy. How are international treaty obligations to be viewed in this context? In the Indian context, the Constitution of India is the supreme law of the land. How are international trade rules and their impact on domestic legislation to be viewed in context of the supremacy of the Indian Constitution? Can the domestic courts interpret international trade law in the context of a challenge to a domestic law? What rules of interpretation would they have to adopt? What if it goes contrary to the decisions of the WTO dispute resolution bodies? The interplay of constitutional law, federalism, national sovereignty and international law is definitely an interesting mix open to myriad interpretative journeys!

Observatory of Economic Complexity - Brilliant data visualisation

The Observatory of Economic Complexity by MIT is a brilliant display of data and its visualisation in the area of international trade. The Economic Complexity Observatory is a multidisciplinary effort between the Macro Connections group at the MIT Media Lab and the Center for International Development at Harvard University. The goal of the observatory is to develop new tools that can help visualize and make sense of large volumes of data that are relevant for macroeconomic development decision making. Explaining the rationale for this effort, it said:

"Ultimately, the complexity of an economy is related to the multiplicity of useful knowledge embedded in it. For a complex society to exist, and to sustain itself, people who know about design, marketing, finance, technology, human resource management, operations and trade law must be able to interact and combine their knowledge to make products. These same products cannot be made in societies that are missing parts of this capability set. Economic complexity, therefore, is expressed in the composition of a country’s productive output and reflects the structures that emerge to hold and combine knowledge."

I chanced upon it a few days ago and have been hooked ever since!

There is abundant literature on the impact of China on entering the WTO both on its internal economy as well as for the globalised economy. I tried to analyse some data relating to China in this Observatory and found the following results:

1. Percentage of exports from the US to China rose from 2.4% in 1995 (prior to China joining the WTO) to 3.3% in 2001 (when China joined the WTO) to 8.4% in 2010 (9 years after joining the WTO). US products have gradually found a place in Chinese markets over the last 10 years after China's accession tot he WTO.

2. Percentage of imports from China to the US rose from 20% in 1995 (prior to China joining the WTO) to 23% in 2001 (when China joined the WTO) and hovered around 20% in 2010 (9 years after joining the WTO).

3. China's exports of "Automated Data Processing machines" perhaps explains the increasing growth of the Chinese economy in the last 10 years. While Chinese exports of these products was only 2.6% of total exports of this product in 1995, it rose to 11% in 2001 and was at 52% in 2010. China has captured more than half the world share of exports in this sector. Could this be a direct result of its accession to the WTO in terms of accessing foreign markets with reduced trade barriers?

The Observatory of Economic Complexity is useful to understand, analyse and critically study the impact of globalisation on a country's development status. It is a very useful to tool for policy makers and trade experts to come to data linked decisions rather than decisions based on extraneous circumstances.

Brazil, Argentina and trade policy - Trade wars ahead?

(Courtesy Wikipidea: The President of Brazil, Dilma Rousseff, and the President of Argentina, Cristina Kirchner, during Rousseff's state visit to Buenos Aires.)

Reports of the EU approaching the WTO against Argentina's import licensing rules are surfacing. I have blogged about Argentina's measures earlier here, here and here. Brazil, Argentina's largest trading partner, also showed signs of confrontation with Argentina. In 2010, as per the Observatory of Economic Complexity,  Argentina exported the most (21% of its exports) to Brazil followed by China. Brazil also topped its imports share being 42% in 2010. It is evident that the South American neighbour is Argentina's most active trade partner. Is the Brazilian measure a sign of a trade war hinged on protectionist tendencies?

The Argentinian response to the EU step was exemplified in Argentina's Secretary for International Economic Relations Cecilia Nahon reaction that Argentina was being made into an example to discourage developing countries from using legitimate economic policies. The question comes back to what is legitimate domestic policy choice in the context of WTO rules? Does it signify "protectionist" measures? Do developing countries have the leeway to exercise aggressive trade policies on the grounds that their national interest demand so? Do developed countries also pursue such policies during a crisis?

A detailed analysis of trade policy conduct of Argentina and Brazil is found in "Colliding paths Trade policy making in Brazil and Argentina during the global financial crisis" by Thomaz Favarro and makes interesting reading.

One will have to wait and watch as to the contours this dispute will take and its implications for South Amercian trade, WTO and multilateral rule making.