Eyes on Trade, Canadian FiT, domestic policy space

WTO Panel reports evoke strong reactions from domestic constituents. While some see it as a rule based system of adjudication that is rarely prevalent in international relations, others see it as a trampling of national, domestic policy space. While countries which are parties to disputes react diplomatically and carefully to rulings either gaming that they have won or that they will consider compliance in due course, rarely do we see an open challenge to the authority of the dispute settlement mechanism of the WTO. This is a good sign for the multilateral trade body and the legitimacy of a law based system that is not dependent on the power of the country involved but on law and facts. However, the issue of restriction of domestic policy space continues to dominate public debate at the domestic level.

Eyes on Trade depicted local discontent in the U.S. here about the impending WTO ruling in the Canadian FiT case (WT/DS412):

"As countries take steps to address the climate crisis, the last thing we need is the WTO interfering with innovative climate programs. Ontario’s solar and wind incentives program seeks to reduce dangerous carbon pollution and create clean energy jobs, and it should serve as a model for other countries, not a punching bag," said Ilana Solomon, Sierra Club Trade Representative."

However, it is not the WTO as some "supranational" body that is deciding this. It is a dispute settlement, adjudicatory body set up by the WTO members that is doing so.

I found the US third party brief in the Ontario FiT case referred to in the blog piece above particularly interesting as it raised several questions as to the interpretation of Article III:8(a) GATT.

Article III:8(a) GATT states: 

"The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale."

Canada seeks to justify the domestic content requirement under this provision since the government was procuring electricity from the electricity utilities.

Would be interesting to note if this provision applied to Ontario's local content laws. Also, would this provision apply as a defense to a prohibited subsidy under the ASCM also?

EU, BRICS and impact of Globalization

I came across two contrasting pieces on the impact on globalization on national economies.

"Globalization and the Crumbling BRICS: From Promises to Threats" brought out the dangers of over-reliance on globalization, and highlighted the importance of the growth of local economies in the context of BRICS. It also emphasized the interconnectedness of large economies like the EU and the U.S. with big emerging economies in Asia.

"Globalization now means that as long as Europe is in semi-collapse due to its inability to resolve its banking and sovereign-debt problems, and the US economy is stagnant and hostage to partisan struggles over state spending and taxation, emerging markets will not be able to pursue their past growth strategy. 

The real risk now is that facing high expectations and slow growth, the BRICS will turn from motors of the economy to threats of unrest and disruption.  China is facing an uncertain transition to new leadership amidst growing waves of strikes, environmental protests, and demands for greater openness and democracy driven by rapidly-expanding social media.  India is facing corruption scandals and a political transition as regional parties are supplanting the national consensus created in the past by the Congress party.  Russia has seen unprecedented protests against President Putin since his return to power in disputed elections, while its prospects for oil and gas exports are threatened by the rapid expansion of fossil fuel production through fracking in the U.S. and rising production in Qatar, Iraq, and Turkmenistan.  Brazil is perhaps best positioned to pursue domestic growth, as its ethanol-fueled economy and still-abundant land offer opportunities for its own population to improve their status.  But South Africa faces severe risks from a still greatly underemployed young population that has yet to benefit economically from the end of apartheid and confronts increasingly corrupt and ineffective national ruling party (the ANC). 

Europe and the U.S. had thus better focus hard on getting their own economic houses in order.  Far from expecting the BRICS economies to lead them to greener pastures, they may need all their resources and attention to deal with looming unrest and disruption in the BRICS as the latter struggle with an end to easy export-led growth and try to find new pathways to economic growth."

"Globalisation brings opportunities, not problems, for EU industries" stresses on the importance of export led growth for the EU. It calls for a more open Europe harnessing the advantages of the globalized world. Referring to a report on competitiveness by the European Union, it says:

"The report suggests that the EU pursues policies that increase openness to trade and better-target the promotion of R&D in process and market innovations. This will help local companies become part of global value chains, allowing them to reap the benefits of products produced abroad. Gaining access to these global value chains is paramount given that more than two-thirds of EU imports consist of intermediary products – that is, products traded among producers and suppliers. 

Off-shoring, which is when companies relocate a business process from one country to another, will also require that regulations evolve to adapt to the 21st century. The report therefore promotes policies that will increase the EU’s share of exports of finished goods from trading partners, particularly emerging industrial powers like China, Brazil and India. 

Closer to home, the report suggests ‘neighbourhood policies’ targeted at fostering trade in Europe’s backyards. Cross-border investment and trade with neighbouring countries are, in the words of the report, ‘low-hanging fruits’ that have not yet been utilised to their full potential. The report says that Russia, Ukraine, Switzerland, Norway and Egypt are some of the EU’s top non-EU trading partners.

There is perhaps no single way to achieve economic growth in a globalized world. The importance is perhaps to keep one's options open  and move forward in national interest. 

Buy local?

"Buy local" seems to the the flavour now. It made news in France over demands of separate shelves in super markets selling French made goods while the U.S.Olympic national dress issue grabbed headlines for a few days. However both these were not "State measures" and hence were outside the purview of WTO provisions. An interesting discussion on this issue in the comments section of this IELP blogpost initiated by Marc Benitah made very interesting reading.

(Courtesy:vculevis.wordpress.com)

Ever wondered where your pair of jeans was manufactured? This blogpost from the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) espouses the cause of "buy American" to boost the American economy and jobs. 

"Buying American isn’t just an antiquated idea. Our future as a nation depends on reviving our economy to create good jobs that allow those who put in a fair day’s work to receive a fair day’s pay: to raise families and send the next generation to college. By supporting American manufacturers, we can all do our part to be America’s real job creators. For more ideas on reviving the American economy, go to www.aflcio.org/Issues/Jobs-and-Economy/Economy."

They make the point that a strong industrial base and buying local was always part of the U.S. growth story and one should encourage buying local in housing, food and clothing. Three websites of "buy American" emphasize the point of the advantages of buying local as compared to imported goods - Still Made in USA.com, howtobuyamerican.com and usonly.us 

Now, this is not an executive of the State and hence would not amount to a "State measure" which can be challenged at the WTO. However, the intent of making a choice between local and imported goods is clearly there. It is an exhortation to people to be "patriotic" and buy local and shun imported goods. Wonder what the free traders would have to say to this? Is there a middle path here? Local for some products, international for others, perhaps?

Leave the WTO!

I found this rather amusing online petition demanding that the U.S. withdraw from the WTO. The US Administration has a provision for online petitions to be submitted to the president which will be reviewed by the Administration for appropriate action or response. TradeReform referred to this petition which is found here:

"WE PETITION THE OBAMA ADMINISTRATION TO:    

Leave the World Trade Organization.

By signing the agreement with the WTO, the U.S. Congress agreed to conceded to:Conforming U.S. laws, regulations and administrative procedures to the will of the WTO (Article XVI, p. 10)

Subjecting all federal, state and local laws and practices that affect trade to international review by the WTO (Article XVI, p. 10)

Allowing any WTO member country to challenge federal, state and local laws and practices as trade impeding (Section 2 of the Dispute Settlement Understanding)

Taking all trade disputes to the WTO judiciary – giving the WTO final jurisdiction over all trade altercations. No appeal exists outside of the WTO (Section 2 of the Dispute Settlement Understanding)

Empowering the WTO to enforce its rulings by imposing fines on the United States until we comply."

What is the opposition about? - 

1. Local, domestic opposition to the multilateral system is expressed in varied ways.

2. The subjecting of domestic, democratic will to an "international organization" draws serious reactions.

3. The power of the dispute settlement mechanism to  override local, state and federal laws without appeal beyond the dispute settlement process.

4.Serious infringement of domestic policy space.

I found the petition amusing since in certain sections of the developing world the WTO seen as an institution that furthers the interests of the developed world, there are opponents in the US who see it as an assault on their national sovereignty! While quitting the WTO would never be a wise option for any country, the demands do highlight some of the concerns (sometimes unjustified) of a hegemonic institution trampling domestic policy space. Kudos to the dispute settlement process for invoking such reactions!

With a goal of achieving 25000 signatures by December 13, the petition had received 84 when this post was written. The WTO without the US as a member? Is that being as optimistic as seeking the conclusion of the Doha round?

Prof.Lenz comments on my paper

I am grateful for Prof.Lenz for so kindly reading my working paper on Renewable Energy programs and WTO law compatibility and offering a critique by email (both on substantive points and on avoidable typos!). It is both an honour and humbling.

He also commented on the paper in his blog Lenz Blog here:

"I am pleased that my blog made it into one of the footnotes. And I am also pleased to note that the book takes the view that feed-in tariffs are subsidies under WTO law. That’s because I am of the opposing view on that point, which makes it possible to discuss the issue. 

Srikar’s theory relies on one point I would call into question. In his opinion, delivering electricity services is a function normally performed by government. 

That’s just not true. Look at all the industrialized countries and show me one where the government provides electricity. 

It is true that some less developed countries may have not privatized this function. But that does not make it one “normally” provided by government. 

And it is true that this will lead to a different treatment of the issue, depending on which way electricity is organized somewhere. But that’s just the normal consequence of that different structure, which each country is basically free to choose. 

In contrast, I agree completely that local content requirements for generating equipment are a clear case of violating the national treatment requirement under Article 3 of GATT. 

And I also agree with the analysis that restricting the feed-in tariff to electricity generated nationally is at least very dubious under exactly the same standard, though just about everybody seems to do it that way. 

I think that is an important point when discussing international trade in electricity. If you discuss a Regional Comprehensive Economic Partnership Agreement for Asia, as will happen next year, it might be of interest to include language that requires everyone to extend their feed-in tariff programs to imported electricity. 

I think doing that would be very helpful when building the Asia Super Grid. In the absence of getting that done, one might consider to call for Japan paying a feed-in tariff specifically for energy generated in the Mongolian Gobi desert. I recall having done that recently. 

Of course, people could object that this would be violating the most-favored nation rule of the WTO, so one would need to ask if it may be justified under the Enabling Clause."

While I agree with Prof.Lenz that many industrialized countries do not have public sector electricity utilities, it is a reality in a large number of countries. I have often felt that multilateral trade rules do not presume the diminished role of the State. States, in varying degree, do play active roles in the economy. The argument that guaranteed tariffs are more "regulatory"in nature and not what governments "normally" do, will lead to a discriminatory situation where states play a more active role in the renewable energy sector. While the intent and impact of the guaranteed tariff in both cases would be the same, the country where the state is more involved will be adversely effected. As I have suggested in my paper:

"Merely because the measure is a “regulatory” measure as opposed to a direct transfer of funds, need not, ipso facto, exempt it from the characteristic of being a financial contribution. The intent of the measure is of primary importance. The provision of a guaranteed price support is to encourage the RE sector as compared to the non-RE sector. The nature of the market in many countries is such that the Government does not play an active role in the electricity market in terms of actually producing, transmitting and distributing electricity. Hence, the participation of private electricity utilities is a normal feature. If not for these private entities, the function of producing electricity and also providing price support directly to producers of RE would have vested with the government and would have normally been followed by governments. Thus, even though the price support mandate has the characteristic of a regulatory measure, it does delegate a function that is normally performed by government. In this sense, FiTs that involve private electricity entities paying guaranteed prices due to a government mandate can also be considered as financial contributions. Not doing so would lead to a discriminatory situation wherein countries in which governments play a more active role in FiTs (in terms of running electricity utilities and guaranteeing payments) would fall under this category of subsidies, while countries only “mandating” or “regulating” the payment, falling outside the radar of this provision. This would discriminate against developing and LDCs where the government tends to play a more active role in providing services. While this is not to comment on the more efficient or desirable way of providing the service (public or private), the interpretation of Article 1 of the ASCM should not lead to this discriminatory situation. Thus, it could be argued that FiTs, which provide a guaranteed tariff, do constitute a financial contribution and hence amount to a subsidy."

I may be totally wrong here. But I think there is a valid legal argument on both sides. It would probably be resolved when an FiT is challenged at the dispute settlement proceeding sometime soon!


 
 

WTO 2.0 - Richard Baldwin on the future of world trade

The WTO recently held a Public Forum titled "Is Multilateralism in Crisis/" where various stakeholders met to discuss the future of multilateralism and future of global trade rules. The details of the Public Forum are found here with excellent audios.

I found this presentation by Richard Baldwin (I have blogged about his works here and here) particularly interesting. He speaks about the future of WTO in terms of WTO 2.0 which has to recognize the realities of global supply chains and regional and bilateral trade agreements. For the WTO to be relevant he calls for it to multilateralise supply chain rules or become an insignificant player by 2020.

Some food for thought?

Local opinion on Canada's feed in tariff case

As the date for the Panel Report on the Feed-in tariff program of Canada's Ontario province nears, local editorial opinion seems to be veering around to an acceptance of the verdict and amendment of local law to be compliant to the WTO ruling.I have blogged about this issue here and here 

The Globe and Mail, one of the main newspapers in Canada in this editorial, called for the repealing of the provisions of the Green Energy Act that were in contravention of WTO law. It opined that Canada should not insist on an appeal (which they are entitled to do) but should accept the Panel finding int he interests of renewable energy.

"Canada should not waste time on an appeal. Instead, the Legislative Assembly of Ontario (now unfortunately prorogued) should repeal the local-content aspects of the Green Energy and Green Economy Act. There is quite enough in the rest of that statute to satisfy the departing Premier, Dalton McGuinty, that he will leave a legacy that accelerates the growth of renewable energy."

Whether interests of renewable energy or interests of local producers would ultimately prevail is a different issue.However, the equating of sourcing of renewable energy products from across the globe as against just locally manufactured ones in the interests of renewable energy and the environment is point to be taken note of.

Two comments to the editorial, both criticizing the editorial views, caught my attention:

"Unbridled free trade turns the world economy into a ship with no watertight doors between the compartments. A disaster anywhere turns into a disaster everywhere."

and 

"Considering that the WTO ruling in question has not yet been publicly released (and in any event will be non-binding on Ontario), the Globe's editorial board is clearly letting its own free-market biases trump any pretense of informed and objective journalism. 

But regular readers will have noticed that already."

Issues of local content, government procurement, applicability of the general exceptions under Article XX GATT and the existence of a prohibited or actionable subsidy need to be analyzed in the WTO dispute settlement process.

Let us just wait for the WTO Panel report, shall we? 

My Working Paper on Renewable Energy programs and WTO law compatibility

Sharing my Working Paper on "Renewable Energy Programmes in the European Union, Japan and the U.S. - Compatibility with WTO Law" that I completed for the Centre for WTO Studies.

It is also on the Social Science Research Network. The link to that is here.

Comments, critiques and updates most welcome by email.

Tobacco industry's view on Plain Packaging

The Australian Tobacco Plain Packaging legislation has been challenged at the WTO. Reports about New Zealand too going the Australian way have been blogged about here. The plain packaging case raises several issues pertaining to international trade rules, domestic policy choice, public health in the context of the right to trade with reduced barriers as well as the impact on employment in the tobacco industry. There are multiple stakeholders and varied interests. In fact, allegations that the disputes initiated by a few countries against the Australian measure was prompted by tobacco industry interests brings tot he spotlight the varied interests that eventually play out in an international trade dispute.

A representative of British Tobacco, New Zealand had this view on how New Zealand's plain packaging legislation violated WTO rules and that it is detrimental to New Zealand's interest to go in for plain packaging considering that other New Zealand exports like wine and liquor could face a similar situation in the outside market. Stressing on the violation of the TRIPS Agreements it states:

"New Zealand is a party to several multilateral and bilateral trade agreements that include protection of intellectual property, including brands. Forcing any product into a plain package denies the owner of the intellectual property, which includes the products' branding, the right to use what legally belongs to them. The New Zealand Government's plain-packaging proposal would prevent tobacco manufacturers from using their branding and, in doing that, breach New Zealand's international trade obligations and compromise our ability to participate in the international trading market. 

The Australian Government's decision to introduce plain packaging has already resulted in WTO challenges from the Ukraine, Honduras and the Dominican Republic, while other countries, including Mexico, Indonesia, Russia and Chile, are opposed to the introduction of plain packaging in Australia. 

There is no doubt that New Zealand will be next off the block if it goes ahead with plain packaging."

Comparing a proposed measure by Thailand requiring graphic health warnings to be on all domestic and imported beer, wine and liquor bottles with the plain packaging legislation, the view seeks New Zealand to revoke its plain packaging move in the trade interests of New Zealand.

One may not necessarily agree with the above view, but it is nevertheless interesting. What if there is plain packaging of different liquors? Can it be equated with tobacco plain packaging? What is in the national interest of New Zealand - it's domestic, liquor interests or public health policy? Are they incompatible at all as the view above suggests?

Ukraine, tariff and domestic policy space

I have blogged about Ukraine's tryst with the world trading system in the context of the Australian Tobacco Plain Packaging legislation challenge here. KyivPost recently reported that the Ukrainian Parliament has decided to raise the import tariffs to the maximum level of bound tariffs under the multilateral trade rules.

"The Ukrainian parliament is to increase the import duty rates for around 100 commodities to the maximum level agreed by Ukraine and the World Trade Organization (WTO) from January 1, 2013."

Ukraine has also been in the news for the use of GATT Article XXVIII tariff renegotiation. Is this latest step of increasing tariff rates to the bound levels a sign of protectionism or exercise of domestic policy space? 

Cloves Cigarettes case - Will the ban be lifted?

A lot has been written about the Cloves Cigarette dispute (DS 406) between the United States and Indonesia which relates to the ban on clove based cigarettes which the WTO found inconsistent with U.S. obligations under the WTO. The Appellate Body ruled against the ban and the U.S. has a "reasonable time" up to July 2013 to comply with the decision. In what manner would the U.S. comply has been a subject matter of intense academic discussion which I have attempted to capture here, here, here and here.

Found this piece titled "Losing Flavor:Indonesia's WTO Complaint against the U.S. Ban on Clove Cigarettes"  in the American University International Law Review, though written prior to the Appellate Body decision, rightly forecasts the decision and offers a four options for the U.S. to follow:

1.It can legislate the ban to apply equally across all flavored-cigarette categories. A blanket ban on all flavored cigarettes would ensure that all flavored cigarettes, regardless of where they were manufactured, would be consistent with the nondiscrimination principles of Article III:4, GATT.

2.It can create other regulatory tools that can potentially realize the policy goal of reducing youth smoking. Such regulations could include any combination of the following policies, as long as the United States implements them consistently across all types of flavored cigarettes: taxation, packaging guidelines, or educational programs.

3. It can treat all flavored cigarettes equally by placing a temporary moratorium on the sale of all flavored cigarettes pending the result of a congressionally mandated scientific study.

4.It  can institute a temporary ban on menthol cigarettes that would “sunset” after the conclusion of the scientific report. After a temporary ban sunsets, Congress can choose to extend or eliminate it entirely.

How would the U.S. comply in this case? Will there be a "political" or "legal" settlement of this dispute? Will negotiations be the way out? Political feasibility, domestic pressure, elections and interpretation of what constitutes "compliance" will determine the course of action. One would have to wait for 2013 for this one to get solved.

Ontario feed-in tariff case countdown begins

WTO watchers are keenly awaiting the end of November decision of the Panel hearing the Ontario Feed-in tariff case against Canada (DS 412). The decision will be the first case at the WTO that lays down the jurisprudence relating to local content and applicability of WTO law (especially the nondiscrimination rule as well as subsidies) in the context of renewable energy programs. I have blogged about it recently here. With many countries implementing renewable energy  programs the decision will be awaited eagerly. The Panel decision is likely to be appealed against. It will also be judicially dissected and critically analyzed by the legal fraternity, especially at the IELP blog. The stakes are high for the renewable energy sector, which is one of the most subsidized sectors in both the developing and developed world.

Anticipating the decision in November reports are predicting the fall out of the case.The Globe and Mail had this piece outlining the possible impact of the Panel decision.

"A crucial ruling from the World Trade Organization, expected as early as this week, could force a dramatic rethink of Ontario’s green energy policies. 

The WTO will decide whether to side with complaints from Japan and the European Union that insist Ontario’s “local content” rules breach international trade law. Those rules force firms that sell premium-priced renewable energy to the province to buy a proportion of their equipment and services in Ontario. The policy, part of the province’s Green Energy Act passed in 2009, was designed to try to create a 21st-century manufacturing sector with an emphasis on renewable technology."

WIll the WTO decision force a rethink across the world about support for local content in renewable energy projects? Will mandating local content become taboo or will countries continue to implement local content programs? Will the issue of whether mandating or incentivizing local content being a prohibited subsidy (subsidy contingent on the use of local over imported goods) under Article 3 of the ASCM also be settled in the decision? Is this going to be a long drawn battle which will go upto the Appellate and compliance stage like the Airbus-Boeing Subsidies case that has engaged the dispute settlement mechanism for more than seven years now? 

Over to the Panel now for a decision.

Informal International Lawmaking

There was a fascinating discussion on Opinio Juris on a book on  "Informal International lawmaking" and its impact on traditional notions of State consent, accountability and international structures.  Initiated by Joost Pauwelyn it raises important questions on the role of the State, private actors, consent and international law making. I found the debate particularly interesting because of the "State-centrality" of WTO and multilateral trade discourse. The thread of the debate is found here. Though I am not discussing the concept of Informal International law making in detail here, the comment of Joost Pauwelyn on the involvement of the State is interesting.

"The real “new world order”, thankfully, includes many actors and interests beyond just bureaucrats and experts.  Governments increasingly lack the knowledge and resources to be effective when operating alone; expert opinions need to be weighed and balanced in a broader public forum. And because of the decreasing cost of participation, the private interests heard are no longer just big industry.  This is where effectiveness and legitimacy can meet.  This is also why e.g. the G-20 and the Internet Engineering Task Force (IETF) – though relying on different legitimacy ingredients – can be studied as part of one broader phenomenon (David’s “policing the borders” point)."

What are the implications of informal international law making on the multilateral trading system? How should dispute settlement mechanisms react to it? Is State centrality in the WTO seriously being challenged by private players and interests? How democratic, representational and accountable are they? Do we need a new model to engage in multilateral trade negotiations and dispute settlement by broadening the scope of State representation? How are democratic politics, accountability and private actor involvement reconciled?

Pascal Lamy on the "fallacy of protectionism"

I have often blogged about the growing signs of protectionism in recent times.While some are manifested in "buy local" measures others are in the form of increased "import licensing" measures. Though countries espouse less protectionism, the facts indicate that countries in times of crisis do tend to look inward to protect domestic industry, growth and interests.

Pascal Lamy in this post titled "The Fallacy of Protectionism" in YaleGlobal Online has highlighted the dangers of a protectionist world in the context of global realities of trade. Referring to the global supply chains and the active role WTO has played in monitoring international trade, protectionism though in existence, is not as pervasive as it could have been.

"The internationalisation of production that had so visibly bound economies together prior to the crisis was underpinned by the predictable trading environment provided by WTO rules. When the crisis broke, the WTO's combination of monitoring and surveillance and a firm framework of rules worked to deter knee-jerk protectionism.  Since January 2009, the WTO has issued regular reports on governments' use of trade restrictive measures. Together with the United Nations and the Organization for Economic Co-operation and Development, the WTO monitors how the Group of 20 leading economies comply with their pledges to refrain from trade and investment protectionism, documenting new policies to restrict or facilitate trade."

Will the reality of international supply chains, integrated markets and internationalization of production be the key to a less protectionist world? How much of global production is integrated? Pankaj Ghemawat tends to believe that we are less integrated than we think we actually are. Why are there clamours for "buy local" even from developed countries which are part of this integrated supply chain? Is there a difference between global corporations being part of integrated supply chains and countries representing vast majorities who are cut off from the realities of trade? Is there a disconnect between global supply chains and the vast majority of people who vote? Is democratic politics and the pressures of local, domestic interest different from value chain trade and internationalization of production? We need to critically look at this aspect if one has to find answers to some of the discomfiture with international trade and openness in many parts of the world. I am not suggesting that more protectionism is the answer. However, we need to understand what the reality actually is. It surely may be somewhere in between, as usual.

Of seals, cigarettes and domestic policy space

Simon Lester in this post in the Cato blog discusses two disputes - the Canadian Seal dispute and the Australian Tobacco Plain packaging dispute in the context of the impact of multilateral trade rules on domestic policy making.  In both these cases, domestic policy measures have been challenged at the international fora. They are also measures that are equally applicable to domestic products as well as imported products. Thus, seemingly non-discriminatory policies that are an exposition of domestic policy/will have been challenged at the WTO dispute settlement as being discriminatory and too trade restrictive. Moreover, intellectual property rights (trademarks) also come into play the Tobacco case. Simon has brought out an important issue of what impact this has on domestic policy space without going into the merits of the measures at hand.

"I thought it was worth mentioning these cases here for the following reason.  If international trade rules can be used to challenge any government law or regulation that affects trade, even if the measure is facially non-discriminatory, these international rules are going to be quite broad, and could have an impact on much, if not all, domestic governing.  It may be worth thinking about these issues to make sure we properly balance international governance and domestic policymaking, and these cases provide a good opportunity to do so.  (I wrote more about this in an op-ed for The Jurist on the plain packaging case.)  The cases are at an early stage, and it’s not clear how they will turn out.  But the mere fact that they are being tried in an international court is noteworthy."

These cases are at an early stage of the dispute settlement process and will take their course. There will be Panel decisions and appeals. Amicus curiae briefs will be filed. There may well be a continuation of the dispute on what constitutes compliance. Ultimately it may lead to non-compliance resulting in retaliation. Whatever may be the result, it will bring to the fore the limits of domestic policy regulation space. I have often argued on this blog that domestic policy space is seriously questioned in the context of multilateral trade rules. This is not to imply that they need for multilateral rules is invasive of national sovereignty. The only issue is where the line is to be drawn and who draws the line. Where is the middle path? what kinds of domestic policy are blatantly in violation of international trade rules? Is there a danger of being "judicially active" and be overtly intrusive in domestic policy space? I don't have the answers - but it is a fascinating area of the interplay of international economic regulation, democratic, domestic will and interpretation of international law.

Plain packaging of tobacco - Employment, developing country and a dispute

Apart from Honduras and Ukraine which have challenged the legislation on plain packaging of tobacco products of Australia, the Dominican Republic is also a complainant in the WTO dispute (DS441). The request for consultation is here. I have blogged about the issue here, here and here.The WTO website shows that this is Dominican republic's first case as a complainant as a WTO member. Challenging a developed country like Australia in the WTO is an indication of the level playing, rule based system that the dispute settlement system of the WTO offers to both the developed and developing worlds. 

Reuters recently reported that the Dominican Republic had now requested for the establishment of a WTO Panel, presumably because the consultations did not lead to any results.

"HE Luis Manuel Piantini, Ambassador of the Dominican Republic to the WTO, explains: "Tobacco has been an intrinsic part of the Dominican culture and heritage for centuries, and the tobacco sector is vital for our development.  Our producers have made enormous investments - including in intellectual property - to turn the Dominican Republic from a simple tobacco leaf exporter into one of the world's leading producers of premium cigars and the world's largest exporter of cigars.  This a significant achievement for a small developing economy.  Plain packaging will wipe away these achievements - our premium cigars will be dressed as discount products, which people will continue to smoke; prices will ultimately fall, affecting the livelihood of more than a hundred thousand Dominican workers and their families.  The TRIPS and TBT agreements protect our commercial and development achievements."

Interesting points from the Dominican Republic standpoint:

1. The critical role of the tobacco industry in the national economic growth perspective of the country

2. Livelihood of many locals will be affected by the measure

3. Investments and intellectual property rights impacted

4. Export of tobacco products integral part of the developing economies growth story

5. Multilateral trade rules protect the country's interests

6. Domestic pressures would definitely favor local employability against public health concerns of another country

What considerations will the Panel depend upon? Are the interests of developing countries and employment relevant at al in the dispute settlement process? Will they have a role to play in deciding the compatibility of the Australian measure? Australia's health concerns versus the Dominican Republic's economy - what will prevail? Include in this the business interests of Tobacco companies - it does make a heady cocktail that the WTO dispute settlement has to confront.

EU ETS - Not taking off for now

After months of suspense, news of the EU ETS' extension to the aviation sector being postponed is trickling in. I have blogged on this contentious issue here, here, here and here.

NYT reported that the EU had temporarily postponed the measure in an effort to find a global solution. The system, which requires airlines using an airport in Europe to obtain or buy permits corresponding to the amount of gases they emit, had generated intense opposition among foreign governments. The EU had faced increased opposition from China, India and the U.S. which had alleged that unilateral standards were being imposed on an issue that required a multilateral solution. 26 countries had also signed a joint declaration in this regard. Financial reported the move here. Scott Lincicome has captured the latest move succinctly here.

Is this just a temporary reprieve or will this lead to a global solution to the complex question of airline emissions and environment protection? Did trade interests of Airbus (China had threatened to cancel its orders) have any role to play n this reversal of stand by the EU? Is the threat of re-imposition of an airline emission tax sufficient to force countries to forge a multilateral agreement? Will mulitlateralism prevail in an era of growing plurilateral, bilateral and unilateral measures?

Let us wait for April 2014, when the deadline is back in reckoning?

Defence of the indefensible?

In all the debate about creating local jobs, offshoring and outsourcing and employment, I found this piece in the Harvard Business Review Blog sometime ago refreshing. It highlights the complexity and reality of international trade today and calls upon businesses to defend their offshoring policies which should be "responsible".

Titled "Defense of Responsible Offshoring and Outsourcing" it chalks out a detailed defense on why it is beneficial for U.S. business interests to engage in outsourcing in emerging economies.

"What is not in flux is this fundamental reality: American companies will, for a wide variety of reasons relating to global dynamism, continue to participate in this transformative era of global economic change by increasing activities and hiring workers outside the U.S., especially in fast-growing foreign markets. (They may also, on a limited basis, move some jobs back to the U.S. for certain domestic markets due to rising costs abroad and labor productivity at home.) Yet, politicians oppose — or at least do not defend, and certainly do not fairly explain — this most fundamental international dimension of global business reality.  

... 

Offshoring and outsourcing today are like sex in the Victorian era: repressed or criticized in public discussion, much practiced in private behavior."

Though not politically acceptable, it sure made an interesting read. Is it a defense of the indefensible?

 

Local content and the Chinese challenge - sustainable?

I had earlier blogged about the Chinese challenge to the EU renewable energy FiT programs, particularly of Italy and Greece. While one awaits the Canadian FiT case Panel decision, China's request for consultation in this case offers opportunities for the development of WTO jurisprudence in the are of renewable energy, local content and permissible domestic policy space.

China challenged the "Italian Legislative Decree of 3 March 2011, for the incentivizing of the production of electrical energy from photovoltaic solar installations, generally, and Article 25(10) thereof, specifically" and also "the 7 August 2012 version of the "Implementing Rules" pertaining to, inter alia, the administration of the Italian Feed-In Tariff, promulgated by the Italian Gestore Servizi Energetici (Regole Applicative per l’Iscrizione ai Registri e per l’Accesso alle Tariffe Incentivanti), generally, but including in particular Article 4.4 ("Premium for installations that use main components produced within EU/EEA States"), and all pertinent past and future versions thereof." On the Greek measures, China challenged the "Development of the Athens former international airport Hellinikon - Project HELIOS - Promotion of the use of energy from renewable sources as well as the "primary Greek legislation on renewable energy sources, i.e. Act No. 3468/2006 on "Electricity Production from Renewable Energy Sources." 

The main legal basis for China's request for consultation is found in the following arguments:

"China considers that the above-mentioned measures are inconsistent, both as such and as applied, with, among others, the following obligations under the following provisions:

• Article III:1 of the GATT 1994, because the measures are laws, regulations and requirements affecting the internal sale of products in such a way that they afford protection to domestic production;

• Article III:4 of the GATT 1994, because certain measures accord less favorable treatment to imported equipment for renewable energy generation facilities over like products produced in the EU and the European Economic Area ("EEA");

• Article III:5 of the GATT 1994 because the measures constitute quantitative regulations relating to the use of products in amounts or proportions which requires, directly or indirectly, that a specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources; 

• Article I of the GATT 1994, because certain domestic content restrictions impede other WTO Members, including China, from enjoying the full benefit of the measures while other WTO Members do not face similar restrictions. These include but are not limited to certain WTO Members which are Members of the European Economic Area (EEA) but not the EU;

• Articles 3.1(b) and 3.2 of the SCM Agreement, because the measures include subsidies within the meaning of Article 1.1 of the SCM Agreement that are prohibited as they are provided contingent upon the use of domestic over imported goods;

• Articles 2.1 and 2.2 of the TRIMs Agreement, in conjunction with paragraph 1(a) of the Agreement's Illustrative List, because the measures are trade-related investment measures inconsistent with Article III:4 of the GATT 1994 which condition the receipt of the full advantage of the measure on the use of domestic goods."

While the GATT challenge may be more easily sustainable if local goods are favored over imported goods, the finding of a prohibited subsidy under the ASCM may be a little more arduous because of the definitional requirements of what constitutes a subsidy including financial contribution, benefit and specificity. This opens up another debate about the applicability of Article XX GATT which provides for general exceptions to the GATT provisions on the grounds, inter alia, of the environment.

One would have to way and watch the journey of the Canadian FiT case and the arguments in the China challenge. The rulings will have immense implications for renewable energy programs around the world that are dependent on local content requirements.

CUTS and defining the future of trade

CUTS-International is an organization that works on consumer issues as well as international trade. The website has a number of thought-provoking publications on many issue on international trade and multilateralism. The CUTS Centre for International Trade, Economics and Environment has many publications on international trade and multilateralism.

Found an interesting discussion paper on the future of trade called "Defining the Future of Trade" by Pradeep Mehta, Bipul Chaterjee, Rashid Kaukab. Pradeep Mehta is also a member of the "Panel on Defining the Future of Trade" which was constituted by the Director General of the WTO recently. I had blogged about setting up of this mulitstakeholder panel here. 

The discussion paper calls for a new Quad of WTO members (Brazil, U.s., EU, India and China) to stabilize multilateralism. Their assessment of the challenges for international trade:

"Trade policies of countries should be reviewed in respect to their ability to fulfill the role of trade as an effective means for poverty amelioration and reduction in income inequality leading to inclusive growth - in other words, the relationship between trade and consumer welfare (as described in the Preamble Establishing the WTO) should be the guiding principle of reviewing trade policies. 

The impact of non-tariff measures on trade under imperfect competition should be studied so as to negotiate multilaterally-agreed rules, including quantification of non-tariff measures and their gradual reduction on the basis of countries ability to reciprocate, to reduce their scope to distort trade.

Trade in tasks cannot be performed well unless there is equal emphasis on all three factors of production - capital, labour and knowledge - as their use is increasingly getting integrated, in some sense they are endogenous as well. While trade in capital and that in knowledge is drawing political attention among the policy-makers, that is not so in case of trade in labour. More emphasis on addressing labour market rigidities through trade in labour will not only strengthen the role of trade as a tool for inclusive growth but will also help poor countries to get integrated with global efforts on trade in tasks.Based on the principles of reciprocity and non- discrimination, there should be multilaterally- agreed rules to address trade-related market- contestability issues arising as a result of competition-related trade distortions and trade- related competition distortions.The WTO Secretariat should do joint studies with United Nations Framework Convention on Climate Change, Food and Agriculture Organisation and other inter-governmental organisations to understand trade and trade-related issues in governing global public goods such as climate change, food security and how the poor countries can deal with them."

Will multilateralism rise up to these challenges?