Cyberespionage and the WTO now!

Now a study that looks at cyberespionage as an economic issue and warranting action under the WTO! 

James A.Lewis contends in his study for the Centre for Strategic and International Studies titled "Conflict and Negotiation in Cyberspace"  that the issue is of such importance that it justifies remedy under Article XXI (Security exception) of GATT.

"WTO rules include security exceptions that clarify that the agreed should not be construed as preventing “a Member from taking any action which it considers necessary for the protection of its essential security interests.” The exception provides the vehicle for the United States and its allies to move outside the constraints of the WTO to address cyber espionage. It would be a significant reinterpretation of this exception to use it to justify a vigorous response (or to threaten a vigorous response) to cyber espionage. Many in the trade community would oppose this kind of dramatic action, but a public discussion of it by U.S. officials and initial steps may be necessary to change the behavior of other states."

I am not a security expert, but using the WTO Agreement to move out of the WTO framework caught my attention. Interesting...
 

Of flags and domestic content

While national Olympic uniforms for the US team made in China created a lot of controversy and debate in the US during the London Olympics about which I had blogged here and here, will the news of flags at the US President's inauguration being made in Belgium rather than domestically made create a flutter again?

(A US flag being made in Belgium ..Courtesy yahoo news http://news.yahoo.com/obamas-inauguration-stars-stripes-made-belgium-181946720.html)

The flag bearers of a globalized, interconnected, "made in the world" theory may like this fact, nevertheless...

EU and Japan also appeal - Ontario case becomes more interesting

I have blogged about the Canadian FiT case at the WTO case here, here and here. News of Canada appealing the matter was reported here. It was not surprising since Canada had lost the case and was contesting the finding of the panel report that it had violated the provisions of the TRIMS and GATT.

Reports of the EU and Japan cross-appealing caught my attention. This would presumably be mainly on the interpretation of the provisions of the ASCM, especially the definition of a subsidy and benefit.

It is clear that the Appellate Body would decide the legal contours of this dispute, especially the compatibility of local content requirements with WTO law in the context of governments guaranteeing a minimum feed in tariff. With a number of countries across the world, both developing and developed, having massive renewable energy support programs (many of them with local content requirements), the AB ruling all be keenly awaited. One hopes that going by timeframe of the Antigua and Airbus-Boeing cases at the WTO dispute settlement, the wait for a closure is not too long!

Is currency undervaluation the next big protectionist game?

Are we in for some currency wars? Will currency manipulation or undervaluation undermine the delicate balance of international trade? While the subject has not yet made it to the centre stage of world trade negotiations or dispute settlement, the dangers of it becoming increasingly debilitating are increasingly being heard. Is currency undervaluation the next big protectionist game? The IELP blog a couple of years ago did not think it to be a serious trade issue.

Peterson Institute has come out with many papers on this subject. It recently had two interviews by Joseph Gagnon and William Cline that brought to the fore the issue of currency undervaluation but opined that the dangers are not that serious:

1. Is the World on the Binge of Devaluation? Part I

2. Is the World on the Binge of Devaluation? Part II

There is obviously much more to come on this complex topic in trade circles. The complexity of the area is in terms of what constitutes currency undervaluation, the impact it has on trade, the multiple purposes currency undervaluation may have as well as exercise of domestic regulatory space. Added to it is the jurisdictional issue with the IMF. A lot of people think this dispute is not going to knock on WTO's doorstep...

WTO dispute settlement and China-US trading relations

The dispute settlement mechanism of the WTO has been hailed as the crown jewel of the multilateral system providing an avenue for trading partners to resolve intricate and complex trade disputes within a rule based system. It is often compared to the more 'political' power based negotiation process wherein relative economic strengths and other factors influence decision making.

A good insight into China-US trading relations in the context of their disputes at the WTO is found in this piece by Ka Zeng which essentially argues how the dispute settlement mechanism of the WTO has averted any major trade war between the two trading superpowers.It has also been used by both the countries effectively to pursue their national interests.

"All this suggests that the WTO DSM has become the primary means for handling politically salient issues for both countries.  If this is the case, the growing utilization of the DSM in the past decade may have helped to channel the tensions surrounding the bilateral trade relationship and prevented intense interest group pressure from impairing overall U.S.-China trade relations. In the absence of the DSM, it is possible that major bilateral trade disputes resulting from China’s ever-growing trade surplus with the U.S. and allegations of the undervaluation of the Chinese currency could have generated far more acrimony and tensions in bilateral economic relations."

Her full article on this interesting aspect of China-U.S trading relations is found here. 

State, private sector business, international trade and national interest

A lot has been written about the future of the Doha round of negotiations as well as the further of WTO itself. 

I found this piece by Aldo Matteucci straightforward and simple. It offers a number of solutions to the present political impasse and how the complex international trading system must be navigated. I have blogged about what constitutes "national interest" in the context of international trade, especially in the context of private businesses here and here. This question becomes all the more intriguing considering the fact that governments are the sole participants at the WTO. While internal consultation processes take into account varied domestic interests, including business or private sector interests, there is a feeling that the multilateral institution should do more to take into account "non-State" interests. 

On private sector involvement the piece comments:

"Under the main heading “WTO and you” the organization’s website recognizes journalists, students, Parliamentarians, and NGOs. It is slightly puzzling that those who are directly affected by the international trading system – firms that in one way or another trade over the border – have no dedicated portal in the organization or specified and institutional role to play. Of course contacts take place, but what is needed is a definition of the private sector’s role in managing the trading system. 

The current situation reflects the traditional approach where the state was the sole representative of the national interest. In a complex trading system, where many firms have become “transnational”, the role of the country of origin loses focus. At least in the problem-defining and the solution-shaping phase (i.e. in setting the agenda, the objectives, and a list of desirable outcomes) the voice of the private sector should be recognized directly and in a structured manner. Firms should have a choice of channel in which to voice their concerns. This would be the best way to secure their support for the process. Involving the private sector in a multilateral structure might collaterally lead to more nuanced national positions and may become a stabilizing factor (not to speak of chances of getting agreements through Parliament)."

What the choice of channel should be and to what extent non-state actors should have a role in representing "national interest" is a debatable issue. However, a state-business collaborative effort would seem the only way that a meaningful intervention can be made in the complex arena of international trade.

Currency undervaluation - Simmering tensions

I have blogged about the issue of currency undervaluation and international trade here and here. 

Robert Zoellick in a recent piece titled "A New US International Economic Strategy" outlining what he thinks should be the international economic strategy of the US brought to the fore the increasing possibility of currency misalignment as one of the most contentious issues in the coming years for international trade.

"...the extraordinary monetary policies of late, led by the Federal Reserve's continued near-zero interest-rate policy, are taking us into uncharted territory. Central banks have tried most every tool to stimulate growth; if Japan is any warning, the next tactic is competitive devaluation, which risks a new protectionism. "Currency manipulation" could become a danger that reaches far beyond the debate about Chinese policies. The world economy will need at some point to withdraw the drug of cheap money and negative real interest rates. The United States should anticipate these dangers. 

The International Monetary Fund (IMF) also could help set standards about exchange-rate policies and serve as a referee that blows a whistle, even if it cannot penalize. The IMF and the World Trade Organization (WTO) should anticipate this risk and give effect to the existing WTO agreement that economies must "avoid manipulating exchange rates... to gain an unfair competitive advantage."

How can the existing WTO agreement be given "effect" to? Probably by a dispute settlement proceeding? Are we increasingly looking at such a possibility?

Historical contexts and trade regimes

A good piece on the role of ideas, context and historical settings that shape international trade rules - "Thinking About Free Trade: The Role of Ideas in Shaping Trade Regimes" by Emma Bell-Schollan. 

Tracing the liberal free market ideology to be the basis of both 19th century and GATT rules, the piece notes the subtle shift in reliance and acceptability  of  "government intervention" or "domestic state support" in early GATT rules signifying the historical context of the Depression and failure of markets.

"The trade regimes of the late 19^th century and the post-War period shared a common root in the liberal economic ideas of Smith and Ricardo. Nonetheless, they fostered opposing policies regarding the role of government intervention in domestic markets. This difference was caused by the normative shift that occurred between the two periods, a result of the failure of liberal economic policies, which led to the Great Depression. In effect, these two free trade regimes were at the same time bound together, and pulled apart on the currents of ideas."

The role of the State and the market in the context of international trade has been an issue of long standing debate. Perhaps it would make sense to analyze positions from their historical context and time frames. A good read for anyone contesting the purely textual nature of international treaties.

EU Seal product case and a day to day account!

The EU Seal Product case is being fought at the WTO panel and the proceedings are on. I have blogged about the issue earlier here, here and here.

For a running commentary on the proceedings it is interesting to see Rob Howse's account of the proceedings detailed out on the IELP blog here, here, here and here! It gives a sense of the legal analysis being undertaken, the nuances as well as the excitement of courtroom drama that is associated with legal disputes.It is the window to the otherwise closed world of dispute settlement.

Would be interesting to see blogs dedicated to unravelling the debates of dispute settlement proceedings  on a day to day account! Too much to ask?

The complexity of currency manipulation

A few days ago I had blogged about the possibility of a trade dispute around currency undervaluation to probably be the biggest one in 2013. Though no clear signs of a dispute brewing are evident, murmurs are gradually getting louder on the extent currency manipulation can impact trade. Recent news reports found here and here highlight the growing trend of currency devaluation as a national policy tool. 

This latest Project Syndicate piece titled "Beggar Thy Currency or Thyself" highlights the growing complexity and concern of intentional currency devaluation to serve national agendas.

"In today’s world, no significant group of countries is looking for currency strength. Some resist appreciation actively and openly; others do so in a less visible manner. Only the eurozone seems to accept being on the receiving end of other countries’ actions. 

None of this is unprecedented, and there is a lot of scholarship demonstrating why such beggar-thy-neighbor approaches result in bad collective outcomes. Indeed, multilateral agreements are in place to minimize this risk, including at the International Monetary Fund and the World Trade Organization. 

Yet, when push comes to shove, country after country is being dragged into abetting a potentially harmful outcome for the global economy as a whole. Worse, this process has not yet registered seriously on the multilateral policy agenda."

The Economist had this to say on the issue of currency undervaluation in a piece many months ago:

" Having spent much of the past year fretting about their currencies' rise, central banks across the emerging world have now intervened in the markets to slow their currencies' fall. In a currency war, where each side fights to gain competitiveness against the others, these tumbling exchange rates presumably count as victories. But they are Pyrrhic. A cheaper real, zloty and rupee will help emerging economies win a bigger share of global spending, but that is small consolation if global spending declines.

The complexity, increasing usage and inevitability of currency manipulations make it central to the debate in the coming years. Questions about what actually constitutes currency undervaluation in the context of trade agreements, what impact it has on national policy making independence as well as the impact it has on trade continue to have many unanswered ends. To what extent countries understand the complexity and engage with the problem is an entirely different question.Will the WTO be the forum for this dialogue?

Importance of cities in international trade

I have blogged earlier about the relationship of cities and trade here and here.

Project Syndicate recently had this piece on "The Return of the Trading City" which highlighted the importance of the role of cities in international trade. It also highlighted a trade policy that recognizes the centrality of the city in a nation's trade future. We tend to be "nation" centric when talking about trade but this piece encourages us to look beyond the nation to cities which is actually the centre and engine of trade growth. Projecting the complementary role nations and cities play in ensuring the growth of trade, the piece stresses:

"This does not mean that countries do not play a crucial role in enabling global trade. Cities lack the geographic scale, political and fiscal capacity, and legal standing to influence broader policy debates or to capitalize on all available trade opportunities. Portland forged a new relationship with a “clean tech” firm in São Paulo, but it could not negotiate a free-trade agreement with the city or with Brazil. 

Just as trade should be at the forefront of cities’ economic policies, cities should be at the forefront of national trade strategies. Countries should support cities that are investing, organizing, and forging linkages with other cities to improve their competitive position."

 As the Global MetroMonitor report of the Brooking Institution highlighted:

"Metro areas remain the hubs of global output and growth. the 300 metro economies analyzed in this report account for 19 percent of world population, but 48 percent of world gdp, and 51 percent of world gdp growth from 2011 to 2012. yet their performance in 2012 showed the signs of a slowing worldwide recovery."

What lessons do national trade policies have to learn from the growing importance of cities in international trade? To what extent should cities be central in a national trade policy? With emerging economies being overwhelmingly rural, what implications does this have on national strategy? Would focussing on cities as the engines and centres of trade be a necessary ingredient of a new trade strategy? This would require increased co-ordination between local, municipal governments and national policy makers. A national vision with a local flavor to address global challenges!

Pankaj Ghemawat on the extent of globalization

Since we are into rankings and globalization,here is another globalization ranking index - the DHL Global Connectedness Index 2012. I had earlier blogged about the E&Y globalization index.

Pankaj Ghemawat, who believes that the world is not as globalized as claimed to be (not really as flat as some would claim) commented on the globalization rankings here. His analysis of the world not being as globalized as claimed is found here:

 "...Among the several dozen audiences to which I have administered this test over the years, that third quote, which suggests that the we live in one, integrated world — what I call World 2.0 — is the one that garners the most support, usually a majority. Spouting such attitudes — the flattening of the world, the death of distance, and the disappearance of differences across countries — seems to be considered a hallmark of global thinking.
But I prefer to think of it as globaloney. 

Why? Because economic data simply don't support the view that we live in a flat, connected world, even if we are technologically connected with everyone, everywhere, all of the time. Data show that most types of economic activity that could be carried out across national borders are actually still concentrated domestically. For example, take foreign investment. Of all the capital being invested around the world, how much would you think is foreign direct investment by companies outside of their home countries? 25%, maybe? More, if you've heard the globaloney about "investment knowing no boundaries"? The fact is, the ratio was less than 9% in 2009 and, while it may be pushed higher by merger waves, has never reached 20%."

Coming back to the globalization index.The index "tracks the depth and breadth of trade, capital, information, and people flows across 140 countries that account for 99% of the world's GDP and 95% of its population. Based on data covering the period from 2005 to 2011, it charts how globalization has evolved since the onset of the financial crisis at the global, regional, and national levels."

The study concludes with a series of recommendations on how to increase the depth of "global connectedness" by studying the case studies of Netherlands (the most globally connected economy), Vietnam and Mexico. I found two of these conclusions interesting:

"6. Focus on value, not on volume. That was how Pascal Lamy, director-general of the WTO, summarized the implications of the ADDING Value scorecard, pointing out how trade professionals still often think mainly about increasing trade volumes rather than the value generated via trade.65 Vietnam and Mexico can both tap into large gains from increasing the share of domestic value-added in their exports at the same time as they continue growing their trade volumes. 

7. Recognize the importance of imports. Don’t mistake an export-only development strategy for a true global connectedness strategy. Recall the emphasis Vietnam’s exporters placed on challenges associated with the cost of imports. Imports of capital goods – machinery, equipment, and infrastructure-related products – boost productivity by facilitating the adoption of new technologies. New evidence suggests that imports might be associated with even more domestic innovation than exports. Importing is also usually the first step in the internationalization of small and medium-sized businesses that later go on to export."

Countries normally follow an export-led growth model shunning imports and seeing them as competition to domestic industry. However, imports that are inputs to various products can be a vital factor to boost a country's global connectedness. 

The report ends with a country-wise analysis of the factors that constitute global connectedness with a rooted map. A great source of information about issues of globalization and how connected we actually are.

Is it time for GATS 2.0?

While the GATT and other WTO Agreements deal with the trade in goods, the General Agreement on Trade in Services (GATS) deals with the trade in services. It is the multilateral agreement dealing with the trade in services with individual member countries underrating varying commitments in different service sectors.

Now there is news that several countries are undertaking an exercise to enter into a new international services agreement to go beyond the GATS to further liberalize the services sector. The failure of the Doha round to achieve further liberalization of the services sector is put forth as one of the reasons for this move. It is another example of the "plurilateral" route that many countries are taking to international agreements with the failure of multilateralism. The USTR website explains the rationale for seeking fresh negotiations in this area with 20 other trading partners quoting USTR Ambassador's letter seeking fresh negotiations. Coverage of new services not covered under GATS, ensuring greater transparency and predictability in regulations covering services of trading partners and addressing new issues that arise int he global market place and the way services trade is conducted are offered as the reasons for entering into a new agreement apart from increasing access to markets for national services sectors. Stewart and Stewart summarizes the move well in this analysis. Peterson Institute for international Economics in this paper has suggested a new framework for an international agreement on services.

Will this be a movement towards GATS 2.0? While the US intends to enter into negotiations with 20 trading partners initially (Australia, Canada, Chile, Chinese Taipei, Colombia, Costa Rica, European Union, Hong Kong, China, Iceland, Israel, Japan, Korea, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, Switzerland, Turkey), the notably absentees in this initial round are Brazil, Russia, India and South Africa. Will we see more countries joining the bandwagon or will it remain a plurilateral agreement without many emerging economies? What implications would this have on developing economies that have strong service sectors? It is clear that the US is leading this endeavour of a new agreement - a classic case where liberalization of the services regulation is linked to increase one sports of their services worldwide. This letter of the USTR Ambassador is clear about the intention of entering into new negotiations - more access to markets and more jobs at home.

While change in the way trade is conducted often does not get reflected in existing agreements making agreements not only obsolete but requiring change, what is the best route to go about it? Is this new international agreement in services another example of the failure of the WTO to address the realities of trade? Is it a triumph of plurilateralism over multilateralism? How should the WTO respond? A good analysis of whether the agreement should be within or outside the WTO and its implications is found here. How should developing countries outside the initial negotiations respond? Would there be a coalition of developing economies against this negotiation or will they eventually join viewing it as beneficial? Countries strong in the services sector would have to analyze their relative strengths and weaknesses and potential for their national service sector with increasing market access.

The Rushford Report - part II

The Rushford Report - Part II brilliantly summarizes the strengths and weakness of the nine candidates for the post of the WTO DG here.

I found this quite interesting in the context of the ability of the DG and the WTO Secretariat to move the multilateral negotiations forward:

" On Monday, I reported why veteran WTO watchers consider this election to be especially important for the venerable multilateral institution’s future, citing the prescient warning from economist Jagdish Bhagwati that the WTO is now in real “danger.” And I reported on the qualifications of three of the nine candidates who come from the Asia-Pacific: Tim Groser of New Zealand, Indonesia’s Mari Pangestu; and Taeho Bark, South Korea’s candidate. Today, the rest of the field. 

 Three come from Latin America, two from Africa, and one from the Middle East. Altogether, it’s a strong field — although it is not clear which of the nine would exercise truly strong leadership. Nor is it clear that the top political leaders in major world capitals really are focused on the importance of selecting such a leader. And as outgoing Director-General Lamy has learned, without that necessary backing, no WTO head, no matter how dedicated and energized, can stop the institutional drift."

Is it inevitable that the major trading powers need to recognize and get involved in the multilateral institution for it to succeed? It has been note that a lack of a candidate (except New Zealand) from the developed world (major trading countries) indicates a lack of interest in the institution's future? Is it reading to much? The next DG would perhaps need to take both the developed and developing worlds leaders together to achieve what multilateralism can really achieve. 

UNCTAD and selection of it's next chief - some issues

While all eyes are on the selection of the next WTO DG (the press conferences at the WTO have been fascinating to me), my attention was brought on the selection of the next Secretary General of the UNCTAD considering the institutional issues that have arisen in UNCTAD in recent times. The Globalization and Development blog raises the issue here. 

In an open letter to the Secretary General of the UN, leading academics and scholars have called upon certain criteria to be followed for selection of the next Secretary General of UNCTAD. 

"We very strongly urge that the next Secretary-General of UNCTAD, in addition to all the necessary experience, knowledge and management abilities, should have in particular the capacity and courage for independent thought. It is this characteristic that has been the distinguishing factor among the eminent persons who have held the post over nearly 50 years of UNCTAD’s existence. 

A demonstrated ability to provide strong and independent leadership to global analysis from a development perspective and to promote fresh thinking on trade and development issues is needed today more than ever. The world clamours for innovative economic thinking that charts a sustainable way out of the current crisis and that contributes to development and poverty reduction. We would regard the capacity to stimulate such thinking and to articulate the resulting policy approaches in the relevant forums as the single most important consideration when sifting among possible candidates in the requisite consultations with member States. The growing weight of developing countries in global matters requires an intellectually outstanding personality as the new leader of UNCTAD."

Interesting lessons for the the WTO DG selection process? Any lessons that one can learn from the points raised in the letter? the focus of most of the candidates for the WTO DG stressed on reworking the Doha round - some would recommend an innovative approach here too. A lot to watch for in the coming months!

Argentina, Spain and the battle over biofuels

I had earlier blogged about a WTO dispute between Argentina and Spain (DS443) over the Ministerial order pertaining to biofuels that was promulgated in Spain.The main thrust of the complaint was:

"The operative part of Ministerial Order (OM) IET/822/2012 provides that computing for mandatory biofuel targets may only be conducted in relation to biodiesel produced entirely in plants located on the territory of Spain or of another EU Member State, and in line with previously allocated volumes, in accordance with the procedure established in the same Ministerial Order. 

The Argentine Republic has since 2007 developed one of the most efficient biodiesel production sectors in the world and has now consolidated its position as the world's leading exporter of the product. The European Union is the main export market, and Spain is the main buyer on that market. In 2011, Argentine exports of biodiesel amounted to US$2.1 billion, with more than US$1.9 billion going to the EU and more than US$1 billion of the latter figure representing purchases by Spain. 

Ministerial Order (OM) IET/822/2012 and the implementation thereof would create discrimination between the product of European origin and that of other origins, implying a de facto prohibition on imports of biodiesel from outside the Community, for purposes of computing compliance with mandatory biofuel targets. This would totally exclude the Argentine product from the market. 

It is Argentina's understanding that the Spanish Ministerial Order and its implementation would in principle constitute an infringement of obligations, including, but not limited to, the obligations of that country and of the EU under Articles III:1, III:4, III:5 and XI:1 of the GATT 1994. Argentina also considers that the Order would be inconsistent with Articles 2.1 and 2.2 of the Agreement on Trade-Related Investment Measures (TRIMS), and with Article XVI:4 of the Marrakesh Agreement. Argentina considers that Ministerial Order (OM) IET/822/2012 would nullify or impair the benefits accruing to it under the covered agreements."

The legal challenge was as follows: 

"The key measure challenged by Argentina is the Spanish Ministerial Order regulating allocation of quantities of biodiesel needed to achieve the mandatory target of renewable energy.  This measure is the national implementation of the European Union regulatory framework for energy from renewable sources.  

Argentina claims that the Spanish measure is inconsistent with:

• Articles III:1, III:4, III:5 and XI:1 of the GATT 1994

• Articles 2.1 and 2.2 of the TRIMs Agreement; and

• Article XVI:4 of the WTO Agreement."

News of Spain withdrawing the curbs on Argentinian biofuels was trickling in. Was it in response of the WTO complaint? Is this an example of the possible deterrent effect of the dispute settlement mechanism of the WTO? Do countries modify their national measures under the threat of a WTO action? Or is this more of a political move? In this case,on 6 December 2012, Argentina requested for the establishment of a panel. Will Argentina withdraw the WTO compliant now? With Spain having responded, many would say it is Argentina's turn to roll back some of its "protectionist" measures?

The Offshoring debate in The Economist

The Economist recently had this lively debate on outsourcing/offshoring which is a politically sensitive topic in several developed countries. Do MNCs have an obligation to outsource/offshore less and address the issues of unemployment within their own countries? While the debate and comments offer valuable insights on the issue, Jagdish Bhagwati held the position (not surprisingly) that globalization does more good than harm.

"There always were criticisms of "cosmopolitan" multinational corporations (MNCs) which "lacked loyalty" to their home country, seeking to migrate where their returns were the greatest. There were also critics who argued that a country had to have "national champions": how could Danone be allowed to become rootless, sold to the highest bidder who owed no loyalty to France and the French? Did Nokia not betray Finland when almost 90% of its shares were held by investors outside Finland? MNCs were also outsourcing worldwide, so it became increasingly difficult to think of a Volvo as a Swedish product (except in its origin) when its parts came from everywhere and were even assembled abroad in Mexico and not in Sweden. 

The world has become more integrated since these criticisms surfaced in the 1990s, with MNCs and their products becoming less and less identifiable as American or French. One would have thought that, by now, reality and the benefits of closer integration would have silenced such criticisms, or at least muted them. But the motion suggests that the critics have found a new and superficially more reasonable voice. Yes, it says, MNCs can become cosmopolitan on several dimensions. But they owe it to their countries of origin to maintain a "strong presence" in them."

What implications does this debate have to the "Made in the world" concept that is gradually entering the trade lexicon - implying that a good is not made entirely in any single country but is sourced from different parts. Should goods be increasingly made in a single country? Should companies reduce or stop offshoring or outsourcing their operations so that goods can be completely manufactured in their own country in order to increase employment? WIll it lead to increased local sourcing of products? Can it lead to a "protectionist" trend? What is the implication of this for the competitiveness of the business? How does one balance the issue of growing domestic unemployment and increasing economic necessity to outsource/offshore for economic gains? Are the profit maximizing interests of MNCs and interests of nation-states of reducing unemployment at cross-purposes?

Legal analysis of the Canadian FiT case

A detailed legal analysis of the Canadian FiT case by Shailja Singh of the Centre of WTO Studies is found here. I have blogged about it in three parts here, here and here.

On the dissenting opinion the analysis noted:

"The present dispute is one of those rare disputes in the working of the WTO disputes settlement mechanism, where a dissenting opinion has been given one member of the Panel. The dissenting opinion differed with the majority panel with respect to whether the challenged measures conferred a benefit within the meaning of Article 1.1(b) of the SCM Agreement."

Are we going to see more dissenting opinions in the Panel/AB reports of the WTO? Is it a sign of evolving jurisprudence or multiple interpretative discourses that can exist within the international trade regime?

Looking forward to more legal analysis of the decision in the ASIL Insights or IELP blogs, until it is appealed against by Canada. I am almost sure that the case will go to the Appellate Body of the WTO.

What did the candidates say?

The race for the DG's position at the WTO is formally underway with the presentation and press conference made by the potential candidates in January 2013. The nominees currently vying for the WTO’s top post are Alan Kyerematen of Ghana; Anabel González of Costa Rica; Mari Elka Pangestu of Indonesia; Tim Groser of New Zealand; Amina Mohamed of Kenya; Ahmad Thougan Hindawi of Jordan; Herminio Blanco of Mexico; Taeho Bark of Korea; and Roberto Carvalho de Azevêdo of Brazil. The WTO had a webcast of the press conferences here. Sofia Alicia Balino makes a succinct analysis of the positions taken by the 9 candidates on various issues here.

Some underlying themes expressed in the press conferences of the candidates were:

1. A belief in the multilateral institution and the faith that it can be relevant to the issues facing international trade

2. The need to address the issues stalling the Doha round of trade negotiations and to confront them with heterodox and innovative solutions

3. Ensure Bali leads to a positive outcome with successful results (mini-deals), which can be extended to the Doha round

4.Recognize the need for the WTO to grapple with 21st century trade issues in order not to lose its relevance

5. Ensure that the other functions of the WTO, including monitoring of trade agreements and dispute settlement are performed more effectively

6.They were candid enough to suggest that they did not have all the answers to the impasse but were optimistic of finding a solution 

The coming months will see more debate and hope for the multilateral institution's strength of being a "member-driven" organization with the candidates having to convince member countries about their candidacy. To what extent the selection would be based on credentials and realities of political economy is another debate!

Hat tip to Pradeep Mehta, CUTS for bringing my attention to Sofia's piece.

Procurement by government, commercial resale and feed in tariff - Some interesting questions

Canada has decided to appeal against the Panel decision in the Ontario feed in tariff case. I had blogged about it here.

The notice of appeal is found here.Going by the contents, The main challenge is on the applicability of Article III:8(a) GATT to the facts of the case. Canada claims that it's measure is exempted under his provision and thus does not violate national treatment principle under GATT.

"Canada seeks review by the Appellate Body of the Panel’s findings and conclusion that the Government of Ontario’s FIT Program, as implemented through the FIT and MicroFIT Contracts, is not covered by the terms of Article III:8(a) of GATT 1994.This conclusion is in error and is based on erroneous findings on issues of law and legal interpretation including the Panel’s finding that the Government of Ontario purchases renewable electricity "with a view to commercial resale". 

Canada also requests the Appellate Body to find that the Panel acted inconsistently with Article 11 of the DSU by failing to make an objective assessment of the facts related to this issue, specifically with respect to the Panel’s finding that the resale of electricity purchased under the FIT Program is "commercial" in nature, and by using this faulty factual finding to support its conclusion about the applicability of Article III:8(a) of GATT 1994 to the FIT Program."

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."

The contours of this provisions would definitely be the subject matter of the AB proceedings. For an interesting debate on this subject see my comments on the IELP blog here. Would be interesting to see the AB interpreting "commercial resale" and other provisions of GATT. This would definitely have widespread implications for renewable energy support programs across the world. Another classic example of domestic policy space being impacted by international economic law and policy.

U.S. challenges India's renewable energy program

It seems to be the week of renewable energy in international trade law circles with the United States requesting consultations with India in relation to domestic content requirements in India's national solar program.

The USTR carried this piece:

"United States Trade Representative Ron Kirk announced today that the United States has requested World Trade Organization (WTO) dispute settlement consultations with the Government of India concerning domestic content requirements in India’s national solar program. India’s program appears to discriminate against U.S. solar equipment by requiring solar energy producers to use Indian-manufactured solar cells and modules and by offering subsidies to those developers for using domestic equipment instead of imports. These forced localization requirements of India’s national solar program restrict India’s market to U.S. imports. Tackling these barriers is a top priority of the Obama Administration. 

... 

On January 11, 2010, India launched its national solar policy, the Jawaharlal Nehru National Solar Mission (JNNSM). Phase I of that national policy is composed of two parts: Batch 1 and Batch 2. Under Batch 1, India required developers of solar photovoltaic (“PV”) projects employing crystalline silicon technology to use solar modules manufactured in India. Subsequently, under Batch 2, India expanded this domestic sourcing requirement to crystalline silicon solar cells as well. In its draft policy for Phase II of the JNNSM, India has stated that it is considering expanding the scope of the domestic content requirements further to include solar thin film technologies, which currently comprise the majority of U.S. solar exports to India. India also offers solar energy developers participating in the JNNSM a guarantee that the government will purchase a certain amount of solar power at a highly subsidized tariff rate, provided that they use domestically manufactured solar equipment instead of imports. 

These elements of India’s national solar policy appear to be inconsistent with India’s obligations under the WTO agreements. These obligations include Article III of the General Agreement on Tariffs and Trade 1994 (GATT 1994), which generally prohibits measures that discriminate in favor of domestically produced goods versus imports; Article 2 of the WTO Agreement on Trade-Related Investment Measures, which prohibits trade-related investment measures that are inconsistent with GATT Article III; Article 3 of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), which prohibits conditioning a subsidy on the use of domestic over imported goods; and Article 5 of the SCM Agreement, which prohibits causing adverse effects on other WTO Members through subsidies that discriminate against imported goods."

The case has been widely reported here, here and here.With Canada appealing the feed in tariff case at the WTO (that came to a finding that domestic content requirements int he Ontario context were violative of Canada's obligations under TRIMS and GATT) and the US requesting for consultations on this issue, will 2013 be the year where renewable energy support programs around the world will be challenged at the dispute settlement mechanism?

Canada finally appeals in Feed in tariff case

As expected Canada has appealed against the Panel decision (DS412 and 426) in the Ontario Feed in tariff case. It has been reported here in the WTO website. The Panel had ruled against the local content requirement that was mandated by Canada's law and regulations in relation to feed in tariff.

I have blogged about this far reaching decision in the renewable energy sector here, here, here and here. Hopefully the Appellate Body (AB) would settle the complex issues of law in relation to the interpretation of a "subsidy" under the ASCM as well as whether local content requirements violate the "national treatment" principle both under the GATT and TRIMS. It would be interesting to see if the AB accepts the "minority" reasoning of the Panel with respect to conferment of a benefit under the ASCM? Countries with massive renewable energy support programs, especially feed in tariffs will be watching very closely.

Over to the AB now...

Is economic nationalism and protectionism the same?

I have often written about the issues of protectionism, globalization and the role of the State in this blog here and here.Often, the role of the state and market are seen as mutually exclusive. Increasing globalization and integration of markets is seen as a natural corollary to the reducing influence and role of the State and government. However, is this analysis true? China is often taken as an example that defies this logic of increasing connectedness to the globalized market while retaining strong state presence. Is there a middle path where the role of the State and market and co-exit which is not antithetical to world trade rules? Is there a legitimate role for the state to play apart from being a facilitator and regulator? Is state intervention always protectionism? Can protectionism also exist in highly liberalized markets with other forms of State support?

Yale GlobalOnline has a refreshing piece by Anthony P. D’Costa on economic nationalism, role of the state and globalization. He essentially avers that the state can play a role of a promoter instead of being "protectionist" in a globalized world.He brands this as 'economic nationalism" wherein the State does not necessarily retreat but plays a more constructive role in promoting the welfare of its citizens.

"The concept of economic nationalism is used for selective engagement with the world economy. Rather than the orthodox notion of economic nationalism, defensive in nature and nation-centered, I offer a more dynamic understanding – economic nationalism in motion. This version, first proposed in theReview of International Political Economy, 2009, suggests that the practice is influenced by pragmatic considerations rather than ideology – akin to Deng Xiaoping’s proverbial cat that catches mice irrespective of its color – especially under fluid circumstances of economic growth, emerging competitive industries and, most importantly, as national capitalists mature. Earlier economic nationalism meant protection; today it’s promotion, though the basic motive for both is ensuring national economic interests. This ability to navigate changing circumstances and priorities pragmatically contributes to the dynamic movement of the practice of economic nationalism. 

Behind economic nationalism in motion is a particular kind of state-business nexus where the two operate in a public-private partnership. The key difference with this form is that the state explicitly promotes national capital at home and abroad for national economic gain, although prestige can also play a role, when a public-relations agenda drives hosting a major sports events or acquiring state- of-the-art technologies for pet projects without thorough cost-benefit analysis. 

Fostering national economic development and competitiveness, promoting national companies and brands, is part of the economic-nationalism-in-motion portfolio. Market-driven globalization is not incompatible with state intervention. States must identify the conditions under which such economic nationalism can be undertaken and the instruments at their disposal to negotiate the forces of economic globalization."

Thus, in this model all state intervention and promotion is not necessarily viewed as protectionism. Active state involvement to safeguard national interest, branding, promotion of national corporations (State Capitalists) are all part of this mission. Is this compatible with WTO rules? Is there anything in the GATT/WTO that prohibits this? Is this the middle path that emerging economies should undertake to negotiate globalization without abandoning it? However, there is a thin line between State involvement and control - and one must tread that line very carefully.