Role of the State and trade agreements

The role of the State and government in a globalised world is a subject matter of great debate especially depending on which side of the spectrum you come from. Is the role of the State incompatible with free trade and globalisation? Can they co-exist? Does free trade and globalisation necessarily mean reduction of the role of the State in economic activity and governance?

I had written about this a long time ago in this blog piece that I "searched out" here - on State Capitalism and globalisation. A more recent piece is the rather critical one wherein Martin Khor alleges that regional trade agreements are reducing the role of the State, especially State Owned Enterprises with provisions relating to them found in these agreements.

Titled "The Role of the State in Developing Countries under Attack from New FTAs", he argues:

"Naturally, there are pros and cons to any agreement, including the FTAs. Any potential gain for a country in exports or investments should be weighed against potential losses to domestic producers and consumers, and especially the loss to the government in policy space and potential pay-outs to companies claiming compensation under the FTAs' investment rules. 

But if developing countries have to come under new international rules that curb the role of the state and that re-shape the structure of their economy, then the prospects for future development will be adversely affected."

The role of the State, State owned enterprises and government are a source of constant challenge in discussions on liberlaisation and globalisation. How do international trade agreements address this question? Does GATT/WTO distinguish between a State led economy and a liberalised economy? Does it prefer one over the other? Is there place for a mixed economy in this discourse? Can we build a model for a mixed discourse?

Another plurilateral agreement - Now it is the International Supply Chain Agreement

One often hears about mega bilateral and regional deals marring the multilateral landscape. Sad but inevitable, others say. It is also the age of plurilateral trade agreements. 

I came across the suggestion of a latest one - International Supply Chain Agreement - ISCA (?), a la a TISA or a Government Procurement Agreement.

Writing in VoxEU, Michitaka Nakatomi suggests that the time has come for a plurilateral to address the issue of global value chains and the new reality of trade. He calls tis plurilateral the International Supply Chain Agreement. I have blogged about the issue of present day world trade rules and their inadequcy of addressing the issues of complex global supply chains here and here.

"Here, I would like to remind that the goal of the Agreement is to improve global value chains, and the key to achieving that end lies in close cooperation and coordination between governments and business communities. It is essential to select areas subject to negotiation in such a way as not to end up with an agenda that is too heavy to digest."

Well, will we the launch of plurilateral negotiations on global value chains, post Bali?

To comply or not to comply is the question

An interesting debate in the comments section  in the IELP blog on next steps in the Cloves Cigarette case (DS406 ) got me thinking. It brings us to the question of what constitutes "compliance" in WTO law and what do countries do when they feel WTO decisions in their favour are not being complied with? It also raises issues about the effectiveness of the dispute settlement process and how "hard" WTO law actually is.

The issue in question here was whether Indonesia has taken the right step in seeking authorisation  for retaliation against the US under Article 22.2 DSU for non-compliance without taking recourse to Article 21.5 DSU which essentially states:

"Where there is disagreement as to the existence or consistency with a covered agreement of measures taken to comply with the recommendations and rulings such dispute shall be decided through recourse to these dispute settlement procedures, including wherever possible resort to the original panel. The panel shall circulate its report within 90 days after the date of referral of the matter to it.  When the panel considers that it cannot provide its report within this time frame, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will submit its report."

While we await further legal clarity on the point of the right legal recourse of seeking suspension of concessions via vis establishment of another panel to decide whether there was compliance, my attention was drawn to Article 22.6, 22.7 and 22.8 of the DSU.

"6.The DSB shall keep under surveillance the implementation of adopted recommendations or rulings.  The issue of implementation of the recommendations or rulings may be raised at the DSB by any Member at any time following their adoption.  Unless the DSB decides otherwise, the issue of implementation of the recommendations or rulings shall be placed on the agenda of the DSB meeting after six months following the date of establishment of the reasonable period of time pursuant to paragraph 3 and shall remain on the DSB's agenda until the issue is resolved.  At least 10 days prior to each such DSB meeting, the Member concerned shall provide the DSB with a status report in writing of its progress in the implementation of the recommendations or rulings.

7.         If the matter is one which has been raised by a developing country Member, the DSB shall consider what further action it might take which would be appropriate to the circumstances.

8.         If the case is one brought by a developing country Member, in considering what appropriate action might be taken, the DSB shall take into account not only the trade coverage of measures complained of, but also their impact on the economy of developing country Members concerned." 

Another avenue is to raise the issue at the DSB "at any time following their adoption"(adoption of the ruling). Developing countries have been given some special rights. Has this avenue been significantly used by the developing world? Has it borne fruit and served its intended purpose of assisting developing countries in getting rulings complied with. Any studies or analysis on the use of this provision? Or is it just on paper?

Compliance of WTO rulings is a very critical issue in legitmizing the role of the multilateral institution as well as the dispute settlement process. While legalese and complexity will prevail when one goes into the details of cases, non-compliance overall undoubtedly impacts credibility of the predictability of multilateral rules. Ofcourse, what constitutes non-compliance is again a matter of incessant debate!

Team Azevedo

Roberto Azevedo, the WTO DG designate has announced his new team of Deputy Director Generals to take over in October. 

They are:

 - Yi Xiaozhun of China (Mr. Yi is a senior trade official in China’s Ministry of Commerce who has worked on international trade issues since the 1980s. He has served as China’s Ambassador to the WTO since 2011.)

 - Karl-Ernst Brauner of Germany (Dr. Brauner is a senior officer in the Federal Department of Economics and Technology who has been Germany’s representative to the Trade Policy Committee in Brussels for the last 12 years.  He has been involved with the WTO since the start of the Doha Development Agenda.)

 - Yonov Frederick Agah of Nigeria (Mr. Agah has been involved with international trade issues in the Ministry of Industry, Trade and Investment since the early 1990s, including as Nigeria’s Ambassador to the WTO since 2005.  He was Chair of the WTO General Council in 2011.)

 -  David Shark of the United States ( Mr. Shark has been serving as the US’s Deputy Permanent Representative to the WTO since 2000 and has a long experience with GATT and WTO issues going back to the 1970s in the Office of the US Trade Representative)

The WTO website stated:

"The Deputies have been selected because of their outstanding commitment to the multilateral trading system and their extensive experience on WTO issues over many years.  They will be working directly with the Director-General to advance the interests of the Organization, including the preparations for the 9th Ministerial Conference in Bali.  “Their specific skills and experience of these deputies will be immensely valuable to advancing the effective and efficient functioning of the WTO,” Azevêdo said.  

DG-Elect Azevêdo consulted extensively with WTO members in the selection of the DDGs.  This has enabled him to make sure that the qualities each of the Deputies will bring to their new positions will benefit the WTO and its future work.  While they come from different regions that symbolize the geographical diversity of the WTO membership, from 1 October they will be serving the multilateral trading system working with the Director-General as a team along with all WTO members."

The new team takes over in October 2013.

Multilateralism versus regional trade deals

Pascal Lamy's last address to the General Council of the WTO before he will demit office summarised his views on where the WTO is headed and the challenges before it. His point on multilateralism versus regionalism with all the regional trade agreements gaining steam is worth quoting:

"I often hear that the way forward is to abandon the WTO and simply move to plurilateral or regional arrangements. But we have all seen the fate of a number of these plurilateral deals such as the ACTA or the Global System of Trade Preferences among developing countries. We also know that behind the headlines of the launching of mega regionals, as some refer to them, lie tremendous difficulties and sometimes even no final deal at all, as was the case of the Free Trade Area of the Americas. 

I do not wish to be misunderstood. I am not against trade opening outside the WTO. I believe that plurilaterals, mega regionals, regionals, bilaterals and unilateral arrangements CAN contribute to trade opening and hence to the levelling of the global trade playing field, which must ultimately remain our collective goal. Because this is what fairness is about. But I do think we would do well to recognise that the issue is not trade opening IN the WTO as opposed to trade opening OUTSIDE the WTO. The issue today is with the difficulties involved in trade opening. Domestic trade politics have become more difficult and trade deals have become more complex because the nature of obstacles to trade has evolved. We are no longer negotiating just the reduction of tariffs, but also of non-tariff barriers, which have gained enormous importance."

 So the bottomline is whether it is multilateralism or regionalism, trade obstacles are becoming more complex with high tariffs being replaced by non-tariff barriers. How one addresses these non-tariff barriers would determine the fate of the global economic landscape.

Currency misalignment, world trade and the World Trade Report

The World Trade Report 2013 has a large section devoted to currency misalignment and world trade. It goes (p.261)...

The debate on the trade impact of exchange rates has surged again recently in the WTO,56 and is likely to do so each time that it is felt, rightly or wrongly, that the present state of international monetary cooperation does not allow for orderly exchange rate adjustment reflecting balance of payments positions and does allow a particular member, or several members, to enjoy competitive advantages as a result of such a lack of cooperation. While the influence of macroeconomic and structural policies in determining exchange rates is acknowledged (Eichengreen, 2007), the world trading system must regularly “deflect” tensions associated with the perceived trade impact of exchange rates. This has become more frequent in recent years, as growing international inflows and outflows of foreign exchange have the potential to destabilize domestic economic policies and reduce the efficacy of traditional controls (notably restrictions on capital movements).

The question for the WTO is also systemic because exchange rate shifts increase or weaken the desired or perceived level of protection of domestic operators – and thus seem to have a role in the definition of trade policy. At the multilateral level, the erratic movement of exchange rates is frustrating the desired levels of protection that are negotiated by WTO members through long-term commitments – precisely because policies are aimed at setting predictable conditions of access for producers and traders. In turn, members may seek a way to address cyclical development or exchange rate changes in the trade policy toolkit.   

... 

The need for greater coherence for trade and exchange rate policies was included in the GATT rule book at the outset (see Section E.3(c)). The IMF and GATT were created in response to a lack of coordination of economic policies during the Great Economic Depression – these new institutions aimed at dealing with trade and exchange rate policies as a matter of common interest, with the introduction of disciplines to avoid competitive devaluations, to maintain exchange rate stability, to reduce balance of payments crises and to fight protectionism. From the outset, the international monetary and trading systems were linked by a coherent set of rules aimed at the progressive opening of trade and payments. GATT provisions on coherence reflected two things: the attachment of the trade community to exchange rate stability; and the need for that community to ensure that the trading system was not frustrated by the undisciplined use of exchange restrictions or multiple exchange rates. The institutional set-up remains very much one of coherence – and not of conflict – between the two systems." 

Well, no mention of a possibility of a WTO dispute here. Has that died down? Coherence is the buzzword here. 

World Trade Report 2013

The World Trade Report 2013 is out. 

And some of it's conclusions make interesting reading:

"Inertia within WTO trade negotiations is becoming an increasing burden for a large number of countries. What needs to be done? First, governments need to move forward on the existing agenda addressing market access conditions for both goods and services with equal determination as well as other trade costs covered by the talks on trade facilitation. 

Secondly, other sources of uneven competition and limitations on the open flow of trade need to be addressed at the global rather than regional level. Analysing the information provided under the WTO’s PTA transparency mechanism and further strengthening the WTO’s other transparency and monitoring functions may help to identify issues of concern that are already addressed in one way or another at the WTO, such as various types of NTMs. Additionally, new issues are likely to emerge, such as investment and competition policy, where multilateral action may be beneficial.

Thirdly, areas for international action that will shape the future of trade but reach beyond the mandate of the WTO must be addressed, including in terms of their impact on trade cooperation. Climate change and macroeconomic policies are two examples. Further reflection and discussion is needed on the role of the WTO in the institutional framework of global governance in order to ensure policy coherence and fruitful working relationships."

Inertia to be replaced by a new agenda for multilateralism? Sounds promising but  is it anywhere in sight? 

Japan joins the Russian roulette

I have blogged about the first case Russia is facing on recycling fee on automobile imports at the WTO here, here and here. Now Japan seems to have joined the Russian roulette. Japan filed a WTO case against Russia details of which are found here.

"According to Japan, Russia’s measures appear to be inconsistent with its obligations under several articles of the GATT 1994, the Agreement on Trade Related Investment Measures (TRIMs) and the Agreement on Technical Barriers to Trade (TBT).

Japan claims that through the measures at issue, Russia imposes a recycling fee on each vehicle imported into Russia or produced/manufactured on the territory of Russia. Russia exempts from the recycling fee the vehicles manufactured or produced by companies that have committed to ensure subsequent safe handling of waste. However, this exemption is only available to vehicles manufactured by companies which are legal entities registered in Russia and which have undertaken to produce their vehicles in Russia according to one of the modes involving certain specific manufacturing operations in the territory of Russia, Belarus or Kazakhstan. Therefore, the measures at issue, through these conditions, either taken together or separately, discriminate between imported vehicles and the “like” domestic products."

It would be interesting to see Russia's response, it's legal team, preparation as well as next steps. Will it amend its domestic legislation or will it defend its measure as being consistent with WTO law. Or will it just not comply with an adverse WTO panel ruling, if it so happens! 

All three are distinct possibilities.