Role of the State - back to the same question

The debate between the roles of the State and the Market is a long standing one. How much of State intervention one regards as optimum varies depending on the economic philosophy one espouses. There is also examples of different types of state intervention ranging from monopoly to ownership to regulation to facilitation.

Do countries with more state intervention handle emergencies better? Is state capacity better in market oriented economies?

Meijun Qian argues in this piece that countries with stronger state presence are handling the pandemic better whether in procurement of medicines/equipment or enforcing social distancing.  We need a balance when talking about the role of States and market in managing crisis and this what she offers:

China and the United States are on opposite ends of the spectrum when it comes to state capitalism versus the free market. Scandinavian countries and other Asian countries like Singapore and South Korea are relatively more balanced. These countries also responded to COVID-19 more effectively than the United States. 

The optimal performance of an economic system might require a balance between state and private ownership. This balance could be especially crucial for sectors that are vital to social stability.

Sound slike the middle path in the debate between the State and the market. I think there s no doubt about the important roles the state and markets play in economies. The question is how much of what and where! 

Of saviours, survivors and running the system

This para from the ECIPE website piece on who next as the WTO DG perhaps epitomises the state we are in, in term sof international trade governance:

The challenges are everywhere. The Organization lacks political leadership amongst its membership. Trade wars look like they could easily get out of hand. The Appellate Body has become defunct, threatening the WTO’s dispute settlement function. Trade negotiations are largely at an impasse. Calls for reform of the WTO have fallen on largely deaf ears. Countries are distracted by the Covid-19 pandemic which, in the trade sphere, has uncovered the fragility of global supply chains, led to increases in export restrictions and spawned massive subsidisation. There are even calls in the United States, the historical progenitor of the GATT and the WTO, to withdraw from the organization. International economic cooperation has reached a nadir.

The ECIPE website summarises this when discussing what kind of person can lead the WTO next. A saviour or a survivor? 

A saviour would be high-profile, carrying political weight, being able to talk to world leaders on the state of affairs, a political leader herself/himself and one who can take the fight to the next level to maintain the interests of the international organisation.

A survivor would probably be a diplomat/technocrat who can carry on with the day to day running of the institution, implement the existing agreements amidst the gloom and attempt to move the slow ship of negotiation at the proverbial glacial pace.

Whether a saviour or survivor - it is going to be a challenging one to keep the momentum going.

By the way, the WIPO has a new DG elect - Daren Tang from SIngapore will be the new DG in WIPO from October 2020.

Change of guard all around.

International Trade 101 - The Rushford Report

Need some basic classes in international trade - here it is the Rushford Report lays it out in a 3 part series - 

Chapter I - Introduction to International Political Economy

Chapter 2 - Class 2 

Chapter 3 - Class 3 

Easy flowing talk, with practical examples of international trade impacting ordinary lives and the importance of remaining open. One may not agree with all the assumptions made, but the sheer depth of variety on US trade policy is enlightening.

A good international trade 101 exercise!

TradeRx Report - A new blog on IP and international trade

Came across this interesting new blog on international trade and intellectual property. Called the TradeRxReport it offers a look at the intersection of IP, international trade and trade agreements.

Run by Doris Estelle Long and Srividhya Raghavan, it is one of the few blogs that seeks to explore the IP-trade link. 

Looking forward to more nuanced discussion on the various agreements that the blog intends to cover from TPP to RCEP! 

With TRIPS plus provisions the centre of debate in various plurilateral and multilateral agreements, the area is ripe for a discussion!

International rule making in ecommerce - No one size fits all!

News of the European Union Vietnam Free Trade Agreement seems to be the only news in an otherwise dismal time for international, plurilateral trade deals. With multilateral trade negotiations facing serious challenges at the WTO, and large plurilaterals like RCEP and TTIP not overcoming deep rooted negotiating positions, the EU Vietnam FTA is indeed news and cheer for trade negotiators. It is also only the second EU trade agreement in Asia after Singapore. At the other end of the spectrum, is a new US-Japan digital trade agreement covering binding norms on ecommerce. 

Ecommerce is one of the emerging areas in the narratives on negotiations at the WTO. A plurilateral initiative for outcomes on ecommerce is also underway at the WTO with a group initiating exploratory work together toward future WTO negotiations on trade related aspects of electronic commerce. There is a sharp schism between groups of nations at the WTO on what rules should exist to address ecommerce issues in international trade, if at all required. Some think it is premature ot have any rules on ecommerce in the global arena.

Let us look at these two recent agreements covering e commerce of highly influential and norm-setting members of the WTO - the US and the EU.

The US-Japan digital trade agreement was signed in 2019. As the Fact Sheet of the USTR said;

As two of the most digitally-advanced countries in the world, the United States and Japan share a deep common interest in establishing enforceable rules that will support digitally-enabled suppliers from every sector of their economies to innovate and prosper, and in setting standards for other economies to emulate. 

It aims to be a "gold standard" agreement on ecommerce that should be aspired for to bring enforceable rules in the realm of ecommerce. Some of the key outcomes of this agreement include:

The key outcomes of this agreement include rules that achieve the following:

• Prohibiting customs duty - Prohibiting application of customs duties to digital products distributed electronically, such as e-books, videos, music, software, and games.  

• Cross border data transfer - Ensuring that data can be transferred across borders, by all suppliers, including financial service suppliers.

• Prohibiting data localization - Prohibiting data localization measures that restrict where data can be stored and processed, enhancing and protecting the global digital ecosystem; and extending these rules to financial service suppliers, in circumstances where a financial regulator has the access to data needed to fulfill its regulatory and supervisory mandate.

• Preventing forced disclosure of source code - Protecting against forced disclosure of proprietary computer source code and algorithms.

This could be a template for any ecommerce chapter in a ambitious agreement. Future negotiations can treat this as the base text. it lays down the blue print for enforceable rules in the most contentious issues of ecommerce - data localisation, data transfer and source code transfer.

On the other hand, the EU-Vietnam Agreement (the entire agreement is here) has a very brief chapter on ecommerce (Chapter 8.50). It only imposes a prohibition on customs duties on electronic transmissions, not even digital products as outlined in the US-Japan agreement. Further, it visualises regulatory co-operation in areas of ecommerce - a soft law endeavour to continue to talk about ecommerce.

It states that the Parties shall maintain a dialogue on regulatory issues raised by electronic commerce, which shall, inter alia, address the following issues: (a) the recognition of certificates of electronic signatures issued to the public and the facilitation of cross-border certification services; (b) the liability of intermediary service providers with respect to the transmission, or storage of information; (c) the treatment of unsolicited electronic commercial communications; (d) the protection of consumers in the ambit of electronic commerce; and (e) any other issue relevant for the development of electronic commerce. This dialogue may take the form of exchange of information on the Parties' respective laws and regulations on the issues referred to in paragraph 1 as well as on the implementation of such laws and regulations.

Evidently, this is very different from the enforceable rules in the US-Japan agreement. While the former consists of enforceable rules (without a dispute settlement mechanism though which is rather surprising), the latter is a soft law, aspirational document to take the discussion forward. The question then is what is the ideal trade rule setting for ecommerce? Is there a gold standard? Is a gold standard always required? Are national priorities guiding factors in determining the contours of norm setting rather than a notion of a single good? Is ecommerce norm setting less important for the EU than the US?

These two agreements indicate the vast diversity trade agreements could have on the same subject depending on the position the negotiating party takes. There is no one size fits all in international trade negotiations. 

What is in India's strategic interest in foreign economic policy?

"The world is multipolar economically, still unipolar in military terms, but confused politically. The world is in between orders, and adrift."

A strategy document paper on what India's foreign policy strategy should be by Shivshankar Menon was definitely an interesting read. Ranging from India's history, geographical reality and aspirations to be a prosperous and modern nation, it espoused India to work in its strategic interest in a multipolar and chaotic world.

I tried to elicit some clues on what could be an economic policy for India in this multipolar world. I found these:

On regional trade agreements:

A new economic order is forming around us with the globalised economy breaking up into sub-regional trading blocs like NAFTA, TPP and RCEP and with new standards being imposed by the United States and others. The U.S. had devised and managed the global free trade and open investment system of which India and China were the greatest beneficiaries in the two decades before the 2008 global economic and financial crisis. Today, however, the liberal economic and free trade consensus is broken in that same United States and the West. The Brexit vote, the U.S. withdrawal from TPP, and Trump’s positions reflect that fear and lack of confidence.

On strategic autonomy:

In practice it has meant keeping decision-making power with itself, avoiding alliances, and building India’s capabilities while working with others when it was in India’s interest to do so.

On India and China, the inevitable conflict: 

Both India and China have developed and changed since the strategic framework was put in place in the eighties and the situation around them has changed as well. As a result The more India rises, the more it must expect Chinese opposition, and it will have to also work with other powers to ensure that its interests are protected in the neighbourhood, the region and the world. 17 India’s Foreign Affairs Strategy of their development, their interests have grown and expanded, and they now rub up against one another in the periphery they share. One example is the South China Sea. 

On alignment of foreign policy and trade policy:

India must work with other powers to ensure that its region stays multi-polar and that China behaves responsibly. Some of this began as part of the Look East, now Act East, a policy begun by Prime Minister P.V. Narasimha Rao in 1992, and India is working more closely in defence, intelligence and security with Japan, Vietnam, Singapore, Indonesia, Australia and others. But it is hard to sustain a political-military relationship with partners if there are constant differences with them in India’s economic relations, in bilateral and multilateral negotiations on trade, climate change, and other issues. India cannot have an activist political and defence outreach if its economic and trade policy is inward-looking, and both are totally disconnected from each other.

A great read but many questions:

1. What should India's foreign economic policy strategy be?
2. How do foreign policy strategy and economic policy strategy coalesce?
3. Can one have different alliances in foreign policy and economic policy?
4. What impact does a "strategic autonomy" policy in foreign economic policy have on south-south co-operation?
5. Can new alliances in multilateral trade negotiations be based on foreign policy interests?
6. Does an interconnected world mean that India should aim for high standards in rules on international trade?

The strategy paper also states that "India’s history makes it clear that it has been most prosperous and successful when most connected to the world."

In today's world, what would "most connected mean" - liberalise trade or ensure strategic interest?

To violate or not - the non-violation dilemma under the TRIPS Agreement

The issue of non-violation complaints under the TRIPS Agreement has been a matter of intense debate in the WTO over the years. A moratorium on such complaints is in place but not all WTO members on the future course.

Article 64(2) of the TRIPS Agreement states that Article XXIII (1)(b) and (c)  of GATT 1994 shall not apply to the settlement of disputes under the TRIPS Agreement for a period of five years from the date of entry into force of the WTO Agreement i.e 2000. 

Article XXIII (1)(b) and (c) of the GATT 1947 which refers to nullification and impairment states that if any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement (in the context of Article 64 of the the TRIPS Agreement, it would be the TRIPS Agreement) is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as a result of the application by another contracting party of any measure, WHETHER OR NOT IT CONFLICTS WITH THE PROVISIONS OF THIS AGREEMENT or the existence of any other situation, then it can initiate dispute settlement proceedings under the DSU. In other words, these are called non-violation complaints (NVCs) since there could be a dispute even where the express provisions of any agreement have not been violated.

The WTO members have been extending the moratorium on NVC in the context of the TRIPS Agreement. Article 64(3) of the TRIPS Agreement also states that the TRIPS Council shall examine the scope and modalities for such NVC complaints and shall submit its recommendations to the Ministerial Conference for approval. These recommendations or any decision to extend the period in para 2 of Article 64 shall be made by consensus.

The bone of contention now is that if ALL WTO members do not agree by consensus to extend the period of exemption of the applicability of dispute settlement of NVCs under TRIPS, will such complaints automatically lie? On the other hand, should there be a consensus on scope and modalities for such complaints ti lie?

Nirmalya Syam, in a recent paper, has addressed this issue in detail as well as the implications it has for developing countries.  The paper concludes:

Article 64 of the TRIPS Agreement made the dispute settlement provisions of the GATT applicable to TRIPS subject to the exceptions specified in that provision. The only exception specified was in relation to non-violation and situation complaints, on which it was agreed that further examination on the scope and modalities of such complaints to TRIPS was required. Pending an agreement on this fundamental question, it would be pragmatic to keep the initiation of non-violation and situation complaints under suspension, which the moratorium does.

It would be a dramatic development if a dispute arises in the context of the applicability of NVC under TRIPS. What would essentially happen is that the terrain of debate on the moratorium and its terms will shift from the political economy of the TRIPS and Ministerial Conference to one of the large rooms of a panel proceedings. De-politicising a provision, WTO style?

GAFA tax, wine and a WTO dispute - something one needs to watch for?

I have been wanting to know more about the Digital Services Tax imposed in France last year. Are these taxes WTO consistent? Will there be a WTO dispute on this subject with more countries considering it, notwithstanding the Appellate Body crisis in the WTO.

(Damien Meyer, AFP)

It created quite a stir between the US and Europe. More commonly known as the G(oogle)A(pple)F(caebook)A(mazon) tax, it raised the issue of whether there is a discrimination against US tech giants by this tax. News of the tax are here and here. News of a possible mutually found solution are also found here.

The issue was covered by the IELP blog here.

In 2019, France proposed a 3% tax on revenue generated by certain companies from certain digital services. The two houses of the French Parliament passed the Bill on July 4th. (a coincidence?). Two categories of digital services— “digital interface” services and “targeted advertising” services were covered under this new tax.

The Special 301 Investigation report under the Trade Act 1974 on the tax found the following:

The evidence collected in this investigation indicates that: 

(1) The French DST is intended to, and by its structure and operation does, discriminate against U.S. digital companies;
(2) The French DST’s retroactive application is unusual and inconsistent with prevailing tax principles and renders the tax particularly burdensome for covered U.S. companies;
(3) The French DST’s application to revenue rather than income contravenes prevailing tax principles and imposes significant burdens on covered U.S. companies;
(4) The French DST’s application to revenues unconnected to a physical presence in France contravenes prevailing international tax principles and is particularly burdensome for covered U.S. companies; and
(5) The French DST’s application to a small group of digital companies contravenes international tax principles counseling against targeting the digital economy for special, unfavorable tax treatment. 

As far as the next steps goes, the Report concluded:

A range of tools may be appropriate to address these serious matters, including intensive bilateral engagement, WTO dispute settlement, or “imposing duties, fees, or other import restrictions on the goods or services of [France].” 

In a press release the USTR after the conclusion of this investigation called the tax a form of protectionism:

USTR’s decision today sends a clear signal that the United States will take action against digital tax regimes that discriminate or otherwise impose undue burdens on U.S. companies,” Ambassador Robert Lighthizer said. “Indeed, USTR is exploring whether to open Section 301 investigations into the digital services taxes of Austria, Italy, and Turkey. The USTR is focused on countering the growing protectionism of EU member states, which unfairly targets U.S. companies, whether through digital services taxes or other efforts that target leading U.S. digital services companies.”  

Pursuant to the Report, there was a public hearing on the French measure.What I found interesting was the diverse set of stakeholders that attended the public hearing to air their views on the French tax. It included not only tech companies that were obviously affected but also wine retailers!

Now, what does wine got to do with the French digital services tax? The US intended to impose higher tariffs on wine imports from France as as a retaliatory measure for the tax. This obviously hits wine imports into the US as they become costlier.

Peter Weygandt, the president of Weygandt-Metzler Importing, Limited, one of the witnesses in the public hearing  owned a company that imported wines from Europe for more than 33 years. In his testimony he said:

The stark reality of these tariffs is that they will end the importation of wines from the tariff countries. It's a very real possibility that many importers, distributors, and restaurants will need to terminate dedicated employees in the very near future with the possibility of ceasing their business' operations entirely. I ask the commission to rescind the current tariff and not consider a 100 percent DST tariff. Thank you very much again.

The submissions of the wine retailers signified the other side to retaliatory tariffs. There are winners and losers in a trade war. WHile the intent is to impose a tariff on French imports to protect US tech industries against a seemingly unjust, discriminatory tax, its impact will also be felt on US businesses in other sector that depend on French imports, like wines, for their survival. The trade off between different local business interests is what makes international economic law so fascinating and complex at the same time.

On the WTO front, is the tax discriminatory because it is a de facto discrimination against US companies?

Andrew Mitchell, Tania Voon and Jared Hepburn, in an article titled "Taxing Tech:Risks of an Australian Digital Services Tax under International Economic Law" have indicated the risks of an Australian digital tax breaching Australia's obligations under the GATS as well as investment treaties.It also indicated that the US could retaliate with tariffs on Australian exports to the US.

For now, the digital tax seems to have gone off the radar. However, with the increasing possibility of more countries adopting it in stressful economic times, international economic law is set to see a fresh bout of engagement on theory and practice of domestic measures impacting the principles of international norms.

   

Newsflash from the WTO

A news flash from the WTO - the current Director General, Roberto Azevedo has decided to step down ahead of his term, cutting it short by 1 year.

© AFP via Getty Images

The full statement of the DG is here.

A decade seems a long time in trade policy

The US Trade Policy is annually well laid out in a document titled the US Trade Policy Agenda and the Annual Report. The US Trade Policy Agenda 2020 is found here.A clear understanding of the direction, drift and focus of the US in trade policy can be gathered here.

I was curious to know how the US trade policy agenda has been shaped over the past decade especially with respect to the WTO.

So here are a few snippets from the latest trade agenda and the principal thrust of US policy towards the WTO in 2020:

1. Questioning the role of the Appellate Body and its functioning - a special report by the USTR can be found here.
2. Seeking a new multilateral fisheries agreement
3. Exploring an ecommerce agreement
4. Pushing for more transparency
5. Relooking at the Special and Differential treatment in current and future negotiations
6. Resetting the tariff commitments of WTO members because of changed economic circumstances

Thats a full-fledged agenda for the next decade.

What did the 2011 Report, a decade ago, view the WTO's future?

The 2011 Report looked very different from the latest one in 2020 with a lot on the Doha Development Agenda round of negotiations (page 3-4).

The United States will continue to play a leadership role and work with other WTO Members in various configurations, including bilateral negotiations with advanced developing countries, in pursuit of a successful conclusion to the Doha Round that opens new markets and creates new trade flows. The challenge in 2011 will continue to be how to translate the expressions of political will into concrete and specific details that will enable WTO Members to complete the work begun with the launch of negotiations at the Doha Ministerial.

Obviously some of these changes are a reflection of the developments and changed scenarios. 

A decade in international trade and trade policy can see a sea change!

Let us walk out of the WTO!

A Peterson Institute blogpost by Jeffrey J. Schott brought to light an interesting draft joint resolution introduced in the US Congress to walk out of the WTO!

Titled 'Withdrawing approval of the Agreement Establishing the World Trade Organization", the joint resolution of the Senate and the House of Representatives has been introduced by Senator Josh Hawley on May 7 2020.

The US Senate and House of Representatives enacted the Uruguay Round Agreements Act in 1994 approving the WTO Agreements under section 101 of the Act. It enabled the President of the US to accept the Uruguay Round Agreements and implement Article VIII of the WTO Agreement, which established the legal personality of the WTO.

The joint resolution seeks to withdraw this approval given thus terminating US membership of the US in the 164 member organisation.

While this is unlikely to happen, the reasoning of Jeffrey Schott is interesting:

As a student of history, Senator Hawley should revisit the major conferences in the 1940s that molded postwar international economic institutions. He will discover that the multilateral trading system is based on American values, law, and practice and designed by American architects. Yes, the WTO needs updating. But the United States, as it has done throughout the postwar era, should be leading that effort instead of obstructing it. With responsible US leadership, our allies will follow.

The above passage lends credence to the oft-repeated claim made by many developing countries that they need to play a more active part in "rule-making" rather than be mere "rule receivers". That is not to say that there is no balance in WTO Agreements - but the fact that tend to reflect certain aspirations of a few developed countries, does not augur well for a balanced system. It should be an endeavour for the developing world to constantly shape, re-invent and engage in a multilateral system that upholds not only universal, multilateral values but also ideals, aspirations and needs of their constituencies.

How "international" is the Covid fight so far?

One of the major questions being asked in the context of Covid 19 is whether internationalism, international cooperation and international governance did not deliver. Were responses, solutions and remedies essentially national and sub-national? Was the fight against the pandemic taken up by national governments, developed and developing rather than international organisations?

In this piece, Kai He, argues that international anarchy has resulted in sub-optimal responses in fighting the epidemic medically, in terms of keeping borders open or crafting responses to the pandemic. Looking at the WHO, UNSC, G20 the author argues that the international community must rise to the occasion and counter the pandemic's devastating consequences.

International organisations have so far failed to rise to the occasion in fighting the pandemic. The World Health Organization (WHO) has functioned as a ‘clearing house’ to offer the most authoritative information but has no power to extract information nor to enforce regulations in any country. What it can do is to issue health advice to the world based on the information voluntarily provided by member states. The anarchic nature of international politics encourages self-interested behaviour that leads to the WHO’s warnings and advice being largely ignored by many countries.

One institution that might have collective power above states is the UN Security Council (UNSC), but it has remained silent on the war against COVID-19. One possible reason is that the pandemic is not a traditional security threat that the UNSC is accustomed to dealing with. But the radio silence of the UNSC might also reflect the deep divide inside the institution itself.

The G20 appeared to carry more hope than the United Nations in coping with COVID-19 but its statement appeared only declaratory in nature. No country is stepping up to exercise much-needed leadership in the G20. To make things worse, the deepening rivalry between the United States and China has curbed concerted efforts in global governance to fight COVID-19.

The fight against Covid would be successful with a combination of local, national and international efforts. To what extent and what degree each of them will play a role depends on the flexibility such measures will have to combat the pandemic. National governments are answerable to their constituencies. The representative character gets stronger as we go lower down the level. The responsibility and response so far has undoubtedly weighed in favour of the local in this fight so far.

A moratorium on ISDS please!

The Covid pandemic has led to debates on globalisation vis a vis protectionism. I have blogged about it here, here and here.

Now is the turn for ISDS and Covid to relate. Should ISDS avenues be available during the times of a pandemic? Should it be disallowed? Or should the arbitral tribunals decide if the arbitral claim is justified as per the provisions of the investment treaty?

Jeffrey D. Sachs and others have called for an immediate Moratorium on investor state dispute settlement cases during times of a pandemic like Covid as well as a permanent restriction on all arbitration claims related to government measures targeting health, economic, and social dimensions of the pandemic and its effects.

These investor-state cases (often referred to as “ISDS” cases) empower foreign private companies to challenge government actions that affect narrow corporate interests, and often result in large payouts, sometimes of billions of dollars, to these companies for alleged lost profits. These suits pose an immediate danger to the ability of developing nations, and the global community as a whole, to confront the COVID-19 challenge.

They give three primary reasons - Governments need to take measures that would impact businesses during epidemics (like lockdown measures or movement restrictions) which would impact profits; governments should not be distracted by arbitral claims during times of crisis and the arbitral awards could be substantial impacting government's ability to pay during times of crisis.

They call on States as well as international community to implement it. Well, it is more of an appeal. Would there be ISDS claims during such times? Are there any signs of it? Don't investment treaties have provisions to ensure that such claims are inadmissible or that allow governments to undertake such measures? What kind of measures can be covered? Does tightening of foreign direct investment screening measures also fall within the parameter of this moratorium. Can investment treaties be crafted in future to take care of such an eventuality?

Some things won't change post the pandemic!

For many the pandemic could be a turning point in history. That moment, when the world realises that it is not going to be business as usual. It could lead to tremendous changes. In the trade world, the argument is that it could lead to a shift to more protectionism and globalisation will see its demise.

Richard Hass has a brilliant piece on what the pandemic has in store - he opines that nothing much will change. Things will just get exacerbated.

In his piece, The Pandemic will accelerate history rather than reshape it in the Foreign Affairs, he brings out the view that this pandemic will not be a turning point - history will indicate that what has been happening for years will continue to take place, albeit at a faster pace!

But the world following the pandemic is unlikely to be radically different from the one that preceded it. COVID-19 will not so much change the basic direction of world history as accelerate it. The pandemic and the response to it have revealed and reinforced the fundamental characteristics of geopolitics today. As a result, this crisis promises to be less of a turning point than a way station along the road that the world has been traveling for the past few decades.

Several striking arguments in this piece that are irrefutable:

1. The crisis has led to more concerted national and sub-national action to fight the pandemic than the ideal global co-operation that is expected during a global crisis. The "international community" rising up to meet the challenge seems to be a mirage.
2. Nations have been chalking out strategies in isolation without a global leader pursuing a common world-wide strategy (not bad in itself)
3.Existing policies like resistance to migration, the unwillingness to accept the developed-developing country gap will widen.
4. A robust international order will just not emerge.

For some, the crisis of geopolitics awaiting the end of the epidemic will be more serious than the current pandemic.