Of some myths and a quiz

Back to some weekend trade readings:

CATO has this interesting set of articles on globalization - called the Defending Globalization. Two articles in it is close to what this blog is about - international trade;

1. James Bacchus has written succinctly and brilliantly on the myths and truths surrounding the World Trade Organization - on how views on the creation, motivations and agenda surrounding the WTO are mixed. That free trade doesn't really mean no barriers at all in the context of global trade rules and on how the dispute settlement mechanism works.

2. Simon Lester writes about the confusion around what free trade agreements are all about. They are not about unbridled free trade but reduced barriers with set rules of the game. Of course, it depends on the political appetite and economic realities in countries which determine the extent to which they are willling to go in these trade agreements - shallow or deep trade agreements as the World Bank calls them.

Lastly an interesting quiz on international trade. Having been a trade negotiator myself but now a jaded one at that, I decided to bite the bullet and take it. Though largely US-centric, I faired pretty okay and got this certificate:

Time to restart active blogging!

ISDS - what is the path ahead?

Investor State Dispute Settlement (ISDS) has been and will remain a contentious issue in national and international fora. Does it give foreign corporations an unbridled right to ride rough shod on national governments and priorities? On the other hand, is it essential for the maintenance of the rule of law and minimum protection against arbitrary action? Does it foster foreign direct investment? Has it been undeniably harsh on developing economies? Are the damages claimed in these proceedings unjustifiable?

For those following these issues, white papers are not uncommon. A recent white paper on why ISDS should be abandoned in the Americas is an interesting read. Titled "Turning the Tide: How to Harness the Americas Partnership for Economic Prosperity to Deliver an ISDS-Free Americas". It argues for an exit from ISDS for countries in this region.

One interesting aspect that the paper covers is whether ISDS promotes FDI at all. While the jury is still out on this aspect, the paper claims:

Promised Boost in Foreign Direct Investment Never Materialized: In essence, ISDS essentially offers corporations a form of government-subsidized, cost-free political risk insurance to move their capital across borders, and it does so largely irrespective of the investors’ motives or the impacts of their investments. Many countries entered into these agreements under the assumption that such investment protections and privileges would promote foreign investment flows. However, decades of econometric studies have found no conclusive evidence that investment agreements, of which ISDS is typically a prominent feature, actually result in increased foreign direct investment in host countries. 

Another study quoted in the paper looks at the impact of IIAs on FDI and has this rather discerning observation:

Given the widespread interest devoted to the effect of IIAs and the intuitively appealing notion that providing a measure of protection for foreign investors should reduce the riskiness of FDI and thus increase it, it is worthwhile to reflect on why the measured effect of IIAs is so negligibly small. One possibility is that the protection provided to investors by IIAs is in fact insufficient to alter their investment decisions. This could be because investors find the cost of arbitration under IIAs to be too costly (potentially in excess of $5 million); too risky (in that they have no better than a 50:50 chance of winning in arbitration); or that the arbitral awards are inadequate compensation for their losses (arbitrators often award amounts that are less than the plaintiff firms claim as losses). A second possibility could be the proliferation of IIAs. Over 3000 BITs have been signed and to these should be added the investor protection mechanisms embodied in the other types of treaties we have discussed in this paper. Thus, as the number of IIAs increases, their marginal effect on FDI should fall, perhaps rapidly. Early treaties were negotiated between host countries that saw themselves as potentially attractive hosts and those countries that were a major source of FDI. Successive treaties had to include host countries that were less attractive targets for FDI for reasons other than the risks they posed to foreign investors and potential investors’ home countries that were less important sources of FDI. There are also IIAs signed between pairs of countries that are both net importers of capital and FDI, and the effect of such IIAs is likely nil. Thus, the importance of choosing appropriate home and host countries and their IIAs for study is important for the results obtained.

Will we see a re-evaluation of ISDS in investment agreements or just the status quo? Is there a rethink or will there be a re-emergence of ISDS in a different form. Is state to state dispute settlement an alternative - a la WTO? What about the Brazilian model of investment agreement and co-operation that shuns ISDS?

Where will the tide turn ultimately?

This TINA is all about alternatives!

TINA is commonly referred to a "There is No Alternative" in negotiations parlance. However, this TINA (Trade Intelligence and Negotiation Adviser) here is all about alternatives!

As trade negotiators, one is often faced with the question of proposing suitable legal language that reflects one's national position as well as achieving optimum results in an agreement. While traditional areas in trade agreements have more or less standardised language, the picture is far less stabilized in newer areas (deep trade agreements) like labour, gender, environment, competition in terms of treaty language. The consequences of not comprehending the impact of treaty language can be devastating in case of a dispute. Obligations arise out of agreements and enforceability is the stick that ensures compliance.

In that context, having a knowledge of different approaches to treaty language becomes critical. It is an important tool in the capacity building effort of States to engage meaningfully in treaty negotiations. It becomes all the more critical for developing and least developed economies. Setting the rules of the game instead of being rule takers demands understanding of different provisions, their implications as well as nuanced differences. Including a "shall" can have very different consequences than a "may" or "should" though legal interpretations in dispute settlement may very well say a "should" is a "shall" in that context!

Efforts have been made in the past to provide such capacity in different ways. Found this interesting database called Legal TINA prepared by the UN's Economic and Social Commission for Asia Pacific. It provides a wealth of information on different RTAs covering areas both new and old, comparisons of treaty language and what their implications could be. A goldmine for treaty negotiators. It has a search provision area wise as well as issue wise.

I tried out some areas and found interesting results:

Labour, Business and Corporate Social Responsibility - A look at provisions related to corporate social responsibility shows a wide variety of commitments, soft approaches as well as divergent scopes.

D3.2.1 Corporate Social Responsibility

Example Provisions on Commitments to Corporate Social Responsibility

Example Option A: Corporate Social Responsibility

1. The Parties affirm the importance of each Party encouraging enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate into their business practices and internal policies those guidelines and principles of corporate social responsibility that have been endorsed or are supported by that Party, including the OECD Guidelines on Multinational Enterprises. These guidelines and principles address issues such as labour, environment, gender equality, community relations and anti-corruption.

2. The Parties shall make all possible efforts, through dialogue, consultations and cooperation to resolve any matter that may arise relating to this Article.

3. A Party shall not have recourse to dispute settlement under this Agreement for any matter arising under this Article.

Source: Canada-Israel, Article 16.4

 

Example Option B: Corporate Social Responsibility

Recognizing the importance of cooperation on trade-related and investment-related aspects of environmental and labour policies in order to achieve the objectives of this Agreement, the Parties may, inter alia:

(e) cooperate to promote corporate social responsibility, notably through the exchange of information and best practices, including on adherence, implementation, follow-up, and dissemination of internationally agreed guidelines and principles;

Source: Japan-United Kingdom EPA, Article 16:12 (e)(f)

 

Example Option C: Corporate Social Responsibility

1. Each Party affirms its commitment to enhance the contribution of trade and investment to the goal of sustainable development in its economic, social and environmental dimensions.

2. To that end, the Parties:

(e) in accordance with their domestic laws or policies agree to promote corporate social responsibility, provided that measures related thereto are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between the Parties or a disguised restriction on trade; measures for the promotion of corporate social responsibility include, among others, exchange of information and best practices, education and training activities and technical advice; in this regard, each Party takes into account relevant internationally agreed instruments that have been endorsed or are supported by that Party, such as the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises, the United Nations Global Compact and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy.

Source: EU-VietNam FTA Article 13:10 (e)

 

Example Option D: Corporate Social Responsibility

The Parties shall strive to facilitate trade in products that contribute to sustainable development, including products that are the subject of schemes such as fair and ethical trade schemes, as well as those respecting corporate social responsibility and accountability principles

Source: UK – Ukraine, Article 279.3 

The stark contrast between the UK-Ukraine provision as compared to Canada Israel provision indicates the extent to which countries are willing to engage in adhering to commitments in this area. Further, the period in which the agreement was entered into is also relevant since perceptions and approaches have evolved over time. 

The intellectual property search provided alternative ways of incorporating provisions on compulsory licensing and protection of undisclosed test data - from being TRIPS compliant to TRIPS plus obligations.

The limitation of the Legal TINA could be the coverage of RTAs in its database, the time frame of these RTAs as well as non-consideration of innovative, out of the box legal, textual language not found in any RTA so far! However, it is definitely a great tool for trade negotiators to understand the legal landscape, the reasons for divergent viewpoints and how to tailor make one's position based on national interest and mutual benefit of the trading partner.

Hat Tip @Yann Duval!

Digital Economy Framework Agreement - ASEAN's template for the world?

There is a constant churning and desire to make international trade rules in the field of ecommerce and digital trade. While the Joint Initiative on Ecommerce by some WTO members is touted as a future blueprint, regional initiatives are finding space. This recent announcement by ASEAN on a Digital Economy Framework Agreement seems to be moving in the direction of regional digital trade rules.

The framework for negotiating such an agreement spells out the wide scope of the agreement:

On without prejudice basis, ASEAN DEFA negotiations will consider including but not be limited to the following elements: 

1. Digital Trade aims to facilitate cross-border trade by creating a seamless trade experience with electronic documents and interoperable processes. 

2. Cross-border E-Commerce aims to create a more efficient and fairer environment for cross-border e-commerce, including digital goods and services. 

3. Payments and E-Invoicing aims to promote digital payments and electronic invoicing by fostering technical interoperability, encourage innovation and competition, and developing relevant regulation. 

4. Digital ID and Authentication aims to develop a mutual recognizable and interoperable digital identity and electronic authentication framework within the region. 

5. Online Safety and Cybersecurity aim to improve cooperation in cybersecurity and create an open and secure online environment, with comprehensive protection to parties in a digital transaction. 

6. Cross-border Data Flows and Data Protection aims to facilitate cross-border data flow and establish frameworks to protect data privacy. 

7. Competition Policy aims to create a fair/non-discriminatory, transparent competitive environment with consistent guidelines on enforcement and better choice for consumers 

8. Cooperation on Emerging Topics aims to establish mechanisms for regulatory cooperation for relevant standards and regulations to keep up with technological innovations in emerging topics such as AI. 

9. Talent Mobility and Cooperation aims to facilitate digital talent mobility between countries and close collaboration on talent building.

 Will it lead to a fructification of regional rules in the ASEAN region to be replicated in their FTAs later and perhaps at the WTO? Will it cover issues of data localisation and free exchange of data? Will it be able to address the digital divide amongst ASEAN members? Will there be enforceable rules? Will there be dispute settlement provisions? Will it be ASEAN's template for the world on multilateral rules for the digital economy or a soft law approach to greater digital integration?

Interesting area to keep a watch on!

Random: "Alt-Tech", digital trade rules and a casebook!

Sunday readings:

1. I have often blogged on big tech and the challenge of regulation here, here and here. An interesting piece on India's alternative to big tech - Open APIs and interoperability implemented in systems like the UPI and ONDC - and the concomitant challenges it brings. Smriti Parsheera argues in this piece that it brings with it its own set of challenges that need to be addressed:

To summarise, the term big tech offers a helpful and now well-understood label for describing the world’s most powerful technology companies. The challenges posed by the dominance and practices of these firms are well recognised, as is the need for imposing more effective checks on them. India is still in the early stages of formulating its governance strategy on big tech, reflected through competition enforcement, domain-specific regulatory actions and new technical systems that aim to alter the underlying dynamics of digital markets. While much has been said about the innovative and inclusive potential of these new systems, the paper highlighted that these developments are accompanied by certain competition and accountability concerns that are not being adequately addressed in the current model.

2. The challenge of  articulating a negotiating position in difficult but emerging areas like digital trade is reflected in this piece by Jhanvi Tripathi in this piece on IPEF and India's digital trade. Which way should one go? Binding trade rules that enhance free flow of data and competition. Soft law approaches that enhance trust, privacy and inclusion? A third model which emphasizes the role of digital public infrastructure? Or a mix of them all? The piece argues that one needs to bite the bullet in terms of having a digital trade rules negotiating stance. However, are trade rules the only way forward?

3. For those who are interested in international economic law and policy, this free digital international trade law text book is a great find! Check out "International Trade Law: A casebook for a system in crisis" for accessing a free text book on international trade law. Kudos to the Geneva Trade Platform for conceiving this.

Data sets, a guide and a negotiating strategy!

As trade negotiators, one often grapples with models and treaty negotiations. One is in search of alternatives, models and diverse set of options. This is more so when trade negotiations are in multiple areas and not just the traditional tariffs and services sector. What if they cover competition, environment, labour, public enterprises and gender? The World Bank has termed them Deep Trade Agreements. They define it as:

Deep Trade Agreements are reciprocal agreements between countries that cover not just trade but additional policy areas, such as international flows of investment and labor, and the protection of intellectual property rights and the environment. While these agreements are still referred to as trade agreements, their goal is integration beyond trade or deep integration.

I came across this excellent and extensive exercise by the World Bank titled the Handbook of Deep Trade Agreements which covers a wide set of provisions across trade agreements which make a comparison of provisions across sectors of tariff, export restrictions, services, intellectual property, investment, visa and asylums, trade facilitation, technical barriers to trade, public procurement, subsidies, competition policy, state owned enterprises and labour market regulations. It compares different trade agreements with respect to the various provisions contained, similarities as well as different approaches in each of these sectors. A goldmine for researchers, ofcourse, but even greater help for trade and investment law negotiators to understand what the data set of 279 PTAs are telling us. They not only help in understanding some of the motivations of why certain provisions exist but also assist in ensuring bargains are more balanced.

Some great revelations in the Handbook that I found noteworthy in the conclusions after a quick read were as follows:

Investment:

• The scope and depth of investment provisions has increased over time, although at a modest rate. 

• Most PTAs extend national and MFN treatment in the preestablishment phase, while all provide for national treatment (and to a lesser extent MFN treatment) in the post-establishment phase. 

• A majority of PTAs offer investment protections in the form of provisions on expropriation and fair and equitable treatment. 

• The majority of PTAs include a broad “right to regulate” provision that allows the host state to override investment provisions for public interest or national security purposes. 

• Provisions aimed at protection of the environment occur in more than three-quarters of PTAs.

 • More than three-quarters of PTAs provide for investor-state dispute settlement. 

• PTA regional groupings demonstrate a number of common characteristics, particularly with regard to provisions on scope and definitions and investment liberalization and protection.

Intellectual Property:

 In the coming decade, three important questions are likely to rise to the fore: The first is whether any additional hubs will develop beyond the four mentioned above. To date, all of the hubs pushing forward with TRIPS-plus rules in PTAs are composed of advanced economies. However, as this chapter has noted, the frequency with which IPR-related provisions are included in PTAs concluded among developing countries has increased since 2011. Will this eventually result in a group of developing countries with a deep integration trade agenda to develop their own hub (e.g., a Pacific alliance in Latin America)? Or will the major centers for the development of TRIPS-plus rules remain in the advanced economies?A second question is whether there will be further consolidation of the existing models of IPR-related provisions that have arisen out of the four hubs. Already, there are cross-regional PTAs forming across some of these hubs, especially between the advanced Asian economies and the other hubs. With the US and EU already actively exploring the possibility of a trans-Atlantic PTA and the US open to rejoining the CPTPP, additional possibilities exist for further deep integration. How will this affect the development of TRIPS-plus rules and norms? Will this lead to even greater harmonization amongst the major economies? If so, will this be along the lines established in CPTPP, given its first-mover status as a megaregional PTA, or be based on another model?

Visa and Asylum:

Types of movement of persons. The focus of PTAs on specialized or high-skilled individuals is confirmed when looking at the types of movement of persons addressed: many PTAs address the movement, for example, of investors or dependents; very few cover migrant workers looking for employment, undocumented migrants or refugees. Importantly, of the 100 PTAs covering visa and asylum, 72 explicitly exclude employment on a permanent basis. In other words, migration in PTAs focuses on high-skilled, specialized individuals and temporary (not permanent) movement of persons. 

Environmental Regulations (ERPs- Environmental related provisions) 

PTAs negotiated between developed countries and between developed and developing countries tend to include the highest number of ERPs. High-income countries appear to be the primary proponents of including detailed ERPs in PTAs. Yet, several developing countries, in particular those that have already signed PTAs with high-income countries incorporating ERPs, have also increasingly incorporated ERPs into their trade agreements with other developing countries. The scope and level of commitments of these ERPs are, however, usually not as detailed as those found in PTAs negotiated between developed and developing countries. Overall, the evolution of the different types of ERPs incorporated in PTAs reflects a dynamic context in which PTAs often have a demonstration effect, enabling countries to negotiate and devise new ways to address emerging issues and challenges. 

 Trade negotiations are mostly about solid data, legal expertise and a clear vision of what the intended outcome should be of the intended trade arrangement. A lack of any one of the three could be disastrous. The dataset, analysis and conclusions offered in the handbook are definitely a useful guide to script one's own strategy to deal with a negotiating agenda. What kind of provisions exist in the area and what would benefit one's national interest the most? A clearer understanding of one's options is an asset in a negotiation.

Complexities of negotiating trade arrangements

The Indo-Pacific Economic Framework (IPEF) has got a lot of attention in recent times. The reasons are many - the composition of the participants, geo-political ramifications, the nature of the arrangement as compared to a traditional free trade agreement, the subjects it intends to cover and the potential it has for the future as a template for high-standard trade arrangements.

What got my attention this week was a brilliantly written piece by Stephen Olson on the challenges of the United States in implementing the IPEF framework. Titled "Indo-Pacific Economic Framework - Negotiating and Implementing challenges for the US", it covers a range of issues surrounding the IPEF. It brings out how domestic interests impact international negotiating positions, the different approaches of trade negotiation (a traditional free trade agreement with binding rules and dispute settlement as compared to a low standard setting arrangement without enforceability), how trade policy, strategies, priorities and approaches can change at the national level over time based on national interest, the diversity in international negotiation strategies (single undertaking versus silo approach), the novelty of non-market access trade negotiations and non-trade issues in trade negotiations. 

Another interesting aspect is the tension between supporting one's business interests in a multilateral/plurilateral forum and domestic opposition to those very businesses. This is especially seen in the tech sector with Big Tech (making digital trade rules to further national players/companies vis a vis domestic regulatory control concerns from within). This tension is brought out here by the piece:

In order to ensure at least a requisite level of domestic US support for the digital provisions of the IPEF, US negotiators will need to structure nuanced positions that will be acceptable to both Big Tech and the various interests that would like to reign them in. The IPEF negotiating partners are unlikely to accept these US proposals at face value and will counter-propose modifications or alternative provisions. Any digital agreement the US is ultimately able to secure with its IPEF partners could prove to be far from acceptable to one or more of the strong advocacy interests in the US that will pore over every small detail in the digital trade section of the agreement. 

Such tensions are common in international trade negotiations. Whose interests is one pursuing in trade negotiations? How does one balance consumer interests, State regulatory control and business interests while pursuing a negotiating position? Does it depend on the sector and the weight of the business interests or does consumer interest override business interests. How do we take care of middle level and small business interests in trade negotiations? What role do business associations play in this canvas?

Hat tip to R.V.Anuradha for a reference to the above piece that caught my attention.

Regulating big tech - Is there an ideal system?

I have blogged earlier on big tech and the challenge of taxation in the context of the digital tax here and here.

Regulation of big tech, especially in the context of anti-trust (or anti-competition) laws, is a raging issue across continents. There are varying approaches, understanding and results of this regulation by he State. However, the intent to regulate and the desire to implement that regulation is visible across the US, EU and China.

 (WSJ)

This piece on anti-trust regulation by Anu Bradford captures the varying approaches, results and implications of regulating big tech from different political systems. Comparing the US, EU and China's approach to big tech regulation in the context of anti-trust, including monopolistic tendencies, she concludes:

This relative “success” of the Chinese regulatory model in obtaining compliance from tech companies stands in stark contrast with the repeated difficulties faced by European and American regulators in holding tech companies accountable. In the EU and the US, regulators are often forced to fight lengthy legal battles as tech companies contest, rather than acquiesce to, the regulatory actions targeting them. This makes the Chinese state-driven regulatory model attractive to many other governments that are reluctant to be drawn into these kinds of regulatory battles that the US and EU are struggling to win.

What are the implications of democratic pressures and realities, judicial oversight and rule of law on anti-trust regulation? How should approach regulating big tech in the context of lengthy court battles and difficult enforcement? Are there any "ideal" models of implementing anti-trust? Do democratic institutions and processes impede enforcement or enhance transparency? Is democratic scrutiny and judicial oversight better in the long run than State-led regulation? is there too much regulation?  Is there a balance? is there a middle path? 

Global rule making in digital trade

For those following ecommerce trade/digital trade rule making, one knows the glacial speed it takes to reach agreement due to the conflicting national positions, sensitivities and differing perceptions on the need for rules in this sphere.

The World Trade Organization is the primary multilateral rule-making organization that results in enforceable, legal obligations. Rule making in ecommerce involve standard setting in cross border data flow, data localization, cyber security, esignatures and the governance of the internet. Business interests, national security and digital access are all issues that are impinged upon. Efforts to presently stitch a coalition is reflected in the Joint Statement Initiative on Ecommerce undertaken by a few WTO members.

This piece titled "The WTO Joint Statement Initiative on E-Commerce: Navigating Digital Trade Rules in a Fragmented World" by Andrew D.Mitchell and Elizabeth Chin captures the state of play on the initiative, the advantages the initiative brings to the table, the significant challenge of perspectives that it faces and the bumpy road ahead. They conclude:

The JSI remains a promising avenue for updating e-commerce trade rules. Within six years of its inception, the JSI has made more progress than the WPEC has in 24 years. The Services Domestic Regulation's conclusion represents the JSI's viability to conclude meaningful, plurilateral trade agreements. Moreover, hopes that a similar success will emerge in the realm of e-commerce through the JSI are further bolstered by the consensus which has already been achieved on several vital issues, including e-signatures and paperless trading. 

Nevertheless, there remain significant hurdles that the JSI will have to overcome before the conclusion of plurilateral digital trade rules can be realised. To resolve the negotiating deadlock on hotly contested issues such as data localisation and market access, the JSI must find a way to balance its Members’ competing national interests against their trade obligations. Further, more would have to be done to bolster the development dimension should the JSI hope to resolve the legal challenge of incorporating its digital trade text into the WTO regime.

While bilateral and plurilateral trade agreements have e-commerce chapters with binding commitments with varying degrees of ambition, no global solution is in sight yet. Will global trade rules ultimately enhance the digital economy or will digital growth across countries over the coming years fuel rule making at a later stage? Who sets the standards and when? Who benefits and how? Is there a global good we are missing or is it just national, business interests? Or is there a middle path?

Of strategies and FTAs

Negotiation of trade agreements, whether multilateral or bilateral are undertaken by governments. They represent multiple stakeholders, including local businesses. Free Trade Agreement negotiations are not an end in itself. What it delivers to a negotiating party is critical. Ultimately, whoo benefits, what market access is obtained and how the global economy benefits are questions that one needs to ask.

States often try to reach out to stakeholders to explain the benefits of FTAs and the opportunities that arise out of them. Found this piece by E&Y and FreshFields on how UK businesses can benefit from UK FTAs and what they need to look at. Found this page on trade strategy interesting:

It applies equally to nations and businesses - need a strategy to benefit from trade!

A different tournament - of alleged protectionist measures and the ultimate winner

My tryst with infographics continues. 

This one from CATO is an insightful account of allegedly protectionist measures undertaken in the United States from tariffs to semiconductor subsidies. What is interesting is the  format - a series of measures pitted against each other as the most protectionist and a live tournament with public voting to decide the finalist and eventual winner of the most protectionist measure! Very innovative.

For someone who wants to understand different trade measures as well as general policies in the United States that impact trade, competition and imports, this infograph is a must read!

It also gives an idea of what the different interests involved in trade policy are - ultimate consumers, large businesses and small entrepreneurs. Who are the winners and losers and who gets impacted. The explanations for each of the measures do indicate a plethora of tariff measures with legislation on transport services hogging the limelight too.

What is of particular interest too is the view that stricter intellectual property rights in FTAs as well as labour and environmental provisions in bilateral agreements is more protectionist than enhancing competition. 

CP-TPP and RCEP - who is in, out and wannabe in

Have been out of the blogging scene for a while but have decided to get back, albeit for a start, with a few infographics I found interesting and informative.

This one from the Peterson Institute blog beautifully shows the participation overlap of trading partners in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP-TPP) and Regional Comprehensive Economic Partnership (RCEP).

Two notable non-participants in both the trade agreements -  India and the United States.