South south co-operation

The selection of the new DG of the WTO generated a little bit of news in the past months. Now that things have settled, we have opinions on how the WTO needs to be revived, revitalised and re-energized. The challenges before the new DG are said to be immense and the way forward is said to be riddled with complexity.

One such piece offered a way forward to the new chief to undertake more consultation amongst private businesses across continents to revitalise and reaffirm the relevance of the multilateral institution. Jean-Pierre Lehman in his piece "How the WTO can stay relevant" brought out the various pressures in the context of running the international institution. The point about South-South co-operation caught my attention:

"However, more importantly, there is also a South-South division, which is less obvious but equally hindering. The agriculture policies of India are very different from those of Brazil for example, and even though five key leading emerging nations (Brazil, Russia, India, China and South Africa) are classified as the BRICS, I see very little in common within these countries. We have the emerging power and economic strength of Brazil, China and India, but they need to lay aside their differences in order to progress and benefit from their combined assets."

While south-south co-operation is a phrase commonly used to emphasise the importance of developing country camaraderie, in actuality national interest does play a defining role in way country's implement trade policy. While negotiations and international economic law and policy making is more amenable to a South-South co-operation paradigm, dispute settlement cases indicate that this cohesion is easily disproved. May be it is a mix of both worlds.

Great BRICS Graphic

Found this great graphic in the China Daily on the profiles of the BRICS economies which I thought I would share:

South south trade and national interests

The Economist recently carried a piece on the increasing importance of South-South trade in recent years. The balance, according to the piece, has shifted from a developed-developing country coupling to a decoupling.

(Courtesy: The Economist)

The share of trade between developing countries is increasing signifying a regional shift of trade. It also signifies the growing influence of emerging economies in the global economy. I was trying to contextualize this aspect of an increase in south south trade to south south co-operation in multilateral trade. 

Several commentators have argued that developing countries, especially in the context of BRICS, should have a common strategy to deal with multilateral issues involving trade. However, this misses the point that trade interests are largely guided by national interests. And the dispute settlement cases at the WTO show that developing countries do not hesitate to file complaints against fellow developing countries (a recent case of Brazil against South Africa on poultry or this case of Brazil accusing Argentina of protectionism) when they perceive trade rules have been violated. Increasing south south trade is as much a sign of the growing importance of the emerging economies but also a sign that national interests will inevitably conflict at times. Thus, while a broader south south agenda for pursuing a more fairer globalized governance structure may be desirable, one must not lose sight of legitimate national trade interests to be protected.

David Trubek, BRICS economies and domestic policy space

The issue of domestic policy space in the context of international economic law and policy has been a constant theme of this blog. See posts here, here and here for an overview of thoughts. Does WTO law restrict democratic, regulatory autonomy unreasonably? Is the national development paradigm unduly affected by international trade rules? Are countries sovereignty affected? Is there domestic policy space to implement policies as per a national developmental agenda? 

While many scholars have attempted to address this issue and offer contrary opinions, I found David Trubek's piece in the context of the growth of the BRICS economies particularly contextual and interesting. Titled "Reversal of Fortune? International Economic Governance, Alternative Development Strategies, and the Rise of the BRICS" he asserts that there is space within international trade rules that developing economies can use to further their developmental agendas. Taking note of the ascendancy of developing economies in interpreting WTO law especially the TRIPS Agreement, China's proactive role of State -led development within the WTO system and Brazil's innovative use of TRIPS flexibilities, Trubek avers that there is scope for a "development-friendly" interpretation of WTO law:

"All these developments suggest that Faundez’s assessment of international economic law and policy may be overly pessimistic. The emerging economies are no longer so much under the sway of the IFIs and are beginning to have some say on the rules of the game. The BRICS are finding ways to shape WTO law to fit alternative strategies. BITs have become more reciprocal and more tolerant of industrial policy. Trade bureaucrats and investment arbitrators may still come disproportionately from developed countries and/or accept neo-­‐liberal ideas. But this may be changing. And as the role of the G-­‐20 expands the BRICS should have more of a chance to influence global policy."

However, there are many questions:

1. What really constitutes a development friendly paradigm of domestic policy? Are the State and market two exclusive domains or extremities? Can we see a convergence? Do State led development paradigms always have the answers? Can they be more oppressive, at times, than market led growth? and vice versa?

2.Trade is essentially guided by national interest. In this sense, the national interest of many developing countries conflict with each other as they vie for market access for their products or protect their domestic industry from products from outside. Is BRICS co-operation possible in this difficult situation of national self-interest? Is it too optimistic to implement? Brazil is seeking inclusion of currency misalignment as an area where WTO must intervene. the country to be largely affected by this is another BRIC country - China. What implication does this have  for BRICs co-operation in re-interpreting international economic law?

3. While BRICS co-operation and overall strategy to re-interpret international trade rules to advance their national priorities may be a positive step, to expect a bonhomie may be over-optimistic. After all, national trade interests would play a crucial role in how countries would react.

Trubek himself highlights some of the limiting factors to BRICS so-operation, including this:

"The BRICS share some general approaches to development and have common interests in making some changes in international economic law. But they may not always be in agreement: for example, Papa notes that China and India have taken different stances towards the scope of BITS and appropriate processes for dispute settlement. And there may be real conflicts between these countries: thus many in Brazil have been very critical of China’s trade and currency policy."

Interesting times for a creative re-interpretation of multilateral trade rules to advance genuine, national priorities. While we may not agree with what actually constitutes "genuine, national priorities", the possibility of a creative interpretation is in itself re-assuring.

EU, BRICS and impact of Globalization

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

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

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

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

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

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

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

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

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

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

Dumping chicken - South Africa takes on Brazil

The BRICS has been a strong interest group in espousing the developing countries cause at international fora. It signifies a coming together of emerging economies to strengthen economic cooperation. I had blogged about BRICs and their resolve against protectionism here.


(Courtesy:BBC)

Now BBC has reported  a dispute over chicken between two of the member countries threatens the interest group. South Africa has alleged that Brazil is dumping chicken into South Africa which is leading to unfair competition and loss of domestic jobs.

"South Africa proudly joined the Bric nations of major emerging economies last year, hoping it would boost its economy and give it far greater diplomatic clout. 

But the ink has barely dried on the paper and South Africa is already involved in a murky trade row with one of its new-found friends, Brazil. 

South Africa's poultry industry is accusing Brazil of dumping chickens on its market and farmers say they are now forced to cut jobs because they cannot compete with Brazil's "unfairly low" prices. 

Brazil has denied this and has taken the matter to the World Trade Organization (WTO)."

Earlier in June Brazil filed a case in the WTO against the imposition of provisional antidumping duties by South Africa on frozen meat from fowl from Brazil.

This case highlights that while trading bloc or interest groups do have some significance in international economic relations, ultimately a country's national, domestic interests play a dominant role in deciding trade policy. South Africa was threatened by a loss of local jobs by alleged dumping and it took the measure of imposing antidumping duties. Whether the imposition was legitimate will be decided by the dispute settlement mechanism. While countries do constitute trading blocs and espouse causes of the developing world in international fora, it is fortified by a keen protection of national interest. The existence of the BRICS would not deter South Africa to protect its local poultry industry against a fellow BRICS member. Whether the action is legitimate or globalization produces its losers is all together another question.

BRICS - Delhi Declaration and WTO

The Fourth BRICS Summit concluded in India recently. I have blogged about BRICS earlier here.The result of the Summit was a declaration called the Delhi Declaration. References to the multilateral trading system and the WTO in the declaration are worth a look:

"15. Brazil, India, China and South Africa congratulate the Russian Federation on its accession to the WTO. This makes the WTO more representative and strengthens the rule-based multilateral trading system. We commit to working together to safeguard this system and urge other countries to resist all forms of trade protectionism and disguised restrictions on trade. 

16. We will continue our efforts for the successful conclusion of the Doha Round, based on the progress made and in keeping with its mandate. Towards this end, we will explore outcomes in specific areas where progress is possible while preserving the centrality of development and within the overall framework of the single undertaking. We do not support plurilateral initiatives that go against the fundamental principles of transparency, inclusiveness and multilateralism. We believe that such initiatives not only distract members from striving for a collective outcome but also fail to address the development deficit inherited from previous negotiating rounds. Once the ratification process is completed, Russia intends to participate in an active and constructive manner for a balanced outcome of the Doha Round that will help strengthen and develop the multilateral trade system. 

17. Considering UNCTAD to be the focal point in the UN system for the treatment of trade and development issues, we intend to invest in improving its traditional activities of consensus-building, technical cooperation and research on issues of economic development and trade. We reiterate our willingness to actively contribute to the achievement of a successful UNCTAD XIII, in April 2012. 

18. We agree to build upon our synergies and to work together to intensify trade and investment flows among our countries to advance our respective industrial development and employment objectives.We welcome the outcomes of the second Meeting of BRICS Trade Ministers held in New Delhi on 28 March 2012. We support the regular consultations amongst our Trade Ministers and consider taking suitable measures to facilitate further consolidation of our trade and economic ties..."

Several interesting policy statements in this declaration:

1.  All forms of "protectionism" and disguised restrictions on trade resisted -  This is good news for the multilateral system but this would also require Brazil, Russia, India, China and South Africa to shun all forms of protectionism and disguised restrictions.

2. Continue efforts for successful completion of the Doha round - Mere rhetoric or achievable?

3. Against plurilateral efforts via a vis multilateral efforts at trade negotiations -  Again, good news for multilateral trade, but realities indicate that plurilateralism is increasingly becoming mainstay.

The positives of the declaration vis a vis the WTO regime is a re-affirmation in the principles of multilateral trade and institutional mechanisms supporting it. How much this would translate into reality and action, only time will tell.