India bans cotton exports

Reports that India had banned the exports of cotton were reported here, here and here. The ban was notified by the DGFT, India.The reason for the ban was to ensure availability of cotton yarn to domestic users.

Normally disputes relating to import bans are taken up more seriously in the international fora since producers from one's countries are affected by the ban. Export bans are rarely challenged (The case against the ban on export of minerals in case of China is one example).An interesting array of issues relating to export restrictions have also been discussed in the IELP blog here. Reuters has brought out various issues relating to export bans in this piece.

Are export bans permitted by the WTO rules? As per Article XI of GATT clearly states:

"1.No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product destined for the territory of any other contracting party."

However it goes on to create several exceptions, including:

"2.The provisions of paragraph 1 of this Article shall not extend to the following:

(a)      Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contracting party;"

This study titled "Export Controls: An overview of their use, economic effects, and treatment in the global trading system" by the US International Trade Commission provides an overview of export restrictions that are employed by countries to further domestic interests.

"Export controls are measures that, regardless of form, limit export volumes. When employed for economic reasons, they are used to raise revenue, control prices, or provide downstream industries with inexpensively priced inputs. In other contexts, political or social motivations, including transboundary issues like environmental protection, spur the use of export controls. Export taxes on agricultural products and raw materials appear to be the most common types of control, used mainly by lower-middle and low income economies. The economic impacts of export controls are varied, affecting the country applying the tax and its trading partners, often in unintended and undesirable ways. Although export restrictions have not traditionally been a central focus of trade negotiations, they have received increased scrutiny in recent years. Where export controls have been addressed in the Doha Round negotiations, regional trade pacts, and WTO accession agreements, the trend is generally toward restricting or eliminating their use."

An interesting insight into the various domestic interests that determine a decision on the ban is brought out by this edit in the Financial Express,

"Spinning is the only sector where 90% of output is in the organised sector—there are all manner of reservations in other sectors—and in this sector, India is the second-largest exporter in the world. Which is why the Confederation of Indian Textile Industry (CITI) even asked the government not to interfere in the cotton market, arguing that industry does well in sectors where the government role is minimal. Indeed, while making this point, CITI pointed out that the industry didn’t even have enough money to buy all cotton produced as the mills were reeling under a host of other problems including large power cuts. It added that government intervention would hurt long-term supplies of cotton as well. So this is a move which, while benefiting no section, will harm everyone."'

Does the ban on export of Indian cotton yarn fall under the exception provided under the GATT provision? Is the ban to prevent or relieve critical shortages essential to India? The decision again brings to the fore competing domestic interests - cotton farmers, local industry dependent on cotton, traders in cotton exports as well as consumers in India. 

Airbus Boeing - Essentially a "political" dispute?

The Airbus-Boeing dispute at the WTO is perhaps one of the most long drawn disputes in the multilateral trading system revolving around the permissibility and extent of subsidies within the SCM framework. The dispute is so central to the US-EU relationship that even a book on the turbulent dispute  titled "Boeing versus Airbus"  took shape. I have earlier blogged about the dispute here, here, here, here, here and here.

Recent reports that the the AB gave its judgement in an appeal by the European Union against the United States in subsidies related to Boeing have reopened issues pertaining to the dispute. The details of the AB report are not public yet. (Does the AB always circulate the order to parties in private before making it public?)

The ChinaPost in this piece reported

"The decision, given confidentially, was made on a European Union appeal against U.S. government aid to Boeing, and trade officials hoped the details will be released by mid-March.

After the ruling was transmitted to the EU and the United States, an EU diplomat said he could not comment, though he did indicate that EU-U.S. negotiations might be the only path to a solution.

The WTO decision brings to a head a battle between the aerospace giants in the world's most costly trade dispute, but trade officials expressed doubts that it would settle the core issues."

An interesting aspect in this piece is the suggestion by the EU trade spokesman that the dispute could be solved only at the "political" level between the EU and US. 

" Today's ruling, when it is made public, will provide us with a clear picture of where the two parties stand in the aircraft disputes,” EU trade spokesman John Clancy said from Brussels.

“We said all along that only negotiations at the highest political level can lead to a real solution and we hope that today's report provides momentum in that direction.

“The real challenge remains to find a mutually acceptable approach to maintain a healthy and viable aircraft industry producing safe and more environmentally friendly aircraft,” said Clancy."

Is this an indication of the limitations of the Dispute Settlement Mechanism (DSM) of the WTO? The DSM is considered to be the jewel in the crown of the multilateral trading system due to its importance in a rule based system and a legal basis for settling disputes rather than depending on power relations and negotiations between trading partners. After several years of the dispute, and the Panel and AB having pronounced its decisions after giving sufficient opportunity to the parties and weighed the evidence, it is surprising to note that a suggestion for a "political" settlement is being put forth. Does this imply that no matter what the DSM rulings are, ultimately political decisions matter relating to compliance? While subsidies and their impact are essentially "political" questions having a deep impact on domestic politicy space, is it not the understanding that decisions against internationally accepted obligations need to be curtailed so as to not to undermine multilateral trading rules? Is not the efficacy of a rule based system in question if disputes need to be settled "politically" rather than "judicially"? While trade rules are negotiated and made "politically", once made, should not countries agree to a "judicial" interpretation and enforcement of the same? While politically settling disputes between the US and EU might be one between equal trading partners, does not the equation change between unequal trade powers? 

Pankaj Ghemawat - Benefits of globalisation

Pankaj Ghemawat in this piece in the HBR titled "The Benefits From Globalization Are Understated" pitches his case for "globalisation" thus:

To summarize (see chart), the benefits of expanding merchandise trade are much larger than traditional models indicate, and to those one needs to add gains from services trade to have a complete picture of the benefits of increased trade flows. Then, on top of trade, other kinds of cross-border flows double the estimated economic benefits to at least 8% of global GDP. And beyond that there are complementarities and non-economic benefits that I find compelling but are harder to quantify in GDP terms."

 He essentially argues that the gains of international trade in terms of percentage of GDP will be evident in the good, services, labour mobility spheres. 

I think there is no dispute that globalisation does tend to increase trade and with it brings an increase in GDP and living standards. The critics of globalisation however argue, inter alia, the following:

1. The distributional impact of a globalised world is skewed. Rising inequality and concentration of the benefits of the globalised world rest in too few hands.

2. Domestic industry interests are compromised in a globalised world and this impacts the local economy, workers and ultimately the country.

3. Domestic policy space is severely curtailed due to international trade rules in matters that should essentially be a country's sovereign right.

Would look forward to the next post of Pankaj Ghemawat where he promises to address some of the cons of globalisation.

Labour conditions, globalisation and WTO - IFA's the way forward?

In this piece in the Social Europe Journal Siglinde Hessler argues for the adoption of International Framework Agreements as a strong instrument to improve labour conditions worldwide.

"International Framework Agreements (IFA) are important in international labour regulation. As the globalization of production and markets is increasing, an international regulation of labour is strongly needed. Existing instruments such as the OECD Guidelines for Multinational Enterprises, the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and the great number of ILO conventions among others have set important marks in the debate, but still lack recognizable success as they lack the power of sanctions. Furthermore, the growing number of voluntary and unilateral declarations on social standards, which are part of the Corporate Social Responsibility strategy of companies, have not attained concrete results as they lack binding force.

IFAs are a relatively new in international labour regulation, operating at company level. They are agreed to between companies and workers’ representatives, such as Global Union Federations and/or works councils, and they define fundamental labour standards – primarily, the ILO core conventions – for a company’s plants worldwide. Furthermore, they recommend the standards to the suppliers of the enterprises which have concluded the IFA. In contrast to other instruments of international labour regulation, IFAs have a strong binding character: As they refer to international norms such as the ILO core conventions and as they are agreed by company and workers’ representatives, they involve workers’ representation in the implementation and monitoring of the IFA. Furthermore, since IFAs are to some extent a reaction by companies to public pressure to respect labour rights, companies try to avoid the negative publicity arising from cases where labour rights are disrespected."

Are IFAs the answer to the issue of global labour rights in the context of WTO? there are two opposing views about bringing in labour issues within the framework of the WTO. While the proponents assert that the WTO should actively engage in addressing concerns of "poor labour conditions" in many countries within the WTO framework as an ingredient of fair international trade, the opponents of this linkage assert that it is essentially a national policy question and would be a technical barrier to trade if brought within the confines of the WTO. They also argue that it would result in a "function creep" for the WTO which would essentially be addressing issues extraneous to trade and be a protectionist tool in the hands of the developed world. It is in this context that IFAs gain prominence. Is it the middle path to achieve global labour standards while addressing the issues of  domestic sovereignty and policy space?

US strengthens its trade enforcement apparatus, atleast on paper

The United States created an Interagency Trade Enforcement Center by a Presidential order on 28th February 2012 which essentially had this mandate:

"Sec. 3. Mission and Functions. The Center shall:

(a) serve as the primary forum within the Federal Government for USTR and other agencies to coordinate enforcement of U.S. trade rights under international trade agreements and enforcement of domestic trade laws;

(b) coordinate among USTR, other agencies with trade related responsibilities, and the U.S. Intelligence Community the exchange of information related to potential violations of international trade agreements by our foreign trade partners; and

(c) conduct outreach to U.S. workers, businesses, and other interested persons to foster greater participation in the identification and reduction or elimination of foreign trade barriers and unfair foreign trade practices."

The underlying rationale of the new Authority was clearly stated,

" Robust monitoring and enforcement of U.S. rights under international trade agreements, and enforcement of domestic trade laws, are crucial to expanding exports and ensuring U.S. workers, businesses, ranchers, and farmers are able to compete on a level playing field with foreign trade partners. To strengthen our capacity to monitor and enforce U.S. trade rights and domestic trade laws, and thereby enhance market access for U.S. exporters, executive departments and agencies (agencies) must coordinate and augment their efforts to identify and reduce or eliminate foreign trade barriers and unfair foreign trade practices to ensure that U.S. workers, businesses, ranchers, and farmers receive the maximum benefit from our international trade agreements and under domestic trade laws."

USTR Ambassador Kirk justified the creation of the new agency thus:

“This new trade enforcement unit will better enable USTR and the Department of Commerce to join forces - with the support and collaboration of partner agencies like Agriculture, Homeland Security, Justice, State, Treasury and the Intelligence Community - to ensure that America’s trading partners play by the rules. It will help American workers and businesses compete and win on a fair global playing field.”

Prestowitz in this piece in the Foreign Policy while analysing the new Authority's mandate was doubtful if this was the right policy to pursue since he felt that the US needed a Competitiveness strategy to enhance US competitiveness rather than an enforcement strategy.

"But the question at this point has become whether the laws and the deals really can be enforced in any meaningful way. Of course, anti-dumping investigations can be undertaken and duties imposed and subsidies can be countervailed if proven to be doing damage. But these kinds of actions have a very narrow focus, proceed at the pace of molasses in winter, take enormous time and energy, and always occur after most of the damage has already been done. This kind of enforcement is not useless, but it is not likely to change behavior or the nature of the economic interaction. Broader cases against industrial and other policies that effectively nullify the concessions and undertakings of trade agreements can be filed in the WTO and probably should be. But the WTO rules are not always clear cut and in any case are not well tested in many areas, nullification and impairment being one of them. Moreover, a flood of actions in the WTO against a country like China will be seen as a hostile action and is likely to engender tensions with Beijing that could be quite uncomfortable. This will make the US. and other Governments hesitate to act decisively. Most importantly, the rules are often vague and subject to interpretation. Many of the most powerful policies and practices that hinder market access or that distort markets, such things as implicit investment guarantees in key industries or control of distributors by major producers are not clearly illegal and, in any case, are tools that are being used by various U.S. states or that the United States might want to use in the future."

Housed at USTR, the center will include trade lawyers, researchers, economic analysts and foreign-based personnel.This is seen as a major attempt by the United States to address trade agreement violations, especially in the context of China. The establishment of the center is closely linked to the US policy of driving exports, protecting domestic industry interests as well as ensuring reduction of trade barriers to US industry outside. This is a classic case where the "State" is taking a proactive step in protecting its domestic industry interests within and outside. Will the creation of this Center lead to an increase in WTO cases filed by the US against its trading partners? The creation of the Center is a lesson for other countries to put domestic interests in the forefront while engaging with the outside world in international trade. Pursuing domestic interests, within the context of international trade rules, need not necessarily be viewed as "protectionist". The only caveat to that is that the standards one applies to the outside world should be also followed in letter and spirit.Credibility in actions is as important as protecting one's interests.

Globalisation index 2011

A piece here talked about the Globalisation Report, 2011 brought out by E&Y ranking 60 countries on the Globalisation index. Bringing out the report in its third year (2010 report is here) the 2011 Report is titled "The world is bumpy:Globalization and new strategies for growth" says,

"The world isn’t flat — it’s curved, bumpy and you can’t see what’s ahead. Even as new markets expand and globalization increases, opportunities are becoming harder to find. Not so long ago, mature-market companies, faced with shrinking prospects at home, looked to rapid-growth economies as their best hope for profitability. And for their part, rapid-growth-market companies, buoyed by robust domestic economies, began to expand into neighboring countries and, increasingly, the developed world.

Now the economic outlook is blurring in many markets, and a looming squeeze — slowing growth, increasing competition, significant operational complexity and shortages of talent in key markets — is diminishing business prospects. Slightly more than half of the senior executives questioned for this report think that the global economy is likely to fall into recession by the end of 2012. Almost two-thirds consider it likely that there will be a new global financial crisis triggered by Eurozone debt defaults. Nearly half of the respondents think that China could suffer a major economic slowdown over the next five years, and one-third expect a similar outcome for Brazil and India."

What is interesting is the Globalization index 2011 which is explained in the report as follows:

" The Globalization Index measures and tracks the performance of the world’s 60 largest economies in relation to 20 separate indicators that capture the key aspects of cross-border integration of business. The indicators fall into five broad categories: openness to trade; capital movements; exchange of technology and ideas; labor movements; and cultural integration. These factors have been weighted based on the significance placed upon each factor by 992 surveyed senior company executives doing international business. Subsidiary indicators are also given sub-weightings within each category. The indicators chosen include both quantitative data and qualitative scores from a range of trusted sources. The performance of countries is measured over time, so that progress toward greater or lesser globalization since 1995 can be observed, with a forecast of likely performance until 2015."

While Hong Kong tops the list of 60 countries, India comes 55th. What is interesting to see is China's position. it is ranked 39th in the list. China while scoring very low on cultural integration scores high in trade openness (Total trade (exports + imports) as % GDP, trade openness, Tariff and non-tariff barriers, ease of trading (cross-border), current-account restrictions). The critics of Chinese trade policy would be surprised at this "high" result since China is accused of being  "protectionist" while taking advantage of the globalized world. Further, one finds the positioning of China 39th in a list of 60 surprising (below even Chile, Poland, Malaysia and South Korea) considering the fact that China is the fastest growing economy in the world and a major player in global trade. Of course the indicators that are considered have an impact on the final result, but one would expect China to be high up in the globalization index after it joined the WTO in 2001.

Fresh ideas for negotiation?

In a paper titled "A 21st Century Work Program for the Multilateral Trading System", the National Foreign Trade Council  recommended  that the WTO pursue a fresh initiative to renew the multilateral trade negotiations in the context of the Doha impasse. The key initiatives suggested are:

• Conclude a trade facilitation agreement;
• Negotiate a services agreement;
• Take steps to discuss and address 21st Century global challenges, including optimizing the digital economy and movement of information across borders, improving global health outcomes and lowering obstacles to the development and adoption of clean technologies; and
• Consolidate trade liberalization under the WTO framework.

The paper also features a detailed "Analysis of WTO-consistent Approaches to Plurilateral and non-MFN Trade Agreements," which provides insights on what can be accomplished legally under WTO rules by a coalition of nations "through agreements that would either condition additional commitments on the participation of a ‘critical mass' of countries or which would not confer benefits of new commitments on countries which declined to participate in such agreements."

In this piece Jake Colvin, vice president, National Foreign Trade Council in the US advocated a fresh approach to "modernize" trade rules by concentrating on trade facilitation issues that are less divisive. 


Commenting on the utility of the WTO he said,

"The WTO is a valuable institution. It generally functions well as a body to enforce existing rules and settle disputes, and has been rightly credited for helping to stave off large-scale protectionism during the economic crisis. Its utility as a forum for trade negotiations has taken a hit in recent years, however, and member countries need to more firmly establish its place as the premier forum for opening markets and modernizing trade rules. It is time for countries to pursue new ideas and pathways for advancing an ambitious multilateral agenda that will support broad-based economic growth, development and jobs."

With signs that major countries are contemplating "inward looking" policies and the domestic policy maker's dilemma to justify international trade and it's benefits to his/her local constituency in the context of unemployment and job loss, the above idea might just remain an idea unless backed by the political leadership across the spectrum.