Child labour, International trade rules and WTO

I had blogged here about the relationship about child labour and international trade rules. The WTO is faced with the constant question as to whether it should tread into non-trade domains like the environment, labour issues and human rights. Those in favour argue that the multilateral trading rules must support and espouse universal labour standards, human rights and environmental standards as a part of a liberalised, fair trading regime while those opposing argue that the WTO is not the right fora for this discussion and inclusion of these issues would infringe on legitimate domestic policy space.

I found this interesting piece in the NYT blog regarding the relationship between child labour and trade.

"In my Economic Scene column on Wednesday I discussed how anti-sweatshop campaigns in the West to improve the lives of workers toiling in dismal conditions in the third world often do more harm than good — turning low-wage workers into no-wage workers by inducing multinational companies to pick up shop and move somewhere else.

Child labor offers perhaps the best example that big improvements in the workplace are always driven from pressure from within. Banning imports of products made by minors might make the people of San Francisco happy, but it has done very little to improve the lot of poor children overseas.

“There is very little evidence supporting any connection between trade and child time allocation other than through the impact of trade on the living standards of the very poor,” writes Eric V. Edmunds, an economist at Dartmouth College who directs the Child Labor Network at the Institute for the Study of Labor."

It essentially argues that a ban on trade in products based on child labour would do more harm to those families who are engaged in child labour than address their issue by forcing the children to work in areas not covered by trade or by losing out on employment.

Another piece titled "Child labour: Is International Activism the solution or the problem?" questions the effectiveness of imposing international labour standards to address the issue of child labour. Arguing that stronger domestic policy action is required to tackle the problem, it states:

"Our findings question the effectiveness of current international pressure tactics, such as consumer boycotts or imposing international labour standards, in reducing child labour in the long term. Since such policies also carry short-term costs for developing countries, the rationale for their use should be reconsidered.

The international community still can, and should, help address the child-labour problem in developing countries. We are critical of interventions that work through restricting trade. Such policies have the potential to displace working children into informal employment, with negative repercussions for the prospects for future political reform. A more promising alternative would be policies that reward parents for choosing education over child labour for their children (a successful example of this sort is the PROGRESA program in Mexico). Such policies reduce economic dependence on child labour without inducing detrimental displacement effects. Likewise, policies that create incentives for developing countries (e.g., through conditional aid) to restrict child labour anywhere in the economy (rather than just in the export sector) would be useful, although these may be difficult to enforce."

Kaushik Basu and Homa Zarghamee in this paper have argued that product boycotts on the grounds of the use of child labour can be counterproductive. 

Should the WTO get involved in multilateral trade rules espousing labour standards that can be enforced through the dispute settlement mechanism? Would this be counter productive? Would this be "protectionism" through the back door? While there is no question that strong national policies should be in place to address the menace of child labour, is internationalisation of enforceable rules to ban child labour an answer? With the Doha round at a stalemate, I don't see this issue gaining precedence. However as a principle of the contours of multilateral trade law, the issue of "non-trade" matters being considered is still a very live debate.

Trade and Development report - Some thoughts

Every year the United Nations Conference on Trade and Development (UNCTAD) publishes the Trade and Development Report (TDR). The list of TDRs is found here. The TDR 2012 is expected in September. An interesting debate about the role of the TDRs in the context of multilateral trade rules is found here.

"Experts marking the 30th anniversary of one of the world´s more influential economic annuals said Monday that themes long sounded in UNCTAD´s Trade and Development Report retain current prominence - particularly those citing the questionable wisdom of unbridled free markets. Other prominent themes concerned the persistence of trade imbalances, the risks of overdependence on commodities exports, the risks of premature liberalization of capital flows, the need for new mechanisms to deal with sovereign debt, and the problems posed by income inequality.

...

The Trade and Development Report "is UNCTAD´s original flagship report," said Anthony Mothae Maruping, President of the organization´s Trade and Development Board, as he opened the meeting.

Rubens Ricupero, former Secretary-General of the organization, termed the Trade and Development Report "an encyclopedia of development thought" and said that over the years, as neoliberal economic reforms swept the world, the publication often was a lonely voice calling for an "active role of the State" in spurring the kind of stable economic growth that leads to rising living standards in poor countries.

...

"The reasoning is that you need a State, a government, to have an idea, a plan for the economy, a design, and an economic policy strategy that makes sense, given the domestic and international constraints," explained Heiner Flassbeck, Director of UNCTAD´s Division on Globalization and Development Strategies and principal author of the last eight editions of the report. "That is the basic argument of the Trade and Development Report in recent years."

Carlos Fortin contextualised the Report in the shadow of the multiplicity of international organisations - UN, IMF, WB and WTO here.

" The Report is regarded as the main alternative in the United Nations system to the mainstream approach represented by the World Bank, the IMF, the WTO and the OECD."

Without going into the ideological positions highlighted here, the role of the State in the development paradigm of a country is undisputed. The extent and nature is generally disputed. Carlos Fortin concludes this interesting debate on the role of State supported monopolies (SOEs) with a valid point:

" What came closest to a majority opinion is that developing country governments should not forgo the option of supporting national companies, particularly for purposes of making them internationally competitive, but should only exercise it with two significant caveats:

        1.support should not be a blank cheque, but contingent on performance; 

        2.support should be consistent with international obligations and disciplines, notably those of the World Trade Organization."

The issue whether a support is consistent with a country's WTO obligations is a legal minefield of interpretations and counter factuals. Many disputes in the context of the SCM Agreement precisely deal with this point. However, the point is well taken that a country's domestic policy choice should be limited by its international obligations.

Data and its uses - The UN Statistical Database

The United Nations Economic Commission for Europe (UNECE)  now contains indicators that give a snapshot of economic globalization in the countries of the region. The indicators are available for every year dating back to 1990. Though limited to European countries, this statistical database does offer an interesting tool to assess countries' performance with the use of data. 

I tried a little bit of experimenting with the indicators (one can choose between a number of indicators for these countries) and this is what I could come out with

I. This indicates the growth rate in total trade of the UK and US. The slump in 2009 is not surprising.

II. This indicates the percentage growth rate of exports and imports of Spain, Switzerland and Sweden from 2006 to 2010.

III. This indicates the percentage of total trade to GDP in Finland, France, Georgia, Germany and Greece. France, surprisingly has the lowest figure in this. Is France more localised than the rest of Europe?

Ukrainian complaint against Australia's Tobacco Plain Packaging

 

The recent Ukranian measure of requesting for consultations in a dispute relating to plain packaging of tobacco products has raised several interesting questions. I have earlier blogged about Australia's plain packaging measure here, here and here.


Australia, through a legislation, has mandated that tobacco sold in Australia should be with only the specified plain packaging and the legislation prevents tobacco advertising and promotion on tobacco products and tobacco product packaging by making it an offence to sell, supply, purchase, package or manufacture tobacco products or packaging for retail sale that are not compliant with plain packaging requirements.

The measure has been defended by Australia on the grounds of public health. Recently Ukraine has initiated the dispute settlement mechanism at the WTO with this request for consultation.

"Australia's measures, especially viewed in the context of Australia's comprehensive tobacco regulatory regime, appear to be inconsistent with a number of Australia's obligations under the TRIPS Agreement, the TBT Agreement, and GATT 1994, including but not limited to the following provisions of these agreements:

 Articles 1.1, 2.1, 15, and 16 of the TRIPS Agreement and Articles 6quinquies, 7, and 10bis of the Paris Convention as incorporated in the TRIPS Agreement because the measures, which discriminate against tobacco-related trademarks based on the nature of the product, fail to give effect to the trademark holder's legitimate rights with respect to the trademark, fail to accord effective protection of the trademark "as is," and fail to prevent acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor; 

 Article 20 of the TRIPS Agreement because the measures constitute an unjustifiable encumbrance on the use of trademarks; 

 Article 1 of the TRIPS Agreement because Australia has failed to give effect to Article 20 of the TRIPS Agreement in Australia's domestic laws and regulations; 

 Article 27 of the TRIPS Agreement because by regulating the physical features of the patented packs, the measures prevent the normal exploitation and thus the enjoyment of the patent rights for tobacco products in a manner that discriminates based on the field of technology;

 Article 2.2 of the TBT Agreement because the measures constitute an unnecessary obstacle to trade and are more trade restrictive than necessary to achieve the stated health objectives; and

 Article III:4 of the GATT 1994, Article 3.1 of the TRIPS Agreement, and Article 2.1 of the TBT Agreement because the measures fail to respect the national treatment requirement set out in these provisions by not providing equal competitive opportunities to imported tobacco products and foreign trademark right holders as compared to like domestic tobacco products and trademark right holders.  

 These violations nullify or impair the benefits accruing to Ukraine under the aforementioned Agreements."

While the main challenges to the Australian measure are on the grounds of it being in violation of the TRIPS, TBT and GATT provisions, what is interesting is that Ukraine has initiated this request for consultation. The involvement of Ukraine has evoked considerable media attention here and here. The issue of the rationale for Ukraine having filed the complaint is being raised since Ukranian tobacco exports to Australia are minimal. Other domestic compulsions of tightening of tobacco advertising (surprisingly) are being touted as the underlying cause for Ukraine to be the complainant as a quid pro quo measure to the Tobacco industry. A very critical analysis of the Ukranian tobacco industry is found here in this campaign material.

Irrespective of the underlying motivations for the complaint, Australia would have to defend its move at the WTO. The dispute brings to the fore many interesting issues:

1. What would be the interpretation of the public health exception in the context of the TRIPS, TBT and GATT vis a vis barriers to international trade?

2. The varying and complex domestic interests involved in a WTO dispute are playing out here? Are the interests of multinational tobacco companies operating in Ukraine the same as the "Ukranian" national interest? Since exports from Ukraine would be affected thus affecting workers interests in the Ukranian units, does this constitute "domestic interest"? What is the position of the Government vis a vis consumer interests in Ukraine against tobacco on health grounds?

3. Subsidisation of WTO disputes is another interesting area of debate? Who bears the cost of this WTO dispute in Ukraine? The country or the tobacco manufacturing companies? Are there formal processes to handle this?

While one awaits Australia's formal response to the request for consultations, the interplay of the above externalities would be as interesting!

China rare earth - U.S., EU and Japan knock at the WTO

In three identical requests for consultations the U.S,  EU and Japan have set the stage for consultations at the WTO with China on China's export restrictions on rare earths. I had blogged about the dispute here.

The gist of the request for consultations is as follows:

" China imposes export duties on various forms of rare earths, tungsten and molybdenum.  

 China imposes quantitative restrictions such as quotas on the export of various forms of rare earths, tungsten and molybdenum.   

 China imposes additional requirements and procedures in connection with the administration of the quantitative restrictions on various forms of rare earths, tungsten and molybdenum, including but not limited to fees and formalities, restrictions on the right to export such as prior export experience requirements and minimum capital requirements, and other conditions that appear to treat foreign-invested entities differently from domestic entities. 

 China imposes other restrictions such as licensing requirements on the export of various forms of rare earths, tungsten and molybdenum, including in connection with the administration of the quantitative restrictions that China imposes on the export of various forms of rare earths, tungsten and molybdenum.  

 China maintains a minimum export price system for the export of various forms of rare earths, tungsten and molybdenum and also requires the examination and approval of export contracts and export prices, including in connection with the administration and collection of the export duties for various forms of rare earths, tungsten and molybdenum.    

 China administers all these export restrictions on various forms of rare earths, tungsten and molybdenum and the requirements and procedures in connection with these export restrictions through,  inter alia, its ministries and other organizations under the State Council and various chambers of commerce and industry associations. Furthermore, it appears that China administers these export restrictions on various forms of rare earths, tungsten and molybdenum and the requirements and procedures in connection with these export restrictions in a manner that is not uniform, impartial, reasonable, or transparent. 

 It appears that China imposes and administers these restrictions on exports of various forms of rare earths, tungsten and molybdenum also through measures that are not published."

Invoking the provisions of the GATT as well as the commitments in China's Accession Protocol the request for consultation argues that the export restrictions are in violation of China's international obligations:

" China's measures appear to be inconsistent with the following provisions: 

 Articles VII, VIII, X, and XI of the GATT 1994, and, 

 Paragraphs 2(A)2, 2(C)1, 5.1, 5.2, 7.2, 8.2 and 11.3 of Part I of the Protocol on the Accession of the People's Republic of China (WT/L/432)(“Accession Protocol”), as well as China's obligations under the provisions of paragraph 1.2 of Part I of the Accession Protocol (which incorporates commitments in paragraphs 83, 84, 162, and 165 of the Report of the Working Party on the Accession of China)(WT/MIN(01)/3).

 China's measures also appear to nullify or impair the benefits accruing to the European Union directly or indirectly under the cited agreements. "

China is yet to provide it's response to the request for consultations. It would be interesting to see how China justifies these measures in the context of the GATT, its Accession Protocol as well as the decision of the WTO panel in the China Raw Materials case. 

There are several other implications that this case could bring to the fore:

1. What is the nature of export restrictions and under what circumstances can they be imposed by a member country in the context of the WTO Agreements?

2. What is the impact of the Accession Protocol for China vis a vis its international obligations?

3. What are the permissible exceptions and defences available to China to impose export restrictions as challenged in the request for consultations?

4. What implication does this have on the domestic policy space of China in particular and other developing countries in general to regulate the exploitation of and trade in exhaustible natural mineral resources?

5. What implication does the case have on control of one's national resources for development and growth in the context of a deeply interconnected world?

The Chinese response would perhaps have some of the answers! As the WTO website says "Consultations Coming soon..."

Tonga , globalisation , WTO and discontent

 

Tonga is one of the world's smallest economies with a population of approximately 116,000 and an area of 748 sq km. Trade accounts for 54% of GDP. Its annual growth reached 1.9% in 2006 and its major Industries are agriculture (41% of GDP) and fisheries (20% of exports). Tonga's main trading partners are Japan, the United States, New Zealand and Australia. It became the 151st member of the WTO in 2007.

A recent piece in the Epoch Times titled "Tonga questions WTO membership amid global recession" caught my attention.It said:

"Less than five years after joining the World Trade Organization, the once promising South Pacific Island nation of Tonga, is floundering under the weight of the global recession.

Tonga, which consists of 169 islands, joined the WTO in June 2007 despite a local survey showing that 89 percent of Tongans expressed qualms over the terms.

“A requirement for Tonga to join the WTO was a reduction in their import tariffs to a top tariff of 20 percent—far below the top tariffs charged by most of the countries that formed the working party for Tonga’s accession,” says Barry Coates, executive director of Oxfam New Zealand.

“This requirement represented a sharp reduction not only in the bound tariff [the agreed tariff ceiling], but in the actual tariffs. So the impact on government revenue of this tariff cut was significant,” says Coates."

While Tonga's accession to the WTO was seen as an opportunity to integrate into the world economy, the above report indicates the possible effects of globalisation on a small country. While the accession protocol of Tonga would not be as detailed and "onerous" as that of China, it would be interesting to study the impact of joining the WTO on trade, economic growth and development of the small island nation. A trade policy review, which would give a reasonable idea of the status of the country's trade policy and economy,  of Tonga has not yet been undertaken by the WTO. The piece highlights the vulnerability of small developing countries to face the interconnected, globalised world. While joining the WTO is with an objective of gaining from a more integrated world, the impact of lowering of tariffs and reduced spending on basic infrastructure is a recipe for disaster. How a country should tread in these circumstances by taking advantage of the world economy as well as "legitimately" protecting one's domestic interests, industry and workers is a huge challenge.

China, Accession Protocol and WTO

Leila Choukroune (et al.) in this report titled "EU-China Trade relations" details out the EU-China trade landscape  (EU is the largest export destination for China) and the context in which China's growth in the WTO should be studied. The Report makes a threadbare, realistic analysis of China's trade policies in the context of its WTO obligations. It also recommends the position EU should take with respect to China and how it needs to engage China in its policy discourse.

An interesting aspect highlighted in this report is the Chinese Protocol of Accession to the WTO. China has acceded to many conditions that other developing countries have not while joining the WTO in 2001. Some of them are as follows:

"WTO-plus commitments include:  

“Rule of Law” obligations 

Transparency, judicial review and uniform administration of trade: these are the special commitments developed in China’s Protocol under the article X of the GATT 1994 (Publication and Administration of Trade Regulations).  These special provisions have never been used before and remain quite unique in their nature and implications. Of course, it was the nature of the Chinese authoritarian regime that explains the instance of US and EU negotiators on inserting such atypical provisions. For many years the rule of law or governance issues had represented a major hurdle in trade relations with China and remain as complex as problematic today. 

Obligations to progressively practice a market economy 

WTO rules assume a market economy, but nothing in the Agreement prescribes the participation of non-market economies (NME). China’s Protocol of Accession, in contrast to what is (not) imposed on other Members, establishes special market economy obligations for China. China is obliged to allow the market to determine prices for a number of domestic goods and prohibited from using price controls except for specifically listed categories of products. Moreover, China has to liberalise foreign trading rights and not influence decisions of the State Owned Enterprises (SOEs). This, of course, is particularly tricky to implement in a “socialist market economy” in which the role of the State still pervasive. So it is easy to understand the complexity and, to some  extent, hypocrisy involved in implementing such 

provisions.

Obligations to eliminate export tariffs 

WTO Members are free to levy tariffs/taxes on their exports. But in a departure from this general rule,China is required to “eliminate(s) all taxes and charges applied to exports except for those specifically provided in the Annex 6 of the Protocol”.  

Special obligations on foreign investment 

Here again, the China Protocol departs from normal WTO disciplines. China, for instance – and this is very controversial today - may not make approval of foreign investment conditional upon the existence of domestic competitors or, more importantly, on any performance requirement including technology transfer or obligations to conduct research and development activities in China. Furthermore, foreign investors and foreign owned enterprises are entitled to national treatment  with respect to all their China activities. As will be shown below in the section on trade barriers, these requirements have yet not been fully accepted nor applied by China.  

Additional Transitional Review Mechanisms 

A special transitional review mechanism is  established  by  the  Protocol  to  review  China’s 

implementation every year during the first eight years after accession as well as year ten.  This special scrutiny regime was unique and was additional to regular trade policy reviews conducted for all WTO Members at regular intervals.   

WTO-minus provisions cover the following issues:  Special anti-subsidy 

China’s Protocol permits an importing WTO Member to use non-market economy (NME) methodologies to calculate Chinese subsidies and possibly take measures against them. This is not subject to a time limit. There are also special rules for government subsidies to state owned enterprises (SOEs) that again depart from normal WTO rules. These include an  additional ownership criterion when defining the specificity of government/public support. Under this criterion, subsidies granted to Chinese SOEs are considered to satisfy the requirement of specificity thus making them actionable under WTO rules on subsidies. Curiously, China is not allowed to make use of a very interesting WTO provision allowing developing countries to provide subsidise to companies that are directly linked to a privatisation programme, even though one could imagine such a  rule would promote the existing privatization policy for Chinese SOEs. The lack of coherence in these measures makes application of China’s Protocol of Accession more difficult. 

Special anti-dumping rules 

China’s Protocol allows WTO Members to treat China as a non-market economy (NME) for 15 years .i.e. until 2016. In WTO law, dumping is determined when a product is exported at less than its “normal value” and causes or threatens to cause material injury to an industry of the importing country. As long as China is considered as a NME, importing WTO Members can argue that the Chinese domestic prices cannot be used to assess the dumping margin and that generally higher priced equivalents in a third country should be used.  Tensions over the NME status of China seem set to continue as there is no clear definition of a non-market economy in WTO law and  WTO Members applying anti-dumping measures have the right to determine whether the exporting country is or nor a market economy. China is likely to see itself as a victim of unfair anti-dumping methodologies while the EU  and US will more often target China for anti-dumping measures. It is equally easy to understand why China is pushing the EU and the US to obtain a market economy status.  

Special safeguards 

The China Protocol contains a special set of safeguard provisions in addition to the existing WTO safeguard regime that can be invoked until 2013. WTO members can apply safeguards selectively against products of Chinese origin if they can show “market disruption” and causality with increased imports, an easier test than the normal injury test for safeguards under the WTO. Furthermore, an importing country does not even have to prove the “injury” and “causal link” if it argues that there is “trade diversion” as a result of another member’s safeguards against China. One can clearly see the risks of this sort of spillover effects. There was also a special safeguard mechanism applicable to textile and clothing products of Chinese origin up to 2008. This allowed WTO members to impose quotas if they could show that imports of Chinese textile and clothing products caused …”market disruption, threatening to impede the orderly development of trade in these products.” This safeguard provided the basis for bilateral textile agreements between China and the EU and US in 2005. Of course, these rules were accepted by China during the course of the WTO accession negotiations and one need to bear in mind that they are extremely difficult to implement for both technical and political reasons."

While it is argued that China does not fully comply with its accession protocol, it is interesting to analyse the extent to which China agreed to special terms and conditions, even some would argue which is detrimental to Chinese interests,  to gain accession to the WTO. Several of these obligations are not even followed by other WTO members. It would be an interesting analysis to study the degree of compliance of there special provisions in the past ten years of China's accession. With the China raw material case being decided as well as the request for consultations in the rare earth case against China, the increasing impact of the obligations undertaken by China in its Accession Protocol will be open to scrutiny. This piece in the Hindu Business Line highlights the Chinese strategy within the WTO. Does Russia, which is the latest entrant into the WTO have similar WTO plus commitments? The website of the WTO has a list of protocol accessions of members since 1995. Would be worthwhile to do a comparative analysis of accession protocols.