Argentina and WTO - Path of protectionism?

A joint statement by several WTO members ranging from Norway to Thailand to Turkey against Argentina's non-automatic import licensing requirements was in the news recently. The joint statement, which was on the USTR website, reads thus:

"• We would like to express jointly our continuing and deepening concerns regarding the nature and application of trade-restrictive measures taken by Argentina, which are adversely affecting imports into Argentina from a growing number of WTO Members.

• These measures include the overly broad use of non-automatic import licensing trade balancing requirements, and pre-registration and pre-approval of all imports into Argentina.

• Since 2008, Argentina has greatly expanded the list of products subject to non-automatic import licensing requirements. Currently, an import license is required for approximately six hundred 8-digit tariff lines in Argentina’s non-agricultural goods schedule. The products affected include, but are not limited to, laptops, home appliances, air conditioners, tractors, machinery and tools, autos and auto parts, plastics, chemicals, tires, toys, footwear, textiles and apparel, luggage, bicycles, and paper products.

• A non-automatic licensing requirement is WTO incompatible unless it is necessary to implement measures which are imposed in conformity with the relevant WTO rules and does not have trade-restrictive or trade-distortive effects on imports beyond those caused by the underlying restriction. The non-automatic licensing requirement must comply with all relevant provisions of the Agreement on Import Licensing Procedures, including a maximum processing period of 60 days.

• Companies from many of the Members that support this statement report that Argentina’s non-automatic import licensing scheme has a trade-restrictive effect on imports and that there are long delays in the issuance of import licenses. Many companies have reported wait periods of up to six months and longer. In some instances, companies are denied import licenses altogether, without justification or explanation.

• The lack of transparency in Argentina’s implementation and administration of its import licensing regime creates profound uncertainty both for exporters and potential exporters to Argentina, as well as for investors in Argentina.

• In January 2012, Argentina announced regulations that went into effect on February 1, requiring pre-registration, review and approval of each and every import transaction. These regulations are creating long delays and resulting in huge costs for many of the exporters from Members supporting this statement.

• It appears that this new system is operating as a de facto import restricting scheme, on all products.

• Argentina has made clear through public government statements that is has also adopted an informal “trade balancing” policy, whereby companies seeking to import products must agree to export, dollar for dollar, goods of an equal or greater value or establish production facilities in Argentina.

• Many companies have reported receiving telephone calls from Argentine government officials in which they are informed that they must agree to undertake such trade balancing commitments prior to receiving authorization to import goods.

• The Ministry of Industry’s website is replete with press releases announcing these trade balancing and domestic production arrangements. These arrangements include well known automakers agreeing to export products such as wine, olive oil, and soy meal, and requiring companies across a number of sectors to undertake production in Argentina without reference to the economics of doing so.

• Argentina may claim that companies enter into these arrangements voluntarily, but many of the Members supporting this statement share concerns that it may be operating otherwise.

• We are not aware of any official directive or resolution setting out these trade balancing or investment requirements. However, high level Argentine government officials have been quoted in the Argentine press as saying quite clearly that the purpose of these requirements is to improve its trade balance by restricting imports and promoting exports.

• Many of the Members that support this joint statement today have previously raised concerns about Argentina’s increasingly protectionist measures both bilaterally and multilaterally beginning in 2008 when Argentina began progressively expanding the number of products subject to its non-automatic import licensing requirements.

• Concerns have been raised and questions have been directed to Argentina in the Committee on Import Licensing, the Committee on Agriculture, and in this Council. However, Argentina has failed to adequately address these concerns or respond to Members’ questions.

• Indeed, rather than eliminating these import-restrictive measures and practices, Argentina has introduced new measures, and the existing measures have become increasingly problematic for our exporters.

• The import-restrictive measures and practices that Argentina has put in place are unbefitting any WTO Member, particularly a member of the G-20 who has committed to refrain from raising new barriers to trade and investment. In light of the shared goal of making every effort to sustain global economic growth, Argentina’s measures, which clearly limit the growth-enhancing prospects for trade, are particularly troubling.

• We Members who support this Joint Statement request that Argentina take immediate steps to address the concerns we have raised today, and that many Members have raised in the past, by removing or terminating these import-restrictive measures and practices.

• If, on the other hand, despite the concerns described above, Argentina continues to maintain these import-restrictive measures and practices, Argentina should provide a detailed written explanation of why in its view these measures and practices are consistent with WTO rules. Members reserve their rights to pursue this matter further."

These are serious allegations against Argentina which joined the GATT in 1967. Are they justified? I had earlier blogged about Argentina's restrictions on imports of books here. Business Beyond the Reef has an excellent analysis here. Is Argentina on the path of protectionism or is it a legitimate use of domestic policy space within WTO obligations? The multilateral trading regime does have an impact on national, decision making autonomy to a large extent. However, there is ample opportunity to creatively interpret WTO rules to further one's domestic interests. Does Argentina's steps fall in this category or is it an outright transgression of WTO rules?

Renewable Energy and WTO - Canada's response in the FIT Program

I had earlier blogged about the FIT program of Ontario, Canada here, here and here. The FIT Program of the Ontario Power Authority essentially encourages power generation projects using renewable sources of energy by providing a guaranteed pricing structure for renewable energy production. As part of this program, to avail its benefits, power generation projects have to source a certain percentage of their products that are produced domestically in Ontario. It has been challenged by the EU and Japan in DS 426   and DS 412.

The Dispute Panel set up to adjudicate on this issue had its first hearing on the 27th of March, 2012 which was open to the public. I have dealt with the assertions of the EU and Japan in my earlier posts which mainly related to it being against the national treatment principle of the GATT and TRIMS as well as violating the SCM Agreement as it was in the nature of a prohibited subsidy.


This comment in the ICTSD website provides the Canadian defence of the FIT program:

"In this week’s meeting, Canada countered that the FIT programme is a form of government procurement designed to ensure the affordable generation of clean energy in Ontario. As such, the programme would be shielded from both GATT national treatment requirements and the TRIMS Agreement provisions being cited in the case. Government procurement is also exempt from the WTO subsidies agreement, provided that it is not conferring a benefit.

The only WTO agreement that specifically addresses such governmental purchases is the plurilateral Government Procurement Agreement (GPA). While Canada is a party to the GPA, the Ontario Power Authority (OPA) - the agency that implements Ontario’s FIT programme - is not covered by Canada’s concessions in the plurilateral pact. As a result, Ontario is under no obligation to grant access to its energy procurement market."

The issues before the Panel are manifold:

1. Is the FIT program violative of the national treatment principle of the GATT and TRIMS Agreements by mandating a "domestic content" requirement and hence favouring domestic producers vis a vis international producers?

2.Is the FIT program in the nature of a government procurement and hence the domestic content requirement does not violate the national treatment principle as per Article 8 of the GATT and the TRIMS Agreement? 

3. Is the FIT program providing a "prohibited subsidy" due to its "domestic content" requirement and hence violative of the SCM Agreement?

The findings of the panel will not only be relevant for developing countries like India and China that have renewable energy programs but also the developed world wherein Governmental support to the renewable energy sector is viewed as a positive imperative for sustainable growth rather than an international law violation.

Domestic policy space in the WTO - Examples of Brazil and Mexico

The multilateral trade regime has always brought to the fore conflicting interests of domestic policy space vis a vis international obligations. Questions about national sovereignty being compromised or surrendered to the WTO are often heard in domestic policy debates during times of crisis.To what extent the WTO infringes on domestic policy space is a debatable issue. There is a very thin line between domestic policy space, protectionism and violation of one;s obligations under the WTO. Does the WTO restrict domestic policy decision making?

Alvaro Santos has addressed some of these questions in his brilliant article in the Virginia Journal of International Law titled " Carving Out Policy Autonomy for Developing Countries in the World Trade Organization: The Experience of Brazil and Mexico" wherein he argues, by taking the specific examples of Brazil's and Mexico's experiences, that domestic policy space can be retained within the multilateral rules by effectively engaging in the interpretation of WTO rules.

Making an extensive study of the dispute settlement process, Santos has essentially argued that the legal interpretation of WTO rules leaves sufficient policy space to countries to put forth their domestic interests. Comparing Brazil's and Mexico's paths in the WTO, he has argued that the WTO system provides space for a country to actively engage with the interpretation of rules to protect one;s legitimate interests. Hence it would be naive to presume that acceding to the WTO is, ipso facto, a surrender of one;s national sovereignty.

He concludes:

"Despite the presence of restrictions, there is still flexibility in the system for countries to carve out regulatory space for themselves. That countries can expand their policy autonomy shows that governments of developing countries have more agency and responsibility than development scholars typically admit. At the same time, however, the asymmetry of power and resources between countries does affect their experience in the system and thus influences the outcomes to a greater extent than liberal trade scholars usually acknowledge.

This Article provided an account of how countries are creating policy space in a way that is currently underappreciated in existing academic literature. This space relies on the ability of countries, as RPs, to make use of textual open-endedness in legal obligations, to seek out favorable rule interpretation, and to actively participate in the WTO system through strategic lawyering and litigation. To pursue this strategy, countries invest in “developmental legal capacity,” through which governments recognize the need to make gains in policy autonomy in order to pursue economic policy goals that may be in tension with the WTO’s free trade objectives.

 ...

 To say that we should turn our attention to the domestic economic policies is not to say, however, that the international legal framework is unimportant. Rather, it is to say that despite the international constraints, countries can expand their policy space — if they deem it desirable — and find room for policies they want to advance. The Article recognizes that there are limits to what countries can do. Not all rules are ambiguous and subject to favorable interpretation. Not all strategic lawyering will turn to an advantage either. Moreover, carving out policy space requires significant resources — material, human, political — that not all countries may easily muster in order to become RPs. Poorer countries may therefore experience greater limits — real or apparent — imposed by the international trade regime. However, to show that countries subjected to similar international obligations can pursue divergent trade and development policies is to make clear that there is policy space and that this space can be put to different uses with divergent outcomes. This Article has sought to challenge the argument, commonly made by developing countries’ governing elites, to wit that their country’s legal obligations “tie their hands” and command them to act in a specific way. Instead, the Article calls attention to the agency of developing countries’ governments. While recognizing that there are important limits set by the architecture of the WTO and the asymmetry of power between its members, the Article argued that there is flexibility within the system to expand developing countries’ regulatory autonomy beyond what is currently recognized. Developing countries’ governments should bear responsibility — and their citizens should hold them accountable — for the kind of developing strategy they pursue, or refrain from pursuing, within the international trade regime.

Essentially, this article makes the point that there is sufficient policy space within the WTO rules for a country to pursue its economic policies, to the extent possible. However, this can be achieved by actively engaging in the Dispute settlement process defending one's position against constant onslaught. This would involve strategic lawyering, an understanding of the complex quagmire of WTO rules, strengthening domestic legal capacity to engage in the mutlilateral dispute settlement process, and an effective interdisciplinary team domestically to handle this strategy. However, there is another nagging question. Are domestic policy choices made within WTO rules always in the interest of the country considering the diverse interests of producers, workers, traders as well as consumers? While the argument would be that the democratically elected state has the prerogative to decide on its legitimate domestic policy choice, diverse and often contradictory local interests makes the debate more interesting. I am sure another academic would have dwelt on this aspect. As for this piece, a brilliant article overall - addressed many of my questions regarding domestic policy space and WTO obligations! I particularly liked the Venn diagram explaining domestic policy space with three circle - Development strategy, legal capacity and rule and doctrinal flexibility. The intersection of these three circles is the "policy autonomy" space.

Anti-WTO sentiment in Russia - How serious?

Russia formally acceded to the WTO in December. I have blogged about it here, here and here.The accession needs to be ratified by Russia domestically. While there is general consensus about a large trading partner such as Russia being part of the multilateral system, murmurs of protect internally against the accession have cropped up. This piece about an Action Group against WTO formed in Russia makes interesting reading.

However, some experts say that joining the organization will lead to a partial loss of the country’s sovereignty and a weakening of its economy.

[Maxim Kalashnikov, Russian Blogger]: 

"Joining the WTO is a deep political issue. It will compromise the sovereignty of our country. This is a rejection of freedom in times of acute international crisis, when in need of national revival and re-industrialization."

In order to fulfil the basic requirements of the WTO, Russia will be reducing taxes on imported and exported goods, which will lead to an increase of foreign goods in the market. 

Experts say it could lead to a drop in domestic production and in the country’s number of manufactures.

[Konstantin Babkin, Event Organizer]:

"The opening of the market is simply uncalled for. Other countries do nothing for us; not a single thing is changing in their laws. But we have to open our market to the hundreds, nothing in return. Losses are estimated to be trillions of rubles a year. "

The Russian economy could lose up to 1.5 trillion rubles a year after joining the WTO, according to experts’ preliminary calculations. 

Budget revenues will fall by about 500 billion rubles a year, due to a decrease in the collection of duties and taxes. 

The country could also lose more than 2 million jobs.

The Action Group against the WTO - consisting of representatives from public, political and business organizations - are intending to hold a referendum, inviting Russians to express their stance on this issue. 

The Action Group must gather two million signatures from citizens across Russia in order to hold the referendum."

How serious is this opposition? Would a referendum result in Russia deciding not to accede to the WTO? Increasingly, compulsions of domestic realities clash with the idea of the benefits of international trade without barriers. Political representatives are unable to comprehend and thereafter convince their constituents of the potential benefits. Russia's integration into the WTO, along with many benefits, will have a negative impact on various sectors of the domestic economy. Will the establishment be able to tide over this opposition with a "cost-benefit" analysis of Russia's proposed entry? Communicating that to the people will be a much tougher task!

Ukraine's complaint against Australia's plain packaging - Serious allegations -

The controversy around the Ukranian complaint against the Australian Tobacco Plain Packaging legislation at the WTO refuses to die down. I had blogged about it here and here. The Sydney Morning Herald carried this potentially explosive piece on the origins of the dispute:

"Ukraine is taking Australia to the World Trade Organisation over its plain packaging of tobacco laws although it has not traded any tobacco with Australia since at least 2005, a Ukrainian government insider has revealed.

Konstantin Krasovsky, the head of the Tobacco Control Unit in the Institute for Strategic Research in the Ministry of Health of Ukraine, said the decision was made in secret within the Ministry of Economics, despite the Ukrainian President attempting to crack down on the tobacco industry.

Dr Krasovsky, who attended the World Conference on Tobacco or Health in Singapore last week, told the Herald: ''There is no economic interest whatsoever … no one in Ukraine will suffer from Australian plain packaging''.

Dr Krasovsky believes the letter requesting the WTO dispute resolution was not written by a citizen of Ukraine, as it was written first in English and then in Ukrainian and it had not been run past the Ministry of Health, as would be usual practice."

Without going into the merits of the report, it must be considered with due caution. Firstly, the report is by an Australian medical journalist writing in an Australian paper reporting on the dispute. Secondly, Konstantin Krasvosky has been at the forefront of the anti-tobacco movement in Ukraine and his views on this issue would be predictable. However, the allegations are pretty serious. Hasn't there been enough internal national debate before the complaint was initiated? Is the complaint in the interest of the people of Ukraine or domestic/international business interests based in Ukraine? This brings us back to the fundamental issue of varying stakeholder interests in WTO disputes. It is not my case that these interests should not exist. In reality, they do exist. However, a country's position at the WTO has to be a considered one keeping in view the diverse interests and a conscious decision as to what is really in the "national" interest.

Argentina bans imported books?

Reports of a ban on import of books into Argentina were reported here and here.

"The Argentine government has severely restricted the importation of books due to “human health concerns” [in Spanish]. That’s right. According to the government, it can be dangerous to “page through” a book that has high lead quantities in its ink. “If you put you finger in your mouth after paging through a book, that can be dangerous,” said Juan Carlos Sacco, the vice-president of an industrialist organization that supports the measure.

The government claims that this is not a ban. However, since each buyer has to demonstrate at the airport’s customs office that the ink in the purchased book has lead quantities no higher than 0.006% in its chemical composition, the result is that all book imports into the country are stalled.

The measure has a lot to do with the increasing efforts of the Argentine government to stop the flight of dollars out of the country. Capital flight in 2011 reached $21.5 billion, and it accelerated after the reelection of Cristina Fernandez de Kirchner in October. Facing increasing fiscal pressures, and after seizing private pension funds and raiding the Central Bank’s reserves, many people expect the government to go after their bank savings."

 I found this to ban interesting piece of news! Is it a restrictive technical barrier to trade? Does the measure of Argentina violate its obligations under the TBT Agreement? Further, is the restriction only on imports or even locally published books? If the restriction is only on imported books, is it not a violation of the national treatment principle of the GATT Agreement? I could not find the actual restriction in English so haven't attempted a detailed blog piece!

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.