Innovation and Trade

Found this interesting piece on graphics in the Atlantic Cities on innovations and their geographical spread/concentration.It analyses the OECD data on patented innovations.

The findings are a telling summation of the skewed nature of patents/innovation concentration across the globe. Does this have a co-relation to international trade or the fact that all the major trading powers have been at the forefront of innovation and patenting?

The map above shows that E.U. has the largest share with roughly 30 percent of global patents, followed closely by the United States, and then Japan and China.

The second map shows the number of global patents for states, provinces, and countries. Note the substantial bubbles around California and the East Coast in the U.S., especially Massachusetts; Northern Europe and Scandinavia; and Japan, South Korea and China in Asia. The concentration in India seems to be the southern regions - especially Mumbai, Hyderabad and Bangalore.

This map charts patents for the world’s major city-regions. Again the pattern of concentration, or spikiness, is striking. The United States has major concentrations on the East and West coasts and the Midwest. Patenting is even more concentrated in Europe and Asia. In Europe there are major clusters in Southern Germany, Switzerland, Southern Sweden, Finland, the greater Paris region, and Rhone-Alpes. Patenting in Asia is clustered in and around Tokyo and Osaka, Japan; Seoul, Korea; Shanghai and Beijing in China, and Australia’s East and West coasts. And again, huge swaths of the world are completely blank.

With such concentration of innovations even within countries, Jonathan Rothwell argues  in The New Republic against the trend of "national" innovation policies. Innovations and patents are closely connected to industrialisation and economic growth. Another paper titled "The Effect of Technological Innovation on International Trade: A Nonlinear Approach" studying the impact of technological innovations on exports establishes the co-relation between innovation and increased exports.  The countries dominating the world of patents, unsurprisingly dominate world trade too. It is not surprising to see only China and Japan dominate in patents in the Asian region.

Boeing vs. Airbus - Settle it!

While the WTO dispute on subsidies between Airbus and Boeing seems to be far from over, this  editorial in the Seattle Times seems to suggest that the best way forward for the two aircraft carrier giants is to settle it amicably.

"The two aerospace giants have the option to negotiate a settlement on how government support, loans and subsidies are interpreted, and that is the best route, however improbable.

...

A negotiated settlement of the seven-year-old dispute is preferable to endless pursuit of sanctions and penalties. Truly define the grievances and establish some measure of oversight to stop the behavior that stirs WTO finger wags."

An earlier piece in 2010 in the Seattle Times by the Airbus trade adviser summarizes the irony of the WTO dispute between the two aircraft manufacturers.

"At present, there are only two firms capable of integrating and manufacturing large civil aircraft. Instead of supporting open competition, the U.S. at the behest of Boeing brings a dispute in the World Trade Organization and Europe retaliates. After five years of pouring over thousands of pages of data, and many millions of dollars in legal fees, the final result on two disputes is still awaited from an overwhelmed WTO. The total legal costs of Boeing's feud could probably fund the launch of a whole new aircraft program.

Unfortunately, these two WTO cases have enabled future competitors to look at how Boeing and Airbus funded their aircraft programs. Under WTO dispute-settlement rules, both parties had to hand over confidential information to substantiate their claims. Watching from the sidelines were "interested parties" such as the Canadians, Brazilians, Chinese, Russians and Japanese. As a result, potential subsidized competitors have their eyes on a share of the Boeing/Airbus market. Boeing and Airbus are now being forced to upgrade their respective 737 and A320 programs to remain competitive and maintain market share. Boeing's misdirected WTO litigation has enabled others to take on the duopoly.

The global alignment of economic power and technology leadership is changing. Boeing has given composite wing technology to its Japanese business partners and outsourced much of its manufacturing to others in the interest of "shareholder value" and the harvesting of its product line. One wonders, in the end, whether Boeing may have set the stage for the destruction of its strategic value to the United States."

 Signs of competition are already showing up with the Chinese aircraft manufacturer Comac partnering with Boeing.

"Boeing will work with Commercial Aircraft of China (Comac) on fuel-efficient technologies after forming a partnership with a plane maker that's mounting a challenge in the world's fastest-growing aviation market."

One would have to see if the two parties, through their respective governments decide to settle the dispute "amicably". For the moment the only thing that both aircraft manufacturers agree on is their opposition to the EU ETS scheme!

EU ETS - Protectionism in the High Skies?

Some more on EU ETS:


A brief informative study titled "EU ETS and Aviation" for the Members of Parliament of U.K. on EU ETS and its impact makes interesting reading. It narrated the history of the scheme as well as its implementation mechanism. Reports of Airlines deciding to fall in line with the EU ETS directive have been reported. On the other hand, aviation industry also has asked for a roll back.


A well argued piece in Project Syndicate by Jean Pisani-Ferry titled "Sky-High Protectionism?" captures the essence of the dispute rather well. While discussing the various arguments for and against the EU ETS, he concludes:

"The really important argument against Europe’s decision is the one about hidden agendas. The EU’s trade partners do not want to give ground, because they suspect that in the coming years, climate change will serve as a pretext for protectionist policies. Indeed, climate change is in many ways the perfect crutch that opponents of open trade have long sought, and there is a real risk that it will be used in a mischievous way.

So caution is fully justified. But the problems arising from the incoherence of national climate policies are real. They emerge as soon as domestic emissions are taxed in some part of the world (or, equivalently, as soon as quotas are imposed), because domestic producers then claim that they are at a disadvantage in international trade.

Moreover, rejecting Europe’s arguments out of hand, owing to a suspected protectionist agenda, is not without risk. If the controversy comes to be perceived by the European public as a conflict between free trade and the environment, free trade is likely to lose.

Europe’s partners should not assume that trade automatically takes precedence over climate concerns. Instead, they should focus public attention on valid arguments. For example, it is much easier for advanced countries to reduce emissions without any effort, simply by outsourcing the production of emission-intensive goods to emerging and developing countries. In this way, they can meet strict targets without reducing the carbon content of their consumption.

The trade vs. climate debate is fundamental for the global economy. Europe’s air-transport tax provides an opportunity to launch it in a concrete and rational way. It is an opportunity that should not be missed."

Is the EU ETS a protectionist tool, a technical barrier to trade which restricts international trade? Does it symbolise the environment-trade dichotomy? Is it a developed world-developing world dispute? Are concerns of climate change inapplicable to international trade rules, to be fought and chalked out in different fora? Does the EU ETS throw open the flood gates for more intrusive, non-trade related standards to be imposed by the developed world to restrict international trade - labour, human rights, etc.? Is there a middlepath?

WTO and domestic policy space

Project Syndicate is extremely engaging with its range of eminent personalities and relevant topics. The topic of the choice of the World Bank President is a currently hotly debated topic. Jose Antonio Ocampo, one of the names doing the rounds for the job had a piece on what the World Bank should do. I found his analysis of the comparative role of markets and the state relevant:

"That experience has taught me that successful development is always the result of a judicious mix of market, state, and society. Trying to suppress markets leads to gross inefficiencies and loss of dynamism. Trying to do without the state leads to unstable and/or inequitable outcomes. And trying to ignore social actors that play an essential role at the national and local levels precludes the popular legitimacy that successful policy making requires.

Indeed, the specific mix of markets, state, and society should be the subject of national decisions adopted by representative authorities. This means that it is not the role of any international institution to impose a particular model of development on any country – a mistake that the World Bank made in the past, and that it has been working to correct. Because no “one-size-fits-all” strategy exists, the Bank must include among its staff the global diversity of approaches to development issues."

I was trying to place the parallels with multilateral trading rules. Does this have lessons for the proponents of unbridled free trade and elimination of "protectionism"? Should all measures undertaken by countries pursuing domestic interests be viewed as "protectionist"? Does the WTO Agreements provide sufficient "domestic policy space" to pursue national interests as per the policy choice of representative governments? Is there a single truth that reduction of barriers as well as increased integration into the world economy is good for all countries or is there a need to think about a calibrated path to integration based on country specific needs? Does the WTO allow enough leeway for this country specific approach or is it a reversal of multilateralism? Is a country justified in taking "protectionist" measures when it feels that its interests are adversely affected with reduced barriers? Should multilateral trade rules allow for more flexibility to countries to engage with the outside world on their own terms. What are the dangers of this flexibility? Will it result in pre-GATT days of high tariffs and inward looking policies? Is there a middle path? Does the present multilateral rules permit taking this middle path?

Pankaj Ghemawat on India and globalisation

I had blogged here about Pankaj Ghemawat's views on globalisation. In this interview, he outlines that India has a long way to go before being completely integrating into the world economy. I found his analysis of the extent of globalisation (as against the notion of the world being "flat") interesting:

"The world is flat notion is the idea that borders don't matter and that international integration is close to complete.

And one of the points I have made in my work is that when you actually look at the things that could happen across borders or within borders, look at the cross border component as the percentage of the total, the result is much closer to what I think is 10 per cent globalization or semi-globalization rather than 100 per cent globalization.

So, if you think of the people flows, only three per cent of the world's population is accounted for first generation immigrants, these are long-term people flows.

If you think of short-term people flows, the percentage of students studying in countries other than the ones they are citizens of is only two per cent. If you want to think about information flows, the percentage of phone calling minutes that cross national boundaries is only two per cent of all calling minutes.

Even when you turn to something like the Internet, estimates are that less than 20 per cent of the bits transmitted over the Internet actually cross national borders at any point in their journey. And, finally, when you talk about money, foreign direct investment represented about nine per cent of all the money invested in the world last year.

So, it's hard to reconcile those kind of data with the notion of the world is flat.

It's hard to reconcile with just our personal experience. If you talk to any business person about whether it is easy to do business abroad, in a flat world it would be just like doing business at home, but that's clearly not the case."

 Highlighting the reason for the limited integration of India into world trade, he opined:

" The causes are multiple, ranging to historical reasons to the Licence Raj. I remember when I was doing a study for CII with Mike Porter on Indian competitiveness in the 1990s; we had more that one industrialist tell us 'look we have a huge protected domestic market, so why bother with exports'.

That is a problem.

There are some structural issues, such as the conditions of the ports, in particular, and the general state of Indian infrastructure. One of the reasons why software has managed to defy some of these general trends is because they don't have to rely on Indian ports. Most of the barriers are geographical and artificial ones, for example our failure to improve our infrastructure.

Then there are other natural geographic barriers, it's better to call them political barriers.

India has very poor trade connectivity with its neighbours. When you run a cross country regression that sort of tries to predict how much a country should trade with each other based on proximity and compare Indian results with the results for the world at large, the biggest deviation from the cross country relationship are the top country regression plan is the fact that India trades much less with Pakistan than any normal model would predict.

Unfortunately, if you look at our neigbours, this is one of the key structural differences between China and India; China is part of the East Asian production workshop.

India, in contrast, is surrounded by countries that either because we have political tensions with them or because of their internal dysfunctions simply aren't that attractive as trading partners. The breadth of Indian trade interactions is actually quite high but regional numbers are not very high. Most parts of the world that have progressed have progressed with much closer regional integration than what Saarc currently exhibits.

There are multiple reasons for India's low global trade but, at least, some of the reasons have got to do with things we can change.

We can't change who India's neighbours are but we can change how bad the infrastructure is, we can change the incentives to expand overseas and we can do a lot more things that would connect India to the world."

Realising the benefits of globalisation would require a combination of effective domestic state policy, increased integration and infrastructure development. The case for India benefitting from international trade has to be propelled by a strong domestic state-led policy of infrastructure growth within the boundaries of its international commitments.

After Ukraine, its Honduras - Australia's tobacco plain packaging challenged

(photo: Tobacco field at Rancho Jamastran in Danli, Honduras)

After Ukraine it was the turn of Honduras to challenge the Australian Tobacco Plain Packaging measure. The WTO website reported that Honduras had requested for consultations with Australia under the dispute settlement system concerning the latter’s certain measures concerning trademark and other plain packaging requirements applicable to tobacco products and packaging.

In this press release Honduras stated that plain packaging is not an appropriate measure to address smoking prevalence and not in conformity with Australia's WTO obligations. It also justified the request on the ground that the tobacco industry has been part of Honduras' history for more than half a century and that Australia's measure would affect domestic employment both directly and indirectly.

Is the Honduras measure guided by factors external to its domestic concerns? Benn Mcgrady in this blog piece raises some contradiction between Honduras' local legislation relating to tobacco control and its international position. Conflicting, complex interests?

Multi-stakeholder Panel of the WTO - Way forward?

I had blogged here in the context of the Doha round the establishment of a panel of multi-stakeholders of the WTO to look into various dimensions of international trade in the 21st century. The WTO website reported the constitution of the panel thus:

"At the WTO's 8th Ministerial Conference in December 2011, Mr. Lamy suggested that the profound transformations in the world economy require the WTO and the multilateral trading system to look at the drivers of today and tomorrow's trade, to look at trade patterns and at what it means to open global trade in the XXI century, bearing in mind the role of trade in contributing to sustainable development, growth, jobs and poverty alleviation. The analysis of these world trade drivers, which will be produced by the 12 panellists in early 2013, can make an important contribution to debate between Members on the best way to tackle these challenges, Mr. Lamy said.

“The difficulties we, and many other multilateral institutions, have encountered in recent years is indisputable proof that yesterday's solutions simply cannot be applied to the problems we face today. This panel encompasses experts from all corners of the world and nearly every field of endeavour. Their analysis will spark debate and open new channels of thinking on how we can best confront the stumbling blocks that today's rapidly evolving world has strewn in our collective path,” said Mr. Lamy.

The “WTO Panel on Defining the Future of Trade”, will meet several times in 2012. In the autumn, it will have the opportunity to hear the views of WTO Members over these challenges. The first meeting of the group will be on 16 May in Geneva.

The panellists are:

Mr. Talal ABU-GHAZALEH, Chairman and Founder, Talal Abu-Ghazaleh Overseas Corporation, Jordan

Ms. Sharan BURROW, Secretary-General, International Trade Union Confederation, Brussels

Ms. Helen CLARK, UNDP Administrator, New York

Mr. Thomas J. DONOHUE, President and CEO, US Chamber of Commerce, Washington

Mr. Frederico Fleury CURADO, President and CEO, Embraer S.A, Brazil

Mr. Victor K. FUNG, Chairman of Fung Global Institute and Honorary Chairman of the International Chamber of Commerce, Hong Kong, China

Mr. Pradeep Singh MEHTA, Secretary-General, CUTS International, India

Mr. Festus Gontebanye MOGAE, Former President of Botswana

Ms. Josette SHEERAN, Vice Chairman, World Economic Forum, Geneva

Mr. Jürgen R. THUMANN, President, BUSINESSEUROPE, Brussels

Mr. George YEO, Former Foreign Minister, Singapore and Vice Chairman of Kerry Group Limited

Mr. Fujimori YOSHIAKI, President and CEO, JS Group Corporation, Tokyo"

Would be interesting to see the methodology the panel uses to identify the issues at hand as well as the conclusions it comes to in terms of the future challenges for the WTO.