Trade and Technology Council - the new forum for engagement?

Apart from engaging in the World Trade Organization, countries engage in a multitude of ways on trade and technology. A recent development is the formation of joint trade and technology councils (TTC) - the EU and US formed one in 2021. The EU and India formed one in 2022.

I was curious at the agenda and progress made in the EU-US TTC. One of the working groups in the TTC is on Technology Standards. The importance of setting global standards cannot be understated. Similarly, collaborating and co-operating on setting international standards assumes significance to benefit industry. Who participates in setting standards is important as well as how open the process is to different stakeholders and businesses.

The EU-US TTC have set up a public consultation process for each of the working groups. Under the Technology Standards Working group consultation, a joint representation by the US and EU semiconductor industry on the importance of the role of the private sector in setting standards, preferring global standards to national standards and reducing regulatory divergences in their markets.

What I found striking was the following:

1. EU-US TTC had not only brought the governments together on the same platform to collaborate and co-operate, it had encouraged private players to act together in this case the semiconductor associations of the US and EU. This takes the debate beyond national interest to shared business interests. It is not only about market access but common goals. 

2. The importance of sustained stakeholder consultation using technology - a digital platform for views from any interested business in the EU and the US to add to the conversation on trade and technology co-operation between the transatlantic partners.

On the trade front, this document by the Germany based Transatlantic Business Initiative, once again received in a public consultation, captured in a very simple, straightforward way the commonalities and differences between the US and EU on issues related to the WTO. The value of public consultation from varying levels of stakeholders is invaluable for governments to craft meaningful national policy. Most governments do engage in public consultation in varying degrees. There are perspectives that add value to public policy making. A range of business interests, from small to large conglomerates, need to be incorporated while crafting national strategies - while in some cases national interest may be to take a divergent stand from domestic business in the larger interest of the consumer.

Get green, but locally!

About a decade ago I wrote a paper on renewable energy and local content requirements. It was in the context of compatibility with various provisions of WTO law. The paper is here - titled "Renewable Energy Programmes in the European Union, Japan and the United States - Compatibility with WTO Law".

Nearly a decade later, things don't seem to have changed. Came across this PIIE piece by Megan Hogan on the same theme. Writing in her piece "Local content requirements threaten renewable energy uptake" she has argued that such domestic content requirements lead to increase in cost, reduce quality and effects the end consumer and power producers the most in terms of increased cost. Two interesting illustrations that buttress her case:

She concludes: 

"In the end, for all their well-meaning intentions, LCRs tend to drive up cost,hamper international competition, and increase investment risk and uncertaint, inhibiting rather than encouraging local manufacturing. If the goal of renewable energy policy is to make solar PV and wind energy more affordable and widely used, local content requirements are an obstacle, not a solution."

The trend seems to indicate an increase in local content requirements in renewable energy programs across geographies - developed and developing. Get green, but locally!

What kind of globalization would prevail?

A sobering piece by Dani Rodrik on a "better globalization" replacing the era of hyper globalization is here in this Project Syndicate piece. 

He argues that the answer to the retreat to hyper-globalisation need not be autarky but a more equitable, distributive globalization that takes care of the losers of globalization.

"Yet, it is also possible to envisage a good scenario whereby we achieve a better balance between the prerogatives of the nation-state and the requirements of an open economy. Such a rebalancing might enable inclusive prosperity at home and peace and security abroad.

The first step is for policymakers to mend the damage done to economies and societies by hyper-globalization, along with other market-first policies. This will require reviving the spirit of the Bretton Woods era, when the global economy served domestic economic and social goals – full employment, prosperity, and equity – rather than the other way around. Under hyper-globalization, policymakers inverted this logic, with the global economy becoming the end and domestic society the means. International integration then led to domestic disintegration."

He also alludes to the importance of a multipolar world instead and new rule makers. Graham Allison has talked about the Thucydides Trap when a rising power threatens to displace a ruling power, war is inevitable. Dani Rodrik opines:

For great powers, and the US in particular, this means acknowledging multipolarity and abandoning the quest for global supremacy. The US tends to regard American predominance in global affairs as the natural state of affairs. In this view, China’s economic and technological advances are inherently and self-evidently a threat, and the bilateral relationship is reduced to a zero-sum game.

How globalization will play out in terms of international economic law rule making will depend on what approaches to trade major economies would take in the coming decade? Would it based more in the region rather than global? Would there be different trading blocs? Would domestic concerns and priorities shape trade policy leading to tensions at the WTO? Would trade increase but trade rules stagnate? 

I had the privilege of moderating a session recently with Prof.Dani Rodrik on avoiding one-size fits-all solutions. the video recording is here. We find some answers here.

Animal welfare as subjects of trade agreements?

I had blogged a few weeks ago about chapters in FTAs that are usually not seen in traditional trade agreements. This was in the context of New Zealand.

This time it is "animal welfare" that has taken its position in an FTA chapter as a separate chapter. the new UK-New Zealand FTA has, inter alia, a chapter on animal welfare. As per Article 6.1 of the FTA, the purpose of the provisions on animal welfare in a trade agreement is "to enhance cooperation between the Parties on animal welfare of farmed animals." It states that animals are sentient beings and protection and welfare of animals may be in the interest of a party's trade objectives.

The chapter recognises the right of parties to regulate with respect to animal welfare, not derogate from their animal welfare laws, exchange information, expertise, and experiences in the field of animal welfare with the aim of improving understanding of each other’s regulatory systems, policies, and strategic approaches, and enhancing animal welfare standards and also set up a working group to work on animal welfare issues.

The chapter is innovative in the sense that it places animal welfare as a "trade issue". It pretty much opens the door for any issue to be a trade agreement chapter. For those countries that are cautious about the scope of trade agreements, this can be problematic. For others, there is no limit to what trade can impinge upon.

The soft landing perhaps is the exclusion of the application of the dispute settlement provisions to the animal welfare chapter. One way of introducing innovative chapters in free trade agreements is to exclude it from the scope of dispute settlement. It takes enforcement out of the debate, but does push the agenda that both parties are interested in pursuing. Sensitivities on both sides taken care of perhaps?

Global norms, local initiations?

I had commented on the EU CBAM and it's potential challenge under the WTO dispute settlement system here. The other question it raises is setting of standards outside multilateral fora. Since carbon tariffs or penalties on imports based on carbon content are not being negotiated in any multilateral fora, individual countries are going ahead with their own set of rules. While the compatibility to international trade rules is one issue, how these standards ultimately will become global norms is another interesting arena of research. Will these rules, ipso facto, force trade reliant emerging economies to adopt them despite no legal need to do so?

Harvard Law Review has this piece on the reality of carbon tariffs and their impact on trade and how countries would react to them. Though carbon tariffs have an ambiguous status under international law, it argues that it seems to be the only way forward to address the issue of climate change. Pointing towards the indirect benefit carbon tariffs may have on other economies, it states:

As access to large and valuable markets like the United States and the European Union becomes predicated on a showing that comparable climate policies are at work in the exporting state, more and more trade-dependent economies that might not otherwise adopt rigorous climate policies will be compelled to show that they too are complying with the Paris targets, further expanding the body of state practice. These effects may not produce a critical mass of state practice and legal obligation and may not overcome the inertial effects of persistent objectors, but they will almost certainly move the needle in the right direction.

Will the EU CBAM lead to the widespread adoption of carbon tariffs in emerging economies? Will they be challenged in the WTO? Will it lead to re-negotiation of the Paris Climate Agreement commitments? How ultimately are international standards set? My initial moves by large developed economies and inevitable adoption by others or in a more structured multilateral way? 

What lessons does this have for internet governance and the rules around it? Who will set the rules for internet governance, digital tax, digital governance, privacy and trade? Will it take a similar route of a few taking the initiative and others following suit?

Restoring the Appellate Body

I had blogged here about appealing into the void at the WTO. 

For anyone interested in WTO dispute settlement and a possible solution to the impasse of the Appellate Body crisis, a detailed piece in the PIIE blog by the former Deputy Director General of the WTO Alan Wm Wolff on the history, tensions, alternatives and possible way forward is an exhaustive read. It lays down the history of the dispute settlement system, the US view on what is wrong with it, the fundamental difference between the US and EU on the way it should function as well as what can be done to resolve the issue.

A must read for an inner ring view of how the Appellate Body is viewed in the United States.

Some trade news

Some interesting news from the trade front:

1. India and Australia signed off on a Free Trade Agreement - the text of the agreement is here. Christened the "India-Aus Economic Co-operation and Trade Agreement". It covers substantial tariff reductions on the goods side and services trade liberalisation. Justin Brown writing earlier this week for the Lowly Institute highlighted the importance of trade policy for Australia in it's overall foreign policy and stated:

First, negotiating free trade agreements (FTAs) and trade facilitation arrangements must remain a priority to promote export diversification. Comprehensive FTAs with India and the EU will be difficult to land in the near term; the government’s efforts to strike an early progress agreement with India is a pragmatic way forward.

There would be merit in considering bilateral trade facilitation arrangements in sectors that are key to our economic resilience, such as critical minerals and the green economy/manufacturing.

After the UAE, it is India's second back to back trade agreement in recent times.

2. How important is standard setting in regional trade agreements? Should one participate in it to be rule-setters rather than rule-receivers? Should we be concerned if we are not at the table negotiating these deals? Do we lose an opportunity to shape them or is that fear over-exaggerated. 

Evan A. Feigenbaum, vice president for studies at the Carnegie Endowment for International Peace makes a forceful point on the importance of being at the negotiating table in large regional trade arrangements. Commenting on the Indo-Pacific Economic Framework and the US, he testified:

And so we should be rediscovering our role as a standard-setting nation. But somehow, we now manage to find ourselves on the outside of agreements—the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), the Regional Comprehensive Economic Partnership (RCEP), and the Digital Economy Partnership Agreement (DEPA)—that could set standards in Asia for a generation.

How important is rule-making in a multilateral setting? Who should frame them and what motivations should drive this agenda?

3. Trade agreements for the metaverse? Metaverse has been in the news - for creating this virtual reality where a parallel professional and personal life can be re-created. What about trade in this metaverse? Would they be subject to trade rules? Who will make these rules? Trade Policy Expert, Sam Lowe, has some thoughts on how trade rules will ultimately require to catch up with the meta-universe and its virtual trade realities, whether it is in services or goods. Reacting to a question on whether we can have a trade treaty on this subject, he realistically notes:

That’s the other thing we haven’t actually discussed. How do you govern? If you have a global metaverse, you also then have to govern trade within it. So the exchange of digital property – tokens, or you could have your own house – who do you buy it from, how do you get a legal guarantee to it?

 We’ve got a pretty good treaty in place, when it comes to trading goods under the auspices of the WTO. There are provisions relating to services, but they’re very undeveloped. No one’s really managed to make any multilateral progress on anything new or modern. You do get some in bilateral contexts – say, the U.K. and Singapore, most recently, reaching a digital economy agreement that has sorts of commitments to refrain from data localization, placing duties on data flows and the like, but it’s very piecemeal. 

My view is that in terms of how this will develop, individual countries, and particularly the larger ones – the U.S., European Union, India, China – will introduce their own piecemeal approach to all of this and it won't be a collective vision. It won’t be, "We will think about how we regulate the metaverse," it will just be, "Well, we’ll think about how we regulate the fact that we’ve got all of these people providing consulting services from the other side of the world and displacing our local consultants." And the regulation you introduced to deal with that has an impact on what you can do in the metaverse.

Not many people are thinking about trade rules to govern this new reality - a shot in the dark?