Tuesday, March 26, 2024

Where are you from dear "goods"?

"Rules of Origin" are an integral part of the legal trading architecture. Complex and diverse, it sure is a challenge to beginners. It asks the basic question - where are you from, dear goods?! I haven't blogged about this a lot and not an expert on this specialized area.

However came across this excellent guide in the context of Sweden on how rules of origin impact trade and volumes. Titled "Do Rules of Origin Rule Free Trade", this National Board of Trade Sweden publication is a must read for free trade agreement enthusiasts. 

Do the rules enhance trading volumes? Do they have any impact at all. The report attracted ny attention for the simplicity yet complex analysis of a difficult subject. Simple explanations are a sign of mastery over complex subjects. this sure was one for me.

Sample this by one of the authors Christopher Wingard:

Rules of origin establish if goods are eligible for preferential tariffs, by making sure that a sufficient amount of production is done within the FTA. By requiring that production takes place within the FTA, the rules of origin also close the door on goods coming from countries outside the free trade agreement. They are a necessary part of any free trade agreement that includes some form of tariff reduction.

The reports findings, inter alia:

There is a pattern of heterogeneity across the agreements. One rule that is associated with low preference utilisation in one agreement can be associated with high preference utilisation in another. This variation is probably because all trade agreements are negotiated based on the unique set of economic and political circumstances between the parties in question. Variation is in other words not a bug; it is a feature. 

Again, a classic example that what is written in the rule book may not play out the way it was intended to. Also how much trade agreements, like investment agreements, actually influence trading patterns is a moot question. This report is a step in finding solutions in that direction. 

Monday, March 11, 2024

Climate change and FTAs

Following on the EFTA-India TEPA posts, apart from investment promotion an interesting set of arguments on the labour provisions are found here in the IELP blog by Desiree LeClerco

As a continuation, let us look at the "Climate Change" provisions in the FTA.  A rarity in India's FTA, the provisions read as under:

Article. 11.5

 Climate Change 

1. The Parties recognise the importance of achieving the objectives and goals of the United Nations Framework Convention on Climate Change, done at New York on 09 May 1992 (hereinafter referred to as “UNFCCC”) and the Paris Agreement, done at Paris on 12 December 2015, in order to address the urgent threat of climate change, based on best available science and reflecting the principles of the UNFCCC and the Paris Agreement, including equity and the principle of common but differentiated responsibilities and respective capabilities, in light of different national circumstances. 

2. The Parties reaffirm their commitment to implement their respective obligations and commitments under the UNFCCC and the Paris Agreement. 

3. Pursuant to paragraph 1, the Parties shall endeavour to cooperate bilaterally, and in other fora, as appropriate.

Would these provisions have an impact during implementation of the trade agreement?  

Sunday, March 10, 2024

Of innovation, targets and compliance - a new template in FTAs?

More on the recently concluded EFTA-India FTA.

As reported in the press, this is perhaps for the first time in the negotiating history of FTAs that investment promotion targets and job creation have been included in a legal free trade agreement in the EFTA-India FTA.

As this press note stated, 

  • EFTA has committed to promote investments with the aim to increase the stock of foreign direct investments by USD 100 billion in India in the next 15 years, and to facilitate the generation of 1 million direct employment in India, through such investments. The investments do not cover foreign portfolio investment.
  • For the first ever time in the history of FTAs, a legal commitment is being made about promoting target-oriented investment and creation of jobs.
Chapter 7 of the FTA speaks about Investment Promotion and Co-operation. The relevant provision related to foreign direct investment commitments is listed here:

Article 7.1.3 states:

The Parties share the objectives that: 

(a) the EFTA States shall aim to increase foreign direct investment from investors of the EFTA States into India by 50 billion (US dollars) within 10 years from the entry into force of this Agreement and an additional 50 billion (US dollars) in the succeeding 5 years 6 7 ; and

(b) the EFTA States shall aim to facilitate the generation of 1 million jobs8 within 15 years in India from the entry into force of this Agreement, resulting from inflows of foreign direct investment from investors of the EFTA States into India.

Non-compliance is not subject to dispute settlement but India can take remedial measures under Article 7.8 to rebalance the concessions given to the EFTA States in the Schedule of Commitments under the Chapter on Trade in Goods.

Some quick thoughts:

Though the chapter is not subject to dispute settlement  ( a lengthy legal process of a panel hearing and appellate review), there are remedial measures for "non-compliance". Thus, it is not hard law in terms of legal enforcement through dispute settlement but soft law with a bite! Further the obligation of foreign direct investment is only on EFTA and not vice vera. FDI targets and job employment figures for the first time as "commitments" in an FTA.

FTA templates are not static they say. This is surely on good example.

Another FTA in the making.

(EFTA)

Fresh from the press today! 

Reports of a free trade agreement between India and European Free Trade Association (EFTA) consisting of The Governments of Iceland, the Principality of Liechtenstein, the Kingdom of Norway and the Swiss Confederation are in the news here, here, here and here.

So an FTA would have a basic text - and here it is - the India-EFTA FTA.

The detailed commitments parties to the FTA have made is found here.

Tuesday, March 5, 2024

Of WTO Ministerial Conferences and outcomes


(https://www.wto.org/english/thewto_e/minist_e/mc13_e/mc13_e.htm)

For those who are cursorily following the developments of the 13th Ministerial Conference at the World Trade Organization which just concluded at Abu Dhabi, UAE, here is a detailed list of decisions that were agreed upon hosted on the WTO website.

The Abu Dhabi Ministerial Declaration, the main Ministerial decision, is here. Much is said about the breakdown of the dispute settlement process in the WTO with the Appellate Body being defunct. The Ministerial Conference agreed to work towards a resolution with this decision.




Saturday, October 28, 2023

Of some myths and a quiz

Back to some weekend trade readings:

CATO has this interesting set of articles on globalization - called the Defending Globalization. Two articles in it is close to what this blog is about - international trade;

1. James Bacchus has written succinctly and brilliantly on the myths and truths surrounding the World Trade Organization - on how views on the creation, motivations and agenda surrounding the WTO are mixed. That free trade doesn't really mean no barriers at all in the context of global trade rules and on how the dispute settlement mechanism works.

2. Simon Lester writes about the confusion around what free trade agreements are all about. They are not about unbridled free trade but reduced barriers with set rules of the game. Of course, it depends on the political appetite and economic realities in countries which determine the extent to which they are willling to go in these trade agreements - shallow or deep trade agreements as the World Bank calls them.

Lastly an interesting quiz on international trade. Having been a trade negotiator myself but now a jaded one at that, I decided to bite the bullet and take it. Though largely US-centric, I faired pretty okay and got this certificate:

Time to restart active blogging!

Thursday, October 26, 2023

ISDS - what is the path ahead?

Investor State Dispute Settlement (ISDS) has been and will remain a contentious issue in national and international fora. Does it give foreign corporations an unbridled right to ride rough shod on national governments and priorities? On the other hand, is it essential for the maintenance of the rule of law and minimum protection against arbitrary action? Does it foster foreign direct investment? Has it been undeniably harsh on developing economies? Are the damages claimed in these proceedings unjustifiable?

For those following these issues, white papers are not uncommon. A recent white paper on why ISDS should be abandoned in the Americas is an interesting read. Titled "Turning the Tide: How to Harness the Americas Partnership for Economic Prosperity to Deliver an ISDS-Free Americas". It argues for an exit from ISDS for countries in this region.

One interesting aspect that the paper covers is whether ISDS promotes FDI at all. While the jury is still out on this aspect, the paper claims:

Promised Boost in Foreign Direct Investment Never Materialized: In essence, ISDS essentially offers corporations a form of government-subsidized, cost-free political risk insurance to move their capital across borders, and it does so largely irrespective of the investors’ motives or the impacts of their investments. Many countries entered into these agreements under the assumption that such investment protections and privileges would promote foreign investment flows. However, decades of econometric studies have found no conclusive evidence that investment agreements, of which ISDS is typically a prominent feature, actually result in increased foreign direct investment in host countries. 

Another study quoted in the paper looks at the impact of IIAs on FDI and has this rather discerning observation:

Given the widespread interest devoted to the effect of IIAs and the intuitively appealing notion that providing a measure of protection for foreign investors should reduce the riskiness of FDI and thus increase it, it is worthwhile to reflect on why the measured effect of IIAs is so negligibly small. One possibility is that the protection provided to investors by IIAs is in fact insufficient to alter their investment decisions. This could be because investors find the cost of arbitration under IIAs to be too costly (potentially in excess of $5 million); too risky (in that they have no better than a 50:50 chance of winning in arbitration); or that the arbitral awards are inadequate compensation for their losses (arbitrators often award amounts that are less than the plaintiff firms claim as losses). A second possibility could be the proliferation of IIAs. Over 3000 BITs have been signed and to these should be added the investor protection mechanisms embodied in the other types of treaties we have discussed in this paper. Thus, as the number of IIAs increases, their marginal effect on FDI should fall, perhaps rapidly. Early treaties were negotiated between host countries that saw themselves as potentially attractive hosts and those countries that were a major source of FDI. Successive treaties had to include host countries that were less attractive targets for FDI for reasons other than the risks they posed to foreign investors and potential investors’ home countries that were less important sources of FDI. There are also IIAs signed between pairs of countries that are both net importers of capital and FDI, and the effect of such IIAs is likely nil. Thus, the importance of choosing appropriate home and host countries and their IIAs for study is important for the results obtained.

Will we see a re-evaluation of ISDS in investment agreements or just the status quo? Is there a rethink or will there be a re-emergence of ISDS in a different form. Is state to state dispute settlement an alternative - a la WTO? What about the Brazilian model of investment agreement and co-operation that shuns ISDS?

Where will the tide turn ultimately?