Friday, July 31, 2020

WTO reform - a fascinating discussion

For those who haven't watched it yet - would recommend watching the United States Senate Committee on Finance hearing on WTO reform.
1. What role should the US play in terms of leadership for reforming the WTO

2. Blocking the appointments at the Appellate Body and its consequences - the alternative MPIA mechanism and who is making those rules?

3. The elephant in the room - China!

4. Workers rights, the role of the WTO and who benefits from trade - is market access only for those who have access to capital and knowhow - how unskilled labour gets impacted

5. Judicial activism and how that dissuades future trade negotiations

6. How to be part of the rule making rather than staying out of it

7. How will rules be implemented now if appeals are filed against panel decisions essentially delaying the process

8. How can all WTO members be treated as developing countries? The need to redefine development!

9. How important ecommerce rule making is for WTO's success

10. Women, WTO and role of reform 

Wednesday, July 29, 2020

International law, Covid and a few claims

The pandemic has brought out a lot of questions of how international law would be used to confront the challenges countries are facing. One such issue was the possibility of ISDS claims against host states for measures taken (or not taken) during the pandemic. I have blogged about it here.

This has led to many organisations including the CCSI to call for a moratorium on ISDS claims. I have blogged about it here. The critics say it is an over reaction and what would constitute measures that cover such a moratorium and the time frame is uncertain.

Came across this news report, that a possible International Criminal Court claim against the Brazilian President for the way the Covid crisis is being handled in Brazil. This is an unexpected one - international law, covid and criminal claims against the administrations for failure to tackle the epidemic.

The International Criminal Court (ICC) "investigates and, where warranted, tries individuals charged with the gravest crimes of concern to the international community: genocide, war crimes, crimes against humanity and the crime of aggression."

The ICC petition is found here.

International law, covid measures and responses - sure seems to be heating up now.

Sunday, July 26, 2020

How does one deglobalise?

The clamour to take a step backwards from unbridled globalisation and open, free trade is being seen across the world. It si reflected in the stage of multilateral trade negotiations as well as the impasse at the WTO. So now the question is how does one "de-globalise" from a heightened stage of globalisation?

Geoffrey Gertz, writing in the Foreign Policy, explains the challenges of "de-globalisation" due to the intricate, well planned, and well established global supply chains. It is not a switch that can be turned on and off. It would require more planning and risks.

Many outside analysts are skeptical that such plans for deglobalization will succeed. They rightly note that contemporary global supply chains are extremely complex, the outcome of millions of individual uncoordinated firm decisions. Any attempts to unwind these processes will be cumbersome and costly. Although COVID-19 has prompted firms to revisit the trade-offs between efficiency and resiliency in their own supplier relationships, this does not mean that they’ll welcome government interference in such assessments. In fact, early reports suggest that firms around the world have been cool to their governments’ efforts to woo them away from China.

The skeptics are correct that rewiring supply chains will be difficult, and that firms are unlikely to simply fall in line with the wishes of politicians, particularly when doing so cuts against their bottom lines. Yet governments have more power to shift supply chains than may be obvious at first glance: Yes, it’s true that global supply chains reflect individual firm decisions. But these decisions are made within a policy environment set by governments. The current form of globalization is a policy choice; other worlds are still possible.

The move to "deglobalise" or to restrict vulnerabilities is a complex process of planning. It involves weighing alternatives as well assessing the possibilities of changing track:

What is clear, however, is that political exhortations alone won’t shift supply chains: Governments need concrete policy proposals, not vague directives, if they want to see real change. Moreover, restructuring supply chains should be done carefully and strategically, not through ad hoc, piecemeal policy announcements. In short, governments need to do their homework before acting. Rushing to dole out untargeted subsidies or implement new export controls will be both costly and ineffective: Governments will end up not only wasting money but also failing to address the vulnerabilities that worried them in the first place. Here are some practical steps to get started.
In the process of assessing these vulnerabilities is the assessment of the availability of strategic mineral capability for manufacturing. This study on mineral availability in the context of the US and how to assess it is interesting:
For the decade spanning 2007–2016, these results identify a subset of mineral commodities, including rare earth elements, platinum-group elements, cobalt, niobium, tantalum, and tungsten, that pose the greatest SR for the U.S. manufacturing sector. This subset includes commodities that have a high degree of production concentration in countries that may become unable or unwilling to supply to the United States, are mainly imported from other countries, and are consumed in economically important manufacturing industries that may be less able to withstand a price shock that may result from a supply disruption. It is this subset of commodities for which further investigations are necessary.
Each country needs to, and perhaps has made, make this assessment. Deglobalisation has its challenges - but needs to be met with a proper strategy.

Friday, July 24, 2020

What CEOs and top economists think...

What do the top CEOs of the top companies think they need to have to be good leaders in the next decade? And what do the top economists think where the global economy is headed towards?

The CEO results are here.
The top economists ideas are here.

Two contrasting takeaways from both these viewpoints:

Globalisation - Despite the pandemic and the clamour for protectionism, CEOs view a global outlook and looking beyond boundaries are still relevant for 2030.
As technology grows, the world becomes more connected and seems smaller. Each country used to be its economy, but now we can work with and communicate instantly with people all over the world. All businesses are now global and have the potential for worldwide employees and customers. Globalization brings complex geopolitical issues and great opportunities to collaborate and share cultures. Future leaders need to embrace globalization by becoming global citizens who appreciate different cultures and know how to communicate across cultural and language barriers. Different ideas should be viewed as opportunities, not fear-filled challenges. Leaders of the future need to pay attention to global issues and understand what is happening around the world.

And the pandemic hits the developing countries the most, the top economists say:

A move towards greater self-sufficiency as multinationals could do long-term damage to trading ties between high- and low-income countries. It remains to be seen, the report says, if businesses will be ready to give up efficiency for resilience. But uncertainty about the pandemic, geopolitical tensions and climate change-related events could cause more supply chain disruptions.

There is a “high likelihood” of supply chain transformation leading to a reversal of international economic convergence, according to respondents. This would force developing economies to reconsider their growth models.

We will have to wait and watch as to how the post-pandemic scenario will pan out for investments, trade, supply chains and globalisation. Will it lead to more regionalisation of supply chains, shifting of production back home or business as usual, albeit tempered.

Tuesday, July 21, 2020

Who should lead trade reform?

An ECIPE Occasional Paper in June 2020 got me thinking. The paper titled "Learning to Love Trade Again" lamented the fact that there was no leadership of either the US or EU in the trade arena at the moment. Every political spectrum views trade as being detrimental to national interests and that protectionism was holding sway.

It offered five initiatives that needed to be taken by the BIG THREE - the US, EU and Japan to turn around the mood on trade - to make people love trade again! The initiatives were:
1. The Big Three. The U.S., EU, and Japan, should establish a consultative body on trade to forge a new approach that allows trade to move ahead in the absence of universal consensus.  
2. No harm, no foul. Each of the Big Three should commit to zero tariffs on any item not produced in each particular market.  
3. A de minimis strategy. Tariffs should be eliminated on all products where the current tariff is less than 2%. At that level tariffs are simply a nuisance fee.  
4. Mind the social costs. Expand the Nairobi Protocols to include health products and green tech. Scrapping import tariffs on medical and green goods would not only encourage additional trade but will also provide health and environmental benefits. 
 5. Harmonize down. The Big Three should commit that on every tariff line each of the three will be no worse than the next worse. In other words, each of the Big Three will agree to reduce its tariff on every product where it has the highest tariff of the three.
While the initiatives are to be provided by the three, it cannot be restricted to the three because of the MFN provision under GATT, unless the three are proposing a mega FTA amongst themselves. Therefore unilaterally undertaking such cuts would mean free-riding. Other countries would benefit from such a reduction without necessarily having to pay back. This would be fine for the others - but whether it is a cost the three would be willing to pay for the love of trade is debatable?

A critique of this paper would be two fold:

1. The paper views leadership on trade issues being possible only from the large trading powers. So if the US or EU are not coming forward, it necessarily means that there is a leadership crisis. The presumption that there are only a few rule givers, while the rest are rule takers persist. A leaderhship charge from China or developing countries like India and Brazil are not envisaged at all. Quite expected. Rule receivers can never become rule givers!

2. On the role of the WTO's consensus principle being a step backward, the examples given don't quite seem to reverabrate in reality. There have been no smaller countries bringing the WTO to a halt for non-trade issues of AIDS, environment or the like. In fact, non-trade issues have always been an agenda that developing countries tend to oppose at the WTO.

3. The Big Three should set the norms and other should follow suit later - a la China or the rest. This was the mode earlier. Not a mode that 2020 should subscribe to.

The international trading system is facing a serious challenge from a legitimacy crisis both in the west and the developing worlds. How one needs to tackle this apathy and disdain is for the collective leadership to solve. Multipolarity must replace unipolar, bipolar and tri-polar worlds. Easier said that done though. However, the future must begin with the principle of engagement of al trading nations rather than a few.

However, the signs of the trilateral stewardship has probably begin. This trilateral statement of the way forward in subsidies negotiations at the WTO is an indication that this alignment is not a theoretical possibility but a distinct possibility. How other trading nations would react to this would determine whether trade is loved by everyone.

Monday, July 20, 2020

Trade pacts and their impacts

One often debates about the impact of bilateral trade and investment agreements on one's economy. However, most of the time it is based on rhetoric and unsubstantiated facts. Has a particular FTA led to an increase in exports or has it led to job losses in particular sectors? Who are the winners and losers?

Ravi Velloor makes a neat analysis of the India Singapore CECA and how it continues to impact Singapore's economy. In this piece in the Strait Times, he calls for a long time view of any trade agreement instead of looking at short term factors. he analyses how the CECA has impacted Singapore's labour market but also how SIngapore has gained access to India's financial sector. The point made was that these agreements have helped Singapore increase its exports. However, its market too has been opened up to the partner's imports as well as movement of professionals. Would this have been possible without the CECA? Another interesting fact is the rise in FDI from Singapore post-CECA. One of the arguments against BITs and ISDS has been that BITS do not really contribute to FDI inflows into a country. The rise of FDI in India of Singaporean companies post 2005 is a counterfactual to this narrative.

This new report raises the balance one has make to be both self reliant and open. With trade pacts opening up one's economy, it also provides opportunities for local manufacturers and service suppliers to benefit. How much, to what extent and in what sectors is the critical questions to be asked before one embarks on a trade pact negotiation.

The eternal question will remain - how much to liberalise and at what cost?

Sunday, July 19, 2020

Disintegration of international economic law order and then what?

For some time the multilateral trading regime and the international investment regime have faced serious challenges of legitimacy, efficacy and outcomes. While the international trade regime, epitomised by the WTO and several trade agreements has seen some kind of stagnation in terms of the ability to make new rules, the international investment regime has faced a serious crisis of legitimacy, especially the ISDS model. The outcomes of these crises is still playing out.

In this background the a latest piece in the Journal of International Economic Law (JIEL) titled "The Remains of the Day: The InternationalEconomic Order in the Era of Disintegration" lays out threadbare the elements of the crisis and what is in store. It speaks about the disintegration of the international economic order in two ways - disintegration through law and disintegration of law. The two are explained thus:
On the one hand, disintegration is understood as the impact of international economic rules on socio-economic structures and the environment (disintegration through law). On the other hand, disintegration is also a phenomenon eroding international economic regimes and institutions (disintegration of law).
On the working and disintegration of the WTO, it has this to say:
To begin with, disintegration through law offers a compelling explanation to the disintegration of international trade law. As is well-known, the World Trade Organization had shown signs of distress already at the beginning of the new millennium. However, although the agonizing stalemate ofthe Doha round cast serious doubts on the prospect of advancement of the multilateral trading system, the day-to-day functioning of the WTO was not in peril. But the unthinkable became reality. Disintegration culminated in the United States’ obstructing the appointment of Appellate Body members,to which the European Union has responded by promoting the establishment of an interim appeal facility. Not to mention the attempt of the US at reading the national security clause to include economic security; and the efforts at bi-lateralizing the relationship with China. (footnotes excluded)
On the churning in international investment law, it goes on:
"It thus comes as no surprise that international investment law has entered a phase of tumultuous change. On the one hand, States have unilaterally withdrawn from IIAS and denounced the ICSID Convention (albeit more limited in numbers). On the other hand, there is currently a plethora of reform proposals concerning both substantive standards and the ISDS mechanism, some possibly more transformative than others. But the road to change is bumpy and tortuous. For one thing, even formal withdrawal from IIAs does not necessarily imply a complete disengagement from the current investment protection regime. Sunset clauses—at times long ones—delay the full and immediate effects of withdrawals. Furthermore, reforming the massive network of IIAs inevitably takes time." (footnotes excluded)
This JIEL piece and special edition is an elaborate exercise in stating the current crisis and offering a way forward.
The first is the idea of the ‘repatriation’ of competences, which is a ‘return’ to the State as the main place of decision-making. The second is the conceptualization of a (re)embedded liberalism in a multilateral dimension, that is the idea of addressing certain compelling issues in existing multilateral frameworks. The third could be defined as progressive ‘managed’ integration, half-way between deep integration and reshoring, with more ad hoc solutions in the short-term and the possibility to extend them multilaterally at a later stage. The fourth one advances an inversion of scope with the regulation of the market being subservient to social and environmental issues, rather than ‘embedding’ these issues in market regulation. The last could be indicated as a ‘participatory’ approach, in that these solutions identify the site of democratic decision-making in the affected stakeholders at a subnational and transnational level, rather than in the nation-state. 
All these solutions present advantages and disadvantages, both from a substantive and pragmatic perspective. The idea of the return to the State might conceal both the (now highly visible) risk of autocratic power grab, but also ‘de-responsibilize’ international economic law of its central role in the attainment of public purposes. On the other hand, a (re)-embedded multilateralism might still risk obliterating the ‘perspective of the oppressed,’ and maintaining the traditional divides between ‘trade and non-trade issues’. Solutions that rest on bilateralism—albeit in the short-term— may advance more progressive agendas, such as a stronger active industrial policy and be more achievable, while risking to fragment the response.
To conclude, what are we looking at in terms of the emerging landscape:

1. A form of hyper-protectionism or precautionary-ism and State led growth models and positions in international trade?
2. A renewed effort by States to address environmental and the traditionally "non-trade" issues in multilateral and bilateral fora?
3. More examples of "coalition of the willing" types of arrangements as seen today on ecommerce, investment facilitation and services liberalisation?
4. Moving away from the State as the focal point of decision making, and more "democratic" movements and structures drive the agenda on economic integration?

But to those doomsday naysayers and global critics, the article also clarifies:
A cautionary note, however, is in order. By taking this perspective, this special issue does not aim to sound the death knell for all types of international economic integration. Nor does it wish to provide ‘ammunitions to the barbarians’ or stoke up the appetite for simplistic and chauvinist solutions.
Well once again, where and how will the middle path be found?         

Monday, July 13, 2020

French fries in the Kiwis - Not a crispy affair!

A classic example of winners and losers in the free trade debate is coming in from New Zealand - and the product is the unlikely french fries!

Due to the lockdown impact in Europe, imports of cheap french fries to New Zealand is causing prices to dip and challenge local growers and makers of french fries. The news reports are found here and here.
Perfect Thin and Crispy French Fries Recipe | Serious Eats

I was surprised to find a website called Potato News Today which traces the potato industry. It reported thus:
Globally, the disruption of supply chains, and particularly sales to hospitality, by virtue of COVID-19 restrictions has led to the complete collapse of potato prices in major production centres, in particular the European Union (EU). 
This will shortly lead to extraordinary price reductions in frozen potato chips from the EU. It’s expected that a similar collapse will be seen in other parts of the northern hemisphere, in particular in North America. The EU currently have approximately 2.6 million tonnes surplus frozen fries. 
If urgent steps are not put in place to prevent it, New Zealand is likely to be swamped by imports of frozen potato chips at those extraordinary prices. That, together with the existing impact of the current pandemic will in turn cause the New Zealand potato-growing and potato-processing industries to suffer severe and prolonged damage.
Familiar points when domestic industry is hit by a surge of imports. The multilateral trade rules do provide for possible action - raising applied tariffs if within bound rates, imposing anti-dumping duties or taking safeguard measures.

However, is the surge of imports a manifestation of the market or a deliberate attempt to off load cheap french fries in the Kiwi market? How do losers in this episode react - do they believe in the virtues of a free trading system based on comparative advantages? Is the fall in prices due to the market, an interplay of demand and supply, or a deliberate attempt to undercut competition?

Saturday, July 11, 2020

The next DG of the WTO - What do the "stakeholders" say?

Discussions on who will be the next DG are heating up. Reports are abound on what is in store here, here and here.Eight candidates are in the fray. Will the next DG be the first from Africa? Will the next DG be the first woman DG? Will the next DG be a political representative or a trade bureaucrat? Well, these questions would only be answered when the next DG is actually announced, how about a survey on this aspect.

And a survey is exactly what was conducted and the results were brought out in this paper by the European University Institute. Titled "Stakeholder Preferences and Priorities for the Next WTO Director General" the working paper brings out the results of the survey conducted amongst a mixed stakeholder group. The paper states that "Government officials (including the EU) represent the second largest category of respondents (24.6%) after academia (25.1%); followed by the private sector (companies and business associations) (19%); staff of international organizations (18%) and NGOs, labor unions, think tanks (11% of the sample). There was at least one government respondent for 76 of the 164 WTO members (46% of the membership). Of the government and EU respondents, 31% (66) are based in Geneva."

Amongst the many responses, the conclusion of the paper highlighting the survey is interesting:

As far as the characteristics the "stakeholders" hoped the new DG would have, there was near unanimity - well who wouldn't want a professional manager!
The bottom line that emerges from the responses to the survey regarding priorities when it comes to the professional and personal attributes of the next DG is relatively clear. Competence, political experience, a network that spans major capitals, international business and international organizations, knowledge of the WTO negotiating process and a background in economics are all characteristics that are ranked most highly. Moreover, Geneva-based officials often accord greater priority to these characteristics than the total sample. 
Time for a political head for the WTO, not a bureaucratic leader!
One hypothesis this suggests is that the DG should not be a technocrat/WTO delegate. There is a recurring debate among trade officials and practitioners that has something of a cyclical dimension: should the WTO be led by an ex-Minister/senior politician or by a bureaucrat (a trade official)? The most recent DG was a bureaucrat; some of his predecessors were former Ministers or Prime-Ministers (e.g., Renato Ruggiero; Mike Moore). It appears that as far the respondents to the survey are concerned the pendulum has swung to a preference for the latter type of profile.
And thumbs up on the priorities for the new DG - sort out the dispute settlement crisis immediately!
There is a substantial degree of commonality in rank orderings of substantive issues for negotiation, institutional reform, and daily operations of the WTO. Resolving the dispute settlement crisis is a clear priority for most respondents, especially government officials.
Well, will these considerations play out when 164 members of the WTO come together to select the next DG? Are these priorities for capitals at all? What will play out as the selection process moves forward. Will it be a fair selection considering the formats and closed door selection process, as this piece suggested?

Let us wait and wait.

Friday, July 10, 2020

Going bilateral or multilateral - which way is the road headed?

Are bilateral trade agreements and multilateralism mutually exclusive? Can one co-exist with the other? Should one co-exist with the other?

Article XXIV (5) of the GATT 1947 provides for forming Free Trade Areas and is not considered an abrogation of multilateral commitments.
Accordingly, the provisions of this Agreement shall not prevent, as between the territories of contracting parties, the formation of a customs union or of a free-trade area or the adoption of an interim agreement necessary for the formation of a customs union or of a free trade area...
Article V of the General Agreement on Trade in Services, titled "Economic Integration" provides for bilateral agreements:
1. This Agreement shall not prevent any of its Members from being a party to or entering into an agreement liberalizing trade in services between or among the parties to such an agreement, provided that such an agreement:
(a)  has substantial sectoral coverage, and
(b)  provides for the absence or elimination of substantially all discrimination, in the sense of Article XVII, between or among the parties, in the sectors covered under subparagraph (a), through:
(i)  elimination of existing discriminatory measures, and/or
(ii)   prohibition of new or more discriminatory measures,
either at the entry into force of that agreement or on the basis of a reasonable time-frame, except for measures permitted under Articles XI, XII, XIV and XIV bis. 
Thus, the WTO framework does provide for regional and bilateral engagements along with the multilateral system. This is evidenced by the fact that there are numerous bilateral and regional free trade agreements across the globe. The resulting multiplication and intertwining of rules and obligations is often referred to in trade literature as the spaghetti bowl effect of regional trade agreements.

However, is the bilateral and regional proliferation desirable is another question. What is tending to happen now is that new standards (gold, silver and bronze) on rule setting on e-commerce, labour, State Owned Enterprises are happening outside the multilateral system in these regional and bilateral settings. Is that necessarily a bad thing or is it required for slow adoption by the multilateral system with varying growth trajectories?

Robert Lighthizer, USTR in a recent press report seems to suggest the two should not co-exist and the US could go for one at the expense of the other:
“The FTAs, in my opinion, we should just get rid of them. We should have a multilateral system or a bunch of bilateral systems,” Lighthizer said. “And to be honest, I can go either way. But we can’t have people who...profess to multilateralism and then go around basically being the biggest proponents of a bilateral system.”
Which way the world's largest economy and trading partner will go will definitely have an impact on the multilateral trading system and the institutions that govern it.

Wednesday, July 8, 2020

James Bacchus on the self-judging security exception

Last month, I had blogged here about how the security exception in the WTO Agreements may not be as self-judging as they look considering the decision of a panel in the Saudi Arabia Intellectual Property dispute at the WTO. It appeared that WTO panels were interpreting the security exception provisions to determine whether there indeed were a set of facts that justified the use of the exception and whether the measure undertaken had any relation to the security threat that the WTO member perceived there to be.

I was pleasantly surprised at the opinion in the Newsweek by James Bacchus, a former Chairman of the Appellate Body, who came to the conclusion that panels are dissecting national security exceptions as any other provision of the Agreements thus making it no longer feasible for Members to assume that when they undertake a measure under the security exception umbrella, they are above rebuke!

The jurists in the Russian dispute disagreed. So too did those in the Saudi dispute. In sum, their reasoning goes: If the national security exception is self-judging, if it cannot be reviewed like any other obligation in the WTO treaty, then why do the national security exceptions in the WTO rules on trade in goods and services and on trade-related aspects of IP rights set out specific limited circumstances in which these exceptions can apply?

Notably, the panel in the Russian transit case– as mandated by the WTO treaty – drew on the "customary rules of interpretation of public international law" in noting that treaties must be upheld in "good faith" by those that are parties to them. On this basis, the panel in that case concluded that governmental actions for which a national security exception is claimed must "meet a minimum requirement of plausibility in relation to the proffered essential security interests."
The conclusion in the piece is even more interesting:
WTO rulings in disputes in which none of the disputing countries are from the West are often ignored in the politics and in the media of the West. These two rulings, though, are deserving of much global attention. They remove the foundations for the U.S. argument that it can do whatever it wishes in trade if it does so in the name of national security. And they foreshadow more such rulings to come.
Are we going to see a slew of panel decisions where measures taken by WTO members as national security measures are challenged? With no Appellate Body to decide on these panel decisions, will we see a proliferation of panel ruling that tend to take this view?

Sunday, July 5, 2020

New trade deals, new disputes?

The USMCA is in force. A series of news reports on it here, here, here, here and here

But as any trade deal, there are supporters and critics. the supporters would say that this is the best thing that could have happened while the critics vouch for the fact that this is the worst trade deal ever!

From the supporters, the USMCA promises a lot on digital trade, rules of origin, intellectual property and labour rights. It is a high standard agreement that sets right what NAFTA couldn't.

CATO had this piece by Inu Manak that thought in very different terms. It stated that the rules of origin for the auto sector could lead to problems for local manufacturers needing to change their supply chains. Further, there is a possibility of labour disputes.
The most concerning aspect of the new labor rules is the potential litigation boondoggle they may unleash, with the inclusion of a rapid response mechanism (RRM) for labor enforcement, which was put into place to ensure remediation of a denial of collective bargaining rights. There are two separate RRMs, one as between Canada and Mexico, and the other between the United States and Mexico, and is specifically designed to handle a particular denial of the right of free association and collective bargaining by a private entity at a particular worksite.
Will the maximum of labour related disputes in trade agreements originate under the USMCA? Or is this just initial hype and things will ultimately settle down?

Saturday, July 4, 2020

More on precautionism

Following up on "precautionism" that ex DG of the WTO, Pascal Lamy spoke about in a podcast blogged about here, I thought more about it. He mentioned that it tends to be more subjective and could lead to more protectionism than higher tariffs or quotas. Levelling the playing field is much more tougher when countries adopt more precautionary principles to determine what needs to be opened up and for how long.

This made me do a bit of research on the well known "precautionary" principle in EU trade policy. This detailed communication by the European Union on what the precautionary principle involves explains the circumstances under which the principle is applied.
The precautionary principle is detailed in Article 191 of the Treaty on the Functioning of the European Union. It aims at ensuring a higher level of environmental protection through preventative decision-taking in the case of risk. However, in practice, the scope of this principle is far wider and also covers consumer policy, European Union (EU) legislation concerning food and human, animal and plant health.
The summary goes on to state:
The precautionary principle shall be informed by three specific principles:
  • the fullest possible scientific evaluation, the determination, as far as possible, of the degree of scientific uncertainty;
  • a risk evaluation and an evaluation of the potential consequences of inaction;
  • the participation of all interested parties in the study of precautionary measures, once the results of the scientific evaluation and/or the risk evaluation are available.
In addition, the general principles of risk management remain applicable when the precautionary principle is invoked. These are the following five principles:
  • proportionality between the measures taken and the chosen level of protection;
  • non-discrimination in application of the measures;
  • consistency of the measures with similar measures already taken in similar situations or using similar approaches;
  • examination of the benefits and costs of action or lack of action;
  • review of the measures in the light of scientific developments.
 The debate really is to what extent "precautionism" can be used to be veiled protectionism. Risk evaluation and assessments do have their element of subjectivity. So while tariffs and quotas are objective numbers and limits, precautionism can turn more murkier.

Coming from a person who was the former EU Trade Commissioner, precautionism does ring a bell!

Friday, July 3, 2020

Moving from protectionism to precautionism?

What is the future of globalization post the pandemic? Pascal Lamy, the former DG of the WTO speaks about it here in a podcast reported in the Lowy Institute website.

Pascal Lamy cautioned that there would be more "precautionism" rather than protectionism. This would be more subjective and problematic. Some of the points on the podcast jotted down here:

On the future of globalization:
1. More obstacles to freer trade
2. Speed of globalization will change, but not towards deglobalisation
3. Slowing down of global trade - there is huge amount of helicopter money in some countries - so large State intervention in US, EU, China
4.Supply chain fragility - but more bark than bite 
5. Bit of rechoring may be in pharma
6. Precautionism as opposed to protectionism
7. It is protecting your people from risk - overall level of precaution will increase
8. Safety standards, security - precaution is a politically connected issue - what is a good level for you
9. As opposed to tariffs (usual tools) - addressing precautionism is very subjective - more fragmentation
10. Leveling the playing field of precautionism is more difficult
On the WTO
1. WTO is weaker than 10 years ago
2. Increasing divergence in collective preferences between the US and China
3. Updating the WTO rulebook - is what we say reform of WTO
4. China has changed - state owned part of economy is 30% of the economy
5. SOE needs support from the State - intervention - distorts the market, internally and externally
6. WTO disciplines in state aids are shallow and need to be strengthened - EU, US, China, Japan have to converge for competitive neutrality
7. US-China rivalry well placed to stay
8. Will take a few years to stabilize
9. WTO reform - short term goals - cooling down period, easing trade distortions, coalition of the willing to stop the distortions
10. Long term - Developing countries need to step in since international trade and investment is a big lever for development
Is it realistic that WTO will move forward?
1. Notion that playing field needs to be levelled is a major issue for developing countries - it is a further obstacle to development.
2. Notion of rebalance will remain
3. Is China a developing country anymore?
China and the WTO
1. Existing set of disciplines does not constraining some trade distorting practises of certain WTO players. 
2. No more convergence now. Co-existence now. 
3. If they do not accept new disciplines, then opening up trade will stop. The rulebook is not enough to adapt to the present trade distorting practises.
          4. US farm support also an issue. 

Lot of things to chew upon there. Reform required, but of what?