Anti-trust action across the world has gained traction and news due to action against Big Tech. India's recent Competition Commission of India case against Google is an example of a growing trend across the world.
Found this course by Yale School of Management on Anti-trust in the 21st century to be quite a comprehensive guide to the issues on anti-trust.
The detailed course is here. A good source!
The impact of trade, trade policy and trade agreements on domestic economies has been a subject of debate for a long time. While the benefits of liberalisation are evident with the ability to export into hitherto protected markets, libealisation also leads to domestic economies being open to competition and imports. This leads to the now famous "Winners and Losers" paradigm in trade - while trade does lead to many winners in terms of increased exports and cheaper products to consumers, it does also lead to loss of jobs, lower wages as well as disruption of local industries.
Simon Lester, while analysing the USITC's Report on the distributional impact of trade policy in the US focussed on the protectionism versus liberalisation debate. The post made me curious about the USITC report itself. Rather long, I stuck to the Executive Summary. However, for those interested in stakeholder views and academic discussion on how trade policy can impact local economies and what distributional impact it can have, this report is a good read.
During negotiations of trade agreements, there is often an analysis made on how much tariff reduction or opening up of service sectors to foreign competition will impact local jobs. Trade agreements also have fervent supporters in exporters who view market access to be a positive outcome. While the impact on the economy as a whole may be positive in terms of the terms of trade, it undoubtedly leads to local losers. While consumers may benefit from more choice and lower costs, loss of jobs to local manufacturing units may be more pronounced and electorally unpalatable. Many times the latter are a political constituency while consumers lack the political unity across the country to seek lower costs.
The report highlights, again, like the last post, the importance of looking at data, modelling and analysis. Can specific instances of opening up of the economy in certain sectors post a free trade agreement be analysed in terms of losers and winners? How has foreign competition impacted local businesses? Has local manufacturing in those products reduced? Have the businesses been more agile and shifted to different products? Have the employees moved to greener shores? Or has it impacted their wages and employment.
The Report is a great read to anyone interested in understanding trade policy from the wider purview of distributional impact. What was striking was the methodology used in terms of stakeholders, literature analysis and academic discussions.
The Australia-India FTA was ratified by the Australian Parliament. News of it is here and here.
If wants to get a thorough understanding of the scale, impact and nuances of the FTA, this Joint Standing Committee on Treaties Report of the Australian Parliament is a must read. It outlines the liberalisation in goods and services as well as what has not been done in this early harvest.
What I found interesting in this report is the debate about modelling the benefits of FTAs. The Report goes into the differing views on whether it is possible to assess the impacts of a free trade agreement - the gains, losses and overall economic benefit it has brought to the country. Is there data that can be attributed to the free trade agreement? Can we assess the benefits to a sector/business/people as a result of liberalisation? Is modelling possible at all?
One view expressed was one of doubt, as explained in the report:
By the time the Committee began considering the Trans-Pacific Partnership Agreement (TPP) in 2016, however, the Australian Government had stopped economic modelling of trade agreements, arguing:
"We would note that modelling is one tool among many when you are assessing a free trade agreement of this sort of character and dimensions ... We also note in these models that there are some methodological limitations. Models do not provide every fix in the world. This is broadly recognised by economists. When we are modelling a dynamic, 12 party deal, there are some real challenges. Modelling the impact of liberalising preferential supply chains is very, very difficult to do. Modelling the value that traders and investors place on certainty is very difficult to do."
However, the Report counters it with a different view:
However, in the absence of an independent and thorough impact assessment, that identifies the expected benefits, the direct and indirect impacts, and the trade-offs inherent in any trade agreement, one is left to merely accept the proposition that liberalised trade is beneficial without being able to properly examine the detail of what are complex and carefully designed agreements that make numerous changes, including with respect to areas that are not always strictly concerned with trade and investment (for example, the movement of natural persons, the treatment of intellectual property, the capacity to regulate in the public interest).
How does one do an impact assessment? What data points can one rely on? How easy is it in the services sector? Building a robust data base to analyse pre and post trade agreement scenarios is critical. Do all countries have that capacity? How does one assess in areas like intellectual property? Building trade capacity is not only about negotiating capacity - it also involves assessing the impact, benefits and pitfalls of what one has committed to!
I haven't blogged about the Intellectual Property waiver that was agreed to in the WTO. The waiver is here. However, I had blogged about the US decision to support the waiver here.
A recent piece in the Politico titled "Who killed the Covid vaccine waiver" was a fascinating account of the negotiations leading upto the waiver. Hat tip to Thiru Balasubramanian for this lead.
Whichever side of the debate on IP and access to health one is on, the complex relationship between business, trade, intellectual property, public interest and national interest is laid bare in this piece. Whether "lobbying" is actually advancing one's national business interest or intellectual property protection actually benefits access to health in a pandemic are debatable and subject to contrarian, heated often strongly-held views, the fact that negotiations at the WTO are an amalgam of national positions, business interests, negotiating strength, public sentiment, pragmatic endings and sustainable coalitions is evidenced in the waiver negotiations. Actually, it is evidenced in all negotiations!
The piece brings out a number of facets of international trade negotiations:
1. How trade policy positions are arrived at by members and what considerations influence WTO negotiating positions - a strong business interest vis a vis interest in getting cheap access to medicines for one's citizens
2. Role of business in crafting those positions or influencing them as well as the ability of civil society organisations to influence public policy. The ability to do so would also largely depend on where the business is located and how much of it contributes to the national economy.
3. The actual business interest that needs to be protected and the resultant negotiating position - for example, if a member did not have a strong IP manufacturing base, the likelihood of support for the waiver would be greater though not inevitable.
4. The importance of coalitions and fear of not being boxed into the corner in any negotiations.
5. The importance of text based negotiations and legalese apart from the broad declaration of intent to negotiate
6. The inevitability of arriving at pragmatic solutions midway - what the middle point is, is often determined by negotiating strength and ability to craft rules
7. The existence of two narratives of the role of IP in the debate on public health - one that firmly believes that it fosters innovation and thus is a key enabler of public access to medicines and the other that believes that patent protection is a barrier to access to cheap medicines worldwide. That debate, with statistics and research is bound to continue.
Negotiations at the WTO are about a mix of domestic business interests, national strategies of growth, access to markets, benefit to consumers as well as the growth in trade across sectors. This piece brought out that potent mix.
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.
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!
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.
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?
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?
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 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.
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?
Taahiraa Pai (good step) in Maori.
Is there any topic that is not relevant to trade agreements? Apparently not!
News of a UK-NZ FTA is out. And one of the chapters in this FTA is one on Maori Trade and Economic Co-operation. I haven't been able to get hold of the text of the agreement, but this is the synopsis:
26. Māori Trade and Economic Cooperation
This chapter contains provisions for cooperation activities to strengthen the trade relationships between UK, New Zealand and Māori enterprises. This will help Māori enterprises maximise the opportunities arising from the FTA, alongside New Zealand and UK enterprises.
The chapter also recognises the importance and value of the Māori to New Zealand’s economy and society. In addition to the unique relationship between the UK, New Zealand and the Māori.
Carnegie Europe in a latest report by Suyash Rai and Anirudh Barman have brought out a comprehensive overview of India's engagement with globalization in trade, climate negotiations, data sovereignty, global finance and digital taxation.
Titled India:Testing Out New Policies on Globalization", it concludes that India's engagement with the global order has changed since 2010 - towards a more inward looking strategy.
News of Microsoft taking over a gaming company Activision Blizzard is front page news here, here and here. While the nature of the proposed merger and the prospects it has for the gaming sector and Microsoft's role in it is on one side, the anti-trust/anti-competitive issues are also at the forefront of the debate.
Some of the questions that would be asked vis a vis the proposed merger are:
1. Does it substantially lessen competition and create a monopoly like situation in favour of Microsoft in the gaming sector?
2. This appears to be a vertical integration where a hardware company seeks to acquire a software gaming company. Does the approach differ if it is a vertical acquisition as against a horizontal acquisition?
3. Should Big tech be treated in a different way than traditional mergers in non-technology sectors?
4. Would consumers be impacted by the proposed merger as there may be more concentration of market power?
The Federal Trade Commission and the Anti-Trust Wing of the Department of Justice of the US Government recently sought public comments on how to approach merger enforcement in the light of the existing guidelines. One of the areas they seek comments are specifically on the digital economy:
11. Digital Markets
a. How, if at all, should the guidelines’ analysis of mergers in digital markets differ from mergers in other markets? How should markets be defined in the case of mergers in the digital sector where products and services undergo rapid change? How should the guidelines address prospective competitive harms in rapidly evolving markets?
b. How should the guidelines analyze mergers in markets subject to tipping toward oligopoly or monopoly, such as may result from significant network effects? How should the nature and timing of enforcement strategy differ in markets subject to tipping?
c. How should the guidelines approach market definition in zero-price markets, negative-price markets, or markets without explicit prices? Can “quality” and other characteristics play the same role as price in market definition?
d. How should the guidelines evaluate mergers in two-sided simultaneous transaction platform markets? What are the competitively-relevant differences between two sided simultaneous transaction platforms and other kinds of multi-sided platforms?
e. What are the appropriate indicia of market power in complex and multi-sided markets? Are traditional market definition approaches reliable frameworks for assessing the existence and magnitude of market power in these markets? Are other tools as effective or more effective than market definition in those contexts?
f. How should the guidelines analyze mergers involving data aggregation as an important motive and/or effect? How should economies of scale and scope be measured in these cases?
g. How should the guidelines account for multihoming or interoperability? To what degree does multihoming or interoperability offset competitive concerns in actual practice?
h. How should the guidelines analyze mergers involving competition for attention? How should relevant markets be defined? What types of harms should the guidelines consider?
The question is whether the nature of the digital economy requires sui generis rules for combatting anti-competitive behaviour? Are traditional rules insufficient to address the peculiar characteristics including free products, data aggregation and interoperability that are seen in a digital market?
There are implications for international trade too. How does enforcing anti-trust rules strictly in a national setting impact competition in a global market? Is a tightly regulated internal market less advantageous vis a vis an economy that creates huge national players who compete globally? What impact do varied implementation of anti-competitive regulatory frameworks have in enhancing market share in a global market? How does the policy of creating national champions for a global market interact with anti-trust enforcement in a local context?
This short infograph from World Intellectual Property Organization on patent applications filed from 1985 to 2020 depicts in less than a minute globalization and the reality of multipolarity that truly is evident!
What a jump!
This is the last post for the year and it is on trade and climate.
Recent news of the compatibility of EU's Carbon Border Adjustment Mechanism have been discussed here, here, here and here. The EU CBAM is essentially a carbon tax on imports into the EU based on the carbon content of the product. Initially it covers iron and steel, cement, fertilizers, aluminium and electricity generation.
The questions of the measure being discriminatory and incompatible with WTO law would engage trade lawyers no end - from non-discrimination to like products to process and production methods debates. A WTO challenge, when the measure is in place, would be likely.
However, what caught my attention in the last week of 2021 is a piece by Christian Haberli on the inevitability of a challenge and what is the way forward. Titled Carbon Border Adjustment Mechanism + WTO = Impasse Totale? he suggests that a possible way out is the defunct dispute settlement mechanism. What I understood of this argument was that the crisis facing the WTO dispute settlement with the Appellate Body crisis is possibly a "quick way" for the implementation of the CBAM.
"... Might the absence of a coercing dispute settlement mechanism in the WTO open a window for the EU to proceed with a "clean and green" CBAM not entirely WTO-compatible?"
It is a non-trivial issue when one states that a non-functioning dispute settlement mechanism can impact effective implementation of WTO rules. The lack of the threat of effective enforcement can be a ground for WTO inconsistent measures to take precedence. While the merits of having such measures may be strong, it no doubt undermines the system. Today, climate change measures, tomorrow national security and day after may be labour enforcement? It seems that a lack of a strong dispute settlement mechanism can re-imagine domestic policy that impacts trade. However, will all WTO members be able to take advantage of this "temporary" stalemate or just a few?
Appealing into the void seems to be appealing now!
See you in 2022.
