China Rare Earth Panel report out

The China Rare Earth panel report is out and is found here. I had blogged about it in 2012 when the panel was set up here.  

"In respect of findings concerning export duties and export quotas on various forms of rare earths, tungsten, and molybdenum, and restrictions on the trading rights of enterprises exporting rare earths and molybdenum, the Panel has found that the series of measures have operated to impose export duties and export quotas on various forms of rare earths, tungsten, and molybdenum, and restrictions on the trading rights of enterprises exporting rare earths and molybdenum (i.e. the prior export experience requirement, the export performance requirement, and the minimum registered capital requirement), that are inconsistent with China's WTO obligations. The Panel, therefore, recommends that the Dispute Settlement Body requests China to bring its measures into conformity with its WTO obligations such that the series of measures does not operate to bring about a WTO-inconsistent result."

Haven't read the voluminous Panel report of more than 200 pages. Many interesting questions including on the applicability of General Exceptions to obligations under the Accession Protocol of China. WHat impact would this have on other similar measures?

Will this lead to an appeal, compliance or status quo? We will have to wait and see...

Services liberalisation - FTZ style

For those watching services liberalisation, this is something to watch out for - the Shanghai Free Trade Zone that was opened recently.

The details are found here.

Currency issues in regional trade deals?

For those following the currency manipulation debate in international trade, a recent WSJ piece may seem interesting where the issue of provisions seeking to address the issue of currency manipulation in trade agreements was discussed.

I have blogged about it here, here and here. 

A possible entry of provisions relating to currency manipulation in regional deals?

Currency Reform Bill gains ground?

Is the Currency undervaluation and trade debate going to take centre stage again? I have blogged about it here, here and here.

Trade Reform has this interesting take:

"Because of your emails to Congress, we are now at a new high of 106 co sponsors to the House currency manipulation bill (HR 1276 - Currency Reform for Fair Trade Act).  We’re getting closer."

A distinct possibility? What impact would this move have on proposals at the WTO regarding currency misalignment and trade?

Of negotiated settlements and international economic law

As reports of China, US and EU apparently reaching a settlement on the solar panels trade dispute trickled in, another dispute seems to be making an entry - EU initiating a suo moto anti-dumping and anti-subsidy enquiry into imports of telecommunication equipment from China. 

The EU statement is here:

""The European Commission has today taken a decision in principle to open an ex officio anti-dumping and an anti-subsidy investigation concerning imports of mobile telecommunications networks and their essential elements from China. This decision will not be activated for the time being to allow for negotiations towards an amicable solution with the Chinese authorities. I will revert to the College of Commissioners in due course."

Will this dispute go the negotiated settlement way too? Consultations and negotiations are an integral part of the international trade setting. However, this CATO piece was critical of a negotiated settlement. It highlights the multiplicity of stakeholders - consumers, industry invoked in downstream activities like installation as well as institutional users of these equipments, apart from the producers of these panels ofcourse.

I was just struck by the CATO piece of the usage of the term "un-trade agreement". Can negotiated settlements be contrary to principles of international law? In other words, can there be a settlement that violates the provisions of an Agreement? I am sure countries do it all the time - but strictly in legal terms, isn't it still a violation?

Chinese citizen sues the US Fed over devaluation!

Currency devaluation is often seen by countries as a tool to boost one's exports by undervaluing one's own currency. While this has not yet reached the doorsteps of the dispute settlement mechanism of the WTO as some have suggested it should, an abnormal case of a Chinese intending to sue the US Federal Reserve (the US Central Bank) for the fall in the value of the US dollar due to monetary easing made for some interesting reading!

The case was reported here and here.

Currency undervaluation does have it's challenges!

Hacking and the WTO

I had blogged about cyberespionage and the applicability of WTO rules here.

Now, a piece in National Interest which argues that hacking should be remedied through a dispute at the WTO. It argues fo rusing international law, especially TRIPS obligations to ensure cyber security.

I am not sure how realistic this is but this surely would make the WTO dispute settlement tread dangerous waters...

WTO dispute settlement and China-US trading relations

The dispute settlement mechanism of the WTO has been hailed as the crown jewel of the multilateral system providing an avenue for trading partners to resolve intricate and complex trade disputes within a rule based system. It is often compared to the more 'political' power based negotiation process wherein relative economic strengths and other factors influence decision making.

A good insight into China-US trading relations in the context of their disputes at the WTO is found in this piece by Ka Zeng which essentially argues how the dispute settlement mechanism of the WTO has averted any major trade war between the two trading superpowers.It has also been used by both the countries effectively to pursue their national interests.

"All this suggests that the WTO DSM has become the primary means for handling politically salient issues for both countries.  If this is the case, the growing utilization of the DSM in the past decade may have helped to channel the tensions surrounding the bilateral trade relationship and prevented intense interest group pressure from impairing overall U.S.-China trade relations. In the absence of the DSM, it is possible that major bilateral trade disputes resulting from China’s ever-growing trade surplus with the U.S. and allegations of the undervaluation of the Chinese currency could have generated far more acrimony and tensions in bilateral economic relations."

Her full article on this interesting aspect of China-U.S trading relations is found here. 

Of rankings and a globalization index

"Globalization - Looking beyond the obvious" is the new report on the issues in globalization released by Ernst and Young recently. It highlights, inter alia, that for future investments in a globalizing world, companies must look beyond the BRICs to other "hotspots" like Turkey, Mexico and South Africa.

"For many multinational companies Brazil,Russia, India and China were the big bets of the past decade. And there’s no question that these powerhouses will continue to be major players in the world economy. Not only will the BRICs’ gross domestic product (GDP) grow faster than that of the other countries included in the Index (see Figure 3), but the BRICs will also integrate further with the global economy. Yet the challenges of operating in the BRICs are increasing, as their slowing real growth, rising inflation and labor costs, political instability, infrastructure shortfalls, and bureaucratic obstacles chip away at business confidence."

Referring to the other growing, emerging economies, the report states:

"Against this backdrop it is critical for businesses to look for alternatives - and the search may well involve making unconventional choices. Increasingly, non- BRIC rapid-growth markets are emerging as hot spots for global business. These markets are more globally integrated than the BRICs on a range of trade, investment, cultural and technological criteria, and this is set to continue through 2016, as our Index data shows. Many of these markets also show consistently high economic growth close to that of the leading BRICs. For example, Turkey, Mexico and Indonesia closely shadow China and India in terms of GDP growth from 2000 through 2015. Other promising locations include Peru, Colombia, Venezuela, Malaysia and Vietnam, as well as several countries and regions in Africa that are shaping up to be among the most dynamic parts of the world for investment." 

The report also announces the Globalization Index for 2012 which is essentially a ranking of countries in terms of them being "globalized" in terms of their trade volumes and openness to businesses. The main variables of this index are the "share of main trading partners in total trade, as a percentage of GDP (trade in goods and services); trade in information and communications technology (ICT) goods, as a percentage of GDP (technology); foreign direct investment (FDI) stocks, as a percentage of GDP (capital and finance); and total international fixed telephone traffic (culture). The last two of these variables are substitutions for FDI flows as a percentage of GDP (capital and finance) and international outgoing fixed telephone traffic (culture)."

 
Hong Kong tops the list once again about which I had blogged about last year here! China surprisingly is 44th on the list.

Currency undervaluation - 2013's big trade dispute?

I had recently blogged about a possible currency dispute at the WTO. Does currency undervaluation merit a trade remedy? Is it disguised protectionism? Does it unfairly benefit the exports of the country devaluing it's currency? While many have argued that currency undervaluation does not fall under the domain of the multilateral trade regime (the IMF being the right forum), there is considerable literature emerging that a possible WTO action cannot be totally ruled out. Recent moves by Brazil to raise the issue at the Committees of the WTO also underlies the criticality that members view the issue to be.Nevertheless, others argue that there may not be any credible link between undervalued currency and trade flows at all.

This Bloomberg report highlights the growing disquiet within the EU and Russia on the policy of Japan in managing its currency at a low rate. The murmurs are slowly getting louder. While the Chinese renminbi has been the target of undervaluation normally, this time it is the Japanese yen facing the brunt. The Economist and Voxeu had these comments in recent times.

Irrespective of the desirability of managed exchange rates to further one's domestic macro-economic policy agenda, the criticality of currency undervaluation to trade related issues is here to stay. This may manifest itself in increased opposition at the WTO or at dispute settlement proceedings. 2013 may indeed see the initial impact of those murmurs. The implication this has on domestic policy space, monetary policy independence and interpretation of trade rules (in terms of interpreting what constitutes an actionable or prohibited subsidy - currency undervaluation most likely being labelled as a prohibited subsidy under the ASCM or a violation of other GATT/WTO provisions) are questions which have no easy answers.

China, national interest and the WTO

China's participation in the WTO is often a subject matter of intense debate and analysis. Experts have argued that since its accession to the WTO in 2001 China has benefitted immensely from its membership of the multilateral intruding institution and has seen unprecedented growth in trade. Critics have often argued that China takes advantage of the multilateral system for its benefit and continues to violate trade rules by subsidizing its export industry and "manipulating" its currency. "Made in China" products seem to permeate countries and is a source of tension.I have blogged about China and its participation in the multilateral system here and here.

This piece in the National Interest highlighted China's growth in the WTO system and why it is important for China to stay within the multilateral system.

"Now that China has arrived as a global trading powerhouse, it must take on more responsibility for maintaining the system from which it benefits.First, it needs to play by the rules. The current international order was created by Western powers, but China has profited from these rules more than any other country and thus should abide by them. 

Second, China can’t afford to play the “developing country” card forever. It’s true that China’s GDP per capita is only around $5,500 and that it is still working to lift millions of people out of poverty. But at the same time, some of its economic practices are proving to be counterproductive and are stoking protectionist impulses abroad, a dynamic that is certainly not in China’s own best interests. 

Finally, as a rising power, there will be an increasing number of global challenges to which China will be expected to contribute resources. Setting aside phrases such as “non-interference” and “responsible stakeholder” for a minute, if China wants to build a “new type of great power relationship” with the United States, then it must shoulder more great-power burdens."

Jayati Ghosh and C.P.Chandrasekhar in this piece in the Hindu Business Line have differentiated the growth of China with other developing countries (especially other BRICS countries) and highlighted the growth story of China in world trade. It is clear that in terms of share in world trade China has clearly benefitted from its participation.

(The charts above all present data calculated from the online database of the WTO, http://stat.wto.org/Home/WSDBHome.aspx?Language=E)

Are there lessons to be learnt from China's involvement in the multilateral trading system? Is China charting its own course within the framework of trade rules that other developing countries can learn from? Is there a national strategy to engage with the multilateral system in order to ensure that national interest is protected?

China's 2nd WTO decade

A report in a China news daily about the need for more market reforms to take advantage of the WTO caught my attention. China has known to have taken advantage of its membership since 2001 but experts claim that now that advantage is wearing off and more needs to be done.

"To overcome that tension, Erixon suggested both sides roll out market reforms, with China liberalizing more sectors, getting away from its high level of reliance on State-owned enterprises, and giving domestic companies greater access to capital markets."

Moving away from State owned enterprises, market reforms - will China herald the next big "capitalist" reform push? Will be interesting to see how China approaches its second decade in the WTO.Less subsidies and more market reform?

Local content and the Chinese challenge - sustainable?

I had earlier blogged about the Chinese challenge to the EU renewable energy FiT programs, particularly of Italy and Greece. While one awaits the Canadian FiT case Panel decision, China's request for consultation in this case offers opportunities for the development of WTO jurisprudence in the are of renewable energy, local content and permissible domestic policy space.

China challenged the "Italian Legislative Decree of 3 March 2011, for the incentivizing of the production of electrical energy from photovoltaic solar installations, generally, and Article 25(10) thereof, specifically" and also "the 7 August 2012 version of the "Implementing Rules" pertaining to, inter alia, the administration of the Italian Feed-In Tariff, promulgated by the Italian Gestore Servizi Energetici (Regole Applicative per l’Iscrizione ai Registri e per l’Accesso alle Tariffe Incentivanti), generally, but including in particular Article 4.4 ("Premium for installations that use main components produced within EU/EEA States"), and all pertinent past and future versions thereof." On the Greek measures, China challenged the "Development of the Athens former international airport Hellinikon - Project HELIOS - Promotion of the use of energy from renewable sources as well as the "primary Greek legislation on renewable energy sources, i.e. Act No. 3468/2006 on "Electricity Production from Renewable Energy Sources." 

The main legal basis for China's request for consultation is found in the following arguments:

"China considers that the above-mentioned measures are inconsistent, both as such and as applied, with, among others, the following obligations under the following provisions:

• Article III:1 of the GATT 1994, because the measures are laws, regulations and requirements affecting the internal sale of products in such a way that they afford protection to domestic production;

• Article III:4 of the GATT 1994, because certain measures accord less favorable treatment to imported equipment for renewable energy generation facilities over like products produced in the EU and the European Economic Area ("EEA");

• Article III:5 of the GATT 1994 because the measures constitute quantitative regulations relating to the use of products in amounts or proportions which requires, directly or indirectly, that a specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources; 

• Article I of the GATT 1994, because certain domestic content restrictions impede other WTO Members, including China, from enjoying the full benefit of the measures while other WTO Members do not face similar restrictions. These include but are not limited to certain WTO Members which are Members of the European Economic Area (EEA) but not the EU;

• Articles 3.1(b) and 3.2 of the SCM Agreement, because the measures include subsidies within the meaning of Article 1.1 of the SCM Agreement that are prohibited as they are provided contingent upon the use of domestic over imported goods;

• Articles 2.1 and 2.2 of the TRIMs Agreement, in conjunction with paragraph 1(a) of the Agreement's Illustrative List, because the measures are trade-related investment measures inconsistent with Article III:4 of the GATT 1994 which condition the receipt of the full advantage of the measure on the use of domestic goods."

While the GATT challenge may be more easily sustainable if local goods are favored over imported goods, the finding of a prohibited subsidy under the ASCM may be a little more arduous because of the definitional requirements of what constitutes a subsidy including financial contribution, benefit and specificity. This opens up another debate about the applicability of Article XX GATT which provides for general exceptions to the GATT provisions on the grounds, inter alia, of the environment.

One would have to way and watch the journey of the Canadian FiT case and the arguments in the China challenge. The rulings will have immense implications for renewable energy programs around the world that are dependent on local content requirements.

Renewable energy, WTO and local content - China takes on the EU

In signs of increased disputes in the renewable energy sector at the WTO, China filed a complaint against the EU and certain EU member states against certain Feed in Tariff programs that it alleged violated the GATT, ASCM and TRIMs. The WTO reported the filing of the complaint here. Though details of the complaint and the grounds of challenge are not yet clear, it seems that "local content" requirements are the main ground for he challenge.It was reported here.The NYT reported it here. Surprisingly, China has not filed a case against the U.S. with regard to which China connected a detailed investigation into State specific renewable energy programs recently. Many countries provide preferential tariff on generation of renewable energy and also mandate the use of locally produced products for this generation. Some countries provide an incentive on the tariff (additional tariff) on the condition that local products are used. 

EU and Japan have already challenged Canada's (Ontario's, more specifically) Feed-in tariff program as being violate of GATT law since it treats imported products less favourably than local products. The decision of the WTO Panel in this case is awaited in November. I had blogged about the dispute recently here.

With a number of countries implementing renewable energy programs of varying degrees and varieties, with and without local content requirements, the disputes at the WTO will offer some interesting insights on where the lines are to be drawn in balancing environment protection and trade.

Joseph Stiglitz on trade wars

Joseph Stiglitz writing in the Project Syndicate has shed light on the tension between China and the U.S. on the issue of currency misalignment or manipulation. The U.S. has over the years accused China of deliberately undervaluing its currency in order to boost exports and create a trade surplus. There is a plethora of literature on the issue of currency manipulation and WTO law about which I am not discussing here. Stiglitz's piece titled "No Time for a Trade War" touches upon two aspects that I found relevant: the role of the WTO in curbing the rise of protectionism and the futility of trade wars.

"When the Great Recession began, many worried that protectionism would rear its ugly head. True, G-20 leaders promised that they had learned the lessons of the Great Depression. But 17 of the G-20’s members introduced protectionist measures just months after the first summit in November 2008. The “Buy American” provision in the United States’ stimulus bill got the most attention. Still, protectionism was contained, partly due to the World Trade Organization."

Raising the issue of the futility of a trade war by labeling China as a currency manipulator and risking retaliatory trade measures, he feels that a trade war serves nobody's interests.

"No one wins from a trade war. So America should be wary of igniting one in the midst of an uncertain global recovery – as popular as it might be with politicians whose constituents are justly concerned about high unemployment, and as easy as it is to look for blame elsewhere. Unfortunately, this global crisis was made in America, and America must look inward, not only to revive its economy, but also to prevent a recurrence."

I guess these are points that are quite evident but coming from Stiglitz it definitely requires a mention.

Dani Rodrik, national sovereignty and globalization

The issue of domestic policy space in the context of globalization and international trade rules has often been a subject matter of this blog. Does the international legal framework severely restrict national decision making abilities? Does it infringe upon democratic politics? I had blogged about this issue here.

Dani Rodrik has argued that hyper globalization, national autonomy and democracy cannot go together. Calling it a political trilemma, he is of the opinion that increased economic integration leads to a loss of national sovereignty and democracy. Increased globalization leads to a loss of democratic policy space.

Writing in the Project Syndicate and citing the example of the Eurozone, he argues:

"The conflict between democracy and globalization becomes acute when globalization restricts the domestic articulation of policy preferences without a compensating expansion of democratic space at the regional/global level. Europe is already on the wrong side of this boundary, as the political unrest in Spain and Greece indicates. 

CommentsThat is where my political trilemma begins to bite: We cannot have globalization, democracy, and national sovereignty simultaneously. We must choose two among the three.Comments 

If European leaders want to maintain democracy, they must make a choice between political union and economic disintegration. They must either explicitly renounce economic sovereignty or actively put it to use for the benefit of their citizens. The first would entail coming clean with their own electorates and building democratic space above the level of the nation-state. The second would mean giving up on monetary union in order to be able to deploy national monetary and fiscal policies in the service of longer-term recovery.

Comments 

The longer this choice is postponed, the greater the economic and political cost that ultimately will have to be paid."

While "globalization" or economic integration in the context of the Eurozone may have different connotations of domestic sovereignty, Joel Trachtman has argued that global trade rules do not severely curtail national will. By consenting to international agreements, countries do exercise their democratic choice. Further, the trade agreements themselves have tremendous scope for interpretation. Hence, even though a country is a part of an international legal system, the fine print of the agreements must be carefully engaged with to protect legitimate domestic space and national choice. While it is nobody's case that globalization does not have an impact on sovereignty, the extent and severity is the critical question. In times of crisis, the impact is played upon. However, global supply chains and interdependence on imports downplays the negative impact of globalization. Is it ever possible for countries to shun international mulitlateralism and become "protectionist" again? Will democratic will prevail on international economic realities? Are they irreconcilable? What do we make of examples of China which have actively participated in the globalized world after its entry into the WTO but at the same time maintained its national goals and commitments? Is there a middle path which carefully guards national democratic will but at the same time engages with the global framework?

Made in China and coffins

The "Made in China" syndrome pervades life generally. One need not look too far and wide to find that toy or shirt that is made in China. Signs of a globalized world or ineffective antidumping measures? I had blogged about this issue here.

Came across this interesting piece in the Deccan Herald, a local newspaper in India about Chinese made coffins coming into the market in the State of Kerala:

"A variety of products have flooded Indian market after the liberalisation process was initiated two decades ago and the latest one to make its entry is 'made in China' coffins. 

A consignment containing 170 coffins have arrived in Kerala with a Alappuzha district-based company entering into a tie-up with a firm in Shanghai."

Just could not resist the irony of the "death" of local manufacturing and the importation of Chinese coffins. Trade does tell us a story. 

Apple, China and trade

A piece in the Harvard Business Review on Why Apple has to Manufacture in China by Karan Girotra and Serguei Nettessine makes an interesting read. They argue that labour costs may not be the only or major reason for manufacturing to shift to China - it is more about manufacturing risks and 'comparative advantage" China has in doing things on scale and quickly.

"In China, by contrast, manufacturers can deploy thousands of collocated engineers to introduce needed changes overnight, and large supply of labor allows to ramp up and ramp down capacity quickly. There is simply no factory capable of employing 250,000 workers day and night in the USA, surrounded by flexible and capable suppliers. So the location decision isn't really about labor costs — it's about manufacturing risk and where that risk is best managed (for a fuller discussion of risk in Business Models, see our recent HBR article)."

Another endorsement of the reality of global supply chains? Is "national manufacturing" in comparison to "most competitive manufacturing" politically desirable? While the former is termed being "protectionist", the latter is in tune with the notion of a flat, globalized world. There are lots of people on both sides of this divide in every country,  I guess.

GATS, electronic payments and country commitments

I have blogged about the China Electronic Payment Services case here and here. 

An ASIL Insight into the China Electronic Payment Services case by Panagiotis Delimatsis provides an overview of the implications of the WTO panel report on interpretation of various provisions of the General Agreement on Trade in Services of the WTO. The panel report as well as the commentary indicate the legal complexity and "country-specific" nature of GATS commitments.I am still very confused about the implications and import of this panel report. Concluding about the implications about the panel report, the author states:

"This case follows landmark decisions on the scope of GATS in US—Gambling and China—Publications and Audiovisual Products and is expected to further open China’s financial services market, benefiting American EPS suppliers in particular. Nevertheless, China will likely have several months to implement the Panel ruling. The Panel decision offered additional clarifications for the interpretation of Members’ Schedules of Specific Commitments under GATS. More importantly, as this case was not appealed, the Panel Report represents the only WTO dispute settlement ruling on the overlap in a Schedule of an  “Unbound” commitment (i.e., no liberalization) and a “None” commitment (i.e., full liberalization). The case confirms that the flexibility attributed to Members in drafting GATS Schedules can be a double-edged sword. At present, no clear solution exists to ensure predictability and security in the interpretation of GATS Schedules."

Unfortunately we will not have the Appellate Body opinion on this case as China has decided not to appeal.

Will require a few more decisions of the WTO panels and Appellate Body on the interpretation of GATS provisions to unravel the Agreement. India's challenge to the U.S. Visa rules perhaps can provide more answers?

Future of the WTO

Joshua Meltzer's detailed piece on the future of trade talks and the WTO is a brilliant exposition of issues involved and the possible way forward. 

(Doha talks)

Titled "The Future of Trade", this Foreign Policy piece highlights the criticality of concluding the Doha round, the increasing threat of Free Trade Agreements undermining the multilateral system, the pressures on an already overburdened dispute settlement mechanism, role of developing countries like China and India in the global governance agenda as well as the challenges the WTO will face in the coming years.

It concludes:

"Since its establishment, the WTO has delivered significant global economic benefits through the liberalization of world trade. As a key institution for global economic governance, the WTO has also stabilized the rules on trade and provided an effective dispute settlement mechanism to manage trade conflicts. This has given businesses the confidence to engage in the type of global trading strategies that have allowed a company like Apple to have iPod components manufactured and assembled in different countries and then shipped back to the United States, generating greater profits for Apple and ultimately providing a cheaper product to consumers.

Despite its indisputable benefits, the WTO currently faces a range of serious challenges. The most obvious challenge to the WTO is that it is losing its role as the primary vehicle for liberalizing trade. This has been driven by the difficulty in concluding the Doha round and the proliferation of free trade agreements. In fact, for some countries, FTAs will deliver deeper and broader trade liberalization than would be possible, at least at the moment, within the WTO. As outlined, the proliferation of FTAs is a fact, and the Doha round has effectively stalled."

An interesting read.