Japan joins the Russian roulette

I have blogged about the first case Russia is facing on recycling fee on automobile imports at the WTO here, here and here. Now Japan seems to have joined the Russian roulette. Japan filed a WTO case against Russia details of which are found here.

"According to Japan, Russia’s measures appear to be inconsistent with its obligations under several articles of the GATT 1994, the Agreement on Trade Related Investment Measures (TRIMs) and the Agreement on Technical Barriers to Trade (TBT).

Japan claims that through the measures at issue, Russia imposes a recycling fee on each vehicle imported into Russia or produced/manufactured on the territory of Russia. Russia exempts from the recycling fee the vehicles manufactured or produced by companies that have committed to ensure subsequent safe handling of waste. However, this exemption is only available to vehicles manufactured by companies which are legal entities registered in Russia and which have undertaken to produce their vehicles in Russia according to one of the modes involving certain specific manufacturing operations in the territory of Russia, Belarus or Kazakhstan. Therefore, the measures at issue, through these conditions, either taken together or separately, discriminate between imported vehicles and the “like” domestic products."

It would be interesting to see Russia's response, it's legal team, preparation as well as next steps. Will it amend its domestic legislation or will it defend its measure as being consistent with WTO law. Or will it just not comply with an adverse WTO panel ruling, if it so happens! 

All three are distinct possibilities.

Currency manipulation and trade agreements

In trade policy circles currency manipulation, undervaluation as well as exchange rate mismanagement are not strictly seen as issues that are to be dealt by the multilateral trading system, especially the WTO.I have blogged about it here, here and here. 

I was struck by this Reuters report of currency manipulation issues making its way into regional trade agreement negotiations.

"Nearly 200 U.S. lawmakers have signed a letter urging President Barack Obama to insist on new rules against currency manipulation in a proposed trade agreement with Japan and 10 other countries in the Asia-Pacific region. 

"As the United States continues to negotiate the Trans-Pacific Partnership, it is imperative that the agreement address currency manipulation," the letter said, according to a copy obtained by Reuters on Thursday."

Currency issues gradually making their way into international trade law and policy?

EU and Japan also appeal - Ontario case becomes more interesting

I have blogged about the Canadian FiT case at the WTO case here, here and here. News of Canada appealing the matter was reported here. It was not surprising since Canada had lost the case and was contesting the finding of the panel report that it had violated the provisions of the TRIMS and GATT.

Reports of the EU and Japan cross-appealing caught my attention. This would presumably be mainly on the interpretation of the provisions of the ASCM, especially the definition of a subsidy and benefit.

It is clear that the Appellate Body would decide the legal contours of this dispute, especially the compatibility of local content requirements with WTO law in the context of governments guaranteeing a minimum feed in tariff. With a number of countries across the world, both developing and developed, having massive renewable energy support programs (many of them with local content requirements), the AB ruling all be keenly awaited. One hopes that going by timeframe of the Antigua and Airbus-Boeing cases at the WTO dispute settlement, the wait for a closure is not too long!

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.

Prof.Lenz comments on my paper

I am grateful for Prof.Lenz for so kindly reading my working paper on Renewable Energy programs and WTO law compatibility and offering a critique by email (both on substantive points and on avoidable typos!). It is both an honour and humbling.

He also commented on the paper in his blog Lenz Blog here:

"I am pleased that my blog made it into one of the footnotes. And I am also pleased to note that the book takes the view that feed-in tariffs are subsidies under WTO law. That’s because I am of the opposing view on that point, which makes it possible to discuss the issue. 

Srikar’s theory relies on one point I would call into question. In his opinion, delivering electricity services is a function normally performed by government. 

That’s just not true. Look at all the industrialized countries and show me one where the government provides electricity. 

It is true that some less developed countries may have not privatized this function. But that does not make it one “normally” provided by government. 

And it is true that this will lead to a different treatment of the issue, depending on which way electricity is organized somewhere. But that’s just the normal consequence of that different structure, which each country is basically free to choose. 

In contrast, I agree completely that local content requirements for generating equipment are a clear case of violating the national treatment requirement under Article 3 of GATT. 

And I also agree with the analysis that restricting the feed-in tariff to electricity generated nationally is at least very dubious under exactly the same standard, though just about everybody seems to do it that way. 

I think that is an important point when discussing international trade in electricity. If you discuss a Regional Comprehensive Economic Partnership Agreement for Asia, as will happen next year, it might be of interest to include language that requires everyone to extend their feed-in tariff programs to imported electricity. 

I think doing that would be very helpful when building the Asia Super Grid. In the absence of getting that done, one might consider to call for Japan paying a feed-in tariff specifically for energy generated in the Mongolian Gobi desert. I recall having done that recently. 

Of course, people could object that this would be violating the most-favored nation rule of the WTO, so one would need to ask if it may be justified under the Enabling Clause."

While I agree with Prof.Lenz that many industrialized countries do not have public sector electricity utilities, it is a reality in a large number of countries. I have often felt that multilateral trade rules do not presume the diminished role of the State. States, in varying degree, do play active roles in the economy. The argument that guaranteed tariffs are more "regulatory"in nature and not what governments "normally" do, will lead to a discriminatory situation where states play a more active role in the renewable energy sector. While the intent and impact of the guaranteed tariff in both cases would be the same, the country where the state is more involved will be adversely effected. As I have suggested in my paper:

"Merely because the measure is a “regulatory” measure as opposed to a direct transfer of funds, need not, ipso facto, exempt it from the characteristic of being a financial contribution. The intent of the measure is of primary importance. The provision of a guaranteed price support is to encourage the RE sector as compared to the non-RE sector. The nature of the market in many countries is such that the Government does not play an active role in the electricity market in terms of actually producing, transmitting and distributing electricity. Hence, the participation of private electricity utilities is a normal feature. If not for these private entities, the function of producing electricity and also providing price support directly to producers of RE would have vested with the government and would have normally been followed by governments. Thus, even though the price support mandate has the characteristic of a regulatory measure, it does delegate a function that is normally performed by government. In this sense, FiTs that involve private electricity entities paying guaranteed prices due to a government mandate can also be considered as financial contributions. Not doing so would lead to a discriminatory situation wherein countries in which governments play a more active role in FiTs (in terms of running electricity utilities and guaranteeing payments) would fall under this category of subsidies, while countries only “mandating” or “regulating” the payment, falling outside the radar of this provision. This would discriminate against developing and LDCs where the government tends to play a more active role in providing services. While this is not to comment on the more efficient or desirable way of providing the service (public or private), the interpretation of Article 1 of the ASCM should not lead to this discriminatory situation. Thus, it could be argued that FiTs, which provide a guaranteed tariff, do constitute a financial contribution and hence amount to a subsidy."

I may be totally wrong here. But I think there is a valid legal argument on both sides. It would probably be resolved when an FiT is challenged at the dispute settlement proceeding sometime soon!


 
 

My Working Paper on Renewable Energy programs and WTO law compatibility

Sharing my Working Paper on "Renewable Energy Programmes in the European Union, Japan and the U.S. - Compatibility with WTO Law" that I completed for the Centre for WTO Studies.

It is also on the Social Science Research Network. The link to that is here.

Comments, critiques and updates most welcome by email.