EU takes on Russia in the automobile recycling fee case

I was expecting this soon but did not think it would happen this soon. I have blogged about the Russia recycling fee issue here, here and here. The BBC reported it here.

Reports from the WTO indicate that the EU has decided to file a WTO complaint (DS462) against the fee. This would be the first case in which Russia is facing the dispute settlement mechanism after it joined the WTO in 2012.

"The European Union notified the WTO Secretariat on 9 July 2013 of a request for consultations with the Russian Federation on measures imposed by Russia relating to a charge, the so called “recycling fee”, imposed on motor vehicles. According to the European Union, these measures adversely affect exports of motor vehicles from the European Union to Russia. The EU claims that Russia subjects imported vehicles to the payment of a “recycling fee”.  In contrast, domestic vehicles are exempted from that payment under certain conditions. An exemption is also available to vehicles imported from certain countries, such as Belarus and Kazakhstan. However, there is no exemption for vehicles imported from the European Union.  As a result, vehicles imported into Russia from the European Union are treated less favourably than domestic vehicles, or vehicles imported from Belarus and Kazakhstan. The EU also claims that the structure of the “recycling fee” also appears to afford protection to domestic production."

Well, the dispute was anticipated but the complainant and timing was uncertain. Russia's time to defend or amend? There was news about some amendment to the legislation that addressed the alleged discrimination. One will have to see what the Russian response to this is.

Argentina, Spain and the battle over biofuels

I had earlier blogged about a WTO dispute between Argentina and Spain (DS443) over the Ministerial order pertaining to biofuels that was promulgated in Spain.The main thrust of the complaint was:

"The operative part of Ministerial Order (OM) IET/822/2012 provides that computing for mandatory biofuel targets may only be conducted in relation to biodiesel produced entirely in plants located on the territory of Spain or of another EU Member State, and in line with previously allocated volumes, in accordance with the procedure established in the same Ministerial Order. 

The Argentine Republic has since 2007 developed one of the most efficient biodiesel production sectors in the world and has now consolidated its position as the world's leading exporter of the product. The European Union is the main export market, and Spain is the main buyer on that market. In 2011, Argentine exports of biodiesel amounted to US$2.1 billion, with more than US$1.9 billion going to the EU and more than US$1 billion of the latter figure representing purchases by Spain. 

Ministerial Order (OM) IET/822/2012 and the implementation thereof would create discrimination between the product of European origin and that of other origins, implying a de facto prohibition on imports of biodiesel from outside the Community, for purposes of computing compliance with mandatory biofuel targets. This would totally exclude the Argentine product from the market. 

It is Argentina's understanding that the Spanish Ministerial Order and its implementation would in principle constitute an infringement of obligations, including, but not limited to, the obligations of that country and of the EU under Articles III:1, III:4, III:5 and XI:1 of the GATT 1994. Argentina also considers that the Order would be inconsistent with Articles 2.1 and 2.2 of the Agreement on Trade-Related Investment Measures (TRIMS), and with Article XVI:4 of the Marrakesh Agreement. Argentina considers that Ministerial Order (OM) IET/822/2012 would nullify or impair the benefits accruing to it under the covered agreements."

The legal challenge was as follows: 

"The key measure challenged by Argentina is the Spanish Ministerial Order regulating allocation of quantities of biodiesel needed to achieve the mandatory target of renewable energy.  This measure is the national implementation of the European Union regulatory framework for energy from renewable sources.  

Argentina claims that the Spanish measure is inconsistent with:

• Articles III:1, III:4, III:5 and XI:1 of the GATT 1994

• Articles 2.1 and 2.2 of the TRIMs Agreement; and

• Article XVI:4 of the WTO Agreement."

News of Spain withdrawing the curbs on Argentinian biofuels was trickling in. Was it in response of the WTO complaint? Is this an example of the possible deterrent effect of the dispute settlement mechanism of the WTO? Do countries modify their national measures under the threat of a WTO action? Or is this more of a political move? In this case,on 6 December 2012, Argentina requested for the establishment of a panel. Will Argentina withdraw the WTO compliant now? With Spain having responded, many would say it is Argentina's turn to roll back some of its "protectionist" measures?

Is Australia's Plain Packaging discriminatory in favour of local products?

The Tobacco Plain Packaging dispute is gradually progressing at the WTO. Honduras, one of the complainants against Australia, filed its complaint at the WTO which is available here. I have earlier blogged about the issue here, here, here and here. Apart from the main challenge on the grounds that plain packaging legislation is inconsistent with Australia's commitments under the TRIPS Agreement I found the points in relation to discrimination between local products and foreign products a bit untenable:

"  Article 3.1 of the TRIPs Agreement, because Australia accords to nationals of other Members treatment less favourable than it accords to its own nationals with respect to the protection of intellectual property;
...
  Article 2.1 of the TBT Agreement and Article III:4 of the GATT 1994, because the measures at issue result in treatment less favourable of imported products than of like products of national origin."

I found these two leal claims rather strange since the plain packaging applies equally to tobacco products manufactured in Australia and imported into Australia. Further, it is difficult to imagine de facto discrimination in this case. Am I missing something here?

Globalisation and traditional hierarchies - Some thoughts

The Becker-Posner Blog has a brilliant piece on capitalism, globalisation and its impact on social structures like class, gender and race. Titled "Profits, Competition, and Social Welfare" it argues that capitalism does help in reducing the the barriers of social inequality.

"My second example deals with the interaction between capitalism and discrimination against groups based on their race, gender, religion, or other characteristics. Capitalism and the profit motive help to erode discrimination because companies in their quest for greater profits try to hire minority group members who are getting paid less than their productivity. In addition, the successful growth in incomes and productivity induced by private enterprise raises the standard of living of minorities even when they continue to suffer from substantial discrimination.

A prime example is South Africa under apartheid that was maintained by government laws but was opposed by many private companies. South African blacks suffered immensely under apartheid, and its overthrow is one of the great events of the past several decades. Nevertheless, one main problem during the apartheid period was not to prevent many blacks from leaving South Africa, but rather to control the in migration of blacks from other parts of Africa. The explanation is obviously not that the incoming blacks liked apartheid, but rather that the private enterprise system in South Africa had raised substantially the incomes of blacks there -despite the widespread government-orchestrated discrimination against them-and blacks from other countries in Africa wanted to benefit from the higher incomes available to them in South Africa.

Something similar happened in the United States. African-Americans suffered greatly from discrimination until recent decades. Nevertheless, black incomes continued to grow along with white incomes as the US experienced sizeable and continuing economic growth after the end of the Civil War in 1865 (see my book The Economics of Discrimination, 1971)."

Does globalisation and capitalism have an impact on eroding traditional structures of inequality? Does it help in reducing gender, race and caste discrimination? Is the market "neutral" to these prejudices? Are traditional hierarchies severely challenged by the "efficiency" driven, anonymous market? I have often thought about this issue in the context of caste hierarchy in India. Is globalisation and open market more beneficial to the marginalised communities in terms of anonymizing their identity? Does it give them more opportunity to participate and rise the social and economic ladder than in a State led model of development? Will international trade provide more opportunities to members of these communities to participate and have a stake in development? Will it help reduce barriers, not of trade and tariff, but of social stigma and intolerance? Does it offer more opportunities for participation in an unhierarchical relationship thus acting as a leveller?

Chandra Bhan Prasad suggests that capitalism is more favourable to the eradication of social inequality. In his paper titled "Markets and Manu : Economic Reforms and its impact on Caste in India" he argues that capitalism does help in being emancipatory but it needs to be more egalitarian and participatory.

Can the rules of a market economy of efficiency, competition, entrepreneurship and innovation combat traditional hierarchies of caste inequality? Is it easier for people from the disadvantaged communities to rise up the social ladder in a capitalist led model as compared to a state led model? This report titled "The rise of Dalit Entrepreneurship" explains how Dalit entrepreneurs have risen in a market led economy.

"Explaining that economic standing is the only way Dalits can redefine themselves, RGICS’ Babu likens the trend to the wave of Black Capitalism in the US in the 1970s and 1980s. “There are strong similarities. Like the black capitalists of America, most of the Dalit entrepreneurs are first-generation entrepreneurs, people who were never into businesses but mostly relying on agricultural labour. To get into serious business from agriculture is a paradigm shift. And, in both cases, here as in the United States, even though there have been state interventions to promote entrepreneurship, individual motivation and community help have come first,” Babu says."

A study titled 'Caste and Entrepreneurship in India" by Harvard Business School, to the contrary, posits that representation of dalits in capitalist led entrepreneurship is still low. Explaining that the lack of  "network effects" could be one of the reasons, it concludes:

"The evidence we have presented shows that the OBCs have made progress in entrepreneurship , but SCs and STs are considerably under-represented in the entrepreneurial sphere.  That is, for SCs and STs, political gains have not manifested themselves in greater entrepreneurial prowess.   The rise of Dalit millionaires, driven in part by newer economic freedoms, does not appear representative of the broader swathes of the SC/ST population, at least until 2005.  Such under-representation appears to persist even in states with very progressive policies towards SCs and STs, in states where OBCs have made considerable progress in enterprise ownership, and in urban areas where outright discrimination is lower than in rural India."

Thus, questions remain as to to what extent globalisation and capitalism help addressing traditional hierarchies. Are these forms of development also appropriated by powerful communities? Also, is representational participation  good enough? For example, if a few entrepreneurs from a particular community do well and integrate, does it signify that the whole community has benefitted? Will small entrepreneurs and business men have more likelihood of upward mobility in a globalised world? Are markets, globalisation and international trade immune from traditional prejudices of gender, caste and race or  will it be subsumed in these traditional structures? This is an area that definitely requires more research since as developing countries integrate and questions are raised about the benefit it would have on large populations comprising of hitherto disadvantaged sections, the answers to the question of the relationship between traditional discrimination and new markets will have to be addressed.