Russia and WTO - new challenges

Russia's entry into the WTO has been heralded as a major event in the world trading regime's history. I have blogged extensively on Russia's entry here, here and here.

While Russia is settling down in its new position in the multilateral trading institution, its trading partners are getting a little impatient it seems. Reports of the EU being unhappy with certain restrictions placed by Russia in the automobile sector, exports of live animals and other goods.

Reuters commented on the issue thus:

"Russia joined the WTO this year after a 19-year wait and Putin has said the country would use its membership to develop worldwide trade links. 

But he said in November the country's $1.9 trillion (1.17 trillion pounds) economy could suffer from WTO entry due to the increase in imports that would result. 

Russia's team at the WTO is not fully up and running, something which may be delaying an EU decision to launch a case at the global body."

The Russian Team - Case for the strengthening of the legal capacity of the Russian Federation to meet these challenges? It is just the beginning. 

Trade war redefined

Increasingly, signs of "protectionist measures" are seen in trade policy across the world. Experts have attributed this to a rising protectionist wave that could severely challenge the multilateral system. With the Doha round in an impasse, policies that do raise barriers to trade cause tremendous friction between trading partners.

This friction is reflected in two kinds of action - first, a tit for tat protectionist measure which leads to more protectionism in the ecosystem and second, a tit for tat WTO litigation. While the former increases the chances of protectionism, the latter tends to ease the situation with a claim for bringing down the barriers.

Simon Lester has this succinct piece in the Cato blog where he discusses the "new kind of trade war" - litigation at the WTO. We have seen that recently in the context of Argentina.

"Complaints at the WTO do not always lead to a finding of violation of trade rules, of course.  The rules are complex and every case must be evaluated on its own merits.  But nevertheless, the notion that, in the current version of a trade war, challenges to trade restrictions will be met with challenges to other trade restrictions is a vast improvement over the old-style trade war.  With trade negotiations progressing so slowly these days, we should be happy if trade litigation can bring about some degree of liberalization. 

It is worth noting that there are potential pitfalls.  The WTO litigation system could be overwhelmed with cases; and in the search for cases to bring in response, countries might choose to file somewhat frivolous cases that might not otherwise have been brought.  But despite such concerns, a shift away from the old-style trade war is of great benefit to the world trading system and to the cause of free trade."

Whether the WTO can handle a floodgate of such requests is open to debate. It would test the capabilities of the "crown jewel" of the international trading system. However, the more pertinent issue is, how would countries deal with this deluge? It would call for enhancing legal capacity, cross sectoral analysis with multi-stakeholder teams and a national strategy to succeed at the WTO.

Russia - Will it be challenged at the WTO again?

It is barely a month into the WTO for Russia and it seems it may have to brace itself for a second challenge, this time from Netherlands and the EU. I had blogged earlier about a possible complaint from Ukraine and other countries on the recycling duties on automobiles that came into effect from September 1st 2012.

Bloomberg reports that the Dutch Product Board for Margaraine, Fats and Oils, MVO is contemplating moving the Dutch government to take up the issue of Russian duties on vegetable-oil that is beyond the bound commitments of Russia under GATT.

Now, this seems to be a straightforward violation of WTO obligations unless there is a misreading of the provisions. Either the Russian administration has overlooked the WTO commitments or has interpreted it differently. Either way, it would have to do some explaining if the EU decides to take it up at the WTO.

Time for Russia to get its legal capabilities tested at the multilateral trade forum?

Developing countries and dispute settlement proceedings

A lot has been written about the role of developing countries in the WTO, especially the use of the dispute settlement mechanism. China and India are often quoted as examples of how a country actively engages with the WTO to further its national interest. However, critics of the WTO often argue that developing countries are at a disadvantage at the WTO since they do not possess the capacity to face complex dispute settlement proceedings. Enhancing legal capacity is offered as a common panacea to overcome this shortcoming so that countries are equipped to take on a more active role.

Jan Bohanes and Fernanda Garza have made a brilliant analysis of developing countries participation in the dispute settlement mechanism of the WTO. In their piece titled "Going beyond Stereotypes : participation of Developing Countries in WTO Dispute Settlement" they have analysed a broad range of issues related to developing country participation in the WTO dispute settlement mechanism. Apart from the trading power of the country and its role in global trade, many other factors impact a developing countries participation in the DSM. The authors have analysed how legal capacity, domestic governance, duration and complexity of dispute resolution, limited retaliatory capacity, preferential trade, political pressure and potential cultural factors have a bearing on how active a developing country is in the WTO dispute settlement proceedings. They have noted the role of ACWL in enhancing legal capacity for developing countries. I have often noted in this blog that private-public collaboration, that is between the government and business would be necessary to effectively deal with a WTO dispute. This collaboration due to a variety of reasons, including lack of information and a cultural mindset of animosity, is lacking in developing countries. The authors have with numerous examples explained the lack of legal capacity both within and outside government in WTO law to deal with the quagmire of WTO legal issues.

The conclude:

"The conclusions that emerge from our analysis are as follows. First, participation of developing countries in the WTO dispute settlement system is a reflection of a broad range of factors.

...

Second,  participation in WTO litigation is not a goal in itself. Being an active participant in WTO disputes is of course a healthy expression of being a participant in the global economy. 

...

Fourth, the major challenges for developing countries to effectively use WTO litigation appear overwhelmingly linked to their  domestic governance. Developing countries should therefore strengthen their bureaucracies, streamline their internal decision-making mechanisms, and reorganize institutions to create conditions favourable for coordination and communication both within the government, and between the government and the private sector.

...

Fifth, governments should actively seek to participate as third parties in WTO disputes. This will provide them with first-hand  experience of WTO litigation, which has been shown to be very significant for active participation, because it provides valuable experience and de-dramatizes perceptions of international litigation within the domestic bureaucracy.

...

Sixth, developing countries should take advantage of the services offered by the ACWL. The ACWL has proven to be a uniquely successful international legal aid organization, but many WTO developing countries do not take advantage of its services, largely because they lack the internal capacity to capitalize on what the ACWL can offer them."

Overall, the piece is a very useful guide for developing countries to strengthen their capacity to engage with a complex, international legal system.