It's the question of national interest again...

Krugman recently wrote about the TPP being no big deal in the NYT. An interesting aspect of that piece was relating to what constitutes "national interest" that I allude to in this blog. Talking about intellectual property rights rules in the trade agreement, it said:

"Now, the corporations benefiting from enhanced control over intellectual property would often be American. But this doesn’t mean that the T.P.P. is in our national interest. What’s good for Big Pharma is by no means always good for America."

What is "national interest" then? What is good for business can sometimes be not good for the country of the business corporation. National interest could well be larger public interest? Consumer interest? Or just plain "public interest"?

Countering Krugman's analysis generally and also specifically on the "national interest" plank, a VoxEU piece argues:

"After dismissing the case for stronger intellectual property protection in the TPP, Krugman writes with a flourish, “What’s good for Big Pharma is by no means always good for America.” Not even the Pharmaceutical Manufacturers Association would claim that its interests always coincide with US interests. 

But what about the general coincidence of interests? America’s competitive strength resides in innovation. Innovation costs lots of money; not surprisingly, some 60% of the value of US shares – or about $14 trillion in 2013 – represents the capital value of ideas, not tangible property.¹ With this amount at stake, protection of intellectual property is clearly in the US national interest. From a global perspective, it’s worth asking how future innovation will be financed if good ideas – embodied in software, entertainment, electronics, and yes, pharmaceuticals – can be freely appropriated by rival firms based in foreign countries?"

An interesting debate on what constitutes "national interest" - what constitutes it, who are it's recipients and how should it be protected? I guess all trade deals will face this question. The issue is how the interests are balanced, who balances them and whose interests ultimately prevail. 

What is national interest?

Joseph Stiglitz has a hard hitting article on trade agreements and interests that need to be protected while negotiating them in this piece in the Guardian. What caught my attention is the commercial interests versus national interest argument that I have tried to grapple with in many pieces of this blog:

"...no trade agreement should put commercial interests ahead of broader national interests, especially when non-trade-related issues like financial regulation and intellectual property are at stake. ... 

If negotiators created a genuine free trade regime that put the public interest first, with the views of ordinary citizens given at least as much weight as those of corporate lobbyists, I might be optimistic that what would emerge would strengthen the economy and improve social well-being. The reality, however, is that we have a managed trade regime that puts corporate interests first, and a process of negotiations that is undemocratic and non-transparent."

Some food for thought for trade policy negotiators around the world? Whose interests are at stake? Are not domestic business interests national interest? national interest may be a broader term but is not pursuing the interest of one's domestic industry part of national interest? Is it antithetical to common citizen's interests? Can they go together? Sometimes they do sometimes they dont? Who decides and on what terms? How does one do the balancing act? What if one's national business interest is impacting local citizen's interest in the trading partner? Is international trade about advancing one's own domestic business interest or addressing the issue of inequity worldwide? Can national interest be an amalgam of domestic corporate interest and the interest of a number of stakeholders? Like one trade policy maker stated recently can it combine the interest of the "worker, farmer, rancher, manufacturers, service providers, innovators, investors and consumers" all at once? 

State, private sector business, international trade and national interest

A lot has been written about the future of the Doha round of negotiations as well as the further of WTO itself. 

I found this piece by Aldo Matteucci straightforward and simple. It offers a number of solutions to the present political impasse and how the complex international trading system must be navigated. I have blogged about what constitutes "national interest" in the context of international trade, especially in the context of private businesses here and here. This question becomes all the more intriguing considering the fact that governments are the sole participants at the WTO. While internal consultation processes take into account varied domestic interests, including business or private sector interests, there is a feeling that the multilateral institution should do more to take into account "non-State" interests. 

On private sector involvement the piece comments:

"Under the main heading “WTO and you” the organization’s website recognizes journalists, students, Parliamentarians, and NGOs. It is slightly puzzling that those who are directly affected by the international trading system – firms that in one way or another trade over the border – have no dedicated portal in the organization or specified and institutional role to play. Of course contacts take place, but what is needed is a definition of the private sector’s role in managing the trading system. 

The current situation reflects the traditional approach where the state was the sole representative of the national interest. In a complex trading system, where many firms have become “transnational”, the role of the country of origin loses focus. At least in the problem-defining and the solution-shaping phase (i.e. in setting the agenda, the objectives, and a list of desirable outcomes) the voice of the private sector should be recognized directly and in a structured manner. Firms should have a choice of channel in which to voice their concerns. This would be the best way to secure their support for the process. Involving the private sector in a multilateral structure might collaterally lead to more nuanced national positions and may become a stabilizing factor (not to speak of chances of getting agreements through Parliament)."

What the choice of channel should be and to what extent non-state actors should have a role in representing "national interest" is a debatable issue. However, a state-business collaborative effort would seem the only way that a meaningful intervention can be made in the complex arena of international trade.

Businesses and the WTO - A survey

How do businesses think the WTO should function? A recent survey conducted by the WTO with about 300 businesses provides some answers:

"95% believe the work of the WTO is vital for businesses. 

97% believe that trade plays a role in generating growth and creating jobs. 

72% think that the WTO has been successful in ensuring that governments comply with their commitments. 

62% believe that the Doha Round can deliver benefits to businesses."

The response to the WTO website is indicative of the great source of information it actually is:

" Information provided by the WTO 

89% of businesses find the information provided on the WTO website relevant to their international activities. 

82% would like to have a dedicated WTO web area for the business community. 

95% are interested in receiving an electronic newsletter with WTO news and information. 

80% are satisfied with WTO outreach efforts (website, social media, the Public Forum, WTO briefings and visits)."

While business and corporates are not officially participants in the WTO process at the international level (with governments representing their interests), this probably is an effort from the multilateral institution to reach out to stakeholders other than member states represented by governments. To what extent these interests will or should get involved in decision making of the WTO is an entirely different debate involving issues of what constitutes national interest as well as the complexities of representation,for another day and another blogpost! 

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?

Trade Compliance Center - National interest and businesses

I had earlier blogged about the Direct Line program of the US State Department which essentially assisted US businesses to keep in touch with government on issues that effect them internationally. The Trade Compliance Center (TCC) in the US Department of Commerce is another agency that assists US businesses to ensure that Trade Agreements are used to further their national interests.It is the focal point for monitoring foreign compliance with trade agreements to se that "US firms and workers" get the maximum benefits from these agreements.It is projected as the "one stop-shop" for getting US government assistance in resolving trade barriers or unfair situations businesses encounter in foreign markets.

Another example of how business interests are seen as national interest? Do developing countries have this kind of support mechanisms for their businesses?

Hat tip to R.V.Anuradha  for bringing this to my notice...

Trade Policy - How should it be?

Cato had this scathing post on how trade policy should be. While it referred to the U.S. in the present case,  it could well apply to any other trading country.Opining on the purpose of trade policy it says:

"No. Policy should be neutral with respect to the goals of particular companies and industries, and designed to attract investment and human capital, and to maximize opportunities for Americans to partake of the global economy. Trade policy should be about ensuring certainty and eliminating policy-induced frictions in supply chains. As I wrote in this article (21st Century Economy Deserves Better Than 16th Century Trade Policies), which expounds upon the thoughts in this post: 

This 21st century economic reality demands better than trade policies rooted in 16th century mercantilist dogma. It demands policies that are welcoming of imports and foreign investment, and that minimise regulations or administrative frictions that are based on misconceptions about some vague or ill-defined “national interest”."

I am not an expert on trade policy nor am I a practitioner of it. The prescriptions in the post did make sense in terms of not benefitting "special interests" rather than the large number of consumers. It brings us back to the question I have often raised in this blog in other posts - what constitutes "national interest"? While the concept does differ in differing situations, at times, interests of the consumer conflict with the interests of the local producer. What stand does a trade policy analyst take then? Is the prescription in the post referred to too idealistic for implementation?

Government, business and national interest

Business Beyond the Reef had an interesting post recently - about a Direct Line to contact U.S.Ambassadors for business needs for U.S. businesses and traders. A program of the U.S. Department of State Direct Line's objective is explained in their website thus:

"The Direct Line program provides a unique opportunity for American businesses, particularly small- and medium-sized enterprises, to engage directly via teleconference with U.S. Ambassadors overseas. The program is open to American companies which are already in the country where the Ambassador serves or which are interested in expanding their businesses into those countries. Calls will vary in topic according to the specific needs for business in a given country. Tell us about your experience with Direct Line using #DirectLine on Twitter."

This is an interesting concept wherein business interests are promoted by diplomatic personnel overseas. National interests and domestic business interests coalesce. The U.S. administration seeks opportunities for its domestic trade interests overseas in terms of market access and other opportunities. It is a classic example of multiple stakeholders seeking to push forth what is perceived to them in "national interest".

Is such an arrangement possible in developing countries? Can bureaucracies in these countries project and pursue domestic business interests in foreign lands? Traditionally and historically, government and business in developing countries have not had the easiest of relationships? Should this change in globalized times where national interest is often seen as domestic trade interests? However, there is a difference between pursuing genuine national business interests and crony business interests abroad. While the former may be a wise national development strategy, the latter would be disastrous. To tread that line would also require a clear understanding, mandate and clarity of purpose.

Russia's national interest in the WTO

(Russian dolls and the global economy)

With Russia having entered the WTO, every domestic measure (automobile recycling duties and the duties on vegetable oil) having an adverse impact on trade is being scrutinized carefully. I have blogged about them here and here. Moscow Times has an interesting analogy of Russia's measures here:

"The logic of introducing the utilization fee immediately after joining the WTO is like that of a man who, feeling ill, visits a renowned physician to get the best diagnosis and prescription that money can buy, but then refuses to take the recommended medicine. Accession to the WTO enables the government to deal with lobbyists, but introducing the new fee immediately negates that advantage."

Will the Russian government be able to withstand the pressure of "domestic" interests to uphold their WTO commitments. While protecting national interest is not antithetical to joining the WTO (the U.S. speaks about national interest - interest of US manufacturers, US workers and US consumers all the time), it should not be blatantly violative of the provisions of WTO commitments. Will Russia be able to devise a smarter way of compliance yet protecting its national interest? Difficult line to tread? 

 

Government, business and national interest

Business Beyond the Reef had an interesting post recently - about a Direct Line to contact U.S.Ambassadors for business needs for U.S. businesses and traders. A program of the U.S. Department of State Direct Line's objective is explained in their website thus:

"The Direct Line program provides a unique opportunity for American businesses, particularly small- and medium-sized enterprises, to engage directly via teleconference with U.S. Ambassadors overseas. The program is open to American companies which are already in the country where the Ambassador serves or which are interested in expanding their businesses into those countries. Calls will vary in topic according to the specific needs for business in a given country. Tell us about your experience with Direct Line using #DirectLine on Twitter."

This is an interesting concept wherein business interests are promoted by diplomatic personnel overseas. national interests and domestic business interests coalesce. The U.S. administration seeks opportunities for its domestic trade interests overseas in terms of market access and other opportunities. It is a classic example of multiple stakeholders seeking to push forth what is perceived to them in "national interest".

Is such an arrangement possible in developing countries? Can bureaucracies in these countries project as well as pursue domestic business interests in foreign lands? Traditionally and historically, government and business in developing countries have not had the easiest of relationships? Should this change in globalized times where national interest is often seen as domestic trade interests? However, there is a difference between pursuing genuine national business interests and crony business interests abroad. While the former may be a wise national development strategy, the latter would be disastrous. To tread that line would also require a clear understanding, mandate and clarity of purpose.

"Falsified Drugs", India, EU and the WTO - The next battle?

Mint carried a piece recently on the issue of EU's Directive on falsified drugs and its probable impact on the Indian Pharmaceutical Industry. The EU Directive which was enacted in June 2011 essentially amended an earlier Directive on the Community code relating to medicinal products for human use, as regards the prevention of the entry into the legal supply chain of falsified medicinal products.

The new Directive is found here which amended an earlier Directive. The EU Directive is an elaborate piece of legal rules which mandates the following a particular standard of manufacturing of medicinal drugs which would apply to drugs imported into the EU.

Explaining the rationale of the Directive, the preamble, inter alia, states:

"... 

(2)There is an alarming increase of medicinal products detected in the Union which are falsified in relation to their identity, history or source. Those products usually contain sub-standard or falsified ingredients, or no ingredients or ingredients, including active substances, in the wrong dosage thus posing an important threat to public health.

(3) Past experience shows that such falsified medicinal products do not reach patients only through illegal means, but via the legal supply chain as well. This poses a particular threat to human health and may lead to a lack of trust of the patient also in the legal supply chain. Directive 2001/83/EC should be amended in order to respond to this increasing threat."

What is a "falsified medicinal product" as per the EU Directive? The Directive defines a falsified medicinal product as follows:

"Any medicinal product with a false representation of:

(a) its identity, including its packaging and labelling, its name or its composition as regards any of the ingredients including excipients and the strength of those ingredients;

(b) its source, including its manufacturer, its country of manufacturing, its country of origin or its marketing authorisation holder; or

(c) its history, including the records and documents relating to the distribution channels used.

This definition does not include unintentional quality defects and is without prejudice to infringements of intellectual property rights.’"

The Directive lays down that drugs can be imported only if certain good manufacturing practices are followed and the products are accompanied by a written confirmation of a competent authority of the same. These "good manufacturing practices" are mandated in Article 47 of the Directive. Alternatively a country must obtain a declaration as per Article 111b of the Directive from the EU whether that country’s regulatory framework applicable to active substances exported to the Union and the respective control and enforcement activities ensure a level of protection of public health equivalent to that of the Union. In other words, a country intending to export its medicinal products to the EU, must establish that its regulatory framework with respect to good manufacturing practices are in conformity with that of the EU.

A number of points on this issue:

1. Is there a case for challenging the EU Directive as violating the TBT Agreement? Is it an unnecessary obstacle to international trade? Is article 2.2 of the TBT Agreement violated?


Article 2.2 of the TBT Agreement states:

"2.2        Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.  For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create.  Such legitimate objectives are, inter alia:  national security requirements;  the prevention of deceptive practices;  protection of human health or safety, animal or plant life or health, or the environment.  In assessing such risks, relevant elements of consideration are, inter alia:  available scientific and technical information, related processing technology or intended end-uses of products."

Are the restrictions more trade restrictive than necessary to fulfill the objective of protection of human health. Is the certification procedure and standard unduly burdensome? Is the possibility of potential misuse for protectionist purposes be a ground for a claim that it is more trade-restrictive than necessary?

2. What should India's strategy be? Is not India's national interest in consonance with the interests of the Indian drug manufacturers? Should not there be a strategic agenda to pursue one's interests to protect one's industry? Should there not be a coalition of stakeholders set up to identify "national interest" and chalk out a strategy for pursuing it legitimately at the WTO?

3.Claiming that a particular measure is "protectionist" is quite different from establishing a contravention of WTO obligations of the EU. While the former can have a rhetorical and political pitch, the latter must have sound grounding in the interpretation of the Agreements as well as impact on local industry.


4. Would "protection of human health" be an acceptable exception for the EU to justify this measure? Can India take a stand that the standards prescribed are unduly burdensome and treat developing countries unfavorably since complying with this would make their products, in effect, uncompetitive? Is there de facto violation of national treatment even though on the face of the measure there is no discrimination between imported and local products.


I am not an expert in this field, but I guess this issue would throw open complex questions of the interpretation of TRIPs, TBT as well as the General Exceptions under Article XX GATT.Are we going to see an India EU WTO dispute?