Currency manipulation issues in trade agreements - To be or not to be?

Fred Bergsten's latest Peterson Institute's Policy Brief titled "Addressing Currency Manipulation through Trade Agreements" arguing for currency issues to be taken up in regional trade agreements is found here.

For a contrarian view, that currency manipulation issues should not find place in trade agreements, read this piece in Mireya Solis in the Brookings Institution blog.

"For the many reasons highlighted above, TPP countries are unlikely to agree that the current proposals in the United States on currency manipulation are a faithful interpretation of the IMF principles to which they already subscribe. Demanding that American trade negotiators introduce such a chapter at this critical stage in the negotiation process is akin to throwing a wrench in the works of the single most important trade initiative under way: one that will determine whether the United States is a key actor in shaping an Asian regional economic architecture or not, and one that will also affect the fate of negotiations with Europe. It would also mean that the United States is prepared to forego the possibility of a future Chinese entry into the TPP and give up the sizable benefits of promoting greater market reform, regulatory transparency, and compliance with intellectual property rules, to name just a few. All of this, for the sake of an unworkable proposal on currency manipulation."

Currency manipulation provisions in trade agreements - Imminently feasible or unreasonably optimistic?

Trade and sub-national interests

I came across this interesting website titled "Trade Benefits America" that maps benefits of trade to states within the country as contrasted to the national level.Normally, trade analysis is limited to the benefits a country gets in terms of national outcomes - jobs, GDP growth, investment and export growth. Going to the sub-national level is normally not attempted. This website maps perceived benefits right upto the State level on many parameters. It makes trade look more relevant and grounded.

I had blogged about this issue some time back here.

Some lessons to be learnt for countries having federal polities.

WTO disputes, trade and strategic litigation?

An interesting link between WTO disputes and the growth of trade is analysed in a paper titled "Do WTO disputes actually increase trade?". The paper finds:

"We find that WTO disputes do not, on average, increase a country’s imports of the products at issue. We find only very specific effects of disputes based on the dispute outcome and issue-area. We find significant variation across countries in their responsiveness to disputes, yet that most common explanations cannot account for this variation. This article highlights and begins to fill a significant gap in our understanding of the purpose of the WTO and its effects on trade."

The paper concludes:

"This paper presents an important finding: the effect of WTO disputes on imports at issue is, at best, inconsistent. In the aggregate, disputes are not associated with a statistically significant increase in imports. Looking at particular dispute outcomes and issue areas, only certain types of disputes have been associated with increased trade, and many have resulted in decreases. More- over, certain respondents are more “responsive” to disputes than others. Disputes against some countries have resulted in increased imports, while disputes against others have failed to do so. We do not find strong evidence of a systematic explanation for this variation."

While the relationship between a dispute and the impact it has on trade is far more complex, I found two reasons noted in the paper as to why countries probably file WTO cases interesting - rule clarifying and setting precedence for one's advantage.

"It may be, for instance, that the benefit of dispute settlement rests entirely on its rule-clarifying function. In such a telling, a dispute’s resolution leads to a convergence of expectations over country behavior. If we are to believe that most noncompliance amounts to a misunderstanding of the meaning of rules (Chayes and Chayes, 1993), the main benefit of a dispute may be to clarify the meaning of the underlying law. This benefit would be felt throughout the institution, as countries adjust their behavior to take into account that, e.g. the use of safeguards is now known to require the demonstration of “unforeseen developments”.If this is the case, however, our null finding over the effect on trade of mutually agreed solutions is of special concern. Indeed, settlements have no clarifying effect, since their content is usually kept largely private. When taken together with the finding that settlements have no average effect on trade, there remains little to recommend settlements. This is especially striking given the literature’s contention that MAS are where most of the action occurs in dispute settlement. 

Related to the idea of rule-clarification, it could be that dispute settlement is mostly an exercise in changing the meaning of the rules to one’s advantage. Perhaps countries file to set favorable precedents about matters of concern to them. Although the WTO features no formally binding precedent, or stare decisis, scholars largely agree that something akin to de facto stare decisis actually takes place (Bhala, 1998), where rulings do constrain the rulings of judges in subsequent cases. .."

Strategic litigation? 

Trade, Law and Development - Call for papers

I have blogged about the brilliant work Trade, Law and Development journal has done in the area of international economic law and policy. For those interested, Trade, Law and Development has called for papers.  

Here is the call for papers:

Call for Submissions

Special Issue on Trade and Climate Change

Founded in 2009, the philosophy of Trade, Law and Development has been to generate and sustain a constructive and democratic debate on emergent issues in international economic law and to serve as a forum for the discussion and distribution of ideas. In keeping with these ideals, the Board of Editors is pleased to announce Trade and Climate Change as the theme for its next Special Issue (Vol. VI, No. 1). 

Climate change is one of the foremost challenges facing the global community today and intersects with international trade in numerous ways. Sustainable development and protection and preservation of the environment are recognized as fundamental goals of the WTO, although its principal objective is to foster international trade. The WTO permits members to avail of exceptions to its principles in order to protect the environment under specific conditions. The on-going Doha Round has further consolidated the WTO’s stance on the environment by launching the first ever multilateral trade and environment negotiations. Moreover, the recent COP-15, Rio+20 and Earth Summit negotiations have given significant impetus towards achieving a global solution to climate change. There is hope that this multilateral dialogue will materialise into a global climate change deal in 2015 under the auspices of the UNFCCC.

This Special Issue, currently scheduled for publication in June, 2014, will provide an ideal platform for deliberation on the relationship between trade and climate change in the run-up to the proposed 2015 global climate change deal. Accordingly, the Board of Editors is pleased to invite original, unpublished submissions for the Special Issue on Trade and Climate Change for publication as ‘Articles’, ‘Notes’, ‘Comments’ and ‘Book Reviews’. Preference will be given to submissions that espouse perspectives of developing and under-developed countries.

Manuscripts may be submitted via email, ExpressO, or the TL&D website. For further information and submission guidelines, please visit the Journal’s website: www.tradelawdevelopment.com.

In case of any queries, please feel free to contact us at: editors[at]tradelawdevelopment[dot]com

LAST DATE FOR SUBMISSIONS: JANUARY 31, 2014 

Trade routes and their relevance

Who thought trade routes matter in this age? 

This report in Al Jazeera is an interesting read:

"China, along with other Asian trading nations, is also looking towards the north for alternate shipping lanes. The Bering Strait is a deep, wide, pirate-free channel between Russia and Alaska that connects the Pacific and Arctic Oceans. Eastward from there, Canada's Northwest Passage offers a 7,000-kilometre shortcut to the US' Atlantic Seaboard. Westward, Russia's Northern Sea Route offers a 10,000-kilometre shortcut to Europe. With time, a third route will open across the centre of the Arctic Ocean.

These Arctic routes are becoming alternatives to conventional routes because of climate change. Rising temperatures are causing sea-ice to melt at an unprecedented rate; all six of the lowest ice-extents on record have occurred in the last six years. Last summer, the area of Arctic Ocean covered by ice was just half the average seasonal low from 1979 to 2000." 

 There is also a book on this by Michael Byers titled "International Law and Arctic". 

The next great Arctic rush?... 

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?

Religion and international trade - Are they linked?

Came across this rather interesting analysis of the possible relationship of religion and international trade. Do similarities in religion and other cultural characteristics promote trade? One would never have thought about the possible co-relation between a religious orientation of a country and its trading relations. Trade after all was propelled by business interests. 

Tomas Rees writing in Epiphenom analysed the study of Chong Wha Lee titled "Does religion affect international trade in services more than trade in goods?" Do countries following similar religious traditions have a greater possibility of enhanced trade in goods and more so for services? the study indicated thus:

The results indicate that religion creates positive institutional and network effects, increasing international trade in goods and services; these effects enhance trade in services more than trade in goods; institutional effects exert a greater trade-creating effect than deliberately designed institutional regimes, but a lesser effect than historically established cultural regimes, such as common language and colonial ties; network effects on trade in services, although less significant than common language and colonial ties, promote trade to nearly the same degree as regional trade agreements and shared legal systems. Religion establishes co-religious networks that positively affect interpersonal trust, thereby reducing institutional distances between countries. This effect is similar to that of trading diaspora.

Another interesting tool to analyse the growth of trade in modern societies. It is not always about trade barriers, is it? 

Great BRICS Graphic

Found this great graphic in the China Daily on the profiles of the BRICS economies which I thought I would share:

Gender and trade

The Gender Agenda in Trade - a thought-provoking piece in the IntLawGrrls on the 'gender-agenda' in trade highlights the informal sector in trade and the predominance of women in this sector which often goes unnoticed, unecognized and unaccounted.

The biggest challenge would be to devise strategies to ensure that the benefits of globalisation reach these sectors as well as making sure that these groups participate in the global economy. This is a neglected area of trade policy research and implementation.

Trade policy and interests

A provocative piece on how trade policy must be negotiated is found in Huffington Post's piece here. Alleging that trade negotiations and agreements now are favoring investors, global investors and access to markets. It concludes that labour and environmental rights and interests are sidelined and need to be part of the trade policy paradigm.

"In actual fact -- not a thought experiment at all -- we now negotiate our trade agreements in the interests of investors and global companies. They prioritized their interests: higher profit margins, "flexibility" to do what they want, maximum possible trade, and a shield against local, regional or national policies that might reduce their economic prospects. 

They actually do use the WTO and various trade tribunals to enforce investor interests, independent of any national courts or political accountability. The global economy can grow and produce great wealth. And to be sure, this is no mean feat. 

Economic growth could arguably align with public interest, at least in a trickle down sort of way. Please hold your fire on this one, for a moment."

One may not entirely agree with the analysis out there, but some food for thought? Are trade agreements only exposition of business interests and not "national" or "public interests"? It brings us back tot he question of what interests the state represents as well as the multiplicity of stakeholder interests.

Is currency undervaluation the next big protectionist game?

Are we in for some currency wars? Will currency manipulation or undervaluation undermine the delicate balance of international trade? While the subject has not yet made it to the centre stage of world trade negotiations or dispute settlement, the dangers of it becoming increasingly debilitating are increasingly being heard. Is currency undervaluation the next big protectionist game? The IELP blog a couple of years ago did not think it to be a serious trade issue.

Peterson Institute has come out with many papers on this subject. It recently had two interviews by Joseph Gagnon and William Cline that brought to the fore the issue of currency undervaluation but opined that the dangers are not that serious:

1. Is the World on the Binge of Devaluation? Part I

2. Is the World on the Binge of Devaluation? Part II

There is obviously much more to come on this complex topic in trade circles. The complexity of the area is in terms of what constitutes currency undervaluation, the impact it has on trade, the multiple purposes currency undervaluation may have as well as exercise of domestic regulatory space. Added to it is the jurisdictional issue with the IMF. A lot of people think this dispute is not going to knock on WTO's doorstep...

The complexity of currency manipulation

A few days ago I had blogged about the possibility of a trade dispute around currency undervaluation to probably be the biggest one in 2013. Though no clear signs of a dispute brewing are evident, murmurs are gradually getting louder on the extent currency manipulation can impact trade. Recent news reports found here and here highlight the growing trend of currency devaluation as a national policy tool. 

This latest Project Syndicate piece titled "Beggar Thy Currency or Thyself" highlights the growing complexity and concern of intentional currency devaluation to serve national agendas.

"In today’s world, no significant group of countries is looking for currency strength. Some resist appreciation actively and openly; others do so in a less visible manner. Only the eurozone seems to accept being on the receiving end of other countries’ actions. 

None of this is unprecedented, and there is a lot of scholarship demonstrating why such beggar-thy-neighbor approaches result in bad collective outcomes. Indeed, multilateral agreements are in place to minimize this risk, including at the International Monetary Fund and the World Trade Organization. 

Yet, when push comes to shove, country after country is being dragged into abetting a potentially harmful outcome for the global economy as a whole. Worse, this process has not yet registered seriously on the multilateral policy agenda."

The Economist had this to say on the issue of currency undervaluation in a piece many months ago:

" Having spent much of the past year fretting about their currencies' rise, central banks across the emerging world have now intervened in the markets to slow their currencies' fall. In a currency war, where each side fights to gain competitiveness against the others, these tumbling exchange rates presumably count as victories. But they are Pyrrhic. A cheaper real, zloty and rupee will help emerging economies win a bigger share of global spending, but that is small consolation if global spending declines.

The complexity, increasing usage and inevitability of currency manipulations make it central to the debate in the coming years. Questions about what actually constitutes currency undervaluation in the context of trade agreements, what impact it has on national policy making independence as well as the impact it has on trade continue to have many unanswered ends. To what extent countries understand the complexity and engage with the problem is an entirely different question.Will the WTO be the forum for this dialogue?

Importance of cities in international trade

I have blogged earlier about the relationship of cities and trade here and here.

Project Syndicate recently had this piece on "The Return of the Trading City" which highlighted the importance of the role of cities in international trade. It also highlighted a trade policy that recognizes the centrality of the city in a nation's trade future. We tend to be "nation" centric when talking about trade but this piece encourages us to look beyond the nation to cities which is actually the centre and engine of trade growth. Projecting the complementary role nations and cities play in ensuring the growth of trade, the piece stresses:

"This does not mean that countries do not play a crucial role in enabling global trade. Cities lack the geographic scale, political and fiscal capacity, and legal standing to influence broader policy debates or to capitalize on all available trade opportunities. Portland forged a new relationship with a “clean tech” firm in São Paulo, but it could not negotiate a free-trade agreement with the city or with Brazil. 

Just as trade should be at the forefront of cities’ economic policies, cities should be at the forefront of national trade strategies. Countries should support cities that are investing, organizing, and forging linkages with other cities to improve their competitive position."

 As the Global MetroMonitor report of the Brooking Institution highlighted:

"Metro areas remain the hubs of global output and growth. the 300 metro economies analyzed in this report account for 19 percent of world population, but 48 percent of world gdp, and 51 percent of world gdp growth from 2011 to 2012. yet their performance in 2012 showed the signs of a slowing worldwide recovery."

What lessons do national trade policies have to learn from the growing importance of cities in international trade? To what extent should cities be central in a national trade policy? With emerging economies being overwhelmingly rural, what implications does this have on national strategy? Would focussing on cities as the engines and centres of trade be a necessary ingredient of a new trade strategy? This would require increased co-ordination between local, municipal governments and national policy makers. A national vision with a local flavor to address global challenges!

South south trade and national interests

The Economist recently carried a piece on the increasing importance of South-South trade in recent years. The balance, according to the piece, has shifted from a developed-developing country coupling to a decoupling.

(Courtesy: The Economist)

The share of trade between developing countries is increasing signifying a regional shift of trade. It also signifies the growing influence of emerging economies in the global economy. I was trying to contextualize this aspect of an increase in south south trade to south south co-operation in multilateral trade. 

Several commentators have argued that developing countries, especially in the context of BRICS, should have a common strategy to deal with multilateral issues involving trade. However, this misses the point that trade interests are largely guided by national interests. And the dispute settlement cases at the WTO show that developing countries do not hesitate to file complaints against fellow developing countries (a recent case of Brazil against South Africa on poultry or this case of Brazil accusing Argentina of protectionism) when they perceive trade rules have been violated. Increasing south south trade is as much a sign of the growing importance of the emerging economies but also a sign that national interests will inevitably conflict at times. Thus, while a broader south south agenda for pursuing a more fairer globalized governance structure may be desirable, one must not lose sight of legitimate national trade interests to be protected.

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.

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?

1999, Seattle and WTO - Blast from the Past

Blast from the Past. 

I found this interesting link titled "WTO 1999 in Seattle" in Yes Magazine which records the opposition to the WTO Ministerial Meeting in Seattle in 1999. For those who have forgotten about the bitter opposition to the multilateral trade institution the reports here are a stark reminder of the opposition just over a decade ago. While we do not see such protests now at the WTO Ministerials or elsewhere, the issues raised in these protests are a common theme of anti-globalization activists and other critics.

A guest editorial by David C Korten titled "WTO is anti-democratic, anti-people and anti environment" at that time underlines the theme of the protests.

"We need rules for the global economy that protect and enhance the well-being of people, communities, and nature. For example, such rules would support the efforts of national and local governments to raise labor, health, and environmental standards. They would also support governmental efforts to curb international financial speculation and corporate tax evasion, limit the concentration of corporate power, and protect local enterprises from predatory forms of global competition. In every instance, the WTO actively hinders governmental efforts to act on these and other basic obligations to their citizens. It is anti-democratic, anti-people, and anti-environment. That is why tens of thousands of protesters are coming to Seattle to say NO to the WTO."

The recurring theme is the restriction of domestic policy space by world trade rules. While many of the critiques are ideological and not necessarily based on facts, we have come a long way from Seattle and the WTO as an institution does not evoke such strong reactions now. Developing countries are participating more actively in the multilateral system both in the negotiating arena as well as the dispute settlement process.China has been one of the greatest beneficiaries of the multilateral system since it entered the WTO in 2001. India has actively participated in the dispute settlement process to protect its national interest. However, the concerns of the challenge to democratic space by international trade regulations persist and are manifested n varying forms especially when a decision is delivered against a national measure or interests of developing countries are impacted by the rules. Can we find the balance between globalization, trade rules and democratic, domestic will? While some of that balance can be achieved by creative interpretation of the existing Agreements itself, a more sustained engagement with the multilateral system to harmonize development goals with trade rules must be attempted.

While we are not seeing "Seattle-like" protests in present Ministerials (maybe because it was in Doha?), the issues raised and concerns expressed nevertheless need to be constantly addressed.

Metro cities and International trade

(Courtesy:forum.skyscraperpage.com)

A very interesting piece by Brookings Institution on the inextricable relationship between growth of international trade and metro cities is found here. Titled "Metropolitan Trade:Cities Return to Their Roots in the Global Economy" it argues that metro cities have been, over the centuries, the hub of economic activity and international trade. They have been the engines of international trade because of their emphasis on innovation, specialization and being potential markets. The point that cities and not nation states spur international trade makes an important point about the centrality of urban growth to trade.

"Trade defines a metro economy’s global economic character. Not all cities are “global cities” in the way that researchers have defined the term, but all cities are touched by the process of globalization by virtue of their distinctive specializations and positions in complex global supply chains. Not only New York, London, and Tokyo, but also São Paulo, Buenos Aires, and Seoul lead in the production of advanced services. Madrid, Hong Kong, and Dubai are centers of media and information. Nagoya, Hannover, and Milwaukee are globally significant manufacturing hubs. And U.S. metro areas such as Wichita, Greenville, and Portland rank among the nation’s most trade-oriented economies by virtue of their world-class local industry clusters."

What implication does this analysis have for countries that are largely rural in nature with the majority of the population being reliant on agricultural activity? Does international trade have a minimal impact on rural communities? Are only large metro cities the major benefactors? Can the fruits of trade be spread so that communities across the country are benefitted? While metro cities are the engines of international trade is there a way to broad base the benefits and multiplier effects of trade so that larger communities are positively impacted? How does one participate in the global economy in a local setting? Unless this issue is tackled, the criticism that international trade and globalization increases inequities may be difficult to address. 

The reality of inequity and some strategies are discussed here by Uri Dadush and Kemal   Dervis in their "The Inequality Challenge". 

"Inequality in the world defies simple characterization. Over the past 30 years, hundreds of mil- lions of the world’s poorest people have seen their lot improve as the forces of technology, global- ization, and better macroeconomic policies have transformed the globe. A large middle class has emerged in some of the world’s largest and rela- tively poor countries. At the same time, in most countries, the relatively affluent have seen their incomes soar, and in some instances their share of national income has increased so rapidly that the bulk of the population has seen little gain.

Sustaining the transformational force of technology and globalization, and the impetus they are providing to the growth of the global economy, while mitigating their polarizing effect within countries, is likely to prove one of the twenty-first century’s great challenges. It is unlikely, and indeed undesirable, that either globalization or technological advances will be stopped. Still, a failure of public policy to promote greater balance in the distribution of the gains accruing to society as a whole could result in fissures so deep that our ability to derive the benefits of the new age could be severely impaired." 

Can international trade be made more equitable catering to the large rural population we have? How should trade policy address this question? While developing metro cities to be the hubs of economic activity to facilitate trade is of primary concern, how do we make the benefits of trade more inclusive and impactful?

No more wars?

Pascal Lamy recently commented on the ability of the dispute settlement mechanism of the WTO to prevent trade wars thus:

"I think one of the great things about the WTO is that we don’t have to wage wars anymore. We have trade frictions. The more trade you have, the more occasions you have to have frictions. Part of this friction becomes trade disputes. If there is a trade dispute we will adjudicate it, but there is nothing like a trade war, like there was in the past. So, in many ways, the existence of the WTO provides a sort of collective insurance policy against trade friction degenerating into political problems."

The significance and role of the dispute settlement mechanism is often underestimated in world trade. Though anointed the "crown jewel" of the WTO system, trade disputes are often seen as a negative thing. The other way to look at it is as a "safety valve". With increased trade in a globalized world there are bound to be disputes. National measures are bound to be challenged. Instead of domestic measures being a cause for embarrassment and rising diplomatic wars, what better way than to solve it within the rule-based system. With this, trade can go on while disputes can be resolved amicably through a channel. It is definitely better than a "power-based" system where the economic strength of the trading partner determines the result of the dispute. There are of course questions about the efficacy of the dispute settlement in terms of the time taken and compliance levels. However that does not take away the positives. We are not in a perfect world, are we?

Buy local?

"Buy local" seems to the the flavour now. It made news in France over demands of separate shelves in super markets selling French made goods while the U.S.Olympic national dress issue grabbed headlines for a few days. However both these were not "State measures" and hence were outside the purview of WTO provisions. An interesting discussion on this issue in the comments section of this IELP blogpost initiated by Marc Benitah made very interesting reading.

(Courtesy:vculevis.wordpress.com)

Ever wondered where your pair of jeans was manufactured? This blogpost from the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO) espouses the cause of "buy American" to boost the American economy and jobs. 

"Buying American isn’t just an antiquated idea. Our future as a nation depends on reviving our economy to create good jobs that allow those who put in a fair day’s work to receive a fair day’s pay: to raise families and send the next generation to college. By supporting American manufacturers, we can all do our part to be America’s real job creators. For more ideas on reviving the American economy, go to www.aflcio.org/Issues/Jobs-and-Economy/Economy."

They make the point that a strong industrial base and buying local was always part of the U.S. growth story and one should encourage buying local in housing, food and clothing. Three websites of "buy American" emphasize the point of the advantages of buying local as compared to imported goods - Still Made in USA.com, howtobuyamerican.com and usonly.us 

Now, this is not an executive of the State and hence would not amount to a "State measure" which can be challenged at the WTO. However, the intent of making a choice between local and imported goods is clearly there. It is an exhortation to people to be "patriotic" and buy local and shun imported goods. Wonder what the free traders would have to say to this? Is there a middle path here? Local for some products, international for others, perhaps?