Defence of the indefensible?

In all the debate about creating local jobs, offshoring and outsourcing and employment, I found this piece in the Harvard Business Review Blog sometime ago refreshing. It highlights the complexity and reality of international trade today and calls upon businesses to defend their offshoring policies which should be "responsible".

Titled "Defense of Responsible Offshoring and Outsourcing" it chalks out a detailed defense on why it is beneficial for U.S. business interests to engage in outsourcing in emerging economies.

"What is not in flux is this fundamental reality: American companies will, for a wide variety of reasons relating to global dynamism, continue to participate in this transformative era of global economic change by increasing activities and hiring workers outside the U.S., especially in fast-growing foreign markets. (They may also, on a limited basis, move some jobs back to the U.S. for certain domestic markets due to rising costs abroad and labor productivity at home.) Yet, politicians oppose — or at least do not defend, and certainly do not fairly explain — this most fundamental international dimension of global business reality.  

... 

Offshoring and outsourcing today are like sex in the Victorian era: repressed or criticized in public discussion, much practiced in private behavior."

Though not politically acceptable, it sure made an interesting read. Is it a defense of the indefensible?

 

Local content and the Chinese challenge - sustainable?

I had earlier blogged about the Chinese challenge to the EU renewable energy FiT programs, particularly of Italy and Greece. While one awaits the Canadian FiT case Panel decision, China's request for consultation in this case offers opportunities for the development of WTO jurisprudence in the are of renewable energy, local content and permissible domestic policy space.

China challenged the "Italian Legislative Decree of 3 March 2011, for the incentivizing of the production of electrical energy from photovoltaic solar installations, generally, and Article 25(10) thereof, specifically" and also "the 7 August 2012 version of the "Implementing Rules" pertaining to, inter alia, the administration of the Italian Feed-In Tariff, promulgated by the Italian Gestore Servizi Energetici (Regole Applicative per l’Iscrizione ai Registri e per l’Accesso alle Tariffe Incentivanti), generally, but including in particular Article 4.4 ("Premium for installations that use main components produced within EU/EEA States"), and all pertinent past and future versions thereof." On the Greek measures, China challenged the "Development of the Athens former international airport Hellinikon - Project HELIOS - Promotion of the use of energy from renewable sources as well as the "primary Greek legislation on renewable energy sources, i.e. Act No. 3468/2006 on "Electricity Production from Renewable Energy Sources." 

The main legal basis for China's request for consultation is found in the following arguments:

"China considers that the above-mentioned measures are inconsistent, both as such and as applied, with, among others, the following obligations under the following provisions:

• Article III:1 of the GATT 1994, because the measures are laws, regulations and requirements affecting the internal sale of products in such a way that they afford protection to domestic production;

• Article III:4 of the GATT 1994, because certain measures accord less favorable treatment to imported equipment for renewable energy generation facilities over like products produced in the EU and the European Economic Area ("EEA");

• Article III:5 of the GATT 1994 because the measures constitute quantitative regulations relating to the use of products in amounts or proportions which requires, directly or indirectly, that a specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources; 

• Article I of the GATT 1994, because certain domestic content restrictions impede other WTO Members, including China, from enjoying the full benefit of the measures while other WTO Members do not face similar restrictions. These include but are not limited to certain WTO Members which are Members of the European Economic Area (EEA) but not the EU;

• Articles 3.1(b) and 3.2 of the SCM Agreement, because the measures include subsidies within the meaning of Article 1.1 of the SCM Agreement that are prohibited as they are provided contingent upon the use of domestic over imported goods;

• Articles 2.1 and 2.2 of the TRIMs Agreement, in conjunction with paragraph 1(a) of the Agreement's Illustrative List, because the measures are trade-related investment measures inconsistent with Article III:4 of the GATT 1994 which condition the receipt of the full advantage of the measure on the use of domestic goods."

While the GATT challenge may be more easily sustainable if local goods are favored over imported goods, the finding of a prohibited subsidy under the ASCM may be a little more arduous because of the definitional requirements of what constitutes a subsidy including financial contribution, benefit and specificity. This opens up another debate about the applicability of Article XX GATT which provides for general exceptions to the GATT provisions on the grounds, inter alia, of the environment.

One would have to way and watch the journey of the Canadian FiT case and the arguments in the China challenge. The rulings will have immense implications for renewable energy programs around the world that are dependent on local content requirements.

CUTS and defining the future of trade

CUTS-International is an organization that works on consumer issues as well as international trade. The website has a number of thought-provoking publications on many issue on international trade and multilateralism. The CUTS Centre for International Trade, Economics and Environment has many publications on international trade and multilateralism.

Found an interesting discussion paper on the future of trade called "Defining the Future of Trade" by Pradeep Mehta, Bipul Chaterjee, Rashid Kaukab. Pradeep Mehta is also a member of the "Panel on Defining the Future of Trade" which was constituted by the Director General of the WTO recently. I had blogged about setting up of this mulitstakeholder panel here. 

The discussion paper calls for a new Quad of WTO members (Brazil, U.s., EU, India and China) to stabilize multilateralism. Their assessment of the challenges for international trade:

"Trade policies of countries should be reviewed in respect to their ability to fulfill the role of trade as an effective means for poverty amelioration and reduction in income inequality leading to inclusive growth - in other words, the relationship between trade and consumer welfare (as described in the Preamble Establishing the WTO) should be the guiding principle of reviewing trade policies. 

The impact of non-tariff measures on trade under imperfect competition should be studied so as to negotiate multilaterally-agreed rules, including quantification of non-tariff measures and their gradual reduction on the basis of countries ability to reciprocate, to reduce their scope to distort trade.

Trade in tasks cannot be performed well unless there is equal emphasis on all three factors of production - capital, labour and knowledge - as their use is increasingly getting integrated, in some sense they are endogenous as well. While trade in capital and that in knowledge is drawing political attention among the policy-makers, that is not so in case of trade in labour. More emphasis on addressing labour market rigidities through trade in labour will not only strengthen the role of trade as a tool for inclusive growth but will also help poor countries to get integrated with global efforts on trade in tasks.Based on the principles of reciprocity and non- discrimination, there should be multilaterally- agreed rules to address trade-related market- contestability issues arising as a result of competition-related trade distortions and trade- related competition distortions.The WTO Secretariat should do joint studies with United Nations Framework Convention on Climate Change, Food and Agriculture Organisation and other inter-governmental organisations to understand trade and trade-related issues in governing global public goods such as climate change, food security and how the poor countries can deal with them."

Will multilateralism rise up to these challenges? 

Local content, renewable energy and the WTO

The FiT ruling in the WTO case (DS 412) of Canada's (more specifically Ontario's) renewable energy program is eagerly awaited. I had blogged about a preliminary report of the WTO Panel here. It will surely be appealed against. What implication does the prohibition of "local content" requirements in renewable energy programs have on programs around the world?

A well written piece on the history and implications of a WTO ruling is found here.

Many questions:

1. What is the implication for countries following "local content' requirements in their FiT or renewable energy programs? Will domestic policy require a thorough revamp?

2. Is there a difference between "mandating" local content and "incentivizing" local content? Is the latter more acceptable?

3. Would the applicability of Article XX GATT general exceptions (protecting the environment) not be available in the case of local content rules?

4. Will we see a splurge of trade disputes wherein renewable energy programs across the world based on local content requirements will be challenged at the dispute settlement mechanism? Will countries take this path or will a negotiated settlement for a renewed multilateral agreement on renewable energy be worked out?

Will keenly await the Panel ruling and the reactions to it.

A year of serious blogging!

It has been a year since I first blogged seriously. It has been a long journey with 382 published posts and am glad I undertook it. 

The IELP blog, Opinio Juris, Business Beyond the Reef, Scott Lincicome, Dorf on Law, Eyes on Trade, Project Syndicate, The Becker-Posner Blog, Trade, Investment and Health, Lenz Blog, VoxEU and Urbanomics have been major motivators in this journey.

Next WTO chief - Should geography matter?

I have blogged about the news of the selection of the next WTO chief here. Should "geography" matter in the selection process of the next WTO Director General after Pascal Lamy whose term ends in August 2013? Pascal Lamy himself contended that geography should not be the deciding factor in the selection of his successor. Should the next chief be from an emerging economy (Argentina, Mexico) or from the BRICS (Brazil, Russia, India, China or South Africa) member countries? Should nationality matter at all? Would having a person from the developing world at the top post make the organization more "representational"? Is it not representational yet? Would it make the WTO more "sensitive" to developing countries interests? Is it not so yet? Would the nationality of the chief have a bearing on the interpretation of the trade agreements? Would the chief being from Africa make a difference to the participation and interests of African nations in the WTO?

I am not sure it will have an impact on the dispute settlement mechanism. However, would the strategy of the negotiations change or the role of the WTO secretariat in dealings with the Doha impasse change? Is selection of a person from the developing economies (non-US non-EU) merely a representational, symbolic step or a more substantive step? Reuters covered some of the issues here.

Too many questions. Not sure if there are answers to all of them ...

Renewable energy, WTO and local content - China takes on the EU

In signs of increased disputes in the renewable energy sector at the WTO, China filed a complaint against the EU and certain EU member states against certain Feed in Tariff programs that it alleged violated the GATT, ASCM and TRIMs. The WTO reported the filing of the complaint here. Though details of the complaint and the grounds of challenge are not yet clear, it seems that "local content" requirements are the main ground for he challenge.It was reported here.The NYT reported it here. Surprisingly, China has not filed a case against the U.S. with regard to which China connected a detailed investigation into State specific renewable energy programs recently. Many countries provide preferential tariff on generation of renewable energy and also mandate the use of locally produced products for this generation. Some countries provide an incentive on the tariff (additional tariff) on the condition that local products are used. 

EU and Japan have already challenged Canada's (Ontario's, more specifically) Feed-in tariff program as being violate of GATT law since it treats imported products less favourably than local products. The decision of the WTO Panel in this case is awaited in November. I had blogged about the dispute recently here.

With a number of countries implementing renewable energy programs of varying degrees and varieties, with and without local content requirements, the disputes at the WTO will offer some interesting insights on where the lines are to be drawn in balancing environment protection and trade.