Saturday, December 31, 2011

China-U.S trade deficit

A research report by Robert E Scott in 2008 titled "The China trade toll :Widespread suppression, 2 million jobs lost in the U.S" analyses the impact of China on the U.S economy, especially its impact on jobs and wages in the U.S. 

The impact is considered serious,
"The growth of U.S. trade with China since China entered the World Trade Organization in 2001 has had a devastating effect on U.S. workers and the domestic economy. Between 2001 and 2007 2.3 million jobs were lost or displaced, including 366,000 in 2007 alone. New demographic research shows that, even when re-employed in non-traded industries, the 2.3 million workers displaced by the increase in China trade deficits in this period have lost an average $8,146 per worker/year. In 2007, these losses totalled $19.4 billion."

Estimating a loss of jobs as well as wages across the country it pegs the figures as follows:
Table 2b

Figure A

I wonder if any analysis of impact of trade with China on different states of India have been made by the Government or research body on these lines. It would be interesting to study the impact of trade on specific state economies in a federal polity. 

The United States Trade Representative (USTR) website has an interesting analysis of benefits of trade to each of the States of the Union, along with a national picture of benefits.

US map

A state-specific cost-benefit analysis of international trade is crucial for evolving a national strategy for international trade.
The report concluded by stating,
"The growing U.S. trade deficit with China has displaced huge numbers of jobs in the United States and has been a prime contributor to the crisis in manufacturing employment over the past six years. Moreover, the United States is piling up foreign debt, losing export capacity, and facing a more fragile macroeconomic environment.

Is America’s loss China’s gain? The answer is most certainly no. China has become dependent on the U.S. consumer market for employment generation, has suppressed the purchasing power of its own middle class with a weak currency, and, most importantly, has held hundreds of billions of hard currency reserves in low-yielding, risky assets instead of investing them in public goods that could benefit Chinese households. Its vast purchases of foreign exchange reserves have stimulated the overheating of its domestic economy, and inflation in China has accelerated rapidly in the past year. Its repression of labor rights has suppressed wages, thereby artificially subsidizing exports.

The U.S-China trade relationship needs a fundamental change. Addressing the exchange rate policies and labor standards issues in the Chinese economy are important first steps."
P.S : I had an interesting experience today at my daughter's school carnival. There were a number of stalls and the school teachers had organised sales of a number of nice stuff for kids. Well, since the stuff was being sold were by the teachers of school kids, one could not refuse! We picked up a bag full of goodies. A cute pair of slippers for my daughter. Made in China. The bag in which it was sold was made in China. A toy car. made in China. No doubts about the source of majority of goods in this carnival! Time for a report of this kind about India-China trade deficit?

Friday, December 30, 2011

Samoa - Thank God it is not Friday?

Samoa, a small island nation in the Pacific Ocean with a population of 1,79,000 became the latest "Least Developed Country (LDC)" to gain accession to the WTO on the 17th of December 2011. 

Once the last beaches in the world to see the sunset, Samoa will be first place to see the sunrise from December 31.
(CNN: Once the last beaches in the world to see the sunset, Samoa will be first place to see the sunrise from December 31)
With exports at 72 million US$ and imports at 287.9 million US$, its major trading partners are Australia (81.7% of exports and 25.6% of imports) and New Zealand (10.1% of exports and 22.8% imports).

Samoa has decided to skip its coming 'Friday" and go directly to "Saturday". CNN had an interesting story about this development that went like this:

However, on the Pacific island of Samoa - which plans to skip Friday this week when it switches to the west side of the international dateline -- the mood is more typically laid back and Polynesian.

"Sure, people are excited," government spokesman Uale Papalii was reported as saying to foreign media. "I myself am relaxed, (we are) only changing the calendar."The decision to push the international dateline further to the east and go back to the future -- going directly from Thursday to Saturday -- was prompted by new economic realities rather than a need to be the first place in the world to celebrate New Year's Day in 2012.

Samoan prime minister, Tuilaepa Sa'ilele Malielegaoi, said the move would put the Pacific island nation of some 180,000 people on the same footing as its key trading partners in New Zealand and Australia, taking advantage of those economies links to China and the Pacific Rim."

Highlighting the importance of trade influencing the decision to do away with "Friday", the story continued,

"In doing business with New Zealand and Australia we're losing out on two working days a week," he was quoted as saying in the English-language Samoa Observer. "While its Friday here, it's Saturday in New Zealand and when we're at church Sunday, they're already conducting business in Sydney and Brisbane."

Currently, the archipelago is 21 hours behind Australia and 23 behind New Zealand, giving it just four working days a week that coincide with some of the Pacific Rim's largest economies. By moving the zig-zagging international dateline further to the east, Samoa will be just three hours ahead of eastern Australia and one hour ahead of New Zealand."

The International Date Line's zigzag contours as well as entry into the WTO is adversely affecting Samoa's business interests! This move to skip a day is to be seen in the light of the prospects Samoa sees in its entry into the multilateral body.

 An interesting "geographic" influence on domestic policies influencing international trade prospects indeed.

Another interesting fact about Samoa's accession commitment is the reference to vehicles! Here it goes:

"Within five years of accession, Samoa would establish a nation-wide vehicle safety inspection system for automobiles older than 12 years that could require the suspension of the vehicle’s right to use public roads. Samoa would repeal its current import ban on vehicles older than 12 years. Importation would be denied only to those vehicles that could not meet safety and environment requirements. 

Within six months of its accession, Samoa would commit that residents and owners of previously registered left-hand drive vehicles could drive them provided they observe right-hand drive driving regulations."

The automobile industry does have a bearing on accession agreements!

Thursday, December 29, 2011

China - A decade in the WTO

A series of articles on China's decade in the WTO is found in "A Decade in the WTO : Implications for China and Global Trade Governance" brought out by the International Centre for Trade and Sustainable Development (ICTSD) in December 2011 provides interesting insights into China's journey as a passive onlooker to an active participant in the multilateral trading system.

Some excerpts:
1. Xiaozhun Yi, Permanent Mission of China to the WTO
" The most profound impact brought by China’s accession is that the country has now fully embraced the rule-based spirit upheld by the WTO. Concepts, such as non-discrimination, transparency and rule of law are no longer trade jargon, but common words for the general public."

2.Harsha V. Singh,World Trade Organization
"China’s participation in the WTO has been evolving, from a focus on being more reticent but learning about the process, to one of much more active participation. The focus on learning about the process and systemic interest can be seen for example from the fact that China has been the most frequent third party in WTO disputes, being a third party in 79 disputes. 
Just as the world considers China’s economic prowess differently after the economic crisis, we have seen an emergence of a more active China in the multilateral trading system. This will imply more intense engagement to address the concerns and important emerging issues emphasized by various WTO Members."

3.Zhenyu Sun, China Society for World Trade Organization Studies (CWTO)
"China’s determination to continue its policy of opening and reform contributes to world economic prosperity. As a new member of the WTO, China is always ready to learn. The trade policy review process gave China the opportunity to listen to comments and complaints from other Members, which helped identify areas where further reform and improvement were needed. At the same time, through the trade policy reviews of other Members, China has learned from their successes and drawn lessons from their setbacks. 
China’s recent emphasis on expanding domestic consumption and encouraging imports, as well as its encouragement to Chinese enterprises to invest abroad in its next five-year development program, are no doubt good news for all WTO Members."

4.Henry Gao, Singapore Management University
"In its first decade in the WTO, China has successfully made the transition from a Member that was reluctant or even afraid to use the dispute settlement system to one that is increasingly confident and skillful in using it to advance its legitimate interests."

5. Razeen Sally, European Centre for International Politics and Economics
" When China joined the WTO, it regarded itself as a “price-taker” in the world trading system; it acted rather like a small- or medium-sized open economy that could only adapt to the international terms of trade. 
Unilateral liberalization, reinforced by strong WTO commitments, was the policy prescription. Now, Chinese policymakers think of China as a member of a club of three: like the US and the EU, it can influence international terms of trade and world prices – or so it believes. That shifts the policy inference away from unilateral liberalization to reciprocity. But, given the speed and scale of this transformation, China has evident difficulty in acting like a rule-setter and system-shaper – in other words, like a leader (or co-leader) of the world trade order. That causes problems for China and its trading partners; it creates uncertainty and instability, and it increases the risk that China might be a “spoiler” in trade policy."

6. Scott Kennedy, Research Center for Chinese Politics & Business at Indiana University
" China still sees itself as a developing country that can exert quiet leadership in Geneva but that must keep its focus on solving domestic economic challenges. Western countries would like China to take on a role and be more open to concessions that are consistent with its growing economic strength and dynamism."

7. Faizel Ismail, Permanent Mission of South Africa to the WTO
"China’s rise has increased the bargaining power of developing countries in the multilateral system. This has covered a range of areas, including the IMF, the World Bank and the Climate Change negotiations. China’s accession to the WTO has coincided with an increased assertiveness of developing countries in the Doha Round of trade negotiations. China has played a positive and constructive role, joining in the struggles of developing countries to create fairer, more balanced and development-friendly trade rules in the WTO."

8.Debapriya Bhattacharya, Centre for Policy Dialogue (CPD)
"China’s accession to WTO will present both opportunities and challenges for LDCs. The effects of China’s accession on other developing countries are likely to be felt in two areas. In the goods and service markets, there will be increased competition from Chinese exporters in the world market as well as increased export opportunities in China. In the international capital market, competition for FDI is likely to intensify as the Chinese market becomes more open to foreign investment."

9.Shuaihua Cheng, International Centre for Trade and Sustainable Development 
"A decade in the WTO has proved China’s incredible capability to grow. The question for the next decade is whether and how China can grow with less pain at home and abroad."

2012 awaits China. However, according to this piece,which forecasts a trade deficit for China in 2012, the next year is not too bright for the 2nd largest economy.

Wednesday, December 28, 2011

Another airline collision - European Union's Emission Trading Scheme?

The EU and US are headed for another airline collision - this one related to the European Union's Emission Trading Scheme (EU ETS) that covers airline emissions also. As if the Airbus-Boeing dispute was not enough, a recent decision of the European Court of Justice (ECJ) with respect to applicability of the EU ETS Regulation to airline emissions has aggravated the dispute between the traditional trading partners.

The EU ETS Directive essentially provides for "allowance of greenhouse gas emissions trading in order to promote reductions in emission of greenhouse gases in a cost-effective and economically efficient manner". The Directive applies to activities mentioned in the Annex I to the Directive which includes "Aviation -Flights which depart from or arrive in an aerodrome situated in the territory of a Member State to which the Treaty applies." 

Chapter II  of the Directive specifically deal with Aviation. Article 3 A of the Directive mandates :

"The provisions of this Chapter shall apply to the allocation and issue of allowances in respect of aviation activities listed in Annex I."

Detailed provisions related to the total quantity of allowances for aviation, allocation and issue of allowances to aircraft operators, special reserve for certain aircraft operators, monitoring and reporting plans for each airline operator are laid down in the Directive. The method of allocation of allowances to aircraft operators is dependent amongst other things on fuel consumption on the international flights to the European Union destination.

The EU ETS works on the "cap and trade" principle. This means there is a "cap", or limit, on the total amount of certain greenhouse gases that can be emitted by the factories, power plants and other installations in the system. Within this cap, companies receive emission allowances which they can sell to or buy from one another as needed. The limit on the total number of allowances available ensures that they have a value. At the end of each year each company must surrender enough allowances to cover all its emissions, otherwise heavy fines are imposed. If a company reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another company that is short of allowances. The flexibility that trading brings ensures that emissions are cut where it costs least to do so.

It is reported that in actual commercial terms the cost per flight that is originating or landing at any European union destination would increase by about 12 Euros.

The EU ETS applicability to Aviation was challenged by many Airline Associations as being violative of international treaty obligations of the EU. The European Court of Justice has upheld the directive as not violative of international treaty obligations. Come January 2012 all airline operators operating into and out of Europe (and also operators operating domestically within Europe) will have to buy permits under the EU’s emissions trading scheme.

The ECJ while analysing the Directive of the European Union in the light of international obligations opined that the ETS was not violative of customary international law or territorial sovereignty of countries,

"125   In laying down a criterion for Directive 2008/101 to be applicable to operators of aircraft    registered in a Member State or in a third State that is founded on the fact that those aircraft perform a flight which departs from or arrives at an aerodrome situated in the territory of one of the Member States, Directive 2008/101, inasmuch as it extends application of the scheme laid down by Directive 2003/87 to aviation, does not infringe the principle of territoriality or the sovereignty which the third States from or to which such flights are performed have over the airspace above their territory, since those aircraft are physically in the territory of one of the Member States of the European Union and are thus subject on that basis to the unlimited jurisdiction of the European Union.

126   Nor can such application of European Union law affect the principle of freedom to fly over the high seas since an aircraft flying over the high seas is not subject, in so far as it does so, to the allowance trading scheme. Moreover, such an aircraft can, in certain circumstances, cross the airspace of one of the Member States without its operator thereby being subject to that scheme.

127     It is only if the operator of such an aircraft has chosen to operate a commercial air route arriving at or departing from an aerodrome situated in the territory of a Member State that the operator, because its aircraft is in the territory of that Member State, will be subject to the allowance trading scheme

128      As for the fact that the operator of an aircraft in such a situation is required to surrender allowances calculated in the light of the whole of the international flight that its aircraft has performed or is going to perform from or to such an aerodrome, it must be pointed out that, as European Union policy on the environment seeks to ensure a high level of protection in accordance with Article 191(2) TFEU, the European Union legislature may in principle choose to permit a commercial activity, in this instance air transport, to be carried out in the territory of the European Union only on condition that operators comply with the criteria that have been established by the European Union and are designed to fulfil the environmental protection objectives which it has set for itself, in particular where those objectives follow on from an international agreement to which the European Union is a signatory, such as the Framework Convention and the Kyoto Protocol."

Thus all international flights entering or departing the European Union as well as domestic flights operating within the European Union are subject to the allowance system. The issue of a brewing "trade war" between the United States (supported by China, India ) against the European Union has been foreseen in 2012 by many reports here, here, here, here, here and here. It is clear that the obligations of an airline operator on allowances pertains to the "entire length of the international flight" and not proportionally to the extent of travel on European airspace. This is disadvantageous to international airline operators via vis domestic airline operators since the former have longer destinations and hence larger allowances to bear. However, this does not discriminate between a European airliner operating internationally and a third party airline operator operating internationally.

The issue that arises is whether EU ETS is violative of European Union's obligations under the WTO? It raises the following issues:

1. Does the EU ETS violate the principle of "national treatment" that is enshrined in WTO Agreements? As per the GATS Agreement, "national treatment" is a mandate. As per Article XVII of the GATS,

"1.       In the sectors inscribed in its Schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favourable than that it accords to its own like services and service suppliers.
2.       A Member may meet the requirement of paragraph 1 by according to services and service suppliers of any other Member, either formally identical treatment or formally different treatment to that it accords to its own like services and service suppliers.
3.       Formally identical or formally different treatment shall be considered to be less favourable if it modifies the conditions of competition in favour of services or service suppliers of the Member compared to like services or service suppliers of any other  Member."

"Air Transport Services" is included in the European Union's schedule of commitments under GATS. Is the application of the allowance based on fuel consumption (including the entire distance of the international flight) favour domestic airline operators? Is it a disguised restriction on international trade in services? Does the method of calculation of allowances based on fuel consumption irrespective of the extent of fuel consumption outside the European Union violate the principle of "national treatment" since two dissimilar situations are being treated similarly?

2. Is the EU ETS an unjustified technical barrier to trade? As per Article 2.2 of the TBT, 

" 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."

Is the EU ETS an unnecessary obstacle to international trade. Is it "more trade restrictive" than necessary? Only time will tell if this dispute will come to the doorsteps of the WTO with the US and China as complainants and the European Union as the respondent. Interesting, turbulent times for the Aviation industry.

Tuesday, December 27, 2011

Africa and WTO - Will Africa go the China way?

wto cartoons, wto cartoon, wto picture, wto pictures, wto image, wto images, wto illustration, wto illustrations

In the 8th Ministerial Conference while a number of delegates spoke about the virtues of the multilateral trading system and the need to reduce protectionist barriers to trade, the address of the Kenyan Minister on behalf of about 100 (African)  members of the WTO needs to be reproduced,

"The African Group is deeply concerned with the paralysis in the DDA, after 10 years of costly negotiations to our countries.  In this respect, we wish to emphasize the following key areas of concern and priorities:- 
  •    We are committed to and urge urgent conclusion of the DDA in accordance with the existing mandate and on the basis of the Single undertaking.  In this regard, we call on all WTO members to intensify negotiations starting January 2012 on the basis of progress achieved to date.
  •     We re-emphasize the need for a fair and balanced outcome of the DDA, which must prioritise development as the main deliverable; with priority given to LDC issues, implementation-related issues & concerns, and effective Special & Differential (S&D) treatment.
  •    We underscore that any “new approaches” to unlock the impasse, must be multi-laterally acceptable and negotiated in an inclusive, transparent and bottom-up manner, and be firmly anchored within the Doha mandate.
  •    The Group advises that no attempt should be made to add “new issues” to DDA Agenda.
  •    We emphasize the compelling need to fully operationalize the mandate of the Committee on Trade and Development (CTD) as the focal point for development;
  •    We call upon the WTO members to adopt Measures and Decisions aimed at simplifying accession processes for acceding developing countries and LDCs.  We welcome the accession of Russia, Vanuatu, Samoa and Monte Negro.
  •    We call upon the General Council to initiate a comprehensive work programme to mitigate the impact of the food market prices and volatility, and report on the same by MC9.
  •    Last, but not least, we wish to insist on the provision of effective Special & Differential Treatment via sector-specific financial and technical assistance and sustainable capacity building.

   Finally, on behalf of my own delegation Kenya to say, we fully endorse all issues raised by the African Group and as the Friends of Development and reemphasize the centrality of development as a major outcome of this Ministerial Conference."

No strong words against "protectionist measures" or the need to "open up" trade. The negotiating stands taken by members has to be contextualised in the experiences and realities the countries are facing domestically. Whether the WTO will be able to take all these interests into account and balance competing interests in the overall pursuit of trade and development is to be seen.

An interesting piece on Africa's experience in the WTO's Dispute Settlement Mechanism is portrayed here. Titled "African Countires and the WTO Dispute Settlement System:strangers in an alien land?",it highlights the inadequate representation and participation of African nations in the WTO dispute settlement mechanism,

"In 1995, the World Trade Organization (WTO) came into existence, introducing some key reforms to the long-standing General Agreement on Tariffs and Trade (GATT) system. The most important reform was the setup of the Dispute Settlement System (DSS). There was now a greater clarity of rules and regulations, binding decisions and an Appellant Body. One would imagine that the highly juridical and legalized system based on equality and strict rules would be somewhat advantageous to African countries (the largest group in the WTO). This has not been the case. In fact, African countries’ involvement in the WTO dispute settlement system in the first decade has been minimal at best. In the first decade (1995-2005) of the DSS, no African country was ever a complainant in a dispute and in only six cases was an African country a respondent. In addition, Egypt is the only African country to have shown initiative and request the establishment of a panel, in the Egypt-Definitive Anti-dumping Measures on Steel Rebar from Turkey case. The one comparatively active area for African states in the DSS is their participation in disputes as third parties. Zimbabwe, Nigeria, Senegal, Cameroon and Cote-d’Ivoire have all participated in this capacity."

Another presentation by Advisory Centre for WTO Law (ACWL) showed that there were no disputes with African members as complainant or respondent, no Appellate Body members from sub-Saharan member countries and no African nationals are currently working int he WTO Dispute Settlement Secretariat. Whether the last two issues have a significant bearing on Africa's participation are debatable, it is a fact that Africa has not been able to utilise the dispute settlement framework to its advantage. There may be many reasons for this including costs and training capabilities.

The piece concludes by stating,

"To conclude, on one hand, the fact that the majority of WTO is made up of African countries counts for nothing until this presence is coupled with a strong understanding of the DSS mechanism. This issue is of pressing importance simply because African countries, especially the weakest of them, need the WTO DSS. As the Dispute Settlement System evolves along with International Economic Law, it will serve African countries well to get involved in reshaping new sets of legal principles and procedures that govern the system. However, on the other hand, there is clear evidence that the integration of African countries into the multi-lateral Dispute Settlement System has been a process leaving much to be desired. There is a great need for reform and sensitivity of the system that will ultimately enhance the long-term stability, predictability and legitimacy of the WTO Dispute Settlement System. A failure to reform could mean that the DSS will remain fundamentally prejudicial to the long-term position of African Countries and other developing economies in the global trading system."

Will 2012 be the year for Africa ? This piece recommends a China-Africa collaboration to overturn the tide,

Thanks to Sino-African multilateral relations as well as bilateral agreements with 49 out of the 54 African nations, China has outpaced the West to become the single most important economic partner with Africa.Predictably, this has attracted the ire of developed nations including on the matters environmental. Yet when the bigger picture is interrogated, Africa is better off looking to China in balancing developmental growth with ecological responsibility.

It is a fact that for Africa to overcome the hard-core poverty that afflicts its people, it must tap its natural resources. By not utilising unexploited natural resources, the "poverty amidst plenty" situation would not be reversed and Africans would continue to die from the ravages of droughts and famines.

China provides models for Africa to make poverty history since it (China) is not only a developing region like Africa, but provides important lessons having combated extreme poverty over the past three decades and more exemplarily since accession to WTO a decade ago.

African countries have a natural ally in China in terms of the responsibilities that developed nations should bear as far as carbon emissions are concerned."

Monday, December 26, 2011

Informal economy and the WTO

A recent interview in the Wired magazine of Robert Neuwirth was an interesting read.  Robert Neuwirth in his new book, Stealth of Nations: The Global Rise of the Informal Economy points out that small, illegal, off-the-books businesses collectively account for trillions of dollars in commerce and employ fully half the world’s workers. Further, he says, these enterprises are critical sources of entrepreneurialism, innovation, and self-reliance. And the globe’s gray and black markets have grown during the international recession, adding jobs, increasing sales, and improving the lives of hundreds of millions. It’s time, Neuwirth says, for the developed world to wake up to what those who are working in the shadows of globalization have to offer.

The colors on this map indicate the size of each country’s underground economy, as a percentage of its GDP.

Source: Friedrich Schneider et al., “New Estimates for the Shadow Economies All Over the World,”International Economic Journal 2010

This has interesting lessons for understanding how globalisation works, its impact on local economies and the extent to which "unorganised" trade impacts lives. Is this part of the larger "trade statistics" that is used in trade policy?

Sunday, December 25, 2011

Whither WTO?

I had earlier blogged about the lack of announcements and news of impact of the 8th Ministerial Conference of the WTO which concluded at Geneva from the 15th to the 17th of December, 2011. Was there an air of gloom and pessimism inspite of the ministerial declaration against protectionism and progress on the procurement agreement?

In a rather scathing criticism on the lack of clarity of the results of the MC8, this piece in the Huffingtonpost said,
"Ministers of trade from around the world met this weekend in Geneva for the eighth time since the World Trade Organisation (WTO) opened in 1995. Decisions on international trade rules affecting millions are meant to be made at such conferences, yet type a basic internet search for 'WTO' today and you are more likely to find the World Toilet Organisation than any news coverage of the Ministerial conference dubbed MC8."

Commenting on the fate of the multilateral institution it continues,
"Like watching a bad film to the end just in case the director or actors redeem themselves MC8 was a milestone in the wonky world of trade economists and lawyers. Between bi-annual conferences wonks are in charge of crunching the numbers and re-interpreting the legal texts. For three glorious days every two years politicians can make major decisions. Except they don't. This time politicians were determining the fate of an organisation that has failed to deliver on any of the commitments made 10 years ago. Now, by their inaction, politicians have directly forced a re-design of the global trade system. But the cast has discredited the film and no-one will watch the sequel."

Bloomberg Businessweek commented on the failure of the Ministerial to provide answers,
"The World Trade Organization wrapped up its ministerial meeting yesterday without deciding how to revive global commerce talks, focusing instead on welcoming Russia to the fold and securing a government-procurement accord.

Efforts to reach an agreement during the Doha Round of trade talks have been blocked for years as the countries fail to make concessions on lowering agriculture subsidies and industrial tariffs. Ministers including U.S. Trade Representative Ron Kirk have said the round needs a new approach after a decade of unsuccessful attempts to bridge gaps among 153 nations."
Another report commented on the lacklustre Ministerial thus,
"Uncharacteristically devoid of controversies inside the negotiating rooms and battles outside - such as was the case in Seattle (1999), Cancun (2003), and Hong Kong (2005) - this year's conference was opened at a time when the fate of the WTO and its instruments are questioned by many. Such views are overwhelming, Nigerian Ambassador Olusengun Olutoyin Aganga, chairman of the conference, had to declare that the "WTO is alive and still kicking."
But, its rather uneventful ministerial conferences are obvious to both delegates and non-delegates alike. Gone are the days when "WTO ministerials" were worth their names, according to the Ugandan Jane S. Nalunga, from the Information and Negotiations Institute for Southern and Eastern Africa Trade and long-time advocate of Africa's place in international trade."

The lack of information is rather uncharacteristic of the WTO which has been at the forefront of transparency and information dessimination. Perhaps, the news is not all that good?


Saturday, December 24, 2011

Russia's entry into the WTO - Brilliant!

WTO, Corruption and Russia's entry

An interesting piece in the Moscow Times alluded to the proposition that Russia's entry into the WTO would have a positive impact on corporate corruption in the country. Stating that entry to the WTO offered an opportunity to reduce corruption, it stated,

"Joining these international institutions brings with it obligations and responsibilities, which the government sooner or later will have to translate into new domestic legislation, and which, when implemented, will have an impact on how companies operate. This offers an important opportunity to decrease corruption in the country."

The expectation that the entry into the multilateral trading organisation would have a bearing on corrupt domestic practises is rather optimistic.

Several commentators have commented on the role of WTO in driving the anti-corruption agenda. Calling the WTO a "natural universal guardian against corruption", Peter Eigen of the Transparency International in 2002 stressed on the role of the WTO along with multiple stakeholders in addressing issues of corruption.

The principle of transparency as enshrined in Article X of GATT mandates that that “all laws, regulations, judicial rulings, and administrative rulings of general application” (collectively “Measures”) be “published promptly in such manner as to enable governments and traders to become acquainted with them.”  Article X:2 prohibits enforcement of measures prior to publication.  Article X:3 requires all measures be administered in a “uniform, impartial and reasonable manner”  and compels Members to establish tribunals or procedures for review of the administrative actions relating to customs matters.

The role of the WTO in promoting transparency and good governance was highlighted by Padideh Ala'i in this paper titled " The WTO and the anti-corruption movement", wherein the importance of the transparency provisions were reiterated,

" The failure of direct efforts to combat corruption shows that for the battle against corruption to succeed there is a need to create a culture that respects transparency and due process. The WTO, more than any other institution, is capable of promoting the culture of transparency and due process. The incremental manner in which the WTO panels and Appellate Body address the lack of transparency and fundamental due process is more likely to reduce opportunities for corrupt acts than setting up an anti-corruption agency as the World Bank has done in Kenya.

 It is the culture of secrecy and lack of information or access to information by a population that allows corruption to take hold and increase. The WTO rules prohibit secrecy and value transparency. The WTO, by providing a forum for a discussion of such issues, allows Members to acknowledge certain core values of good governance that are diametrically opposed to the culture of secrecy.

The problem of corruption has existed from the beginning of time and the WTO can neither solve nor eradicate it. However, the WTO can and does play an important role in promoting transparency and good governance. Over the past few years, the potential of the WTO to enhance values that effectively curb corruption, such as transparency, has increased while, at the same time, other efforts to combat corruption have failed or are likely to fail. Additionally, the rhetoric of anti-corruption has lost some appeal given the actions of the World Bank and others. It is advisable for the WTO to refrain from directly addressing the problem of corruption. The WTO can be most effective in combating corruption indirectly through its many provisions that mandate transparency and due process in the administration of all types of regulation."

An exhaustive paper on the relationship between corruption and international trade and the role of the WTO has been expounded by Krista Nadakavukaren Schefe in the paper titled "Corruption and the WTO Legal System". Recognising that several provisions (including transparency provisions) in the WTO agreements have a direct and indirect impact on addressing the issue of corruption, the paper is more sceptical about the role of WTO in addressing the complex issue. It states,

" The above-mentioned measures found in the positive law of the WTO are modest instruments in reducing corruption opportunities that at the same time liberalize world trade. Each may contribute to reducing the capacity of trade officials to illicitly profit from producers by providing reliable information about the existing level of barriers. Armed with such knowledge, a potential importer will – theoretically – be able to resist demands for extra payments in exchange for gaining entry for her products. The WTO rules on liberalization can, therefore, contribute to the reduction of opportunities for corruption if wielded purposefully to that aim. 

There are two main weaknesses of relying on the WTO trade instruments for corruption reduction. First, existing WTO  measures address only a small part of the scope of “corruption”. Second, the trade instruments’ potential to lower corruption opportunities necessarily rely on traders’ active resistence toward corruption for any actual effects."

Advocating a strong stand that WTO must not engage in the fight against corrupt practises, Philip M.Nichols argues that the WTO should not dilute its original mandate of co-ordinating trade policies between countries.

It could be argued that though there are no specific provisions relating to combating corruption in the WTO agreements, the transparency requirements does have an impact on addressing the issue, though it is not ipso facto sufficient to address such a complex issue. Corruption in the context of international trade has many connotations including corruption at the operational level of the trade official machinery as well as opaqueness in trade policies to benefit interest groups. To expect the WTO agreements to address all such issues would be expecting a magic wand. However, the multilateral trading system through various measures does enhance the scope of transparency which do have a bearing on addressing the issue of corruption.

Friday, December 23, 2011

Fate of Seal trade "sealed"?

Recent reports of a Russian ban on imports of seal products brought to the fore issues of trade, animal rights and domestic policy space in the context of WTO obligations. The reports referred to a document on the WTO website that indicated a trade ban. I was not able to get my hands on this document from the website.

A harp seal lays on a ice floe in the Gulf of St. Lawrence Saturday March 25, 2006. (THE CANADIAN PRESS / Jonathan Hayward)

The Globe and Mail reported that a Russian ban would severely effect the Canadian seal industry:
"Russia and two of its neighbours have informed the World Trade Organization that they are banning the import and export of harp seal pelts – a move that animal-rights activists are celebrating as the death knell of Canada’s commercial seal industry."

The reports of the ban have been covered herehere and here. The supporters of the ban claim that this would bring the cruel, inhuman slaughter of clubbing seals for their fur to an end. Canadian Government and others opposing the ban claim that the methods used are scientific and humane and that the ban could adversely affect communities that rely on this trade for their livelihood. In terms of trade, this is a major blow to Canadian seal exports as Russian markets constitute 90% of the market share of seal exports from Canada.

The European Union has already passed regulation banning seal trade which has been challenged by Canada in the WTO in 2009. 

The European Union justified the ban accordingly:

"The European Union is concerned about the animal welfare aspects of the seal hunt. Doubts have been expressed about some of the methods used for hunting seals, such as shooting, netting and clubbing, that can cause avoidable pain and distress. Several EU Member States were considering, or had already introduced, national legislative measures to ban the import and use of seal skins and seal products. In the light of these concerns, on 16 September 2009 the European Parliament and the Council adopted a Regulation banning the trade in seal products in the European Union. It applies to seal products produced in the EU and to imported products. The aim of the Regulation is to ensure that products derived from seals are no longer found on the European market. The Regulation was published in the Official Journal on 31 October 2009, entering into force on 20 November 2009. The ban itself entered into force 9 months after the entry into force of the Regulation (i.e. 20 August 2010).

The Regulation foresees limited exemptions to respect the fundamental economic and social interests of Inuit and other indigenous communities. It also contains exceptions for goods derived from seals for personal and non-commercial use and for goods derived from seals hunted for the sole purpose of the sustainable management of marine resources on a not-for profit basis and for non-commercial reasons."

The Regulation relating to the ban on imports of seal products states that "the placing on the market of seal products shall be allowed only where the seal products result from hunts traditionally conducted by Inuit and other indigenous communities and contribute to their subsistence." 
Hence, all commercially exploited seal products are banned in the European member countries. Thus, barring the seal products from traditional communities, imports of seal products obtained by all other methods (whether scientific, humane or inhuman) are banned in the European Union. Recognising that there may be methods of humane killing of seals for obtaining their products, the European Union regulation laid down that "although it might be possible to kill and skin seals in such a way as to avoid unnecessary pain, distress, fear or other forms of suffering, given the conditions in which seal hunting occurs, consistent verification and control of hunters’ compliance with animal welfare requirements is not feasible in practice or, at least, is very difficult to achieve in an effective way, as concluded by the European Food Safety Authority on 6 December 2007."

Iceland joined Canada in opposing this ban asserting that though the Intuit community (local indigenous community) practices were exempt from the ban, in reality they were effected.

Animal welfare groups like this one and this one have for long protested against the trade in seal products and have claimed victory on the latest ban by Russia as a step in the right direction. PETA also has high profile stars to campaign against the trade.

The European Union ban and now the Russian ban has made Canada look for markets elsewhere. And where else but the largest growing market - China.

It was reported that the Chinese market promises to provide the much needed relief to the Canadian seal industry in view of the latest ban in Russia which hitherto constituted 90% of the Canadian seal trade.

The issue of the ban on seal products raises many interesting questions:
1. Whether the ban of this nature is violative of a member country's WTO obligations under the TBT and GATT Agreements? Is it not a barrier to trade?
2. Are issues of animal welfare, environment protection and other non-trade considerations germane and permissible barriers to trade? Would it lead to imposition of "subjective" barriers to trade? Are there universal, international standards in this regard?
3. Do the WTO agreements, which focus on promoting trade and reducing barriers to trade, permit considerations of animal rights to determine permissible policies?
4. How should the WTO decide in a case of the right to livelihood of communites engaged in trade vis a vis a ban based on certain principles of animal welfare and environment protection?
5. Are the principles of human rights, labour rights, animal rights, environment concerns relevant in the rule-based determination of right and obligations of the WTO?
6. With multiple stakeholders involved in this issue (in the case of Canada, the commercial seal traders, intuit community members, consumers, animal right activists and the Government of Canada), whose interest does the Canadian Government represent at the WTO? Is that decision the prerogative of the Canadian Government? This issue is symptomatic of many disputes that arise in the WTO.