Anti-Fragmentation Strategies: the Curious Case of the EU and World Trade Law

Published on February 20, 2015        Author: 

The investor-State dispute settlement provisions of the EU’s proposed new free trade agreements with the US (the Transatlantic Trade and Investment Partnership – TTIP), Canada (the Comprehensive Economic and Trade Agreement – CETA) and Singapore (the EU – Singapore Free Trade Agreement) are receiving considerable coverage in the popular media as well as within academic circles (note the recent EJIL: Talk! posts here and here). However, these agreements include not only investor-State dispute settlement but also inter-State dispute settlement provisions which should be equally interesting to international lawyers. On the one hand these provisions provide incentives to resolve trade disputes involving big trading players bilaterally, outside the WTO’s multilateral system, while on the other hand their provisions also reflect an attempt to address problems of fragmentation within the international legal system.

As with many areas of international law, world trade law has historically been concerned with the dangers of fragmentation. While the WTO may be viewed as a ‘fragment’ of the international legal system, within the WTO there is particular worry over the role of new free trade agreements. Why, when you have a multilateral institution with a comparatively clear set of obligations and relatively effective dispute system, would you conclude free trade agreements which contain substantively similar (though often wider ranging) obligations? The fear here is of what Jagdish Bhagwati called the ‘spaghetti bowl’ – a mass of regional or bilateral agreements concluded without consideration for each other or their implications for trade, potentially increasing costs, regulation and distorting conditions of competition for traders.

The concern is not only economic (i.e. that free trade agreements will undermine the non-discriminatory backbone of the current trade settlement), it is also legal: the ‘spaghetti bowl’ can distort the coherence of a legal system and its attendant expectation of certainty as much as it can distort the conditions of competition in trade. Nonetheless, institutional deadlock at the WTO has led to a number of free trade agreements being concluded globally. Until now, cases which have involved overlapping free trade agreement and WTO obligations have been resolved on the system in question’s own terms: for example, the Argentina v Brazil, Pork Subsidies MERCOSUR tribunal using more detailed WTO provisions to interpret a Decision (para. 57) or the Appellate Body in Mexico – Soft Drinks acknowledging NAFTA obligations but not seeing any basis for adjudicating upon them directly (paras. 54-56).

While some free trade agreements such as NAFTA contain fork-in-the-road provisions (Article 2005:6) or primacy clauses (Article 103:2), many do not and the practice of those that do has been mixed (note, the discussions over the Tuna/Dolphin II dispute between Mexico and the US). The free trade agreements that are of particular interest for this debate take a different approach. The TTIP (yet to be finalised, though EU proposals are available online in an attempt to increase transparency), the EU-Singapore Free Trade Agreement and CETA(both awaiting ratification) all offer a ‘softer’ and more transparent way of trying to accommodate obligations under both the WTO and free trade agreements.

Under these three agreements, the provisions on inter-State dispute settlement (in particular the interpretative obligations of adjudicators) demonstrate sensitivity to the need to accommodate the multilateral elephant in the room. Under the EU’s proposal for Article 20TTIP, the ‘panel shall also take into account relevant interpretations in reports of panels and the Appellate Body adopted by the WTO Dispute Settlement Body’ when interpreting the agreement. CETA Article 14:10 directs similarly that the ‘panel shall also take into account relevant interpretations in reports of Panels and the Appellate Body adopted by the WTO DSB.’ The EU-Singapore Free Trade Agreement is somewhat more limited: Article 15.8 requires that ‘[w]here an obligation under this Agreement is identical to an obligation under the WTO Agreement, the arbitration panel shall take into account any relevant interpretation established in rulings of the WTO Dispute Settlement Body’ (emphasis added).

Superficially this seems like a step forward. If WTO members are going to continue concluding free trade agreements (and it appears that they will), the least they can do is to try to (1) maintain conformity of these agreements with WTO law (specifically Art XXIV GATT and Art V GATS) and (2) introduce some form of meaningful conflict avoidance or coordination mechanism into their free trade agreement that stands some chance of working. If CETA and TTIP panels are to ‘take into account’ WTO interpretations of comparable legal provisions this would seem to aid in the quest for some sort of coherence in world trade law without requiring more demanding and politically contentious primacy claims to be made on the behalf of the WTO system.

The difficulty arises when we take into account the way in which trade law might develop. Let us imagine that the TTIP were successfully concluded and ratified. EU and US disputes over trade obligations arise from their more specific obligations under the TTIP. After all, the bilateral resolution of disputes, especially under a system tailored to the needs of the two parties, can offer many advantages. A number of disputes that previously might have gone to dispute settlement under WTO instead are resolved through the TTIP, and a number of disputes that arise under TTIP relate directly to WTO obligations (the suggested TTIP definition of a subsidy, for example, which is linked to Article 1.1 of the WTO SCM Agreement).

This would already constitute a marked change. Historically a large number of WTO disputes have been transatlantic: genetically modified organisms, beef hormones, aircraft subsidies (on both sides), poultry, steel, bananas and corporate tax arrangements have all been subject to protracted litigation at the WTO, and subsequently influenced its law.

Of course, the WTO resolves disputes between many members, not only the EU and US. If disputes between the EU and US were resolved under the TTIP rather than the WTO, a significant number of disputes would not result in a WTO panel or Appellate Body report. Note that the EU and US are still the most active claimants and respondents at the WTO and inter-US/EU disputes constitute some 36% of their complaints. Canada is the third most active claimant at the WTO (figures are available from the WTO and Horn et al).

While the EU, US and Canada would still engage in litigation with other WTO members, there would exist an increasing body of case-law that develops without their direct participation. One wonders whether either side would be comfortable with panels within the TTIP or CETA taking the lead from WTO panel or Appellate Body reports that arose from China-Mexico or Indonesia-Brazil disputes, for example. Given the importance that the argumentation adopted by the parties can have on the outcomes of disputes, as well as the report itself, it is hard to imagine that they would accept this with equanimity. Reduced participation ought not matter if we consider the WTO a truly multilateral institution with a global mandate, yet when reduced participation reduces influence on outcomes, Members’ views may change.

What, then, are the possible outcomes? It may be that most EU-US disputes will still be litigated at the WTO in spite of a potential bilateral solution. This is the pattern at NAFTA where litigation takes place under both agreements (indeed, at times simultaneously as inTuna/Dolphin II). It could also be that third party participation by the US and EU in disputes will satisfy their need to participate in the judicial processes that (indirectly) affect them.

There are, however, two more extreme alternatives: (1) for panels established by these free trade agreements to ignore de facto their interpretive obligations under the treaty and (perhaps unintentionally) to continue to regionalise the multilateral trade system both legally and economically; or (2), acknowledge the development of a truly global ‘common law of international trade’ and move into a pattern of coordination rather than separation in trade law. As is often the case with the interpretative process in judicial decision-making, it may not be clear which of these options a panel takes: how far does the obligation to ‘take into account’ extend? Note Simon Lester’s identification of the ambiguity inherent in this term.

What is of particular interest here is the way the acknowledgment of a problem (increasingly institutionalised regionalism within a multilateral trading system) and an attempt to offer a remedy (here through interpretative conflict avoidance) may unintentionally initiate a new stage in the development of trade law. Which way it goes, of course, remains to be seen

Fonte: EJIL

Currency: Manipulating an end to the TPP?

One persistently bad American idea, periodically raised in the context of trade negotiations, is to build into the text of any agreement some clauses that prevent countries from “manipulating” their currencies.  The inclusion of such a clause at this point in the Trans-Pacific Partnership (TPP) negotiations may be the straw that breaks the proverbial camel’s back, leading to the collapse of the entire enterprise.

Any sort of currency manipulation clause is unlikely to solve the problem it is ostensibly trying to address.  Worse, in order to ensure that American interests are not undermined, the provisions would have to be carefully crafted such that they might never be triggered.  The final point of damage—even if there are virtually no circumstances under which such clauses might be used, America’s trade partners in the TPPmight simply refuse to conclude negotiations at all.

Despite three excellent reasons for not moving ahead with such an idea, more than half the members of the last Congress already went on record supporting the inclusion of currency manipulation in all U.S. trade agreements.  Last week, a bill to address manipulation was introduced in both Houses.

So what is the problem so many backers of such legislation are trying to address?  In brief, governments can give a competitive advantage to their export industries if their currency is lower in value than their export partners.  The difference in currency values effectively makes imported goods cheaper in the foreign market, encouraging consumers and producers to buy more, relatively cheaper, foreign goods than relatively more expensive domestic items.

How would a government go about making this happen?  If a government intervenes in currency markets, it can drive down demand for its own currency (or drive up demand for foreign currencies) by buying and selling currency.

Another way to accomplish the same thing is to print more money domestically.  If there is more money in circulation now, the value of any given note is lower.  However, governments engaged in such behavior often argue that such policies are not aimed specifically at artificially depressing the value of the currency for the purpose of generating an unfair trade advantage. Therefore, such behavior is not considered currency manipulation, at least as members of Congress appear to want to define it.

The purchase of assets by the government can also change the value of currencies, even if the objective is to stimulate the domestic economy.

Singapore loosened monetary policy two weeks ago in response to weaker oil prices and low domestic demand.  The government argued it was using one of the primary items in its tool kit to address low inflation, since it does not use interest rates as a tool.

Thus, governments may have lots of legitimate reasons for adjusting currencies without the specific intention of getting a leg up for exports.

It may be important to note that not every country is able to manipulate currencies.  If the country is small, especially with limited demand, the value of the currency is more likely set by market forces.  A country with limited resources cannot intervene very much to buy or sell currencies.  And, finally, the United States has a unique position in the global economy.  Since the U.S. dollar functions as a reserve currency, it allows the United States to have different options than anyone else in the markets (for the moment, at least, but that is another story).   Let me also note that because of this position, the United States does not have to intervene in currency markets like anyone else.

Efforts to stop countries from “unfairly manipulating” their currency will not work.

There are many reasons why not, but start with the fact that most countries in a position to manipulate currencies also have complex economies.  These economies rely on both exports and imports.  For many firms, exports can only be produced with imported content.  By depressing the value of the currency to make exports cheaper, imports become more expensive.  As a result, firms may not actually be competitive in the export market since the price of imported content of the final goods might be more than offset by whatever the discount on the export side might be.

Equally key, for the most complex products, the value of the benefit from a depressed currency is likely to be small.  Consider an i-Pod, for instance.  Imagine that China were, in fact, manipulating their currency to a massive extent—say 50% off the presumed “normal” value of the yuan.   In this hypothetical context, it might appear that Chinese intervention is dramatically affecting the price of the device in the American market.  But, in fact, the total amount of Chinese content in an i-Pod could be as little as $4 of the $150 sales price.  Thus, the extent of the “unfair” advantage of Chinese currency might make a whole $2 difference to the final buyer.

Recall that this example gives figures for a truly exceptional rate of currency intervention at 50%.  The actual extent of manipulation is likely to be considerably smaller.  This means that the total price difference could be literally pennies.

While other products may not show such dramatic figures, the point is that—in most complex, higher value items—the content is likely to be provided by multiple countries.  As a result, even crazy high manipulation is unlikely to affect the final price very much.

The Big 3 auto companies are driving the issue of currency manipulation in Washington.  But a car in the modern, globalized economy is very much like an i-Pod.  Even if you could determine that a China or a Japan was intervening to depress currency prices by a lot, the total difference in the price of a finished car is still likely to be much more modest than people realize.

To make this pressure by the Big 3 auto companies more surprising, many of the cars sold in the United States today are actually manufactured in whole or part in the United States (or NAFTA countries).  Thus, the value of potential manipulation on the total cost of a car is small.

Practically speaking, a currency manipulation clause has additional challenges.  How can the specific amountof currency tweaking be measured?  Currencies change regularly in the open market, so a trade agreement has to take this into account somehow.  Even in the alleged cases of Japanese or Chinese manipulation, few could agree on the extent of intervention—was it 10 or 45% or something in between?

What is the appropriate response to such intervention?  Even if a trade agreement could specify the triggers for determining manipulation, then what?  Many of the proposed “solutions” appear to run afoul of other laws and regulations.

The United States, clearly, does not want to become ensnared in its own rules either.  Depending on how defined, basic American policy in the independent Federal Reserve could be challenged by foreign governments.  Problems like this make whatever provisions that might end up in trade agreements so tightly restrictive that they can never be applied or it might mean that the United States breaches the rules and argues for non-intervention in its own affairs.

Finally, none of the specific partners currently negotiating the TPP are keen to see rules on currency manipulation included.  This agreement has been under discussion for nearly five years.  To add a controversial (to put it mildly) item so late in the game is to risk imploding the whole deal.

Some may argue that TPP partners have already accepted proposals and provisions that they do not like.  What is different about currency manipulation from other American ideas?  At some point, however, pushing too hard may make others snap.  This is likely to be that point.  Adding a very unpopular and unworkable idea like currency manipulation clauses into the TPP mix at this late day is a truly dreadful idea that should be discarded immediately.

Fonte: Asian Trade Centre

EU wins a WTO dispute on Chinese anti-dumping duties

A WTO panel today declared Chinese anti-dumping duties on European and Japanese imports of stainless steel tubes in breach of WTO rules.

In its report today, a WTO panel in charge of the dispute opposing the EU, Japan and China declared the Chinese anti-dumping duties on stainless steel tubes – imposed by China in 2012 – illegal in the light of the Organisation’s rules.

“In international trade we all need to play by the rules. I am glad that the WTO panel confirms this today asking China to bring its customs duties in line with the WTO obligations,” said EU Trade Commissioner Cecilia Malmström. “I hope to see China reacting to this ruling immediately and restoring fair trading conditions for EU producers.”

The WTO panel found that the Chinese measures did not fully respect the prescribed WTO methods to calculate dumping margins. Margins calculated for one of the EU’s exporting producers were found not to be correct. China failed also to justify its finding that the tubes imported from the EU had caused injury to China’s domestic industry. Finally, the panel concluded that the Chinese antidumping procedure came short of the WTO requirements in terms of due process and transparency.

The panel’s findings are also of systemic importance because they highlight recurrent shortcomings in trade defence investigations carried out in China. This is the second time that the EU has successfully challenged China in the WTO on anti-dumping duties. Following the previous ruling, China repealed its anti-dumping measures on x-ray scanners. Today’s report marks again a clear victory for the EU and sends a strong signal to all WTO Members that their trade defence instruments must respect WTO rules.

China will be expected to remove its anti-dumping duties on EU imports. The Chinese authorities can decide to appeal the ruling within the coming 60 days.


The case concerns certain high-performance seamless tubes of stainless steel produced in the EU and Japan. China imposed definitive anti-dumping duties on those products in November 2012. The Chinese decision followed an EU investigation on similar products imported from China in June 2011. The WTO proceedings started in the end of 2012 initially between Japan and China. The EU joined the procedure in mid-2013.

For further information

EU requests WTO Panel on Chinese Anti-Dumping duties on Steel Tubes, 16 August 2013

EU Joins Japan in WTO Challenge against Chinese Anti-dumping Duties on Steel Tubes, 13 June 2013

Dispute Settlement and the World Trade Organisation

China — Measures Imposing Anti-Dumping Duties on High-Performance Stainless Steel Seamless Tubes (“HP-SSST”) from the European Union

Fonte: Comissão Europeia

Noam Chomsky: “Free Markets?”

Fred Block: The Tenacity of Free Market Ideology

What is it about free market ideas that give them tenacious staying power in the face of such manifest failures as persistent unemployment, widening inequality, and the severe financial crises that have stressed Western economies over the past 40 years? In this interview with Institute President Rob Johnson, Fred Block discusses his book The Power of Market Fundamentalism, which extends the work of the great political economist Karl Polanyi to explain why these ideas have been revived from disrepute after the Great Depression and World War II to become the dominant economic ideology of our time.

Block’s book discusses Polanyi’s contention that the free market championed by market liberals never actually existed. Growing up in the Great Depression and during two World Wars, Polanyi’s came to a similar conclusion about markets as John Maynard Keynes, which is to say that while both conceded that markets were essential to enable individual choice, they also made the argument that self-regulating markets could not work because they require ongoing state action.

Polanyi further noted that there needed to be a paradigm shift in regard to freedom itself. In a complex society, the Robinson Crusoe notion of freedom (i.e. “do no harm” or “leave me alone”) is an unacceptably low threshold to encourage the full development of the individual. We require a state mechanism that creates the space to develop one’s capacity via strengthening democracy and restricting the scope of market fundamentalism by adopting a higher form of political development.

It was Polanyi’s argument that the free market could not by itself provide such necessities of social existence as education, health care, social and personal security, and the right to earn a livelihood. When these public goods are subjected to market principles, social life is threatened and major crises ensue, as the events of 2008 so vividly illustrated.

Despite the manifest shortcomings of market fundamentalism that have been on display over the past few years, Block argues that these principles remain powerfully seductive because they promise to diminish the role of politics in civic and social life, which is a particularly attractive feature for the “haves” who want to maximize their assets at the expense of the “have-nots.” Since politics entails coercion and unsatisfying compromises among groups with deep conflicts, the wish to narrow its scope is understandable. But like Marx’s theory that communism leads to a “withering away of the State,” the flip-side argument that free markets can replace government is just as utopian and dangerous, as Block seeks to demonstrate in this interview.

 ‘Free trade’ isn’t what Trans-Pacific Partnership would deliver

Dissecting the Trans-Pacific Partnership

Michel Hiltzik

In principle, almost everyone’s in favor of free trade. It promotes international harmony, raises wages, helps economies grow. It’s an article of historical faith that the enactment of harsh protective U.S. tariffs in 1930 contributed to the Great Depression. And who wants that?

But “free trade” has little to do with the trade deal that President Obama hopes will be a high-water mark for his administration’s foreign policy: the Trans-Pacific Partnership talks, which now involve the U.S. and 11 Pacific Rim countries — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The pact — which has been under negotiation virtually since the turn of the century — is in trouble on Capitol Hill, where its enemies include conservatives and liberals. The overall problem may be that the TPP, as it’s known in shorthand, has become a symbol of everything that’s wrong with free trade agreements today.

Most of these provisions have nothing to do with trade or jobs.

– Economist George Stiglitz

The pact is being negotiated in secret, although U.S. trade negotiators have given big industries nice long looks behind the curtain. The White House is demanding “fast-track” approval from Congress, which limits the say lawmakers will have and requires them to ratify in haste. And public interest advocates say it could undermine rules and regulations governing the environment, health, intellectual property and financial markets (to name only a few topics).

On the other side of the argument is the trade pact’s potential to foster economic growth and job creation — “650,000 jobs in the U.S. alone,” as Secretary of State John F. Kerry asserted last month. But that widely challenged figure is extrapolated from a 2012 report by the Peterson Institute of International Economics, which didn’t offer a jobs estimate. In fact, the report said the TPP might dislocate workers and drive older people out of the workforce — and that any benefits might be canceled out by the resulting costs to workers and society. Evidence from earlier trade pacts, including the North American Free Trade Agreement, suggests that the benefits for developing countries among the treaty signatories are similarly oversold.

“Trade liberalization on average has not brought economic growth for emerging economies,” Stiglitz said. “The idea that it’s necessarily mutually beneficial is just wrong.”

Doubts about the TPP fall into three main categories.

  • Overreach. Domestic policies and regulations shouldn’t be treated as trade barriers subject to international negotiation, such as patent and copyright terms, wage and working conditions, even environmental regulations. But provisions in the TPP would protect brand-name pharmaceuticals from competition from generics in developing countries, forcing up the cost of healthcare, and would impose the overly strict copyright terms of the U.S., where copyright lasts 70 years after the death of a copyright holder, on signatory countries. Critics fear that bringing such issues into a trade pact will encourage a race to the bottom, favoring the most business-friendly regulations. “Some of these provisions roll back important public interest policies on issues like food safety, product safety and access to drugs,” says Lori Wallach, the global trade watchdog at the public interest organization Public Citizen. “This is diplomatic legislating on things that affect our day-to-day lives that have nothing to do with trade.”

Especially worrisome is a procedure allowing corporations to file claims in arbitration courts against sovereign countries over changes in their laws and regulations. As is the case in some previous trade agreements, commercial interests will be able to seek compensation for “injuries” from anything from minimum-wage increases to environmental and health regulations. Mexican truckers filed a $30-billion case objecting to safety and environmental rules on U.S. roads; Eli Lilly & Co. is seeking $481 million from Canada for its invalidation of Lilly patents on several drugs; and Philip Morris has sued Australia because its rule requiring plain packaging for cigarettes deprives the company of its property rights in trademarks and logos.

Even conservatives who otherwise favor the TPP detest this provision. The Cato Institute has urged that it be “purged” from the pact. By giving special privileges to corporations operating abroad, Cato said, the provision allows them to undermine domestic sovereignty and “effectively encourages outsourcing.”

  • Secrecy. U.S. Trade Representative Michael Froman, who is conducting the talks, has been stingy with the text, critics say, out of fear of public nitpicking. Most of what the public knows of the TPP’s drafts and the U.S. negotiating position has come via Wikileaks. Froman told the House Ways and Means Committee last month that he has taken “unprecedented steps to increase transparency” by keeping Congress and the public in the loop, but most observers say disclosure has been nowhere near adequate. In 2012, Sen. Ron Wyden (D-Ore.) was so frustrated at being stonewalled by the USTR that he introduced a bill requiring that all lawmakers with oversight on trade policy be given access to key documents.
  • “Fast-tracking.” Fast-tracking allows the administration to present Congress with a completed trade pact, which lawmakers must vote up or down within 90 days, without amendments and with limited debate and no filibustering in the Senate.

The White House argues that fast-tracking allows negotiators to reassure trade partners that “the administration and Congress are on the same page,” as Froman told the House Ways and Means Committee. The system “puts Congress in the driver’s seat,” he said, because the lawmakers can “define U.S. negotiating objectives and priorities.” But the opposite is true: The congressional directives aren’t binding, and the result can be jammed through the House and Senate.

GOP leaders such as Senate Majority Leader Mitch McConnell (R-Ky.) and House Ways and Means Committee Chairman Paul D. Ryan (R-Wis.) favor fast-tracking, but opposition is growing from conservative Republicans and progressive Democrats alike. Combined with secrecy, fast-tracking encourages the overreach that makes the TPP so much more than a trade pact, and so dangerous.

If fast-tracking is turned down, the TPP will have to be widely published and openly debated, says Public Citizen’s Wallach.

“That will bring out all the skunks that have been invited to the secret picnic,” she says. “Some of these things that should never have been in that agreement in the first place aren’t going to fare very well when they’re exposed to sunshine. And that’s good.”

Michael Hiltzik’s column appears Sundays and Wednesdays. Read his blog, the Economy Hub, at, reach him at, check out and follow @hiltzikm on Twitter.

Copyright © 2015, Los Angeles Times

Fonte: LA Times

The Looming U.S.-India Trade War

The Looming U.S.-India Trade War

All seems simpatico between New Delhi and Washington. But with the Trans-Pacific Partnership on the horizon, tensions between the two are certain to boil over.

If international relations were about cultivating personal chemistry, you might assume that the U.S.-India relationship has never been stronger. Indian Prime Minister Narendra Modi’s visit to Washington last September, full of warm and fuzzy moments and buoyed by a sense of bonhomie, suggested a growing camaraderie between the nations. Following closely on the heels of that meeting, President Barack Obama became the first sitting president in history to visit India twice, and the first to be named guest of honor at its Republic Day celebrations on January 26, 2015.

But look past the veneer of chumminess, and you’ll see that the era of good feelings is likely to be short-lived, as simmering disputes between Washington and New Delhi retake their place at center stage. Among the most important are likely to be their vastly differing trade priorities, as each competes for a piece of the world market and plays a high-stakes game to ensure that its businesses and workers get a larger share of the pie.

One of the key sticking points is a trade disagreement that has now reached the dispute settlement body of the World Trade Organization (WTO). The United States alleges that India’s domestic procurement requirements for solar cells and modules violate WTO rules, which mandate fair and non-discriminatory access to both foreign and domestic firms, while India contends that the United States unfairly subsidizes its own solar technology manufacturers. Typically, a case under the dispute settlement body runs anywhere from a year to a year and a half, and the decision is binding for the losing party.

It’s difficult to see how India and the United States will find common ground on this issue. Obama has made it abundantly clear that one of his administration’s key goals is to create high-quality jobs by pushing U.S. exports and manufacturing in overseas markets. This was a central theme in the State of the Union address, which he delivered just before coming to India, and one he reiterated at a summit of American and Indian business leaders in New Delhi. Washington will not take kindly to being shut out of a large and growing market for solar technology in India, a key plank in Modi’s plan to increase the share of renewables in India’s energy mix.

For its part, the Indian government has made it very clear that promoting domestic manufacturing under the “Make in India” program is a cornerstone of its policy to jumpstart growth and generate millions of new jobs. For better or worse, domestic procurement rules are one of the time-tested tools that governments around the world use to even the competition for domestic manufacturers.

New Delhi and Washington’s positions seem downright irreconcilable. In fact, shortly after Obama’s visit, reports in India suggested that the state-owned National Thermal Power Corporation would soon put out bids for new solar projects, available only to domestic manufacturers. That’s unlikely to help resolve things.

But the solar dispute is only one piece of a much larger philosophical divide. An equally important, unresolved source of friction between India and the United States is their positions on intellectual property protection (IPP), and on the relationship of IPP and international trade agreements.

Large, deep-pocketed American pharmaceutical companies with powerful lobbies in Washington want India to strengthen its regulatory regime. For instance: they want India to extend patent protections to new drugs and not allow compulsory licensing, whereby makers of generic drugs are allowed to manufacture patented pharmaceuticals.

Here, India appears to have made a fairly major concession to the United States. Its long-standing position has been that IPP is a domestic matter, not one to be negotiated with trading partners. But during Modi’s visit to the United States last fall, India agreed to discuss its evolving IPP regime in a joint working group with U.S. experts. The report from those discussions has yet to be released, perhaps suggesting some difficulty in reaching a consensus.

On the other side of the fence, Indian generics manufacturers — the largest source of generics in the world — fear that they will lose much of their business if India adopts U.S.-style patent protection, which privileges the inventors of new drugs and limits availability of cheaper generic alternatives. What’s more, public health advocates and non-governmental organizations fear that moving to a tougher regime would raise the cost of life-saving drugs for those both in India and in developing countries that depend on its generics instead of the costly American originals.

The IPP issue resides at the heart of the proposed Trans Pacific Partnership (TPP), a free trade agreement among 12 nations in the Asia Pacific accounting for 40 percent of world gross domestic product and one-third of world trade. Pointedly, the TPP includes neither China nor India.

If India remains outside the TPP — the likely outcome, as there is no indication that the original 12 wish to open up to potential new members until they have first struck a deal among themselves — India is likely to lose out on major market access. One study from the Indian Institute of Foreign Trade, a think tank, released in May 2014 finds that the TPP’s big winners would be countries like Japan, Korea and Malaysia. India, meanwhile, is likely to end up a loser, due to what economists call “trade diversion.” This occurs when a free trade area shifts production away from more efficient suppliers locked out of the agreement, to less efficient suppliers that are part of the agreement. This would hurt India. Its textile manufacturers, for example, worry that they will lose out on the lucrative U.S. market, in favor of suppliers in Vietnam, a TPP member.

Intellectual property regulations would be at the core of the TPP’s potential negative impacts on India. If India joined the TPP in the future, it would almost certainly have to replicate the patent regime built into the agreement. This would extend and worsen the difficulties India faces on pharmaceuticals into a range of sectors where trademark and copyright laws are important, including publishing, music, and film production — the TPP’s IPP regulations, after all, are more stringent. Another study, also by the Indian Institute of Foreign Trade in May 2014, concludes: “the costs of conforming to the TPP’s [intellectual property regime] Chapter are greater than any potential market access gains from joining the TPP.”

The TPP also includes a host of stringent labor and environment standards that India — and, for that matter, most emerging economies — would fail to meet. There’s no indication that the Modi government has any plans to cave on these standards, the adoption of which would seriously erode India’s competitiveness, anymore than it has shown any inclination to cave on climate change — yet another area where India and the United States remain at logger heads.

It’s very hard to see how the new-found friendship between Obama and Modi can resolve these tensions. Now that he’s unburdened by the need to win another election or help his party win, Obama is free to be as aggressive as he wishes in pursuing his policy agenda. In search of a legacy, bringing the TPP to fruition would be a feather in his cap, much as the India-US civil nuclear accord became a late foreign policy triumph for George W. Bush back in 2009.

Obama’s State of the Union was quite striking for the strength of its rhetoric. Indeed, when it comes to the rules of global commerce, he said: “We should write those rules.” This may play well in Peoria. But leaders of other major economies like India are unlikely to sit back and accept dictation from Washington on how to run their own economies.

Saul Loeb / AFP

Fonte: Foreign Policy