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

Sweeping megaregional trade deals leaving developing world behind

BARRIE MCKENNA

OTTAWA — The Globe and Mail

Published Sunday, Feb. 08 2015, 4:31 PM EST

Megaregional deals are the latest and greatest thing in the world of trade.

These sweeping agreements will eventually tie much of the planet into vast new free-trade zones, with advanced, and often overlapping, rules covering everything from investments and services to labour and environmental standards.

Canada has completed one such deal with the 28-member European Union and it’s negotiating another with the 11 other members of the Trans-Pacific Partnership. Also in the works are the U.S.-EU Transatlantic Trade and Investment Partnership and the Regional Comprehensive Economic Partnership, binding China and 15 other major Asian economies.

If they all get done, these agreements would span 49 countries and a huge share of global economic output.

Forgotten in all the excitement is the awkward truth that 111 of the World Trade Organization’s 160 member countries are not part of these megaregionals. Most of the developing world will be entirely shut out. India, Brazil and all of Africa aren’t even at the table.

The architecture for a new world order in trade is being crafted and rolled out, and these countries will be denied a voice and a foot in the door. And that’s a shame, says Harsha Singh, a long-time senior WTO official, who was deputy director-general from 2005 to 2013.

“The world is getting more interdependent, with trade and investment becoming two sides of the same coin,” Mr. Singh said in an interview. “If we don’t have an inclusive system, whatever system we put in place is going to create tensions and potential conflicts.”

The developing world was the destination for 56 per cent of all foreign direct investment last year, pointed out Mr. Singh, now a fellow at both the Geneva-based International Centre for Trade and Sustainable Development and the Winnipeg-based International Institute for Sustainable Development. It’s also home to a burgeoning middle class, which will grow by a billion people this decade.

“A young generation will grow up with the knowledge that they are not part of the system,” Mr. Singh lamented. “There will be very strong resentment.”

The megaregionals are designed to create business value chains, by giving preferences on tariffs and rules-of-origin to those inside, while denying them to others.

The hope of Canada and other countries involved in these megaregionals is that they will become stepping stones to a broader global free-trade deal, reviving the long-stalled Doha round of negotiations.

Mr. Singh is more pessimistic. Countries, and companies, will quickly adapt their supply chains to take advantage of the lower tariffs, rules and standards within the newly created zones. The standards that exist within these areas will become increasingly difficult for outsiders to meet, creating a barrier rather than a transition to global free trade.

“Either you meet the standard, or you start losing market share,” he explained.

These megaregionals would eventually link four main hubs of economic activity – the United States, Europe, Japan and China. Countries will either be in, or out, according to Mr. Singh.

Those left outside must work now to forge links with these four powerful hubs, while modernizing their trade regimes to ensure they don’t fall behind.

The rise of megaregionals was probably inevitable. WTO countries have tried without success since 2001 to reignite global free-trade talks, bogged down on issues such as agricultural subsidies. And so countries looked for other ways to expand free trade.

Megaregionals are an answer, but they are not the ultimate solution.

Canada has targeted trade expansion into lesser-developed countries as part of its 2013 Global Markets Action Plan. The plan identifies 21 emerging markets that offer the “best potential for broad Canadian commercial interests,” including many of the key economies shut out of the megaregionals, such as India, Brazil, Indonesia, South Africa, Turkey and the Philippines.

For several years now, most of Canada’s trade negotiating effort has been directed at agreements with advanced economies.

It would be easy to blame developing countries for torpedoing the Doha round and foot-dragging on economic reforms. But protectionist farm groups in the United States, Japan and Canada are also at fault.

A third of the world may well migrate toward a new architecture in trade.

But it won’t be effective or fair if the other two-thirds are outside the fence.

Fonte: The Globe and Mail

Rethinking Currency Manipulation

Interest groups in the United States have focused on the possibility of including provisions in trade agreements with the intent of countering currency manipulation.  The concern is that another country may choose to reduce the value of its currency relative to the U.S. dollar in order to encourage its businesses to export more goods to the United States.   Such currency realignment also would tend to make it more expensive for the devaluing nation to import products from this country.

It’s true that an adjustment in currency exchange rates – regardless of the reason for the adjustment – can have an effect on trade flows.  U.S. industries that export to foreign customers, or compete with imported goods in the domestic marketplace, understandably would prefer that currency relationships not become skewed against their commercial interests.  Currency stability improves the business climate by making it easier to build long-term relationships with customers and suppliers.

However, currency exchange rates have fluctuated throughout recorded history.  Sometimes those changes may be driven by a government’s conscious desire to devalue its currency.  More often the variability in exchange rates reflects fundamental economic realities.  Economies that experience growing productivity and rising prosperity should not be surprised to find that market pressures cause their currencies to strengthen.  The reverse is true for countries that are growing slowly or not at all.

A shift in exchange rates changes a country’s “terms of trade,” which is a term  used by economists to describe the ratio of a country’s export prices to its import prices.  From a U.S. perspective, if another country sets its currency at an artificially low level relative to the dollar, the U.S. terms of trade will improve.  The United States will be able to obtain a greater value of imports for the same value of exports.  Exporting the same number of airplanes and soybeans as before will pay for the importation of larger quantities of shoes, coffee, and automobiles.

The country that chooses to undervalue its currency will be placing an artificially low value on the output created by workers and capital in its domestic economy.  It will, in effect, be selling its exports for less than their true economic worth, thus transferring wealth to the United States.  People in this country experience meaningful increases in their standards of living at the expense of the country that has devalued.

Yes, most buyers like to get a good deal.  An increase in affordable imports generally doesn’t strike consumers as a bad thing.  Assuming those imports don’t compete too directly with goods and services produced widely in the United States (think of coffee, bananas, shoes, clothing, diamonds, rare earth metals, etc.), they tend to be well accepted even by people with mercantilist tendencies.   Some imports that do compete directly with U.S. products – such as crude oil or cars – also may not raise strong political objections, either because domestic demand is larger than can be served solely by domestic supplies, or because consumers desire a variety of choices.

The politics of affordable imports become more complicated when those products compete directly with goods and services produced in the importing country.  Competition always is a challenge, whether it comes from other domestic firms or from overseas.  Firms often struggle to deal with forces as diverse as changing technology or changing consumer tastes and preferences.  Not all firms survive forever.  Rather, the process of creative destruction keeps the economy in an ongoing state of reinvigoration and renewal.  There’s no doubt, though, that an increase in imports can create adjustment headaches for import-competing U.S. companies and their workers.

The good news is that the United States already has a policy framework with which to address unfairly priced imports, regardless of whether those imports relate to currency undervaluation.  U.S. trade remedy laws allow industries to seek antidumping or countervailing duty (AD/CVD) protection against imports that may be injuring domestic producers.  From a free-trade perspective, it’s important to understand that U.S. trade remedy laws leave a lot to be desired.  They generally are seen to be relatively protectionist – slanted in favor domestic industries over imports.

However, trade remedies are a better policy response (even though suboptimal) to currency manipulation than would be the case for special provisions in trade agreements.  Trade remedies are relatively selective.  They are applied only to unfairly priced imports that are troublesome to U.S. industries, and only after those producers have demonstrated that they’ve been injured.  On the other hand, currency provisions included in trade agreements would apply to all imports from the offending country.  American consumers would end up paying more even for tea and T-shirts, for which there is little or no U.S. production.  Given the broad negative implications of using trade agreement provisions to counteract currency manipulation, U.S consumers would be much better off dealing with the narrower negative consequences of AD/CVD measures.

A concluding thought:  Since currency undervaluation by other countries serves to transfer wealth to the United States, should we consider finding some diplomatic way to thank them?  Such a gesture likely would do far more good than including misguided currency provisions in trade agreements.  It might help prompt policymakers around the world to rethink the plusses and minuses of allowing currencies to get out of alignment.

Fonte: Cato Institute

Post-hegemonic regionalism and sovereignty in Latin America: optimists, skeptics, and an emerging research agenda

Thomas Legler

Contexto int. vol.35 no.2 Rio de Janeiro July/Dec. 2013

ABSTRACT

A scholarly debate is emerging on how recent regional trends in Latin America and South America have impacted the meanings and practices of sovereignty. This debate pits two groups engaged in regionalist analysis against each other: the optimists and the skeptics. Optimists argue that recent changes in regionalism are having a transformative impact on sovereignty. Skeptics acknowledge that changes in regionalism have occurred, but that they have been accompanied by persistent and traditional sovereignty meanings and practices. The article employs a tripartite conception of sovereignty regime—sovereign, space, and authority—to sketch the parameters of the debate. Given the recent origins of ALBA, CELAC, and UNASUR, as well as the post-hegemonic regionalism which they reflect and promote, this debate can only be resolved through ambitious qualitative empirical research, especially in South America, the regional experience upon which many of the contending claims are made. Such a research agenda on the regionalism-sovereignty nexus has both significant theoretical and practical implications for understanding Latin America’s and South America’s unique regional, institutional, and sovereignty patterns, as well as the limits and possibilities for regional governance.

Keywords: Regionalism – Sovereignty – Regional Governance – Latin America – South America

Fonte: http://dx.doi.org/10.1590/S0102-85292013000200001

Recent Trends in international investment agreements (IIAs) and investor–State dispute settlement (ISDS)

Prepared by UNCTAD’s IIA Team in advance of the Expert Meeting on “The transformation of the International Investment Agreement Regime” from 25-27 February 2015 in Geneva.

  • Countries continue to use international investment agreements (IIAs) as a tool for international investment policy making. The year 2014 saw the conclusion of 27 IIAs, that is one every other week. This brings the total number of agreements to 3,268.
  • The IIA universe is evolving with regard to substantive provisions: pre-establishment commitments and sustainable development-oriented clauses are on the rise.
  • At least 45 countries and four regional integration organizations are currently revising or have recently revised their model agreement.
  • Investors continue to use the investor–State dispute settlement (ISDS) mechanism. In 2014, claimants initiated 42 known treaty-based ISDS cases. With 40 per cent of new cases initiated against developed countries, the relative share of cases against developed countries has been on the rise (compared to the historical average of 28 per cent).
  • The two types of State conduct most commonly challenged by investors in 2014 were cancellations or alleged violations of contracts, and revocation or denial of licences. Over time, the Energy Charter Treaty (ECT) surpassed the North American Free Trade Agreement (NAFTA) as the most frequently invoked IIA.
  • ISDS tribunals rendered at least 42 decisions in 2014. This includes an award of USD 50 billion in three closely related cases, the highest known award by far in the history of investment arbitration. The overall number of concluded cases has reached 356, with 37 per cent decided in favour of the State, 25 per cent in favour of the investor and 28 per cent of cases settled.
  • The year saw important multilateral developments geared towards increased transparency in ISDS. These include the coming into effect of the United Nations Commission on International Trade Law (UNCITRAL) Rules on Transparency and the adoption of the Convention on Transparency in Treaty-based Investor-State Arbitration, which will be opened for signature later in 2015.
  • Concerns about IIAs and ISDS have prompted a debate about their challenges and opportunities in multiple forums. Today, a broad consensus is emerging that the regime of IIAs and the related dispute settlement mechanism need to be reformed to make them work better for sustainable development. Such reform would need to be undertaken in a comprehensive and gradual way, taking into account the interests of all stakeholders.

Fonte: UNCTAD

Twenty years in and bogged down, what’s the way forward for the WTO?

Delegates speaks arrives for a special meeting of the General Council Preparatory Committee on Trade Facilitation at the WTO in Geneva
By Michael Froman
January 22, 2015

Having marked its 20th anniversary earlier this month, the World Trade Organization must move quickly from celebrating to soul-searching when some of its members convene in Switzerland this week. Hanging in the balance are negotiations that began in 2001, and if approached with a new perspective, could boost global growth.

To be sure, there is one recent achievement that is worth toasting: the Trade Facilitation Agreement. By streamlining customs procedures, that agreement could add hundreds of billions of dollars to the global economy, with developing economies gaining the most.

But this is the first and only deal that all WTO members have signed during the organization’s two-decades of existence. Whether it represents a brief blip or the beginning of a broader trend toward enhanced cooperation and greater gains for the global economy depends on the answer to three tough questions.

First, can we update our discussions to reflect the realities of today’s global economy?

The current negotiations, known as the “Doha Round,” began in 2001 and haven’t kept pace with tectonic shifts in the global economy, most notably the rise of the emerging economies.

Take the example of agriculture, the subsidies for which have proven one of the toughest issues to tackle. In 2008, the proposed solution was that developed countries would cut their agricultural subsidies while developing countries would not.

But much has changed since that time. Just last year, a group representing agriculture-exporting countries, developed and developing alike, published a report listing the top four users of trade-distorting agricultural subsidies in today’s world, with India first, followed by China, the European Union, and the United States.

In a global commodities market, this double-standard makes no economic sense. In reality, trade-distorting subsidies from emerging economies have the same impact on global commodity prices as trade-distorting subsidies from developed countries. The United States is willing to wade back into the complex thicket of agricultural trade negotiations, but only if the discussion reflects today’s reality.

Second, what’s the best way to support development?

As President Obama has made clear, the United States believes that sustainable development is ultimately grounded in trade and investment.  That’s why the administration is working hard to secure seamless renewal of the African Growth and Opportunity Act, which is the cornerstone of U.S. trade policy with sub-Saharan Africa.

Not everyone agrees that trade and investment are central to development, and there is a sharp debate on this issue among developing countries themselves. Some of the most successful developing economies are pursuing a range of market opening initiatives, including reducing or eliminating their tariffs. Others stand in staunch opposition to further liberalization and have even raised new barriers to trade and investment.

We need a debate about trade, investment, and development in Geneva that is just as robust as the debate among developing countries.  Put simply, many of the Doha Round’s primary goals will remain inconceivable as long as a subgroup of countries are dogmatically opposed to the whole concept of liberalization.

Third, can we handle the truth?

Depending on the answers to the questions above, the United States can still envision an ambitious outcome to the Doha Round. Certainly, this is the outcome we seek.

But if the debate over the next few weeks makes it apparent that others will not support an ambitious outcome – in opening markets to manufactured goods, services, as well as the full array of agricultural issues – the time has come to deal with that reality.

In that event, a more focused and tailored agenda, one that is balanced to reflect the world we all live in today, could present an alternative path forward. While no country should be subject to obligations without its consent, we cannot allow a small group of countries to hold back all those who are prepared to move forward.

As the Doha Round has dragged on, devolving into stalemate, many countries have logically explored alternatives for achieving results. In the absence of further progress on the multilateral front, the trend toward bilateral, regional, and other initiatives will surely intensify and, if done right, can add momentum to the multilateral system itself.

One way or another, the time has come for the WTO to move forward. Those who care about promoting sustainable development must not only act, but also take on responsibility commensurate with their current role in the global economy.

At a time of uneven global economic growth and uncertainty, we cannot afford to squander more years.

Fonte: Reuters

US files dispute against China over alleged export-contingent subsidies to enterprises

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11 February 2015

The United States notified the WTO Secretariat on 11 February 2015 of a request for consultations with China regarding certain measures that allegedly provide export-contingent subsidies to enterprises in several industrial sectors. These sectors include textiles, agriculture, medical products, light industry, special chemical engineering, new materials, and hardware and building materials.

According to the US, China designates a cluster of enterprises in a particular industry as a Demonstration Base and then provides export-contingent subsidies to those enterprises. In addition, the US argues that China provides certain other export-contingent subsidies to Chinese manufacturers, producers, and farmers.

Fonte: OMC