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

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

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

Investigação nos EUA ameaça arranhar imagem da Petrobras no exterior

Já abalada pela Operação Lava Jato, estatal é alvo agora das autoridades americanas. Segundo especialistas, caso pode espantar investidores, prejudicar suas ações na Bolsa de NY e ter impacto negativo na imagem do país.

Depois de começar a ser investigada pela Polícia Federal na Operação Lava Jato, a Petrobras agora é alvo das autoridades americanas sobre sua conduta nos Estados Unidos. As apurações devem, mais uma vez, causar mais danos à imagem da estatal brasileira, que também negocia suas ações na Bolsa de Nova York.

Segundo o jornal britânico Financial Times em matéria publicada no domingo (09/11), o Departamento de Justiça dos Estados Unidos abriu uma investigação criminal contra a estatal. Já a Securities Exchange Commission (SEC) – órgão que regula o mercado de capitais nos EUA e equivalente no Brasil à Comissão de Valores Mobiliários (CVM) – vai iniciar uma investigação civil contra funcionários da empresa.

“A investigação afeta, e muito, a imagem da Petrobras, pois transmite ao mercado a imagem de que a ela está sujeita, por exemplo, a influências políticas, o que não se pode admitir para uma empresa com ações negociadas em bolsa”, afirma o advogado Eduardo Boccuzzi.

Segundo Boccuzzi, especialista em fusões, aquisições e mercado de capitais, as ações da empresa já perderam 23% em valor neste ano na Bolsa de Valores de Nova York. E os escândalos, afirma, espantam investidores, que vendem papéis da estatal para adquirir os de outras empresas.

A investigação do escândalo, de acordo com Boccuzzi, pode ter ainda uma influência negativa sobre a imagem do país e dificultar o acesso de outras empresas brasileiras ao mercado de capitais americano.

“Em geral, investidores estrangeiros vão se sentir temerários em investir em empresas nacionais, principalmente estatais, que queiram emitir valores mobiliários em bolsas no exterior”, diz Boccuzzi.

Para o professor de direito comercial Alexandre Bueno Cateb, do Ibmec/MG, dependendo do grau de apuração e profundidade da investigação, existe o risco até mesmo de a Petrobras sofrer restrições de captar recursos no exterior. E, num cenário ainda pior, ela poderia ser impedida de continuar a negociar ações na Bolsa de Nova York.

“As autoridades americanas querem manter a credibilidade do mercado de ações dos EUA”, diz Bueno Cateb. “E como a Petrobras está envolvida em situações nebulosas, eles querem saber o que está acontecendo, se alguém está usando informações privilegiadas e se beneficiando dos negócios que a Petrobras realiza.”

Nesta segunda-feira, o vice-presidente da República, Michel Temer, minimizou a investigação dos EUA sobre suspeitas de desvio de recursos na Petrobras. Ele disse que, se os EUA abriram a investigação, eles devem dar continuação “como o Brasil está fazendo”. “A expressão doa a quem doer é muito correta em relação às investigações que já estão sendo feitas pelo governo federal”, disse Temer.

Executivos e empresa sob risco

As investigações do Departamento de Justiça e da SEC estão centradas na possibilidade de a estatal ou funcionários dela terem recebido propina ou terem violado o Foreign Corrupt Practices Act (FCPA) – a lei anticorrupção dos EUA.

Pela legislação, executivos e funcionários da empresa podem ser presos, e a companhia e seus empregados podem ter que pagar multa. Na lei, o valor não é estipulado, mas, segundo especialistas, pode ser alto.

A FCPA pune empresas americanas que subornam funcionários públicos de outros países, mas a legislação também é aplicada para empresas estrangeiras que têm ações listadas em bolsas de valores nos EUA. Pelo fato de a Petrobras negociar ações em Nova York, a empresa está sujeita à legislação americana.

“O mercado de capitais só funciona se existir credibilidade para atrair investidores interessados em investir de forma saudável”, diz Bueno Cateb. “O mercado que não tem a devida credibilidade passa a ser totalmente especulativo. As empresas precisam atrair investimentos a longo prazo para permitir a criação de riqueza, empregos e renda no país.”

No Brasil, a estatal é investigada após a denúncia de um suposto esquema de corrupção feitas por seu ex-diretor Paulo Roberto Costa e pelo doleiro Alberto Yousseff. Eles foram presos em março deste ano durante a Operação Lava Jato, que apura um esquema de lavagem de dinheiro em que políticos receberiam propina em contratos da estatal.

Entre os contratos da Petrobras, está a compra da refinaria de Pasadena, no Texas (EUA), que teria servido para abastecer o caixa dois de partidos e pagar propina. Num negócio suspeito de superfaturamento e evasão de divisas, a compra da texana custou 1,18 bilhão de dólares, mais de 27 vezes o valor desembolsado anteriormente pela belga Astra Oil.

Procuradas pela DW Brasil, a Petrobras e o Departamento de Justiça dos Estados Unidos não se manifestaram até o fechamento da reportagem. Já a Securities Exchange Commission (SEC) disse que não faria comentários sobre o tema.

Fonte: http://www.dw.de/investigação-nos-eua-ameaça-arranhar-imagem-da-petrobras-no-exterior/a-18057422

Matheus Luiz Puppe Magalhaes

Putin: Anything US touches turns into Libya or Iraq

Is there any way to break the Doha Round impasse in agriculture negotiations?

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Andrew L. Stoler 08 October 2014

The structure of the Doha Round

The origins of the current impasse can be found in political and structural mistakes made at Doha in 2001. So long as these mistakes remain uncorrected, there is no hope for successful completion of the Doha agricultural negotiations. And without agriculture, there is no hope for the Round overall.

Adopting a ‘single undertaking’ approach to the negotiations – where all members are expected to be a party to all negotiations and results – was a serious, and I will argue, totally unnecessary political mistake.

In 2001, many would have argued that the Uruguay Round agriculture negotiations produced a ‘sloppy result’ where big players like the US and the European Community had far too much flexibility in how they implemented their commitments.

Reacting to this, developing modalities for the Doha negotiations that attempted to cover every single concern for every one of the more than 160 participants, without the national flexibilities that were accommodated in the Uruguay Round, is our big structural mistake.

These mistakes created a situation where very little happened in the Doha talks between 2004 and 2008, and virtually nothing has happened in the six years since 2008.

Bali Package

The so-called ‘Bali Package’ offered some hope to multilateralists that the single undertaking approach might yet be applicable. It seemed as though consensus agreement was reached on a package of measures that would allow Doha to progress. But when India and a few disreputable allies killed the Trade Facilitation Agreement (TFA) at the end of July, we saw again just how unworkable the single-undertaking approach really is.

Anyway, even if the Facilitation Agreement package had gone through, what would have been the implications for the Doha Round of the Bali Package?

What happened at Bali on agriculture was never more than an illusion of progress. We all know that the real problem in the Doha agriculture talks is the market access pillar. This is where things blew up in 2008, and nothing in the Bali Package does anything to move this part of the talks forward. If we want to break the impasse, we need to fix the mistakes referred to earlier.

Critical mass

For a number of years now, negotiators seem to have been operating under the assumption that single undertaking agreements are the normal way of negotiating in the multilateral system. This is wrong. Historically, most of the important steps forward have come through critical-mass agreements. This is true for market access, and it is also true for rules.

What is a critical-mass agreement? It’s an opt-in agreement among a subset of WTO members who agree that the portion of international trade in a particular sector that they collectively account for is sufficient for them to conclude a trade deal among themselves. Other members only marginally involved in the trade need not participate and the insiders accepting the critical-mass agreement’s obligations agree to provide the benefits of the agreement to all WTO Members on a Most Favoured Nation (MFN) basis. Examples of WTO-era critical-mass agreements include the 1996 Information Technologies Agreement and the 1997 Telecommunications Services Agreement.

But a critical-mass agreement wouldn’t work for agriculture, would it?

Simulating critical mass

In fact, it would work, and in 2009 researchers from Australia, India, China, Indonesia, and Brazil collaborated on a research project that demonstrated just how well – from a technical standpoint – a critical-mass approach to agriculture could work.

In our 2009 project, we used the International Trade Centre’s ‘Market Access Map’ database to identify the most-traded 30 agricultural products (at the six-digit level of the Harmonised System) and a group of 38 WTO member countries that account for 80% or more of that trade across all 30 products. We modelled the benefits of an agreement among these 38 members on these 30 products and compared the results against the likely results of a single undertaking negotiation concluded on the basis of the 2008 draft modalities.

If the Doha Round modalities of December 2008 were implemented, we projected a static net global welfare gain of almost $15 billion. A critical mass agreement that substantially eliminated duties on just 30 products among 38 countries would achieve about two-thirds of the same level of gains. If, however, the 38 countries agreed that it would be unfeasible to maintain trade-distorting production subsidies (‘amber-box’) once borders were open and eliminated both those subsidies and all forms of export subsidy, the gains from a critical-mass approach on the 30 products almost double to $19 billion.

In other words, our simulations showed that, under reasonable assumptions about what would be a feasible coalition of interest in opening world agriculture markets (the ‘critical mass’ coalition), and what the scope of such an agreement would be, a technically simple agreement engaging less than one quarter of all WTO members would achieve a significantly bigger global result than the laborious, complex modalities of the global Doha Round.

What about the politics? Would a critical-mass approach to agriculture negotiations be politically feasible?

At the end of our research project in 2009, we organised a small conference in Canberra where we heard the views of representatives from the EU, Brazil, Australia, and the US. The government representatives at the conference pointed out a number of problems they saw with adopting a critical mass approach for future negotiations on agriculture, including:

  • A mercantilist-motivated need to obtain concessions in other sectors to balance the losses in an agriculture negotiation;
  • An inability to tolerate ‘free-riders’ (like India) should a major developing country elect to stay out of the agreement; and
  • The perceived risk that a critical mass approach to agriculture would contribute to a multi-speed WTO system.

What the conference discussion revealed is that governments believed they were stuck with an approach that is not working, but they were still not willing to consider seriously moving to another framework such as the critical mass.

Colleagues who have contributed to the debate on this question have observed – quite rightly – that many of the ‘problem’ countries in the agriculture negotiations have been countries like Canada, Switzerland, Norway, Japan … and the US and EU. They wonder how the negotiation could be made easier by eliminating (through critical mass) many of the small developing countries and problematic players like India and Indonesia. I do not for a minute think that the other problem countries would jump onto a critical-mass approach in moments, but it would have to be easier if we did not have to worry about all of the small, vulnerable economies (SVEs) and the Bolivarian Republic of Venezuela.

Conclusion

It seems to me that the fact that many of the countries that want to see some multilateral progress have exited the single undertaking in the Trade in Services Agreement (TiSA) negotiations shows they might be willing to consider a similar approach in the agriculture sector. And remember that we advocate getting rid of the Doha agriculture modalities and returning to a simpler, more flexible approach that many governments would find (I think) politically easier to use as a basis for negotiations (a good number of the overly complex draft Doha agriculture modalities were designed to deal with problems of countries that would be outside of our critical-mass approach).

The WTO got a small breath of life in Bali, but the multilateral trading system negotiations based on a single undertaking have now been discredited again by the actions of India and its rag-tag allies at the end of July.

Maybe governments are now more willing than they were in 2009 to consider an alternative approach. Maybe they are not. But sooner or later, somebody has to think outside the box.

Fonte: VOX

CrossTalk: Imperial Pax Americana