Category Archives: International Trade and Affairs

A peek into the mise en scène of climate diplomacy

APOORVA S

“Paris Agreement is not ambitious enough since it has only given effect to soft obligations,” says Mr. Raman Mehta, an expert on climate change. 

In his special lecture with Public Policy students of the batch 2016-18, Mr. Mehta spoke on “The Science of Climate Change: Feeding into the politics of Climate Change and Paris Agreement” on 10th and 11th of January 2017. He gives a glimpse into the seriousness of the Indian government in integrating climate change concerns into development strategies, plans, and programs.

In the past, Mr. Raman Mehta has worked on the issues of forests and wildlife at The Indian Institute of Public Administration, Department of International Development at the British High Commission, on conservation and management of protected areas at World Wide Fund for Nature – India, on developmental issues, climate change, social inclusion and public policy at ActionAid – India. He is currently the Policy head at Vasudha Foundation. He works on demystifying the different facets of sustainable development and climate change through umpteen number of research work and participation  at international conferences.

The following article is the gist of the author’s own  research paper submitted for the course Political Economy of India addressing the question of “why Paris Accord will fail to address climate emergency”, it is supplemented with insights from Mr. Mehta’s lecture.

The design of climate pledge

Paris Accord glorifies the bottom-to-top approach giving the freedom for all the countries to design their own INDC’s (Intended Nationally Determined Contributions) justifying on how the contribution is fair towards achieving the objective of the UN’s Climate Convention and delineate the approach regarding the calculation of the Green House Gas emissions. Each country can show a different base year from which emissions will be reduced obliterating the historical responsibility of the largest producers of industrial carbon emissions from leading the cause. The developing countries feel this is the cheating point or, the flimsy deal. However, the pledge being decided by countries themselves is somehow intended to guarantee that the governments are unlikely to violate it. This point of view, indicates that the format of INDC’s hovers between top-down and bottom-up, with the UN monitoring their seriousness (Yeo 2015). The threshold required to give legal force to the agreement was achieved on 5th October 2016 when countries accounting for 55 per cent of global GHG emissions deposited their instrument of ratification. Speaking on this, Mr. Raman Mehta observed that only certain clauses which deal with the reporting of GHG emissions are legally binding in the Paris Agreement. Hence, except for the progressive nature of INDC’s, there seem to be no other pressure points.

The call for climate justice

Food security is a common sensitive challenge. Deficit rainfall and natural disasters worsen poverty and hunger as vulnerable economies bear the brunt of climate change rapidly. More socio-economic issues directly related to the climate changes are encountered on a day-to-day basis which is irrevocable in nature. India reformulated the concept of ‘common but differentiated responsibilities’ by adding ‘respective capabilities’ (CBDR – RC) calling it the bedrock of collective enterprise. This is to clearly indicate that equitable carbon and development space are straightforward requirements of developing countries. The commitment to combat climate change by the developing countries is limited in many ways, since their development is invariably tied to a proportional increase in GHG emissions. This is true so far as history indicates. However, in certain sectors like transport, China and India are decoupling by building metro rails in their busiest cities to bring forth affordable and zero carbon emissions in the mass public transport sector.

Unaddressed climate migration and environmental refugees

The Paris Agreement missed the crucial aspect of providing relief and alternative to those who are affected by climate change induced migration, which is expanding every day. The section on climate-refugees
‘Loss and Damage’ makes recommendations for setting up a task force for addressing climate migration. However, the task force has no binding authority and its operations, functions, funding sources are not clear because of which the problem of migration will not be considered as the first priority. The ‘Loss and Damage’ is, therefore, a mere deliberation process under the Warsaw Conference of 2013. Furthermore, the draft of Paris Agreement which contained provisions for Climate Change Displacement Coordination Facility intended to secure emergency relief, target organised migration and planned relocation of displaced people, compensating for those displaced does not feature in the final text of the Accord.

Concern regarding the climate finance

The most contentious issue of the climate change agreement is regarding the investment – the funding and disbursement processes for efficient technology transfer to enable green transition and carbon peaking of developing economies. The developed countries are hesitant with this responsibility and are often unclear and silent on the ways to enable the processes like sources of funding, terms of funding, purpose of funding, the agencies (public sector or private sector) of funding and the kind of funding. Very often the use of political ambiguous language of ‘financial compensation’ and the ‘rehabilitation’ is spoken about extensively. Mr. Raman Mehta reflects on the fact that ‘compensation paradigm’ of the Paris Agreement has caused immense pressure and anxiousness among the developed countries which is inhibiting the cooperation for a seamless flow of finance from the developed to the developing countries. This diluted mindset is a threat and a menace as it can stall the process of implementation of clean energy systems, which are undoubtedly expensive, leading to disproportionate burden on the developing countries.

The common thread for the all the countries

Helvetas06So far as the extreme weather changes are concerned and maintaining the balance between inclusive economic growth and social development, the policy matrix in developing countries is stratified with priorities of Sustainable Development Goals, which seeks to eradicate poverty and ‘leave no one behind’.

India’s two major international efforts in launching the International Solar Alliance to form a group of 107 sunshine countries to enable them to switch to a low-carbon path by solar power utilization and ratifying the Paris Agreement on 2nd October 2016 on the International Non-Violence Day expresses its aspiration to tackle climate change with a forethought to internalize the principles of Mahatma Gandhi in all its endeavours. However, the local urban environment in India tells a different story in the efforts to switch to low-carbon path. In the year 2000, New Delhi mandated the use of CNG in all public vehicles to mitigate vehicular air pollution showing improvement in air quality, yet in the past two years Delhi is among the top cities in the world highly affected by air pollution. The lack of constant innovation, preparedness for urbanization, awareness about the growth of personal vehicles, lack of pollution checks on the industries in rapidly growing cities and biomass burning have negated the gains of focused policies on curbing sectoral air pollution. India must, therefore, invest in comprehensive planning, legislation and finance the grassroots level of governance on recycling, renewable energy, critical infrastructure and technology, encourage community-centric territorial planning that control rural-urban continuum. 

        Mr. Raman Mehta explained how the process of climate change leads to dangerous feedback loops – increased number of warm and cold days accompanied by extreme weather fluctuations, heavy precipitation and submergence of deltaic regions and islands, mass displacement of ice sheet and melting of glaciers such as the recent breaking of massive ice block in Antarctica and the rift that grew by 18 kilometers. He further said, this has put a focus on the need to look for innovative mitigation measures more intensely than the adaptation measures, as the latter is finite and limited.

It is often understood that climate change is only part of the problem but there are other factors like human-led land use changes and deforestation that pose immediate and deeper problems affecting daily life. Humanitarian crisis related to civil unrest like migration and military conflict influenced by climate change are becoming more prominent, such as the ongoing Syrian crisis which illustrates the culmination of agricultural drought, with political failure and willpower to mitigate the challenges of dwindling resources (Shank and Wirzba 2013). Therefore, wide-spread negotiations continue to be focused on climate change on the principle of equity and shared vision. These have in the past lead to formulation of initiatives like international emissions trading, clean development mechanism, joint implementation. More recently, carbon capture sequestration has emerged as a niche effort in energy sustainability. The cornerstone is to invoke global solidarity in action plans without the vested business and diplomacy of trying to pressurize the finance receiving nations to manipulate their national economic policies. Policy decisions which require adequate assessment of nature’s resilience capacity, conserving forest wealth, disaster management and rural livelihood security are immediately required to be chartered out with expertise and institutional capacities indigenous to each economy.

(Apoorva is pursuing Master’s Programme in Public Policy at the National Law School of India University. She can be reached at apoorvas@nls.ac.in)

References

Yeo, Sophie. 2015. “Explainer: What Are ‘Intended Nationally Determined Contributions’?”. Carbonbrief.Org. https://www.carbonbrief.org/explainer-what-are-intended-nationally-determined-contributions.

Shank, Michael, and Emily Wirzba. 2013. “How Climate Change Sparked The Crisis In Syria”. Usnews.Com. https://www.usnews.com/opinion/blogs/world-report/2013/09/13/syrias-crisis-was-sparked-by-global-warming-and-drought.

Live Mint (e-paper). 2017. “Massive Antarctic Ice Shelf Ready To Break Apart”. http://www.livemint.com/Science/Co2Gpz7ccx7v2yX7l0BuQN/Massive-Antarctic-ice-shelf-ready-to-break-apart.html.

“Renewable Technology Is The Future: Raman Mehta | State Knowledge Management Centre On Climate Change”. 2014. Climatechangeportal.Mp.Gov.In. http://www.climatechangeportal.mp.gov.in/en/news-events/interviews/renewable-technology-future-raman-mehta.

“Lack Of Clarity On Legal Nature Of Paris Deal A Concern For India | ORF”. 2015. ORF. http://www.orfonline.org/research/lack-of-clarity-on-legal-nature-of-paris-deal-a-concern-for-india/.

Featured images source:

https://climate.nasa.gov/effects/

http://science.howstuffworks.com/environmental/green-science/climate-refugee.htm

http://www.welthungerhilfe.de/en/sustainable-development-goals.html

Anti-dumping and Trade

AN INTRODUCTION TO ANTI-DUMPING AND ORDINARY COURSE OF TRADE

– Srijeet Bhattacharya (Indian School of Business) and Devarchan Banerjee (National Law School of India University)

anti-dumping

That trade is the cornerstone of global GDP is hardly a secret. Apart from a handful of countries, most have embraced the increased choices, economic opportunities and interconnectivity that must inevitably follow globalisation and trade. Consumers enjoy options which would not have existed had only domestic producers functioned in the economy, that too at lower prices. Producers have the option to relocate parts of their supply chain to countries where lower wages and the cheaper factor of productions could lead to greater productivity and profitability. In a sense, it is only natural that this wide variety of benefits would bring with it’s own set of problems. Workers from industries that have been shifted abroad have suffered from economic hardship due to an inability to shift to alternate lines of work. The emergence of China as an export giant has led to manufacturing jobs in other parts of the world to go down as a whole. Freer borders and increased labour mobility, which are part and parcel of globalisation, has led to fears of average wages being driven down by immigrants who are not only taking away jobs from ordinary citizens but also doing them for far less monetary compensation. While such viewpoints are controversial in the wake of several studies which find immigration a net positive to the economy, what matters is that these perceptions persist. We have already witnessed an American President being elected on the back of protectionist promises and the repudiation of NAFTA, in an election where both candidates rejected the Trans-Pacific Partnership Agreement. Concerns about exchange rate manipulation by China in order to keep exports cheap and attractive brings with it the prospect of a war of currency devaluation. The point remains that with trade occupying such a central role in national and international narratives, sufficient safeguards need to be put in place to keep these concerns in check.

Dumping is a practice by which items are sold in the importing country at a lower price than in the domestic market, thereby causing material harm to the industry in the importing country which is producing the same or similar product. There can be various reasons for doing so. Let us assume there are two countries A and B with X being a company in country A which is producing a good that is sold in the domestic market A and also exported to country B. Now X might want to drive away competitors in country B offering the same product, and therefore it sells its product at a lower price than what the competitors are. This is a charge levelled against companies with deep pockets and therefore loss bearing capabilities. A lower price could also be offered in order to enter a nascent market or gain a larger market share, or simply to generate profits through sale of higher quantities rather than higher prices. The thing to be noted here is that the motivations are not relevant when it is being decided whether dumping has occurred or not. What needs to be seen is whether it is being sold at a lower price than in the home market and whether this is leading to material harm to the producers of the importing country. Another point is that the Anti-Dumping Agreement covers only goods. Therefore, services which form such a large part of global interactions (financial services, telecommunication services, etc) are not covered, nor are other forms of dumping not involving material goods. If it is found that the product is being dumped and sold at a lower price than what persists in the domestic market, then the company is asked to pay a dumping margin, which is the difference between the normal price and the actual price.

It can be seen almost immediately, that domestic industries have an incentive to prove that dumping is taking place in order to compete with foreign producers. The political establishment therefore also has an incentive, due to lobbying or the desire to portray the image of saving domestic jobs, to find exporting countries guilty of dumping. As expected, the WTO is regularly requested to look into cases where dumping is suspected. For the Anti-Dumping Agreement to be effective and followed by countries around the world, it needs to be fair and has provisions to address all exigency and concerns. The disproportionate amount of power handed to the importing country in the investigation of dumping needs to be checked through adequate mechanisms. All investigations are therefore conducted under the conditions of the ordinary course of trade, which is to say that the company has acted in the manner befitting a profit-seeking firm under normal conditions.

Article 2.1 of the Anti-Dumping Agreement (ADA) talks about the standard case where a product is sold both in the exporting country as well as the importing country. If after accounting for the transportation and other relevant fees, it is found that the product is being sold at a lower price in the importing country, then it could be considered whether the product is being dumped. This is fairly straightforward. A note here is that the company may not want to add the additional export charges (transportation, taxation, etc) since that would drive up the price or normal value of the product and increase the dumping margin if any.

The Anti-Dumping Agreement does not explicitly define the term ordinary course of trade, but it provides one example of sales which are not in the ordinary course of trade. Article 2.2.1 Anti-Dumping provides that

“Sales made below per unit fixed and variable cost of production plus selling, general and administrative expenses (SG&A) may under certain circumstances, be considered as not in the ordinary course of trade. This provision provides that this is so, only if such sales were made within an extended period of time (normally one year but in no case less than six months), in substantial quantities (if the weighted average selling price of the transactions under consideration is below the weighted average per unit costs, or if the volume of sales at a loss represents at least 20 percent of the volume of transactions), and at prices which do not allow for the recovery of all costs within a reasonable period of time. Sales made at prices which are below per unit costs at the time of sale, but above weighted average per unit costs for the period of investigation, shall be considered to provide for the recovery of costs within a reasonable period of time” (Mavroidis)

In Article 2.2, the discussion is how to come to the normal price should the product not be sold in the domestic market or sold in insufficient quantities for proper comparisons. If for example, the product is not sold in the domestic market at all, due to insufficient demand, prohibitive costs, or other factors then the investigating authority could consider the price in another like country where the product is also sold. If such a comparison is not possible or does not exist, then the normal value of the product can be constructed by adding the cost of production, a reasonable amount for administrative, selling and general costs, and a reasonable amount of profits. This is also the case when the product is sold in the domestic market in insufficient quantities (The 5 percent rule says that for the prices to be comparable, the volume of sales in the domestic market must be at least 5 percent of the volume of sales in the importing country). To come to what can be considered a reasonable amount, the cost and price data for other players in the industry of the exporting country could be considered and a weighted average used. However, this is only possible if the products are in reality sufficiently similar, and the WTO is extremely strict when it comes to this definition. Another case is when products could be sold in the domestic market of the exporting country at a price below cost for taxation or market share or other purposes which do not fall under the ordinary course of trade. Further, it could so happen that the producer in the exporting country and the distributor in the importing country are related. In such a case the price could be artificially increased to avoid or lower the dumping margin. In such a case, the value at which the product is sold to the first independent customer, after adjusting for resale costs, is considered for the construction of the normal value.

We see in Article 2.2 especially, the emphasis placed on the ordinary course of trade. Every reasonable precaution is taken to ensure that when the normal value is being constructed, the process is as fair as possible. In the absence of comparable data, or when the data available would not be able to provide the accurate picture, alternative mechanisms are put in place. This can be further seen in Article 2.7 which talks about non-market economies. When market economies do not exist in certain countries, i.e, some or all industries are State regulated, there may not exist reliable price and cost data, and secondly, the prices themselves can not be considered as existing under the ordinary course of trade. This is because, governments may keep prices artificially low or high in certain industries for a variety of reasons, thereby distorting the market. In such a case, the investigating authority would consider the prices and costs of the same or sufficiently similar product in a surrogate country, i.e, a country which is similar with regards to the particular industry to the non-market economy, but where market economy conditions prevail.

antidumping

Another case where ordinary course of trade tests are important is the decision on the duration of the investigation and a process known as zeroing. Suppose that for six months in the year the product is sold in the importing country for x amount less than the normal price, and for x amount more than the normal price for the remaining six months. Then, over the course of a year, one could say that the two have cancelled each other out and no dumping margin needs to be imposed. However many countries only consider the situation where the price is below the normal value and assign a value of zero if the price exceeds the normal value. The principle is that any dumping should be considered. However, efforts are on to put an end to zeroing, as well as the use of mathematical methods which can be manipulated to show evidence of dumping by changing the investigating period or in other ways ( using a weighted average instead of considering each transaction for example). The goal is to present the entire picture, as it occurs in the ordinary course of trade, and not just the parts which are convenient to the investigating country.

It is fairly obvious, that when jobs and incomes and livelihoods are in question, this will always be a contentious issue. For the WTO to maintain credibility and inspire faith in its member countries, the mechanisms used to determine whether dumping has occurred and if so, the amount of injury done, must always be fair and transparent. While existing loopholes and shortcomings must be resolved through multilateral discussions, the ordinary course of trade (OCT) test is at present an essential step towards achieving these goals and must be respected and recognised as such.

 

(Devarchan Banerjee is pursuing Master’s Programme in Public Policy at the National Law School of India University. He can be reached at devarchan@nls.ac.in)

 

 

Featured image source:

http://skanomics.blogspot.in/2011/10/i-dont-think-its-that-free-here-we-have.html

http://behindthelines.moadoph.gov.au/2012/the-economy/cartoons/102

 

 

 

IPR and Innovation : A Tete-a-tete with Mr. John Matheson

Mr John Matheson, former General Counsel, Global Public policy at Intel, Singapore delivered a special lecture on Trade secrets—emerging dynamics in the current scenario” on the 26th of July,2016. The Lokniti team caught up with him afterwards for his insights on the IPR regime and more.

Lokniti: There have been controversial allegations against the mechanisms and secrecy with which trade negotiations are carried out, and this raises concerns about the surrendering of a country’s sovereignty to these corporations who will carry out dispute settlements. What is your take on these concerns?

JM: There is a very formalised process with how USTR works with businesses and with trade associations. They have a very good grasp of what businesses want in trade agreements. Of course, they don’t always agree with them but they know what businesses want. I would contrast that to RCEP. It seems very surprising to me that Indian companies are not more active in working with the trade representatives to try and get strong language in trade agreements. But it is going to help Indian companies in those areas if trade agreements apply. And it might simply be the immaturity of the system that that type of import has not been catered for in the past (sic).

Lokniti: Or is it a lack of transparency of what has been pushed and what has not?

JM: Well, it could be

Lokniti: Do you feel it is a deliberate attempt at maintaining that lack of transparency?

JM: Well, I can’t say it is deliberate. It might simply be the history of how things have always been done.

Lokniti: Just a norm?

JM: Which is a norm, maybe, a norm that is way out of date. Because as I mentioned in old days, trade agreements were simple documents about terrorists mostly and now because it is so expensive covering all areas of commerce, you do wonder whether the government is sufficiently familiar with what industry wants to actively represent at an international forum.

Lokniti: There is an over-reliance on regional cooperation when it comes to trade secrets protection. For example, the 12 countries of Trans-Pacific Partnership (TPP) and the ASEAN countries have negotiated and agreed upon trade secret protection. How difficult it is to agree on a global legal policy framework, on the lines of WIPO or WTO for safeguarding trade secrets?

JM: Well, the more people you have around the table, the more difficult it is to get them to agree. So, obviously at the multilateral trade level and particularly at the WTO when there are so many countries and so many different views, it is going to be a long time before we can make any substantial progress beyond TRIPS. I think TRIPS will be the ground rules for IP for a long time to come. But, because it is so difficult to get change at that level, it has to be done at the regional level like TPP or at the bilateral level, where countries like the United States and South Korea are coming to an agreement on issues bilaterally that involve substantial reforms. But, the smaller the grouping is, the easier it is. So, I don’t think we will be getting any answers from Geneva. It has to be driven more locally.

Lokniti: With regards to the Cyber-security issues, the threat of hacking is always impending. How do you think the trade secrets could be protected in such a scenario?

JM: Well, there is an interface between trade secret protection and hacking. In jurisdictions where hacking can be done without breaching the domestic wall, there it may be that trade secrets provision assisting or making it easier. But, most countries have computer crime movers in place. But, they are broad and designed for so many different things. It makes it really complex to detect issues specific to hacking, such as where it was done, and where the perpetrator is located. A trade secret law might put the needle in the right direction but certainly, that won’t be the sole solution.

Lokniti: There are serious global challenges, such as climate change, which necessitates the free trade of knowledge, skills and technologies, how do you think the IP regime should respond to such global challenges?

JM: There is always going to be a tension and we have seen this in pharmaceuticals where it costs billions of dollars to produce drugs. The drugs are very expensive and the people who need it live in the third world. Such a tragedy is very difficult to resolve from a legal standpoint because everyone wants to see low priced medicine reaching the right people. And we got the same potential conflict in green energy, but it should be easier because Governments need to incentivise their own people to use renewable energy.

So, I think the government has a role to play in helping to resolve the conflict. You’ve got to be careful to not stick to compulsory license solutions. The compulsory license is the strongest police power that a country has over a company and it leads to very quick erosion of trust in the legal environment. So, companies would be less inclined to invest in a country that nationalises their IP. So, I would encourage countries not to look at that solution and look at government and centres working with IP owners as part of the solution.

Lokniti: Don’t you think without government intervention, innovation will be stymied? People will prefer business-as-usual and there will be less focus on research and development of new technologies?

JM: Well, I think India, like everywhere else has to start innovating. Intel, as a company, when it was starting off had a major problem with IBM. IBM owned all the IP, and as a small company, Intel’s strategy was to start on a small, creating their own innovations and to innovate around IBM’s IP. So, I think India has got the capability of doing that. In green energy, for example, where so many IP owners want to be in the market, India is in a very good negotiating position. To be working with the owners of the IP and undertaking joint developments.

You know, if a company wants to be in India and you’ve got strong research capabilities here, it is a perfect opportunity for a joint development in this environment where you’ve got so many smart people and a great need for technology. So the solution requires some creativity. It’s not just blaming the big business for having all the IP. I would say stop feeling sorry for yourself and go and do something about it.

Going global

Deepa K. S.

As the world opens up to a globally competitive market, equitable prosperity and fairness become the emerging concern. Commerce and intergovernmental transactions are the beginning of a large landscape of interaction between nations. The pressures on national interests and goals to conform to and contest the global challenges, fair principles of competition and cooperation, border regulations and monitoring co-exist with free and regular exchanges between people, goods, services and cultures. This ever-changing transnational scenario poses immense opportunities as well as challenges. This is the space where we try to capture the dilemmas and dynamics of transforming into a global citizenry.

Image Credit: activistpost.com