Global Business Forum

A Word to the Wise for International Business Managers

noreply@blogger.com (James Edward Banks) — Sat, 15 Aug 2009 02:04:00 +0000

International business managers must carefully evaluate and manage the political, financial, cultural, economic and legal risks associated with international business transactions. In order to effectively manage legal risks, international business managers should remember two important maxims. First, before conducting business in a foreign country, obtain competent legal advice in order to understand the country’s legal environment, and comply with its rules and regulations. Second, make sure commercial agreements specify how the parties will settle disputes in the event of breach of contract.

A decision reached by an appeals court in the United Kingdom (the “UK”) last week illustrates the potential nightmare that can result from failure to heed these maxims. Specifically, the Court of Appeal in London ruled that it has jurisdiction to hear a lawsuit involving allegations of breach of contract in connection with the aborted merger of two Russian multinational corporations, notwithstanding the fact that neither of the parties in the dispute, nor the two corporations, is domiciled in the UK.

The dispute involves two of Russia’s most powerful oligarchs, Oleg Deripaska, CEO of aluminum giant United Company Rusal (“UC Rusal”) who lives in Russia, and Michael Cherney, a former business partner of Mr. Deripaska, who lives in Israel. The lawsuit filed by Mr. Cherney in 2006 stated that he and Mr. Deripaska signed an agreement in London in 2001 which called for him to sell Mr. Deripaska a 17.5% stake in Russian aluminum giant Sibirsky Aluminy (“Sibal”) for $250 million. In return, Mr. Deripaska allegedly agreed to give Mr. Cherney a 20% stake in his company, Russian Aluminum (“Rusal”), in anticipation of the eventual merger of Rusal and Sibal.

Mr. Cherney further alleged that Mr. Deripaska agreed to hold his 20% stake in Rusal’s stock in reserve for five years after the merger and then pay him the market value of the shares minus the $250 million payment received for the Sibal shares he sold. He contends that Mr. Deripaska breached their agreement by instead merging Rusal with Siberian-Urals Aluminum Company and Swiss aluminum company Glencore International AG to form UC Rusal, and refusing to give him 20% of UC Rusal’s shares.

Why did Mr. Cherney file the lawsuit in London rather than in Russia or Israel?

Mr. Cherney’s lawsuit argued that English courts can exert jurisdiction over the dispute for four reasons. First, he and Mr. Deripaska signed the agreement in London. Second, both he and Mr. Deripaska own houses and businesses in London. Third, a “choice of law clause” in the contract specified that UK law governed the agreement.

Fourth, Mr. Cherney argued that UK law states that an English court can exert jurisdiction over a case if holding the trial elsewhere would deprive one of the parties a fair trial. In this regard, he contended that he faced the threat of assassination or arrest by Russian authorities on trumped up charges because of his ongoing dispute with a government official in former Russia President Vladimir Putin’s government. Mr. Cherney argued that each of these factors taken together demonstrated that he and Mr. Deripaska had sufficient connection with England to warrant an English court to exert jurisdiction in their dispute.

In contrast, Mr. Deripaska contended that English courts should not exert jurisdiction to hear the dispute because, as previously stated, neither he nor Mr. Cherney resides in England or is an English citizen, and neither UC Rusal nor Sibal is domiciled in England. In addition, he denied executing a written agreement with Mr. Cherney. Unfortunately for Mr. Deripaska, the Court of Appeal disagreed and affirmed an earlier ruling by an English High Court that it has jurisdiction to hear the dispute.

Assuming for a moment that Messrs. Cherney and Deripaska did in fact execute a written agreement, I believe that their failure to obtain the following legal advice lead to this dispute. First, to include a forum selection clause in the agreement authorizing a specific forum with jurisdiction to hear disputes arising under the agreement. For example, a forum selection clause can designate a specific court (e.g., the London Court of Justice) to resolve contract disputes. In this case, the addition of a forum selection clause would have avoided confusion regarding which court(s) could exert jurisdiction to hear the dispute.

A forum selection clause can also stipulate that the parties will use arbitration or mediation to resolve disputes in lieu of litigation, and designate a neutral location for such hearings (e.g., “all disputes arising under this agreement will be submitted for arbitration in Paris and settled under the International Chamber of Commerce’s Rules of Arbitration”). Arbitration and mediation represent faster and cheaper methods for resolving disputes than litigation with far less publicity. The addition of a forum selection clause designating either of these alternative dispute resolution methods could have helped Messrs. Cherney and Deripaska avoid their highly public and protracted legal battle.

Second, Mr. Deripaska’s attorneys should have advised him that designating UK law to govern the agreement and signing it in London (in addition to his ownership of houses and businesses in London), established a sufficient connection with England to make him subject to jurisdiction of English courts. If his preference was for a Russian court to resolve any disputes under the agreement, he should have insisted that the choice of law clause indicate that Russian law governed the contract.

As a final note, Messrs. Cherney and Deripaska apparently failed to specify in the agreement what currency Mr. Cherney was to receive payment in when Mr. Deripaska liquidated the 20% stake in Rusal’s stock. If the court ultimately finds that the parties executed a valid contract, that Mr. Deripaska breached the contract, and also decides to award monetary damages, the question then becomes whether Mr. Cherney will receive payment in rubles, pounds sterling, euros, new Israeli shekels or another major currency? To avoid possible disagreement in this regard, Messrs. Cherney and Deripaska should have been advised to specify in the agreement which currency would be used for payment, and whether Mr. Deripaska would make a lump sum payment or installment payments.

Sources:
Russian judged not to be 'resident' in his Belgravia flat, Financial Times (May 4, 2007)
Russian tycoon loses legal fight over Rusal, Financial Times (August 1, 2009)
English justice versus Rusal, Asia Times (August 4, 2009)
Wikipedia
Copyright © 2009

Global Leaders Disagree On Steps to Reduce Global Warming

noreply@blogger.com (James Edward Banks) — Sat, 01 Aug 2009 02:46:00 +0000

Major differences of opinion exist between developed and developing countries regarding international environmental regulation. Those differences surfaced once again last week during Hillary Clinton’s first trip to India as Secretary of State when India refused to agree to a U.S. proposal to reduce carbon emissions designed to fight global warming.

Developing countries and foreign investors typically oppose extensive international environmental regulation because it tends to necessitate implementation of costly environmentally friendly technology (“green technology”). Generally, this means acquiring expensive anti-pollution equipment. To avoid this expense, foreign investors will not hesitate to relocate their operations to countries that haven’t ratified onerous environmental restrictions.

Developed countries, on the other hand, typically favor expansion of international environmental regulation because they’ve developed and implemented green technology. Some governments even provide financial incentives for domestic companies that either manufacture anti-pollution equipment or invest in green technology. As a case in point, the stimulus bill championed by the Obama administration provides investment tax credits for companies that invest in green technology. Thus, international environmental regulations create opportunities for businesses in developed countries to profit from green technology while also enabling developed countries to protect domestic industries by using such regulations to keep out foreign competitors who are unable to comply with them.

A key milestone in the development of international environmental law occurred in 1972 with the ratification of the United Nations Convention on the Human Environment which led to the creation of the United Nations Environmental Programme (the “UNEP”). The UNEP seeks to help the global community reach consensus on regional and global environmental policies.

The next milestone occurred in 1987 with the issuance of the Brundtland Report which highlighted the danger of pursuing global economic development at the expense of depleting the earth’s natural resources and causing other harm to the environment. The report recommended implementation of technological changes to protect the global environment.

In 1992, over 170 countries agreed to several legally binding environmental treaties at the United Nations Conference on Environment and Development held in Rio de Janeiro, the most important of which was the United Nations Framework Convention on Climate Change (the “Convention on Climate Change”)। The Convention on Climate Change fostered multilateral efforts to address mounting concerns regarding climate change by encouraging industrialized nations to limit emissions of carbon dioxide and other greenhouse gases (i.e., gases that trap heat in the atmosphere causing global warming).

The most recent milestone occurred in 1997 at a meeting in Kyoto, Japan where over 150 countries ratified the Kyoto Protocol. While the Convention on Climate Change only encouraged countries to reduce greenhouse gas emissions, the Kyoto Protocol set binding targets for 37 industrialized countries and the European community for reducing such emissions.

Although China and India ratified the Convention on Climate Change and the Kyoto Protocol, they are in the vanguard of developing countries’ resistance to caps on the emissions of greenhouse gases। Developing countries contend that the developed countries pressuring them to agree to the caps are the same countries that pumped most of the greenhouse gases into the atmosphere. They also argue that the cost of investing in green technology will hurt the growth of their economies. In addition, developing countries also point to the inherent unfairness of mandating tough environmental regulations at this point in history given that developed countries were not burdened with such regulations during the growth of their industrial empires.

Overwhelming scientific evidence supports the cries for more rather than less regulation, notwithstanding the concerns raised by developing countries। According to the International Panel on Climate Change, 20%-30% of species worldwide face the risk of extinction by the end of the century if we fail to dramatically reduce carbon pollution.

Carbon dioxide, one of the principal greenhouse gases causing global warming, enters the atmosphere through the burning of fossil fuels (i.e., oil, natural gas and coal). Experts predict that developing countries’ share of world oil demand will rise to 45% in 2025, primarily driven by China’s and India’s energy consumption. They also predict that China will surpass the U.S. as the world’s largest consumer of oil by 2025 and that India’s oil imports will more than triple from its 2005 levels by 2020. Moreover, experts predict that China will account for most of the world’s coal consumption in 2030.

Therefore, China’s share of global energy-related carbon dioxide emissions is projected to grow from its 18% threshold in 2005 to 28% in 2030. This means that China will shoulder responsibility for 47% of the projected increase in world emissions over this twenty-five year period. India’s share of global energy-related carbon dioxide emissions will grow by 8%, the second-largest share of the projected increase.

The Kyoto Protocol calls for ratification of a new international framework by the end of 2012. Given the dire predictions for the global environment, it is imperative that developed and developing countries set aside their differences and ratify a new framework. As the world’s fastest growing economies, shouldn’t China and India help lead, not obstruct, this effort?

Sources:
India Rejects U.S. Proposal of Carbon Limits, The Wall Street Journal (July 20, 2009)
Asia’s Thirst for Oil, Wall Street Journal (May 5, 2004)
Supply and demand: World oil markets under pressure, CBC News Online (April 28, 2005)
International Business Law and its Environment (6th ed.), R. Schaffer, B. Earle and F. Gusti
Rising Powers, Shrinking Planet: The New Geopolitics of Energy, by Michael T. Klare
Wikipedia
Copyright © 2009

The Doha Development Round

noreply@blogger.com (James Edward Banks) — Sat, 25 Jul 2009 20:13:00 +0000

Part III – Multilateral Trade Negotiations

International trade ground to a screeching halt during World War II as nations focused on the production of war material in lieu of manufacturing industrial and consumer goods, and abandoned lucrative pre-war trade relationships. The potential collapse of European economies following the war incentivized Western nations to resume international trade in order to revive their national economies.

The looming threat of Soviet expansionism into Europe, however, created an even greater sense of urgency because Western nations recognized that trade would jump-start the international economy and they wanted to ensure that capitalism prevailed over communism. These factors paved the way for the introduction of multilateral trade negotiations to remove barriers to trade (see Part II – The General Agreement on Tariffs and Trade).

The international community reached agreement on important trade issues in the early years of the General Agreement on Tariffs and Trade (“GATT”) by consensus. Reaching a consensus posed fewer challenges during that period because the initial membership of GATT consisted of only twenty four countries.

In contrast, the World Trade Organization (“WTO”) currently consists of approximately 150 members making it virtually impossible to reach consensus on any trade issue. Instead, decisions reached in the WTO are the result of the affirmative vote of at least three-fourths of the members participating in multilateral trade negotiations.

In theory, the formal negotiating and voting procedures in the WTO endow each member an equal voice in the decision making process. Developing countries, who represent four-fifths of the WTO’s membership, now wield far more power in trade negotiations than ever before.

As previously noted, however, developing countries and other critics (e.g., non-governmental organizations) express considerable discontent with the WTO’s governance decision-making process (see May 31, 2009 and June 7, 2009 posts). They cite three illustrations of how powerful WTO members (e.g., the U.S., European Union, Japan and Canada) undermine developing countries’ voting power and the trade initiatives they favor.

First, they assert that the more powerful members forge consensus on important trade issues during invitation-only informal meetings prior to or during official trade meetings, or at cocktail parties following WTO committee meetings, that exclude representatives of developing countries. Critics contend these meetings enable a self-appointed group of rich nations to operate as a de facto executive council, and circumvent the formal negotiating and voting process.

Second, they report that some developed countries use threats of withholding technical assistance, financial aid, or other economic programs to force developing countries to capitulate on trade issues that are often detrimental to their economic interests. Third, they contend that economic inducements are often offered to the advanced developing countries (e.g., Brazil, India, Mexico, etc.) in exchange for their agreement to exert pressure on poorer countries who oppose trade issues favored by the developed countries.

Developed countries, on the other hand, assert that all WTO members have equal opportunity to participate in trade negotiations during committee and council meetings, and the debate on important trade issues. Moreover, they point out that developed countries’ interests differ significantly from those of developing countries which outnumber developed countries in the WTO by 4 to 1. Therefore, reaching consensus on issues during these informal meetings enables them to iron out their differences, articulate their positions collectively in a cohesive manner during formal negotiating sessions and ultimately protect their interests.

While I agree that all members theoretically have equal opportunity to participate in the multilateral negotiations, certain economic factors place the less affluent developing countries at a competitive disadvantage during such negotiations. For example, many developing countries employ smaller staffs at the WTO’s headquarters in Geneva vis-à-vis richer nations due to financial constraints. Also, they often can’t afford to maintain a permanent residence for their staff due to Geneva’s high cost of living. This limits their staffs’ ability to consistently participate in all the many meetings held by the WTO’s councils and committees, articulate their views and influence the decisions reached.

In addition, having a smaller delegation restricts the ability of their representatives to specialize in specific trade areas in order to develop expertise on issues of particular concern to their respective countries. More importantly, many of the poorest developing countries lack the negotiating and political skills to influence trade decisions, nor can they afford to hire experts/coaches to help them develop such skills.

In light of these factors:

1. What steps can developing countries take to acquire the necessary political skills and expertise to enhance their effectiveness within the WTO?
2. Should the WTO permit developing countries to request disciplinary action against developed countries that use the threat of withholding technical assistance, financial aid, and other economic programs to force them to acquiesce on trade issues that are not in their best interests?
3. Should the WTO rotate the Director-General position (the Director-General is responsible for supervising the WTO’s administrative functions) between developing and develop countries in order mollify criticism of its decision-making process?
4. Do you anticipate that developing countries will attempt to force the WTO and developed countries to make concessions regarding the WTO’s governance and formal decision-making process as a precondition for their agreement to resume Doha Round negotiations?

Sources:
Behind the Scenes at the WTO: the real world of international trade negotiations, by Fatouma Jawara & Aileen Kwa
RTAs and the WTO, by Annie Maxey and J. David Macor
The WTO Primer, by Kevin Buterbaugh and Richard Fulton
World War II: A Short History, by Michael Lyons
The Cold War, by John Lewis Gaddis

The Doha Development Round

noreply@blogger.com (James Edward Banks) — Tue, 30 Jun 2009 01:59:00 +0000

Part II – The General Agreement on Tariffs and Trade

Part II of this series briefly examines the General Agreement on Tariffs and Trade (“GATT”), the most significant trade agreement in modern history. GATT established the foundation and framework that paved the way for several successful multilateral trade negotiations during the 50 plus years preceding the beginning of the Doha Round negotiations. Part II looks in particular at the circumstances leading to GATT’s creation and the eventual creation of the World Trade Organization, which shored up weaknesses that surfaced in GATT years after it came into existence.

As World War II drew to a close, representatives from forty-four countries met in 1944 at Bretton Woods, New Hampshire to discuss the importance of rebuilding Europe from the devastation caused by World Wars I and II, as well as how to revive the global economic system. The attendees also debated other actions that might help avert the outbreak of a third world war.

The Bretton Woods conference culminated in the creation of the United Nations to maintain international peace and security, the International Monetary Fund to oversee the international monetary system, and the World Bank to finance the rebuilding of war-torn Europe. The representatives also drafted a charter to create an organization called the International Trade Organization (“ITO”) to regulate international trade, but the charter was never ratified due to the outcome of the 1946 elections in the U.S. which rendered the prospects for obtaining Congressional approval dubious at best.

Unwilling to be deterred by this setback, twenty-three nations negotiated and signed GATT three years later, which salvaged important principles embedded in the ITO’s charter. GATT created the international legal system that still governs international trade today and provided for the first time a forum for settling international trade disputes. This historic agreement also provided the impetus for multilateral trade negotiations that resulted in the reduction of tariffs and the elimination of numerous nontariff barriers such as quotas and embargoes.

Although GATT achieved enormous success in removing obstacles hindering international trade, limitations in the agreement eventually became apparent. For example, GATT’s rules applied to trade in manufactured goods, but didn’t apply to either trade in textiles and apparel, or to trade in agricultural products. Moreover, the process for dispute resolution proved ineffective in resolving trade disputes. Consequently, in 1994, the member countries adopted a new General Agreement on Tariffs and Trade that, among other things, expanded the goods covered by the trade rules and improved the dispute resolution process. More importantly, the member countries also created the World Trade Organization (“WTO”) to administer the trade rules the original GATT established. Thus, the WTO assumed the role first envisioned by attendees at the Bretton Woods conference.

Prior to November 1999, the general public knew little or nothing about the WTO. That all changed, however, at a WTO meeting that year in Seattle when demonstrators turned violent during protests against the organization’s penchant for adopting policies favoring the interests of developed countries over developing countries. Media coverage of the ensuing mayhem suddenly propelled the WTO into the limelight and helped galvanize the nascent anti-globalization movement.

Part III will examine the controversial negotiation tactics often used by the more advanced and politically savvy WTO members during trade-negotiation rounds.

Sources:
World War I, by H.P. Willmott
Eyewitness World War I, by Simon Adams
A Short History of World War I, James L. Stokesbury
The Great War: and the Shaping of the 20th Century, by Jay Winton and Blaine Baggett
World War II: A Short History, by Michael Lyons
The Library of Congress World War II Companion
An Introduction to the WTO and GATT, by Merideth A. Crowley
International Business Law and its Environment (6TH Edition), by Richard Schaffer, Beverley Earle and Filiberto Agusti
Copyright © 2009

U.S. AND EUROPEAN UNION ACCUSE CHINA OF TRADE VIOLATIONS

noreply@blogger.com (James Edward Banks) — Fri, 26 Jun 2009 20:08:00 +0000

This week the conflict between developing countries versus developed countries resurfaced due to the submission of a trade dispute to the World Trade Organization (“WTO”) involving the world’s three largest economies. Specifically, the U.S. and the European Union (“EU”) filed separate complaints accusing China of adopting export restraints that violate the WTO’s rules.

The allegations concern both quotas China imposed limiting the amount of bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorus, and zinc, along with export duties levied on these raw materials. Coke is a particularly important raw material because of its use in the production of steel, and China ranks as one of the largest (if not the largest) producers of coke and steel in the world.

The U.S. and the EU contend in their complaints that the quotas and export duties result in an unfair advantage for China’s steel companies and other manufacturers because they significantly increase the cost for foreign firms to acquire these materials. China’s government, on the other hand, argues that it imposed the quotas and export duties to protect the environment and natural resources, not for discriminatory purposes.

The first step in this trade dispute will consist of dispute consultations where China will have 60 days to negotiate with the U.S. and the EU and attempt to resolve their differences. If the consultations fail to result in resolution of the dispute, the U.S. and the EU can request that the WTO’s Dispute Settlement Body appoint a panel to hear the dispute.

The panel, like in an arbitration hearing, would hear arguments presented by each of the parties and then issue a written ruling. Unlike arbitration, however, the panel’s ruling could be appealed in which case the WTO’s Appellate Body would issue the final ruling, unless the WTO’s Dispute Settlement Body rejects the ruling.

I believe that the international community will closely monitor the outcome of this trade dispute for two reasons. First, the quotas and export duties continue a troubling pattern of industrial policies implemented by the Chinese government that have a deleterious effect on global trade. For example, the government recently imposed a requirement in its stimulus package requiring Chinese firms to buy domestically made goods in lieu of foreign goods. The government’s actions smack not only of protectionism, but also hypocrisy given China’s criticism of the "Buy American" conditions in the U.S. stimulus bill.

The “Buy Chinese” conditions, coupled with the quotas and export duties, may increase pressure on the U.S. and other developed counties to initiate retaliatory measures against China, which in turn could lead to a trade war. Given the current global economic crisis, a trade war could cripple global trade and severely affect the global economy in general, and the economies of poorer nations in particular.

The second reason I believe the international community will closely monitor this dispute is because of the intense competition between the EU, China and the U.S. for dominance of global trade. Specifically, many analysts believed that the EU would fail because its vastly different countries would never work together as a unified economy. The EU proved the naysayers wrong, however, and now constitutes the world’s largest economy (based upon GDP), surpassing the U.S. Its economic success and geopolitical influence may motivate Southeast Asia, Africa and Latin America to create unified economies. Nevertheless, the EU recognizes that the rapid ascent of China’s economy represents a huge threat to its future economic growth.

China, the world’s third largest economy behind the EU and the U.S., enjoyed a trade surplus with the U.S. prior to 2007, but had a deficit with other countries. By the end of 2008, however, China's surplus with the entire world surpassed $400 billion. While corporate R&D in America and Europe grew by 1-2% between 2001 and 2006, in China it soared 23% which likely will continue to help boost its global trade surplus.

With respect to the U.S., concerns abound that its superpower status has been shaken. For the first time in 6 years, the U.S. saw its trade deficit shrink in December 2008 due to declining oil prices and weak consumption. The U.S. government recognizes the need to create policies that help American businesses become more competitive in the global economy because of the loss of market share to the developing nations as well as the huge debts owed to China and sovereign wealth funds in other countries to finance budget shortfalls.

However, Congressional resistance to the Obama administration’s efforts to finalize a trade agreement negotiated with Panama during the Bush Administration signal that the administration must produce tangible trade results in order to obtain Congressional approval of free trade agreements and other initiatives on the Obama agenda. In particular, the administration must follow through on campaign promises Mr. Obama made during the 2008 Presidential campaign to get tough with China on trade issues. Therefore, the complaint filed in this dispute suggests that the Obama administration will aggressively pursue enforcement of trade agreements to boost U.S. exports in order to ultimately reduce its trade deficits and foreign debt.

One thing seems certain, resolution of the trade dispute involving these nations will be fiercely contested and will have significant implications for global trade.

Sources:
China Says Raw Material Export Limits Meet WTO Rule, Bloomberg (June 25, 2009)
Ambassador Kirk Announces WTO Case Against China Over Export Restraints on Raw Materials, U.S. Trade Representative’s Office (June 23, 2009)
Beijing Bolsters the Barriers, Business Week (June 24, 2009)
U.S. Slams China on Exports, Business Week (June 24, 2009)
U.S. Trade Gap Falls to 6-year Low, Asia Times (February 11, 2009)
Rising in the East: Asia is Steadily Eroding America’s Leadership in Research Spending, The Economist (Dec. 30, 2008)
Beijing Orders “Buy China’ for Stimulus Projects, Business Week (June 16, 2008)
International Business Law and its Environment (6TH Edition), by Richard Schaffer, Beverley Earle and Filiberto Agusti.
Copyright © 2009

The Doha Development Round

noreply@blogger.com (James Edward Banks) — Wed, 17 Jun 2009 21:45:00 +0000

Part I - Introduction

Since the conclusion of World War II, members of the General Agreement on Tariffs and Trade (and its successor, the World Trade Organization), meet periodically to discuss reducing tariffs and eliminating nontariff barriers to trade. These multilateral negotiating sessions, also known as “trade-negotiation rounds,” ultimately result in agreements that open trade in areas where barriers still exist, such as in agriculture and manufacturing.

Trade-negotiation rounds provide an efficient means for eliminating barriers to trade for two reasons. First, trade-negotiation rounds focus on eliminating trade barriers globally rather than on disputes between individual nations. Second, the negotiations address multiple issues adversely affecting global trade rather than on a single issue. In addition to these advantages, agreements reached during these negotiations afford developing countries a greater opportunity to expand their exports compared to executing bilateral agreements with major trading nations because the agreements are multilateral.

The Doha Development Round (“Doha Round”), the World Trade Organization’s (“WTO”) current trade-negotiation round, began in 2001 in the oil and gas rich sheikhdom of Doha, Qatar. WTO member nations originally agreed to complete the negotiations by January 1, 2005, but the negotiations stalled due to disagreements between developing countries and developed countries on major issues such as industrial tariffs, non-tariff barriers and trade remedies. An ongoing disagreement between the European Union and the U.S. regarding agricultural subsidies also contributed to the collapse of the negotiations.

Without a doubt, successful completion of the Doha Round could be crucial in resolving the global economic crisis because the expansion of global trade during the last 30 years helped drive global economic growth. According to the WTO, exports will decline in 2009 by roughly 9% due to the economic crisis. This contraction will particularly impact the economies of emerging and developing countries, which helped spark global economic growth in recent years. Consequently, the WTO continues to urge member nations to resume the negotiations and reach an accord.

This post represents the first in a five-part series examining the Doha Round negotiations. Part II of the series will review the basics of trade negotiations, including a discussion of key participants in the negotiations, the purpose of the negotiations and their importance to global trade. Part III will examine the eight trade-negotiation rounds that preceded the Doha Round, focusing particular attention on the Uruguay Round, the most recent round.

Part IV will discuss why the WTO initiated the Doha Round negotiations and how the negotiations differ from the prior trade-negotiation rounds. Finally, Part V will examine the reasons why the negotiations stalled, and the potential implications for the global economy and the future of the WTO if the negotiations fail to produce an agreement.

Sources:
Doha Development Round - Wilipedia
WTO Negotiations on Agriculture and Developing Countries, by Anwarul Hadu & Ashok Gulati
Global Trade to Decline 9% in 2009, says WTO, by Third World Network (Mar. 25, 2009)
The Doha Trade Talks, by Robert McMahon and Lee Hudson Teslik, Council of Foreign Relations
(Feb. 2, 2008)
Copyright © 2009

GROWING INFLUENCE OF DEVELOPING NATIONS

noreply@blogger.com (James Edward Banks) — Mon, 08 Jun 2009 00:41:00 +0000

Brazil, Russia, India and China – dubbed the “BRIC” nations by Goldman Sachs – are the four fastest emerging economies in the world. Brazil, a major exporter of agricultural and agro-industrial goods, is the largest economy in Latin America. Russia, an energy superpower, is endowed with the world’s largest natural gas reserves. China, the world's most populous nation, is an emerging manufacturing giant for electronics and telecommunications. And in India, the world’s second most populous nation, a rapidly growing software industry continues to power its stunning economic growth.

Goldman Sachs projects that the combined economies of the BRIC nations could surpass the combined economies of the current richest countries of the world by 2050, with China and India joining the U.S. as the world’s largest economies. In contrast, the economies (along with the population) of most European nations are declining. These trends herald a shift in the world’s economic center of gravity from the U.S. and Western Europe to Asia.

However, governance of the three pillars of the international trade system (i.e., the International Monetary Fund, the World Bank and the World Trade Organization) does not reflect the growing influence of the BRIC nations and other advanced developing countries like Mexico, South Africa and South Korea. As a case in point, Western Europe and the U.S. dominate the leadership of the International Monetary Fund and the World Bank, respectively, and control a disproportionate share of the votes in these organizations vis-à-vis developing countries. In addition, World Trade Organization (the “WTO”) rules tend to favor the interests of a select group of developed countries rather than the interests of the international community as a whole, often to the detriment of the economies of developing nations.

Consequently, simmering discontent amongst developing countries contributed to the collapse of the negotiations for the Doha Development Agenda (the “Doha Round”). The WTO continues to push for completion of the Doha Round in order to lower trade barriers and, ultimately, to increase global trade at a critical time given the current global economic crisis. To reach a compromise in the negotiations, however, the participation of the BRIC nations and other developing countries in the governance of the above-referenced international organizations must be increased in order to recognize their growing influence and mollify some of their concerns.

My next post will discuss the stalled Doha Round negotiations in more detail and the prospects for rescuing the negotiations.

Sources:
WTO's formula for failure (May 29, 2008) Asia Times
International Economic and Financial Cooperation: New Issues, New Actors, New Responses, by P. Kenen, J. Shafer, N. Wicks and C. Wyplosz (2004)
IMF Leadership: What the United States Should Do - Brookings Institution (Apr. 2004)
The Politics of International Trade in the 21st Century: Actors, Issues and Regional Dynamics, by Dominic Kelly and Wyn Grant (2005)
Whose Trade Organization, Lori Wallach & Patrick Woodall, Public Citizen (2001)
India and the WTO, Aaditya Mattoo and Robert M. Stern (2003)

Pittsburgh to Host G20 Summit in September

noreply@blogger.com (James Edward Banks) — Mon, 01 Jun 2009 01:51:00 +0000

Last week, the White House announced that Pittsburgh will host the next G20 (Group of 20) Summit in September. Much of the summit’s focus will center on the $1.1 trillion global economic recovery plan adopted at the London Summit in April.

Having lived in Pittsburgh for 2 ½ years, my immediate reaction upon learning of the selection was “PITTSBURGH? You mean “Steel Town USA" whose population dwindled precipitously following the steel industry’s decline in the 1980s?”

Yes that Pittsburgh! According to the White House, Pittsburgh’s transformation from steel industry icon into an emerging high-tech center makes it a perfect illustration of how to reinvent an economy. In addition, Pittsburgh’s selection allows the Obama administration to continue to champion "green" energy in lieu of reliance on fossil fuels because PPG Industries, which is conducting research on solar window panels for office buildings, is located in Pittsburgh.

I must confess that even after becoming aware of these factors, I still questioned the selection. However, I discovered while doing some research on past G7 summits that these meetings have been an effective economic development tool, providing significant short- and long-term economic benefits for the host city.

So let’s see, a summit that will focus worldwide attention and foster economic development in a city that successfully regenerated itself, that’s in the vanguard of the development of “green” energy and that also just happens to reside in a state endowed with twenty-one electoral votes? I think I understand the choice now. But why should you and I pay attention to this G7, no excuse me, G20 summit? I am glad that you asked.

The G20 includes Australia, eleven emerging markets (Argentina, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey) plus the European Union. It also includes the major industrialized countries known as the G7 (i.e., Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) that for most of the post World War II era have monopolized the decision making regarding global economic policies. In 1997, the G7 became the G8 with the addition of Russia following the collapse of the erstwhile Soviet Union.

Although leaders of the G7 previously invited groups of developing-country leaders to meet with them on the fringes of past summits on an ad hoc basis, it wasn’t until 2007 that a more permanent outreach was made to developing countries. The impact of the global economic crises in 2008, however, necessitated the need for a summit that included a more representative number of countries. Therefore, at the urging of French President Nicolas Sarkozy and British Prime Minister Gordon Brown, a historic meeting of the G20 convened in Washington, D.C. in December 2008 to strengthen global economic growth, deal with the financial crisis, and lay the foundation for reform to avoid similar crises in the future.

Therefore, you and I should care about the upcoming Pittsburgh summit because what we are seeing is a tectonic shift in control of the global economic agenda where a more representative number of countries are now providing input, including how to overhaul the international economic system.

My next post will examine some of the underlying tensions between the developed countries and the developing countries regarding governance of the pillars of the international trade system (i.e., the International Monetary Fund, the World Bank and the World Trade Organization) that helped usher in this development.

Sources:
Push on to prepare city for G-20 summit, Pittsburgh Post-Gazette (May 29, 2009)
G20: Why Pittsburgh?, Wall Street Journal (May 28, 2009)
G8 backs financial reform summit, BBC News (Oct. 15, 2008)
G7 loses grip on global policy, Asia Times (May 8, 2008)

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