Category Archives: India

The Battle Of The Sun

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Is it environmental one-upsmanship or old-fashioned protection of an infant industry? India’s Jawaharlal Nehru National Solar Mission (NSM) was created to boost domestic production of solar cells and solar modules – clearly a good idea for the environment, right? The rub is that this is done by requiring that Indian solar projects buy their solar modules, cells or thin film technologies only from Indian factories – effectively banning foreign competition for solar power gear from Indian soil. It is a tad subtler than an outright ban. An Indian solar project can use foreign kit, but they won’t get the sweet power purchase deal from the national power monopoly. Washington started asking questions in the WTO a few months back, saying that Indian policy is a local content requirement that violates multiple international agreements. I posted about it because it is a traditional trade spat, but in new bright green environmental clothing.

Please, local marble only.

Please, local marble only.

New Delhi struck back a couple of weeks ago. Not by defending itself, but by arguing that the United States also has illegal local content requirements (who knew?). The Indian argument seems to be “you do things wrong, so you can’t complain when we do things wrong“. That’s often a good political, but is not a recognized defense in international law. Quite the contrary. Canada is in the process of losing a WTO case brought by the European Union and Japan against local content requirements used for renewable energy projects in Ontario.

There is substance to India’s case, which relies on the concept that defeated the Canadians: national governments are responsible for what their state, provincial or local governments do that violates international obligations. India has now raised questions about water utilities, for instance, in New England, Pennsylvania, West Virginia and South Carolina that impose local content rules on iron pipes and fittings used in water projects. New Delhi sees discriminatory local content rules being used in solar and renewable energy projects in Michigan, California and Texas. And pipe procurements in Alabama, South Carolina and Florida that are restricted to local products. This kind of puts Washington between a rock and a hard place, because there is long precedent for asserting the legal primacy of international treaties over local or state law, going back at least to a case brought by Japan against “Buy America” procurement legislation in Mississippi in the 1970s.

This is all part of a larger picture. As customs duties have come down across much of the world, local content requirements have become a favored tool for restricting foreign competition. U.S., European and Japanese companies often find themselves the victims of local content rules, so their trade agencies are waging an aggressive campaign against such rules wherever they are found. There have been complaints against similar practices in Indonesia, Brazil, Russia and the Ukraine – and we are likely to hear about more.

For better or worse, India is telling us that perhaps Washington should make sure its own house is in order. Not a bad idea. But just try selling that to local and state politicians egged on by local producers. In any country.

WTO Members Grilled On Import Licensing

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The Import Licensing Committee of the World Trade Organization (WTO) met last week to watch member countries trade barbed questions about import licensing requirements. Licensing, while it can be used for legitimate consumer protection, can also be employed to keep foreign competition out in favor of local producers. The Import Licensing Committee tries to resolve disputes before they become official cases in Geneva, but there have been 39 often raucous dispute settlement cases since 1995.

The WTO Import Licensing Agreement aims not only to prevent licensing requirements from being used to discriminate against foreign products, but also – realizing that uncertainty stops trade – to encourage countries to be transparent about their licensing practices. Member countries are often reluctant to give information about import licensing to each other or to the WTO secretariat. The WTO conducts an annual licensing survey that all of its 159 members are supposedly required to fill out. I haven’t seen the results for 2012 yet, but only 43 of the members bothered to complete the 2011 survey. Hardly a strong vote for transparency, is it? One has to assume that the 116 non-responding countries are up to something sneaky.

Russia only joined the WTO last year, but Moscow has already missed its first deadline for the import licensing survey and many countries want to hear what the Russians have to say. Canada, the European Union, Japan and the United States all asked questions about Russia’s practices, and were joined by Norway, Switzerland and Australia in expressing concern about the missing questionnaire. The Russian delegation answered some specific questions – describing its licensing rules as mostly applying to alcoholic beverages, drugs and drug precursors, toxics, medicines and radio-electronics – but gave the excuse of a re-organization of its trade agencies as the reason for its non-response to the annual questionnaire. Wonder if we will see a response to the 2013 questionnaire?

Vietnam was congratulated by the United States and the European Union for its decision to temporarily waive some of its import license requirements. That done, Washington complained that Vietnam has been a WTO member for six years now and still hasn’t presented – as required – a list of what products are actually subject to import licenses. The new waiver would have been more impressive if we had been sure of what was covered in the first place.

The United States, the European Union, Japan and South Korea are all worried about import licensing requirements in Indonesia. Seems Jakarta has imposed new rules requiring licenses for food and beverages, traditional medicine and food supplements, cosmetics, ready-to-wear clothes, electronics, footwear, children’s toys, mobile phones and other information technology products – but hasn’t bothered to tell anybody about it. The Indonesian delegation to the WTO must have been embarrassed when forced to admit that their bosses in Jakarta hadn’t filled them in either. The Indonesia delegates admitted that the new rules had caused “delays” in processing imports, but – in a CYA moment – tried to justify the regs as complying with technical regulations and human health and food safety requirements. Without knowing what the new regs are. Diplomacy has its humorous moments.

Perhaps not the right "ghost company"?

Perhaps not the right “ghost company”?

Switzerland raised a question about Brazil‘s RADAR import authorization requirements that are said to combat fraud by “ghost companies“. Brazil said we’ll get back to you, perhaps an admission that these rules had been off their radar. (Anybody out there know what these rules are or what a “ghost company” does?)

That wasn’t all, but you get the drift. Australia had questions for the European Union about licensing for motor vehicles and animals (not together). The United States jumped on St. Lucia about poultry and pork licenses. Washington and Brussels asked questions about coke and coal licenses in the Ukraine. India got questions from Turkey about marble, and from the United States about boric acid. The Turks raised the same question about marble with Thailand, and the EU pressed the Thais on nitrocellulose.

This is the sort of stuff that rarely makes headlines, but can kill or slow trade.

Can You Hear Me Now?

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Many Americans don’t travel outside their country and, thus, have the ignorance to assume that everything in the United States is the best in the world. We see that in our Congress almost daily in things such as the refusal to consider health practices in places that have better outcomes then we do. One area we like to assume we own is telecommunications equipment and services. A symptom of that attitude is the requirement, annually since 1988, for the Office of the U.S. Trade Representative (USTR) to prepare the so-called Section 1377 Review about barriers in other countries to our telecom services and gear. USTR is not required to consider U.S. restrictions. If you have lived or worked overseas, you know that the United States is neither the best nor the worst when it comes to telecoms.

The 1377 Review is still a useful look at places that manage the industry worse than we do. But it is too bad that the Congress doesn’t require that the review look at best practices around the world, but only at the negative stuff. You can read the latest full review here, but I’ll give you some teasers.

Recent years have witnessed a growing trend among our trading partners to impose localization barriers to trade designed to protect, favor, or stimulate domestic industries, service providers, or intellectual property (IP) at the expense of imported goods, services, or foreign-owned or developed IP – and this trend is evident in the telecommunications sector. This year’s 1377 Review highlights the concern that U.S. equipment manufacturers may be disadvantaged by the growing use of local content requirements in countries such as Brazil, India, and Indonesia. It also outlines a range of other telecom barriers that USTR has spotted and intends to tackle with increased monitoring and enforcement in the coming year.
~ Acting U.S. Trade Representative Demetrios Marantis, 4/3/2013

Among the measures that USTR is concerned about, in no particular order:

* Local content requirements in Brazil as a condition for winning new mobile telecom licenses.

* International termination rates for long-distance calls. This means that foreign telecom operators charge an inflated rate to the U.S. supplier for calls to their country. Of course, those added charges get passed on to American consumers. The review lays into Pakistan for this, but also names El Salvador, Ghana and Jamaica.

* Worldwide concerns about restrictions on cross-border data flows and Internet-enabled trade in services.

* China may be the most egregious example, but USTR is concerned that too many countries do not have effective telecom regulators that are fully separated from the interests of their telecom operating entities.

* Many countries impose limits on the percentage of equity in local operators that can be owned by a foreign company. The 2013 review emphasizes China in this respect. Canada and Mexico get kudos for progress on their foreign investment rules.

* State-owned or state-favored competition is always a concern. This year’s review focuses on China, Colombia and Mexico.

* China and India are particular concerns for U.S. satellite operators trying to sell in their markets. A common complaint is that governments force foreign satellite companies to sell capacity only through their state-owned telecom companies, not directly to the private sector.

* India gets mixed reviews for its handling of submarine cable landings. Access for users has been greatly improved, but there are still questions about fees levied on foreign telecom companies using the cables.

* Trade in telecommunications equipment has long been plagued by differing product standards which, when combined with testing and certification regimes, can slow down market entry or simply make it not worth the cost of entering some markets.

* Brazil, India and Indonesia each maintain local content requirements for telecom equipment.

* China has extreme security requirements (including incorporation of a Chinese encryption algorithm in some equipment), and redundant and less-than-transparent testing rules and product standards. India, though not as bad, is right behind the Chinese.

* Mandatory certification and local testing requirements are problems in China, Brazil, Costa Rica and India.

All this gives USTR’s trade negotiators plenty to do and think about during the coming year.

Of course, USTR’s mandate is to look at restrictions that other countries impose on trade and investment – not at U.S. practices. That falls to the Federal Communications Commission, which may or may not have any interest in liberalizing U.S. regulations. Things have loosened on possibilities for foreign companies to buy a controlling interest in American telecom companies, but foreign investors must be vetted by the FCC. I am not sure what other U.S. practices might attract the ire of foreign suppliers. It is up to them to figure that out and then try to open negotiations with Washington.

Customs Can Ruin Your Day

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How long will this shipment take?

How long will this shipment take?

Every company encounters them. Even many individuals. Sometimes there are good reasons for customs delays, but they are always irritating – and sometimes they can kill a deal or even a whole line of business. While preparing the World Economic Forum/World Bank/Bain & Co. study on shipping logistics, the researchers interviewed a semiconductor manufacturer (unidentified, though I have my guess). They had other problems (e.g., export controls), but the conversation dwelt on customs delays and where they are worst. The company often sells to buyers who demand just-in-time delivery – and those deliveries can be defeated by a dilatory customs office somewhere. The company’s shipments are generally sent by air, but can end up sitting for several days in a customs shed.

The semiconductor company and its clients use bonded zones in China and often need to move product between those zones. Each time goods move in or out of a bonded zone, similar in concept to foreign trade zones elsewhere, they come under the purview of Chinese customs officials. China’s rules for shifting items from one zone to another are unclear and tracking of products is inconsistent. The company reports that each move in or out of the zone (import or export) typically requires half a day for clearance, but it is not unusual for clearance to take a full day or longer. The issue is usually how tolerant a customs officer may be when there are mismatches between shipping documents. Some see that a mistake is merely a typo and let the goods pass. Others are sticklers for perfection. This is the sort of thing that could be remedied by electronic customs documentation, eliminating much of the human error that has always plagued international shipments. There are also issues with the opening hours of the customs offices, apparently not long, despite the fact that the firms using the bonded zones are working 24/7. Sometimes it is quicker to export a shipment to Hong Kong and then to immediately re-import it to China.

Our semiconductor company has to cope with exceptionally long customs delays in Russia, where clearance can take from two to three weeks. The company sends its products first to Finland where they can be safely stored while deals are done with Russian distributors. The distributor gets caught in the middle when arguments erupt, due to unclear and fluctuating rules, between Russian customs agents, the company’s clients and the distributors themselves. Thus, the company’s Russian distributors have to maintain higher than normal inventories to please the customers. Customs hassles also lead more clients to reject shipments. Russia, however, applies an export tax that is costly enough for our company to tell the distributors to destroy 98% of the rejected goods rather than go through the hassle of shipping them back.

The company also puts Brazil, Argentina and India on its naughty list for customs clearance issues. Security and corruption are endemic in these countries and all feature uncertain rules that are “flexibly” applied at the border. Customs clearance in India, for instance, is supposed to take no longer than 48 hours, but customers usually allow for a week to actually get their goods.

India is also one of the most risky destinations from a security perspective, with the most theft in Asia. The main point of risk is at the warehouse monitored by customs. The forwarder or importer cannot see the cargo when it arrives. The consignee (customer) often receives paperwork indicating the shipment is there, but when it gets through customs it may be in bad shape or partly stolen.

It doesn’t have to be this way. Our semiconductor manufacturer praised Vietnam, where great strides have been made in building an electronic customs clearance system. Still being put into place, the automated system has sped up most clearances to only two hours. Some shipments are cleared in only 20 minutes! The system has been designed by the Vietnamese, the semiconductor company and some of its suppliers. Now, Japan is joining the effort, making grants of $40 million to Vietnam to extend the system and have it fully operational by this time next year.

Is there a message in Vietnam’s experience for China, Russia, Brazil, Argentina and India?

[The photo is actually of Indonesian customs officers intercepting an illegal shipment.]

Funny Honey

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Some call it “honey laundering“. Sticky business, but there is apparently a huge international trade in faked, illicit or counterfeit honey. And it could easily hurt your health. The center of the trade appears to be – where else? – China, though India and other Asian suppliers add substantially to it.

A third or more of all the honey consumed in the U.S. is likely to have been smuggled in from China and may be tainted with illegal antibiotics and heavy metals. A Food Safety News investigation has documented that millions of pounds of honey banned as unsafe in dozens of countries are being imported and sold here in record quantities.
~ Food Safety News, August 15, 2011

Are those Chinese bees?

Are those Chinese bees?

There are two main strands to the story: U.S. vs. China – and European Union vs. India, according to my prime source for today’s post, an investigative report published in August 2011 by Food Safety News (FSN). In 2001, the United States applied stiff antidumping duties on Chinese honeys, responding to complaints that the Chinese were selling at below cost to drive their way into the U.S. market. U.S. honey producers can only produce enough to satisfy about 48% of the American market, the rest made up by imports from 42 countries. The antidumping duties ensured that prices rose for Chinese honeys. One would expect that imports from other countries would rise to meet U.S. demand in place of the Chinese honey. This happened, but in a peculiar pattern. Almost all of the increase from other suppliers came from other Asian markets, sometimes far more than their known ability to supply honey. You would also expect prices to rise as supply tightened, but this didn’t happen. Word in the industry was that Chinese companies were shipping their honey to other countries, relabeling or otherwise disguising the honey – and then shipping it on to the United States as the purported product of another country. Many countries are involved, but the prime transshipment market appears to be India. “India doesn’t have anywhere near the capacity – enough bees – to produce 45 million pounds of honey. It has to come from China” says Richard Adee, past president of the American Honey Producers Association. The FSN investigation turned up documentary evidence of Chinese honey being shipped from Guangzhou to a major Indian honey supplier and then being re-shipped to Los Angeles.

Not only were the Chinese illegally transshipping honey bound for the United States, there is growing evidence that – as with so many food products in China – much of the honey is adulterated with other substances, some unsafe for human consumption. European Union inspectors in 2010 found two different antibiotics in samples of honey from India and, worse, found lead in some of the same samples. Though the antibiotics could have come from Indian honey producers, the lead was likely from small Chinese beekeepers who normally transport and store honey in lead-soldered drums.

Another favorite con among Chinese brokers was to mix sugar water, malt sweeteners, corn or rice syrup, jaggery, barley malt sweetener or other additives with a bit of actual honey. In recent years, many shippers have eliminated the honey completely and just use thickened, colored, natural or chemical sweeteners labeled as honey.
~ Food Safety News, August 15, 2011

The European Union banned the import of honey from India after finding the lead content, but U.S. action against the rampant transshipments has been more muted. Trade statistics show that, in the period after the EU’s ban went into effect, U.S. imports of honey from India have surged – apparently beyond India’s capacity to produce honey. It is unclear how much effort the U.S. Food & Drug Administration is putting into inspecting imported honey, but the Justice Department has indicted at least 23 German, Chinese, Taiwanese and Americans from nine companies for offenses related to the illegal transshipment of Chinese honey. Even Russia has cracked down on illegal Chinese honey.

Admittedly, it is tough to figure out the origin of honey to prove a case. While many laboratories can detect all the stuff that gets added to honey, there are only a couple that can analyze the flower pollen in the honey to determine where it came from. But a new weapon is coming into the battle and may turn the tables on the honey traffickers – thanks to the European space program. Some genius has figured out that an instrument made by the European Space Agency to analyze carbon on Mars can be used in the fight against honey laundering. Honey from a given geographical source shares a common carbon “footprint” that can be read by the ESA’s laser device. Work is proceeding feverishly to miniaturize the device to handheld size that can be deployed to inspectors. What’s more, the same instrument can also be used to geographically identify other frequently counterfeited or transshipped foods, such as chocolate and olive oil.

There are still millions of pounds of transshipped Chinese honey coming into the U.S.A. and it’s all coming now from India and Vietnam. Everybody in the industry knows that.
~ Elise Gagnon, Odem International

You know, I think I’ll buy my honey from our local artisinal producers. Had some good Waimanalo honey on my toast the other morning.

Environment vs. Development vs. Trade?

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India says it is developing a home-grown solar energy industry to reduce carbon emissions. The United States says that India is closing its market for “clean energy” products. What is really happening is that India is protecting an “infant industry” from import competition, a venerable economic development tactic. It is almost coincidental that the industry concerned is favored by environmental interests, but both sides are cloaking their arguments in modern, environmental terms.

India is trying to grow its domestic solar industry through a program begun in 2010 with the grandiose title of the Jawaharlal Nehru National Solar Mission (NSM). The aim is to boost Indian production of solar cells and solar modules. It is the means by which this is done that riles Washington, not the more general objective of promoting solar power in a country that desperately needs it. Not that Washington is totally altruistic: it sees a market for U.S.-made solar cells and modules, and doesn’t want U.S. suppliers to be summarily closed out of it. And they will likely be closed out if nothing is changed.

Are those cells home-grown?

Are those cells home-grown?

Here’s how India does it. Phase I of the NSM – already in place – requires new solar photovoltaic projects that use crystalline silicon technology to use solar modules and cells that are made in India. This is enforced by offering subsidized energy purchase rates by the national power monopoly to solar developers who comply with the domestic sourcing requirement. You use imported cells or modules, you don’t get the good rate. Phase II, now being prepared, will extend coverage to solar thin film technologies, which just happen to be what the United States sells most of in India.

Washington decided on a preemptive strike before Phase II comes into place. Last week, in Geneva, the United States invoked the initial move in the World Trade Organization’s dispute settlement settlement process. That is to formally request bilateral consultations with India to see if they can work things out “out of court”. They probably can’t, so the next step will be for Washington to ask the WTO to set up a panel of experts to look at the facts of the case. (This is early days and things may not be as simple as I have laid out above.)

Washington has already revealed the scope of its legal arguments:

These elements of India’s national solar policy appear to be inconsistent with India’s obligations under the WTO agreements. These obligations include Article III of the General Agreement on Tariffs and Trade 1994 (GATT 1994), which generally prohibits measures that discriminate in favor of domestically produced goods versus imports; Article 2 of the WTO Agreement on Trade-Related Investment Measures, which prohibits trade-related investment measures that are inconsistent with GATT Article III; Article 3 of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), which prohibits conditioning a subsidy on the use of domestic over imported goods; and Article 5 of the SCM Agreement, which prohibits causing adverse effects on other WTO Members through subsidies that discriminate against imported goods.

India will likely argue that all that is moot because India is a developing country, invoking Article XVIII of the GATT, which expressly allows “infant industry” protection. It will be more involved than that, of course, but the WTO’s experts will be left to determine if India is still poor enough to use Article XVIII. The article stipulates that it is only available to economies that “…can only support low standards of living and are in the early stages of development.” India will point to all its poor farmers and the beggars in its cities. The United States will stress India’s world-class IT, steel and pharmaceutical firms. At what point does India graduate? Could get interesting.

Pharma Trade Agreement Proposed

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There is a new proposal for a trade agreement on pharmaceuticals, but it comes from the medical community – not the trade community. There have been rumors of a possible agreement on trade in pharmaceuticals coming out of the wreckage of the Doha Round, but this is a new proposal to combat “falsified and substandard medicines”. The proposal was published last week in the British Medicine Journal, written by a diverse group of fourteen authors: How to achieve international action on falsified and substandard medicines. The authors include pharma and medical specialists, intellectual property lawyers and public health activists. They hail from Canada, India, the United States, Switzerland, the Netherlands, Pakistan, Nigeria and the United Kingdom. And we are not just talking academic types here, but from organizations like the American Enterprise Institute and the Council on Foreign Relations. My point is that these are people who well know the impact of counterfeit drugs, but who are outside the usual trade policy discussion.

Are you taking fake Vicodin?

The problem is huge and global. At least 100 people died in Pakistan this year from faulty cardiac drugs. Adulterated heparin from China killed at least 81 people in 2008. The WHO says perhaps a third of all malaria drugs are counterfeit. In the early days of talking about commercial counterfeiting, it grabbed people’s minds when fake contraceptives were intercepted coming into the United States from Mexico. Recent FDA warnings include counterfeit medicines for attention deficit disorder, cancer treatments, appetite suppressants, influenza medications, fake Viagra, as well as surgical mesh and blood glucose test kits.

At best patients taking these compromised products get no relief from their symptoms; at worst they may die. In poor countries, half of medicines for some deadly diseases are fake and have little or no active ingredient. In rich countries, medicine safety is better, but substandard and falsified drugs still cause thousands of adverse reactions and some deaths.
~ How to achieve international action on falsified and substandard medicines

The proposal for an international agreement against trade in fake or substandard drugs comes just as the World Health Organization convenes this week in Rio de Janeiro to talk about the same problem. But there has already been adverse reaction to the proposal, which merely states reasons for negotiating such an agreement and some possible outlines for a draft. That reaction has come from one of the world’s major sources of generic pharmaceuticals and, not coincidentally, a prime likely source for fake or substandard medicines: India. India has insisted that the WTO ban non-governmental organizations, and the fourteen authors, from the Rio meetings, which will now be closed to all but official government delegations.

The closing of the Rio meetings comes despite WHO’s own estimate that more than 10% of medicines in the developing world are fake or substandard. Counterfeit drugs are now the top illicit product seized by European Union customs authorities, and fake vials of Avastin have been implicated in the recent meningitis outbreak in the United States. Even faced with all this, the Indians (and others, it must be admitted) are convinced that any proposal for crackdowns on drugs are really aimed at protecting the markets of the big western pharma companies. Many in the developing world are convinced that Big Pharma will stop at nothing to define illicit drugs in a way to restrict sales of inexpensive off-patent medicines. That said, counterfeit versions of medicines by Roche, Sanofi, Lilly, AstraZeneca and others have been intercepted worldwide.

One has to wonder if combining discussion of counterfeit and substandard drugs with an agreement on free trade in pharmaceuticals might offer enough to convince more countries, perhaps including India, to come on board. Sometimes, enlarging the area of discussion offers more possibilities for compromise. Is this something that WHO and the World Trade Organization can work on together?