Write 2 paragraphs about THE FUTURE OF INTERNATIONAL TRADE GOVERNANCE IN A PROTECTIONIST WORLD: THEORIZING WTO NEGOTIATING PERSPECTIVES article. No word count, page count, or formatting requirements.

Chaisse, J., & Chakraborty, D. (2021). THE FUTURE OF INTERNATIONAL TRADE GOVERNANCE IN A PROTECTIONIST WORLD: THEORIZING WTO NEGOTIATING PERSPECTIVES.Washington International Law Journal,31(1), 1-57. https://4x10hup0h-mp01-y-https-www-proquest-com.proxy.lirn.net/scholarly-journals/future-international-trade-governance/docview/2639047037/se-2?accountid=158399

Headnote

Abstract: The current United States Administration will face considerable challenges in the key areas of international trade law and policy. In order to understand the future international trade architecture for the coming decade, including in the World Trade Organization (WTO), it is essential to understand the drivers of key trade strategies in leading economies. This article explains the reasons why and the extent to which the negotiating perspective of a country is determined by its ability to penetrate in global value chains, embrace tariff reforms, and face the trade balance consequences. These abilities may in turn influence a country's willingness to impose anti-dumping or subsidies and countervailing measures. Given the employment generation capability of the manufacturing sector and the consequent domestic economic compulsions, the WTO negotiations on freeing trade in this category have progressed slowly. The Non-Agricultural Market Access (NAMA) negotiations to reduce the high bound tariff to address tariff "overhang" reached a stalemate in the last decade due to diverging perspectives of developed and developing countries. In addition, developed countries have ceased using contingency measures as policy instruments, and leading developing countries are taking refuge by doing the same. In this context, this article explores the tariff and contingency policies of two key developed countries (United States and European Union) and developing countries (China and India), to gauge each country's willingness for future reforms. The perspective regarding manufacturing competitiveness differs significantly among these countries, which also shapes their manufacturing policy interventions. This article concludes that, given the trade and industrial policy choices made by these countries in recent past, it would be difficult to reach a WTO-induced multilateral trade agreement on NAMA.

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

In recent years, trade policy dynamics have shaken the foundations of international trade law and governance, in particular at the World Trade Organization (WTO).1 The objective behind the establishment of the WTO in 1995 was to secure a stable, transparent, and predictable framework for facilitating cross-border movement of goods, services, service providers, and investment. The provisions included in the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS) encouraged Member countries to commit to certain reforms in 1995, to achieve greater predictability. Accordingly, for the trade in goods, as decided at the Marrakesh Agreement (1994), these countries made significant progress by "binding" their tariff lines by 1995.2 The bound tariff, which is the maximum import duty permissible on a product in a country, was subject to periodic negotiations and downward revisions. The Member countries were entitled to set their applied duties freely, subject to the condition that they do not pass the upper limit set forth by the WTO provisions.3 The reforms in the developed countries were expected to reduce the proportion of imports facing international peak tariff (IPT) from seven to five percent. 4 Conversely, the proportion of developing country exports to their developed counterparts, subjected to IPT, were expected to decline from nine to five.5 This disciplining of the tariff structure of WTO Members, in both developed and developing nations, created more certainty in the world trading system and facilitated cross-border trade flows.6

During the Uruguay Round negotiations, the participating countries agreed to bind their tariff lines (i.e., to set an upper limit on the applied tariff rate). It was expected that the member countries would agree to negotiate their bound tariff rates at reasonable intervals and to lower them accordingly, to ensure a reduction of protectionist intent. However, the expectation on periodic reforms of the bound tariffs have remained unfulfilled so far. Taking note of the member's concerns, the fourth Ministerial Meeting of the WTO at Doha (2001) pledged to control the protectionist tendencies through reforms based on modalities decided through mutual consensus. 7 There have been several rounds of negotiations to reform the Agricultural and Non-agricultural Market Access (NAMA) provisions in the aftermath of the Doha Ministerial (2001),8 but given the difference in perspective among Member countries on the "coefficient9" to be adopted, the reforms remain elusive.10 The delays in the reform process caused three specific concerns.

First, the countries reduced the applied tariff rates significantly from 1995 to 2020. The widened gap between the bound tariff set in 1995 and the annually fluctuating applied duties is termed as "tariff overhang" or "tariff water" in trade literature.11 The wider "tariff overhang" enables countries to increase applied tariffs in a WTO-compatible manner, on the basis of perceived threats.12 In particular, the world has witnessed a series of global and local recessions since the United States sub-prime crisis in 2008 to 2009. Many WTO Members have embraced "deglobalization" by increasing tariffs, albeit temporarily.13 The recourse to higher tariff barriers and lower trade volume became evident from recent trends, with serious consequences for WTO-induced trade-led growth process.14

Second, given the slow progress of the WTO Doha Round negotiations, including the pending bound tariff reforms, the attractiveness of entering into regional trade agreements (RTAs) has grown during the last two decades.15 Apart from the bilateral trade treaties and regional trade agreements, three major mega-regional trade forums surfaced during the last decade, namely: the Trans-Pacific Partnership (TPP) agreement, the Transatlantic Trade and Investment Partnership (TTIP), and the Regional Comprehensive Economic Partnership (RCEP). However, the megaregional blocs have faced their own challenges with the United States' pull out from TPP in January 2017,16 followed by India's pull-out from the RCEP in November 2019.17 Economic concerns dominated the pull-out decisions. The United States was concerned with perceived unfair arrangements18 and India was concerned with a growing manufacturing trade deficit.19 While the concluded regional trade agreements (RTAs) led to considerable intra-bloc trade reforms, close observers raised apprehensions that the future blocs, particularly the mega-regional forums, would compete with the multilateral reform process and slow down the pace and effectiveness of WTO negotiations.20

Third, historically developed countries had been the major users of the contingency provisions, namely: anti-dumping and countervailing duties.21 Member countries can protect their domestic interests against unfair trade practices, such as dumping, through "contingency" measures, as allowed under the corresponding WTO provisions.22 The applied tariff reforms over the last two and a half decades, under the influence of multilateral, regional, and unilateral motivations, have exposed developing countries to rising import flows. A number of developing countries are now on par with their developed counterparts in their use of these contingency measures, often targeting imports coming from other developing countries.23 Moreover, misuse of these provisions is often cited at the WTO dispute settlement forum.24 The delayed disciplining of the contingency provisions, particularly in the times of recession and rising protectionist sentiment, presents a major challenge for the global trading system.25

Notwithstanding the delays in bound tariff reforms, a major outcome of the applied tariff reforms over the last two decades has been the considerable expansion of international production networks (IPNs), which connect the manufacturing sectors across a wider range of countries. The fragmentation of sequential production blocs enables multinational corporations (MNCs) to locate various parts of their global value chain (GVC) of manufacturing activities in suitable locations across countries. The process is facilitated by tariff reforms, including both WTO-induced and RTA-led initiatives. During this period, participation of developing country in IPNs and GVCs has significantly increased. This participation facilitates growth in their manufacturing sectors, "without having to develop complete products or value chains."26 However, possible recourse to deglobalization measures (e.g., tariff rise, changes in trade policies influencing supply chains), particularly in the post-COVID period, might lead to a degree of disruption in the International Production Networks (IPNs).27 The post-pandemic responses may continue to influence the future trade policy deliberations in the long run, although to a varying degree in different countries.28

Global economic turbulence can facilitate multilateral trade policy reforms. A case in point is the conclusion of the Uruguay Round (198694), the eighth round of multilateral trade negotiations conducted within the framework of the GATT.29 Initially, negotiations on reform modalities were progressing slowly. However, the 1990-91 period was marked with several disruptive events, leading to a global economic downturn. For example, the Gulf War and oil price uncertainty, breakdown of the USSR, credit crunch in the United States, banking crisis in Scandinavian countries, bursting of an asset price bubble in Japan, and so on.30 In the post-1991 period, the urge to conclude the Uruguay Round for facilitating a trade-led recovery was strong in both developed and developing countries. It is an interesting question whether the current post-COVID scenario might hasten the much-delayed bound tariff reform process. It can be argued that a country's perspective towards multilateral tariff reforms may be critically influenced by its trade performances (e.g., trade balance, gainful GVC participation). Given this background, the current analysis intends to explore the interrelation between trade performance, orientation towards contingency measure adoption, and the resulting urge to go for multilateral tariff reforms. To understand the orientation across development profiles, this article focuses on the merchandise trade experiences of two developed countries (European Union and United States) and developing countries (China and India). The article demonstrates that the negotiating perspective of a country (multilateral and regional) is determined by ability to penetrate in GVCs, tariff reforms, and trade balance consequences, which may influence the willingness of the country to impose AD/SCM. The analysis is organized as follows. First, the article covers the WTO discussions regarding bound tariff reforms and the positions held by key countries. Second, the article discusses the negotiations on the reform of contingency measure provisions. Third, the article analyzes the country-level scenario on tariff reforms, GVC participation, and recourse to trade remedy measures. Finally, based on the findings, the article concludes with key policy conclusions on the future of WTO NAMA negotiations.

NAVIGATING TRADE LAW NEGOTIATIONS: THE NAMA TARIFF REFORM

The NAMA negotiations were aimed at substantially reducing tariff levels and other non-tariff barriers (NTBs) on imports and exports of most goods, except for food products and cotton, while complying with the objectives of the GATT and accounting for varying needs of different members. While negotiations before the Uruguay Round were largely centered around ad valorem tariff reductions of developed countries, the Uruguay Round saw developing countries rally for a more comprehensive approach by binding commitments on tariffs and NTMs and expanding the scope of covered sectors.31 In 2001, the Doha Round directed the implementation of the same to the Negotiating Group on Market Access (NGMA).32 Given that developing countries have a significantly higher proportion of their GDP derived from the manufacturing sector,33 the outcomes of the NGMA had particular importance to them.

A. The Post-Doha Period

In the post-Doha period, the negotiations on NAMA gathered momentum and the Member countries broadly agreed to embrace a nonlinear, formula-based tariff reform schedule. It was agreed in the Doha Development Agenda (DDA) that the interest of the developing countries would be protected by considering, ". . . the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments, in accordance with the relevant provisions of Article XXVIII bis of GATT 1994 . . ." 34 In other words, lower tariff cuts were promised for developing countries in exchange for the commitments, which are undertaken by the developed countries. Application of a Swiss-type bound tariff reduction approach emerged for this purpose:35

...

Where Ti is the final tariff, X is the given coefficient and To is the initial tariff.

The importance of the coefficient to be used is as follows. With the non-linearity involved, if a coefficient of five is adopted for the reform, then irrespective of the initial bound rate (e.g., 50% or 100%), the final bound rate in a member country would always be lower than the coefficient considered. Given the importance of manufacturing sector in employment creation and the political economy,36 the determination of the coefficient emerged as a major point of contention in future negotiations.

During negotiations, China proposed an interesting modification to the base Swiss formula, attempting to secure benefits from its relatively reformed tariff profile. The introduction of A and P in the formula provided China an advantage vis-a-vis other developing countries in the following manner:37

...

Where, Ti and To are the final and initial bound rates respectively, A is the simple average of base rates, P is the peak factor (P = To / A), and B is the adjusting coefficient (e.g., for the years 2010 and 2015, B would be three and one respectively). It can be shown that, by application of this formula, a country characterized by already lower import tariff rates (i.e., deeper reforms) would not face a steep tariff cut. In addition, the proposal supported the basic principle behind the sectoral approach but added that "[m]embers shall be free to decide their participation in light of their own needs."38

In Annex B of the Cancn Ministerial Text (2003) draft, the Chair's Draft Elements of Modalities (TN/MA/W/35/Rev.1) were cited. The draft focused on several aspects for future reforms.39 First, it proposed bound duty reduction or elimination, on all non-agricultural products.40 Second, 2001 was proposed as the base year for the most favored nation (MFN) applied tariff.41 Third, reform of the unbound tariff lines was proposed by twice considering the MFN applied rate in the base year as its basis. For incentivizing countries who had already undertaken deeper reforms in the base year, an MFN applied rate lower than 2.5% or 5% was recommended as the basis. 42 Fourth, now termed the sectoral approach, "a sector elimination approach is proposed with appropriate flexibilities for developing countries, in order to eliminate and bind all tariffs on products of particular export interest to developing and least-developed country participants." The following sectors were proposed for setting final bound duty at "zero" under the sectoral approach: Electronics & Electrical goods; Fish & Fish products; Footwear; Leather goods; Motor Vehicle parts & components; Stones, Gems, & Precious Metals; and Textiles & Clothing, with mixed interest on each among the developed and developing countries.43 Fifth, LTFR was promised in terms of longer implementation periods and flexibility of options to keep certain percentage of tariff lines unbound.44 Finally, tariff reductions were proposed by a line-by-line basis, using the following formula (Girard formula):45

... _ ta t0 1 _ ( t$ + t0)

Where, ti would be the final ad valorem bound rate, to is the initial bound rate, ta is the average of the bound rates, and B is a coefficient with a unique value to be determined by the participants.

B. The Derbez Draft Flexibilities

The "Derbez draft" (or Draft Cancn Ministerial Text) provided further flexibilities by not forcing tariff binding or reduction commitments on the least developed countries (LDCs) in the immediate future.46 However, it was heavily criticized by developing countries for not addressing their concerns. Two strong criticisms deserve mention. First, the draft did not identify a value of "B," leaving the negotiation openended. Second, the sectoral approach, which proposed setting tariff rates equal to zero in seven manufacturing sectors, was considered a violation of LTFR, as it would lead to developing countries conceding a higher degree of tariff concessions.47 The pace of negotiations suffered and mistrust among the developing countries grew further when, Annex B was presented to the WTO General Council in July 2004 and the text was found to be exactly the same as that which had been rejected by developing countries at Cancn.48

The NAMA negotiations aimed to minimize or remove tariffs. It was also stated that the coverage of the products subjected to tariff reforms must be extensive and without prior exclusions. Further, special needs and preferences of developing countries and LDC participants were to be considered, even by less than full reciprocity of reduction agreements. Therefore, developing countries were authorized to reduce tariffs to a lesser degree than developed countries and for a longer period of time.

Developing countries could choose: (1) lesser formula cuts of up to 10% of their tariff lines, which represented up to 10% of their import value; or (2) to not apply formula cuts, or leave unbound tariff lines, for up to 5% of their tariff lines representing up to 5% of their import value.49 Developing countries with a binding coverage of less than 35% would be exempt from formula reductions, but instead would contribute by binding their tariffs at an average level.50

The Derbez text also noted the importance of exploring the balance between the privileges of developed countries and those of newly acceded countries. More liberalization in this context could also be pursued by newly acceded countries. With respect to the sectoral approach, aimed at reducing tariffs in selected industries, participants from the least-developed countries were not expected to implement the formula cuts or to take part in the sectoral approach.

The NAMA negotiations gradually revolved around the determination of the coefficient "B," which would shape the extent of tariff reduction. Conversely, the European Union and the United States submissions sought stronger commitments from developing countries. The European Union's proposal of applying a single coefficient (X = 10) for both developed and developing countries was considered too stringent by the developing countries. As a non-linear formula has been adopted for the tariff cut, by the Swiss tariff-reduction formula, the new bound tariff rate would always be lower than the coefficient used. As the European Union called for the selection of a small coefficient to be the only coefficient for applying the tariff cut, many developing countries feared that their new bound rate would fall significantly below the current level of applied tariffs across sectors. This would force them to implement an immediate reduction of the applied tariff, with grave consequences for their national interest.51 The developing countries were therefore worried that the small coefficient, as proposed by the EU, would marginally lower bound tariff in the developed countries, while leading to a sharp decline of the same in their territories. The United States agreed to offer a limited flexibility by suggesting ten and fifteen for developed and developing countries respectively.52 The focus in developed countries on single formula or two close coefficients was guided by the significant tariff overhang53 in leading developing countries, namely, Brazil, Egypt, India, Malaysia, and South Africa.54 This contrasted with the United States' opposition to the single formula approach of the Uruguay Round, allowing required flexibilities for developing countries.55

In contrast, the possibility of a sharp fall in bound tariffs raised concerns among developing countries regarding an impending violation of Special and Differential Treatment (SDT). In line with the concern expressed by other developing countries, India emphasized the need to adopt two different coefficients for developed and developing countries, to secure the LTFR commitment.56 The country also collaborated with several other developing countries through the NAMA-11 forum 57 regarding the need for extending SDT to developing countries. 58 Moreover, as part of the Argentina, Brazil, and India (ABI) forum, developing countries stressed the adoption of the Girard formula (i.e., a modified Swiss) for tariff cuts. The proposal also argued that the unbound tariff lines, in the post-binding period, should not be subjected to formula cuts.59 This perspective received support from other developing countries as well.60 The Hong Kong Ministerial Declaration summarized the ongoing debate as follows:

. . . many Members engaged in an exchange on the basis of an approach with two coefficients. In the context of such debates, the coefficients which were mentioned for developed Members fell generally within the range of 5 to 10, and for developing Members within the range of 15 to 30, although some developing Members did propose lower coefficients for developed Members and higher coefficients for developing Members. In addition, a developing country coefficient of 10 was also put forward by some developed Members. However, while this discussion of numbers is a positive development, the inescapable reality is that the range of coefficients is wide and reflects the divergence that exists as to Members' expectations regarding the contributions that their trading partners should be making.61

While it became apparent that developing countries were not going to accept a single formula approach, a compromise of two coefficients posed issues as well, as "[a] 'Swiss formula with two coefficients' will be in violation of paragraph 14 of the HK Declaration.62" In the next couple of years, the Negotiating Group on Market Access (NGMA) of the WTO remained busy in reaching common ground, with submissions pouring in from the both sides of development spectrum.63 In February 2008, the WTO attempted to reach a compromise by proposing the following formula to be applied on a line-by-line basis:64

...(a or b) t0 1 (a or b) + t0

Where ti and to are the final and initial bound duties, a = 8 - 9: coefficient for developed countries and b = 19 - 23: coefficient for developing countries.

The February 2008 draft also called for the binding of unbound tariff lines by applying a constant, non-linear mark-up of twenty or thirty, considering 2001 as base year for subsequent tariff reductions. Developing countries were allowed certain flexibilities in terms of applying a lower level of formula cuts and thereby keeping, as an exception, a certain percent of tariff lines unbound. While the participation in sectoral initiatives was noted as non-mandatory, it was clarified in the draft that, "Such initiatives shall aim to reduce, harmonize or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs and tariff escalation, over and above that which would be achieved by the formula modality, on products of export interest to developing Members." But despite potential export gains, the sharp tariff reduction possibilities made the draft much less attractive to developing countries from the Global South.65 Developed countries interest in the draft waivered as well; the European Union and United States were unhappy with the flexibilities incorporated therein.

Given the lukewarm responses and the subsequent negotiations, NGMA came out with another revised draft modalities in December 2008,66 with the following tariff reform formula:

...{a or (x or y or z)} t0 1 {a or (x or y or z)} + t0

Where ti and to are the final and initial bound duties, a = 8: coefficient for developed countries and x = 20, y = 22, z = 25: coefficient for developing countries, to be chosen as provided in paragraph 7.

Paragraph 7 of the "December 2008 Draft"67 put forward by the NGMA of the WTO defined the detailed flexibility provisions involving developing countries for adopting a particular coefficient. For instance, to adopt x = 20, the permissible options were:

. . . less than formula cuts for up to 14 percent of nonagricultural national tariff lines provided that the cuts are no less than half the formula cuts and that these tariff lines do not exceed 16 percent of the total value of a Member's nonagricultural imports; or, keeping, as an exception, tariff lines unbound, or not applying formula cuts for up to 6.5 percent of non-agricultural national tariff lines provided they do not exceed 7.5 percent of the total value of a Member's nonagricultural imports.

Similar conditionalities were proposed in lieu of using coefficients 22 and 25 as well. Essentially, choosing a higher tariff reform coefficient would force developing countries to adopt deeper reform commitments otherwise. In addition, while participation in sectoral reforms remained non-mandatory, it was noted that:

. . . for some Members, sectoral initiatives that reach a critical mass of participation will help to balance the overall results of the negotiation on non-agricultural market access, which includes the coefficients in paragraph 5 and the levels of flexibilities and related provisions of paragraph 7. At the time of establishment of modalities, the Members listed in Annex 7 have agreed to participate on a selfidentified basis, in negotiating the terms of sectoral tariff initiatives, with a view to making them viable.

Finally, the draft advocated binding of unbound tariff lines by applying a constant, non-linear mark-up of twenty-five percent, by considering 2001 as base year, for subsequent tariff reductions.

C. WTO Negotiations in a Stalemate

While there has been significant work and some progress since the Hong Kong Ministerial Declaration, the member States missed the deadline set in the Hong Kong Declaration.68 Issues in NAMA that still need to be discussed, include the following:

* Members continue to disagree as to what products should be included in the Modalities of NAMA.

* LDCs are removed from the implementation of a tariff reduction formula. However, a reduction in the margin of choice enjoyed by LDCs and, by extension, their access to the market to developing and developed countries would "erode" if tariffs are substantially lowered for goods of export interest to LDCs.

* Members are split about how to handle unbound tariff mark-ups.

* The Draft of Modalities of July 2007 proposed specific flexibility recommendation, but no consensus was found.

* The revised Draft Modalities clarify that progress was made in the detection, analysis, and categorization of NTBs. It should be noted that, in general, LDCs have not informed their NTBs and have not been consistently involved in discussions on NTBs, although this is an area that is supposed to affect LDC's market access.

The United States has recently called for a "broad reset" of the WTO tariff commitment, arguing that the presently obsolete tariff decisions are stuck in a place that no longer serve the political choices and economic conditions of the Member States. The overall simple average bound rate of the United States is currently 3.4%, which is among the lowest for major developed countries and has remained relatively unchanged for more than a decade. By comparison, the average tariff levels for India and Brazil are 50.8% and 31.4%, respectively.69 Moreover, India has proposed that the upper tariff limits for several products of interest, namely information technology products, be renegotiated at the WTO.70 These proposed steps present a lucrative opportunity for the domestic sector under initiatives such the "Make-in-India" and "Atmanirbhar Bharat Abhiyan," in which India has promoted its domestic production of goods in selected manufacturing segments. The United States has noted that under the "Make-in-India" initiative, the government has raised duties on two broad groups of products to encourage domestic production: (1) an assortment of labor-intensive products; and (2) electronics and communications devices, including mobile phones, televisions, and associated parts and components.71 Similarly, the industrial policies introduced under the "Made in China 2025" initiative have already caught the eye of United States policy makers. These policies include tax preferences, forced joint ventures, and the devolution of subsidies might fluctuate distort prices in other developing economies and further benefit the Chinese entities.72 Qualitative steps, which affect United States businesses trading in China, have been proposed by both the United States and China. But the first signs of a ceasefire were seen when the two sides signed the Phase One Agreement in January 2020, which formally negotiated the rollback of tariffs, the extension of trade purchases, and renewed obligations on intellectual property, transfer of technologies, and currency activities.

TRADE REMEDIES: THE NEED TO REMEDY REFORM

In 2001, the Doha Development Agenda (DDA) set a goal to clarify and improve disciplines under the Anti-Dumping/Subsidies and Countervailing Measures (AD/SCM). Ever since the constructive engagement of these Measures was achieved in the WTO Hong Kong Ministerial in 2005, there have been several continued discussions in 2007 and 2008 based on the AD/SCM drafts. However, in 2010, it was reported that a "consensus" was unlikely to be achieved easily.73 The issue has remained contentious due to the polarized opinions among member countries within the DDA. Some nations have advocated for anti-dumping and other reforms, while others have opposed them. Another contentious issue has been the disputed Non-Market Economy (NME) status of China, which rests on the differences in interpreting section 15(a)(ii) of China's WTO accession protocol. The United States Department of Commerce continues to give China the NME status,74 despite some stakeholder groups advocating against this designation to avoid complicating trade relations with China.75

A.Trade Remedy Measure Negotiations

The United States has participated in bilateral and multilateral forums with its trading partners to resolve trade-related issues.76 To address potential adverse consequences, United States federal laws allow for trade relief initiatives on "unfair" foreign trade policies in the domestic market. These may include safeguard measures such as anti-dumping and countervailing duties or reduction of the influx of reasonably priced imports that impair national security. In fact, with each of its trade agreements, the United States has held bilateral negotiations to resolve conflicts and to increase consumer reach for United States companies. More often, however, the United States has reverted to a multilateral forum for the resolution of trade disputes established by the WTO or its precursor, the General Agreement on Tariffs and Trade (GATT). As part of the dispute settlement process, WTO members may seek authorization to retaliate if trading partners maintain measures determined to be inconsistent with WTO rules.77

B.China 's Non-Market Economy Status

The question of the nature of the Chinese economy-or more precisely the question of whether China operates as a market economy- is complex. Until now, China has been treated as a non-market economy (NME). In fact, Chinese exports are still subject to special conditions imposed when China joined the WTO in 2001. Under the formal legal criteria at the time, China did not meet the criteria of a market economy; this resulted in the provisional implementation (for fifteen years) of specifically binding anti-dumping measures. These provisions expired in December 2016. However, the fundamental problem is that the criteria used to determine these market mechanisms are individually specified by the countries because the WTO does not offer any formal definition. As a result, each WTO member can have its own definition, which results in very heterogeneous treatments of Chinese exports. In fact, the NME methodology is an arbitrary and punitive instrument.78 Without much surprise, this complex situation led to disputes between China and many other key members such as the European Union, the United States, and Japan.

On an appeal from China, the WTO Dispute Settlement Body agreed in 2016 to stay proceedings on a trade dispute, launched by China against the European Union, regarding China's non-market economy position in anti-dumping proceedings.79 In the late 1990s, China was a mid-sized economy and many WTO members, most prominently the United States, made China's effort to join the multilateral organization very difficult. This may have been the hardest accession deal in the history of the GATT/WTO. The major point of discussion during the accession talks was the treatment of China as a non-market economy (NME) after its entrance into the WTO.80 These WTO negotiations will enforce the main values of supply and demand for goods and services in the markets, without being limited by government intervention.

In anti-dumping situations, the non-market economy technique allows countries, who agrees to undertake WTO anti-dumping investigations, the extra freedom to disregard domestic costs and rates. For the last few decades, this technique has been used indiscriminately against China.

When domestic transactions are defined as inaccurate or irregular, expense and sales data are often used in the creation of home market rates. Chinese costs and rates have been routinely dismissed or disregarded in most anti-dumping proceedings, on the grounds of the special treatment of NMEs. Most anti-dumping bodies have also looked at "surrogate" or thirdcountry evidence in assessing the Chinese costs and prices. As several criticisms against the United States' practice of duty determination under NME scenario surfaced,81 the Chinese representation against the same have hardened as well.

C.Recent WTO Cases on Tariff & Contingency Measures

Under the Marrakesh Agreement of 1994, a protesting member may, in the case of a trade dispute between WTO members, request the creation of a tribunal composed of three persons to decide on the dispute.82 The panel is responsible for reviewing the accuracy of the suspected infringement of WTO agreements and providing a report to be addressed by the parties to the conflict, after the adoption by the Dispute Settlement Body (DSB). If one of the parties to the dispute does not recognize the panel's report, it will bring an appeal before the Appellate Body against the panel's legal conclusions. A three-member chamber hears each appeal; this panel may retain, amend, or reverse the legal decisions of the panel. Recent tariff cases with ongoing proceedings in the WTO are:

* China's Anti-Dumping and Countervailing Duty measures on Barley from Australia.83

* Colombia's Anti-Dumping Duties on Frozen Fries from Belgium, Germany, and the Netherlands.84

* India's Tariff Treatment on Certain Goods in the Information and Communications Technology Sector, where Taiwan claimed that India's measures appear to be inconsistent with Articles II: 1(a) and II:1(b) of the GATT 1994. Subsequently, the consultations were joined by Japan, the U.S., Singapore, Canada, and the European Union.85

Contingency mechanisms, or legal "stop valves," enable countries to cancel or waive trade agreements and affect the global economy if the WTO is exploited for protectionist purposes. The most recently settled disputes on these measures were between the European Union and Russia, and Australia and Indonesia, regarding alleged breaches of anti-dumping agreements.

The dispute between the European Union and Russia concerned two aspects of the European Union's anti-dumping practice: (1) the adjustment, by the European Commission, of input costs incurred by investigated producers and exporters; and (2) specific determinations made by the European Union in two Expiry Reviews. The Panel disagreed with Russia that the European Union had breached the Anti-Dumping Agreement by finding that there was a likelihood of recurrence of dumping and injury if the anti-dumping measures were to lapse.86

The dispute between Australia and Indonesia concerned Australia's anti-dumping measures imposed on A4 copy paper exported from Indonesia, following an investigation by the Australian Anti-Dumping Commission. One of Indonesia's claims in this dispute concerned a clause of the Anti-Dumping Agreement, which Australia had allegedly breached. The Panel recommended that Australia bring its measure into conformity with its obligations under the Anti-Dumping Agreement. However, the Panel denied Indonesia's request to suggest ways in which Australia could implement the recommendations.87

III. UNDERSTANDING THE GROUND REALITY: TOPOGRAPHY OF TARIFF POLICIES

This section delves into the actualities of tariff policies by first analyzing the current sectoral trend in policies originating in the European Union, the United States, China, and India, respectively. The second subsection discusses with the surge in participation of these countries in Global Value Chains (GVCs), the resulting economic effects, and the reasons for the difference in these effects between the four countries. The last subsection discusses the scenario and dynamics of their contingency interventions.

A. The Tariff Scenario

To understand the possible orientations of the four leading economies (China, the European Union, India, and the United States) towards future reforms, it is necessary to analyze the trends in their tariff policies. Long time-series data on sector-level tariff patterns can be drawn from the World Integrated Trade Solution (WITS) Database.88 A total of sixteen sectors at the harmonized system (HS)89 two-digit classification (i.e., at the Chapter level) have been identified for this analysis, all of which are heavily traded and crucially integrated with Global Value Chains.90

The analysis was conducted in the following manner: The tariff data from WITS at the Harmonized System (HS) two-digit level were obtained in both simple and weighted average forms. The Simple Average Tariff (SAT) was reached by dividing the sum of all the applied tariff lines in a country within the selected product category by the number of tariff lines.

The Weighted Average Tariff (WAT) was computed in the following manner. The applied tariffs at HS six-digit, Sub-Heading level, were first multiplied by the sectoral import shares under the corresponding product lines. Then the trade-weighted tariffs were added together to derive the WAT.91 The current analysis obtained the SAT and WAT data as computed by WITS.

Suppose for a sector, for example leather products, the WAT is found to be higher vis-a-vis the SAT. This can occur only when higher tariff rates are being applied by a certain country on products characterized by relatively higher import flows. In other words, the relatively lower WAT level over SAT level implies that a higher proportion of trade is taking place through relatively freer tariff lines, indicating deeper reforms. Hence, an observed higher WAT for a sector in a country signifies greater protectionist intent. The use of trade-weighted applied tariffs, rather than simple applied tariffs, is to gauge whether trade is taking place through the lower-duty tariff lines. For all the four members, China, the European Union, India, and the United States, the average applied tariffs between 2001-2010 and 2011-2018 have been compared to understand the changes in the tariff rates over time. While the former period denotes the Doha Round negotiation phase, the latter period shows the stalemate era.

The orientation of these four WTO Members towards tariff-led protectionist policies can be observed in Tables 1 and 2. Table 1 presents the tariff profile for developed countries. Several observations can be noted for the European Union. First, barring the exception of inorganic chemicals, pharma, and copper, the WAT is higher as compared to the SAT, underlining the trade policy orientation.92 Second, the average WAT is more than five percent during the second period, but only for apparel and footwear products, illustrating the bloc's orientation to protect relatively labor-intensive sectors. Finally, in only five industries, namely inorganic and organic chemicals, footwear, copper products, machinery, and equipment, has the average WAT risen in the latter period, indicating a growing protectionist intent.

The situation in the United States is also observed from Table 1. The United States differs from the European Union in terms of policy orientation. First, barring the exception of the inorganic chemicals and plastic sector, for all the HS codes up to 64 (i.e., footwear), the WAT is higher than the corresponding SAT. In other words, the United States' tariff protectionism is more pronounced in the low-to-mid capital-intensive segments. Second, in the post-2011 period, the average WAT only crossed five percent for leather, apparel, and footwear products. Finally, in a total of nine sectors-inorganic chemicals, plastic, rubber, leather, apparels, footwear, iron and steel products, and machinery and equipment-the average WAT increased in the latter period.

Table 2 presents the tariff scenario for China and India. First, for China, the WAT is higher than the corresponding SAT, but only in the case of copper products, vehicles, and transport equipment and other instruments. Second, the WAT is lower than 5% in the second period, but only in the case of inorganic and organic chemicals, pharmaceuticals, iron and steel, machinery and equipment, and electrical equipment. Finally, the average WAT increased in the latter period, but only for iron and steel articles, and copper products.

Yet, for India, the WAT is only higher than the SAT in pharmaceuticals, rubber, leather, and footwear. Additionally, the average WAT in post-2011 period is lower than 5% only in case of copper products and electrical equipment. Finally, for all the sectors, the average WAT is observed to be in decline in the latter period.

A few observations regarding the tariff profile of these four countries deserve mention. First, as observed from the raw data, all the four countries have witnessed a general increase in applied tariff rates in several sectors during the last two years. Second, among the developed countries, tariff activism93 is relatively higher within the United States, though tariff on pharmaceutical imports is quite reformed in both the European Union and the United States. Third, the general European Union-United States orientation is towards the protection of low-to-mid tech products, which are of primary export interest for developing countries. Fourth, the incidence of a higher WAT is less acute for China and India, when compared to their developed counterparts. As the developed countries are generally characterized by lower-than-average customs tariffs on their import flows, it is possible that, for several product groups, the importations might be happening despite higher tariffs. One possible reason behind this is the presence of skewed demand patterns in the import market. Alternatively, the products characterized by lower duties might also have certain NTBs on the imports, which either prohibit or restrict import flows within these categories.94 Finally, despite a rise in certain sectors, both China and India witnessed a general decline in average WAT rates, showing an orientation towards tariff reforms. This observation underlines the prevailing protectionist intent in these four leading players, albeit to varying degrees.

One prime distinction between the four WTO Members selected for the current analysis, however, is reflected in the status of their nonagriculture tariff binding. This is evidenced from the following: China (100%), European Union (100%), India (70.1%), and the United States (100%).95 While the other three countries (China, the European Union, and the United States) need not bother with the choice of the NAMA coefficient, India may be concerned with the selection of a tariff binding formula and the immediate implications on the corresponding applied duties. Previously, with the Indian position in mind, during the NAMA negotiations the European Union proposed that, "all WTO Members other than the least developed countries [must] have as close to 100 percent bindings as possible."96 The United States also has taken note and put pressure on India, as " . . nearly 30 percent of India's non-agricultural tariffs remain unbound."97 During 2019 and 2020, the pressure on India was particularly high, when the then United States President Donald Trump used the expression "Tariff King" while referring to the country.98 India, however, has long tried to negotiate breathing space through the introduction of flexibility in WTO provisions, where, "developing countries must have the freedom to leave unbound up to ten percent of the tariff lines that were hitherto unbound and were considered sensitive or strategically important."99 Given the reservations towards a possible sharp decline in manufacturing tariffs, the Indian policymakers have so far adopted a cautious approach in setting manufacturing tariff and other policies. Most of the recent manufacturing sector related policy deliberations in India (e.g., a high level of import tariffs, complexities in product standards, local content requirements mandated under the "Atmanirbhar Bharat Abhiyan" and so on) need to be viewed in this broader context.100 Both the developed as well as developing economies have expressed concerns over these practices during the recent Trade Policy Review meeting on India in January 2021.101

B. The GVC Participation Scenario

The last two decades have witnessed a sharp rise of trade flows in intermediate products and parts and components, due to the growth of crosscountry GVCs. On the one hand, the deepening of the resulting international production networks (IPNs) has been facilitated by cross-country contract manufacturing arrangements.104 On the other hand, continued tariff reforms of a wider variety of products have led to enhanced trade opportunities. The IPNs often develop and deepen following a "hub-and-spoke" model, where the global firms from the "center" enter into linkages with supplier networks developed in the peripheries. The "success" of a country in the IPN can be explained by several factors. First, a country characterized by demand-side advantages (e.g., market size) can emerge as a major production and assembly hub. Second, inherent supply-side advantages (e.g., lower labor cost, skilled labor availability, resource-intensity) play a key role in determining location choices of the developed countries' multinational corporations (MNCs). Third, an improved business climate (e.g., smoother FDI and tax norms) and a trade facilitation scenario (i.e., rules of origin harmonization, better connectivity with key markets, RTAs with wider set of countries) help countries emerge as IPN hubs.105 This was observed by the Global Value Chain Development Report, noting that the US, Germany, China, and Japan were among the major production hubs.106

The economic effects of participation in the IPNs are ambiguous. After an initial tariff reform, either unilaterally or through RTAs, a country may experience rising imports of intermediate inputs and parts and components, to be used in the export segment. In that case, the foreign value-added content (FVA) of exports may increase sharply, resulting in a possible long-term trade deficit. Such negative repercussions on trade balance and, in turn, on employment creation, might lead to a demand for the protection from the lesser value-added segments in the domestic industry. Yet, if the inherent advantages within a country strengthen the domestic production of intermediate goods, the vibrant supplier network will facilitate the relocation of foreign MNCs to a country with the objective of value chain integration with domestic companies. In that case, total exports, as well as the domestic value added to the (DVA) content of exports, would eventually increase and result in a trade surplus and employment benefits. Such success may inspire domestic lobbying groups to embrace further reform measures and motivate governments to enter into newer RTAs. This improved economic standing may also motivate the governments that benefit from an improved trade balance to explore newer RTAs.107 In other words, the realized gains, as reflected through trade balance and labor market adjustments, can significantly influence a country to make commitments at future multilateral trade rounds.

The DVA content scenario for sectoral exports in any given time period across key economies can be compared by using various versions of the Organization for Economic Cooperation and Development's (OECD) Trade in Value Added (TiVA) database.108 The latest TiVA data from December 2018 provides information on the export value-added by source, for sixty-four economies, including all OECD and G20 countries, the European Union, and a significant number of East Asian, Southeast Asian economies and emerging nations from 2005 to 2015. By appropriately matching the country-level input-output tables (which may be published with different periodicity and industrial classifications), data on thirty-six aggregated sectors are provided in the OECD-TiVA database. The present analysis draws data from the 2018 TiVA database for six key manufacturing sectors, namely: textile, apparel, and leather; chemicals and non-metallic mineral products; base metals; computers, electrical machineries and electricals; machinery and equipment; and transport equipment.109 It may be noted that all of these sectors are characterized by deeper participation within global IPNs.110 The DVA content data is then compared for select countries between two periods, namely 20052010, a period characterized by NAMA negotiations, and 2011-2015, a phase when NAMA reforms moved backstage. The results are summarized in Tables 3-6.

For each of the four countries, the value-added in sectoral exports by source country and group is reported in percentages, as computed from the TiVA data on origin of value added in gross exports. The numbers are interpreted in the following manner. For instance, regarding China during 2005-2010 and 2011-2015, as captured in Tables 3A and 3B respectively, the DVA content (i.e., proportional value of domestic intermediate products) of total exports in the textile, clothing, and leather categories was 85.54% and 88.20%, respectively. In other words, the DVA content has increased for China in the latter period, as the country's dependence on imported parts and components in proportional terms declined. Conversely, the FVA content for the same product from the European Union (28) declined from 2.05% to 1.71%, indicating China's shrinking input dependence on the developed country bloc.

The value-addition scenario for developed countries is summarized in Tables 3A-3B and 4A-4B. First, in Tables 3A and 3B, it is observed that the DVA content has decreased for the European Union (28) in all six product categories, signifying rising penetration by foreign suppliers into its upstream manufacturing value chains. Second, barring the exception of the computer, electronics, and electrical equipment, the shares of Association of Southeast Asian Nations (ASEAN)111 and North America has generally increased in the FVA content of European Union exports. Third, the FVA content from South Korea, China, and India has increased, underlining the rising contribution from relatively low-cost economies. The FVA content has also grown in Brazil and Russia, which are both key emerging economies. Finally, the declining shares of Japan further underline the importance of cost considerations. The strengthening job market restrictions in several European countries and its adverse influence on labor migration may be noted in this context.112

The value-addition scenario for the United States has been summarized in Tables 4A and 4B respectively, from which the following observations emerge. First, barring the exception of computer, electronics, and electrical equipment, for all other sectors, the DVA content has declined in the United States. Second, the FVA content is generally declining from the European Union (28) and Japan, countries that are relatively high-cost economies. Finally, all the low-cost partners, namely China and India, have deepened their participation in the United States' value chains. However, a mixed trend emerges for Brazil and Russia. The lower value-addition has left a mark in the recent trade policy deliberations, as reflected in the "America First" interventions. It has been observed over the last decade that several developed countries have provided incentives to local companies, who had previously relocated parts of their production and assembling facilities in a low-cost economy (also called "offshoring"), to return home ("backshoring").113 The backshoring of manufacturing and assembling activities can create local employment on one hand and enhance the domestic value addition in gross exports on the other. Apart from the trade war with China, the United States has also imposed tariffs on steel and aluminum exports from the European Union, to which the bloc has responded with proportionate retaliations.114 It has also withdrawn the Generalized System of Preferences115 benefits from Indian exports citing concerns, "including high tariffs on motorcycles and telecommunication products, price control on medical devices such as coronary stents and knee implant components, unfavorable treatment against United States dairy products and unfair rules against e-commerce companies and requirements for data localisation."116 In retaliation, India slapped retaliatory tariffs on twenty-nine United States export products, but delayed its execution in anticipation of a future trade agreement.117

The value-addition scenario for the developing countries is summarized in Tables 5A-5B and 6A-6B. An interesting dynamic involving China emerges from Tables 5A and 5B. First, the DVA content has increased for China in all the product categories, signifying the evolving maturity of the local manufacturing sector in intermediate segments. Second, the shares of North America and Europe have generally decreased in China's manufacturing value chains, signifying the displacement of these actors. Third, even the shares of RTA partners (ASEAN, Japan, and South Korea) have declined in the FVA content, barring a minor exception involving ASEAN, specifically regarding base metals. Fourth, the FVA from India is increasing in the textile, apparel, and leather sector, signifying its import dependence in relatively low-value products. Finally, in an interesting observation, the FVA content from Brazil has increased Chinese exports. While the inherent competitiveness has aided the Chinese performance, the underlying role played by fiscal and financial stimulus to the Chinese exporters is noteworthy.118 One of the drivers behind the launch of the "Made in China 2025" initiative has been the urge to consolidate its advantages in high-tech manufacturing. While this move would enable China to emerge as the dominant global player in this segment, the possible threats to other countries' exports is noteworthy.119

Tables 6A and 6B summarize the value-addition set-up for India. First, the average DVA has increased in only two sectors: textile, apparel and leather, and chemicals and non-metallic mineral products. This indicates a growing industrial consolidation in low-to-mid tech product segments. Second, the value-content from Europe has declined in all categories, signifying the displacement of high-cost suppliers from India GVCs. Third, shares from the United States have declined only in textile, apparel, leather, chemicals, and non-metallic mineral products. This indicates the deepening of Indian participation in United States GVCs, in relatively high-tech product groups. Fourth, the FVA from ASEAN and South Korea, also known as the RTA partners, has generally increased for all product groups. Fifth, there has been a general decline in the FVA content in Indian exports from Brazil and Russia, its emerging country partners. Finally, the FVA has generally increased from China and South Korea, countries which enjoy an economyof-scale advantage. The value-addition dynamics from the "East," particularly China, have recently shaped India's cautious steps and eventually the RCEP pull-out decision.120 The trade deficits in key manufacturing segments had emerged as a particular concern for India.121 The country has subsequently launched the 2014 "Make-in-India" initiative to revitalize and consolidate a wide range of domestic manufacturing sectors.122

The economic explanation of the observed DVA trend is as follows. Since the 1990s, the following two decades witnessed a shift from the developed country value chains to the production blocks located in developing countries (e.g., China or Mexico). The relocation of the leading MNCs from developed countries to developing countries can be explained by these corporations' urge to take advantage of the lower costs in these locations (e.g., labor cost and raw material cost).123 Subsequently, however, a reversing trend has emerged in the European Union and the United States, which can be explained both by growing economic nationalism124 and narrowing cost advantages.125 India has experienced a degree of domestic consolidation in the low-to-mid segment in recent times, but remains dependent on foreign parts and components in the more technology-intensive categories.126 China on the other hand, has considerably strengthened its input tier in the entire manufacturing sector.127

The diverging success patterns in the GVC participation of the four selected countries can also be partially explained by their regional trade policies. The European Union's trade policy towards its neighboring countries is covered under the general framework of the European Union's RTAs, as well as the European Union Free Trade Agreements (FTAs).128 There are currently twenty-four RTAs in the European community, another eight signed but not yet in force, and eleven under negotiation. Most of these treaties are with various countries' regional organizations. Additionally, the number of countries covered by European Union-centric RTAs is now substantial and is expected to increase. The RTAs vary in scope and coverage; they also vary to the extent the trade laws are inserted into other non-trade provisions. While there are comparatively few substantive service obligations currently included, a range of projected deals is still under discussion. These will include services and the expansion of certain existing RTA services agreements. A section of the literature notes that Foreign Direct Investment (FDI) inflows lead to a decline in demand for domestic inputs and consequently lowers the DVA content in exports for both old and new European Union members.129 Moreover, since 2016, rising labor costs are another major challenge for the bloc.130

One the one hand, the United States has witnessed a sharp decline in the manufacturing sector. Specifically, "90% of the manufacturing that lies outside the computer and electronics industry has seen its real GDP fall substantially." At the same time, its productivity growth has been slow, leading to relatively modest employment growth.131 While the country made significant tariff reforms through RTAs since the 1990s (e.g., NAFTA), discussions during recent renegotiations indicate a growing protectionist intent. 132 While the United States' integration with Canada through bidirectional IPNs 133 continues, its participation in the IPNs of several other countries is waning.134

On the other hand, the experiences of China and India, the two developing countries considered in this analysis, have been mixed. A considerable amount of FDI inflows in China, predating its WTO membership, developed its production base and sharpened its domestic competitiveness and export capabilities.135 Over the years, China played an aggressive RTA strategy by entering into trade agreements with several partners in East Asia, Southeast Asia, and Latin America.136 The opportunity to access a wider market enabled the Chinese firms to enjoy scale economies with low-cost advantage,137 allowing the country to opt for deeper tariff reforms. This deep RTA participation strategy contributed significantly to the long-term enhancement of the DVA content of Chinese exports.138

Conversely, the manufacturing productivity growth in India has been slower compared to other Asian economies. This is due to distortions in the form of restrictive regulations on entry, expansion, labor-related provisions, and exit options.139 While the country has significantly improved the ease of doing business in recent times,140 the readiness towards the use, adoption, and adaptation of frontier technologies in India has remained modest compared to the corresponding figures in China and other Asian neighbors141, which influence the pace of technology transfer to the country. In the last ten years, the country has opened up through a number of RTAs with partners located in East, Southeast, and South Asia, but has only witnessed a moderate presence in Asian IPNs to date.142 The country's recent reluctance to commit to the expansion of the Information Technology Agreement products (ITA-2), in light of the modest performance of the ITA-1 products, is also notable.143 While the tariff reforms initially led to a fall in DVA content,144 a rise in more recent periods reflects a certain degree of domestic consolidation after the launch of the "Make-in-India" scheme. However, the worries on the employment front continues in India,145 along with the growing trade deficits across several sectors. Given this scenario in the domestic market and the outlook towards reforms through RTAs,146 it is unlikely that India will be proactive in embracing tariff reforms in the future.

C. Contingency Scenarios

As observed in Tables 1 and 2, the European Union, the United States, China, and India have all reduced their tariff barriers over the last two decades. However, a rising trend has appeared in the last couple of years. The evidence from existing literature shows that, with the decline in tariff barriers, a simultaneous demand for contingency protection usually rises from the domestic manufacturing industries. 155 Anti-dumping investigation in a country can be triggered by a multitude of factors. On the one hand, a rise in import flows, a dwindling income level, and a financial crisis can intensify protectionist demands from the domestic industry.156 On the other hand, the contingency actions are usually higher in capital-intensive sectors, 157 as garnering support (i.e., ensuring that complaining firms collectively account for more than 50% of the domestic production) for the investigation is easier. There is also a need to see which sectors witness higher incidence of contingency interventions in the European Union, the United States, China, and India and its interlinkage with the tariff reform process. When the European Union and the United States were regular users of the continge