TRADE WAR, Currency War, Beggar Thy Neighbour policy

 

TRADE WAR:

When countries try to affect each other's trade by imposing Taxes and Quotas and the same is followed by other country in retaliation is referred to Trade War. 

US in October 2022 launched chips war by introducing Export restrictions preventing China from purchasing advanced chips from the US.

Impact of Trade War:

1.Trade restrictions is reciprocated by other nations affecting overall world Trade..

 2.The record FDI and investments in the country will be withdrawn leading to job losses .

Currency War: 

“Currency War” occurs when a country devalue its currency by manipulating Monetary Policy with the objective of making its exports cheaper and gaining unfair competitive advantage in International Trade.

How Currency Wars Happens:

                                                      Devaluation of Currency

                                  ⇓

                                                  Exports become cheaper 

                      ⇓

                                Increase in Exports & Decrease in Imports 

                      ⇓

                                Other countries resort to Devaluation of Currency 

                      ⇓

                                         Overall Negative Trade Ecosystem

• Currency wars became aggressive during 2009 on account of Global Crisis and major Economies were involved in this. 
• Countries like China, Switzerland are involved in Currency war.
• Even ,Quantitative Easing adopted by U.S. and UK  have been accused of being at least partly currency focused. 

Beggar Thy Neighbour policy:

• Beggar thy neighbour policy refers to a policy that aims at increasing exports at the expense of other trading partners largely through competitive devaluation of their currencies by the central bank.
• Conventionally, countries often impose tariff barriers and restrict imports to protect their domestic industries.
• In modern times, Central banks devalue or encourage the depreciation of their own currencies to retain their competitive edge  in exports which eventually results  in currency wars . 
• China is accused of engaged in this policy .

PROCESS PATENT vs PRODUCT PATENT, Compulsory Licensing

 TYPES OF PATENT :

●        PROCESS PATENT

●        PRODUCT PATENT

PROCESS PATENT :

The patent is granted for a particular manufacturing process, and not for the product itself. 

Issues with Process Patent :

• Any other person can produce the same product by minor tinkering with the  PROCESS.
• Process patent regime gives less protection for the inventor. 
• The benefit of process Patent Regime is that it reduces the element of monopoly.

PRODUCT PATENT :

• In the product patent regime, it is an exclusive right given to the original inventor of a product. 
• This means that no other manufacturer can provide the same product even by using any of the process. 
• India’s 1970 Patent Act allowed only Process Patent while Indian Patents (Amendment) Act, 2005  complied with WTO’s TRIPs provisions provides for Product Patents.
• TRIPs follow the Product Patent Regime.
• The term of protection of an Indian patent is 20 years from the date of filing of the application.

COMPULSORY LICENSE (CL):

• Compulsory License (CL) provides for third party to make, use, or sell a patented invention without the patent owner's consent .
• Compulsory License (CL) is  issued by the government to an applicant for making, using and selling a patented product .
• Section 84 and 92 of the Indian Patent Act,1970 pertains to the grant of Compulsory License.

Compulsory licenses are granted if: 

●        Reasonable requirements of the public wrt the patented invention have not been satisfied;

●        Patented invention is unavailable to the public at affordable price.

●        Patented invention is not used in India.

INDIAN PATENT ACT AND COMPULSORY LICENSING :

Section 84 and Section 92 of the Indian Patent Act,1970 pertains to the grant of compulsory licenses. 

Section 84 of the (Indian) Patent Act,1970: 

It provides that after three years from the date of the grant of a patent, any person can apply for the compulsory license, on certain grounds:

•      Reasonable requirements of the public wrt the patented invention have not been satisfied;
•         Patented invention is unavailable to the public at affordable price.
•         Patented invention is not used in India.

Compulsory license can only be granted  after three years from the date of the grant of patent unless exceptional circumstance .

Section 92 of the 1970 Indian Patents Act:

• Central Government has the power to allow Compulsory Licenses to be issued at any time in case of a national emergency or circumstances of extreme urge.

Patent, Patent Regime in India, Conditions for Patenting

WHAT IS PATENT :

A patent is a type of intellectual property right that provides protection over any novel invention and also, gives the exclusive right to sell, use, create and/or manufacture the patented product for a specified period of time. 

Exclusive right implies that no one else can make, use, manufacture or market the invention without the consent of the patent holder.

PATENT REGIME IN INDIA:

The law relating to patents in India is governed by Indian Patents Act, 1970 as amended by Patents (Amendment) Act, 1999 and Patents (Amendment) Act, 2002,which came into force with effect from May 2, 2003 and The  Patents (Amendment ) Act 2005.

The TRIPS compatible Indian Patents (Amendment) Act, 2005 addressed few important issues regarding patents:

• Adopting the definition of ‘pharmaceutical substance’;
• Exclusion of ‘mere discovery of new form of known substance’ and the ‘new use for a known substance’; and Manufacturing products which may be granted patent protection in the new regime.

CONDITION FOR PATENTING:

An invention must satisfy the following three conditions of:

●        Novelty 

●        Inventiveness (non obviousness) 

●        Usefulness 

Novelty: 

A novel invention is one, which has not been disclosed, in global state before filing of patent.

INVENTIVENESS (NON-OBVIOUSNESS):

A feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both and that makes the invention not obvious to a person skilled in the art“.

USEFULNESS: 

An invention must possess utility for the grant of patent. The patent specification should have various uses and manner of practicing them.

Intellectual property Rights, Copy Right, Trade Mark, Geographical Indicators, Trade Secret

INTELECTUAL PROPERTY (IP):

• IP refers to intangible assets which are in the form of creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images.
• Intellectual property (IP) Rights refer to the rights given to the individuals over their IP.
• IP rights are used for legally protecting the IP of individual to avoid its commercial use by any company or individual other then the owner without consent.

Rationale of Intellectual property (IP) Rights:

• Intellectual property (IP) Rights attempts to strike the right balance between the interests of innovators and the wider public interest.
• IP system aims to foster an ecosystem of creativity and innovation. 

1. The World Intellectual Property Organization (WIPO) manages the issues related to Intellectual property (IP).
2. Rules related to IP are governed by WIPO while TRIPS is governed by WTO. 

Categories of Intellectual Property Rights:

There are seven categories of Intellectual Property rights covered under TRIPS agreement:

●        Copyright

●        Trademark

●        Patent

●        Industrial Designs 

●        Geographical Indicatiors

●        Integrated Circuits

●        Trade Secrets

COPYRIGHT: 

The copyright is protecting the literary and artistic works that comprises of books, Computer programme , films etc.

PATENT:

Patent is a type of intellectual property right that provides protection over any novel invention and gives the exclusive right to sell, use, create and/or manufacture the patented product for a specified period of time.

TRADE MARKS: 

• These are sign, or any combination of signs, that can distinguish the goods and services of one institution/ organisation from those of other institution/organisation.
• A Trademark License is granted to legally permit a third party to make use of the Registered Trademark. 
• The granting of the Trademark License is not a sale.
• Transfer of ownership and rights over the Trademark to any other person or entity is known as Trademark Assignment. 
• Licensing only transfers the right to use the trademark while the ownership of the trademark rests with the proprietor (owner) himself.
•  The rights granted are limited rights w.r.t. time and can range from right to use the trademark, sell the products etc. 

TRADE SECRET: 

Trade Secret is secret which is exclusive to the competitors and that provides competitive advantage to any business. Example:

●        KFC’s secret blend of 11 herbs and spices.

●        Coca-Cola’s recipe for their signature drink.

●        Bikanerwala Bhujia

Geographical indications (GI):

• Indicators which identifies the originating territory of the good. 
• The given quality or other characteristic of the good are essential attribute of its geographical origin as these attributes are exclusive to the geographical origin of the good.

Industrial designs:

Industrial designs created in industries that are new or original in the sense that these designs should be  significantly differ from known designs .

Protectionism, Banana wars,Trump tariffs, Green protectionism, Carbon Border Adjustment Mechanism

 

PROTECTIONISM: 

Policy of restricting imports by using different tools like tariffs, Quotas, embargoes, subsidies and administrative barriers.

Rationale of Protectionism:

• Countries impose tariffs on goods to protect local industries, raise revenue and protect domestic jobs threatened on account of closure of the industries on account of  the  rise of imports.
• War and economic depressions led to increase in protectionism while peace and prosperity promotes Free Trade.

Classic Tools used by Governments:

Banana wars:

• Historically for a long time, European Union (EU) imposed substantial tariffs on banana imports from Latin America to protect African, Caribbean and Pacific (ACP) Countries as ACP countries were its colonies.
• Exporters had to pay €176 (£141) per Tonne of bananas. 
• In 2012, an agreement has seen these tariffs reduced.

EU Common Agricultural Policy (CAP):

• EU still impose substantial tariff rates on many agricultural markets. 
• The objective is to increase prices for domestic European farmers in order to increase their income.

Import Tariffs by Indian Government:

• In 2020, the Indian government introduced import tariffs on a range of products, including electronic goods, toys, and furniture. 
• The tariffs were intended to promote domestic manufacturing and reduce India's dependence on imported goods.

Illegal Subsidies:

• Many a times countries gives subsidy or support to a domestic export industry and it directly affects international trade.
• This gives the exporters an unfair advantage in the world market.
• Importing countries impose Countervailing Duties to counter this type of protectionism.

For example:

1. European airlines have been criticised for receiving ‘unfair’ support from their government. 
2. China subsidies for its car industry during the years 2009 through 2011,
3. Subsidies given by US to its firm involved in green technology, such as EV. 

Trump tariffs:

• In March 2018, President Trump imposed tariffs on steel (25%) and aluminum (10%) from most countries.
• President Trump raised tariffs on imports of many Chinese goods such as fridges, washing machines and clothes.
• In 2025, Trump has also announced for reciprocal tariffs.

Green protectionism:

• Green protectionism combines environmental concerns with economic measures. 
• This approach is focused to address global ecological challenges, such as climate change and environmental sustainability. 
• A key initiative in green protectionism is the European Union's Carbon Border Adjustment Mechanism (CBAM). 

Carbon Border Adjustment Mechanism (CBAM). :

• CBAM aims to check carbon footprints by imposing a import tariffs on certain goods from countries with less stringent climate policies.
• CBAM ensures that the carbon emissions associated with the production of imported goods are accounted for.
• Starting with industries like steel, cement, and aluminium, the CBAM seeks to level the playing field for European companies undergoing green transitions and encourages global partners to adopt similar environmental standards.

Negatives of Protectionism:

• Free Trade Agreements (FTA)s minimize trade restrictions between economies promoting prosperity and economic growth through specialization and exchange. 
• Protectionism increases restriction and hence affects prosperity and economic growth.
• 2018-2019 US-China trade war ultimately affected around $450 billion in annual trade.
• US-China Trade war was blessing in disguise for other world countries as Countries apart from US and  China  saw their global exports increase as a result of the US-China trade war. 
• Other countries were able to benefit from economies of scale to increase their exports even beyond the gap initially left by the US-China trade war.

Currency Convertibility, Current and Capital Account Convertibility, Liberalized Exchange Rate Management scheme,

 

Currency Convertibility:

Currency Convertibility refers to the ability to convert domestic currency into foreign currencies and vice versa to make payments for Balance of Payment transactions at market determined Exchange Rate.

Currency may be convertible on both current and capital accounts.

Current Account Convertibility of Currency: 

Current Account convertibility means that currency is convertible for the purposes of Current Account  ie, exports and imports of merchandise and invisibles only. 

Capital Account Currency of Currency: 

Capital account convertibility means convertibility on Capital Account. 

• Degree of BOP convertibility of any country depends on the level of economic development and degree of maturity of its financial markets. 
• So, Advanced Economies (AEs) are almost fully convertible while Emerging Market Economies (EMEs) are convertible to different degrees.

Advantages of Currency Convertibility:

• Market rate remains generally higher than the officially determined Exchange Rate. 
• Exporters receive more Rupees for the received Foreign Exchange from  exports  and hence increasing exports. 
• Being convertible there is easy access of foreign currency ,hence increasing trade .
• It acts as a self balancing mechanism to deal with BOP deficit.
• If BOP deficit is due to over-valued exchange rate, the currency depreciates as it is market driven which gives boost to exports by lowering their prices on the one hand and discourages imports by raising their prices on the other. 
• In case of surplus BOP, due to the under-valued exchange rate, the currency appreciates increasing the imports.
• Currency convertibility is prerequisite for the success of globalization giving boost to the inte­gration of the world economy. 

Convertibility of Indian Rupee:

In the seventies and eighties many countries switched over to the free convertibility of their currencies into foreign exchange.

 As a part of 1991-Economic reforms, Rupee was made partially convertible from March 1992 under the “Liberalised Exchange Rate Management scheme”

Liberalized Exchange Rate Management scheme (LERMS):

• 60 % of all receipts on current account could be converted freely into Rupees at market determined exchange rate quoted by authorised dealers, while 40 per cent of them was to be surrendered to Reserve Bank of India at the officially fixed exchange rate.
• These 40 per cent exchange receipts on current account was meant for meeting Government needs for foreign exchange and for financing imports of essential commodities. 
• This partial convertibility of Rupee on current account was adopted so that essential imports could be made available at lower exchange rate to ensure that their prices do not rise much. 
• Further, full convertibility of Rupees at that stage was considered to be risky in view of large deficit in balance of payments on current account. 
• In March’ 1994, Rupee was fully convertible at current account, However, on capital account Rupee remained nonconvertible.

Capital Account Convertibility of Rupee: 

Capital Account Convertibility is conversion of Indian financial assets into foreign financial assets and back, at an exchange rate fixed by the foreign exchange market and not by RBI.

The Tarapore Committee mentioned the following benefits of capital account convertibility to India:

1. Availability of large funds to supplement domestic resources and thereby promote economic growth.

2. Improved access to international financial markets and reduction in cost of capital.

3. Incentive for Indians to acquire and hold international securities and assets, and

4. Improvement of the financial system in the context of global competition.

Accordingly, the Tarapore Committee recommended for capital account convertibil­ity.

Preconditions for Capital Account Convertibility:

• Fiscal deficit should be 3.5 per cent.
• The Governments should fix the annual inflation target between 3 to 5 %
• Interest Rates should be deregulated, gross non-paying assets (NPAs) should be reduced to 5 per cent, the CRR should be reduced to 3 %.

Why Tarapore recommendations could not implemented:

• The difficulty with the Tarapore Committee recommendation was that it recommended Capital Account convertibility to be achieved in a 3 year period – 1998 to 2000.
• The period was too short and the pre-conditions and the macroeconomic indicators could not be achieved in such short period. 
• The Committee failed to appreciate the political instability in the country at that time, and the complete absence of political will and vision to carry forward the process of economic reforms and economic liberalisation.
• The outbreak of Asian financial crisis at this time was also responsible for shelving the recommendation of Tarapore Committee.

The second Tarapore Committee had drawn up a roadmap for 2011 as the target date for fuller capital convertibility of Rupee and mentioned that the conditions were quite favourable.

But economic events, especially global financial crisis of 2007-09,greatly affected the economic situation and hence recommendations could not be implemented.

Issues with Currency Convertibility:

• Market determined Exchange Rate is higher than the officially fixed exchange rate, prices of essential imports rise which may generate cost-push inflation in the economy. 
• If current account convertibility is not properly managed and monitored, market exchange rate may lead to the depreciation of domestic currency and speculations make it more volatile.
• Such situation can lead to situation of Capital Flight from the country as it happened in 1997-98 in case of South East Asian Tigers. 
• Empirical evidences suggests that free capital accounts were not necessary for the phenomenal growth recorded by countries in the diverse parts of the world. 
• All developed countries have adopted full convertibility, but the 2008 crises of USA and current turmoil of European Union has raised several questions while China has written its success story without full capital account convertibility.
• As Jagdish Bhagwati observes in his celebrated 1998 paper, “After all, China and Japan, different in politics and sociology as well as historical experience, have registered remarkable growth rates. Western Europe’s return to prosperity was also achieved without capital account convertibility.”
• Any deterioration in fiscal conditions, inflation management, balance of payments, or any other macroeconomic shock may cause a cessation or reversal of capital flows

What does the regime for capital account transactions look like today?:--

• There is virtually no restriction on Foreign Direct Investment (FDI). 
• Any foreign individual or firm or any other association of people can invest in any Indian company or set up an Indian company through FDI which essentially means long term engagement with influence on management. 
• FDI has a nexus with a whole lot of other issues including taxation, domestic investment climate, infrastructural support, ease of business and so on. 
• Reforms in such issues  will be far more that any liberalisation of capital flows into Indian financial markets.