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Daily Current affairs 29 January 2019

UPSC - Daily Current Affair

 

China starts legal process at WTO over U.S. tariffs

The news:

  • Recently, the World Trade Organisation (WTO) has started a legal process to hear China's complaint against U.S. regarding the trade barriers.
  • China has also accused U.S. of blocking the appointment of judges to hear appeals in trade disputes.

 

About WTO

  • WTO is a Geneva-based, 164-member global body which frames rules and norms for exports and imports.
  • Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.

Roles

  • The WTO has many roles:
    • It operates a global system of trade rules.
    • It acts as a forum for negotiating trade agreements.
    • It settles trade disputes between its members and it supports the needs of developing countries.

 

What is Trade war?

  • A trade war is a back-and-forth dispute wherein a country imposes tariffs/taxes on certain imports in order to restrict trade. In response, the country or countries affected by those tariffs/taxes  impose their own fees on imports.

 

Trade war between U.S and China: A backgrounder

  • In July 2018, the United States started imposing 25 per cent additional tariffs on approximately $34 billion of Chinese imports. Further, from September 2018, it imposed 10 per cent additional tariffs on approximately $200 billion of Chinese imports.
  • In response, China has also imposed tariffs on U.S. goods, leading to a Trade war situation between the two countries.

 

Tariffs imposed:

  • So far, the US has imposed three rounds of tariffs on Chinese goods, totaling more than $250bn.
  • The duties range from 10% to 25% and cover a wide range of industrial and consumer items - from handbags to railway equipment.

 

What China says:

  • China says that the tariffs imposed by the US is a blatant breach of its obligations under the WTO agreements and is poses a systemic challenge to the multilateral trading system
  • China says that if the United States is allowed to continue infringing these principles without consequences, the future viability of WTO will be in peril.

 

What the US says:

  • The U.S. officials say that China is using the WTO system as a shield for trade-distorting policies. China imposes many non-tariff barriers using the opacity of the practices in the country.
  • The US also says that China is damaging the world trading system through "grossly unfair and trade-distorting" forced technology transfer policies and practices.
  • It says that it is China who is threatening the overall viability of the WTO system.

 

Non-Appointment of judges to the WTO appellate body:

  • The U.S. has halted the appointment of judges to hear appeals in trade disputes.
  • China and 70 other WTO members called for the United States to stop blocking the appointment of judges. China said the U.S. action to halt the appointment of judges was illegitimate. It cited WTO rules that say "vacancies shall be filled as they arise."
  • There are only three judges left on the WTO's Appellate Body (the top court of world trade) and two will step down in December. WTO rules require three judges to hear appeals
  • US officials say that the judges at the appellate body have routinely broken WTO procedure and exceeded their mandate.

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Section : Economics

 

France's colonial link hits bid to join Indian ocean group

Why in news?

  • France has been pushing to become the member of Indian Ocean Rim Association (IORAfor some time. However, some countries like South Africa, Madagascar and Comoros etc. has led opposition against France joining the group due to its history of colonialism in the region.

 

About Indian Ocean Rim Association (IORA)

  • The Indian Ocean Rim Association (IORA) is an international organisation consisting of coastal states bordering the Indian Ocean.
  • Founded: 1997
  • Head Quarters: Mauritius
  • Aim: Strengthening regional cooperation and sustainable development within the Indian Ocean region.
  • Presently, it has 22 Member States and 9 Dialogue Partners [France, US, Germany, China, Japan, Britain, Egypt and Turkey and South Korea (newest dialogue partner].

Objectives:

  • To promote sustainable growth and balanced development of the region and member states
  • To focus on those areas of economic cooperation which provide maximum opportunities for development, shared interest and mutual benefits
  • To promote liberalisation, remove hindrances and lower barriers towards a freer and enhanced flow of goods, services, investment, and technology within the Indian Ocean Rim.

Priority areas

  • Indian Ocean Rim Association (IORA) has identified six priority areas:
    • Maritime security
    • Trade and investment facilitation
    • Fisheries management
    • Disaster risk reduction
    • Academic and scientific cooperation
    • Tourism promotion and cultural exchanges

 

 

India wants to expand the scope of IORA:

  • The IORA aims to achieve balanced development of the region and of the member states, and promote regional cooperation.
  • However, at the 2018 IORA meeting in Durban 2, India said it wants the grouping to expand its horizons.
  • India said it supports intensification and invigoration of IORA activities, from renewable energy and blue economy to maritime safety and security.
  • India noted that IORA has a vital role to play in realising a common vision for region, especially in light of the changing global geo-political scenario.

 

News Summary:

Deepening of Indo- French defence and security ties particularly in the Indian Ocean region:

  • Recently, India and France have operationalised their Logistic Support Agreement.
  • The deal will facilitate the French and Indian armed forces to receive logistical support, supplies and services from each other during authorised port visits, joint exercises, joint training, humanitarian assistance and disaster relief efforts.
  • Under the provisions of the agreement, French Navy’s anti-aircraft destroyer FNS Cassard has recently docked at the Mumbai docks.

 

France's interests in Indian Ocean:

  • France has specific interests in the Indian Ocean due to its overseas territories (Reunion Island and Mayotte which are home to over a million French citizens) and its exclusive economic zone in Indian Ocean, which is more than 10% of the Indian Ocean’s surface.

 

Opposition to France's membership to IORA

  • IORA member countries like South Africa, Madagascar and Comoros etc. have opposed France's intent to join the grouping.
  • They pointed that France was in the Indian Ocean is only because of its colonial possessions i.e. Reunion Island and Mayotte.
  • Note: For a long time, India's long-standing opposition to colonialism also come in the way of a strategic partnership with France. Finally, in 1998, the two countries entered into Strategic Partnership with defence cooperation, space cooperation and civil nuclear cooperation constituting the three principal pillars of the Strategic Partnership. France's presence could also be significant in light of the increasing Chinese adventurism in the Indian Ocean.

 

Way ahead:

  • France would have to use the tools of diplomacy with the opposing nations to soften them and India has to balance between its anti-colonial past and present-day strategic relations with France.
  • There should be continuous deepening of France and India’s partnership in the Indian Ocean, guided by the Joint Strategic Vision adopted by both countries last year, and the excellent cooperation between their navies.

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Section : International Relation

 

India ends PISA boycott, signs pact with OECD

The News

  • PISA is the global education evaluation system conducted by OECD.
  • India has not participated in the since 2012.
  • But with the Ministry of Human Resource Development recently signing an agreement with the OECD on participation, India is all set to participate in PISA (Programme for International Student Assessment) in 2021.

PISA: A Backgrounder

  • PISA (Programme for International Student Assessment), is an international study conducted by the OECD since 2000 every three years to evaluate education systems worldwide.
  • PISA assesses the competencies of 15-year-old students on key knowledge and skills essential for full participation in modern societies.

What does it measure?

  • PISA assesses the knowledge and skills of students in the domains of reading, mathematics and science.
  • A key aspect of PISA is the application of knowledge in real-life contexts rather than the mere ability of students to repro­duce the knowledge.
  • It is a cyclical study conducted every three years with one of the core domains tested in detail in every cycle.
  • The major domain in PISA 2018 is reading.

 

3 core domains under PISA

  1. Reading literacy
  • Unders­tanding, using, evaluating, reflecting on and engaging with texts in order to develop one’s knowledge and potential and to participate in society.

 

  1. Science literacy
  • Abili­ty to engage with science-related issu­es.
  • Competencies to
    • Explain phenomena scientifically
    • Evaluate and Design scientific enquiry
    • Interpret data and evidence scientifically

 

  1. Mathematical literacy
  • Capacity to formulate, employ and interpret mathematics in a variety of contexts.
  • It includes reasoning mathematically and using mathematical concepts, procedures, facts and tools to describe, explain and predict phenomena.

Significance of PISA

  • PISA provides internationally comparable indicators of knowledge and skills, core aspects of the educational systems and the general academic framework.
  • This will help identify strengths and problem areas which can be used to improve the educational systems.
  • PISA will help knowledge-sharing of best practices among policy makers of participant countries.

 

Why did India not participate in PISA in last 2 cycles?

  • 400 schools from Tamil Nadu and Himachal Pradesh participated in PISA, 2009, for the first time by Indian schools.
  • However, on account of poor performance in the rankings, India refused to participate in PISA in 2012 and 2015.
  • India ranked 72nd among the 74 participating countries on reading domain which was the core domain in 2009.

India to participate in 2021:

  • After a gap in 2012 and 2015 assessment cycles, India in 2016 set up a committee to review its decision to stay away from PISA assessment.
  • In accordance with the recommendation of the committee, the HRD Ministry has approved the decision to participate in the PISA, 2021 PISA assessment 2021 conducted by OECD.
  • The Union Government has nominated Chandigarh schools for participation in PISA, 2021.

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Section : Social Issues

 

US-Taliban talks: what’s on table, why it is being greeted with caution

The news

  • The US has declared that the American and Taliban officials have agreed to the framework of a peace deal.

 

Background on talks with Taliban

  • The decision to talk to the Taliban was taken during the Obama presidency.
  • The Doha office (in Qatar) of the Taliban was established for negotiations but there weren’t any concluding talks.
  • By the middle of 2018, the US started pushing for direct talks with the Taliban urgently (in line with President Trump's agenda to withdraw troops from Afghanistan).
  • There have been four rounds of talks during 2018. 
  • The current talks were conducted with the Taliban delegation in Doha, Qatar.
  • Now, after conducting the six days of talks in Doha, a preliminary draft framework for the peace deal with Taliban has been agreed upon.

 

Highlights of the news

  • After the latest round of talks with the Taliban delegation in Doha, the US Special Envoy to Kabul has declared that US and Taliban have agreed on a “framework” for a peace agreement.
  • As per the draft preliminary framework:
    • Taliban has agreed on committing to not allow terrorists to use Afghan territory to carry out attacks on the US and its allies.
    • US has agreed to pull out troops from Afghanistan on condition of direct talks between Taliban and Afghan Government as well as a ceasefire. However, the Taliban delegation has asked for some time to decide on it.

Way ahead on talks:

  • The current framework is only a draft and more details need to be worked out to be concluded as agreement.
  • New talks would start in late February.
  • Afghanistan President responded with caution against concluding any deal in hurry to prevent repetition of past mistakes.

 

 

Significance of the framework for deal

  • A tangible step forward: Realizing a draft peace deal after nine years of efforts is the biggest tangible step toward ending the two-decade war.
  • Preventing the use of Afghanistan for terrorism: A long pending demand by US was Taliban agreeing to prevent use of Afghan territory by terrorist groups. As per the the draft framework, Taliban agreed to this demand and also to provide guarantees and an enforcement mechanism.
  • Primacy of the US: With the declaration of near agreement, the US has moved ahead of Russia in its effort to find a resolution in Afghanistan involving other regional players like Iran and China.

Concerns remain:

  • Direct talks: The U.S. offered agreeing to withdraw troops from Afghanistan only on the condition that Taliban enters direct talks with Afghanistan government and agrees to a permanent ceasefire, which could create trouble in finalizing the deal.
  • Final deal still some way away: This is just a framework and technicalities have to be worked out, and until the deal is finally agreed upon, draft matters little.
  • Presidential election in Afghanistan: The presidential elections are due in July and the actual impact of the deal on elections is unclear.

 

What could the final deal look like?

  • According to a US-based security think tank the main elements of the peace deal could be:
    • An 18-month transitional government that will oversee power sharing between the Taliban and other sections of the Afghan politics.
    • The creation of a high Ullema council which, along with the interim government, will discuss changes to the Constitution.
    • Extension of US assistance to Afghanistan.
    • Amnesty and release of prisoners.
    • Breaking off Taliban’s links with other terrorist organisations.
    • Formation of an impartial team to implement the deal.

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Section : International Relation

 

Shot in the arm Editorial 29th Jan’19 TheHindu

Insolvency:

  • Businesses not only generate employment but also create economic growth.
  • It is crucial to have a mechanism to settle entities sliding into bankruptcy, without causing damage to the economy.
  • In India, it used to take companies about four to five years to dissolve its operations.
  • India was ranked 103 in the World Bank’s rankings of how nations handle insolvencies, clearly hurting the ease of doing business in India.

Insolvency and Bankruptcy Code (IBC):

  • The Government of India implemented the Insolvency and Bankruptcy Code (IBC) to consolidate all laws related to insolvency and bankruptcy and to tackle Non-Performing Assets (NPAs).
  • The time it takes for companies to dissolve its operations has now dropped drastically to a year.
  • This has not only increased the ease of doing business but also imbibed a stronger sense of trust in lenders and investors.

Provisions:

  • The code applies to companies as well as individuals and provides for a time-bound process to resolve insolvency.
  • In case of a default repayment, creditors acquire control over debtor’s assets and decisions must be taken to resolve insolvency within a period of 180 days.
  • The Code also provides a legislative framework to form a common forum for debtors and creditors of all classes to resolve insolvency.
  • Dealing with the cases:
    1. The regulator – The Insolvency and Bankruptcy Board of India (IBBI)
    2. Adjudicating Authority (AA):
      1. National Company Law Tribunal (NCLT) – For Corporate, i.e., Companies and Limited Liability Partnerships
      2. National Company Law Appellate Tribunal (NCLAT) will act as Appellate Authority.
      3. Debt Recovery Tribunal (DRT) – For Individuals and Unlimited Partnership Firms

Some amendments made by the government to plug loopholes:

  • The Centre later amended some provisions in order to plug some loopholes that enabled defaulting borrowers to challenge the legislation

 

IBC challenged in the Supreme Court:

  • Any law of this nature that takes over businesses and assets from defaulters and empowers lenders to change the management is bound to face legal challenges.
  • Borrowers have challenged various aspects of the law in tribunals and courts.
  • Section 29:
    • The petitioners had disputed the broad sweep of Section 29A, which barred not just promoters but any individual or entity “related” to them from seeking to take over the ailing entity.
    • This means that the relatives of the erstwhile promoters are also debarred, even if they may have no business connection with the erstwhile promoters who have been rendered ineligible by section 29A.
  • Section 53:
    • In the payment waterfall prescribed under Section 53 of the IBC in the event of liquidation of the company or its sale to another entity, their dues rank below those of financial creditors, workmen and employees.
    • This was challenged by the operational creditors - the people/organisations owed money by the company in the normal course of operations for supply of goods and services.
    • They wanted equal treatment with financial creditors - those who gave loans to the bankrupt company - in the recovery mechanism.
    • This, according to them, rendered section 53 discriminatory and manifestly arbitrary and thus, violative of Article 14 of the constitution of India. 

Impact:

  • Several landmark cases that were referred to the National Company Law Tribunal under the IBC got stuck there, as a result of various challenges, including on Section 53 and Section 29. 

 

SC judgement on IBC

Upheld the law in its entirety:

  • Recently, the Supreme Court in its judgement upheld the validity of the Insolvency and Bankruptcy Code 2016 (IBC) in its “entirety”.
  • The apex court’s stamp of approval on the entire Code is a strong signal to borrowers and banks even as it brings a sense of relief to the Centre, which has been watching one of its better economic initiatives being stifled by vested interests.

On Section 53:

  • The court opined that the reason for differentiating between financial debts, which are secured, and operational debts, which are unsecured, is in the relative importance of the two types of debts when it comes to the object sought to be achieved by the Insolvency Code.
  • Repayment of financial debt by borrowers infuses capital into the economy as lenders can on-lend the money that has been repaid to other entrepreneurs, thus aiding economic activity.
  • This rationale creates an “intelligible differentia” (difference capable of being understood) between financial debts and operational debts.
  • Thus the court said that it found the classification between financial and operational creditor neither discriminatory, nor arbitrary, nor violative of Article 14 of the constitution.
  • Significance: This means that the avenue that defaulters used to stymie proceedings has been closed.

Clarified "Related Party" Clause in Section 29A:

  • The apex court has also clarified that a mere relationship with an ineligible person cannot disqualify someone from becoming a bidder for a troubled asset.
  • It has to be proved that such a person is “connected” with the business activity of the resolution applicant.

 

Way forward - defaulters cannot get away anymore:

  • The IBC which, despite all the challenges that it has faced, has been successful in sending a message to recalcitrant defaulters that there can be no more business-as-usual when they default.  
  • The court noted that the experiment conducted in enacting the Code is proving to be largely successful.
  • It said, “the defaulter’s paradise is lost.” This constitutes a clear signal of its backing for the IBC.
  • The SC judgement could have a major impact on the country’s economic landscape.

 

Importance:

GS Paper III: Economy

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Section : Editorial Analysis

 

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