Local Content Requirements Research Articles

An appraisal of local content requirements in the Iranian oil and gas industry

Leading countries in the petroleum industry strive to maximize their benefits from exploring, developing, and producing oil and gas by setting out various policies and requirements such as local content. Iran, like many other oil and gas-producing countries, has legal and contractual local content requirements. However, the lack of transparent and integrated regulatory and contractual frameworks and fixed threshold applied for all types and life cycle of fields and operations are considered as concerns and challenges of local content policies in Iran. Determining metrics to measure local content is another issue that is not clarified as required in legal and contractual requirements. Establishing a constructive local content policy in Iran requires the active integration of factors such as actual improvements in local service or product and labor productivity. Transparent legislative and regulatory frameworks, robust performance planning, monitoring, and control mechanisms, along with precise metrics for measurement of local content, are indispensable prerequisites for realizing local content policies. The characteristics of operations and the need to implement new technologies must also be considered to design an appropriate policy. Moreover, the development of integrated approaches and congruent laws and regulations could facilitate and accelerate the achievement of development goals.

Evaluating economic impacts of utility scale solar photovoltaic localisation in South Africa

ABSTRACT The localization process seeks to ensure that the production of particular components occurs from local companies, thus restricting manufacturing to local firms. Solar Photovoltaic (PV) panels localization can stimulate regional economic development in coal phase-out regions. This paper uses the Jobs and Economic Development Impact (JEDI) model to assess the economic impact of enhanced solar PV localization and further analyses enhanced solar PV Local Content Requirements (LCRs) scenarios. The study determined that the optimization of LCRs has a positive influence on employment and Gross Domestic Product (GDP) under the considered timeframes (2020−2030). Specifically, the study found that a total of Full-Time-Equivalent (FTE) jobs that would be created by a 100% LCRs will be 249 315 over 10 years. An 80% LCRs scenario projected that a total of 219 513 jobs will be created while the overall economic impact is estimated to be USD 74 975, 248.43 over 10 years.

Intellectual Property-Related Local Content Requirements in International Trade Law: An Evolving Concept Amid Persisting Questions

Despite the challenges they pose under international trade law, recent discussions and cases at the World Trade Organization (WTO) demonstrate that local content requirements (LCRs) have enjoyed continued success among both developed and developing countries. This article focuses on a specific type of LCRs, intellectual property-related LCRs (IP-related LCRs). The article argues that the concept and related regulation of LCRs concerning IP rights have undergone a remarkable evolution under international trade law. The notion and regulation of IP-related LCRs, in particular, have changed from the 1883 Paris Convention on the Protection of Industrial Property (Paris Convention) and the 1886 Berne Convention on the Protection of Literary and Artistic Works (Berne Convention) to the General Agreement on Tariffs and Trade of 1947 and, later, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) and other Agreements at the WTO. Indeed, while the Paris Convention and the Berne Convention are still in force, the General Agreement on Tariffs and Trade (GATT) 1947 and the WTO Agreements have reframed the debate and implications of IP-related LCRs. Nevertheless, some questions on what is permissible under international trade law remain open at the WTO. Given LCRs continued success, some clarifications on their consistency with WTO law may be further needed. Local Content Requirements (LCRs), Agreement of Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), General Agreement on Tariffs and Trade of 1994 (GATT 1994), World Trade Organization (WTO), Intellectual Property Rights

Global Value Chains, Industrial Policy, and Industrial Upgrading: Automotive Sectors in Malaysia, Thailand, and China in Comparison with Korea

This study compares the evolution of automotive sectors in Malaysia, Thailand, and China with that of Korea by focusing on industrial policy, particularly local content requirements (LCRs) and global value chains (GVCs). Although LCRs show common effects of increasing the localization ratio to a certain degree, the eventual development paths of automotive sectors diverge in the three countries. In terms of three measures of upgrading in GVC, namely, the share of domestic (or foreign) value-added in their exports, export orientation (re-exported intermediate imports), and international competitiveness of their intermediate parts (domestic value-added embodied in foreign exports), China is the most successful (highest in two measures), followed by Thailand with strong export orientation, and with Malaysia being the least successful. Such divergent outcomes in three countries are explained in terms of three key factors, namely, local ownership, disciplines from market competition, and firm-level effort and strategies. Given the monopoly by national brand makers, Malaysia lacks discipline from market competition, whereas Thailand lacks local ownership and consistency in promoting domestic value-added. China is neither a national monopoly nor dominated by foreign joint ventures, but a strong entry by locally owned firms result in fierce market competition. In addition, Chinese firms attempt to build their technological capabilities and localize the production of key parts and components.

Nihil novi sub sole. The need for rethinking WTO and green subsidies in light of United States – Renewable Energy

US-Renewable Energy is the last in a series of WTO disputes involving subsidies schemes with local content requirements. Local content requirements (LCRs) are highly discriminatory and trade distortive instruments and therefore all cases concerning green energy have been found to violate WTO law. However, recent jurisprudence has developed a different definition of prohibited LCRs under the GATT and the SCM agreement, the latter allowing for some leeway to define origin of products under a government subsidy scheme. Depending how the subsidy scheme is framed, it will be able to be excused from the GATT’s more stringent prohibition of LCRs, this raises question of consistency in the application of the LCRs prohibition. Moreover, we review a simple and robust approach that modern welfare economics suggests for framing discussions of subsidy policy. We apply this approach to the case of renewable energy subsidies and discuss some complexities with respect to local content requirements. In conclusion, this allows us to critically assess and review proposals to increase coherence between WTO subsidy policy and green energy promotion policies and submit proposals to achieve better suited WTO subsidy rules.

A economia política do conteúdo local no setor petrolífero de Lula a Temer

Resumo O setor petrolífero tem uma vasta experiência com políticas de Conteúdo Local (CL), em particular na Noruega. No Brasil, essa política ganhou força nos governos Lula da Silva, mas começou a sofrer desgaste nos governos de Dilma Rousseff. A tentativa de repactuar aspectos dessa política em 2015 chegou tarde e, no governo Temer, sofreu um rebaixamento considerável. O objetivo deste artigo é entender a facilidade política e a rapidez com as quais o processo se deu, a partir de dois fatores. Primeiro, a tempestade perfeita que atingiu a Petrobras em meados de 2014 e em 2015, com uma forte queda de preço do petróleo e os impactos da Operação Lava Jato e outros fatores. Segundo, o desgaste ao qual a política de Conteúdo Local foi submetida, identificada como parte do problema, e não da solução, para o desenvolvimento brasileiro. A partir de uma análise das medidas governamentais e do posicionamento dos atores relevantes, percebe-se que a política de Conteúdo Local foi sacrificada no intuito atrair operadoras internacionais.

Analysis of regulated procurement procedures in the Republic of Kazakhstan for local content requirements

In connection with membership in the World Trade Organization and the Eurasian Economic Union, the Republic of Kazakhstan has taken several obligations to create equal conditions for producers of goods, works and services of all participating countries. This circumstance makes it difficult to provide direct support to domestic producers. The purchases of government bodies, quasi-government organizations and subsoil users of solid minerals, hydrocarbons and uranium (government-regulated purchases) create a significant volume of demand for various kinds of goods, works and services. Therefore, within the framework of the research, a literary review of the regulatory legal acts governing the procurement of these entities was carried out. An assessment of the norms contributing to an increase in the share of local content in purchases is given. As a result, proposals were formed to improve legislation in order to increase the effectiveness of these norms.

The ‘new’ institutional politics of Ghana’s hydrocarbon governance

Ghana’s discovery of oil in 2007 saw a rush to production in just three years. However, regulations lagged behind and it was not until 2011 that new legislation was enacted in key areas of oil and gas governance. Central to the legislative framework was the creation of the Petroleum Commission as the new regulator of upstream activity, while the national oil company – Ghana National Petroleum Corporation (GNPC) – was formally shorn of its regulatory role so that it could focus on commercial activities. This paper examines the performance of these separated institutions. Performance is always conditioned by deeper political dynamics and so we have moved beyond evaluating performance only from the perspective of the formal institutional remits. Using a political settlements lens, we argue that this separation of roles has been partially successful but that GNPC remains heavily involved in some aspects of regulation, due to its embedded power and the technical expertise it holds. The company has also become a vehicle for electoral politics in Ghana’s highly charged democratic system. At the same time, the Petroleum Commission has begun to find its feet after a few years of weak capacity but it remains heavily influenced by party political appointees and has only really been successful in putting in place critical subsidiary legislation and monitoring local content requirements. These dynamics around oil sector governance are in keeping with Ghana’s political settlement dynamics, which are competitive and clientelistic, so that key institutions become embroiled in partisan competition, producing mixed policy results.

Industrial policy and automotive development: a comparative study of Thailand and Czechia

ABSTRACT This paper investigates the effectiveness of industrial policy, and the role of state capacity to implement it, by making a comparison of automotive development in Thailand and Czechia, the largest vehicle producers in Southeast Asia and Central and Eastern Europe, respectively. The development of the industry in both countries primarily relied on foreign investment, despite Czechia’s long earlier history of domestic automotive development. The countries, however, have used very different types of industrial policy. Thailand introduced a series of vertical (sector-specific) industrial policies, pursuing a proactive industrial development strategy with state intervention, continuing even under the restrictions on trade-related policy measures imposed by the WTO since 2000. In contrast, Czechia has employed mostly horizontal (non-sector-specific) industrial policies with less state intervention, influenced by the restrictions of the European Union. Although both countries achieved considerable output and export growth, Thailand has a deeper and more locally owned supply chain. Thailand’s imaginative use of de facto local content requirements in connection with its product champion policy is instructive.

Local-content rules for renewables projects don't always work

Some countries with large renewables markets have sought to create domestic supply chains and jobs by implementing local-content requirements. We focus on three key renewables markets with local-content requirements – Brazil, India and South Africa – and analyze whether these rules have helped create local manufacturing capacity or benefited local companies. We find that companies in all three countries have tended to take on roles that are more easily borrowed from other industries, such as project development or ancillary services. It is more difficult to set up manufacturing capacity and such growth as there has been is in less sophisticated components. We also find that local content rules have contributed to increasing project costs.

The short-term costs of local content requirements in the Indian solar auctions

Developing and emerging economies are implementing local content requirements to spur domestic manufacturing, though their costs and benefits are not well understood and difficult to quantify. Here, we provide an empirical assessment of the short-term costs of local content requirements using a credible counterfactual. We analyse data on government-run solar photovoltaic auctions held in India between 2014 and 2017 and exploit the fact that not all of the auctioned contracts entailed local content requirements. We find that local content requirement policies resulted in a ~6% per kWh increase in the cost of solar photovoltaic power generated from those projects when compared to similar projects not subject to the same local content requirement policy. During this three-year time period, Indian solar panels remained around 14% more expensive than international panels. We found some evidence of short-term increases in domestic manufacturing capacity, yet during this short period Indian firms did not increase market share or break into export markets. Local content requirements are designed to promote development of local industry; however, their economic and technological benefits are not well understood. Using data from Indian solar photovoltaic auctions, Probst et al. show the economic costs and technical benefits of local content requirements in energy auctions.

The Nigerian Oil and Gas Industry Content Development Act and GATT Treaty Obligations: On a Path of Harmony or Discord?

The Nigerian Oil and Gas Industry Content Development Act of 2010 prescribe local content requirements to promote the patronage of Nigerian products and services by operators in the oil and gas industry. Local content requirements however appear to violate obligations under the World Trade Organization’s (WTO) General Agreement on Tariffs and Trade (GATT) (1994) of which Nigeria is a member. This article examines provisions of the Act and Nigeria’s obligations under the GATT with a view to determining whether the provisions of the Act are in violation of GATT obligations, and whether those violations are covered by any of the exemptions under the GATT. The article finds that sections 10(1) (a), 11(1), 12 and 13 of the Act, which favor the use of local products and materials for projects in the oil and gas industry, contravene the national treatment obligations under Article III of GATT. The article also finds section 53 of the Act to be in violation of the obligation to ensure the general elimination of quantitative restrictions under Article XI:1 of GATT. However, the article suggests that GATT exemptions justify Nigeria’s application of local content measures in the industry. Nigeria can rely on Article XVIII of GATT to apply local content measures for the purpose of promoting economic development and improving living standards in the country. Besides, Nigeria can rely on Articles XII: 1/2 and XIX:1 of GATT to apply local content measures that restrict fabricated/welded metal products imports in order to prevent a serious decline in monetary reserves and also safeguard domestic producers of similar products from “serious injury” that may arise from the increased imports of such products.
 Keywords: GATT; Local content requirements; Nigeria; WTO obligations; Oil and gas industry.

Domestication of the role of the mining sector in Southern Africa through local content requirements

This paper discusses the rationale for, and use of, local content requirements (LCRs) in the mining sector. In many countries, LCRs are being used to facilitate wealth creation, local participation, domestic linkages and clusters growth, and socio-economic development linked to mineral exploitation. In the case of the Southern African Development Community (SADC), where LCRs have grown in popularity in recent years, the main strategies being pursued include quotas (equity, employment, local sourcing), local beneficiation, local supplier development initiatives, mandatory local R&D expenditure and local skills development. Here and elsewhere, LCRs underpinned by supportive regulatory frameworks and enforcement and monitoring mechanisms are critical in expanding the local role of mining and in minimizing the enclave nature of mineral extraction by creating linkages. This paper builds a case for harmonizing LCRs across the region to benefit from economies of scale and the regional sourcing of capital, skills, supplies and other inputs and sector requirements. The regionalization of LCRs should be part of the broader process of implementing the Africa Mining Vision and the harmonization of policies in the sector in line with the SADC Protocol on Mining, and the long-term objectives of the SADC Industrialization Strategy and Roadmap and the Revised Regional Indicative Strategic Development Plan through the SADC Regional Mining Vision.

Local Content in Developing and Middle-Income Countries: Towards a More Holistic Strategy

This paper introduces a collection of manuscripts compiled for a special section of The Extractive Industries and Society on local content. Our introduction paper situates these pieces in the wider literature and policy debates on local content in the extractive industries in developing economies. Local content requirements (LCRs), which seek to create value locally, tend to be driven by state-owned enterprises (SOEs) and other agencies that work alongside multinational companies (MNCs), civil society organizations and international institutions in the mining and oil and gas sectors. For states, the establishment of SOEs and other government bodies needed to implement local content is a key to building a robust indigenous technical base for, and developing domestic linkages to, the extractive industries. The article concludes by prescribing recommendations on how to develop LCRs that create public value for a diverse group of stakeholders linked to the extractive industries.

Reopening Pandora's Box in Search of a WTO-Compatible Industrial Policy? TheBrazil–TaxationDispute

AbstractWe critically assess the Appellate Body (AB) report on theBrazil–Taxationdispute, taken to the World Trade Organisation by the European Union and Japan, and encompassing seven different Brazilian industrial programmes granting tax benefits to different firms and products. The trigger of the dispute was most likely the automotive sector programme, instituted under pressure from the local industry and without much attention to effects on consumers or imports. The resulting WTO case underscores some salient issues related to the WTO compatibility of subsidy programmes, in particular the application of the National Treatment rules to subsidies provided exclusively to domestic producers, and the identification of local content requirements, prohibited under the Agreement on Subsidies and Countervailing Measures (SCM). The AB diverged from the Panel report and its jurisprudence on those issues. The AB tried to reconcile the existence of legitimate eligibility criteria in subsidy programmes and their discriminatory features with WTO rules under the General Agreement on Tariffs and Trade and the SCM. However, the legal test, developed by the AB in this dispute to distinguish prohibited local content requirements from legitimate eligibility criteria, may facilitate circumvention of the SCM prohibition of local content requirements and have important impacts on trade flows.

Stand-alone renewable energy auctions: The case of Peru

Electrification policies are crucial to improve the welfare of rural populations worldwide. In this context, auctions for the deployment of stand-alone solar home systems (SASHS) are an appropriate alternative to facilitate access to electricity in rural areas. The aim of this paper is to analyze the design elements and functioning of the SASHS auction in Peru in order to derive lessons for the effective and efficient design of those auctions. Based on an analytical framework developed elsewhere, this article draws on official documents and data, secondary material and interviews with stakeholders. Our results show that some design elements are particularly suitable in this regard. In contrast to renewable electricity auctions in general, for which the volume auctioned is usually set as capacity (MW) or generation (MWh), the volume of SASHS auctions should be set in terms of the number of SASHS providing an electricity service. Geographical diversity, with different auctions per region, would ensure the adoption of a minimum amount of SASHS in a given geographical area. Financial solvency, but not technical reputation, should be required. Otherwise, only the incumbents would be able to participate in the auction. The choice of technology-specific, price-only, sealed-bid, single-item auctions brings benefits in terms of economies of scale, lower support or transaction costs and a greater transparency or simplicity. A correction factor on the remuneration which accounts for the quality of the service, as applied in the Peru auction, is suitable for this type of auctions. Finally, provision of technical information, which facilitates the participation in the auction, and the implementation of a non-disclosed ceiling price are deemed appropriate. In contrast, given the low presence of local companies in the Peruvian PV market, the adoption of local content requirements would lead to higher support costs without significantly increasing the local development potential.

Toward a strategic management perspective on local content in African extractives: MNC procurement strategies between local responsiveness and global integration

ABSTRACTLocal content requirements – i.e. government backed requirements that extractive MNCs must procure inputs locally – are fast becoming a major issue in MNC-host country bargaining in Africa. As a result of increasingly stringent local content requirements, extractive MNCs operating in Africa are facing a rapidly evolving strategic field, the management of which may have huge implications for their profitability and efficiency. While a vibrant and dynamic literature on local content in Africa is emerging, this literature is predominantly informed by economic and political perspectives, and strategic management perspectives are virtually absent. Hence, the aim of the paper is to characterize and develop the strategic management perspective on local content. Based on the classical local responsiveness-global integration grid, a framework is developed for, how MNCs may strategize on local content. The paper contributes to research by providing a conceptual framework that can inspire future strategic management research on MNC local content practices in Africa. Moreover, by providing a theory-based understanding of the strategic opportunities and challenges that face MNCs in relation to local content requirements, the paper may inform policymakers on how to better align local content interventions with MNC strategies and interests thus rendering them more effective.

Can strengthening the local content requirements meet a government’s need to raise industrial productivity and production?

ABSTRACT By taking firm heterogeneity in productivity into account in a monopolistic competition market in a general-equilibrium model setting, this paper investigates whether a stricter local content requirements (LCRs) can increase both productivity and production in the domestic intermediate-goods industry. The result shows that stricter LCRs policy cannot simultaneously increase both. The initial level of LCRs plays an important role in policy effectiveness. If it is below a critical level, a stricter LCRs can increase production but decrease productivity; however, production decreases but productivity increases if the initial LCRs are higher than the critical level.

THE ECONOMIC IMPLICATIONS OF TIED AID AND LOCAL CONTENT REQUIREMENTS FOR CLIMATE FINANCE

The Paris Agreement states that from 2020 developed countries will mobilize at least USD 100 billion per year to support climate action in developing countries. The attainment of this objective involves decisions by donor countries about the channel and destination of climate finance disbursements. This paper explores how the spending conditions associated to different disbursement options can affect the opportunities for donors to expand their exports. In particular, using a Multiregional Input-Output Model, it finds that donors have an economic incentive for choosing bilateral channels that enable to tie aid to the detriment of multilateral ones, such as the Green Climate Fund. On the other hand, local content requirements imposed by recipient countries do not substantially affect donors’ exports, since they do not reduce intermediate exports, which represent a relevant share of the total exports generated by the mitigation and adaptation actions analysed.

Reopening Pandora’s Box in Search of a WTO-Compatible Industrial Policy? The Brazil – Taxation Dispute

The Brazil-Taxation dispute concerns the complaints taken to the World Trade Organisation by the European Union and Japan against seven different Brazilian industrial subsidy programmes. One concerned the automotive sector and represents a clear case of policies dictated by strong domestic political-economy forces, with little attention to impacts on consumers or imports. The ensuing WTO dispute raises important issues concerning the WTO-compatibility of subsidy measures. In particular, the Appellate Body (AB) reversed the panel findings with respect to two issues: the extent to which subsidy measures can be exempted from complying with National Treatment rules under the General Agreement on Tariffs and Trade, and the identification of local content requirements (LCRs), which are prohibited under the Agreement on Subsidies and Countervailing Measures (SCM). In particular, the AB considered that subsidies, if not based on discriminatory taxation, could be justified under the GATT and could have some discriminatory elements without violating the National Treatment disciplines. Furthermore, it concluded that legitimate eligibility criteria under a subsidy programme should not be construed as prohibited LCRs under the SCM. However, the test devised by the AB to distinguish legitimate eligibility criteria from prohibited LCRs could facilitate circumvention of the LCRs prohibition under the SCM.