First Trade and Tech Council significant milestone in India EU ties (GS Paper 2, International Relation)
Why in news?
- The first meeting of the India-EU TTC in Brussels marks a significant milestone in the strategic partnership between India and the EU due to its focus on critical domains.
Focus area:
- The meeting, co-chaired on the Indian side by the External Affairs Minister (EAM), Commerce and Industry Minister and Communications, Electronics and, covered key focus areas of strategic technologies, digital governance and green energy technologies.
Key Highlights:
- The joint statement released by the two trade partners said that India and the European Union will cooperate on quantum and high-performance computing research and development projects to help address challenges including climate change.
- Both regions also committed to seek cooperation on trustworthy Artificial Intelligence and coordinate their policies with regard to the strategic semiconductors sector through a dedicated Memorandum of Understanding.
- They will work together on bridging the digital skills gap and promoting exchange of digital talent.
- Both partners will engage on 5G, telecoms and Internet of Things standardisation, which will enhance the interoperability of their respective digital public infrastructures.
- They will focus on wastewater management, including plastic litter and waste to hydrogen; recycling of batteries for e-vehicles and standards through pre-normative research.
Trade:
- On trade, the two countries have agreed to deepen their common work on resilient value chains, work to resolve bilateral market access issues and exchange information on each other's mechanisms on foreign direct investment screening.
- They will also address global and multilateral trade issues, with particular emphasis on the World Trade Organization.
- The two sides have also agreed to intensify their engagement on carbon border measures.
About India- European Union Trade and Technology Council (TTC):
- The TTC was launched by Prime Minister Narendra Modi and the President of the European Commission, Ursula von der Leyen, during her visit to India in April 2021.
- It led to the creation of three Working Groups under the TTC: Working Group on Strategic Technologies, Digital Governance and Digital Connectivity; Working Group on Green and Clean Energy Technologies; and Working Group on Trade, Investment and Resilient Value Chains.
Way Forward:
- In the joint statement, it has been announced that the TTC will take place at least once a year, with the venue alternating between the EU and India.
- The next ministerial meeting is planned for early 2024 in India.
Why are financial regulators transitioning from LIBOR?
(GS Paper 3, Economy)
Why in news?
- Recently, the RBI stated that some banks and financial institutions were yet to facilitate an absolute transition away from the London Interbank Offered Rate (LIBOR) benchmark.
- They had not inserted fallback clauses into all their financial contracts that reference U.S.$ LIBOR or the corresponding domestic Mumbai Interbank Forward Outright Rate (MIFOR).
- Both LIBOR and MIFOR would cease to be a representative benchmark from June 30, 2023.
What is LIBOR?
- LIBOR is a global benchmark interest rate that combines individual rates at which banks opine they may borrow from each other (for a particular period of time) at the London interbank market.
- It is used as a benchmark to settle trades in futures, options, swaps and other derivative financial instruments in over-the-counter markets (participants engaging directly without using an exchange) and on exchanges globally.
- Further, consumer lending products including mortgages, credit cards and student loans, among others, too use it as a benchmark rate.
How it works?
- Every business day before 11 a.m. (London time), banks on the LIBOR panel make their submissions to news and financial data company, Thomson Reuters.
- The panel consists of commercial bankers such as J.P. Morgan Chase (London branch), Lloyds Bank, Bank of America (London branch), Royal Bank of Canada and UBS AG, among others. Following the submission, the contributed rates are ranked.
- Extreme quartiles, on the top and bottom, are excluded and the middle quartiles are averaged to derive the LIBOR. The idea is to be as close to the median as possible.
What was the controversy around it?
- The central flaw in the mechanism was that it relied heavily on banks to be honest with their reporting disregarding their commercial interests.
- The rates were made public. Therefore, it would not be particularly useful to impress upon potential and current customers the various disadvantages in obtaining funds. The phenomenon was particularly on display during the 2008 financial crisis when submissions were artificially lowered (amid the crisis).
- In 2012, Barclays admitted to the misconduct and agreed to pay $160 million in penalties to the U.S. Dept of Justice.
- The Wall Street Journal too had studied in May 2008 that several panelists were paying “significantly lower borrowing costs” than what other market measures were suggesting.
- Another observed phenomenon was the tendency to alter (higher or lower) the submission as per the entities’ trading units’ derivative positions to acquire more profits.
SOFR:
- In 2017, the U.S. Federal Reserve announced the Secured Overnight Financing Rate (SOFR) as a preferred alternative.
- Accordingly, in India, new transactions were to be undertaken using the SOFR and the Modified Mumbai Interbank Forward Outright Rate (MMIFOR), replacing MIFOR.
- It is based on observable repo rates, or the cost of borrowing cash overnight, which is collateralised by U.S. Treasury securities.
- Thus, making it a prevailing transaction-based rate and drifting away from the requirement of an expertise judgement as in LIBOR. This would make it potentially less prone to market manipulation.
How India is responding to the regime change?
- The RBI had stated in its November 2020 bulletin that, in India, exposures to LIBOR are from loan contracts linked to it and Foreign Currency Non-Resident Accounts (FCNR-B) deposits with floating rates of interest and derivatives.
- In August 2020, it had asked banks to assess their LIBOR exposures and prepare for the adoption of alternative references rates. Contracts entered after (or before, if possible) December 31, 2021, were not to use the LIBOR as reference rate.
- More importantly, contracts entered before the date were to have fallback clauses, that is, an agreement for revised considerations when the reference rate is no more published, important for transparency and consistency.
Plastic pollution can be reduced by 80percent by 2040, UN lays out the blueprint
(GS Paper 3, Environment)
Why in news?
- As the world continues to look for alternatives to plastic, a new report from the United Nations hints that countries can reduce plastic pollution by 80% by 2040 using existing technologies.
- The report is released ahead of a second round of negotiations in Paris on a global agreement to beat plastic pollution.
Circular Economy:
- The United Nations Environment Programme (UNEP) have looked at the solutions-focused analysis of concrete practices, market shifts, and policies to identify ways to reduce plastic pollution.
- The report outlines the magnitude and nature of the changes required to end plastic pollution and create a circular economy. The report focuses on three main market shifts needed to create a "circular" economy.
- It calls for eliminating problematic and unnecessary plastics to reduce the size of the problem and then make three market shifts; reuse, recycle, and reorient.
Potential:
- UNEP estimates that government promotion of reuse options like refillable bottle systems or deposit return schemes could reduce 30 per cent of plastic waste by 2040.
- It also says recycling could achieve an additional 20% by that year if "it becomes a more stable and profitable venture" and fossil fuel subsidies are removed, and that the replacement of products like plastic wraps and sachets with compostable materials could yield an additional 17 per cent reduction.
- The UNEP pointed out that the shift to a circular economy would result in $1.27 trillion in savings, considering costs and recycling revenues.
Recommendations:
- The report recommends that a global fiscal framework could be part of international policies to enable recycled materials to compete on a level playing field with virgin materials.
- UNEP said given the short timeline between now and 2040, "sub-optimal solutions" will need to be used to deal with that waste though further study was needed to weigh the impacts of increased greenhouse gas emissions or air toxics.
Way Forward:
- The treaty negotiations, known as INC2, will take place from May 29 to June 2 and are expected to result in key inputs for the first treaty draft, which needs to be done before the third round of negotiations in Kenya in November.
