03 Jun 2023: UPSC Exam Comprehensive News Analysis

B. GS 2 Related

Category: INTERNATIONAL RELATIONS

1. US debt ceiling deal

Syllabus: Effect of Policies & Politics of Developed & Developing Countries on India’s Interests

Mains: Global implications of possible US default 

Context: U.S. averts first-ever default by suspending federal debt limit.

Introduction: 

• U.S. senators have voted to temporarily suspend the federal debt limit, averting the risk of a credit default just days before the Treasury deadline.
• Economists had warned that the country could face a shortage of funds to pay its bills by June 05, 2023, highlighting the urgency to pass the Fiscal Responsibility Act. 
• This legislation extends the government’s borrowing authority until 2024 while reducing federal spending.
• The bipartisan agreement, reached between President Joe Biden and the Republicans, secured a majority of 63 votes to 36 in the Senate, following a smooth passage in the House of Representatives.

What is the US debt ceiling?

• The debt ceiling is the amount of money the US government is allowed to borrow to pay the nation’s bills.
• In the United States, Congress comprising the House and Senate approves the budget and funds for the Executive branch to run the country. 
• The issue of the debt ceiling arises from the fact that the United States has been running a fiscal deficit since 2001. 
  • There is a limit to that borrowing which is periodically increased to allow the government to borrow more and continue working. 
• If the debt ceiling is not increased or suspended, the government would not be able to borrow and pay its outstanding dues. 
• So far, such a situation has happened only once in 1979 from an accounting error and not a political crisis.

Know more about the US debt ceiling in the linked article.

Impact of possible US default:

• A default by the US on its debt would have devastating consequences for the economy. According to Moody’s Analytics, even a breach of the debt limit for just one week would lead to a rapid and severe weakening of the US economy, resulting in the loss of approximately 1.5 million jobs.
• The United States would experience an economic downturn, accompanied by significant volatility in the stock markets.
• A prolonged default could have severe repercussions, potentially destabilizing the $24 trillion Treasury debt market, leading to a freeze in financial markets, and triggering an international crisis.
  • Of all the foreign exchange reserves held by the world’s central banks, US dollars account for 58 per cent.
• Researchers at the Federal Reserve have calculated that from 1999 to 2019, 96 per cent of trade in the Americas was invoiced in US dollars. So was 74 per cent of trade in Asia. Elsewhere outside of Europe, where the euro dominates, dollars accounted for 79 per cent of trade.
• A rising dollar can trigger crises abroad by drawing investment out of other countries and raising their cost of repaying dollar-denominated loans. 

Nut Graf: U.S. senators voted to suspend the debt limit, preventing a credit default. Failure to increase or suspend the debt limit could lead to an economic downturn, volatility in stock markets, and a potential international crisis. 

E. Editorials

Category: INTERNATIONAL RELATIONS

1. International trade has a carbon problem

Syllabus: Effect of policies and politics of the developed world.

Mains: EU’s Carbon Border Adjustment Mechanism (CBAM).

Prelims: CBAM.

Context: European Union’s Carbon Border Adjustment Mechanism.

Details:

• India is apprehensive about the European Union’s Carbon Border Adjustment Mechanism (CBAM) which has the potential to cripple India’s export of carbon-intensive products.
• New Delhi has called CBAM protectionist and discriminatory. It is also looking forward to challenging the law at World Trade Organization (WTO)’s dispute settlement body.
• However, India’s export to European Union is only 1.8% and is limited only to aluminium, iron, and steel.
• Though the international trade regime allows countries to adopt unilateral measures for safeguarding the environment, it should not be used for trade protectionism.

Carbon Border Adjustment Mechanism (CBAM):

• The EU adopted the Emissions Trading System (ETS) in 2005.
  • It is a market-based mechanism that intends to reduce greenhouse gas (GHG) emissions by allowing bodies emitting GHG to buy and sell these emissions amongst themselves.
  • The ETS is now at its fourth stage.
• The EU is worried that the ETS mechanism might put domestic industries at a disadvantage.
• It is also concerned that European firms operating in carbon-intensive sectors might possibly shift to countries having less stringent GHG emission norms. This phenomenon is called ‘carbon leakage’.

For more details on CBAM, read here: Carbon Border Adjustment Mechanism

WTO’s Stand:

• WTO law is based on the fundamental principle of non-discrimination. It accords equal treatment to ‘like’ products irrespective of their origin country (Most-Favoured Nation Clause).
• The countries are also required to treat foreign-made ‘like’ products as they treat domestic ones (National Treatment Principle).

Associated Concerns:

• Despite being origin-neutral, CBAM might discriminate between goods from different countries on account of an inadequate carbon pricing policy.
• Moreover, there is a concern about whether the carbon-intensive products to which the CBAM applies are ‘like’ or not. For example, 
  • Steel production by electric arc furnaces is less carbon-intensive than the steel produced in blast furnaces.
• It has re-ignited debates on the comparison of products based on processes and production methods.
• It is argued that the CBAM violates WTO law by discriminating between EU and foreign products based on embedded emissions.
• However, there might be a claim for justifying CBAM under the General Exceptions clause given in Article XX of the General Agreement on Tariffs and Trade (GATT).
  • According to Article XX, measures taken by countries that otherwise violate GATT obligations are permitted if:
    • They fall under one of the listed policy grounds.
    • They fulfil the requirements of the introductory clause of Article XX, called the chapeau.
• The commentators argue that the CBAM considers only ‘explicit’ carbon prices and excludes the ‘implicit’ costs (non-price-based costs) borne by the products originating in some countries.
• It also arbitrarily discriminates between countries having the same environmental conditions.

Also read: UPSC Exam Comprehensive News Analysis. May 10th, 2023

Conclusion:

India should deliberate with the EU to secure gains on CBAM and help in maximizing the benefits of Indian exporters through bilateral trade.

Also read: UPSC Exam Comprehensive News Analysis. May 18th, 2023

Nut Graf: The Carbon Border Adjustment Mechanism might be used for trade protectionism in the pretext of environmental protection. There are several concerns associated with its discriminatory approach. It is suggested that India should deliberate on a bilateral trade deal with the EU or use WTO to address its challenges.

Category: SCIENCE AND TECHNOLOGY

1. Good and bad

Syllabus: Application of Science and Technology.

Mains: Generative AI and associated concerns.

Prelims: Artificial Intelligence.

Introduction:

• Generative artificial intelligence (AI) refers to AI that can create new data. Currently, it is being used to generate text, images, and code in response to users’ requests.
• For instance, OpenAI’s ChatGPT chatbot mimicking intelligence has become synonymous with the abilities of generative AI at large.
• AI models backed by neural networks and trained through large datasets are used to find new antibiotics, alloys, etc. It is also used for entertainment and many banal tasks.
• Many critics caution that “Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks like pandemics and nuclear war.”

Read more about ChatGPT in the link.

Associated Concerns:

• The inscrutability of the internal workings of AI models.
• The use of copyrighted data and concerns associated with human dignity and privacy.
• False information is also a serious issue.
• It is argued that the new working models disregard the above risks.

Way Ahead:

• It is important to regulate generative AI as it can pose serious risks for the country.
• The Indian government should:
  • Proactively launch and maintain an open-source AI risk profile
  • Establish sandboxed R&D environments to test potentially high-risk AI models
  • Encourage the development of explainable AI
  • Define the scenario and approach to interventions

Also read: Artificial Intelligence Conundrum: Sansad TV Perspective

Nut Graf: Despite several associated issues, India should take advantage of Artificial Intelligence and harness its capabilities for all good reasons. The government can regulate it to some extent and allow its use for innovations.

Q1. Consider the following statements: (Level-Medium)

Q2. With reference to the insurance sector, consider the following pairs:
(Level-Difficult)

Q3. Which of the following statements is/are correct? (Level-Medium)

Q4. Consider the following statements with respect to Monetary Policy Committee (MPC):
(Level-Easy)

Q5. The function of heavy water in a nuclear reactor is to (Level-Difficult)
(PYQ-CSE-2011)

I. UPSC Mains Practice Questions

1. Railway safety in India remains a major concern despite all the recent measures. Critically evaluate. (250 words, 15 marks) (GS-3; Disaster Management)
2. What are the risks and concerns that arise from the emergence of generative AI? Examine. (250 words, 15 marks) (GS-3; Science and Technology)

Read the previous CNA here.