India's Liberalisation Experience: Hostage to the Wto?

India’s Liberalisation Experience

2

INDIA’S LIBERALISATION EXPERIENCE: HOSTAGE TO THE WTO?

India’s Liberalisation Experience Hostage to the WTO?

Edited by SUPARNA KARMAKAR RAJIV KUMAR BIBEK DEBROY

Indian Council for Research on International Economic Relations

Copyright © Indian Council for Research on International Economic Relations (ICRIER), 2007 All rights reserved. No part of this book may be reproduced or utilised in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system without permission in writing from the publisher. First published in 2007 by SAGE Publications India Pvt Ltd B1/I-1, Mohan Cooperative Industrial Area Mathura Road New Delhi 110 044, India www.sagepub.in SAGE Publications Inc 2455 Teller Road Thousand Oaks, California 91320, USA SAGE Publications Ltd 1 Oliver’s Yard, 55 City Road London EC1Y 1SP, United Kingdom SAGE Publications Asia-Pacific Pte Ltd 33 Pekin Street #02-01 Far East Square Singapore 048763 Published by Vivek Mehra for SAGE Publications India Pvt Ltd, typeset in 11/13pt Berkeley by Star Compugraphics Private Limited, Delhi and printed at Chaman Enterprises, New Delhi. Library of Congress Cataloging-in-Publication Data India’s liberalisation experience: hostage to the WTO?/edited by Suparna Karmakar, Rajiv Kumar and Bibek Debroy. p. cm. Includes bibliographical references and index. 1. India—Commercial policy. 2. India—Economic policy. 3. India—Economic conditions. 4. World Trade Organization. I. Karmakar, Suparna. II. Kumar, Rajiv, 1951– III. Debroy, Bibek. HF1589.I524

382'.30954—dc22

ISBN: 978-0-7619-3657-2 (HB)

2007

2007052012

978-81-7829-823-8 (India-HB)

The SAGE Team: Sugata Ghosh, Jasmeet Singh, Sanjeev Kumar Sharma and Trinankur Banerjee

Contents

List of Tables List of Figures List of Boxes List of Abbreviations Preface

7 11 12 13 20

1. Introduction Rajiv Kumar

23

2. India’s Economic Liberalisation and the WTO Bibek Debroy

39

3. From Uruguay to Doha: India at the Negotiating Table Suparna Karmakar

56

4. Prospects of Agricultural Trade Liberalisation: A View from India 78 Biswajit Dhar 5. The Political Economy of NAMA: A Note T C A Srinivasa-Raghavan 6. Indian Textile and Clothing Industry: Economic Policy Reform Experience During ‘ATC’ Period Samar Verma 7. GATS and Developments in India’s Service Sector Rupa Chanda and Sasidaran G.

125

134

169

6

INDIA’S LIBERALISATION EXPERIENCE

8. Plurilateral Negotiations in Services Sumanta Chaudhuri 9. The Enhanced Intellectual Property Rights in India Pravin Anand and Neeti Wilson

213

235

10. Can Protection of Intellectual Property Rights be of any Consequence to the Poor People? 256 Anil K. Gupta 11. Trade Facilitation: The Next Big Step in India’s Trade Reform Jayanta Roy and Pritam Banerjee

294

12. Anti-Dumping through India’s Liberalisation Process Sharad Bhansali

321

13. ‘WTO Plus’ Arrangements: Impact of Regional Trade Agreements S. Narayan and Indu Rayadurgam

349

14. Shifting Streams: India, the Environment and the WTO Pradeep S. Mehta

372

Epilogue About the Editors and Contributors Index

398 400 410

List of Tables 4.A1 4.A2 4.A3 4.A4 4.A5 4.A6 4.A7 4.A8 4.A9

4.A10 4.A11 4.A12 4.A13 4.A14 4.A15 4.A16

Commodities Subjected to Import Prohibitions Tariff Rate Quotas Established by India Since 2000 Applied and Bound Tariffs on Major Agricultural Commodities/Groups Summary Analysis of India’s MFN Tariff, 1997–98 and 2001–02 Total Aggregate Measure of Support Product-Specific Aggregate Measurements of Support: Market Price Support Non-Product-Specific AMS Measures Exempt from Reduction Commitments—‘Green Box’ Measures Exempt from the Reduction Commitments—Special and Differential Treatment—‘Development Programmes’ Export Subsidies Granted by India Domestic Support Granted by the United States (1995–2001) Domestic Support Granted by the European Union (1995–2001) Domestic Support Granted by the European Union (1995–2001) De Minimis Spending by the US De Minimis Spending by the EC European Union: Outlays on Export Subsidies

103 104 105 107 108 108 109 109

111 112 113 113 114 116 116 116

8

INDIA’S LIBERALISATION EXPERIENCE

4.A17 4.A18 4.A19

4.A20 4.A21 4.A22 4.A23 4.A24 4.A25

6.A1 6.A2(a) 6.A2(b) 6.A3 6.A4(a) 6.A4(b) 6.A5

6.A6

United States: Outlays on Export Subsidies Food Aid Provided by the US and the European Union Agricultural Export and Food Aid Programmes of the United States (1995–2002) MFN Bound Tariffs for Agricultural Products for OECD Countries MFN Applied Tariffs for Agricultural Products for OECD Countries MFN Bound Tariffs for Agricultural Products MFN Applied Tariffs for Agricultural Products Use of Non Ad Valorem Tariffs by Select WTO Members Simple Average Fill Rates of Tariff Quotas (1995–2000)

117 117

118 119 119 120 120 120 121

Overview of Indian Textile and Clothing Industry 154 Textile Imports during Ninth Five Year Plan Period (1997–98 to 2001–02) 156 Textile Imports from 2002–03 to April–December 2005 157 Comparative Plan Allocation for 8 Major Schemes/Programmes 158 Textiles Exports during Ninth Five Year Plan Period (1997–98 to 2001–02) 159 Textiles Exports from 2002–03 to April–December 2005 160 Total US Imports from India in Select Years, Value in Million US$, Volume in Million Units (Sorted in Descending Order of Value in 2005) 162 Peak Tariffs: US Imports in 2004 and Tariff Rates, Selected Products 166

LIST OF TABLES

7.1

7.2

7.3

7.4

7.5

7.6

7.7

7.8

8.1

Status Matrix for Actual or Proposed Liberalisation in India’s Telecommunications Sector Status Matrix for Actual or Proposed Liberalisation in India’s Financial Services Sector Status Matrix for Actual or Proposed Liberalisation in India’s Health Services Sector Status Matrix for Actual or Proposed Liberalisation in India’s Construction Services Status Matrix for Actual or Proposed Liberalisation in India’s Education Services Sector Status Matrix for Actual or Proposed Liberalisation in India’s Distribution Services Sector Status Matrix for Actual or Proposed Liberalisation in India’s Accountancy Services Sector Status Matrix for Actual or Proposed Liberalisation in India’s Legal Services Sector

9

179

184

190

191

194

196

201

203

List and Composition of the Plurilateral Groups Developed Countries’ Profile of Plurilateral Requests Developing Countries’ Profile of Plurilateral Requests Comparison between Bilateral and Plurilateral Requests Received/ Made by India

224

11.1 Gains from Trade Facilitation: Summary of Conclusions from Trade Facilitation Literature

296

8.2 8.3 8.4

221 222 222

10

INDIA’S LIBERALISATION EXPERIENCE

11.2 Indian Policy and Implementation of Trade Facilitation Measures Defined under WTO Negotiations 11.3 Typical Cargo Dwell Time 11.4 International Comparison of Efficiency of Importation 11.5 Cargo Dwell Time Break-Up

306 309

12.1 12.2 12.3 12.4 12.5

325 327 329 331 346

Cases Initiated in India Initiations Definitive Duties Measures in Force Cases Against India

13.1 GATT Trade Rounds 1947–93 and the WTO Round, 2001 13.2 Tariff Profiles (MFN Applied Tariffs) 13.3 Trade between Sri Lanka and India 13.4 Focus and Horizon Countries Identified using the Country Selection Criteria by the New Zealand Government 14.1 Import of Hazardous Substances in India, 2004–05 14.2 Pros and Cons of Environmental Project Approach and List Approach 14.3 Ecolabelling Schemes in Selected Few Countries

300 306

355 357 361

367 381 386 391

List of Figures

9.1 9.2

9.3

Intellectual Property in India Prior to TRIPS Agreement International Arrangements of which India Became a Member/Signatory in the Given Year Intellectual Property in India after the TRIPS Agreement

12.1 Initiation Anti-Dumping Cases (1997–2004) 12.2 Definitive Duties (1997–2004) 12.3 Measures in Force as on 2004–05 12.4 Cases Initiated 12.5 Anti-Dumping as Per Year 12.6 Number of Cases

236

238 239 333 333 334 335 337 341

List of Boxes

11.1 11.2 11.3

11.4 11.5 11.6 12.1

Summarising India’s Commitment to Trade Facilitation in PTA Negotiations Impediments and Problems Faced by Indian Exporters at Foreign Borders Primary Causes of Delay in Declaration and Duty Payment at Indian Custom Points Export Facilitation Problems in India Recommendations of the Working Group on Trade Facilitation Integrated Sourcing Initiative in the US–Singapore FTA: Lessons for India Dumping Margin

303 307

310 311 312 315 323

List of Abbreviations

ADB Asian Development Bank AED–T&TA Additional Excise Duty–Textile and Textile Articles AGOA Africa Growth and Opportunity Act AI–FTA ASEAN–India FTA AIPO Australian Industrial Property Organisation AIPPI Association Internationale pour la Protection de la Propriété Intellectuelle AMS Aggregate Measure of Support ANDEAN Munidad Andina de Naciones AoA Agreement on Agriculture APEC Asia-Pacific Economic Cooperation APEDA Agricultural and Processed Food Products Export Development Authority ASEAN Association for Southeast Asian Nations ATC Agreement on Textiles and Clothing ATCC American Type Culture Collection ATDCs Apparel Training and Design Centres B2B Business-to-business BCI Bar Council of India BHEL Bharat Heavy Electricals Ltd BIMSTEC Bangladesh, India, Myanmar, Sri Lanka, Thailand—Economic Cooperation BoP Balance of Payment BPO Business Process Outsourcing BSP Cartagena Protocol on Biosafety CAGR Compound Annual Growth Rate CBD Convention on Biological Diversity CBEC Central Board of Excise and Customs CBI Caribbean Basin Initiative CECA Comprehensive Economic Cooperation Agreement

14

INDIA’S LIBERALISATION EXPERIENCE

CEPA CFCs CGIAR CHA CIEFL CII CITES

CIU CLCS CoP CRISIL CSS CTE CTESS CTF CTH DAE DDA DDR DGCI&S DGFT DGRI DMD DNA DPCO DRDO DSB DSM

Comprehensive Economic Partnership Agreement Chlorofluorocarbons Consultative Group for International Agricultural Research Custom House Agents Central Institute of English and Foreign Languages Confederation of Indian Industry Convention on International Trade in Endangered Species of Wild Flora and Fauna Criminal Intelligence Unit Credit Linked Capital Subsidy Conference of the Parties Credit Rating Information Services of India Limited Contractual Service Suppliers Committee for Trade and Environment Committee on Trade and Environment Special Session Centre for Trade Facilitation Change in Tariff Heading Department of Atomic Energy Doha Development Agenda Doha Development Round Directorate General of Commercial Intelligence and Statistics Director-General of Foreign Trade Directorate General of Revenue Intelligence Doha Ministerial Declaration Designated National Authority Drug Price Control Order Defence Research and Development Organisation Dispute Settlement Body Deutsche Sammlung von Mikroorganismen

LIST OF ABBREVIATIONS

DUS DWP EBA EC EDI EFTA EGS EHP EIC EMIT EMRs ENTs EPA EPPs ESCAP EU EXIM FAO FDIs FEMA FIIs FIPB FIPS FTAs FYP G&P GATS GATT GDP GIs GIAN GMOs GoI GRRF GST

15

Distinctiveness, Uniformity and Stability Act Doha Work Programme Everything But Arms European Communities Electronic Data Interchange European Free Trade Association Environmental Goods and Services Early Harvest Programme Export Inspection Council Environmental Measures and International Trade Exclusive Marketing Rights Economic Needs Tests Environmental Project Approach Environmentally Preferable Products Economic and Social Commission for Asia and the Pacific European Union Export Import Food and Agriculture Organisation’s Foreign Direct Investments Foreign Exchange Management Act Foreign Institutional Investors Foreign Investment Promotion Board Five Interested Parties Free Trade Agreements Five Year Plan Ginning & Pressing General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross Domestic Product Geographical Indications Grassroots Innovation Augmentation Network Genetically Modified Organisms Government of India Genetic Resource Recognition Fund Goods and Services Tax

16

INDIA’S LIBERALISATION EXPERIENCE

HKMC HKMD HLIMC HYO IC ICAI ICAR ICFR ICMR ICRIER ICT IFAC IIMA IITs ILFTA IMTEC INSTAR IOC IP IP IPRs IPTI IRDA IRRI ISBN ISI ISRO IT JSG JVs LDCs LMOs

Hong Kong Ministerial Conference Hong Kong Ministerial Declaration High Level Inter-Ministerial Committee Hank Yarn Obligation Integrated Circuit Institute of Chartered Accountants of India Indian Council of Agricultural Research Indian Council of Forestry Research Indian Council of Medical Research Indian Council for Research on International Economic Relations Information and Communication Technologies International Federation of Accountants Indian Institute of Management, Ahmedabad The Indian Institutes of Technology Indo-Lanka Free Trade Agreement The Institute of Microbial Technology International Network for Sustainable Technologies, Application and Registration Indian Oil Corporation Independent Professionals Intellectual Property Intellectual Property Rights Intellectual Property Training Institute Insurance Regulatory and Development Authority International Rice Research Institute International Standard Book Number Integrated Sourcing Initiative Indian Space Research Organisation Information Technology Joint Study Groups Joint Ventures Least-Developed Countries Living Modified Organisms

LIST OF ABBREVIATIONS

LPG LTFR MA MEAs MFA MFN MMF MMTC MNCs MoCI MoEF MoU MRAs MTA MTNs MVIF NAFED NAFTA NAMA NDA NFIDCs NGOs NGP NIEPA NIF NIFT NREGA NRI NT NTBs NTM NTP OCB ODS

17

Liberalisation, Privatisation and Globalisation Less-Than-Full-Reciprocity Market Access Multilateral Environmental Agreements Multi Fibre Arrangement Most Favoured Nation Man-Made Fibre Minerals and Metals Trading Corporation Multi-National Corporations Ministry of Commerce and Industry Ministry of Environment and Forests Memorandum of Understanding Mutual Recognition Agreements Material Transfer Agreement Multilateral Round of Trade Negotiations Micro Venture Innovation Fund National Agricultural Cooperative Marketing Federation North American Free Trade Agreement Non-Agricultural Market Access National Democratic Alliance Net Food-Importing Developing Countries Non-Governmental Organisations Negotiating Guidelines and Procedures National Institute of Educational Policy and Administration National Innovation Foundation The National Institute for Fashion Technology National Rural Employment Guarantee Act Non Resident Indian Non-Tariff Non-Tariff Barriers Non-Tariff Measures National Telecom Policy Overseas Corporate Bodies Ozone-Depleting Substances

18

INDIA’S LIBERALISATION EXPERIENCE

OECD OGL PCP PEC PFC PIC PPMs PPP PSI PSUs PTAs PTA QRs R&D RBI RoO RTAs RTIA S&D SAFTA SASEC SCMF SEBI SECSCA SIIB SingTel SITP SMEs SPS SPs SRISTI SSI SSM

Organisation for Economic Cooperation and Development Open General Licence Pentachlorophenol Project and Equipment Corporation Patent Facilitating Centre Prior Informed Consent Production and Processing Methods Public-Private Partnership Pre-Shipment Inspection Public Sector Undertakings Preferential Trade Arrangements Preferential Trade Agreements Quantitative Restrictions Research and Development Reserve Bank of India Rules of Origin Regional Trade Agreements Regional Trade and Investment Area Special and Differential South Asian Free Trade Area South Asia Sub-regional Economic Cooperation State Cooperative Marketing Federations Securities and Exchange Board of India Subregional Economic Cooperation in South and Central Asia Special Investigation and Intelligence Branch Singapore Telecommunications Ltd. Scheme for Integrated Textile Park Small and Medium Enterprises Sanitary and Phytosanitary Special Products Society for Research and Initiatives for Sustainable Technologies and Institutions Small-Scale Industry Special Safeguard Mechanism

LIST OF ABBREVIATIONS

STC STOs TAA TAC TBGRI TBT TCIDS TCS TKDL TMC TNC TNCs TPA TPRM TRAI TRIMS TRIPS TRQ TUFS UC UN UNCTAD UNIDO UPOV USDA USPTO USTR UVR VAT VSNL WGTF WIPO WTO

19

State Trading Corporation Specific Trade Obligations Trade Adjustment Assistance Technical Advisory Committee Tropical Botanical Garden Research Institute Technical Barriers to Trade Textile Centre Infrastructure Development Scheme Tata Consultancy Services Traditional Knowledge Digital Library Technology Mission on Cotton Trade Negotiating Committee Trans-National Corporations Trade Promotion Agreement Trade Policy Review Mechanism Telecom Regulatory Authority of India Trade-Related Investment Measures Trade-Related Aspects of Intellectual Property Rights Tariff Rate Quota Technology Upgradation Fund Scheme University of California United Nations UN Conference on Trade and Development United Nations Industrial Development Organization International Union for the Protection of New Varieties of Plants United States Department of Agriculture United States Patent and Trademark Office United States Trade Representative Unit Value Realisation Value Added Tax Videsh Sanchar Nigam Limited Working Group on Trade Facilitation World Intellectual Property Organization World Trade Organization

Preface

T

he conventional wisdom or the common man’s view seems to be that commitments under the World Trade Organization (WTO) regime are the source of many ills in this country and indeed also several other developing countries. This has prompted its proponents to suggest a deceleration and from their perspective a complete stoppage of all WTO related initiatives and reforms. On the other hand, there is clear evidence for example from China and other countries, including ours, that liberalisation and economic reforms have accelerated economic growth and raised welfare levels all round. It was therefore topical for Indian Council for Research on International Economic Relations (ICRIER) to commission a set of papers that would examine two related issues. First, if the process of policy formulation in India has been influenced by the commitments made in the WTO, and second, if the policies so formulated has been in the overall interest of the country. These two issues are addressed in both the general and the macro levels and for specific sectors by the authors of different chapters in this volume. These chapters highlight the fact that India’s reforms and the consequent liberalisation experience, in several sectors has been mostly autonomous and unilateral. The commitments made under the WTO have represented a post facto binding of positions already reached through unilateral policy action. The reader, we are sure, will draw his/her own inference from the contribution included here. We take this opportunity to acknowledge our profound gratitude to the Sir Ratan Tata Trust, with whose generous grants ICRIER has been conducting research on multilateral trade policy issues since 2000, and who provided the financial support

PREFACE

21

for this volume as well. In acknowledging the important role played by various persons in the initiation of this exercise and its completion, we start with the Commerce Minister Kamal Nath, S.N. Menon (past Commerce Secretary) and G.K. Pillai, all of whom have been towers of strength and inspiration. T C A Srinivasa-Raghavan’s inputs extend well beyond the chapter that he has contributed. Finally, Shreemoyee Patra who helped with copyediting, Priti Katiyar for her generosity in proof reading the entire manuscript, the editorial team at SAGE and Neena Bhatia at ICRIER deserve special mention for their cooperation and support. We are grateful to all and give them our sincere thanks.

22

INDIA’S LIBERALISATION EXPERIENCE

Chapter 1 Introduction RAJIV KUMAR

BACKGROUND AND CONTEXT

W

orld Trade Organization (WTO) talks commenced in March 2007 after the Doha Round of trade talks stalled in July 2006 having encountered numerous roadblocks, especially over the lack of concessions on agriculture products which held up negotiations on industrial goods and services. The failure of the 2006 talks marked the loss of a major, perhaps, unique opportunity for more vulnerable economies to integrate into gains from international trade. This could have given these economies a much needed growth impetus from greater access to the markets of the developed countries and higher international prices for their principal exports. The irony is that the collapse came when negotiators were reportedly quite close to the landing zone and the majority in the G-5 were prepared to take the extra step to reach closure. The round of multilateral trade talks began in the Qatari capital Doha at the end of 2001, with the goal of reducing subsidies, tariffs and other barriers to commerce, and raising living standards in developing countries. But the negotiations have consistently been dogged by disputes between rich and poor nations, as well as among wealthy players such as the United States and the European Union (EU).

24

RAJIV KUMAR

The US and India are part of the so-called Group of Six, including Australia, Brazil, the EU and Japan, which failed to settle their trade differences in July 2006, with India and other developing countries demanding deeper reductions in tariffs on agricultural imports levied by rich nations, as well as bigger cuts in farm subsidies which allegedly help farmers in the wealthy world to undercut their poor competitors.1 Developed countries, such as the US, meanwhile, wanted key emerging nations such as Brazil and India to offer more open markets for industrial goods and services, such as banking and telecommunications. The key area of disagreement between the US and India was agriculture where the US was negotiating for agriculture market access for its subsidised products. Another Indian issue with the US in the WTO talks is over the reduction of tariff peaks and tariff escalations in Non-Agricultural Market Access (NAMA).2 The NAMA refers to negotiations to cut tariffs on industrial goods. It covers liberalisation of all manufacturing and industrial trade in sectors such as machinery, electronic goods, chemicals, textiles, wood and fish products. Ever since the suspension of the negotiations in mid-2006, India has been under tremendous pressure to drop its opposition to an agreement. WTO chief Pascal Lamy had time and again visited India and had used every opportunity to negotiate on behalf of the developed countries, urging strongly for an agreement on the Doha Round to be reached before the expiry of the US Trade Promotion Agreement (TPA) in June 2007.3 The WTO perspective is that opening up the farm sector for imports would not make the lives of Indian farmers any tougher and that India is unduly concerned about agriculture subsidies and the livelihood security of farmers. India remains a net exporter of food and has offensive interests in sugar, cotton, rice, wheat and wheat products, and there is every possibility to tap new markets abroad. Hence, the exposure of agriculture to international trade is just a small part of the overall reform that needs to be undertaken to address the concerns of the farming community. A two-day international seminar ‘Saving Doha and Delivering on Development’ organised by the Ministry of Commerce,

INTRODUCTION

25

Government of India (GoI), concluded at New Delhi on 13 March 2007. While the seminar was focused on bringing the Doha negotiations to a meaningful and speedy conclusion, it did provide a forum for the presentation of empirical evidence by Sandra Polaski, Director of Trade, Equity and Development Project of the US-based Carnegie Endowment for International Peace, that demonstrated the biases in the Doha negotiations that could go against developing countries’ interests.4 The United Nations Conference on Trade and Development (UNCTAD)-India study on Green Box subsidies and the benefits it would reap for the developing countries if the support were to be abolished is also of significant importance in this context. As far as resumption of the talks goes, India and Brazil represent the developing countries, while the EU and the US are the main voices of the developed world. India is willing to make concessions in industrial goods but is committed to protecting its agriculture sector, especially the subsistence farmers. Indian Prime Minister Manmohan Singh has expressed India’s commitment to an early conclusion of the Doha Round of WTO talks with the hope that developed countries will make consequential offers to reduce the huge trade-distorting subsidies provided to the agricultural sector. India has undertaken regionspecific trade liberalisation crafting free trade agreements with many countries, including members of the Association for Southeast Asian Nations (ASEAN), which should be viewed as building blocks of a larger agenda of trade liberalisation. As firm believer in a rule-based global trading system, India is keen that multilateral trade talks succeed.5 Equally, it must be recognised that in India agriculture is not just a business but a way of life and a major source of livelihood. India should, therefore, work towards an outcome which does not destabilise and cause distress to this large section of people.6 Hence, India will make every endeavour to conclude the negotiations within June 2007. This emerging flexibility in India’s policy stance in support of closure of discussions within is being viewed with extreme circumspection at best and strongly and volubly opposed at worst7 by sections of the academic community, activist groups, farming lobbies and NGOs with the agenda for protecting the interests

26

RAJIV KUMAR

of marginalised groups. Indian reactions to globalisation cannot be considered independent of Indian reactions to liberalisation. Globalisation, in so far as it only concerns the external sector, is a subset of liberalisation. It is easy to argue that all three (Congress, United Front and National Democratic Alliance [NDA]) governments have made a hash out of handling the political economy of the reform process. There has been no attempt to sell reforms to the poor, the beneficiaries. Consequently, reforms have been perceived to be top down, with a pro-urban and pro-rich bias. Myopic governments at the Centre and the state have been driven by populist considerations. Major beneficiaries of true reforms will be unorganised labour, small farmers, efficient trade and industry and consumers. Their gains will more than compensate for losses suffered by organised labour, large farmers, inefficient trade and industry and the bureaucracy. If this message can only be hammered home, the political economy will be taken care of and governments will be able to convince sceptics that good economics is also good politics.8 In the present context of positions and counter-positions held by academic sections, political parties, activist groups as well as international bodies, there emerges a compelling need to dispel myths and misconceptions about the WTO and its true impact on the liberalisation process in India. The present volume comprises contributions from experts on India’s liberalisation experience in the last decade wherein some liberalisation measures could have resulted from the implementation of WTO obligations. The volume also reviews how India has coped with obligations under WTO Agreements and benefited from the rights granted under different protocols. Different chapters discuss how each sector or theme under the WTO-mandated liberalisation has impacted Indian policy-making and liberalisation initiatives.

OVERVIEW OF THE BOOK The second chapter titled ‘India’s Economic Liberalisation and the WTO’ by Bibek Debroy places the Indian reform experience in the context of its domestic process of liberalisation as opposed

INTRODUCTION

27

to the globalisation process of which the WTO negotiations and their outcome form an important component. In sum, the chapter professes that unilateral reforms in the Indian economy distinguished the decade of the 1990s and beyond from the period between 1947 and 1991. India ceased to be a perpetual outlier that opposed any liberalisation that was suggested, multilaterally or otherwise. Ultimately, multilateral liberalisation in cross-border flows is about greater competition and competition benefits efficient producers of goods and services, not those who are inefficient. Efficiency and inefficiency are functions of the environment within the country and the extent to which these are reformed. Notwithstanding warts and blemishes, Indian enterprises simply became more efficient not because of the WTO, but because of unilateral liberalisation. The chapter establishes that while the WTO may have been important in implementing Uruguay Round agreements and performing a dispute resolution function, in so far as influencing India’s liberalisation exercise is concerned, the WTO’s impact has been limited and peripheral. So which elements of reform were incremental? Elimination of Quantitative Restrictions (QRs) in general, elimination of QRs on some agro products, changes in intellectual property laws (not just patents, but trademarks and geographical indications (GIs) also), better enforcement of intellectual property, upgradation and modernisation of Intellectual Property Rights (IPRs) offices, emphasis on traditional knowledge, trade facilitation improvements, enactment of competition policy law, liberalisation of service sectors like distribution, education or accounting and phasing out of the dividend balancing requirement are some areas in which reforms would probably have occurred later had it not been for the role played by the WTO. Having established that the WTO is perhaps ascribed with perpetration of many more atrocities in the country than it can actually be held responsible for, we have to chart out a way forward. So where do we head from here, what position should India take in the ongoing debate? The third chapter titled ‘From Uruguay to Doha: India at the Negotiating Table’ by Suparna Karmakar suggests the possible policy stance that can lead to more significant

28

RAJIV KUMAR

outcomes from the discussions for all stakeholders while breaking the ideological and policy deadlock that has been reached. If the talks are to resume, fresh perspectives are necessary for successful results. The chapter points out the elements that set the Doha Round apart from its predecessors. Karmakar emphasises that the scope of the ongoing negotiations is much larger and deeper than any of the previous rounds. The method of negotiation is also much more ambitious. The actors today are different from previous rounds, with active and vocal participation from developing countries. The round also suffers from lack of interest and support from the international business community. And finally, there exist serious imbalances in the global economy that are indirectly raising barriers to the successful conclusion of the talks. India’s traditionally hard-line approach to multilateral liberalisation must make way for proactive recognition of the fact that national interests of the country lie no longer in continued protectionism. Developing countries (including India) must also accept the reality that in terms of pure market access, industrialised countries would have little to offer by way of tariff cuts in this Round. In contrast, it is the developing countries themselves, and in particular the advanced developing countries, which would need to show progression. Developing country action is called for in: (i) reneging on the ‘Single-Undertaking’ principle; and (ii) the introduction of a credible regional trade policy shock into the system. The industrialised countries would need to: (i) undertake domestic and structural reforms; and (ii) recognise increased clout of developing countries at the negotiating tables of WTO which demands that the developing country concerns be put to the forefront of the WTO negotiations since over the last few years there has been a seismic shift in the competitive landscape facing the developed countries. While Bibek Debroy’s chapter clearly places WTO in the context of India’s overall globalisation process, segregating its impact from the country’s unilateral liberalisation process and outcomes, this compendium has emerged from the attempt to analyse those of

INTRODUCTION

29

India’s liberalisation measures which may have resulted from the fulfilment of WTO obligations. The various sectors and themes that have been studied here include agriculture, NAMA, textiles and clothing, service sector, IPRs, anti-dumping protocol, regional trade agreements and the environment. The potential impact of WTO-mandated liberalisation on the agricultural sector has been the well-spring of intense debate, media furore and activism in the country. The chapter by Biswajit Dhar titled ‘Prospects of Agricultural Trade Liberalisation: A View from India’ indicates the problems that have accompanied implementation of the WTO Agreement on Agriculture (AoA). The basic objective of AoA was to reduce and eventually eliminate the distortions in the markets for agricultural commodities. For realising this objective, the AoA introduced two sets of disciplines on the WTO members. Countries acceding to the WTO were expected to reduce the use of two forms of subsidies, namely, domestic support and export subsidies, over a period of time. However, in the period since the AoA has been implemented, there is little evidence to show that the AoA has had any meaningful influence on the markets. The major players in the global agricultural markets have continued to disburse large doses of subsidies to their domestic agricultural sectors. If anything has changed during the past six years, it has been the degree to which these countries have targeted the use of subsidies. Data on implementation of AoA in respect of major food crops which this chapter presents, demonstrates the fact that several WTO members are using subsidies to strengthen their position with the objective of gaining enhanced access in the markets that were opening up. As a result of this targeting, the prices of agricultural commodities included in this study are found to have declined quite steeply, quite contrary to the expectations prior to the implementation of the AoA. Countries like India had expected to gain from the implementation of the AoA since the withdrawal of subsidies by the major players in the global agricultural market was to bring about a rise in prices of agricultural commodities which would have benefited the low cost producers in the developing world.

30

RAJIV KUMAR

Removal of the gross imperfections that persist in global agricultural markets thus needs to be the focus of the ongoing WTO negotiations. This has indeed been the nub of the arguments that the G-20 countries have made during the negotiations. However, the prospects of any significant disciplining of agricultural subsidies by the two key players, namely, the US and the members of the EU, do not look very promising in light of the new Farm Bill proposals that were unveiled by the US Agriculture Secretary on 31 January 2007. These proposals indicate that the US could, in fact, increase farm subsidies, particularly on the ‘Green Box’ measures between 2008 and 2012. The global community would, therefore, have to wait considerably longer for the removal of policy induced distortions in agricultural markets. A core area of disagreement between the US and India that was instrumental in the failure of the Doha negotiations in July 2006 also related to ‘real market access’ in NAMA, which refers to all products not covered by the AoA. T C A Srinivasa-Raghavan in his chapter titled ‘The Political Economy of NAMA: A Note’ establishes that it is an attempt by the developed countries to extract a price from developing countries for righting a wrong that they, the developed countries, indulge in, namely, high agricultural subsidies combined with severely restricted market access for agricultural products from the developing countries. The instrument chosen, of eliminating the so-called ‘water’ in the tariffs on industrial products, is the thin end of the wedge. The various formulae being proposed will severely reduce room for manoeuvre for developing countries. This is all the more so because they have been unilaterally reducing the applied tariffs. Therefore, great care should be taken while arriving at any agreement that restricts elbow room in the negotiations. He concludes that the likelihood is greater that India will be a major importer of food rather than an exporter, and in that context worries that this issue is not being examined and, instead, policy and negotiations are proceeding on the basis that India will be a major exporter of agri-products. Samar Verma in Chapter 6 of the book titled ‘Indian Textile and Clothing Industry: Economic Policy Reform Experience During

INTRODUCTION

31

‘ATC’ Period’ explores India’s economic policy reform experience during the Agreement on Textiles and Clothing (ATC) period (1995 to 2005) in the context of the Indian textile and clothing industry.9 Fundamental reforms in the industry have indeed occurred in the last decade; in particular at the dawn of the 21st century. This must not, however, be construed to imply that all the reforms have been triggered by, or in some ways caused by India’s obligations under the WTO. The ATC, through its promise of increased market access opportunities for trade, and simultaneous threat of increased imports into the Indian market, did create at least a sense of urgency for reform in the minds of the policy-makers. The external environment—of which WTO was an important part—also comprised newer contours of the global market place with rapidly changing consumer preferences, just-in-time deliveries, quick turnaround cycles, lean retailing systems, greater emphasis on ‘ethically certified’ production and distribution systems and ‘one stop shopping’ placing greater emphasis on reliability and investments in longterm vendor relationships. These changes imply massive restructuring and reorganisation of firms and business practices that build its competitive sinews. The importance of developing home demand in India should not be underestimated either. The chapter indicates that while Indian industry has managed to survive and grow in the second half of the 20th century despite government policies, it is now time for entrepreneurs to demonstrate that they can grow faster and better if facilitated by government policies. Rupa Chanda and Sasidaran G. present in Chapter 7 (titled ‘GATS and Developments in India’s Service Sector’) an analysis of India’s own liberalisation strategy vis-à-vis its multilateral commitment and reform strategy in services to demonstrate that the General Agreement on Trade in Services (GATS) has not really played a catalytic role in India’s liberalisation process. Liberalisation of services has been undertaken as part of India’s general economic reform programme and has been shaped by domestic compulsions of enhancing efficiency in key input services like telecom and financial services for economy wide benefit and because of synergies with other sectors. Where opening has not been possible, the sector has not figured in the multilateral

32

RAJIV KUMAR

negotiations or figured only in a limited manner. Multilateral commitments and offers have typically lagged behind the autonomous liberalisation process and there are few occasions of pre-commitment. Also, multilateral commitments and offers have largely been less than the status quo, indicating an overall conservatism in the negotiating strategy and a strategy of keeping room for discretion or future leveraging of the negotiations in certain services. The GATS has also not been instrumental in expanding and securing opportunities for India’s services exports, the latter growing rapidly on their own strengths and spurred by technology and business imperatives. The chapter surmises that it is likely that India will continue to progressively liberalise and undertake regulatory reforms in its service sector, including the more sensitive services, and that the prospect of reversing such reforms will diminish over time. Hence, the value of locking in through multilateral commitments and the signalling value of multilateral offers is likely to diminish over time. Bilateral and regional deals will further undermine the value of the GATS for India. This brings us to the plurilateral approach to service negotiations which has been discussed in ‘Plurilateral Negotiations in Services’ by Sumanta Chaudhuri. The chapter establishes that the plurilateral approach is not a readymade solution to bringing about an ambitious outcome for services negotiations. The limited experience till date shows that this approach is unlikely to alter the basic architecture of GATS or fundamentally change the outcome of the negotiations. It will continue to supplement the bilateral approach and both will have their individual roles to play, though possibly the roles for each will differ depending upon the stage of the negotiations. The plurilateral negotiations are also not weighed against developing countries as had been anticipated by some. The approach has possibly led to better articulation of interests by at least some developing countries, which may prompt others in future to also do the same. It is also unlikely to develop into sectoral negotiations of the kind seen in the case of financial and basic telecommunication services earlier as the context is entirely different.

INTRODUCTION

33

Developing countries need to remain vigilant to ensure that this does not emerge. This approach, however, will not in itself fundamentally alter the level of ambition in the services negotiations. The links within and outside the services negotiations will continue to be the prime determinants. But this approach might be one of the contributors to a more positive outcome in services given that better trade-offs are possible within market access negotiations, the negotiations are restricted to only a limited number of members whose markets have current or future potential rather than the whole spectrum of the membership and the requests are more pragmatic and leave flexibility to meet individual needs of members, particularly developing ones. The Indian Intellectual Property (IP) regime has come a long way in recent years and more specifically in IP litigation in recent months and the outlook for the protection and enforcement of IP rights in India has never looked more positive. Pravin Anand and Neeti Wilson in their chapter titled ‘The Enhanced Intellectual Property Rights in India’ demonstrate how the Indian judiciary’s growing enthusiasm for and commitment to the protection of IPRs has encouraged IP owners to become more proactive in enforcing their rights by all means. They are exploring uncharted waters to obtain unique remedies from the courts. Although the benefits of specialised IP courts are still under debate in India, the present state of affairs is well suited to the protection and promotion of IPRs by brand owners. Although IP legislation has existed in India for decades, a real awareness and appreciation of IP issues has been noticeable only in the last decade. This radical change is a result of none other than the TRIPS agreement of WTO. In addition to overhauling almost every IP law to harmonise with international standards, India has taken steps to promulgate IP legislation in new areas in order to support growing areas of development. The progress made in 2005 to 2006 in particular has been critical for the consolidation of the IP legislation. While much still remains to be done regarding the criminal justice system, the Indian civil system for the protection of IPRs is improving daily. With a one billion-strong consumer pool from

34

RAJIV KUMAR

which to attract business, India is likely to remain the focus of the next generation global markets, and those who seek early protection of their IPRs in India and enforce them strategically will reap the benefits. In Chapter 10, Anil K. Gupta explores the relevance of the vigorous progress in the protection of IPRs in India for the economically challenged sections of the country especially in rural India which is a rich repository of traditional knowledge and practices. Poor people may produce innovations deserving respect, recognition and reward in the market place. Protection of IP and applications of Information and Communication Technologies (ICT) can provide incentives for disclosure and dissemination at the same time. We have to reduce transaction costs for common people to learn from each other as has been attempted by Honey Bee Network. At the same time knowledge providers must not be anonymous and should not be short-changed in the market place. Making IP protection accessible to small innovators and local communities would be the first step in that direction. Jayanta Roy and Pritam Banerjee in Chapter 11 identify trade facilitation as the next big step in India’s trade reform agenda. India has done well to bring attention to the issues of harmonisation of standards (Article VIII) and accreditation of testing laboratories (Article IX). India has also consistently made technical cooperation and capacity building a major part of its agenda at the WTO. However, it needs to insist on additional language within the trade facilitation agenda that would require developed countries to show consistent and preferably institutionalised commitment to such an exchange. The chapter suggests that a broader institutional change would be crucial to the trade facilitation process in the longer run. It points out that while customs administrations have a leadership role to play in the area of trade facilitation in several countries, in a majority of these countries it is not a part of the finance ministry that has revenue generation as a primary objective. However, if like in India, customs falls under the aegis of the Finance Ministry then there might be a conflict of interest, that is, if revenue generation is a major objective of the customs department,

INTRODUCTION

35

then trade facilitation will, at best, be accorded a distant second priority. A better alternative in the Indian context is to entrust the primary responsibility of trade facilitation in the long run to a restructured Director-General of Foreign Trade (DGFT). In fact, DGFT should be transformed into a Centre for Trade Facilitation (CTF), with a small unit looking after the residual export incentives. Housing the CTF in the Ministry of Commerce and industry has another added advantage, that is, since trade facilitation will be a part of WTO policy; CTF can better coordinate with the trade policy division in the same ministry. It is an acknowledged fact that anti-dumping is a fairly complex exercise which requires deep understanding of law, finance, costing and economics. Sharad Bhansali, in Chapter 12, titled, ‘Anti-Dumping through India’s Liberalisation Process’, emphasises the need for a strong and well-equipped institution to enable fair, transparent and unbiased decision-making to render the system more credible. Much of the criticism against anti-dumping as a tool of trade policy can be obviated if the process is followed in a transparent manner. The strengthening of the institutions at the investigation stage as well as the appellate stage is certainly the need of the hour. Despite opposition and widespread criticism of anti-dumping mechanism, it needs to be appreciated that anti-dumping as a tool of trade policy has helped the Indian industry during the transition phase. There are several examples where the Indian industry has not only survived due to the timely protection against dumping but has thrived subsequently. An efficient and responsive anti-dumping administration also sends appropriate signals to the erring exporters who might be inclined to indulge in price undercutting and underselling to the detriment of the Indian industry. It cannot be denied that anti-dumping does suffer from many shortcomings when viewed from the theoretical perspective of perfect competition. But then, the real world of international trade is nowhere close to perfection—either in theory or in practice. Starting from the late 1980s, Regional Trade Agreements (RTAs) have proliferated spanning countries, regions and continents. Of the

36

RAJIV KUMAR

149 members of the WTO, all but Mongolia are signatories to one or more RTAs. S. Narayan and Indu Rayadurgam discuss the impact of regional trade agreements on the international trade architecture while exploring the expanding scope of RTAs over the years. Many of the recent agreements include subjects under the Singapore Issues (trade facilitation, investment, government procurement and competition) and others like North American Free Trade Agreement (NAFTA) have a separate dispute settlement mechanism. Indian trade policy has developed a balanced approach towards multilateral negotiations as well as regional and bilateral agreements. There has also been a strong unilateral movement to opening up the markets for international trade. The chapter envisages the analysis of India’s approach to trade agreements through a three-part strategy which includes unilateral liberalisation, and multilateral and regional liberalisation. In a Free Trade Agreement (FTA), member nations reduce barriers to trade between them and simultaneously raise higher barriers to trade at the international level. So an FTA with Sri Lanka or Singapore makes India flexible for such nations, whereas at the multilateral level, the ‘defensive posture’ would still be in place. RTAs afford India the flexibility of choosing its partners. Environmental conservation and sustainable development solutions have been a prominent area of policy attention in recent years. Pradeep S. Mehta places India’s environmental policy making in the context of the WTO mandate establishing how the country has played a fundamental role in both promoting and implementing the Multilateral Environmental Agreements (MEAs). India was seen as one of the more proactive developing countries in attaining environmental conservation both in the domestic as well as international forums, before and during the initial stages of trade liberalisation. During the 1980s and early 1990s, numerous national environmental policies came into force, which gave backing to India’s positive approach on the international stage. Yet during the mid-1990s, environmental progress diminished and a passive and conservative stance took effect.

INTRODUCTION

37

It could be said that there was a fundamental shift in the mindset of how to achieve economic growth along with rapid poverty reduction. Negotiations in the Doha Round on the environmental goods and services (EGS) should be viewed in the context that overall, India would be a high net importer of EGS if it commits to liberalising its EGS markets, that is, import trade would outweigh export trade. Interestingly, there are Indian EGS sub-sectors (energy management, renewable energy and cleaner technology) that have healthier potential, especially in the perspective of South–South trade. Also, liberalisation of trade in environmentally preferable products (EPPs), such as jute and bamboo, generate double gains for India. Environmental standards can and in some cases do act as Non-Tariff Barriers (NTBs) to the exports of India, as well as other developing countries and even developed countries. On the other hand, there are positives as well, but progress must be made for environmentally honest pricing with a holistic view taking into account both producers and consumers in a feasible manner. It is my belief that the contributions specially put together for this volume take forward the discussion on India’s interests and role in the on-going Doha Development Round (DDR) negotiations. India has rightly found a place on the ‘high table’ by joining the G-4 that has effectively replaced the QUAD as the principal negotiating group within the WTO. This position also carries additional responsibility. Along with protecting its own national interests as all member countries are expected to do, India also has to be conscious of safeguarding and strengthening the multilateral global trading regime. The credibility and effectiveness of the WTO, which forms the basic core of this multilateral system, has to be ensured as well. Therefore, Indian negotiators have to in a way graduate to a higher league that carries both higher recognition and responsibilities. This certainly requires that apart from reinforcing the ‘in-house negotiating capacity’, the Ministry of Commerce must interact more intensively with other line ministries, industry bodies and think tanks to formulate its negotiating positions that retain a degree of flexibility. At the same time, track two negotiating

38

RAJIV KUMAR

modalities can also be used far more effectively and with greater finesse to achieve early mover advantages and for informal testing of the feasibility of possible negotiation positions. This volume attempts at bringing together a wide range of view points in the hope that this will strengthen the interaction between our negotiators and policy supporting think tanks like Indian Council for Research on International Economic Relations (ICRIER).

NOTES 1. The related issues have been analysed in detail in Chapter 4 of the book on the agricultural sector by Biswajit Dhar. 2. See Chapter 5 of the book by T C A Srinivasa-Raghavan. 3. See http://nation.ittefaq.com/artman/publish/article_34792.shtml 4. See http://nation.ittefaq.com/artman/publish/article_34792.shtml 5. For an exposition on possible strategies to break the impasse in the talks while protecting the interests of vulnerable groups see Chapter 3 of this book by Suparna Karmakar. 6. See http://www2.irna.ir/en/news/view/line-16/0703148496092844.htm 7. See http://nation.ittefaq.com/artman/publish/article_34792.shtml 8. See www.ccsindia.org/policy/glob/articles/debroy.doc 9. The ATC and all restrictions there under were terminated on 1 January 2005. The expiry of the 10-year transition period of ATC implementation meant that trade in textile and clothing products would no longer be subject to quotas under a special regime outside normal WTO/GATT rules but would now be governed by the general rules and disciplines embodied in the multilateral trading system.

REFERENCES AND SELECT BIBLIOGRAPHY The Hindu Business Line. 2007. ‘Lamy Pitches for India’s Role in Revival of WTO Talks’, 20 January. ———. 2007. ‘Lamy wants India to budge on WTO issues’, 20 January. The Economic Times. 2006. ‘India, US to Hold Talks to Bridge WTO Differences’, 27 October. UNCTAD-India. 2006. ‘Green Box Subsidies: A Theoretical and Empirical Assessment’, UNCTAD-India Working Paper, July 2006.

Chapter 2 India’s Economic Liberalisation and the WTO BIBEK DEBROY

INTRODUCTION

T

his chapter is on India’s liberalisation experience and the World Trade Organization (WTO). The expression ‘India’s liberalisation experience’ has to be defined in at least two senses. First, there is a tendency to assume that India’s liberalisation dates from 1991 and this is a bit of a simplification. There has been continuity to India’s reform experience and Indian reforms can be traced back to the second half of the 1970s, although the pre-1991 reforms were piecemeal and ad hoc and certainly not as comprehensive as the post-1991 ones. Second, economic reforms have a domestic component and an external one, although the two are linked. For instance, in the post-1991 scenario, the external sector component involved six different strands—tariffs, Quantitative Restrictions (QRs), export subsidies (incentives), the exchange rate mechanism, Foreign Direct Investments (FDIs) and foreign portfolio investments. Traditionally, the mandate of the General Agreement on Tariffs and Trade (GATT) has been external sector policies, especially tariffs and Non-tariff Barriers (NTBs). It is certainly the case that as international trade and business became more complicated and

40

BIBEK DEBROY

as tariffs dropped, the focus of GATT, and later the WTO, shifted to what can be called domestic economic policies. Intellectual Property Rights (IPRs), cross-border investments, services and agriculture are all examples of this shift in focus. Despite this, when one attempts to link India’s economic liberalisation with the WTO, one primarily means external sector reforms. Stated differently, when one discusses economic reforms in India, the words liberalisation, privatisation and globalisation (LPG) are occasionally used. The WTO is about globalisation, not about liberalisation and privatisation, although the word ‘liberalisation’ is used in the title of this chapter. Having said this, how does one link liberalisation with WTO? The WTO came into existence on 1 January 1995, as a consequence of the Uruguay Round (1986–94) of negotiations. By virtue of being a member of the erstwhile GATT, India automatically became a member of WTO and did not have to go through an accession process. Since there have not been any agreements under a WTO umbrella and the Doha Work Programme (DWP) is temporarily stuck, the question of liberalisation being pushed as a result of WTO agreements does not logically arise. Indeed, this is true not just of India, but of all the 150 countries that are WTO members. Barring accession instances where a country has become a member of WTO and was not earlier a member of GATT, the WTO has not had anything to do with promoting liberalisation, notwithstanding perceptions to the contrary. The only exception to this principle are instances where WTO’s dispute settlement role has led to certain trade policies being declared illegal and a member country has accordingly had to alter its policies. There remains the matter of the Uruguay Round package, which in a pedantic sense predates WTO’s establishment. Through a happy coincidence, the time-frame for implementation of the Uruguay Round agreements meshed in with India’s own post-1991 liberalisation exercise. Ipso facto, since unilateral liberalisation and the Uruguay Round dictated liberalisation were movements in the same direction, India was far more comfortable than the country had ever been with any

INDIA’S ECONOMIC LIBERALISATION AND THE WTO

41

other round of multilateral trade negotiations. The gap between what the Uruguay Round required India to do and what India would have wanted to do of her own volition was reduced. At the risk of some subjectivity in identification, the only areas where India was probably constrained to undertake reforms that she would not have immediately undertaken on her own had there been no Uruguay Round commitment, are IPRs, services, agriculture and QRs. Despite this, popular perception, which fails to distinguish between unilateralism and multilateral commitments, blames the WTO for much of the liberalisation and unilateral initiatives have now been complicated by the addition of Regional Trade Agreements (RTAs). There is also a difference between what the WTO requires India to do today and what liberalisation might be mandated in the future, once the DWP leads to an outcome and there are specific commitments.

THE TRADE POLICY REVIEW MECHANISM (TPRM) AND DISPUTES The Trade Policy Review Mechanism (TPRM) was formally instituted as an outcome of the Uruguay Round agreement, although its antecedents go back to the mid-term review of the Uruguay Round in 1988. Every WTO Member has to go through a TPRM. The frequency of TPRMs varies from country to country. This is yet another channel through which India’s trade policies are scrutinised by the WTO secretariat and thus, by other WTO members. Therefore, in principle, TPRMs offer a mode for the WTO to influence Indian liberalisation. The frequency of India’s review is once every four years, although there is a flexibility of six months in the review cycle. In each such review, other than press releases, there are four separate documents—the secretariat’s report, the Indian government’s response, questions (and answers) by other WTO members and minutes of the final meeting, with the Chairperson’s summary. India went through TPRMs

42

BIBEK DEBROY

in 1993, 1998 and 2002. Of these, the 1998 and 2002 reviews are post-WTO, so to speak. These are not on trade policy alone, since the broader macro policy environment of the country in question is also sketched out. Consider first the two secretariat reports on India, in 1998 and 2002. In 1998, while appreciating the thrust of India’s trade policy reform, the points were made that despite tariff reductions, the tariff structure still remained complex, with a large number of bands, and tariff escalation was high in sectors like paper and paper products, printing and publishing, wood and wood products, textiles and clothing and food, beverages and tobacco. On import licensing, there was a problem with consumer goods and complaints were also raised about canalisation. The review was much more critical of the export subsidy and incentive structure. By the time it came to the 2002 review, import restrictions imposed for balance of payments (BoP) purposes had been scrapped. The 2002 secretariat report was thus primarily critical of complex tariff structures (such as end-use exemptions) and tariff escalation (special mention of paper and printing, textiles and clothing and food, beverages and tobacco). It also flagged India’s increased use of anti-dumping and the requirement that certain imports (like automobiles and natural rubber) could only take place through designated ports. The Government of India’s (GoI’s) response to these criticisms was predictable. In 1998, it was argued that at the eight-digit level of trade classification, imports of 2,714 tariff lines were restricted under Article XVIIIB of GATT and another 600 tariff lines were restricted under Articles XX and/or XXI of GATT. A six-year time-frame for eliminating QRs was reached with countries other than the US (that is, Australia, Canada, the European Communities, New Zealand, Switzerland, Japan). The points made were that (a) India had not deviated from the tariff reduction or binding commitments of the Uruguay Round, some zero or low level bindings on agro commodities were renegotiated upwards under Article XXVIII of GATT, (b) the Copyright Act was amended

INDIA’S ECONOMIC LIBERALISATION AND THE WTO

43

in 1994, under Trade-Related Investment Measures (TRIMs) the dividend balancing requirement and mixing requirements for newsprint were eliminated, and (c) anti-dumping and safeguard measures were WTO-compliant and India was not a signatory to the plurilateral agreement on government procurement, but signed (in April 1997) the plurilateral agreement on trade in information technology products. This 1998 response also flagged the NTBs Indian exports faced in other countries and included ‘(i) restrictive import policy regimes (import charges other than customs tariff, quantitative restrictions, import licensing, customs barriers); (ii) standards, testing, labelling and certification (including phytosanitary standards) which are set at unrealistic levels for developing countries or are scientifically unjustified; (iii) export subsidies (including agricultural export subsidies, preferential export financing terms, etc.); (iv) barriers on services (visible and invisible barriers restricting movement of service providers, etc.); (v) lack of intellectual property protection; (vi) government procurement regimes; (vii) barriers to investment; (viii) other barriers (including anti-dumping and countervailing measures)’. By the time it came to the 2002 response, the QR issue had disappeared. QRs were removed on 488 items in 1996, 391 in 1997, 894 in 1998, 714 in 2000 and the remaining 715 items in 2001. Indeed, the 2002 response was remarkable, because instead of being defensive about India’s trade policy, it paraded India’s liberalisation attempt and its successes, especially in the domestic segment. Indeed, if one tracks the questions posed by other trading partners, say in 2002, liberalisation made the GoI’s task remarkably simple. Most questions were Uruguay Round-plus, in the sense that they did not involve violation of any existing Uruguay Round agreements—Press Note No. 18 of 14 December 1998, enforcement of improved legislation on intellectual property and gaps between applied and bound rates being cases in point. It is unnecessary to cite the minutes of the 1998 and 2002 meetings, because they substantiate the same point.

44

BIBEK DEBROY

Consequently, there is little in the WTO’s TPRM process per se that triggered Indian liberalisation. The disputes are a slightly different matter and compared to many other developing countries, India has a far better capacity to handle disputes. So far, India has figured as a complainant in 17 cases and as a respondent in 18. The 17 cases where India figured as a complainant involved automobile import regimes (Poland), import of women’s and girls’ coats (US), imports of woven wool shirts and blouses (US), imports of textiles and clothing (Turkey), import prohibition on shrimp and shrimp products (US), import duties on rice (European Communities), anti-dumping duties on unbleached cotton fabrics (European Communities), anti-dumping duties on cotton-type bed linen (European Communities), anti-dumping duties on pharmaceutical products (South Africa), anti-dumping and countervailing measures on steel plates (US), anti-dumping and anti-subsidy duties (US), anti-dumping duties on jute bags (Brazil), import of pharmaceutical products (Argentina), rules of origin for textiles and apparel (US), granting of tariff preferences to developing countries (European Communities), anti-dumping duties on flat rolled iron or non-alloy steel products (European Communities) and a customs bond directive for merchandise subjected to antidumping and countervailing duties (US). Other than complaints that are generic in nature, this is also a surrogate indicator of products of export interest to India. The 18 cases where India figured as a respondent involved patent protection for pharmaceutical and agro chemical products (US), patent protection for pharmaceutical and agro chemical products (European Communities), QRs on imports (US), QRs on imports (Australia), QRs on imports (Canada), QRs on imports (New Zealand), QRs on imports (Switzerland), QRs on imports (European Communities), export licenses (European Communities), local content and export balancing requirements in the automotive sector (European Communities), QRs on imports (European Communities), special and additional customs duties (European Communities), local content and export balancing requirements in the automotive sector (US), QRs on imports

INDIA’S ECONOMIC LIBERALISATION AND THE WTO

45

(European Communities), anti-dumping measures (European Communities), anti-dumping measures on batteries (Bangladesh), antidumping measures (Chinese Taipei) and in-direct taxes on import and sale of wines and spirits (European Communities). Of these, the ones involving patents and QRs are the most significant. Towards the beginning of the chapter it was stated that the sectors where India would not have probably undertaken liberalisation on her own, had there been no WTO or Uruguay Round, were IPRs, services, agriculture and QRs. This now needs some qualification. In the preparatory phase of the Uruguay Round, India resisted the inclusion of what were then labelled as the new areas—Trade-Related Aspects of Intellectual Property Rights (TRIPS), TRIMs and services. However, this was pre-1991 reform and it was also a period when India had donned the mantle of leadership of the South. It is a moot question whether such an opposition would have continued in the post-1991 era, had the Uruguay Round agenda emerged in the 1990s. For instance, from a general opposition to enhanced IPRs protection, the opposition boiled down to one of resisting product patents in pharmaceuticals, chemicals and fertilisers. On TRIMs, local content and dividend balancing requirements disappeared in the process of unilateral reforms. Perceptions also changed vis-à-vis services. Indeed, in service sector negotiations, although the Indian negotiating position continues to emphasise Mode 4 (cross-border movements of natural persons), Mode 3 (commercial presence) no longer remains a taboo as earlier. That leaves QRs and agriculture. That QRs are inefficient as a mode of protection, assuming there is going to be protection, was recognised as part of the unilateral liberalisation agenda. However, had India not lost the QR dispute, elimination of all QRs would probably not have been done in April 2001 but somewhere further down the line. Finally, while agriculture is perceived to be a contentious issue, there is a difference between applied rates and bound rates. Barring a few agro items (and some bound rates were renegotiated upwards), there is enough of a comfort zone in terms of a bridge between applied and bound rates. The elimination of

46

BIBEK DEBROY

QRs on agricultural products is a slightly different matter. Hence, at least so far as Uruguay Round agreements are concerned, the increment to India’s liberalisation exercise as a consequence of the existence of WTO are probably limited to patent law and the elimination of QRs. Before concluding this section, a comment is in order about post-Uruguay Round agreements. Although these do not exist as yet, their contours (but not the hard numbers) are obvious enough. It is also fairly obvious that the government of India would want to extract a quid pro quo from trading partners in return for any liberalisation measures it undertakes. This is the basis for all negotiations and reciprocity is also built into GATT articles. More accurately, GATT principles embody less than full reciprocity for developing countries and implementation of this rule is the major stumbling block for both Non-Agricultural Market Access (NAMA) and agriculture. Especially on NAMA, it is worth bearing in mind the timelines and levels of tariff reductions built into unilateral liberalisation agendas. While there are many versions of such agendas, one commonly cited one is the Kelkar Task Force’s recommendations on indirect taxes and these propose a maximum basic customs duty of 20 per cent on all manufactured products (20 per cent is actually for consumer goods; raw materials, inputs and intermediate goods have 10 per cent), with a maximum of 150 per cent for agricultural products. Since this report was submitted in 2002, there are additional compulsions for tariff reductions as a result of several Free Trade Agreements (FTAs), India is a party to. There remains an issue of subjecting imports to the same domestic indirect taxes that domestic producers are subjected to and this problem of an appropriate countervailing duty cannot be sorted out until there is a standardised goods and services tax (GST) in place, with all other indirect taxes eliminated. The GST is likely to become operational from 2010 and any DWP commitment is unlikely to bite before 2012. That is, while exacting reciprocal concessions from trading partners is a valid objective, as is the objective of increasing market access in developed countries, no conceivable DWP commitment on manufactured products can be a problem

INDIA’S ECONOMIC LIBERALISATION AND THE WTO

47

for India as long as tariff reductions are on bound levels and not on applied rates. The same logic also applies to agriculture, as long as some products can be kept out of the multilateral commitments. A similar argument can also be extended to services. That leaves the four so-called Singapore Issues (competition policy, trade facilitation, government procurement, trade and investment) and labour and environmental standards. Irrespective of what transpires at DWP, one should note that beyond perceptions of labour and environmental standards amounting to protectionism in disguise, India no longer should have any great problem with trade facilitation or competition policy. In all probability, irrespective of public posturing, India would have been quite content to accept multilateral negotiations on these two by the time the Seattle Ministerial Meeting was held in 1999. Nor should there be a problem with negotiating investments, or even accepting commitments on investment, as long as such commitments are restricted to the post-establishment stage. However, there remains a problem with government procurement, since any government procurement agreement is bound to cover services and also extend to the sub-national level. The impression from this section is thus what has already been said earlier. Never since 1947 has India been in such a happy position at multilateral trade negotiations. And that is thanks to the unilateral liberalisation exercise and the effects of liberalisation in the external sector.

PERCEPTION VERSUS THE REALITY While the description of the section ‘The Trade Policy Review Mechanism (TPRM) and Disputes’ is based on facts and reality, there is nonetheless a perception that the WTO is responsible for many of India’s liberalisation-related problems and it is incorrect to presume that unilateral liberalisation has only gainers and no losers. The Ministry of Commerce and Industry (MoCI) newsletter India and the WTO is almost certainly largely designed to handle this perceptional problem. That is, while dissemination of information to the public is a desirable objective, there must also be a secondary objective of

48

BIBEK DEBROY

handling what may be called the political economy of the WTO. This newsletter has been in existence since January 1999 and a scrutiny across the various issues covered is probably indicative of the areas where the government feels that the WTO (and India’s commitments at the WTO) needs to be sold to the country at large. A similar listing is also possible on the basis of the Department of Economic Affair’s Economic Survey. But the Survey sketch is second-hand (since it is obtained from Commerce Ministry) and nowhere near as comprehensive. Accordingly, the following is a list of issues MoCI has especially decided to flag since the inaugural issue of the newsletter in January 1999. Since the timeline is important, the date of the newsletter is shown within brackets.

QRs on imports India had QRs on imports under Article XVIIIB of GATT and 2,400 tariff lines were covered. India eventually proposed a phase-out by 2003, but this was not accepted by the US and a dispute was pending (January 1999). For many tariff lines under QRs, India does not have tariff bindings and therefore, applied tariff rates can be increased over and above safeguard and antidumping measures (January 2000). Suo moto anti-dumping investigations were initiated against import of battery cells, battery-operated toys and sport shoes from China. Imports of packaged commodities were subjected to the Standards of Weights and Measures (Packaged Commodity) Order of 1977. Many imports were made conditional on compliance with Indian quality standards applicable to domestic goods (December 2000). The Livestock Importation Act was amended so that a Sanitary Import Permit could be imposed on imports of livestock products like dairy products (November–December 2004). Even when QRs are eliminated, imports of products like wheat, rice, maize, petrol, diesel, aviation turbine fuel and urea will only be canalised through state trading enterprises and a war room has been set up to track imports of 300 sensitive items (April 2001).

INDIA’S ECONOMIC LIBERALISATION AND THE WTO

49

In December 2002, the European Communities (EC) sought consultations with India on QRs maintained on more than 100 products under Articles XX and XXI of GATT. Independent of this, as a result of unilateral liberalisation, QRs on 69 tariff lines were removed in March 2003 and this list included some items on which EC sought consultations (May 2003).

Patent protection on pharmaceutical and agro chemical products India availed of the transition period to switch over to patents. But in the interim period, the country should have received product patent applications and granted Exclusive Marketing Rights (EMRs). Since this was not done, India lost a dispute at WTO and the Indian Patents Act had to be amended through an ordinance in January 1999. Ninety per cent of medicines in the world were generic medicines and none of the 279 drugs listed in the National Essential Drug List (1996) were covered by patents (May 2002). The Indian Patents Act was amended in March 1999 to introduce a transitional mailbox facility from 1 January 1995, to receive product patent applications and provide EMRs for five years. It was again amended in June 2002 to meet obligations (that were effective from 1 January 2000) on the rights of patentees, term of patent protection, compulsory licensing and reversal of burden of proof. To meet the TRIPS obligations from 1 January 2005, a Patents Amendment Bill was introduced in Lok Sabha to primarily introduce product patent protection in all fields of technology. The Bill also deleted provisions on EMRs, introduced a temporary safeguard provision for the EMRs already granted and introduced a provision enabling grant of compulsory licences for export of medicines to countries that have no or insufficient domestic production capacities to meet emergency public health situations (December 2003). Patent offices must be modernised as there is a large backlog of applications (March 1999). IPRs offices were being modernised (January 2002). Challenged by Agricultural and Processed Food Products Export

50

BIBEK DEBROY

Development Authority (APEDA), RiceTec withdrew certain claims on its US patent for basmati rice lines and grains and the Kasmati trademark registration was withdrawn in Britain (September 2000). A watch agency was set up in November 1996 to keep a global watch for new trademark applications for basmati or its deceptive variations (August 2001). The Patents (Second Amendment) Bill, 1999, included provisions for mandatory disclosure of source and geographical origin of biological material used and anticipation of invention by available local knowledge as a ground for opposition and revocation (January 2002). Patents granted overseas on the use of turmeric in wound healing, the fungicidal property of neem and waste treatment using Hessian were successfully challenged and revoked (May 2003).

Agriculture At 100 per cent for primary products, 150 per cent for processed products and 300 per cent for edible oils, India’s bound tariffs on agricultural products are high, and for commodities where bound rates are zero or low, re-negotiation upwards is being done (January 1999). The basic customs duty was re-negotiated upwards to 80 per cent for rice (70 per cent for semi-milled or wholly-milled rice), 50 per cent for maize, sorghum, millet and spelt, 35 per cent for fresh grapes, 50 per cent for apples and 35 per cent for preparations for infant use in retail packs (March 2000). The basic customs duty was re-negotiated upwards to 100 per cent for areca nut, 100 per cent for poultry products, 50 per cent for wheat and 60 per cent for skimmed milk powder beyond the tariff rate quota (TRQ) (December 2000). India had (on 1 April 1997) QRs on imports of 825 agro products. Even if QRs are eliminated, quantitative restrictions can be replaced with high tariffs because of the high bindings. Except for oilseeds, India’s agricultural products are price competitive and there should not be large-scale imports as a result of trade liberalisation (May 1999).

INDIA’S ECONOMIC LIBERALISATION AND THE WTO

51

Services India’s initial offer, tabled in December 2003, had greater commitments in engineering, computer and related services, telecommunications, construction and related engineering services, financial services, hospital services and tourism and travelrelated services. In addition, fresh commitments were offered in accounting and book-keeping services, medical, dental and midwives’ services and maritime transport services. India submitted requests in sectors like accounting, architecture, health, computerrelated, construction and engineering, financial, audio-visual, tourism and maritime transport services (December 2003). In addition to revised offers in sectors where commitments were made in the Uruguay Round or initial offers were made in the DWP, fresh sectors where India would make offers were distribution services, education services, environmental services and recreational, cultural and sporting services (May 2005). What does one make of all this? There are different levels at which one can answer this question. For instance, there are legitimate reasons for complaining about the WTO and the Uruguay Round agreements. First, the liberalisation in market access promised in the course of the Uruguay Round to developing countries did not materialise, primarily because the Uruguay Round package provided enough loopholes and caveats. Second, there was dirty tariffication and tariff escalation, the latter deterring value addition in exports from developing countries. To compound matters, tariffs on products of export interest to developing countries were high and specific duties converted to high ad valorem equivalents. Third, there was policy substitution, and as tariffs were disciplined, protectionism surfaced through NTBs, including anti-dumping and anti-subsidy investigation, technical barriers to trade, sanitary and phytosanitary measures and environmental measures, not to speak of a separate set of barriers for services. Fourth, while constraints to market access in developed countries remained a key issue, and agriculture in developed countries was not being liberalised, there was an attempt to

52

BIBEK DEBROY

overload the DWP agenda by plugging in the Singapore issues. Fifth, decision-making processes within the WTO system were flawed, despite the WTO being more democratic than many other international institutions, and as India’s economic clout increased, developed countries needed to adjust to reflect this new reality. Sixth, less than reciprocity measures from developing countries was not being faithfully implemented. Many of these concerns are reflected in civil society objections to the WTO, including global civil society, although it also needs to be recognised that some global NGOs often articulate protectionist sentiments in developed countries. These concerns about the WTO and its processes are all valid and other than civil society articulation, are also voiced in common positions adopted by the G-20, G-33 or NAMA-11. However, as a founder member of GATT in 1947 and as a subsequent member of the WTO, the pros and cons of membership, as opposed to opting out of the system, have been certainly weighed by India and the pluses outweigh the minuses, a fact also established by the large number of countries wishing to accede to the WTO. Accepting this proposition does not amount to arguing that the WTO has no warts or blemishes or that its functioning does not need to be improved. But this criticism about the WTO has little to do with the question posed in this chapter, about the degree to which the WTO has been instrumental in triggering, goading or determining India’s liberalisation experience. A second level at which one can address perceptions about the WTO is by recognising what should be obvious enough, that is, perceptions about liberalisation are confused with perceptions about the WTO. In a broad brush sense, the initial flush of India’s liberalisation was in the manufacturing sector, and after restructuring and some shake-outs, Indian manufacturing has survived and now successfully competes globally. Having recognised that an appropriate countervailing duty cannot be imposed without a GST in place, there is no great opposition to tariff reduction now, including tariff reduction that is unilateral or the outcome of regional agreements. In contrast, most of the present debate about unilateral liberalisation concerns services, where restructuring

INDIA’S ECONOMIC LIBERALISATION AND THE WTO

53

consequent to liberalisation has not yet happened and competition is imperfect, such as through assorted equity caps on foreign investments. Hence the resistance to opening up service sectors like accounting, law or education. And liberalisation is almost non-existent in agriculture. Unlike fast manufacturing (and industrial) and service sector growth, the performance of the agricultural sector since 1991 has been lacklustre, although the slowdown actually precedes 1991 and began in the second half of the 1980s. With a substantial share of the working population engaged in agriculture, it is understandable that agriculture and the rural sector should be a contentious issue, and the debate over growth and its connection with poverty reduction also has an obvious link, since poverty reduction is primarily a rural phenomenon. This can be spliced with what has been witnessed since the 1990s—a greater private sector expenditure on education and health, including among the poor, and often higher costs. But it is important to distinguish such reactions to liberalisation from specific WTO commitments, since in these important areas, the impact of WTO commitments has been minimal or non-existent. For example, an increase in drug prices has little to do with a product patent regime and has much more to do with an easing of the Drug Price Control Order (DPCO). In instances where agro products have faced an import threat, that has had much more to do with applied tariff rates that are below the bound rates mandated by the WTO. Reservations about liberalisation also feed on the perception that liberalisation has been implemented without sufficient consultations. While that is a separate issue, it is not quite the case that WTO negotiations have been entered into without adequate consultations. Indeed, there is a clear difference here between what happened in the late 1980s during the Uruguay Round negotiations and what has transpired since then, facilitated by the advent of information technology. The MoCI has been much more open in the placing information in the public domain or presenting facts to Parliament or consulting stakeholders like academic institutions, farmers’ associations, trade unions, civil society in general and the media, apart from state governments. A point can indeed be made

54

BIBEK DEBROY

that information dissemination should have been done much more in the vernacular, which is where popular misconception lies, or that much of the dissemination tends to be Delhi-centric. But it is a moot question whether information dissemination is a task of the government alone. How effective have chambers of commerce and associations been in performing this role? A third level is much more pertinent for purposes of this chapter and concerns a counter-factual. Which elements of reform are incremental? That is, which are the ones that would not have been undertaken had it not been for the WTO and, in that sense, which elements of liberalisation are the outcomes of WTO commitments? It is because this is counter-factual that there is subjectivity in assessment. Having said this, a possible identification is elimination of QRs in general, elimination of QRs on some agro products, changes in intellectual property laws (not just patents, but trademarks and geographical indications also), better enforcement of IPRs, upgradation and modernisation of IPRs offices, emphasis on traditional knowledge, trade facilitation improvements, enactment of competition policy law, liberalisation of service sectors like distribution, education or accounting and phasing out of the dividend balancing requirement. But one should be careful in this assessment. There is a difference between arguing that these reforms would not have happened at all and arguing that they would not have happened when they did, but would have occurred later. The former proposition is not plausible, while the latter is. Liberalisation tends to be easier when it is the outcome of endogenous and domestic demand and more difficult when it is perceived to be the result of external pressure and commitments. The contrast between changes in copyright law and patent law is a case in point, where the former was perceived to be in the interests of Indian exports of software, music, films, entertainment in general, and so on. To state it differently, in the sectors and areas just identified, the WTO trigger probably pushed liberalisation and advanced it by anything between five and 10 years and no more. That was the increment, not the liberalisation per se.

INDIA’S ECONOMIC LIBERALISATION AND THE WTO

55

In sum, unilateral reforms distinguished the decade of the 1990s and what came beyond from what happened between 1947 and 1991. India ceased to be a perpetual outlier that opposed any liberalisation that was suggested, multilaterally or otherwise. In the end, multilateral liberalisation in cross-border flows is about greater competition and competition benefits efficient producers of goods and services, not those who are inefficient. And efficiency and inefficiency are functions of the environment within the country and the extent to which these are reformed. Notwithstanding warts and blemishes, Indian enterprises simply became more efficient. Not because of the WTO, but because of unilateral liberalisation. The WTO may be important in implementing Uruguay Round agreements and performing a dispute resolution function. But insofar as influencing India’s liberalisation exercise is concerned, the WTO’s impact has been limited and peripheral.

Chapter 3 From Uruguay to Doha India at the Negotiating Table SUPARNA KARMAKAR∗

If trade talks were founded on a rational analysis of economic interests, they would be much easier to conduct and conclude. But most are not, and the Doha Round is no different. The key to ensuring that something worthwhile does emerge from it is to distinguish narrow political agendas from the broader public interest. Peter D. Sutherland, former WTO-Director General

INTRODUCTION

T

he World Trade Organization (WTO) Doha negotiations have formally resumed, albeit softly. However, it remains doubtful if there will be progress towards a resolution before the July 2007 expiry of the US President’s fast track negotiating authority. At a recent meeting of the WTO developing country members held at New Delhi, the predominant view from the floor was that from the perspective of a developing country, the content of the agreement is more important than the speed of conclusion of the Doha Round, and members should not be pressured or influenced by domestic imperatives of any negotiating member. The reason for pessimism stems from the lack of forward movement from major negotiators either on

FROM URUGUAY TO DOHA

57

agricultural subsidy or agricultural tariff reduction and tariff rate quotas, the two most intractable issues in the round. Agriculture is the key to a successful conclusion of this round. Further, it is apparent to all that a forward movement in agriculture is critical for reinstating the credibility of the multilateral trading system. In December 2005, before the Hong Kong ministerial meeting, Bergsten had opined: ‘Virtually all observers concur that the Doha Round of multilateral trade negotiations in the World Trade Organization is faltering badly. Agreement may have been reached on the principle (although not the date) of eliminating export subsidies for agriculture, but very little else has been resolved since the talks were launched….’1 Unfortunately, the status quo continues till date. Though there have been periodic statements of good intent from the key negotiators on the importance of the multilateral trading system and on the need for reviving the stalled Doha talks, improved offers on agricultural subsidy, tariff reduction and future import quotas indicating forward movement are yet to come, especially from the US. The current US farm policy is ‘minimalist in terms of making concessions.... At the same time (we are) maximalist in making demands on others in terms of agriculture.’2 It is also significant that even at this critical juncture, there are still no formal meetings of the membership and most negotiators in Geneva seem to be unaware of ongoing developments, much less the nuances thereof. All this raises doubts on the prospects of a speedy conclusion of this round, despite the members having started ‘discussions’ in earnest (as opposed to ‘negotiations’) since late February 2007. Concluding a Multilateral Round of Trade Negotiations (MTNs) has never been easy. Although they might seem like successes in retrospect, it is important to recall that few of these MTNs went smoothly. Statistics indicate that WTO rounds have on average experienced a crisis at about five years into the round and then gotten into a hyper drive mode. It took the Tokyo Round five years to conclude, the Uruguay Round nearly eight years and several

58

SUPARNA KARMAKAR

starts and stops to be sealed. For certain, it would have been a miracle if the Doha Round were to conclude in less than that time, which it has not; in the words of Jagdish N. Bhagwati, ‘miracles do not happen in trade (negotiations)’. And ‘with each successive round, the negotiators’ task has grown more complex, even as their ability to close trade deals has increasingly been impaired by the greater visibility of the process and the growing involvement of a variety of protectionist lobbies and stakeholders.’3 The Doha Round has been tough going from the start. However, pessimism is certainly not called for. As on date, we are only into the sixth year of negotiations in the Doha Round, and given the significant addition to the negotiating agenda in the ongoing round, most critically the inclusion of a high-ambition deal in agriculture as part of the single-undertaking principle, as well as the enhanced complexity of the issues under negotiation, it would be difficult to effect a rapid conclusion of this so-called Development Round to everyone’s satisfaction. Nor is a weak deal desirable. The current impasse, therefore, should be an opportunity for members to introspect and work out the extra steps they need to take for ensuring that the potential long-term gains from multilateralism are not sacrificed at the alter of short-term populism. Much depends on the compatibility among negotiators, between the dossiers they negotiate (and its interface with the political reality at home) and their real commercial interests, and the dynamism of the multiple stakeholders. This chapter traces the evolution of India (and developing countries in general) in the multilateral negotiations, especially in view of its increasing politico-economic clout in the postliberalisation period, looks at the changing dynamic of India’s negotiating position and evaluates her newly acquired status as one of the principal negotiators in the WTO. It is widely acknowledged today that for a successful conclusion of the Doha Round, constructive leadership from the developing country leaders is perhaps more important than what the industrialised country leaders could achieve on their own. Notwithstanding the important role played by the US and the EU in this round in terms of

FROM URUGUAY TO DOHA

59

providing the much needed foresight and negotiating push, a credible and responsible developing country leadership would be critical in the attainment of a pro-development agreement. In the next section, we begin by outlining the specific constraints of this round and highlight elements which could provide the much needed forward movement to the WTO talks, and then evaluate the role of India in attaining the same. The chapter brings out the differences of the current round from the previous one and tries to assess if the cause of the (perceived) stalemate could be arising out of those differences, rather than being the result of a larger systemic problem. We analyse possible scenarios that could potentially consolidate India’s position as a suave negotiator and thereby establish the emerging developing country leadership in WTO.

WHAT AILS THE DOHA ROUND OF NEGOTIATIONS To a casual observer, WTO is an international organisation dealing with external trade issues; however, both from a political as well as an economic perspective, international trade issues almost always are mirror reflections of domestic issues. This is best illustrated by the intrinsic conflicts of economic interest perceived between the exporting and import-competing activities/sectors in every country. Trade-offs in WTO negotiations therefore are essentially slug-offs between the well-established and entrenched interests within individual countries and sectors, to the detriment of others (both at home and outside) who would otherwise have benefited from freer trade. ‘Trade matters thus involve a domestic dimension … test the ability of [the] government[s] to take into account the most global welfare possible, to go beyond the narrow vested interests and favour long term interests.’4 And never before in the history of General Agreement on Tariffs and Trade (GATT)–WTO has this proved to be as true as in the ongoing Doha Round of multilateral negotiations. If this is the dynamics of the international trading system, the important question to ask here is which element sets the Doha Round apart from its predecessors? Or, what are the larger roadblocks

60

SUPARNA KARMAKAR

specific to this round? Our literature survey and interactions with experts brings to light four distinct sets of issues. First, this is a very ambitious round on several counts. For one, the scope of the ongoing negotiations is much larger and deeper than in any previous round. Two, the method of negotiation is also much more ambitious. The substantive shift in the coverage from its traditional focus on border measures to a far more intrusive involvement in policy-making in a large number of issues in this round (ranging from intellectual property and services introduced in the Uruguay Round to attempts to include investment, labour, environment, competition and related governance issues in the ongoing round) conspire to impose new and burdensome demands on the trading system. Also, in previous rounds, there were no formulae agreed for tariff reductions; negotiators worked with averages so it was possible to hide products from tariff cuts with the resulting tariff peaks. Now with the adoption of a common (Swiss) formula, the process may be fairer but it is also much more difficult to come to any agreement because it hurts both developed and developing countries by addressing tariff peaks, in particular on products such as textile and clothing or automobiles. Further, this is a ‘Development Round’ which aims at addressing unfair rules remaining in the trade system, in particular industrialised countries’ trade distorting subsidies in agriculture. At the same time, the round allows for the protection of developing countries’ specific sensitivities in agriculture, through its provisions on special products or the special safeguard mechanism.5 In addition to all of above, ‘the large number of members and the diversity of topics under discussion coupled with the WTO’s traditional bottom-up approach and single-undertaking nature of the negotiating agenda—where nothing is agreed until everything is agreed—makes it more challenging to reach consensus.’6 Another associated problem lies in the fact that the WTO mandates a Ministerial conference every two years, a notable exception from the GATT system of holding Ministerial meetings only once the members arrived at a potential agreement.7 The problem here lies in the fact that a ministerial meeting raises expectations of

FROM URUGUAY TO DOHA

61

members of a possibility of concluding negotiations, which in today’s scenario of a highly complex and ever increasing scope of negotiating agenda is not only unrealistic but rather improbable in the short time that has transpired in the current round. Thus, the ongoing impasse could just be a reflection of the premature nature of talks in intrinsically complex issues vis-à-vis expectations of quick resolution. For example, the failure of the Cancun meeting can in large part be attributed to unrealistic expectations of WTO members.8 So what could be a way out to make the negotiations more realistic? It appears that accepting that successive rounds of trade negotiations are mere steps in a continuous and incremental reform process rather than treating the Doha Round as a big bang reform movement could be one way out to tone down expectations. A continuous engagement of members in Geneva sans the hype and expectations inevitably raised by Ministerial meetings would certainly be more amenable to speedier resolution of existing differences. In the latter, the transparency concern however becomes paramount, as many members are now questioning the lack of inclusiveness of the ongoing discussions.9 Developing country members are apprehensive that their non-participation in the discussions on trade-offs would leave them with an agreement which is detrimental to their interests.10 To that extent even designating small group meetings as ‘mini-ministerials’ should be desisted. Second, there have been significant changes in the process and politics of the Doha Round of negotiations. The actors today are different from previous rounds, and also developing countries are much more active in this round. For more than 50 years, the US and EU have been leading the world in opening up global markets in an irregular but steady manner. In 1947, when GATT was instituted, only 23 nations participated in that first round of trade negotiations. The Uruguay Round had 110 signatories. Today, during the ninth round of WTO negotiations, there are 150 active participants (of which only 24 have the ‘developed’ country status), and an additional 20 countries are waiting for the accession procedures to complete. Now the role of the developing

62

SUPARNA KARMAKAR

countries in sustaining this process of liberalisation of world markets has become significant. A larger and more diverse group of developing countries have started exercising their ‘veto power’ in every stage of the WTO negotiations. Each country also needs to show gains to their domestic constituencies in order to justify concessions made to the trading partners. Thus, there has been a decided shift from the US–EU power duopoly in the Uruguay Round to an oligopolistic form of decision-making in the Doha Round that incorporates the G-20 representation of the emerging country interests in agriculture as an integral part of the negotiating modality. This change in effective composition of the key negotiating members is a positive development and a sign of their deeper commitment was effected in part by the disappointments over the implementation processes of the Uruguay Round agreements, greater sensitisation and understanding of the negotiating dynamics and issues,11 and the growing economic prosperity in the developing south (in particular in Brazil, China and India). That said, it needs to be noted that effective negotiations only occur among equals. Developing countries needed somehow to create a semblance of equality in negotiating power to match the might of the traditional large players like the US and EU, which they have attempted by way of coalition building. This process had started in the Uruguay Round with the Jaramillo process;12 however, it is only after the Cancun Ministerial meeting that the process consolidated and coalitions became stronger and issue-based.There are now several developing country groups, the most prominent and active being the G-20, G-33, Non-Agricultural Market Access-1 (NAMA-11) and the Least-Developed Countries (LDC) Group, where coalitions are based on specific negotiating interests and issues, sensitivities and strategy.13 This is especially true in agriculture which is at the core of the current round. The discussions are also being held among a new QUAD: US, EC, India and Brazil; ‘the five interested parties’ or FIPS, which is QUAD plus Australia; and G-6, which is QUAD plus Australia and Japan. It is also a significant divergence from previous rounds that the launch of the current round of negotiations was not market or trade interest driven. In fact, the circumstances leading to the launch of the current round merits recounting. It was

FROM URUGUAY TO DOHA

63

in the aftermath of the 9/11 terror strikes that the developed countries pushed (much against the wishes of the developing country members) the initiation of this round, at a time when there was widespread agreement that poverty creates conditions hostile to peace. It was expressly for this reason that it was decided that the ninth round of the multilateral talks would be termed a ‘development’ round. Further, the Doha negotiations were launched in 2001 under terms that envisaged only limited concessions from developing WTO members (enshrined in the less-than-full-reciprocity or LTFR principle) and none at all from the least-developed members. However, with the recession of the fears and tribulations of the terror strikes on the industrialised nations, today it is the mercantilist motive that reigns supreme in the minds of both negotiators and stakeholders in these countries. The reflection of this changed mindset was recently brought to the attention of the world by a statement from the United States Trade Representative (USTR) when Susan Schwab pointed out that the focus of US in the Doha Round is on real market access and ‘new trade flows’ rather than addressing ‘issues on development’. It is true that the WTO is a trade body and the issues of development and poverty are best dealt with in the other multilateral organisation designated for the job, namely the World Bank. Nor is it fair to expect trade negotiations to be a panacea for all ills. That said, while the current negotiations are focused on all the three pillars of market access, it needs to be recalled that the areas of greater gain lie in liberalisation of the non-tariff and regulatory issues in agriculture (subsidies) and services sectors, which unfortunately seems unlikely at present, given the political ‘sensitivities’ of all members. Further, in an era when services constitute more than 60 per cent of global Gross Domestic Product (GDP), developing as well as developed, over three-fourths of the world trade constitutes trade in manufactured goods. Restrictions on movement of service providers emanating out of immigration concerns is in large part responsible. The imbalance created by this and furthered by demands of very deep market access in industrial products without commensurate openings in the other two sectors are sure to accentuate the factors discussed earlier

64

SUPARNA KARMAKAR

which had been sought to be eliminated in 2001 by making this round a ‘development’ round. Third, the missing business community. An important difference in the Doha Round of negotiations as opposed to the Uruguay Round is the lack of enthusiasm (even participation) of the business community, especially in the industrialised countries. It must be remembered that the industry stakeholders were a key motivator of the inclusion of certain negotiating elements in the previous round, most critically on intellectual property, and also it was their continued support that enabled the negotiators to bring a closure to the Uruguay Round. This drive is conspicuous in its absence this time around. ‘It is telling that business has not rallied to the Doha Round … the world’s largest economic actors are staying on the sidelines … the largest corporate actors are now backing bilateral deals which often do a better job of integrating and harmonizing national regulations.’14 The oft cited reason for the lack of business interest in Doha is that given the general expectation from this round of a minipackage of modest real gains, especially in trade in services where a substantial liberalisation of the mode 3 (commercial presence and investment) has been the demand from industrialised country stakeholders, the industry groups are focusing their negotiating capital on the regional and bilateral deals which could potentially lead to much deeper market openings. In contrast, while the Doha deal on services would at best lock in existing policy regimes in partner member countries, in Free Trade Agreements (FTAs) there are possibilities of ensuring ‘real market access commitments’ by incorporating suitable investment agreements as opposed to services reforms. Furthermore, in the current round of multilateral negotiations, the developing countries’ demand for dismantling the worst of regulatory anomalies that hinder market access in industrialised country services markets means that for an internal balance in the services negotiations, there is a possibility of a trade-off between a higher mode 3 access with removal of domestic regulatory barriers. This will put further pressure on employment and immigration related concerns in these markets, which could make the deal a political hot potato.

FROM URUGUAY TO DOHA

65

A second (and most probably heretic) observation is that most likely the business stakeholders are concerned that the Doha Round will result in an agreement that will put limits on the trade-defence measures applied in the industrialised countries, in particular the indiscriminate use of anti-dumping provisions, the weapon of choice for protectionist governments pandering to sectoral lobby-group interests. The fact that the Dispute Settlement Board of the WTO has of late pronounced judgements against a large number of industrialised country measures has added to these concerns. The dispute settlement mechanism, which was touted as the most important contribution of the Uruguay Round to the multilateral trading system, now appears to have backfired on its champions’ commercial interests, by virtue of its impartiality and ‘fairness’. In contrast, the absence of such a mechanism in the bilateral and regional agreements leaves countries with more flexibility to continue to use domestic protectionist policies without fear of their being deemed violative of these agreements. Yet, the Doha agenda still has serious appeal for businesses interested in freer trade. Business opportunities in goods and industrial products will be significantly improved, particularly when it comes to exports to major developing countries. And binding countries to their currently applied tariff rates—which are lower than the ones agreed in the Uruguay Round—can increase stability and certainty in world trade. Further, given the increasing transnationalisation and fragmentation of businesses across the world in search of competitiveness and profits, there are substantial gains to be realised by industrialised country businesses from enhanced market access into industrialised country markets of developing country output. Compared to the alternatives, such as bilateral free trade agreements, the multilateral trading agenda is still the best offer around for global corporations, and has the potential to create a relatively superior businessfriendly mercantilist superstructure in the global trading regime. It is regrettable, therefore, that the producer interests that have been involved in this round have not been inclined towards liberalisation.15

66

SUPARNA KARMAKAR

Last, but not the least, are the serious imbalances in the global economy that are indirectly becoming a barrier to its successful conclusion. Three factors stand out here: the current account imbalances and currency misalignments that has spurred protectionist sentiments across the US and Europe; the internationally strong and growing anti-globalising sentiments; and forthcoming elections in several of the important negotiating member countries. It needs to be recalled here that It was impossible to even launch the Uruguay Round in the General Agreement on Trade and Tariffs, Doha’s immediate predecessor, until after the imbalances of the mid-1980s had been corrected by the 1985 Plaza Agreement on exchange rates and the Reagan administration’s simultaneous adoption of tough new trade policies against Japan. Nor could serious negotiations commence in the 1970s in the Tokyo Round, which preceded Uruguay, until protectionist pressures in the United States were quieted by several substantial currency realignments, forced by President Richard Nixon’s import surcharge and the de-linking of the dollar from gold in 1971. In both instances, large, indeed historic, monetary adjustments were required to clear the decks for global trade liberalization.16 The situation today is distressingly similar and all these concerns would most probably need to be resolved before a conclusion of the round can be contemplated. It is also not surprising that offers on the table have barely budged from the earlier stated positions, given the domestic political compulsions of the major negotiating countries which are going back to their constituencies in the coming months.

INDIA IN WTO NEGOTIATIONS: EMERGING DYNAMISM India, as a founder member of GATT in 1947 and as a member of the WTO, has always been acknowledged as a knowledgeable

FROM URUGUAY TO DOHA

67

and sophisticated negotiator. India’s negotiators have always been treated with utmost respect by both the developed and the developing countries. However, the effective clout that the country wielded in the WTO has changed in recent times, improving in direct proportionality with her economic growth prospects in the last decade and half, and today India has emerged as one of the principal negotiators in the WTO. This relative power to influence belies the fact that India’s share in world trade is just about 1 per cent and that Indian businesses have just started their international forays. This gain needs to be grasped and nurtured, and thus it becomes imperative that India’s negotiating stance reflect its new-found pre-eminence in the world. Credible leadership from India is expected by one and all in the interests of a successful conclusion of the round, and in view of this author, a re-evaluation of our strategy would also serve India’s national interests because it will have consolidated its newly acquired status in WTO. A country’s negotiating strategies reflect not only its domestic economic and political conditions and sensitivities, but also its negotiators’ assessment of their ability to influence the discussions in their favour. To that extent the fact that India today continues to be an important part of all developing country coalitions (rather than striking out on its own as many seem to suggest it ought to) would imply that there is a realism among Indian negotiators in their assessment that being a part of a unified group of developing countries will accord greater gains to the country as a whole. The stylised facts of the Uruguay Round negotiations are that after a similar impasse, the resolution was largely a mutual adjustment of their respective interests by the US and EU with some minor side payments to other countries (like Japan and Korea on rice) and some token concessions to developing countries, in particular Brazil. This was exemplified in the Blair House agreement between the two trading partners. In addition, members requested the WTO Secretariat to provide a draft agreement that could be deliberated upon, thus paving the path for the creation of the (Arthur) Dunkel Draft, which subsequently faced

68

SUPARNA KARMAKAR

considerable criticism from the developing country group as well as the civil society commentators. Neither of the above means of resolving the impasse seems plausible in the current round, and the emergence of the G-20 as an important bloc has changed the dynamic completely. The US–EU duopoly in negotiations no longer exists. The key difference of G-20 from other issue-based developing country coalitions is that it is a group of largely diversified developing countries with varied interests, which in turn accords them considerable bargaining power in their ability to trade concessions within the group across issue areas that can help facilitate agreement. It is also important that the diversity of the G-20 members’ interests imply that once the group arrives at a common position, it could be deemed to be a true middle-ground position of developing country demand. However, it would be inappropriate for the G-20 to assume that it represents the interests of ‘all’ developing countries, and therein lies the seed of multiplicity of negotiating groups on the same issue. On agriculture, the G-20 is the strongest bloc, but there exist other equally influential groups such as the G-33, CAIRNS17, Cotton Four LDCs, SingleProduct-Vulnerable-Economies, etc. And most importantly, as discussed earlier, having benefited from autonomous trade liberalisation themselves, the developing countries today are more likely to make trade-offs so that markets in industrialised countries could be opened up for their highly competitive exports. Further, a draft agreement from the WTO Secretariat would hardly be welcome in this round. At the Cancun Ministerial meeting, the compromise draft produced by Luis Ernesto Derbez did not enjoy any formal sanction, nor was it adopted, but it was treated merely as a survey of issues and possible means of resolving them.Even prior to the Hong Kong meeting, the draft texts circulated by the chairpersons of different negotiating groups was treated as indicative documents of members’ positions on different issues. They did not try to suggest any compromise. In fact the WTO secretariat is keen to be perceived as only a facilitator in the Doha negotiations as opposed to even being an ‘honest broker’.

FROM URUGUAY TO DOHA

69

The WTO takes pride in being a member-driven institution, and the negotiations it brokers as member-driven rounds. India (along with other developing countries) also needs to rework its negotiating priorities. Traditionally, India has had a rather hard-line outlook to multilateral liberalisation. During the Uruguay Round, we opposed the introduction of new issues like services and intellectual property into the WTO. Even during the launch of Doha, India was rather a vocal opponent of any new element proposed to be introduced into the WTO and on proposals of deep reforms in any sector. Most probably, memories of our colonial past continue to weigh on the negotiators’ minds, and it has always been easier for India to undertake unilateral liberalisation (since it implies an action of an independent free will of the Nation) than make deep multilateral commitments. However, the country’s liberalisation moves since 1991 have started to bear fruit and the ‘national interests’ of the country lie no longer in continued protectionism. Voices across the world have started reminding us that the country must take a longerterm view of the negotiations and take positions that are more aligned to domestic interests and attainable objectives that best serve its development priorities. The change in India’s negotiating dynamic is palpable. In the current round, with the US and the EU, India is one of the few ‘demandeurs’ of a strong services agreement, as also in trade facilitation (the only Singapore Issue that was accepted by members in the 2004 July Framework), a major departure from its protectionist mindset of post-Seattle days when India resisted the launch of a new round of multilateral negotiations. However, there are domestic structural problems in the other two sectors, most critically in agriculture and primarily arising out of lack of internal reforms in the sector, which limits the country’s ability to be an overt pro-reformist in the ongoing round. In fact, we are in the proverbial on-the-fence situation, with some sectors requiring protection while others demanding aggressive liberalisation. This not only poses a dilemma but is also the cause of serious limitations for Indian negotiators in their ability to produce a good outcome from the round in any sector. The intra-sectoral

70

SUPARNA KARMAKAR

trade-off as mandated by ‘comparable levels of ambition’ (para 24 of the Hong Kong declaration) appears to have become both a boon and a bane at the moment. There is little that India can achieve without deep domestic reforms and structural changes which will enable the country to bear the adjustment costs of the multilateral liberalisation proposed in this round. And these reforms are not easily instituted in multi-party democracies. Developing countries (including India) must also be realistic that in terms of pure market access in this round, industrialised countries would have little to offer by way of tariff cuts, except in reduction of their tariff peaks and tariff escalation. In contrast, it is the developing countries themselves, and in particular the advanced developing countries, which would need to show progression. However, there are distortions that have been built-in during the earlier rounds of multilateral negotiations within the industrialised countries, in particular in agriculture and textiles protections, that need to be addressed squarely and whose reversal calls for proactive engagement from the developing countries themselves. These are not easy concessions for the industrialised countries to make and to be able to justify to their domestic constituencies. It is the advanced developing countries that must make credible offers of significantly reduced trade barriers and secure market access. By not assuming leadership to affect a resolution to the intransigence in current talks, in effect the developing countries are foregoing potential benefits that greater market access and domestic reforms would bestow on their own economies.

THE WAY FORWARD What therefore needs to give? What short- and medium-term strategy should India’s negotiators focus on? It is clear now that solely focusing on the coalition building seems to have its limitations in terms of providing a credible solution, and for certain there is a call for exploring other options and negotiating strategies by India on behalf of the developing countries that

FROM URUGUAY TO DOHA

71

need to provide a sufficient jolt to restart serious negotiations. The world community is waiting for leadership from India in resolving the present impasse. But before we discuss the possible developing country strategies for moving the negotiations forward, let us discuss the areas where the US and EU could move and provide leadership. The first and foremost would be for the industrialised countries to undertake domestic and structural reforms within their economies and eliminate the fear of adjustments that globalisation today requires of them. For this to happen they need in the long-run to substantially enhance the education and skill levels of the majority of their workforce, which would enable the latter to benefit from international trade liberalisation. In the short-run however, an expansion of the domestic safety nets18 to cushion the transitional costs of (trade-related) adjustment would be an appropriate policy choice. This would be more beneficial than the present policy of subsidising inefficient sectors or producer groups. In particular, domestic policy reforms in the US and structural reforms (including agricultural reforms) as per the Lisbon agenda in the EU are essential for a stable foundation of the international trading system.19 A second move would be for them to accept that over the last few years there has been a seismic shift in the competitive landscape facing the industrialised countries. India has become a world-class competitor in some of the highest technology services and increasingly all of the countries in and around China have arranged their markets and their productive patterns around China, rather than the US or the EU, or even Japan. It is important to remember that this shift happened without a single piece of government policy being signed from the industrialised countries, that there were no trade agreements responsible for the big shift in the competitive landscape with India’s entry into the service sector. It was all about technology and some unilateral policy changes by the Indian government. What is remarkable is that rather than setting the framework for this new competitive landscape, the industrialised country governments are barely keeping up with it.

72

SUPARNA KARMAKAR

Further, the world economy may have ‘coped with China’s and India’s economic resurgence’, to quote Martin Wolf,20 but has not yet realigned itself to one of its fallouts, namely the increased clout of developing countries at the negotiating tables of WTO which demands that the developing country concerns be put to the forefront of the WTO negotiations. The fact remains that economics is making our world more interdependent and connected, and in so far as politics remains national or local, it makes the clash between economics and politics inevitable. A credible deal in Doha, which allows for a more immediate payoff for business, calls for an acceleration of the negotiations on nonagricultural market access and on services, independent of agriculture. EU farm commissioner Mariann Fischer Boel had commented, ‘Hong Kong cannot just be about agriculture’.21 And to get that movement, the US and Europe will have to make important decisions on agriculture. Recouping the rapidly disappearing ‘political will’ will be critical in ensuring this forward movement. The current shifts in national and international economic and political equilibria also need to get reflected in the decision-making processes within the WTO which demands that the developing country concerns be put to the forefront of the WTO negotiations. And as developing country economic clout increases, industrialised countries need to adjust to reflect this new reality. Till such a mindset change occurs, the probability of arriving at a high-ambition consensus outcome from this round seems to be limited. However, this alone would not suffice and the developing countries would also have to chip in. But given that even in the larger developing countries it may not be easy to absorb the drastic adjustment shocks that deep reforms would entail, there seems to be reluctance among negotiators to make ‘real’ commitments. Does that mean there is no way forward for the Doha Development Round? And more importantly, what then has to be given for a speedy conclusion of the round? In the absence of a determined leadership from emerging countries in laying down a new vision and guidance to the negotiations, the toss-up seems to be between a ‘Doha-lite’ outcome and reneging on the ‘Single-Undertaking’

FROM URUGUAY TO DOHA

73

principle. In the WTO jargon, Doha-lite is a shallow low-ambition agreement, while the Single–Undertaking is the principle of ‘nothing is agreed unless everything is agreed’ that the WTO members had adopted in the Uruguay Round. This author’s preference would be for the latter to give, since a Doha-lite is unlikely to satisfy anyone, least of all the cause of substantial multilateral liberalisation. On the contrary, as in the erstwhile GATT model, a high-ambition deal on a few issues where members are likely to get a consensus reasonably quickly (viz. in NAMA, services including GATS Article VI negotiations, trade facilitation, etc.) would help open large sections of global market to non-discriminatory access for all. It is widely agreed that agriculture holds the key to Doha. However, issues in agriculture are too complicated and too diverse to expect a speedy resolution to the satisfaction of most WTO members. It will be unfair and unjust to miss out on the significant gains from liberalisation in other sectors. The problems in this round arise not only from an overly enhanced agenda and a larger number of developing country members who are active participants and demandeurs unlike in the earlier rounds, but also that the negotiations are focused on the ‘politically sensitive’ issues that call for difficult adjustments from all participants. Just as there are too many inconsistencies and conflicting priorities among the members’ demands from this round for the outcome to have a reasonably high development content, similarly a highambition single-undertaking seems to be an idea whose time is yet to come. A second solution could be introduction of a credible regional trade policy shock into the system. It would be good to recall here that at the time when the Uruguay Round was stagnating, a similar jolt had come from the creation of North American Free Trade Agreement (NAFTA).22 A similar catalyst today could be an India–China FTA which by virtue of creating an integrated market of over two billion people would have a similar profound impact on the multilateral system, enough to shake the old–QUAD out of complacency. But a less drastic jolt could come from the forthcoming unilateral extension of preferential market access by the larger developing countries (like Brazil,

74

SUPARNA KARMAKAR

China and India) to the LDCs and less developing countries in the same format as the Africa Growth and Opportunity Act (AGOA) and Everything But Arms (EBA) initiatives of the US and EU, respectively. This would do two things: one, it would boost goodwill among the developing countries suffering from a potential dissolution given their divergent interests from this round; and two, the increased and deeper trade among developing countries would provide incentive enough to force out deeper concessions from industrialised countries, whose domestic stakeholders seem to have become sceptical about the potential gains from continued trade liberalisation.

NOTES ∗ Views are personal and not to be attributed to the organisation represented. The research for this chapter was funded by the Sir Ratan Tata Trust. The author has benefited from an extensive interview–based survey of former and current negotiators in key industrialised and developing WTO member countries and experts in the WTO Secretariat. The author gratefully acknowledges the reviewer’s comments received from Mr S.N. Menon, former Commerce Secretary to Government of India. The usual disclaimer applies. 1. C. Fred Bergsten is the Director of The Institute for International Economics (Bergsten, 2005). 2. Bhagwati (2007). 3. Bhagwati (2005). 4. Messerlin (2005: 300). 5. Protection under ‘sensitive products’ has been designed to address the ‘developed’ country sensitivities in agriculture. However, the developing countries may also use the provision when linked with the negotiated tariff-rate quotas on tariff lines. 6. Lamy (2007). 7. The GATT system also worked because there were no compulsions for all countries to adhere to results. In contrast, the single-undertaking principle adopted during the Uruguay Round implied that all countries have to participate and because they have to make commitments of substantially greater reforms, they need to be better informed about issues under negotiation. 8. Jagdish N. Bhagwati (Bhagwati, 2007) interview in Council on Foreign Relations, February Newsletter: ‘Doha was started in 2001…. Two years later we were going to meet in Cancun. Everybody wanted it to finish in Cancun, which was nonsense because in two years you can’t finish.

FROM URUGUAY TO DOHA

75

9. A similar concern has been voiced by Joseph E. Stiglitz and Andrew Charlton: ‘The WTO faces a representational crisis because many of its processes and outcomes do not reflect the needs (and concerns) of a majority of its membership’ (Stiglitz and Charlton, 2006). Also see Schott and Watal (2000). 10. In the earlier rounds of WTO negotiation, non-participation by developing countries had come at a cost. Though developing countries got to protect their own markets, however the negotiated results often excluded improved access to industrial country markets for the competitive agricultural and manufactured export products of developing countries (Schott, 2004). 11. In this the positive role played by the NGOs and civil societies worldwide as also international organisations like the UNCTAD and the World Bank in improving analytical capability and understanding of implications of issues and proposals, in particular for the lesser developing countries and the LDCs, have to be acknowledged. 12. Chaired by Ambassador Jaramillo, this was an issue-based coalition which initiated an open process by which members in the pre-Uruguay Round began to explore the options of resolving the impasse on inclusion of services in the WTO. This was a forum which transcended previous North-South boundaries as well as the ideological and hierarchical rigidities of the G-10. 13. Amrita Narlikar (2003: 177–78) has drawn attention to the ‘spaghetti bowl of coalition activity’ that occurs in trade rounds. ‘Coalitions … have begun to change from the secret societies of GATT days to more publicly prominent ones’. 14. Drache and Froese (2006: 22). 15. Erixon and Freytag (2007). 16. Bergsten (2005). 17. The Cairns Group is an interest group of 19 agricultural exporting countries, composed of Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Pakistan, Paraguay, Peru, the Philippines, South Africa, Thailand, and Uruguay. The Group takes its name from the Australian city of Cairns, where its inaugural meeting took place in 1986. 18. Carla A. Hills (Hills, [2005]): ‘Self-interest alone should persuade Americans to urge their government to push the Doha negotiations to a successful conclusion. Currently, the US government spends about US$ 1 billion annually on Trade Adjustment Assistance (TAA), a sum that is expected to increase to $2 billion annually when the reforms Congress passed in 2002 are implemented. Expanding the TAA Programme of 2002 and the Health Care Tax Programme to cover dislocated workers who are now excluded would help build public support for trade. Doing so would be surprisingly affordable. The Institute of International Economics estimates the costs to be US$ 3 to US$ 12 billion annually depending on the amount of benefits and breadth of coverage—far less than the US$ 1 trillion yearly gains the United States now reaps from open trade and the US$ 500 billion potential gain from further liberalization’. 19. Bergsten (2005: 4–5).

76

SUPARNA KARMAKAR

20. Financial Times, 30 January 2007, http://www.salzburgseminar.org/mediafiles/ MEDIA28342.pdf 21. Agra Europe, 26 August 2005: EP/2. 22. Bergsten (2005: 6).

REFERENCES AND SELECT BIBLIOGRAPHY Bagwell, Kyle and Robert W. Staiger. 2006. ‘What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization’, NBER Working Paper 12727, December. Bergsten, C. Fred. 2005. ‘Rescuing the Doha Round’, Foreign Affairs, WTO Special Edition, December. Bhagwati, Jagdish N. 2005. ‘From Seattle to Hong Kong’, Foreign Affairs, Special Edition, December. ———. 2007. ‘U.S. Must Rethink Doha Demands’, interview in Council on Foreign Relations, February Newsletter, http://www.cfr.org/publication/12592/bhagwati. html?breadcrumb=%2Fbios%2F1753%2Fjagdish_n_bhagwati Bhaumik, Tapan K. 2006. The WTO: A Discordant Orchestra. New Delhi: Sage Publications. Das, Bhagirath L. 2003. The WTO and the Multilateral Trading System: Past, Present and Future. London and New York: TWN and Zed Books. Drache, Daniel and Marc D. Froese. 2006. ‘An Empirical Analysis of Why the WTO is Broken and cannot be Fixed–Yet.’ Robarts Centre Working Papers, Robarts Centre for Canadian Studies. Toronto, Canada: York University. http://www.yorku.ca/ robarts/projects/wto/pdf/empirical_analysis.pdf Elsig, Manfred. 2006. ‘The World Trade Organisation’s Legitimacy Crisis: What Does the Beast Look Like?’, Journal of World Trade, 40(4), pp. 77–100. Erixon, Fredrik and Andreas Freytag. 2007. ‘Business Drops the Doha Ball’, The Wall Street Journal. January 18. http://www.ecipe.org/pdf/WSJ_20070118.pdf Grant, Wyn. 2006. ‘Why It Won’t Be Like This All The Time: The Shift From Duopoly To Oligopoly In Agricultural Trade’, CSGR Working Paper. No. 191/06, January. Hills, Carla A. 2005. ‘The Stakes of Doha’, Foreign Affairs, WTO Special Edition, December. ICTSD reporting. 2007. ‘Push for Progress in Doha Talks Proceeding Sluggishly’, BRIDGES Weekly, February. Available online at www.ictsd.org/weekly/07-02-28/ story4.htm Lamy Pascal 2007. Speech at ‘Time for Action in the Doha Development Round’, Philippines Chamber of Commerce and Industry (PCCI) Business Roundtable, 23 February, Manila, Philippines. Messerlin, Patrick A. 2005. ‘Three Variations on “The Future of the WTO”’, Journal of International Economic Law, 8(2), pp. 299–309. Moore, Mike (ed.). 2004. Doha and Beyond: The Future of the Multilateral Trading System. CUP and WTO.

FROM URUGUAY TO DOHA

77

Narlikar, Amrita. 2003. International Trade and developing Countries: Bargaining Coalitions in the GATT & WTO, RIPE Studies in Global Political Economy. London and New York: Routledge. Schott, Jeffrey J. 2004. Reviving the Doha Round, Speeches, Testimony, Papers. Peter G. Peterson Institute for International Economics. May. http://www.iie.com/ publications/papers/paper.cfm?ResearchID Schott, Jeffrey J. and Jayashree Watal. 2000. Decision-Making in the WTO, IIE Policy Brief 00–2, March. http://www.iie.com/publications/pb/pb.cfm?ResearchID=63 Stiglitz, Joseph E. and Andrew Charlton. 2006. Aid for Trade: A Report for the Commonwealth Secretariat. United Nations Economic Commission for Africa. March draft. Available at www.uneca.org Sutherland, Peter D. 2005. ‘Correcting Misperceptions’, Foreign Affairs, WTO Special Edition, December. Wolf, Martin. 2007. ‘Globalisation’s Future is the Big Long-Term Question’, Financial Times—Comments & Analysis, January 9.

Chapter 4 Prospects of Agricultural Trade Liberalisation A View from India BISWAJIT DHAR∗

INTRODUCTION

I

n recent years, agriculture has emerged as one of the key areas under the World Trade Organization (WTO) discipline, especially for the developing countries. Two major factors have contributed to this development. First, the nature of benefits that developing countries expected from the introduction of the WTO discipline through the Agreement on Agriculture (AoA) have largely remained unmet. Second, a few key areas of the AoA that were to be reviewed in a comprehensive manner as a part of the built-in agenda of the WTO, have brought to light the conflicting interests of the members that have appeared during the past seven years. The AoA was made an integral part of the WTO to get rid of domestic support mechanisms that distorted agricultural trade and promoted inefficient producers while discriminating against the more efficient ones. The agreement was thus meant to encourage traditional low cost producers of agricultural commodities against the financially powerful ones. The AoA sought binding commitments in three areas—domestic support, export subsidies and market access. Besides, the AoA also had guidelines that were meant to ensure that the more vulnerable least developed and the net

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

79

food importing countries get access to foodgrains in the form of grants or other concessions. Several studies conducted in the past indicated that the results of the Uruguay Round in the agricultural sector would bring significant welfare gains for a number of developing countries. In various scenarios worked out by the analysts, developing countries as a whole were expected to witness major welfare gains.1 Thus, India had anticipated increase in exports of at least a few of its agricultural products. Traditional methods of cultivation being not too expensive in nominal terms and cheap farm labour being abundant, the prices of agricultural commodities in India were reasonable. These factors were expected to prove advantageous for India in the international market. India had expected that cost of production of agricultural commodities of the existing exporters would rise once they reduce domestic support and export subsidies in agricultural products. This, along with the removal of quotas and other non-tariff barriers (NTBs) and subsequent reduction of tariffs, would enable it to increase exports. This chapter makes an attempt to focus on the major concerns arising from the implementation of the AoA from an Indian perspective. The arguments in the chapter have been developed over several sections. At the outset, the chapter would provide an overview of the WTO AoA, which has been implemented since 1995. The second section (India’s WTO Commitments in Agriculture) would describe the commitments that India had untaken in the agriculture sector when it decided to become a founding member of the WTO. The following section will provide an analysis of the implementation of the AoA by the major players in the global agricultural market and the impact that the nature of implementation has had on the market for agricultural commodities. The fourth section (By way of conclusions) tries to give a flavour of the on-going discussions centring on the review of the AoA.

INDIA’S WTO COMMITMENTS IN AGRICULTURE At the end of the Uruguay Round negotiations, India had bound all its agricultural commodities, besides accepting the disciplines

80

BISWAJIT DHAR

on domestic support and export subsidies. The details of the commitments taken by India are now discussed.

Market access commitments India assumed membership of the WTO with two regimes determining market access. One, tariffs were in place and two, most of the agricultural commodities were covered by quantitative restrictions on imports that India was maintaining for balance of payments (BoP) reasons in keeping with the provisions of Article XVIII:B of the GATT. Removal of QRs The first exposure of the agricultural sector in India to the WTO regime came through the country’s commitment to phase out the quantitative restrictions (QRs) that were maintained for balance of payments purposes.2 In the erstwhile GATT regime, India has invoked the provisions of Article XVIII:B of GATT 1947, which allowed developing countries to maintain restrictions on imports in order that these countries do not encounter BoP difficulties while embarking on a process of economic development. In keeping with the overarching objective of the Uruguay Round negotiations to reduce and eventually eliminate all forms of non-price trade restrictive measures, a separate understanding on the BoP provisions was finalised at the conclusion of the negotiations. This understanding reflected the commitment of all WTO members to ‘announce publicly … time schedules for the removal of restrictive import measures taken for BoP purposes’.3 Responding to this commitment, India had indicated that it was willing to phase out all such import restrictions by 2006. This position taken by India on the phase out of QRs was challenged by the US. In the ensuing, the Dispute Settlement Panel ruled that India did not have justifiable reasons to continue restricting imports using QRs maintained for BoP purposes. The Appellate Body confirmed this finding of the panel following which

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

81

India removed all the QRs that it was maintaining for BoP purposes on 1 April 2001. After the removal of these QRs, India maintains import restrictions on a small set of commodities indicated in. Table 4.A1, which are in keeping with Section 11(2) of the Customs Act, 1962.4 Tariff commitments India’s tariff commitments in the agricultural sector involved binding of all commodities. The tariff bindings ranged from 0 per cent for primary products to 300 per cent for edible oils. The tariff bindings offered by India would result in average bound tariffs of 114.5 per cent in 2005. Average tariff bindings for the agriculture sector went up from 94 per cent as in 19975 after India renegotiated tariffs on some products under Article XXVIII of GATT 1994. The rectifications and modifications of India’s schedule have resulted in changes in tariffs of a number of products.6 These changes are, however, not yet certified because of reservations raised. India has, nevertheless, pursuant to Article XXVIII:3 of GATT 1947, applied these higher rates.7 The negotiations under Article XXVIII entered into by India resulted in the establishment of tariff rate quotas (TRQ) in four tariff lines, viz.: maize (other than seed), milk powder, refined rape/ mustard oil and sunflower or safflower seed oil. The details of the TRQs are given in Table 4.A2. The imports under the TRQs can be carried out by designated state-owned enterprises.8 However, these enterprises would be undertaking the imports only on behalf of the actual users.9 A feature of India’s tariff commitments under the AoA is that in a large number of cases the final bound tariffs are considerably higher than their corresponding current applied tariffs. Table 4.A3 gives an indication of the distance between the applied and the bound tariffs for a set of major commodities. The gap between the applied and bound tariffs is the highest for edible oils, the bound duties for which are as high as 300 per cent. Applied tariffs, on the other hand, are between 65 per cent for crude palm oil and 85 per cent for refined palm oil. The gap is considerable even for some of the more sensitive products like

82

BISWAJIT DHAR

cereals and pulses. This so-called ‘water in tariffs’—which is not much in evidence in the Indian case—is likely to be a major issue in the ongoing negotiations on the review of the AoA. The gap between the applied tariffs and bound tariffs has, however, come down somewhat on account of the upward revision of the former that has taken place in case of a number of commodities in the more recent years. Table 4.A4 provides the details. Although average applied tariffs increased for most of the commodity groups appearing in the table, the increase in the average applied rates of grains would have made the most significant contribution. Average applied rates for this set of commodities was zero in 1997–98, which was due to the fact that their imports were controlled using the QRs.

Domestic support commitments India did not take any reduction commitments in case of domestic support since its total Aggregate Measure of Support (AMS) was considerably below the de minimis level as defined in Article 6.4(b) of the AoA. According to this Article, developing countries were expected to reduce their production-linked subsidies only if the total outlay of the government (or revenue forgone) exceeded 10 per cent of the value of agricultural production during the year. The figures for total AMS notified by India for the years 1995–96 to 1997–98 are provided in the Table 4.A5. India’s total AMS, which was a large negative amount in 1995–96, has subsequently reached positive territory. This was primarily because the product specific support, which took the form of market price support, was reported to have increased by more than US$ 26 billion between 1995–96 and 1996–97. In its first notification, India had indicated that its product specific support was extended to 11 commodities, while in the two subsequent years it was reported that only three commodities were receiving market price support. Besides rice and wheat, cotton was the only other commodity for which product specific support was reported. Furthermore, production eligible for support has

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

83

sharply decreased from 386.96 million tonnes in 1995–96 to 22.98 million tonnes in 1996–97. In the following year, eligible production was reported to have increased to 28.53 million tonnes. Table 4.A6 gives the details. The sharp reduction was on account of a change in the reporting system adopted by the Government under which the amount of grains procured by the state agencies was considered for reporting the extent of market price support that was provided. While in 1995–96, the entire production of the commodities for which product specific support was reported was included for the purposes of calculating the AMS. In the two subsequent years the quantity procured from the farmers was included in the AMS calculation. For instance, in case of rice the eligible quantity was decreased from about 81 million tonnes for 1995–96 to 13 million tonnes for 1996–97, and for wheat the corresponding figures were 64 and 9 million tonnes. India provided non-product specific subsidy in the form of fertiliser subsidy, credit subsidy, subsidy on electricity, irrigation subsidy and subsidy on average supply of seeds. Subsidies on electricity declined by 42 per cent and that on irrigation fell by more than 86 per cent during the same period. Subsidy on average supply of seeds was only US$ 0.62 million in 1997–98, a steep drop from US$ 23.9 million in 1995–96. On the other hand, subsidies in case of fertilisers, the largest component of nonproduct specific subsidies, increased by about 28 per cent between 1995–96 and 1997–98. As a result of this increase in fertiliser subsidy, total non-product specific subsidy declined by only 15 per cent (Table 4.A7). But while the non-product specific subsidies had decreased, the ‘Green Box’ support provided by India increased by nearly a third during the period for which the data was provided (Table 4.A13). Subsides that can be provided to low income and resource poor farmers were also increased in this period (Table 4.A14). Quite clearly, thus, India was targeting its subsidies in a manner that would have taken care of the relatively neglected areas of its agricultural sector.10

84

BISWAJIT DHAR

India’s exports subsidies India has not been a traditional user of export subsidies. The country did not extend any export subsidy during the period 1986–1990 that have been considered as the base years for the export subsidy discipline. Hence as per the provisions of the AoA, India cannot resort to export subsidisation in future though developed countries, especially the US and the members of the European Union (EU) who had been providing extremely large export subsidies could continue with the same after meeting the reduction commitments. India, however, benefits from the Special and Differential (S&D) measure which allows developing countries to provide subsidies for internal transport, freight charges on export shipments, handling, upgrading and other processing costs relating to exports.11 Export subsidies for costs of marketing exports of agricultural products and internal transport and freight charges are exempt from reduction commitments as per Articles 9.1(d) and 9.4. Hence, export subsidies provided by India in the form of internal transport subsidies are exempt from reduction commitments. The internal transport subsidy extended by India was only in terms of international airfreight assistance. India has notified to the WTO on export subsidies for the years 1996/97–2000/01. Internal transport subsidy was provided to five commodities/groups of commodities, viz.: fresh fruits, fresh vegetables, plants and flowers, poultry products and cardamom. The first three commodity groups received subsidies in all the years for which data were presented, while cardamom received subsidies for only one year (see Table 4.A15 for details). Total internal transport subsidies granted since 1996–97 increased to nearly US$ 4 million in 1996–97. In the subsequent years, however, subsides have declined and in 2000–2001 the lowest level was reached at US$ 1.1 million. This discussion indicates that India had not taken onerous commitments relating to the agricultural sector at the end of the Uruguay Round negotiations. While the bound duties on most of the major commodities remain high, additional market access commitments taken by the country in the form of TRQs were

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

85

insignificant. This outcome was not entirely unexpected since the onus of the Uruguay Round negotiations was on the developed countries like the US and the members of the EU to reform their agricultural policies, an important component of which was significant reduction in the use of production related subsidies, or domestic support.

IMPLEMENTATION OF THE COMMITMENTS The implementation of the commitments made by the WTO members, which is attempted in the sections below, would focus on the disciplines introduced in the three areas of the agricultural sector by the AoA, viz.: domestic support, export subsidies and market access. As would be clear from the discussion later, making the disciplines introduced by the AoA effective remains a major challenge for the multilateral trading system.

Domestic support commitments The implementation of the discipline on domestic support has to be seen largely from the perspective of the US and the members of the EU,12 two of the larger players in the market for agricultural commodities. The analysis presented below is based on data obtained from the notifications on domestic support to the WTO Committee on Agriculture (Tables 4.A1–4.A3). The data provided by the US and the members of the EU in their notifications to the Committee on Agriculture shows that domestic support extended by these two members of the WTO to their agricultural sector remained the highest among all WTO members in the period between 1995–96 and 2000–2001. In 2000/2001, for instance, the members of the EU provided domestic support, which was close to US$ 79 billion, and in case of the US the figure was more than US$ 72 billion in 2001. But while the former had decreased their domestic support by more than 30 per cent in dollar terms in five years,13 the latter had increased this form of subsidies by almost 20 per cent.

86

BISWAJIT DHAR

Besides the difference in the overall trends as stated earlier, the allocation of subsidies of the US and the members of the EU was also at variance. The US had increased its spending on the subsidies exempt from reduction commitments, viz., ‘Green Box’ measures, quite considerably during the first two years of implementation; as a result, ‘Green Box’ spending accounted for around 88 per cent of its domestic support. In the subsequent years, however, the share of ‘Green Box’ spending came down to about 70 per cent of the total domestic support. In case of the members of the EU, the share of ‘exempt’ subsidies, that is, ‘Green’ and ‘Blue’ Boxes put together, went up from nearly 44 per cent in 1995 to more than 50 per cent in 2001. This, in other words, implies that both the US and the members of the EU had considerable flexibility in their use of production related subsidies in the WTO because of the high proportion of the subsidies that are not subjected to reduction commitments. The large volumes of domestic support granted by the US and the members of the EU have two interesting dimensions. The first is the extremely high levels of subsidies that farmers in these countries enjoy vis-à-vis their counterparts in the developing countries. The second is the fact that these countries have exercised considerable flexibility in the granting of subsidies, with a view to enhancing their market dominance. The flexibility that the countries doling out large volumes of subsidies have under the AoA appears in the most striking manner in case of product specific support. These countries benefited in two ways. One, they were allowed to include product specific support in the AMS in aggregate terms, and two, they could exclude product specific support that was below the de minimis level14 from the AMS. The implication of the latter is that the US could exclude more than US$ 7 billion of trade distorting support from its total AMS between 1999 and 2001 (the corresponding figure for the members of the EU was between EUR 1 and EUR 2 billion). In 2001, the de minimis spending was as much as 32 per cent of the Amber Box subsides that the country had provided (Table 4.A4).

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

87

This flexibility was used to good effect by the US to heavily subsidise products in which they had substantial export interests. Producers of four commodities in which the country has the largest share in the total exports, viz.: corn, cotton, soybeans and wheat, benefited from very large increases in domestic support after 1997. This was particularly evident in corn and soybeans, commodities in which the share of US in the total global exports exceeded 50 per cent in the late 1990s; the increases in domestic support between 1995 and 2000 were nearly 8,500 per cent and 22,000 per cent respectively.15 Support for soybeans continued to increase in the following year, while that for corn declined by over 50 per cent. The largest proportionate increase in domestic support during the second half of the 1990s was witnessed in case of wheat, a commodity in which the US is the second largest producer having a 25 per cent share of global trade. Support for wheat increased from just less than US$ 5 million in 1995 to nearly US$ 974 million in 1999. Subsequently, however, support for wheat was reduced to below US$ 200 million. In case of cotton, on the other hand, the product specific support increased from just over US$ 32 million to 2.8 billion in 2001. Besides, the commodities mentioned above, product specific support granted to rice, a commodity in which US has started to emerge as a leading exporter, went up from US$ 11.6 million in 1995 to US$ 763 million in 2001. In case of the members of the EU, the product specific support was at high levels for a range of products, which included beef, sugar, butter and wheat, ever since the AoA discipline was introduced. In all these products, however, product specific support declined in terms of US dollar between 1995 and 1999.16 Beef received product specific support of US$ 10 billion in 2000/2001, and this high level of support was recorded after the level of support extended in 1995 was reduced by almost 44 per cent. However, in terms of Euros, support for beef declined by less than 20 per cent. Sugar, which was the largest recipient of product specific support after beef, also saw a decline in the level of support, although the level of reduction was much less in proportionate

88

BISWAJIT DHAR

terms as compared to beef. Support for dairy products showed mixed tendencies, with butter registering an increase of more than 5 per cent in terms of Euros, while for skimmed milk powder a decrease of almost 17 per cent was registered. The members of the EU increased domestic support for common wheat by EUR 500 million, the largest increase for any single crop in absolute terms, between 1995–96 and 1998–99. This works out to an increase of 20 per cent since this WTO member started meeting its commitments under the AoA. Domestic support extended to maize increased by nearly 28 per cent during 1995–96 to 1999–2000 in terms of Euros. In both the commodities referred to above, prominent members of the EU, including France and Germany, have large trading interests. However, during 2000/2001, the levels of support for both these commodities were reduced. This discussion indicates that the two dominant players in the global market for agricultural commodities were targeting subsidies in a manner that provided them with additional advantage during a phase when markets have been opening in many countries. Product specific support in several countries had increased substantially, which increased the level of distortions in their markets.

Analysis of the implementation of commitments relating to export competition Disciplines in the area of export competition were intended to ensure that WTO members are prevented from taking recourse to mechanisms for disposing off their surpluses in the international market. Accordingly, the AoA principally looks at three issues under the rubric of export competition. These are: (i) export subsidies, (ii) international food aid and (iii) export credit and guarantees. The AoA, at present, provides clear disciplines in respect of export subsidies, when the disciplines in respect of the other two dimensions of export competition are not covered by an effective discipline. This has resulted in several problems, which are enumerated later.

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

89

Data on export subsidies presented in Tables 4.A6 and 4.A7 for the two largest players in the global agricultural trade show that the members of the EU have used export subsidies relatively more extensively to gain additional market access in agricultural commodities as compared to the US. However, while the members of the EU have decreased the use of its export subsidies by more than 60 per cent during 1995–96 and 2000–01, the US has increased this form of subsidies. The latter targeted the use of export subsidies in respect of three products, viz.: poultry meat, skim milk powder and cheese, which went up from US$ 28,000 in 1995 to US$ 15 million in 2000. The wide fluctuations in the use of export subsidies for each of the products were the common feature. Thus, the subsidies on skimmed milk powder varied between nearly US$ 17,000 and US$ 133 million, and those granted for poultry meat were between zero and US$ 6 million. This implies that the use of export subsidies by the US had the potential to cause very large uncertainties in the international markets since the surplus that it was disposing varied quite considerably across years. Surplus disposal had become an easy option for the WTO members in the absence of an effective discipline on food aid. Data presented in Table 4.A8 shows the extent to which the US and the members of the EU were using food aid. The US used food aid as an instrument for disposing off its farm output most extensively. Food aid in the form of wheat, rice and vegetable oils increased substantially during the period 1995 to 1999. Although wheat was the largest component of food aid throughout the period, rice and vegetable oils given out as food aid registered the sharpest increases over the period. However, it is the wide fluctuations in the grant of food aid that the US displays which is the major source of problem for the markets. Food aid granted in the form of wheat fluctuated between 1.5 million tonnes to 5.3 million tonnes. This trend in rising food aid has been maintained in the subsequent years as well given that the United States Department of Agriculture (USDA) had continued to increase allocations for these activities (Table 4.A9). A number of developing countries have challenged the position held by some of the industrialised countries that subsidised

90

BISWAJIT DHAR

exports of food grains are beneficial to the Net Food-Importing Developing Countries (NFIDCs), since the beneficiaries have access to cheap imports.17 These countries have argued that trade promotion through export subsidies causes increasing food insecurity in developing countries. This argument, according to the countries presenting this viewpoint, is fallacious, as heavy dependence on imports of subsidised food can cause serious financial difficulties due to a more vulnerable BoP situation, regardless of the price of food. These countries have argued that effective solutions to the food security problem of NFIDCs can be achieved only if the domestic production capacities are strengthened in the import-dependent countries. For this to happen, paragraph 3(iii) of the ‘Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and the Net Food Importing Developing Countries’ has to be put into effect. The paragraph in question instructs WTO member countries to facilitate technical and financial assistance to LDCs and NFIDCs so as to ‘improve their agricultural productivity and infrastructure’. It has been pointed out that the food aid mechanism mainly protects the immediate objectives of the donor countries while ignoring the longer-term interests of the recipient countries. Thus, food aid may adversely affect the incentive to carry out the policies that would foster agricultural development in the recipient countries. The inability of countries to reduce their food insecurity could in fact be attributed to the international food aid mechanisms.18 Apart from food aid there is another interesting aspect of US foreign trade policy which is aimed at promoting exports. As per the AoA, only the funding and scope of direct subsidy programmes are subjected to the limits and therefore the export credit and credit guarantee programme, which is an important area that needs to be given more attention but seems to be neglected or underestimated. The Export Credit and Export Credit Guarantee Programme provide support for agricultural exports to other countries through the provisions of credit guarantees to importers who seek to defer payments for the goods received. The credit provided by the

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

91

exporter or the third party thus boosts exports by creating more incentive for the importing country to import. Available data show that agricultural exports close to US$ 34 billion have taken place from the US during 1993–2002 which have been covered under export credit guarantee programme.19 Two issues need to be pointed out in the context of the discussions in the foregoing. The first is that the major players have taken recourse to domestic support for providing their producers favourable conditions for exploiting the global agricultural markets. Export subsidies have become a less favoured option for even the members of the EU, the largest user of export subsidies. The second issue that should be mentioned is that the lack of an effective discipline in respect of international food aid and export credit and guarantees have been used by the US in particular for disposing off her surpluses. This has drawn the attention of several countries that have asked for a re-look at the food aid programmes and also those relating to export credit and guarantees during the ongoing review of the AoA.

Market access commitments As in the case of the subsidies discipline, the market access commitments taken by countries in the agricultural sector represent a considerable degree of variation across countries. Although the Uruguay Round negotiations took a major step to rein in the tariffs, it remains only a small first step as shall be explained later. There are two reasons for this situation. The first is that tariffs in agricultural sector have remained at relatively high levels in many WTO Members, even after the enforcement of the AoA discipline. The second factor relates to the implementation of the tariff rate quotas, which has been a problem area as far as the AoA discipline is concerned. Tariffs At least three concerns regarding the tariff structures that have emerged after the Uruguay Round negotiations need to be flagged. These are: (i) existence of tariff peaks, (ii) tariff escalation and

92

BISWAJIT DHAR

(iii) the use of non-ad valorem tariffs. The last mentioned has a particular influence on market access prospects due to its inherent non-transparent nature. The following discussion provides the details. In respect of the bound tariffs, the problem of peaks seems a bigger problem in case of the advanced developing countries. South Africa’s tariff peak of 597 per cent and India’s 300 per cent resulted in an average of the peaks of more than 210 per cent for these countries, which was much above the 177 per cent observed for the Organisation for Economic Co-operation and Development (OECD) countries. This is notwithstanding the fact that Korea had a bound tariff of 887 per cent, while the US and Canada had maximum bound tariffs of 350 per cent and 238 per cent respectively (Tables 4.A10–4.A13). It is interesting to note in this context that in most OECD countries average agricultural tariffs are higher than non-agricultural tariffs, with rates on some agricultural products exceeding 500 per cent.20 However in case of applied tariffs, the average of the peaks for the OECD countries was considerably higher. Peak tariffs retained by Korea, Poland and Norway, besides the US and Canada, influenced the high average peak for this set of countries as compared to the advanced developing countries. Tariff escalation seems to be a problem that exists across WTO members, irrespective of their stage of development.21 This observation can be made by looking at the levels of tariff protection that countries provide to products as they go up the processing chain. Thus, while for the North American countries tariff escalation was observed in animal and animal products, vegetable and vegetable products, sugar and sweeteners and tobacco and tobacco products, for the South Asian countries, grains and grain products and oil seeds and products thereof are the two most affected groups in terms of tariff escalation. As regards the product groups that were most affected because of tariff escalations, meat and meat products and grains and grain products were among the more prominent. It has been observed that the structure of agricultural tariffs has become more complex, especially in the case of the developed

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

93

countries, because of an increase in the number of tariff lines to accommodate different tariffs applicable to the same product, such as seasonal, in-quota and above-quota tariffs, and the more frequent use of non-ad valorem tariffs.22 Table 4.A14 shows the use of non-ad valorem tariffs in respect of agricultural products for a select set of WTO member countries. It is interesting to note that most of the countries having very large reliance on non-ad valorem tariffs are from the developed world. In fact, the US and the members of the EU use non-ad valorem tariffs in just less than half of the total agricultural tariff lines, while in case of Switzerland 89 per cent of the agricultural tariff lines have non-ad valorem tariffs. There are a number of reasons for the use of non ad-valorem tariffs. These include the increased protection that a non-ad valorem tax can provide against large drops in import prices and the lack of transparency associated with these rates, which helps conceal the level of protection being provided.23 The use of non-ad valorem tariffs has been pointed by several developing countries as one of the key problems in securing additional market access in the major markets.24 Tariff rate quotas The implementation of the TRQs during 1995–2000 revealed that countries resorted to two types of TRQ allocations: a global TRQ or a country-specific TRQ. Under the global TRQ, all members of the WTO are free to compete for access to the quantity offered by the importing country. Since there is no pre-determination of where the commodity to be imported will be originating from, the importing country administers the quota. The country-specific quotas, on the other hand, provide a degree of predictability to both the importing and the exporting countries involved in the transactions. In this case, however, either of the countries can administer the quotas in order to obtain the quota rents. This form of administration of TRQs was used by most of the major industrialised countries. However, only 10 of the 37 countries that opened TRQs for 1995 opted to offer the quotas to specific countries. The more controversial among the methods of implementation of import licensing provisions is the one that is based

94

BISWAJIT DHAR

on auctioning. One of the major disadvantages of the auctioning system stems from the ease with which it can be manipulated. Producer groups can conceivably purchase all or part of the available licences with the intention of ensuring that imports do not take place. The implementation of the TRQs was beset with two sets of problems. The first arises from the fact that countries were being transparent in establishing the basis for their quota commitments. The second, and possibly the more significant, is the fact that a sizeable proportion of the quotas remained unfilled. For all commodities taken together, the average fill rate was 64 per cent in 1995, and in 2000, it had fallen to 44 per cent (Table 4.A15). Among the major countries that had shown tardy implementation of the quota commitments was the US from the industrialised world and Malaysia and Thailand from the developing world. One of the features of the implementation of the TRQs is that unfilled quotas were the largest in case of commodities in which the importing country had a strong domestic interest. In 1997, for instance, the members of the EU filled only about 8 per cent of its quota commitment in wheat, while Thailand met 0.07 per cent its quota commitment in rice.25 Considering that in several developing countries, including the Philippines, domestic farmers faced unfair competition arising from the TRQ imports, the nonfulfilment of its quota commitment by Thailand may well have been beneficial to the domestic rice producers. The foregoing clearly points to the fact that the AoA is beset with two sets of problems. In the first instance, the agreement has an inherent imbalance, a reflection of which can be seen from the fact that the countries using large volumes of subsidies (largely belonging to the industrialised world) can maintain subsidies at much higher levels compared to those that do not use subsidies much. Most of the developing countries find themselves in the latter category. The second and perhaps the more important dimension is the tardy implementation of their commitments by the larger players like the US and the members of the EU. As a result, the primary objective of the AoA, viz., getting rid of the market

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

95

distorting policies, has not been met. India and other developing countries that were anticipating significant gains for their farming communities at the end of the Uruguay Round negotiations, now find that not only have they not been able to reap any benefits, domestic agriculture in these countries faces threat from cheap imports as international prices for major commodities have been sticky at low levels since the mid-1990s. In many countries, thus, safeguarding food security and livelihoods have emerged as real issues of concern and this has been reflected in the proposals that developing countries have put forth during the negotiations for the review of the AoA, as would be indicated later.

NEGOTIATIONS FOR THE REVIEW OF THE AoA This section has two parts. At the outset, a brief account of the mandate, which spells out the guideposts for the on-going negotiations for the review of the AoA, is provided. In the second part, an attempt is made to capture the negotiating dynamics, as it has been unfolding since the post-Doha negotiations have been initiated.

The negotiating mandate The negotiations for the review of AoA are part of the built-in agenda, the mandate for which has been provided by Article 20 of the agreement. Besides providing for the time-frame for the commencement of the AoA review, which was five years from the period when it was enforced (that is, the year 2000), Article 20 includes three substantive points. First, it provides that members would take into account their experience of implementing the reduction commitment. Second, members will consider the effects of the reduction commitments on world trade in agriculture. And finally, members were expected to take note of ‘nontrade concerns, special and differential treatment to developing country members, and the objective to establish a fair and market oriented agricultural trading system’.

96

BISWAJIT DHAR

The negotiating mandate was elaborated in the Doha Ministerial Declaration (DMD) of November 2001. In the first instance, the mandate was set in the backdrop of the ‘long-term objective’ of the AoA, which, as stated in the preamble of the agreement ‘is to provide for substantial progressive reductions in agricultural support and protection sustained over an agreed period of time, resulting in correcting and preventing restrictions and distortions in world agricultural markets’ (emphasis added). The DMD reflected the commitment of the WTO members to engage in ‘comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support’. It was further agreed ‘that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the Schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development’.26 Members had thus clearly expressed their intent to rid agricultural markets of the distortions, while at the same time recognising the need to respond to the imperatives of food security and livelihoods, the two key concerns for the developing countries.

The negotiating dynamics The negotiations on agriculture have witnessed two clearly identifiable phases since the post-Doha confabulations began. The first phase was the period till the end of July 2003, which saw negotiations taking place between two groups of countries whose alignment was based on clearly defined positions. In the subsequent period, four groups of countries have figured prominently in the negotiations. These are the G-20 and G-33 representing the developing countries, the US and members of the EU, and the G-10 countries.27 With the groups being equally divided between the developed and the developing country members, this

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

97

development represents the differentiations in the interests that exist in respect of both sets of countries. In the first phase of the post-Doha negotiations, countries with defensive interests were aligned with the members of the EU. This group of countries, the prominent among which were Japan, Korea and Switzerland, were supported by a number of significant developing countries led by India. These countries were primarily interested in keeping their agricultural markets protected using reasonably high levels of border protection. Some among this group were also keen to maintain their relatively high levels of subsidies in place. In other words, the countries having defensive interests were not looking for significant changes in the prevailing policy regime governing the agricultural sector, particularly in relation to tariffs. These countries favoured the Uruguay Round approach of average cut and a minimum cut per tariff line. That a number of developing countries were willing to be in this group appeared to have struck a discordant note with many observers. This was on account of two compelling reasons. The first arose from the fact that most of the developing countries had submitted to the Committee on Agriculture that the high subsidies granted by the developed countries, in particular the US and the members of the EU, had prevented them from realising the projected gains from the agriculture sector since the AoA discipline was introduced. The second point that developing countries had made during the negotiations was that they had little access to developed country markets on account of the market access impediments. Existence of high tariffs and tariff escalations in areas of export interest to developing countries, coupled with the discriminatory implementation of tariff rate quotas were among the evidences that these countries were able to produce in support of their views. But eventually the fact that they were getting the comfort of lower levels of tariff cuts themselves seems to have kept the group together. The second group of countries represented those that were primarily interested in obtaining additional market access through a rapid decline in the levels of tariffs. As has been witnessed in the past, this group was informally led by the US, with

98

BISWAJIT DHAR

the Cairns Group countries providing active support. These countries argued that the tariff reductions should follow the tariff harmonisation approach (better known as the ‘Swiss formula’) with the US proposing that a coefficient of 25 should be adopted. Interestingly, although a number of the Cairns Group countries had argued that the Article 20 review on AoA should be aimed at reduction and an eventual elimination of trade distorting forms of subsidies, in most of the post-Doha confabulations, these countries showed considerable reluctance to address the issue of distortions caused in the market for agricultural commodities by the large volumes of subsidies granted by the two largest players as negotiations progressed. Market access was thus the only issue on which the negotiations on the review of AoA focused. Comprehensive reforms in the agricultural policies world-wide remained nothing more than a reference point for the conduct of the negotiations. This focus was in fact reinforced by the Chairman of the Committee on Agriculture in the draft modalities paper that he had prepared under his own responsibility. The Harbinson modalities made considerable efforts at ensuring that more than the minimal changes are effected in the tariff regime. The developing countries were provided an additional dispensation, which would have allowed them to provide higher levels of protection to commodities that are critical from the point of view of food security, livelihoods and rural development. But at the same time, the subsidies regime was left largely unaffected. While on the one hand, developed countries were allowed to maintain the existing levels of agricultural subsidies, the developing countries were also allowed the space to provide assistance to the resource-poor farmers. With the extreme positions taken by the US and the members of the EU becoming the sticking point not only for the agricultural negotiations but also for the Doha Development Agenda (DDA), the membership of the WTO urged the two members to find a common ground in order that an efficacious solution was found before the Cancun Ministerial Conference was held.28 A common ground was worked out by the US and the members of the EU

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

99

on the market access issue and on the issue of subsidies.29 While in case of market access, the US and the members of the EU preferred a combination of the Uruguay Round approach of average tariff cuts and the tariff harmonisation approach, in case of the domestic support discipline both these members of the WTO found comfort while proposing that the existing discipline would not undergo major changes. This compromise between US and the members of the EU signalled coalition-building efforts among the developing countries resulting in the formation of the G-20. The base paper, which marked the emergence of this group of developing countries, had one important feature—it looked at the agriculture negotiations in the WTO for bringing about comprehensive reform in the agriculture sector world-wide.30 The focus of the interventions made by the prominent members of this group, including China, Brazil, South Africa and India, has been that the major distortions created by the subsidies’ regime in some of the more prominent members of the WTO have to be reduced and eventually removed. In view of these countries, effective disciplining of agricultural subsidies was the sine qua non for ensuring predictability in the markets for agricultural commodities, thus benefiting a large number of developing countries. On the issue of market access, the G-20 proposed that developing countries adopt the Uruguay Round approach of average tariff cuts. One of the key elements of the G-20 proposal is that the special needs of the developing countries need to be addressed in the revised AoA. This dimension was in fact elaborated by another group of developing countries, viz., G-33. These countries have proposed that developing countries should be able to designate a set of products as Special Products (SPs), which would be subjected to lower tariff cuts. In addition, they have argued for the introduction of a Special Safeguard Mechanism (SSM) aimed at allowing developing countries to counter anticipated or actual import surges.31 The SPs and the SSM were seen by the developing countries as measures that would help them in addressing the twin problems of food security and livelihood concerns in the face of mounting pressures to lower agricultural tariffs.

100

BISWAJIT DHAR

The developing country position received strong support in the Hong Kong Ministerial Conference (HKMC) where an agreement was reached that the developing countries ‘will have the flexibility to self-designate an appropriate number of tariff lines as SPs guided by indicators based on the criteria of food security, livelihood security and rural development’. The Ministerial Declaration added further that the developing countries will also have the right to have recourse to an SSM based on import quantity and price triggers, with precise arrangements to be further defined.’32 The Declaration emphasised that ‘Special Products and the SSM shall be an integral part of the modalities and the outcome of negotiations in agriculture.’33 It may be argued that the proposal of the developing countries, represented primarily by the G-20 and the G-33, on the modalities of the agriculture negotiations stands to reason on account of the fact that the tariff reductions of the kind that the US and the EC have been expecting can be possible only after distortions caused by the subsidies are substantially reduced in the markets for agricultural commodities. The large doses of subsidies provided by the US and the EC in particular, which was discussed at length in an earlier part of the chapter, have given rise to uncertainties in the markets in respect of the movement of the prices. At the same time, the proposal insisted that concrete measures such as lower tariff cuts SPs and SSM had to be provided for in the revised AoA so that some of the key concerns of the developing countries, in particular those related to food security and livelihoods, are addressed effectively. India has considerable interest in pushing for the reforms of global agricultural markets since relatively open markets would help the country in exploiting its potential as an agricultural exporter. At the same time, the negotiations are critical for they must ensure that the agreement reached at the end of the current round of negotiations addressed the country’s concerns pertaining to food security and rural livelihoods. This can be realised, as the G-20 and G-33 countries have argued, by allowing developing countries like India to maintain higher tariffs on

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

101

commodities that are critical from the point of view of food security and protection of livelihoods. It needs to be recognised, however, that while the abovementioned approach would help in the short-run, the country must evolve long-term strategies that would enable the Indian agricultural sector to benefit from dynamic efficiencies. This can be possible only if the sector undergoes structural changes, with a view to improving resource management and utilisation. In this endeavour, cooperative sector can play a significant role in providing institutional basis for implementing the strategies necessary for improving the fortunes of Indian agriculture. The following section briefly enumerates this dimension.

BY WAY OF CONCLUSIONS This chapter tried to indicate the problems that have accompanied implementation of the WTO AoA. The basic objective of the AoA was to reduce and eventually eliminate the distortions in the markets for agricultural commodities. For realising this objective, the AoA introduced two sets of disciplines on the WTO members. Countries acceding to the WTO were expected to reduce the use of two forms of subsidies, viz., domestic support and export subsidies, over a period of time. However, in the period since the AoA has been implemented, there is little evidence to show that the AoA has had any meaningful influence on the markets. The major players in the global agricultural markets have continued to give large doses of subsidies to their domestic agricultural sectors. If anything has changed during the past six years, it has been the degree to which these countries have targeted the use of subsidies. Data on implementation of AoA in respect of major food crops, which this chapter has provided, have established the fact that several WTO members were using subsidies to strengthen their position with the objective of gaining enhanced access in the markets that were opening up. As a result of this targeting, the prices of agricultural commodities included in this study were found to have declined quite steeply, quite contrary to the

102

BISWAJIT DHAR

expectations prior to the implementation of the AoA. Countries like India had expected to gain from the implementation of the AoA since the withdrawal of subsidies by the major players in the global agricultural market was to bring about rise in prices of agricultural commodities which would have benefited the low cost producers in the developing world. Removing the gross imperfections that persist in global agricultural markets thus needs to be the focus of the ongoing WTO negotiations. This has indeed been the nub of the arguments that the G-20 countries have made during the negotiations. However, the prospects of any significant disciplining of agricultural subsidies by the two key players, viz., the US and members of the EU, do not look very promising. This is particularly true of the US, which has unveiled the new Farm Bill proposals in January, 2007. These proposals indicate that the US could, in fact, increase farm subsidies, particularly on the ‘Green Box’ measures between 2008 and 2012. The global community would therefore have to wait considerably longer for the removal of policy induced distortions in agricultural markets. Most developing countries, including India, have responded to prospects of continued uncertainties in the global markets for agricultural commodities by insisting that the vulnerable sections of their farming communities must be adequately protected. Their demand that products of importance from the viewpoint of food security, livelihoods and rural development must receive added protection has now become an integral part of the on-going negotiations. Such a step would contribute immensely towards carving out a global regime for agriculture that finds acceptance amongst the WTO membership.

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

103

ANNEXURE I: COUNTRY GROUPINGS IN WTO AGRICULTURE NEGOTIATIONS G-20 (current membership 22): Argentina, Bolivia, Brazil, Chile, China, Cuba, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Peru, the Philippines, South Africa, Tanzania, Thailand, Uruguay, Venezuela, Zimbabwe. G-33 (current membership 46): Antigua and Barbuda, Barbados, Belize, Benin, Bolivia, Botswana, China, Congo, Côte d’Ivoire, Cuba, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, India, Indonesia, Jamaica, Kenya, Republic of Korea, Madagascar, Mauritius, Mongolia, Mozambique, Nicaragua, Nigeria, Pakistan, Panama, Peru, the Philippines, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Senegal, Sri Lanka, Suriname, Tanzania, Trinidad and Tobago, Turkey, Uganda, Venezuela, Zambia, Zimbabwe. G-10 (current membership nine): Iceland, Israel, Japan, Republic of Korea, Liechtenstein, Mauritius, Norway, Switzerland, Chinese Taipei. Table 4.A1 Commodities Subjected to Import Prohibitions Tallow, fat and/or oils, rendered, unrendered or otherwise, of any animal origin, including the following: (i) Lard stearine, oleo stearine, tallow stearine, lard oil, oleo oil and tallow oil not emulsified or mixed or prepared in any way; (ii) Neat’s-foot oil and fats from bone or waste; (iii) Poultry fats, rendered or solvent extracted; (iv) Fats and oils of fish/marine origin, whether or not refined; excluding cod liver oil, squid oil containing Eicospentaenoic acid and De-cosahexaenoic acid; (v) Margarine, imitation lard and other prepared edible fats of animal origin; (vi) Animal rennet; (vii) Wild animals including their parts and products and Ivory; and (viii) Beef and products containing beef in any form. Source: WTO, Trade Policy Review: India, Report by the Secretariat, WT/ TPR/S/100 22 May 2002.

A global tariff rate quota of 150,000 MT at an in-quota tariff rate of 50 per cent

Sunflower-seed oil or safflower oil and fractions thereof, crude oil

Source: Government of India, Ministry of Commerce and Industry, Director General of Foreign Trade (various notifications).

A global tariff rate quota of 150,000 MT at in-quota tariff rate of 45 per cent

Year 1: 350,000 tonnes Year 2: 400,000 tonnes Year 3: 450,000 tonnes Year 4 and beyond: 500,000 tonnes per year

A global tariff rate quota of 10,000 MT at an in-quota tariff rate of 15 per cent for the following quantities:

A global tariff rate quota of 10,000 MT at an in-quota tariff rate of 15 per cent applicable cumulatively to both the tariff lines

Tariff quotas

Rape, Colza or Mustard oil and fractions thereof

Maize (other than seed)

Milk and cream in powder, granules or other solid forms, of a fat content, by weight, not exceeding 1.5 per cent— not containing added sugar or other sweetening matter

Milk and cream in powder, granules or other solid forms, of a fat content, by weight, not exceeding 1.5 per cent

Products

Table 4.A2 Tariff Rate Quotas Established by India Since 2000

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

105

Table 4.A3 Applied and Bound Tariffs on Major Agricultural Commodities/Groups Applied and bound tariffs on major agricultural (as on 01.01.2006) Item description

Applied tariffs (%)

Bound tariffs (%)

10 50 50 80 80 70

100 100 70 80 80 70

Cereals and Pulses Pulses other than peas (pisum sativam) Wheat Maize (Corn) seed Rice in the husk Husked (brown) rice; broken rice Semi-milled or wholly milled rice whether or not polished Millet, Jowar Sorghum Buck wheat and canary seed Other cereals (rye, barley, etc.)

50 50 Free Free

Cereals Products Wheat Flour Wheat and potato starch Flour, meal and powder of dried leguminous vegetables including sago, tamarind and mango Other starches Roasted malt Unroasted malt Dairy Products Fresh milk and cream Butter and melted butter (ghee) Cheese Milk powder Yoghurt Plantation Crops Tea Coffee Coconut Copra Cassia and cinnamon Cloves Other spices

70 80 100/Free 100

30 30 30

150 35 150

30 30 30

100 100 100

30 40 30 60 30

100 40 40 60 150

100 100 70 70 30 35 30/70

150 100 100 100 100 100 150/100

(Table 4.A3 continued)

106

BISWAJIT DHAR

(Table 4.A3 continued) Item description Meat & Poultry Chicken sausages Chicken leg (processed) Meat of poultry, not cut in pieces, fresh or chilled Raw hams, pig fat; meat of bovine animals Other meat and offal Processed ham Sugar Horticulture Apples Grapefruit Strawberries, dried apricots etc. Pears and quinces Oranges; lemons and limes; fresh grapes Fresh pomegranates, lichi, tamarind (fresh), custard apple Other fruits except Sapota (Black berries etc.) Garlic Onions Potato Hop cones (ground, powdered or inpellets) Apricot, peach or plum stones and kernels Edible Oils (Crude) Soyabean Oil Palm Oil (for manufacture of vanaspati) Groundnut Oil Sunflower/Safflower Coconut Oil Rapeseed Oil Colza or Mustard Oil Castor Oil/Tung Oil Other Oils Edible Oils (Refined) Soyabean Oil RBD Palmolein

Applied tariffs (%)

Bound tariffs (%)

100 100 30

150 150 100

30 30 30

100 100 55

60

150

50 25 30 30 30 15

50 100 100 35 100 100

30 100 5 30 30 30

100 100 100 100 75 100

45 80 85 75 85/100 75 75 85/100 85/100

45 300 300 300 300 75 75 100 300

45 90

45 300

(Table 4.A3 continued)

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

107

(Table 4.A3 continued) Applied tariffs (%)

Item description Palm Oil Groundnut Oil Sunflower/Safflower Coconut Oil Edible grade Coconut Oil (Other) Rapeseed Oil Colza or Mustard Oil Castor Oil/Tung Oil Other Oils edible grade Other Oils other than edible grade

90 85 85 85 100 75 75 100 85 100

Bound tariffs (%) 300 300 300 300 300 75 75 100/300 300 100/300

Source: Government of India (GoI), 2006. Table 4.A4 Summary Analysis of India’s MFN Tariff, 1997–98 and 2001–02 MFN 1997–98 Products

MFN 2001–02

Average Range Coefficient Average Range Coefficient (%) (%) of variation (%) (%) of variation

Agricultural products 35.1 0–260 Live animals and 25.4 15–45 products thereof Dairy products 31.5 0–35 Coffee and tea, 37.6 15–192 cocoa, sugar, etc. Cut flowers and 25.1 10–45 plants Fruit and vegetables 32.7 0–127 Grains 0.0 0–0 Oil seeds, fats, 38.9 15–45 oil and their products Beverages and 114.8 15–260 spirits Tobacco 45.0 45–45 Other agricultural 27.8 0–45 products, n.e.s. Source: WTO (2002).

0.9 0.6

40.7 39.8

0–210 35–100

0.7 0.4

0.3 0.4

38.0 39.6

35–60 35–170

0.2 0.4

0.6

29.9

10–35

0.3

0.5 — 0.2

36.6 49.4 56.2

25–115 0–100 15–100

0.3 0.8 0.5

0.8

96.9

35–210

0.8

— 0.5

35.0 28.1

35–35 0–50

— 0.4

108

BISWAJIT DHAR Table 4.A5 Total Aggregate Measure of Support (in US$ million)

Nature of support Non-product specific support Product specific support Total AMS

1995–96

1996–97

1997–98

5,772.06 –29,619 –23,846.94

4,652.24 –3,155.93 1,496.31

5,017.41 –2,817.01 2,200.40

Sources: WTO, Notifications concerning domestic support commitments submitted by India in 1998 and 2002. Table 4.A6 Product-Specific Aggregate Measurements of Support: Market Price Support Description of basic products Rice Wheat Coarse cereals (bajra, jawar, maize and barley) Pulses (gram, urad, moong and tur) Groundnut Rapeseed and mustard toria Cotton Soya bean Tobacco Jute Sugar cane Total

Eligible production (million tonnes)

Total market price support (US$ million)

1995–96 1996–97 1997–98 1995–96 1996–97 1997–98 80.96 64 30.43

12.96 9.3 —

15.56 12.65 —

–7,577 –1,229.90 –1,384.84 –9,625 –1,459.73 –1,722.67 –4,530 — —

14.97

—

—

–1,706

—

—

7.37 6.59

— —

— —

–1,809 –1,689

— —

— —

0.32 — —

–2,106 –192 –181

–466.30 — —

290.50 — —

2.22 0.72 4.99 — 0.59 — (94–95) 1.43 — 174 — 386.96 22.98

— — 28.53

–388 — — 184 — — –29,619 –3,155.93 –2,817.01∗

Sources: WTO, Notifications concerning domestic support commitments submitted by India in 1998 and 2002. Notes: 1. Support for each of the listed products is below the relevant ‘product-specific’ de minimis level 3. ∗Notified as de minimis.

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

109

Table 4.A7 Non-Product-Specific AMS Total non-product-specific support (US$ million) Measure type(s)

1995–96

1996–97

Fertiliser subsidy Credit subsidy Subsidy on electricity Irrigation subsidy Subsidy on average supply of seeds Total

1,864.14 101.95 2,436.64 1,345.41 23.92 5,772.06∗

2,067.85 2,579.50 n.a. n.a. 1,867.77 1,712.59 716.10 724.70 0.52 0.62 4,652.24∗ 5,017.41∗

1997–98

Sources: WTO, Notifications concerning domestic support commitments submitted by India in 1998 and 2002. Note: ∗Notified as de minimis. Table 4.A8 Measures Exempt from Reduction Commitments—’Green Box’

Measure type General services

Public stockholding for food security purposes

Name and description of measure with reference to criteria in Annexure 2

Monetary value of measures in year in question (US$ million) 1995–96 1996–97 1997–98

Research 163.0 160.1 185.8 Pest and disease control 8.2 6.6 9.9 Training services 4.7 11.7 6.7 Extension and advisory n.a. 8.2 14.9 services Command area development 12.1 39.5 35.2 programme Marketing and promotion 104.8 5.2 7.3 services Inspection services n.a. n.a. n.a. Provision for livestock health 104.8 5.7 1.4 facilities Infrastructural services 0.0 2.3 3.4 Buffer stock operations 1,569.7 1,708.7 2,018.2

(Table 4.A8 continued)

110

BISWAJIT DHAR

(Table 4.A8 continued)

Measure type Domestic food aid Income insurance Relief from natural disasters Structural adjustment assistance provided through investment aids Payment under environmental programmes

Total

Name and description of measure with reference to criteria in Annexure 2 n.a. Crop insurance scheme Crop insurance scheme Scarcity relief and natural calamities Dry land farming Scheme for reclamation of alkaline soils Drought-prone area programme Soil conservation in catchment areas of river valley projects Integrated watershed management in the catchment areas of flood prone rivers in the IndoGangetic basin Fodder grassland/pasture development Desert development programmes Control of shifting cultivation National Waste Land Development Programme Forest conservation aforestation & Economic Development

Monetary value of measures in year in question (US$ million) 1995–96 1996–97 1997–98 n.a.

n.a.

n.a.

10.9

n.a.

n.a.

n.a. 125.0

31.1 413.2

29.6 414.2

56.2 3.0

31.4 3.5

41.6 5.8

n.a.

1.4

28.7

19.5

13.1

13.8

9.0

0.3

0.2

n.a.

n.a.

n.a.

n.a.

30.2

31.6

4.8 n.a.

4.6 3.2

4.6 1.4

n.a.

22.4

18.6

2,195.6 2,502.3 2,872.9

Sources: WTO, Notifications concerning domestic support commitments submitted by India in 1998 and 2002.

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

111

Table 4.A9 Measures Exempt from the Reduction Commitments—Special and Differential Treatment—’Development Programmes’

Measure type

Name and description of measure with reference to criteria in Article 6:2

Monetary value of measure in year in question (US$ million) 1995–96 1996–97 1997–98

Investment subsidies generally available to agriculture

On farm development work 104.8 1,115.3 1,138.6 (field channels, land levelling, shallow wells, etc.) Small Sector Development — — 1.6 Scheme for Coffee Expansion and consolidation coffee — — 0.3 Interest DRI other subsidies — — 0.6 coffee Loan under coffee development — 0.4 — plan Subsidies for asset formation — 1.6 1.4 (provision of milch animals, farm implements to resource poor farmers, etc. under certain schemes) 149.5 15.6 15.0 Agricultural Small farmer development assistance input subsidies Other input subsidies∗ — 3,721.8 4,013.9 to low Grant-in-aid given for 0.1 0.0 income or production of planting material resource of cardamoms both small and poor large producers Subsidy given for replanting — 0.3 0.2 of senile and uneconomic cardamom gardens Grant-in-aid given for post— 0.1 0.1 harvest development of spices Assistance to smallholders for — — — easy access to inputs Subsidy for vanilla development — — 0.0 Total 254.3 4,855.1 5,171.8

Sources: WTO, Notifications concerning domestic support commitments submitted by India in 1998 and 2002. Note: ∗Includes support for fertilisers, irrigation, electricity, seeds, etc.

3.7 0.0 0.2 0.0

0.0 3.9

1.4 0.0 0.6 0.0

0.1 2.0

0.0 2.5

1.9 0.1 0.3 0.2

0.0 2.3

1.6 0.2 0.4 0.2

0.0 1.1

0.5 0.1 0.3 0.2

1996– 1997– 1998– 1999– 2000– 97 98 99 2000 2001

226.0 22,750.0

20,112.0 244.0 2,168.0 0.0

1996– 97

0.0 5,937.0

5,162.0 27.0 748.0 0.0

1997– 98

2000– 2001 67,554.0 88,052.0 190.0 366.0 77,892.0 18,172.0 2,725.0 4,059.0

1999– 2000

0.0 0.0 0.0 12,764.0 148,361.0 110,649.0

9,826.0 32.0 273.0 2,633.0

1998– 99

Quantity of subsidised exports (tonnes)

Source: WTO, Export subsidy notification submitted by Indian in 2002. Document G/AG/N/IND/3. Note: ∗Data is only in respect of international airfreight assistance in terms of Articles 9.1(d) and 9.4.

Fresh fruits Fresh vegetables Plants and flowers Poultry Products (day old chicks and hatching hens) Cardamom (small) Total

Description of products

Internal transport subsidies∗ (US$ million)

Table 4.A10 Export Subsidies Granted by India

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

113

Table 4.A11 Domestic Support Granted by the United States (1995–2001) (US$ billion) Subsidies/Products

1995

1996

1997

1998

1999

2000

2001

Green Box Blue Box Product Specific

46.03 51.83 51.25 49.82 49.75 50.06 50.67 7.03 0.00 0.00 0.00 0.00 0.00 0.00 6.31 5.98 6.49 10.57 16.89 16.70 14.63

of which Corn 0.03 0.03 0.15 1.53 2.55 2.76 1.27 Cotton 0.03 0.00 0.47 0.93 2.35 1.05 2.81 Dairy 4.66 4.69 4.46 4.56 4.66 5.07 4.48 Peanuts 0.41 0.30 0.31 0.34 0.35 0.44 0.30 Rice 0.01 0.01 0.01 0.02 0.43 0.62 0.76 Soybeans 0.02 0.01 0.05 1.28 2.86 3.61 3.61 Sugar 1.09 0.91 1.01 1.06 1.21 1.18 1.06 Tobacco 0.00 0.02 0.01 0.01 0.92 0.52 0.00 Wheat 0.00 0.01 0.04 0.52 0.97 0.85 0.19 Non-Product Specific 1.39 1.11 0.57 4.58 7.41 7.28 6.83 AMS (notified) 6.21 5.90 6.24 10.39 16.86 16.80 14.41 Total Subsidies 60.76 58.92 58.31 64.97 74.05 74.04 72.13 Source: Indian Institute of Foreign Trade, Centre for WTO Studies, Agriculture database. Table 4.A12 Domestic Support Granted by the European Union (1995–2001) (US$ billion) Subsidies

1995– 1996– 1997– 1998– 1999– 2000– 2001– 96 97 98 99 2000 2001 02

Green Box 23.84 25.08 20.32 20.42 18.37 19.56 19.47 Blue Box 26.46 24.39 22.86 21.85 18.24 19.90 22.36 Total Product Specific 63.54 58.01 56.20 49.75 44.11 39.10 37.23 of which Common wheat Barley Maize Rye Triticale Rice Dried fodder Sugar

3.29 2.85 1.00 0.40 0.19 0.64 0.38 7.58

3.36 3.04 1.06 0.34 0.22 0.61 0.34 6.68

3.20 3.02 1.17 0.35 0.26 0.57 0.34 6.56

3.29 2.86 1.01 0.35 0.27 0.47 0.33 6.19

2.69 2.34 0.92 0.27 0.21 0.36 0.29 5.31

2.03 1.97 0.63 0.21 0.19 0.35 0.27 5.20

1.17 1.55 0.36 0.20 0.17 0.37 0.30 5.40

(Table 4.A12 continued)

114

BISWAJIT DHAR

(Table 4.A12 continued) Subsidies

1995– 1996– 1997– 1998– 1999– 2000– 2001– 96 97 98 99 2000 2001 02

Olive oil 1.75 2.12 2.54 1.92 1.91 1.85 2.52 Bananas 0.26 0.23 0.23 0.19 0.22 0.29 0.20 Skimmed milk powder 2.29 1.88 1.70 1.61 1.26 1.35 1.29 Milk 0.00 0.00 0.00 0.00 0.00 0.00 0.20 Butter 5.34 4.77 4.71 4.49 4.09 3.98 4.19 Beef 17.72 15.62 15.13 14.25 12.06 10.02 9.15 Citrus fruit for 0.00 0.00 0.17 0.12 0.16 0.12 0.20 processing Tobacco 1.32 1.14 0.97 0.97 0.91 0.86 0.90 Potatoes for 0.00 0.19 0.23 0.16 0.14 0.17 0.20 processing to starch Apples 3.20 2.38 2.18 2.04 2.02 2.01 1.94 Pears 0.94 0.67 0.68 0.59 0.56 0.56 0.51 Peaches/nectarines 0.57 0.53 0.26 0.43 0.54 0.45 0.45 Table grapes 0.48 0.25 0.26 0.24 0.20 0.19 0.20 Lemons 0.29 0.44 0.46 0.31 0.39 0.38 0.26 Clementines 0.21 0.18 0.20 0.20 0.21 0.18 0.16 Oranges 0.42 0.51 0.47 0.30 0.40 0.38 0.30 Cucumbers 0.83 0.49 0.68 0.63 0.53 0.48 0.50 Courgettes 0.00 0.28 0.18 0.19 0.15 0.14 0.16 Artichokes 0.29 0.24 0.25 0.24 0.10 0.10 0.18 Tomatoes 5.95 5.53 5.07 2.24 2.32 2.38 1.83 Wine 2.17 2.20 2.17 1.95 1.89 0.72 0.84 Seed for sowing 0.12 0.10 0.10 0.12 0.10 0.09 0.09 Cotton 0.99 0.88 0.91 0.76 0.57 0.71 0.54 Non-Product Specific 0.99 0.83 0.54 0.37 0.27 0.50 0.54 Total Subsidies 114.82 108.30 99.93 92.39 80.99 79.07 79.60 Source: Indian Institute of Foreign Trade, Centre for WTO Studies, Agriculture database. Table 4.A13 Domestic Support Granted by the European Union (1995–2001) (EUR billion) Subsidies

1995– 1996– 1997– 1998– 1999– 2000– 2001– 96 97 98 99 2000 2001 02

Green Box 18.78 22.13 18.17 19.17 19.93 21.84 20.66 Blue Box 20.85 21.52 20.44 20.50 19.79 22.22 23.73 Total Product Specific 50.06 51.19 50.25 46.69 47.87 43.66 39.50 (Table 4.A13 continued)

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

115

(Table 4.A13 continued) Subsidies

1995– 1996– 1997– 1998– 1999– 2000– 2001– 96 97 98 99 2000 2001 02

of which Common wheat 2.59 2.96 2.86 3.09 2.92 2.27 1.24 Barley 2.25 2.68 2.70 2.69 2.54 2.19 1.64 Maize 0.79 0.94 1.05 0.95 1.00 0.71 0.38 Rye 0.32 0.30 0.31 0.33 0.29 0.24 0.21 Triticale 0.15 0.20 0.23 0.25 0.23 0.21 0.18 Rice 0.51 0.54 0.51 0.44 0.39 0.39 0.40 Dried fodder 0.30 0.30 0.31 0.31 0.31 0.31 0.32 Chick-peas, lentils 0.07 0.07 0.07 0.07 0.07 0.07 0.07 and vetches Sugar 5.97 5.90 5.87 5.81 5.76 5.81 5.73 Olive oil 1.38 1.87 2.27 1.80 2.07 2.07 2.68 Bananas 0.20 0.21 0.21 0.18 0.23 0.33 0.21 Skimmed milk powder 1.81 1.66 1.52 1.51 1.37 1.51 1.37 Milk 0.00 0.00 0.00 0.00 0.00 0.00 0.21 Butter 4.21 4.21 4.21 4.21 4.44 4.44 4.44 Beef 13.96 13.79 13.53 13.38 13.09 11.19 9.71 Citrus fruit for 0.00 0.00 0.15 0.11 0.18 0.13 0.21 processing Tobacco 1.04 1.01 0.87 0.91 0.98 0.96 0.95 Potatoes for 0.00 0.17 0.20 0.15 0.15 0.18 0.21 processing to starch Apples 2.52 2.10 1.95 1.92 2.19 2.25 2.06 Pears 0.74 0.60 0.61 0.55 0.60 0.63 0.54 Peaches/nectarines 0.45 0.47 0.23 0.40 0.59 0.50 0.47 Table grapes 0.38 0.22 0.23 0.22 0.22 0.21 0.22 Lemons 0.23 0.38 0.41 0.29 0.42 0.43 0.28 Clementines 0.17 0.16 0.18 0.18 0.23 0.21 0.17 Oranges 0.33 0.45 0.42 0.28 0.43 0.42 0.32 Cucumbers 0.66 0.44 0.61 0.59 0.58 0.54 0.54 Courgettes 0.00 0.25 0.16 0.17 0.17 0.16 0.17 Artichokes 0.23 0.21 0.22 0.22 0.11 0.11 0.20 Tomatoes 4.69 4.88 4.53 2.10 2.52 2.66 1.94 Wine 1.71 1.94 1.94 1.83 2.05 0.81 0.89 Seed for sowing 0.09 0.09 0.09 0.11 0.11 0.10 0.10 Cotton 0.78 0.77 0.81 0.72 0.62 0.80 0.58 Non-Product Specific 0.78 0.73 0.49 0.35 0.29 0.56 0.57 Total Subsidies 90.46 95.57 89.35 86.71 87.88 88.29 84.46 Source: Indian Institute of Foreign Trade, Centre for WTO Studies, Agriculture database.

116

BISWAJIT DHAR Table 4.A14 De Minimis Spending by the US

Years

De minimis spending (US$ billion)

De minimis spending as % of trade distorting domestic support

1995 1996 1997 1998 1999 2000 2001

1.5 1.2 0.8 4.7 7.4 7.3 7.0

19.3 16.4 11.4 31.3 30.6 30.4 32.8

Source: Indian Institute of Foreign Trade, Centre for WTO Studies, Agriculture database. Table 4.A15 De Minimis Spending by the EC

Years

De minimis spending (EUR billion)

De minimis spending as % of trade distorting domestic support

1995 1996 1997 1998 1999 2000 2001

0.8 0.9 0.5 0.4 0.3 0.6 0.8

1.6 1.7 1.1 0.8 0.6 1.3 2.0

Source: Indian Institute of Foreign Trade, Centre for WTO Studies, Agriculture database. Table 4.A16 European Union: Outlays on Export Subsidies (in US$ million) Years Major products

1995– 1996– 1997– 1998– 1999– 96 97 98 99 2000

Incorporated products 623.7 639.5 Other milk products 924.1 827.2 Beef Meat 1,913.3 1,725.2 Sugar (5) 481.3 593.3 Butter and butteroil 325.4 623.5

613.9 839.6 933.2 864.7 344.7

607.8 804.4 681.5 842.5 302.8

661.9 833.0 668.0 432.5 306.7

2000– 01 368.5 365.0 341.1 331.7 300.7

(Table 4.A16 continued)

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

117

(Table 4.A16 continued) Years Major products

1995– 1996– 1997– 1998– 1999– 96 97 98 99 2000

2000– 01

Cheese 555.8 306.6 195.4 158.0 216.9 211.8 Coarse grains 385.3 439.6 303.3 809.9 671.8 170.4 Wheat and wheat flour 150.7 358.8 197.2 530.3 468.6 96.4 Alcohol 65.0 133.9 117.1 128.5 201.1 85.1 Poultry meat 147.2 82.5 84.5 95.1 69.1 50.6 Pigmeat 127.6 80.3 82.6 377.5 223.6 30.1 Rice 38.5 81.6 36.2 27.1 24.3 28.7 Fresh fruit and vegetables 89.4 69.8 28.9 33.5 34.2 24.0 Skim milk powder 178.9 192.2 129.2 203.2 310.8 23.3 Total 6,203.8 6,288.5 4,841.0 5,656.4 5,164.6 2,459.2 Source: Indian Institute of Foreign Trade, Centre for WTO Studies, Agriculture database. Table 4.A17 United States: Outlays on Export Subsidies (in US$ ’000) Years Major products

1995 1996

1997

1998

1999

2000

Poultry meat 5.2 0.0 862.5 1,399.8 1,643.5 6,823.3 Skim milk powder 16.8 93.8 88,798.4 133,284.3 45,333.0 6,727.5 Cheese 2.1 2.5 3,905.2 4,164.2 5,564.4 1,760.7 Total 27.6 123.5 112,229.2 146,709.9 80,165.6 15,313.5 Source: Indian Institute of Foreign Trade, Centre for WTO Studies, Agriculture database. Table 4.A18 Food Aid Provided by the US and the European Union (in tonnes) United States Description of products Wheat Coarse grains Rice Vegetable oils Skim milk powder

Years 1995

1996

1997

1998

1999

2000

1,531.3 1,449.1 1,075.2 3,202.2 5,315.1 2,364.7 73.6 129.5 116.2 111.7 78.2 45.3 149.7 188.5 111.3 382.7 935.6 303.3 173.6 175.1 157.3 0.0 1,440.4 365.3 3.4 0.0 0.0 0.0 260.6 24.2 (Table 4.A18 continued)

118

BISWAJIT DHAR

(Table 4.A18 continued) European Union Years Description of products Wheat and wheat flour Coarse grains Rice

1995– 96

1996– 97

1997– 98

1998– 1999– 2000– 99 2000 2001

1,536.9 775.6 (wheat (wheat eq.) eq.) 285.3 205.0 91.8 42.5 (July 95 June 96)

711.1 (wheat eq.) 215.5 110.2

630.8 1,186.1 436.4

136.5 63.5

119.3 125.5

44.8 21.2

Source: Indian Institute of Foreign Trade, Centre for WTO Studies, Agriculture database. Table 4.A19 Agricultural Export and Food Aid Programmes of the United States (1995–2002) (US$ million) Programmes

2001 2002 1995 1996 1997 1998 1999 2000 (Est.) (Budget)

Export 339 5 0 2 1 2 478 478 Enhancement Programme Dairy Export 140 20 121 110 145 77 34 42 Incentive Market Access 110 90 90 90 90 90 90 90 Programme Foreign Market — — — — 28 28 28 28 Devp. Programme CCC Export Credit 2,921 3,230 3,876 4,037 3,045 3,082 3,792 3,904 Guarantees P.L. 480 Food 1,286 1,207 1,054 1,154 1,796 1,076 1,107 995 Aid Section 416(b) 4 84 2 0.5 428 504 565 — Food for Progress 146 84 91 111 101 121 94 94 Foreign Agricultural 159 167 191 181 178 200 183 207 Service Total 5,105 4,887 4,425 5,790 6,271 5,310 6,390 5,838 Source: Hanrahan (2001), Agricultural Export and Food Aid Programmes, Congressional Research Service Issue Brief, The National Council for Science and Environment, Washington.

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

119

Table 4.A20 MFN Bound Tariffs for Agricultural Products for OECD Countries (in %) Countries Australia Canada Czech Rep. European Union Hungary Iceland Japan Korea, Republic Mexico New Zealand Norway Poland Slovak Rep. Switzerland Turkey United States Average

Binding coverage

Simple average

Maximum ad valorem

Duty free

Non ad valorem

100 100 100 100 100 100 100 99.1 100 100 100 99.9 100 100 100 100 99.9

3.2 3.5 10 5.8 27 43.4 6.9 52.9 35.1 5.7 1.2 32.9 10 0 60.2 6.9 19.0

29 238.3 125 74.9 127.5 229 61.9 887.4 72 35.2 25.5 230 125 0 225 350 177.2

32.2 41.8 38.7 26.7 7.7 18.6 28.7 2.2 0.3 51.3 21.4 2.3 38.7 17.4 0 28.7 22.3

2.1 26 0 40.8 0 24.5 22.7 4.7 7.5 0.7 75.2 36.5 0 82.6 0 49.6 23.3

Source: WTO (2003d), pp. 196–217. Table 4.A21 MFN Applied Tariffs for Agricultural Products for OECD Countries (in %) Countries

Year

Australia Canada Czech Rep. European Union Hungary Iceland Japan Korea, Republic Mexico New Zealand Norway Poland Slovak Rep. Switzerland Turkey United States Average

2001 2001 2001 2002 2001 2000 2001 2001 2001 1999 2002 2001 2001 2001 2001 2001

Simple average

Maximum ad valorem

1.1 3 10 5.9 25.8 7 7.1 45.5 23.4 1.7 8.4 41.9 9.9 0 42.2 4.7 14.9

5 238 125 74.9 127.5 78 50 917 260 7 555 676.7 125 0 232.5 350 238.9

Source: WTO (2003d), pp. 196–217.

Duty-free Non ad lines (%) valorem 76.5 49.8 38.8 25.8 8.6 57.8 29.2 1.9 2.1 66.9 26.9 3 38.8 18.9 14.3 28.5 30.5

0.7 19.9 0 39.9 0 21.1 23.2 3.1 5.6 0.3 70.3 26 0 81.1 8.1 1.8 18.8

120

BISWAJIT DHAR Table 4.A22 MFN Bound Tariffs for Agricultural Products (figures in %)

Countries

Binding coverage (%)

Simple average

Maximum ad valorem

100.0 100.0 100.0 100.0 100.0 99.7 100.0

32.6 35.5 15.8 114.5 35.1 39.8 45.6

35.0 55.0 65.0 300.0 72.0 597.0 187.3

Argentina Brazil China India Mexico South Africa Average

Duty-free Non ad tariff lines valorem 0.1 2.2 2.8 0.0 0.3 22.4 4.6

0.0 0.0 0.0 0.3 7.5 0.0 1.3

Source: WTO (2003d), pp. 196–217. Table 4.A23 MFN Applied Tariffs for Agricultural Products (figures in %) Countries

Year

Argentina Brazil China India Mexico South Africa Average

2001 2001 2002 2001 2001 2001

Simple average

Maximum ad valorem

Duty-free tariff lines

Non ad valorem

12.3 12.5 19.2 37.0 23.4 8.7 18.9

22.5 55.0 71.0 210.0 260.0 55.0 112.3

3.0 3.0 2.5 2.6 2.1 42.4 9.3

0.0 0.0 0.6 0.3 5.6 13.3 3.3

Source: WTO (2003d), pp. 196–217. Table 4.A24 Use of Non Ad Valorem Tariffs by Select WTO Members

WTO Member Australia Canada Egypt EC(15) Iceland India Japan Korea, Republic of Malaysia

Total no. of tariff lines in agriculture

No. of non ad valorem tariff lines

% of non ad valorem tariff lines

725 1,341 823 2,205 1,604 697 1,344 1,500 1,320

14 404 14 1,010 363 2 247 68 346

1.9 30.1 1.7 45.8 22.6 0.3 18.4 4.5 26.2

(Table 4.A24 continued)

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION

121

(Table 4.A24 continued)

WTO Member

Total no. of tariff lines in agriculture

No. of non ad valorem tariff lines

% of non ad valorem tariff lines

Mexico New Zealand Norway Switzerland Thailand United States

1,083 1,004 1,060 2,179 774 1,777

83 10 722 1,940 339 755

7.7 1.0 68.1 89.0 43.8 42.5

Source: WTO (2004). Table 4.A25 Simple Average Fill Rates of Tariff Quotas (1995–2000) Principal administration method

Simple average fill rates (%) 1995

Applied tariffs 71 First-come, first-served 56 Licences on demand 59 Auctioning 30 Historical importers 91 Imports by state trading 81 enterprises Producer groups/ 74 associations Other 37 Mixed allocation methods 75 Non-specified 100 Overall 66

1996

1997

1998

1999

2000

65 61 57 38 81 83

65 47 55 60 76 90

71 51 54 39 71 91

70 63 52 24 65 100

67 n.a. 40 n.a. 44 n.a.

53

85

78

n.a.

n.a.

38 84 44 63

39 85 57 62

45 84 44 63

44 74 41 62

94 100 n.a. 44

Source: WTO (2001b). Note: Fill rates are calculated for 1,033, 1,081, 1,166, 1,134, 827 and 136 tariff quotas in the respective years 1995–2000.

NOTES ∗The views expressed are personal. 1. See for instance, Brandao and Martin (1993). 2. Quantitative restrictions in India covered over 2,714 commodities, out of which nearly 800 were from the agricultural sector.

122

BISWAJIT DHAR

3. WTO, ‘Understanding on the Balance-of-Payments Provisions of the General Agreement on Tariffs and Trade 1994’ (available at http://www.wto.org/english/ docs_e/legal_e/09-bops_e.htm) 4. Under Section 11(2), the reasons for such a prohibition include, inter alia, security, public order, morality, prevention of smuggling and the conservation of foreign exchange and safeguarding the balance-of-payments (Government of India, Customs Act, 1962), GoI Press. 5. WTO (1998: 55). 6. Prominent among the products on which tariff bindings were increased are maize (2 tariff lines), rice (4 tariff lines), rape/mustard oil (2 tariff lines) and milk powder (2 tariff lines). Among the products whose tariff bindings were lowered are a range of fruits and olive oil. 7. WTO (2002: 28). 8. The quotas are placed at the disposal of the Agricultural and Processed Food Products Export Development Authority (APEDA) and are currently allocated to state trading companies, including the National Agricultural Cooperative Marketing Federation (NAFED), Minerals and Metals Trading Corporation (MMTC), State Trading Corporation (STC), the Project and Equipment Corporation (PEC) and State Cooperative Marketing Federations. 9. Government of India (GoI) (2002). 10. The ‘Green Box’ subsidies, particularly those that have been directed towards strengthening the rural infrastructure could not have come at a better time since the share of agriculture in the country’s gross capital formation had reached the historically low level of 7 per cent in the late 1990s. 11. These subsidies form a part of Articles 9.1(d) and (e). 12. The data used in this chapter relate to the 15 countries that were Members of the EU prior to the enlargement of the Union that took place on 1 May 2004. 13. The decrease was steeper in dollar terms because of depreciation of the Euro. In terms of the Euro, the European Communities reduced their domestic by a mere 3 per cent between 1995 and 1999. 14. Article 6 of the AoA provides that WTO Members shall not be required to include in the calculation of its Current Total AMS and shall not be required to reduce product and non-product specific domestic support which does not exceed 5 per cent of that Member’s total value of production of a basic agricultural product during the relevant year. 15. In terms of US dollars, the increase in product specific support for corn was from US$ 32 million in 1995 to US$ 2.8 billion in 2000, while in case of soybeans the corresponding figures were US$ 16 million and US$ 3.6 billion in 2001. 16. In two of these products, viz., wheat and butter, the product specific support went up in terms of the Euros. 17. See for instance WTO (2000a). 18. See Huff and Jimenez (2003), and Barrett and Maxwell (2004). 19. Oxfam (2003). 20. OECD (2001).

PROSPECTS OF AGRICULTURAL TRADE LIBERALISATION 21. 22. 23. 24. 25. 26. 27. 28.

29. 30. 31. 32. 33.

123

Tariff bindings were taken for the exercise. For details see Gibson et al. (2001). UNCTAD (1999). Gibson et al. (2001). See for instance Indonesia’s statement to the Committee on Agriculture, WTO (2000b). In 2002, Thailand’s fill rate in case of rice was 0.2 per cent. WTO (2001b), paragraph 13. See Annex I. for details. This mandate was given at the conclusion of the Montreal WTO mini-ministerial meeting in late July 2003, to the two trading partners to work out a joint paper on agriculture. For details see, European Commission (2003). WTO (2003a). WTO (2003b). Support for the SPs and the SSM was lent by the G-33. WTO (2005), paragraph 7. Ibid.

REFERENCES AND SELECT BIBLIOGRAPHY Barrett, C.B. and D.G. Maxwell. 2004. Food Aid after Fifty Years: Recasting its Role. London: Routledge. Available at http://aem.cornell.edu/faculty_sites/cbb2// foodaid.htm Brandao, A. and W. Martin. 1993. ‘Implications of Agricultural Trade Liberalisation for Developing Countries’, World Bank Working Paper, No. WPS 11/6. European Commission. 2003. ‘Background Brief EU–US Paper on Agriculture’. Brussels. Available at http://europa.eu.int/comm/agriculture/external/wto/ document/brief_en.pdf FAO. 2003. ‘WTO Agreement on Agriculture: The Implementation Experience— Developing Country Case Studies’. Rome. Gibson, Paul, John Wainio, Daniel Whitley and Mary Bohman. 2001. Profiles of Tariffs in Global Agricultural Markets. Agricultural Economic Report No. 796, Market and Trade Economics Division, Economic Research Service, US Department of Agriculture. Goreux, Louis. 2003. ‘Reforming the Cotton Sector in Sub-Saharan Africa’, Africa Region Working Paper Series No. 62, World Bank, November. Government of India (GoI). 2002. Public Notice No. 38/2002–2007, 4 October, Ministry of Commerce and Industry. ———. 2006. ‘Agriculture Statistics at a Glance 2006’, Ministry of Agriculture, Department of Agriculture and Cooperation. New Delhi: Government of India. Hanrahan, Charles E. 2001. ‘Agricultural Export and Food Aid Programs’, Congressional Research Service Issue Brief, The National Council for Science and Environment, Washington.

124

BISWAJIT DHAR

Huff, Bruce and Michelle Jimenez. 2003. ‘The Food Aid Convention: Past Performance and Future Role within the new Global Trade and Development Environment’, Paper presented at the International Conference ‘Agricultural Policy Reform and the WTO: Where are we heading?’ Capri (Italy), 23–26 June. Available at http://www.ecostat.unical.it/2003agtradeconf/Contributed%20papers/ Huff%20and%20Jimenez.PDF OECD. 2001. ‘The Uruguay Round Agreement on Agriculture: An evaluation of its implementation in OECD countries’. Paris. Oxfam. 2002. ‘Cultivating Poverty: The Impact of US Cotton Subsidies on Africa’, Briefing Paper #30. ———. 2003. ‘US Export Credits: Denials and Double Standards’, Oxfam America Briefing Note. Available at http://www.oxfamamerica.org/newsandpublications/ publications/briefing_papers/art4894.htm UNCTAD. 1999. ‘Examining trade in the agricultural sector, with a view to expanding the agricultural exports of the developing countries, and to assisting them in better understanding the issues at stake in the upcoming agricultural negotiations’, Background Note by the UNCTAD Secretariat (TD/B/COM.1/ EM.8/2). WTO. 1998. Trade Policy Review: India. Report by the Secretariat (WT/TPR/S/33). ——— 2000a. Committee on Agriculture. ‘Export subsidies—food security or food dependency?’ Discussion paper presented by Argentina, Brazil, Paraguay and Uruguay (MERCOSUR), Chile, Bolivia and Costa Rica (G/AG/NG/W/38). ———. 2000b. Committee on Agriculture. Fourth Special Session of the Committee on Agriculture 15–17 November 2000: Statement by Indonesia (G/AG/NG/ W/71). ———. 2001a. ‘Tariff Quota Administration Methods And Tariff Quota Fill’. Background Paper by the Secretariat, May. ———. 2001b. ‘Ministerial Declaration: Adopted on 14 November 2001’. WT/ MIN(01)/DEC/1. November. ———. 2002. Trade Policy Review: India. Report by the Secretariat (WT/TPR/ S/100). ———. 2003a. Joint EC–US Paper. Agriculture (JOB(03)/157). ———. 2003b. ‘Agriculture—Framework Proposal: Joint Proposal’ by Argentina, Brazil, Bolivia, China, Chile, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, India, Mexico, Pakistan, Paraguay, Peru, the Philippines, South Africa, Thailand and Venezuela (JOB(03)/162/Rev.1). ———. 2003d. World Trade Report 2003. Geneva. ———. 2004. Committee on Agriculture. Calculation of Ad Valorem Equivalents (Aves): Data Requirements and Availability. Note by the Secretariat (TN/AG/ S/11). ———. 2005. Ministerial Declaration: Adopted on 18 December 2005. WT/MIN(05)/ DEC, December.

Chapter 5 The Political Economy of NAMA A Note T C A SRINIVASA-RAGHAVAN

INTRODUCTION

D

eveloping countries have, more often than not, tended to believe that if they unite they can resist the developed countries’ demands in trade negotiations. But two factors have prevented this from happening. One, of course, is the old game of divide and rule whereby the unity of the developing countries has always been under threat. The other is simply that some developing countries, if not becoming developed themselves, have developed complementarities and congruencies with the economies of the developed countries. This also threatens their unity. The result is that the developed countries have usually been able to introduce new areas for negotiation that enable them to pursue their interests while sowing confusion in the ranks of the developing countries. The latest such move came when the first post-Uruguay Round of trade negotiations began at Doha. This round has been labelled the Doha Development Agenda (DDA). Its main focus area has been agriculture. This is so for a very understandable reason. While an overwhelming majority of the populations of the

126

T C A SRINIVASA-RAGHAVAN

developing countries are farmers, in contrast to the 3–5 per cent of the developed countries, the markets of the latter are more-orless closed to the former. So the developing countries have been demanding that the asymmetry between openness for industrial goods and agriculture be removed. The developed countries stood their ground for as long as it was possible but, when it became clear that the Doha Round would collapse if they did not give in, or appeared to give in, they came up with NAMA or non-agricultural market access. In a nutshell, what the developed countries mean by NAMA is that if you want access for agriculture, you had better give access to our industry. The economic reason: these products account for 90 per cent of global merchandise exports. Or, as the World Trade Organization (WTO) website puts it, ‘NAMA refers to all products not covered by the Agreement on Agriculture.’ The point being made by the developed countries was that they were not satisfied with what the previous rounds of negotiation had produced by way of industrial products’ market access into developing countries. They said tariffs were a nuisance (the jargon is important barrier to world trade) because not only were they not uniform, but they were also unpredictable. In theory, this covers things like fuel, mining products, or even fish and fish products, and forestry products. In reality, it means just industrial or manufactured goods. It needs to be borne in mind here that it is not as if the market access for industrial products has not been improving over the years. It has, and that too for the last half-century. Also, the Uruguay Round went further than the previous rounds for NAMA products. As the WTO∗ says: Tariff averages were reduced from 6.3 per cent to 3.8 per cent (and) in the case of developing countries, the most important contribution was made in the form of new tariff bindings. Binding coverage for NAMA products in developing countries increased from 21 per cent to 73 per cent, which has considerably increased the predictability of trade. The question is for whom or, rather, who has benefited more from this?

THE POLITICAL ECONOMY OF NAMA

127

Tariff binding, meanwhile, is an interesting concept in itself. It is the maximum tariff that a member can apply. The rates can be varied, of course, because that is a matter of sovereign right. But, as the Rajas and Maharajas discovered during the days of the Raj, compensation must be paid to those who are affected. The freedom is, therefore, quite illusory and abridges sovereignty. Nor is this the only reason why the notion of tariff bindings is a sleight of hand. The other reason is that though the applied tariff, that is, the customs duty actually imposed, cannot only be lower than the bound rate, it is almost invariably so. The whole argument is about this difference in what has been ‘bound’ and what is actually levied. And this gap is significant in developing countries. In an attempt to make trade jargon user-friendly, it has been dubbed ‘water’ or, more forbiddingly, ‘binding overhang’. Once the developed countries got this idea accepted—as one can see, for no good economic reason—the high preference for predictability in trade rules led inevitably to the idea of a formula. This formula would, in effect, determine the maximum tariff that countries would be allowed to impose. As the WTO∗ put it: A formula approach provides transparency (every member will know how the other will reduce its tariffs), efficiency (simpler process than request/offer approach), equity (tariff reduction depends on rules rather then ‘bargaining power’), predictability (easy to foresee the results of the negotiations). But having agreed to a formula-based approach, the developing countries, whose economies are highly heterogeneous, complained that the formula could not be applied uniformly to all countries. So a method to make it flexibly applicable was devised. The idea was to stretch out the time over which the new rule came into being. So, according to the WTO∗ in July 2004, everyone agreed that: Developing countries would enjoy longer implementation periods for their tariff reductions; and choose between: (1) less than formula cuts for up to [10 per cent] of their tariff lines

128

T C A SRINIVASA-RAGHAVAN

representing up to [10 per cent] of their import value; or (2) not apply formula cuts, or leave unbound tariff lines, for up to [5 per cent] of their tariff lines representing up to [5 per cent] of their import value. The least-developed country participants were exempted from all this. There were some other provisions for special and differential treatment as well. But while all this was very well, there was the issue of non-tariff barriers as well. There is no universally agreed upon definition; it is like the beast that no one can define but everyone can recognise. Broadly, ‘it refers to any measure other than a tariff which protects domestic industry’. The WTO∗ has an interesting position on this: Many non-tariff measures are based on a legitimate goal (such as the protection of human health) and can be introduced in a WTO consistent manner. Agreements such as the SPS and TBT aim at allowing governments to take due care of these legitimate goals while minimizing the impact on trade and avoiding the temptation to use them as disguised protectionism. A little reflection will show how this discriminates against imports of agri-products into the developed countries. Not just that: the only way to solve the problem is bilaterally. Bargaining power has thus become important once again in the one area that would help the developing countries. Rules or no rules, it is relative strength that has been brought back. So the question is often asked whether NAMA helps the developing countries. The WTO∗ is at pains to explain that it does: As a result of the formula, tariff peaks, high tariffs and tariff escalation will diminish or disappear altogether. Consequently, market access opportunities will open up both in the markets of developed members, but also of other developing members. Such access will be further improved through the sectoral initiatives, which will be implemented on an Most Favoured Nation (MFN) basis by those members joining such initiatives.

THE POLITICAL ECONOMY OF NAMA

129

But the proof of the pudding is the eating of it. We have to wait and see what actually happens. The issue has moved from whether a developing country can keep its tariffs at levels it wants, to what is the highest that the developed countries are willing to accept. This is what is called bindings. You get bound at a rate that is acceptable to the developed countries. What’s more, there is a formula to bind yourself with.

THE NAMA FORMULAE There is a vast amount of literature on this. Much of it springs from questions about how to interpret Paragraph 14 of the Hong Kong Ministerial Declaration (HKMD). That paragraph talked about a formula for tariff reduction and about ‘coefficients’. The most favoured formula is the one based on the so-called ‘Swiss Coefficients’. Everything depends on what these coefficients will be. This is because of the principle of less-than-full-reciprocity (LTFR) which would ensure that developing countries cut their tariffs less than the developed countries do. The lower it is, the less will be the room for manoeuvre as the cuts will have to be larger. This is because the final duty ‘F’ is calculated by dividing the product of the bound rate and the coefficient by the sum of the applied rate and the coefficient. But, as with all coefficients, which by definition have to be arbitrary, there is no mathematical reasoning behind this one at least. So the Swiss Formula looks as if it has simply been worked out backwards. After all, a coefficient is merely a number that is put before some variable. Indeed, that is why everyone is now arguing about this number rather than the variables that need to be multiplied by it. As attention-diverters go, Paragraph 14 would be a prize-winner. But now that it is there, India should probably consider making its own offer on the coefficient. Most experts expect it to be somewhere between 10 and 20, mainly because the US and EU think they can live with a ‘coefficient’ of 10 while offering 15 to the developing ones, who of course want at least 25. The argument,

130

T C A SRINIVASA-RAGHAVAN

as we said earlier, is that the lower the average tariffs, the greater would be the cuts and this will help the developing countries. It is worth noting here that there will be two coefficients, which is a plus but if the difference between them is small, the benefits may not be very much. Everyone wants the others to make the deepest cuts and a formula that entails deeper cuts by the developing countries than by the developed ones may not be acceptable. Worst of all, the developed countries are trying to keep certain products out of NAMA such as textiles. Clearly, what is sauce for the goose is not sauce for the gander. On balance, therefore, this seems a rather nonsensical way of doing things because it depends on the difference between the coefficient that is applied to the developing and developed countries. This difference might sound workable on average bases, but when it comes to specific products, it is the politics of that product that will determine the outcome. And trade, as very senior WTO official said at a private meeting, is primarily about politics, not economics. If the politics fails as a result of the formula, it will be worthless.

INDIA AND NAMA The Indian situation in respect of NAMA is quite straightforward. India has a peak import duty of 10 per cent but that said, two things have to be kept in mind. One, there are still many products with very high duties, and two, its trade weighted tariff bindings are far higher, no one quite knows exactly how much. On agricultural products, the average rate India applies is around 40 per cent while bound rate is nearly three times as much, 115 per cent. In other words, there is a lot of ‘water’ in both sectors. The question now is not whether India will or should agree to reduce this. It will, as there is consensus in the country that low tariffs and hence more trade help, not hinder, growth. The question is how it uses the water to negotiate. India has to get what it wants from the others, most notably the developed

THE POLITICAL ECONOMY OF NAMA

131

countries which have clearly stated that if India wants access for its agricultural products, it must give access for their industrial products. So negotiating room is vital. This is where the ‘formula’ becomes important as it will determine the elbow room that countries have. On agriculture, at present, everyone is getting around to accept the so-called G-20 formula. If this comes into force, India’s bound tariffs could come down to around 65–75 per cent. There could still be huge variations on specific products such as edible oils where the new formula might see a bound rate of around 200 per cent. In other products also, Indian farmers will be well protected. In any case, there are provisions for special measures when imports begin to threaten livelihoods in a big way. Besides, Indian farmers are in distress mainly because of the failure of domestic reform. As far as NAMA is concerned, India has considerably softened its stand since the initial days. In 2002, India had argued that it wanted the approach to be of cutting duties on each product by a certain percentage. Then in 2005, it lent its support to a formula based on the Swiss Formula. This formulation was supported by Argentina and Brazil and was known as the Argentina-BrazilIndia (ABI) formula. Now it is coming round to the Swiss formula (but with two coefficients) and arguing about the coefficients, rather than the whole formula. It has also changed its approach to unbound tariffs. In that sense, the developed countries have breached the unity of the developing countries. Without being polemical about it, we need to ask: what has India gained by agreeing to modify its stance? This is a rather tricky issue because what happens eventually cannot be predicted with even the slightest degree of accuracy now. After all, in the late 1980s, only a few predicted India’s ascendance as a service providing economy. But one thing seems certain: fears that this will lead to the de-industrialisation of the developing countries are exaggerated. Where the idea of removing barriers to trade in ‘products of special interest to developing countries’ is concerned—in the

132

T C A SRINIVASA-RAGHAVAN

case of India, apparel and leather goods, to name just two—it has gained nothing. However, the Swiss Formula will result in deep cuts in developed-country tariffs in these broad areas. Product specific cuts, however, are a different matter altogether. For example, as stated earlier, the developed countries are trying to keep textiles out. No progress has been made in respect of nontariff barriers, either. The Doha mandate had allowed countries to keep items that were politically sensitive from being subject to tariff cuts. As one peels the onion, it becomes evident that India has managed to retain this freedom but it is the only freedom it has retained. Only time will tell if this is good or bad. On balance, however, given India’s record in tariff cutting and offering tariff bindings unilaterally, and the consequent (largely) beneficial impact on the economy’s cost competitiveness, it would appear that India believes in generally low tariffs. In that sense, it has little to lose. There remains, however, the issue of trade-offs. In the context of NAMA, the most important is the coefficient it agrees to and what it gets in return for agreeing to a lower rather than a higher coefficient. There has been a temptation leading to policy and, therefore, to concerted efforts, to get concessions on agriculture. This is based on the assumption that India will be major exporter of agri-products. But is this assumption correct? This writer is of the view that it is not. Sustained and high economic growth will lead to the higher per capita incomes and Engel’s law will come into play. The resulting higher demand for food—the entire demand curve is shifting upwards—is unlikely to be met from domestic supply because of well-known policy and institutional reasons. Overall, and to conclude, the likelihood is greater that India will be a major importer of food rather than an exporter. This means it has more to gain from the subsidies of the developed countries as these keep export prices low. In other words, before India decides one way or another, it will have to come to a conclusion on whether it will turn into a sustained importer of food. It is worrying that this issue is not being examined and, instead,

THE POLITICAL ECONOMY OF NAMA

133

policy and negotiations are proceeding on the basis that India will be a major exporter of agri-products. The recent record suggests otherwise.

NOTE ∗All quotes in the chapter are sourced from: A simple guide to NAMA Negotiations, WTO, http://www.wto.org/english/tratop_e/markacc_e/nama_negotiations_e.htm

Chapter 6 Indian Textile and Clothing Industry Economic Policy Reform Experience During ‘ATC’ Period SAMAR VERMA

INTRODUCTION

I

n a significant sense, during the second half of the 20th century, the Indian domestic policy regime did to its domestic industry what the international policy regime did to global textile and clothing industry. Operating at different levels, both created structural impediments, thwarted healthy competition, stunted competitive players, and tried to artificially support or create those that were uncompetitive. One of the outcomes of both regimes was a sector characterised by fragmentation, and production and trading capacities created by access to quotas rather than competitive sinews. Interestingly, the comparison does not cease to exist with demise of Multi Fibre Arrangement (MFA). Just when the MFA successor, the Agreement on Textiles and Clothing (ATC), began to unwind the impact of the quota system from 1995, reforms in India’s domestic policy— roughly coinciding with the ATC timeframe—too began to take place. Decades of archaic policies causing structural constraints

INDIAN TEXTILE AND CLOTHING INDUSTRY

135

have been reformed, with the result that the sector—both at global and national levels—has begun to experience healthier competition, and market shares are no longer a function of policy-determined quotas, but depend more on factors of competitiveness. Unfortunately, however, the comparison ceases here. While the Indian textile and clothing industry has witnessed unprecedented domestic policy reforms in the last decade, with the result that the constraining, textile-specific policies have now all been nearly reformed, this has not been so in the international sphere. The world’s largest consumer markets—US and EU—are seeking innovative policy instruments to prevent their consumers from making the most cost-effective choice on the one hand, while continuing to artificially prop up their uncompetitive domestic industry on the other. Peak tariffs, tariff escalation, arbitrary use of rules of origin, and a wide variety of measures, generically called non-tariff barriers (NTBs), are few such policy measures that are being widely deployed to serve the same purpose that underlay the system of quotas under the MFA.

INDIAN TEXTILE AND CLOTHING INDUSTRY Overview India’s textile industry is crucial to the Indian economy. It contributes about 3 per cent to the Gross Domestic Product (GDP), accounts for over 14 per cent of total industrial production, generates 8 per cent of the central excise revenue, and contributes around 24 per cent of total exports. The sector is the second largest employment provider after agriculture, employing over 38 million people directly and another 50 million indirectly. The fortune of one out of every six households in the country is linked to the progress and well-being of this sector. For an overview of the sector, see Table 6.A1. The Indian government’s interventions since the country’s independence have resulted in freezing the capacity in the organised

136

SAMAR VERMA

sector and scuttling economic incentives for modernisation. The structure of the textile and clothing industry, as it has evolved in the last half century, is primarily a response to government policies marked by ad hocism, fragmented vision and political opportunism. Indian entrepreneurs have done a commendable job in the cotton segments that they have chosen to export— mainly low-value cotton casual wear. If they have refrained from exporting high-value regular wear, or man-made fibre (MMF) based products, it is mainly because of the constraints imposed by domestic policies, which ranged from promoting anti-export bias to a lopsided fiscal policy, full of exemptions and exceptions.

Impact of the WTO So what have been the changes in domestic policy regime and business practices in India in the last decade and to what extent has the World Trade Organization (WTO) been responsible for bringing about these changes? As a matter of fact, and to be fair, reforms in textile industry in India predate the coming into force of the WTO. Some policy reforms did take place in the late 1980s, specially in the spinning sector, and these changes have indeed been—to a significant extent—responsible for the rapid growth of yarn production and exports from the export-oriented units in India, specially in the early 1990s. In the Uruguay Round, India agreed to eliminate Quantitative Restrictions (QRs) on imports of all products (save select few for balance of payment [BoP] reasons) as well as reduce and bind tariffs on several products. While India chose to remove QRs on imports of most products with economic reform in 1991, it maintained them on 2,134 items (8/10 digit Harmonised System of classification), of which 1,589 were on account of BoP reasons. Following a successful challenge by the US at the WTO (and not due to India’s obligations under the WTO), QRs on 1,429 items— covering almost all textile items—were removed by 1 April 2001. India committed to binding its import-weighted average tariffs in textile and clothing (Ch XI) at 64.3 per cent, compared to

INDIAN TEXTILE AND CLOTHING INDUSTRY

137

94.1 per cent prevailing in the ATC base period [1 September 1986 to 1 January 1990]. India’s applied rate, however, in 1995– 96 was lower than the bound rate, at 57.8 per cent.1 This has indeed been the case for the entire ATC period. Clearly, therefore, in the case of tariffs, India has paced ahead with unilateral liberalisation at a much faster rate than that committed at the WTO. These liberalisation initiatives have had an impact on the industry in terms of changes in productivity, lowering antiexport bias, and so on, and they have not been mandated by the WTO commitments.

Impact on imports Contrary to widespread fears of sharp rise in imports following removal of QRs, the imports of these items did not grow at a rate much faster than the growth rate of aggregate imports during 2001–02 and 2003–04.2 Total textile and clothing imports grew at a Compound Annual Growth Rate (CAGR) of 7 per cent during 2002–03 and 2004–05, compared to 17 per cent for the total imports. Consequently, the share of textile and clothing in total Indian imports declined from 2.68 per cent to 2.02 per cent between 2002–03 and 2004–05. The biggest increase in imports happened in cotton yarn and fabric (26 per cent CAGR). Interestingly, import of textiles and clothing grew at a faster rate during India’s Ninth Five Year Plan (FYP) (1997–98 to 2001–02). Total textile and clothing imports grew at a CAGR of 19 per cent, compared to total Indian imports of 10 per cent during the period. Consequently, share of textile imports in India’s total imports grew from 1.99 per cent to 2.99 per cent in the period. Clearly, the growth rate in import of textiles has been significantly lower in the first three years of the Tenth FYP, compared to the entire Ninth FYP (second half of 1990s).3 The biggest increase took place in cotton fibre (91 per cent) and raw silk (23 per cent). Such unprecedented increase in raw cotton imports—after an average annual decline in growth rate of 4 per cent during the entire Ninth FYP—was because cotton imports were placed under

138

SAMAR VERMA

Open General Licence (OGL) in 1994. Subsequently, to check massive imports, specially in 1999–2000 to 2001–02, an import duty of 5.5 per cent was levied from 1 September 1999, which was then raised to 10 per cent in January 2002. The CAGR of import of cotton textile during ninth FYP was higher (29 per cent) compared to during 2002–03 to 2004–05 at 26 per cent. (See Tables 6.A2[a] and 6.A2[b]). In terms of impact on exports, the impetus has come more from the fact of the promise of increased export opportunities into the world’s largest consumer markets (US and EU) and, consequently, a slew of domestic policy reforms that were strongly ‘felt needed’ by the industry and policy-makers to enable India to take advantage of the ATC promise of improved export opportunities. It is worth noting that the export opportunities have been ‘limited’ during the ATC period too, even though the quota growth rates in the last 10 years have been more predictable and liberal than during MFA period. It may be worthwhile to highlight some of the key policy changes that have taken place in the sector in recent times.

Domestic policy reforms during ATC period The critical need for the far-reaching reforms in the industry that have taken place specially in the last five years can be underlined by the simple fact that the share of Indian textile and clothing industry in world trade has declined from 11 per cent in 1950 to just over 3 per cent now.4 The world trade in textiles and clothing has grown all along this period at a CAGR exceeding 5 per cent.5 Clearly, therefore, there has been something wrong with our domestic policies and business practices. In the last decade, there have been several policy measures to address the structural issues in the industry. For analytical purposes, they could be divided into textile-specific and economy-wide reforms.6 The central government—albeit lately and late—has brought about fundamental reforms in the textile sector. Evidently, and as has been stated as a preamble to every

INDIAN TEXTILE AND CLOTHING INDUSTRY

139

reform announcement, these measures have been directed to ensure that the industry is better prepared to take advantage of the quota-free global textile and clothing trade from 2005. In that sense, certainly, most of these reforms have been triggered—as opposed to mandated—by the new trading system that ATC promised to herald.

Policy reforms during ATC period 1. Hundred per cent Foreign Direct Investment (FDI)/Non Resident Indian (NRI)/Overseas Corporate Bodies (OCB) investment has been allowed in the textile sector under the automatic route. FDI inflow in the textile sector was Rs 3.6 billion in 2004–05 against Rs 1.96 billion in the previous fiscal year. Between April 2005 and February 2006, it increased to Rs 5.96 billion. 2. Import duty on textile and apparel have been reduced, though the Indian import tariffs in this industry are still among the highest in the world, ranging between 25 and 40 per cent.7 With quota now abolished, the global attention has turned towards tariffs in this industry, as witnessed in the recent WTO Non-Agricultural Market Access (NAMA) negotiations, when India came under tremendous pressure to accept a tariff cutting formula coefficient that would effectively cap its peak tariffs to around 30 per cent. India, rightly, seems to be using this as an opportunity to minimise the threat from proliferating regional trading arrangements by using ‘reduction in import tariffs’ as a bargaining tool to get MFN tariff rates (specially peak rates) in US and EU negotiated downwards as a reciprocal measure. That would significantly reduce the adverse tariff impact of Preferential Trade Arrangements (PTAs) on India vis-à-vis the PTA member countries of US/EU. 3. Rationalisation of excise duty structure could be argued as a fundamental reform that was long overdue, and has widespread ramifications. Numerous studies in the 1990s concluded a strong need for a moderate, uniform value added

140

SAMAR VERMA

tax (VAT) as the long-term objective. The necessary measures needed to be taken were doing away with exemptions on ginned cotton, hank yarn, grey fabric, hand processors (and a few specified processes), knitwear and hosiery and smallscale industry (SSI) units in garments, rationalisation of excise duty incidence at spinning stage,8 and abolish Additional Excise Duty (Textile and Textile Articles)—AED (T&TA) on MMF/yarn and cotton yarn. Thankfully, farreaching decisions have been taken to remove the discriminatory excise duty structure which placed the organised industry at a disadvantaged position and throttled investment in the modern mills. In the Union Budget 2004–05, the duty structure of textiles was completely revised. The excise duty for textiles was made optional with mandatory duty only on MMF/yarns. For those opting to pay the duty and thereby avail of duty credit, the duty was reduced to a nominal rate of 4 per cent was for cotton textiles whereas 8 per cent for non-cotton textiles, and textiles is defined as yarns, fabrics, garments and madeups in both cases. Additional excise duty was abolished. The process of fiscal duty reforms continued in the Union Budget 2005–06. Excise duty on Polyester Filament Yarn and customs duty on a number of textile machinery items were reduced. Texturising of Polyester Filament Yarn was, however, exempted from excise duty. The impact of these fiscal duty reforms on the structure of the industry would be felt over time, since these reforms have been made in the last two to three years only. However, one could expect the Inspector Raj to be significantly reduced. Moreover, the decentralised sector—powerloom, handloom as well as small garmenting units—would be relieved of problems of maintaining excise records and complying with excise procedures. There would also be a reduction in the cost of production as multiplicity of taxes has been done away with. One could expect fresh investment to flow in the textile sector for capacity addition and modernisation/ technology upgradation.

INDIAN TEXTILE AND CLOTHING INDUSTRY

141

These would go a long way in realignment of the industry structure at all stages, since the structure of the textile sector particularly has been the result of distortionary and discriminatory excise policy, replete with exemptions. New industry structure based on market forces would be more attractive for productive investments, thereby raising the technological standards and quality levels of the entire industry. 4. Remove policy bias against synthetic fibre/yarn. The reforms suggested by various studies were: z

z

Rationalise excise duties on synthetic fibre to bring it in line with cotton fibre. Lower customs duty on raw materials used in manufacture of synthetic fibre/yarn.

This was thought to enable the development of a vibrant synthetic fibre base in India, which is critical to correct the predominance of cotton in Indian exports and consumption. Global consumption of synthetic is growing faster than that of cotton, and share of cotton is expected to decline to less than that of synthetic fibre. India has virtually no presence in this area. This is also essential to grow into the vast area of technical textiles that is emerging as a special-use textile in the world. India is just not present in the huge and growing area of non-apparel textile applications. Most of the standardised items of clothing require some form of blend as well. Moreover, that would enable Indian exports to diversify into non-quota markets where the demand for synthetic apparel is much higher compared to that in the quota-markets. And finally, that would take off some pressure on cotton to clothe the domestic market (due to which cotton prices have been subsidised in India). Cotton, then, can concentrate on higher value addition. In the recent Union Budget of 2006–07, excise duty on MMF and yarns has been reduced from 16 per cent to 8 per cent, and customs duty from 15 per cent to 10 per cent. 5. Removal of manufacturing of knit fabric and woven garments from SSI reservation list has been another long-standing

142

SAMAR VERMA

demand of the Indian industry. One of the chief reasons for the fragmented, decentralised garment sector in India is that it was reserved for SSI. De-reservation would attract largescale firms into manufacturing mass-items of clothing, which reap scale economies. Large-scale firms would not, in any case, enter the product lines, where order size is small, and considerable manufacturing flexibility is required. So SSIs would not be wiped out. De-reservation would allow India to enter into market segments, which are among the fastest growing and are factory-based. Besides, ceiling on scale has prevented modernisation and investment in the sector. That would also eliminate the peculiar dichotomy whereby the Indian garment units were protected from Indian large-scale manufacturers, but had to compete with foreign large-scale units in the domestic turf following removal of quantitative restrictions on imports. De-reservation would allow processing of bulk orders from large retailers overseas as well as at home (after FDI in retailing is allowed). This would make the sector attractive for quality investment through technological upgradation. Very importantly, this would also enable the sector to invest in products not on the basis of SSI constraints, but on the basis of composition of demand. Finally, since building non-price competitive competencies are crucial for export growth, the sector would begin to invest in brands, designs, Information Technology (IT)-driven superior customer services, unique style and patterns, and so on. In the 2005–06 Union Budget, 30 items of knitting and knitwear have been de-reserved. The government has dereserved the readymade (woven) garments, hosiery and knitwear from SSI sector. Knit garments however, continue to remain reserved for SSI. 6. Abolition of Hank Yarn Obligation (HYO). The HYO is related to the supply of yarn for the handloom sector, and is exempted from excise duty. In reality, however, around 40 per cent of hank yarn was being consumed by powerlooms at zero excise duty.9 The HYO was tantamount to granting a

INDIAN TEXTILE AND CLOTHING INDUSTRY

143

subsidy to the handloom sector on one hand, and taxing the yarn producers on the other. It was abolished in 2002. 7. For technology upgradation, modernisation and textile infrastructure development, several initiatives have been taken by the central government. The cost of replacing the obsolete technology is estimated to be Rs 1,400 billion. z

z

z

z

The Technology Upgradation Fund Scheme (TUFS)—in operation since April 1999—is designed to ensure availability of the bank finance at rates comparable with the global rates. Under this scheme, government reimburses 5 per cent of the interest rates charged by the banks and financial institutions, thereby ensuring credit availability for upgradation of technology at global rates. During 2000–04, projects worth Rs 70 billion were sanctioned. During 2004–05 projects worth Rs 68.74 billion were sanctioned, logging a growth of 168 per cent over 2003–04. In cumulative terms, of the 4,184 project proposals sanctioned under TUFS involving an aggregate project cost of Rs 142.6 billion until January 2006, the number of TUFS proposals cleared was 3,544 and the loan disbursed was Rs 110 billion.10 To improve the productivity and quality of cotton, the Government has launched the Technology Mission on Cotton (TMC). Incentives are provided for better farm practices, quality seeds, improvement in market infrastructure and modernisation of ginning & pressing (G&P) sector. Under Mini-Mission IV of the TMC, 678 G&P units have been approved for modernisation, of which 343 had been modernised as on 23 May 2006. To provide the industry with world class infrastructure facilities for setting up their textile units, a new scheme— Scheme for Integrated Textile Parks’—was launched. Support under the scheme by way of grant or equity has been limited to 40 per cent of the project cost subject to a ceiling of Rs 400 million. For upgrading infrastructure facilities at important textile centres, the ‘Textile Centre Infrastructure Development

144

z

z

z

SAMAR VERMA

Scheme (TCIDS)’ was launched. Under TCIDS, 18 projects have been sanctioned with an estimated support from Government of India of Rs 2.71 billion. The import of specified textiles and garment machinery items has been allowed at a concessional rate of customs duty to encourage investments. The cost of machinery has also been reduced through fiscal policy measures. In 2005– 06 Union Budget, the customs duty on textile machinery was reduced to 10 per cent on all except 23 machinery which attracts Basic Customs Duty of 15 per cent. In order to facilitate modernisation of the powerloom sector, schemes such as high-tech weaving parks, modernisation and strengthening of powerloom service centres, Group Workshed Scheme and Credit Linked Capital Subsidy Scheme at the rate of 20 per cent have been introduced. Also, the Government has enhanced, with effect from 13 January 2005, the capital ceiling for machinery from Rs 6 million to Rs 10 million under 20 per cent capital subsidy scheme—TUFS for small scale textile and jute industrial units, the Government has enhanced the rate of Credit Linked Capital Subsidy (CLCS) from 12 per cent to 15 per cent since January 2005. For the textile processing sector, since 20 March 2005, the rate is 10 per cent, in addition to the existing 5 per cent interest reimbursement under TUFS. To provide the textile industry with world-class infrastructure facilities for setting up their textile units meeting international environmental and social standards, a Public–Private Partnership (PPP)-based scheme known as the ‘Scheme for Integrated Textile Park (SITP)’ has been introduced in July 2005. Facilities like eco-testing laboratories have been created to enable exporters to get garments/textiles pre-tested so that they conform to the requirements of the importing countries.

These are important policy initiatives that are expected to go a long way in enabling the industry to modernise and upgrade its technology.

INDIAN TEXTILE AND CLOTHING INDUSTRY

145

8. Human Resources Issues in Textile industry. According to one estimate,11 the industry needs to employ 11 million semiskilled and one million skilled people in order to achieve the government target of 12 million new jobs by 2010. z

z

z

The National Institute for Fashion Technology (NIFT) and the Apparel Training and Design Centres (ATDCs) have been running various courses/programmes to meet the skilled manpower requirements of the textile industry, especially apparel, in the field of design, merchandising and marketing. To take a serious look at fashion education in the changing business context, the government has announced steps for establishing an institution of national excellence for imparting fashion business education with international benchmarking, appointing a nodal agency for standardising and benchmarking fashion business education in the country, and setting up an apex body to train the teachers/trainers imparting fashion business education in the country. The industry has been demanding modification of labourrelated provisions in Industrial Disputes Act 1948 (Ch V-B), Contract Labour (Regulation and Abolition) Act 1970 (Section 10) and Trade Union Act 1926, to bring them in line with current realities and market requirements. That fabricators are today the ‘backbone’ of the garment industry is chiefly due to the outdated labour laws in India. That has created fragmentation specially in the garment industry (since it is more labour-intensive). Outmoded laws related to retrenchment, transfers, dismissals, and job rotations have adversely affected organised mills too. This has given rise to an industry structure that is incapable of becoming globally competitive. It has prevented modernisation, scale economies in bulk purchases, production and marketing, and product-diversification into assemblyline produced items.12 According to recent reports, the textile industry has recommended an increase in the permissible weekly working hour limit from 48 to 60 hours.

146

SAMAR VERMA

The industry has been demanding flexibility in hiring contractual labour while committing itself to providing at least 100 days a year for contract workers in line with provision of the National Rural Employment Guarantee Act (NREGA). The industry has also been seeking permission to deploy women workers in night shifts and a ‘realistic’ exit policy for defunct units.13 However, the trade unions have been opposing these demands, and the government is still to make up its mind. A quick glance at plan allocations for schemes under textiles does indicate the seriousness of the government in achieving its objectives and the vision for 2010 (see Table 6.A3). Union Budget allocation for textiles in 2005–06 increased by over 113 per cent as compared to the average annual allocation during 1999– 2004. Allocation for the infrastructure schemes has increased by 11 times.

EXPORT PERFORMANCE OF THE INDIAN TEXTILE AND CLOTHING INDUSTRY Since most of the policy reforms have happened in the last three– four years, data on production and consumption of textiles comes with a significant lag, and there have been quota and other restraints on market access into US and EU. It is difficult to establish a causal relationship between the reforms and exports in the last few years. However, it can be argued that the export performance in recent times, especially in the post-quota year (2005), is definitely enabled—in significant measure—by the reforms.14 Numerous studies have been conducted on this subject and there is a vast body of work available. However, the few common conclusions of almost all studies are that the quota phase-out would bring about a massive restructuring in production and exports, a price fall in clothing and textile products, and significant gains to at least two countries from the Asian region—China and India.

INDIAN TEXTILE AND CLOTHING INDUSTRY

147

ATC period Between 1997–98 and 2001–02 (India’s Ninth Five Year Plan), total textile and clothing exports grew by CAGR 7 per cent. In the same period, cotton textile grew by annual average rate of 4 per cent and cotton garments by 11 per cent. MMF-based textile grow by 11 per cent, and MMF garments by 8 per cent [see Table 6.A4(a)]. Over the next three years, during 2002–03 to 2004–05, the total textile and garments exports declined at a CAGR of 1 per cent. Cotton textile exports, in fact, declined by 2 per cent CAGR, whereas cotton garments exports declined at 1 per cent. The MMF textiles, however, made up for lost cotton textile exports with a growth of 5 per cent, but the MMF garments declined by 2 per cent over the period [see Table 6.A4(b)]. From this analysis of import data during the ATC period, it is evident that imports do not seem to have played any role—at an aggregate level—in the declining export performance during the early 2000s. One of the reasons for the decline in textile and clothing reflects innovative use of trade policy instruments by the world’s two largest importers, the US and the EU-15, who together import 72 per cent and 40 per cent of world clothing and textiles respectively. The share of Asia (excluding Japan) in the total US import value of textiles increased from 50.4 per cent to 57.4 per cent between 1994 and 2003. The same shares from preferential suppliers (North American Free Trade Agreement [NAFTA], Caribbean Basin Initiative [CBI], Africa Growth and Opportunity Act [AGOA] and Munidad Andina de Naciones [ANDEAN]) rose from 14.2 per cent to 16.8 per cent. However, in clothing, while the share from preferential suppliers increased from 23.9 per cent to 33.8 per cent in the same years, that from Asia declined from 64.7 per cent to 54.2 per cent. This was a serious decline since Asia’s share in 1990 was as high as 73.5 per cent.15 Clearly, global trade in textiles and clothing was not being liberalised, or more precisely, was being selectively liberalised.

148

SAMAR VERMA

Post-quota year16 It is too early to make an assessment of Indian performance in post-quota period, but based on provisional data from Directorate General of Commercial Intelligence and Statistics (DGCI&S), Kolkata, a preliminary picture of Indian export performance could be drawn up. According to the provisional DGCI&S data, the textile exports during the financial year 2005–06 have been US$ 17 billion (approximately), which is about 22 per cent higher than the exports during the preceding year. Readymade garments account for approximately 45 per cent of the country’s total textiles and clothing exports. Readymade garments exports recorded a growth of 15.5 per cent in 2002–03 and 8.5 per cent in 2003–04. During the year 2004–05, readymade garment exports were US$ 6 billion, recording an increase of 4.1 per cent as compared to the corresponding period of 2003–04. During 2005–06, the readymade garment exports have amounted to US$ 7.75 billion, recording an increase of 28.69 per cent over the exports during the corresponding period of 2004–05. Cotton textiles constitute more than two-thirds of textile exports. Cotton textile exports recorded a growth of 9.1 per cent in 2002–03 and 7.1 per cent in 2003–04. During 2004–05, cotton textile exports including handlooms were US$ 3.54 billion, recording a decline of 1.5 per cent over the previous year. During 2005–06, the cotton textiles exports have amounted to US$ 4.49 billion, recording an increase of 26.78 per cent over the exports during the corresponding period of 2004–05. The exports of MMF textiles recorded a growth of 30.2 per cent in 2002–03 and 28.5 per cent in 2003–04. During 2004–05, MMF textile exports were US$ 2.05 billion, recording a growth of 12.6 per cent as compared to the corresponding period of 2003–04. During 2005–06, these exports at US$ 2 billion were 2.47 per cent lower than the previous year. Certainly, as expected, Indian textile and clothing exports have done much better in a quota-free environment.

INDIAN TEXTILE AND CLOTHING INDUSTRY

149

Performance in US market—ATC period and post-quota year Given the extremely variegated nature of industry, aggregate data analysis often conceals more than reveals. A preliminary perspective of India’s exports into the US market in the post-quota year (2005), relative to the ATC period (1995–2004) could be had from Table 6.A5. Data in this table is obtained from the US Office of Textile and Apparels, and hence ‘year’ refers to calendar year. Some observations based on the table are in order. 1. Indian textile and clothing exports into the US have certainly done much better than they had done on an average during the ATC years. The total value of exports into the US in 2005 was 27 per cent higher than in previous year, and significantly better than the average annual growth rate of 8.5 per cent for the entire ATC period. This is further underlined by the fact that the US imports of textile and clothing from the entire world increased by 7 per cent in 2005, compared to 7.3 per cent during 1995–2005. This, by itself, does not prove that Indian textile and clothing industry is competitive. What this does reveal is how binding quota constraints were for Indian exports into the US market, and that, with the removal of the quota binding, the pent-up exports have grown. If this is a correct observation, this also implies that Indian export growth into US market in 2006 should be more moderate, unless the demand conditions in the US market changes significantly, or does the US trade policy. 2. Interestingly, despite the widespread prediction of fall in global prices of textiles and clothing post-quota, India has improved its Unit Value Realisation (UVR) in the US market. And this growth of 4 per cent in 2005 compares very favourably with an average annual decline of UVR of 1 per cent during the ATC period. However, this observation does not hold when data is analysed at a disaggregated level. Indeed, the UVR in 2005 for most of top products exported by India has been lower than that in 2004.

150

SAMAR VERMA

3. Top 11 products in value terms in the year 2005 have all witnessed a post-quota growth rate either nearly equal, or in most cases, much higher than their CAGR in the ATC period. 4. Of the top 25 products in 2005 value terms (constituting 66 per cent of total textile and clothing exports to US in 2005), only four products seem to have grown in post-quota year (2005) slower than the CAGR during ATC period. Of these four products, categories 239, 647 and 649 are on this list since they were hardly exported in 1995, and the base value for computation of the CAGR is zero in two cases (647 and 649) and very low in 239. The only product in which India has not done well—of the top 25—in the US market is therefore 635. In 24 out of top 25 products, Indian exports to the US have done well. Although, product-wise data for EU—the other largest importer of textiles and clothing—was not easily available, the aggregate data for the entire EU-25 market does reflect a story similar to that in the US. The EU-25 imports of textile and clothing grew by 6.5 per cent in 2005, roughly at the same rate as the CAGR for the entire 1995–2005. Imports from India grew by 18.5 per cent compared to 5.5 per cent for the same periods, but its market share declined from 8 per cent to 7.3 per cent between 1995 and 2005 in EU-25 markets. A similar story exists in fact for extra–EU25 import of clothing. The total extra–EU-25 import of clothing increased by 7.9 per cent, again roughly at the same rate as the CAGR for the entire 11-year period of 1995–2005; its clothing imports from India increased by 30.7 per cent, compared to a CAGR of only 6.8 per cent during 1995–2005. Despite this performance, India lost its market share in the EU-25, from 6.5 per cent in 1995 to 6 per cent in 2005. On the whole, then, it is now evident that the Indian textile and clothing industry has had the potential to do better than the policies allowed, and that quotas have been a binding constraint overall, rather than having provided a ‘protected’ market in the US.

INDIAN TEXTILE AND CLOTHING INDUSTRY

151

However, competitiveness is a relative concept, and the goal-post constantly shifts in this age of cut-throat competition. That Chinese exporters into the US market have performed much better than Indian exporters17 and, despite its good performance, India’s market share and its growth rate in both the US and EU markets is poorer compared to China, are reasons enough to gear up and work towards improved performance, rather than bask in the ephemeral glory of single year’s performance.

OUTLOOK FOR THE FUTURE Fundamental reforms in the industry have indeed occurred in the last decade; in particular, at the dawn of the 21st century. This must not, however, be construed to imply that all the reforms have been triggered by, or in some ways caused by, India’s obligations under the WTO. The reality is far from it. However, though the Indian economy underwent a fundamental reform in economic ideology and mindset in the early 1990s, it can be argued that the ATC—through its promise of increased market access opportunities for trade, and simultaneous threat of increased imports into the Indian market—did create at least a sense of urgency for reform in the minds of the policy-makers.18 Moreover, there was a widespread and increasing recognition of the growing incompatibility between the requirements of the global marketplace for modern textiles and clothing, and the industry’s constrained ability to meet them due to archaic government policies which, in turn, were themselves a legacy of a largely abandoned economic ideology. Global trade in textile and clothing has become only quotafree, and not free yet. In addition to several newer forms of what are generically called as NTBs, the two most important barriers that remain to international trade are peak tariffs and rules of origin. Table 6.A6 gives a glimpse of the peak tariffs that still characterise the US market imports of textile and clothing. Similarly, contrary to expectations and even predictions that in

152

SAMAR VERMA

the post-quota period, countries with PTAs and proximity to the US and EU markets, would gain due to geographical advantages in meeting just-in-time demand, the rules of origin clauses of these PTAs have ensured continued survival of the US and EU domestic industries—that are uncompetitive—at the cost of competitiveness of their PTA partner countries. The production systems in non-US and non-EU member countries of PTAs have developed with inputs geared to depend on high cost, developed country, textiles. In addition to impeding South– South trade, such policy-induced perverse incentives impose huge costs to exporters.19 Perhaps worst of all, this induced uncompetitiveness of PTA member-exporters, in an era of no quotas and declining tariffs, begins to take its toll, as their share in the developed country markets begins to inexorably fall. This is already witnessed in the case of Mexico, Dominican Republic and some Central American countries. Their exports to the US have declined in 2005. And that is good news for countries like India. But so long as these rules of origin remain, some portion of developed country markets would remain inaccessible, and trade would not be free. Effective market access into the US and EU is just one of the reasons why the suspended Doha Round of WTO negotiations must be resumed urgently. The external environment—of which WTO was an important part—also comprised newer contours of the global marketplace with rapidly changing consumer preferences, just-in-time deliveries, quick turnaround cycles, lean retailing systems, greater emphasis on ‘ethically certified’ production and distribution systems and ‘one stop shopping’, placing greater emphasis on reliability and investments in long-term vendor relationships. These changes imply massive restructuring and reorganisation of firms and business practices that build their competitive sinews not just on transient advantages, such as low factor (including labour) cost, or wage- and rent-based advantages, but in a sustained manner on adoption of modern technology, superior human skills, investment in Research and Development (R&D), innovative

INDIAN TEXTILE AND CLOTHING INDUSTRY

153

marketing and distribution strategies, so that ultimately, the source of competitiveness emerges from the unique combination of all different factors and strategies of production, marketing and retail integrated in a holistic framework. The industry estimates that the Indian textile sector has the potential to reach a size of US$ 85 billion by 2010 fuelled by both exports as well as rise in domestic consumption. Of this, the domestic market potential would be US$ 45 billion and export potential would be US$ 40 billion. Nearly 60 per cent of exports would comprise garments. This would create 12 million job opportunities, 5 million direct jobs in textile industry, and 7 million jobs in allied sectors.20 Towards achieving this end, the government has reformed nearly all of the textile-specific antiquated laws and policies, but most of these changes happened during the last few years. Their impact would become clearer over time. The agenda for domestic reform now is truly in the realm of what may be called trade facilitation issues that—as economy wide issues—are an impediment to competitiveness for all exports, including textiles and garments. Investment in world class infrastructure is indispensable to ensure that transaction costs—which could range upto 16 per cent of total costs—are minimised, if not eliminated. There is a long road ahead, but embarking on the road is vital and urgent. The importance of developing home demand in India should not be underestimated either. With lowering tariffs, global competition would be played out here on the home turf too. There is a big home market waiting to be tapped, and government policy to allow FDI into garment retailing would significantly contribute to developing this. The Indian industry has managed to survive and grow in the second half of the 20th century despite government policies. It is now time for entrepreneurs to demonstrate that they can grow faster and better if facilitated by government policies. Working together, they should enable Indian industry achieve its rightful place in global firmament.

Million Numbers 37.08 Lakh Numbers 4.44 Lakh Numbers 1.4 Lakh Numbers 16.3 Lakh Numbers 38.91 Million kg 1,066 Million kg 1,078 Thousand Numbers 585 Thousand Numbers 419

Capacity Installed Spindles (SSI + Non-SSI) Rotors (SSI + Non-SSI) Looms (Organised sector) Powerloom Handlooms Man-made Fibres Man-made Filaments Worsted spindles (Woollen) Non-worsted spindles (Woollen)

1,565 285 921 202 3.67

Numbers Numbers Numbers Numbers Lakh Numbers

Textile Mills Spinning mills (Non-SSI) Composite mills (Non-SSI) Spinning mills (SSI) Exclusive weaving mills (Non-SSI) Powerloom units

1,850

1999–2000

Numbers

Units

37.91 4.54 1.4 16.62 38.91 1,081 1,128 598 426

1,565 281 996 203 3.74

1,846

2000–01

38.33 4.8 1.41 16.66 38.91 1,090 1,135 598 426

1,579 281 1,046 207 3.75

1,860

2001–02

Table 6.A1 Overview of Indian Textile and Clothing Industry

Cotton/Man-made Fibre

Items

APPENDIX

39.03 4.68 1.37 16.93 38.91 1,096 1,191 504 437

1,599 276 1,146 209 3.8

1,875

2002–03

37.03 4.82 1.05 18.37 38.91 1,101 1,228 504 437

1,564 223 1,135 206 4.13

1,787

— — — — — — — — —

1,566 223 — — —

—

2003–04 2004–05 (P)

20,488 6,000

2,270 950 1,106

— 1,018 — —

12,444.9 13,194.35 13,038.64 1,645.48 2,021.96 2,167.23

Source: Export/Import data from DGCI&S, Kolkata, Compendium of Textile Statistics, 2004 [Ministry of Textiles website]. Notes: (P) = Provisional; ∗Cotton year

10,801.04 1,537.1

10,521.28 12,014.4 1,128.59 1,172.4

18,040 6,068

2,121 931 1,118

177 953 50.7 15.74

Million US$ Million US$

19,300 5,876

2,177 904 1,100

136 914 50.7 16.32

14,306 14,164 15,978 16,797 18,275 18,200 39,208 40,233 42,034 41,973 42,383 44,688 30.55 30.68 31.97 31.37 31.01 — 256.7 286.9 255.64 243.43 297.17 —

19,769 6,287

2,212 889 962

158 834 50.7 17.35

Million sq mtr Million sq mtr Sq mtrs Million US$

19,718 6,351

2,267 953 920

140 904 49.2 15.86

18,989 5,913

2,204 842 894

156 835 47.9 15.21

Million sq mtr Million sq mtr

Million kg Million kg Million kg

Production of Yarn Cotton yarn Other spun yarn Man-made filament yarn

Fabric Production Cotton Blended 100% Non-cotton (including Khadi, Wool & Silk) Total Per capita availability of cloth Production of Textile Machinery Textile Exports (including Jute, Coir & Handicraft) Textile Imports

Lakh bales Million kg Million kg Million kg

Production of Fibres Raw cotton∗ Man-made Fibres Raw wool Raw silk

Woollen yarn & fabrics Cotton yarn & fabrics Man-made filament/spun yarn (inc. waste) Made-up textiles articles Other textile yarn, fabrics & made-up articles Readymade garments (woven & knit) Raw jute Raw silk Ran wool Synthetic & regenerated fibres Silk yarn & fabrics Woollen and cotton rags, etc. Cotton raw & waste Textile yarn, fabrics & made-up articles Total textiles imports Overall imports % of Textile imports

0.00 0.00 0.00 0.00 0.00 0.00 50.54 218.33 600.42 465.43 0.00 129.13 80.65 1,518.73 3,063.23 154,176.29 1.99

1997–98 0.00 0.00 0.00 0.00 0.00 0.00 86.38 259.36 490.30 290.87 0.00 103.22 381.11 1,921.91 3,533.16 178,331.69 1.98

1998–99 10.29 107.48 966.91 114.45 1,002.20 69.94 139.31 412.74 491.93 184.30 61.97 101.68 1,253.93 0.00 4,917.12 215,528.53 2.28

1999–2000 14.00 139.57 984.37 191.05 1,208.46 97.83 79.50 473.26 457.81 271.19 91.02 144.09 1,184.73 0.00 5,336.89 228,306.64 2.34

2000–2001

17.80 232.26 1,389.77 171.95 1,407.46 172.53 95.68 624.73 623.56 272.15 172.99 107.09 2,053.62 0.00 7,341.57 245,199.72 2.99

2001–02

(Rs in Crore)

Source: Foreign Trade Statistics of India (Principal Commodities & Countries) DGCI&S, Kolkata. Note: DGCI&S has discontinued to post data against Sl No. 14 textile yarn, fabrics & made-up articles and has splited into Sl Nos, 2, 3, 4 & 5 from 1999 onwards.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.

Sl No. Item

Table 6.A2(a) Textile Imports during Ninth Five Year Plan Period (1997–98 to 2001–02)

Woollen yarn & fabrics 100.96 Cotton yarn & fabrics 424.90 Man-made filament/spun yarn 1,922.42 (inc. waste) Made-up textiles articles 191.26 Other textile yarn, fabrics & 1,647.54 made-up articles Ready-made garments (woven & knit) 115.93 Raw jute 134.77 Raw silk 647.15 Raw wool 801.83 Synthetic & regenerated fibres 364.15 Silk yarn & fabrics 293.04 Woollen and cotton rags, etc. 83.90 Cotton raw & waste 1,237.61 Total textiles imports 7,965.46 Overall imports 297,205.88 % of Textile imports 2.68

2002– 03

177.83 93.92 629.17 870.61 268.51 529.89 134.60 1,570.03 9,346.55 359,107.66 2.60

375.67 1,963.38

157.93 652.98 1,912.04

2003– 04

143.23 31.79 604.72 825.95 330.20 731.27 108.19 1,099.60 9,737.68 481,064.11 2.02

264.43 2,465.13

172.86 844.22 2,116.09

2004– 05

103.20 31.79 424.83 638.01 257.55 547.79 80.93 850.09 7,303.91 345,763.26 2.11

223.13 1,808.01

155.51 631.76 1,551.22

April–Dec. 2004

Source: Foreign Trade Statistics of India (Principal Commodities & Countries) DGCI&S, Kolkata. Note: (P) = Provisional.

6. 7. 8. 9. 10. 11. 12. 13.

4. 5.

1. 2. 3.

Sl No. Item

Table 6.A2(b) Textile Imports from 2002–03 to April–December 2005

169.75 0.57 567.63 678.29 268.80 788.46 155.29 438.10 9,014.64 461,462.68 1.95

162.42 2,731.76

191.39 950.68 1,911.49

April–Dec. 2005 [P]

64.50 –98.20 33.61 6.31 4.37 43.93 91.89 –48.46 23.42 33.46 —

–27.21 51.09

22.99 50.48 23.23

% Variation

(Rs in Crore)

Technology Upgradation Fund Scheme (TUFS) Handloom Sericulture Handicrafts Apparel Parks for Export (APE) Textile Centres Infrastructure Development Scheme (TCIDS) Cotton Technology Mission (CTM) Special Jute Development Fund (SJDF) Total Plan Allocation Textiles 23 3.28 539.58

115.73 85.584 67.912 7.9 8

158.78

35 5 874.75

134.66 102.66 90.27 25 15

294

Expenditure 2004–05 85

52 52 62

16 20 33 216 88

Source: The Textile Turnaround 2004–05, Ministry of Textiles, Government of India. Note: ∗Crore = 10 million.

7. 8.

2. 3. 4. 5. 6.

1.

Sl No. Sector/Schemes

Average annual exp. 1999–2004

% Increase in 2004–05 over average 1999–2004

Table 6.A3 Comparative Plan Allocation for 8 Major Schemes/Programmes

80 11.83 1,150

156 110 105 100 100

450

Union Budget estimates 2005–06

(Rs in Crore)∗

248 261 113

35 29 55 1,166 1,150

183

% Increase in 2005–06 over average 1999–2004

Cotton raw incl. waste Floor covering of jute Other jute manufactures Jute yarn Jute hessian Man-made staple fibres Cotton yarn, fabrics & made-ups Natural silk yarn, fabrics & made-ups Man-made yarn, fabrics & made-ups Woollen yarn, fabrics & made-ups RMG of cotton including accessories RMG silk RMG wool RMG man-made fibre RMG of other textile material Coir & coir manufactures Carpets (excluding silk) handmade Handicrafts (excluding handmade carpets) Carpets (excluding silk) mill-made Silk carpets Silk waste Total Textiles Exports % Textile Exports Total Exports ∗

40,171.57 28.74 139,751.77

36,412.05 27.99 130,100.64

∗

206.92 53.58 149.57 179.44 199.01 82.58 11,661.48 749.65 2,945.04 313.91 13,241.42 249.80 357.39 3,885.41 629.54 316.57 1,721.74 2,663.53 430.89 134.09

1998–99

821.89 34.59 142.11 226.77 290.91 66.61 12,131.62 655.72 2,991.30 407.87 10,683.23 350.72 333.44 2,568.22 470.13 254.85 1,526.04 1,954.35 392.19 109.50

1997–98 77.07 47.65 121.26 183.98 191.70 189.39 13,388.24 1,030.06 3,515.88 216.61 14,396.66 538.32 765.57 4,367.02 580.91 199.97 2,160.75 2,897.37 489.18 145.43 331.85 45,536.21 28.62 159,095.20

1999–2000

Source: Foreign Trade Statistics of India (Principal Commodities & Countries) DGCI&S, Kolkata. Note: ∗No Data.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21.

Sl No. Item

2000–01

(Rs in Crore) 2001–02

221.07 42.69 64.68 75.20 160.61 134.85 260.10 215.64 205.51 186.22 167.41 112.28 15,809.96 14,655.29 1,401.98 1,326.96 4,835.65 5,078.96 285.17 249.00 17,940.72 17,646.08 846.28 720.34 1,357.05 1,129.76 4,454.26 3,694.05 844.83 687.40 220.85 294.64 2,041.73 1,787.59 3,022.07 2,618.06 504.78 473.49 110.88 172.27 442.67 365.70 54,799.84 51,337.34 27.22 24.56 201,356.45 209,017.97

Table 6.A4(a) Textiles Exports during Ninth Five Year Plan Period (1997–98 to 2001–02)

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

Cotton raw incl. waste Floor covering of jute Other jute manufactures Jute yarn Jute hessian Man-made staple fibres Cotton yarn, fabrics & made-ups Natural silk yarn, fabrics & made-ups Man-made yarn, fabrics & made-ups Woollen yarn fabrics & made-ups RMG of cotton including accessories RMG silk RMG wool RMG man-made fibre RMG of other textile material Coir & coir manufactures Carpets (excluding silk) handmade

Sl No. Item 50.28 122.45 222.00 214.01 349.31 220.57 16,217.49 1,504.35 6,639.37 246.43 21,510.00 664.01 1,057.09 3,520.32 785.07 355.00 1,940.76

2002–03 942.37 164.29 306.27 233.31 410.11 276.05 15,599.87 1,739.96 8,092.78 267.81 22,009.11 760.01 1,285.26 3,529.92 1,050.10 357.37 2,571.02

2003–04 364.49 217.24 240.99 333.16 422.14 384.93 14,389.26 1,823.06 8,353.12 298.52 20,521.11 800.94 1,557.43 3,140.49 1,057.50 456.35 2,556.87

2004–05 257.01 160.59 176.85 236.03 323.87 204.77 11,097.69 1,329.80 6,420.26 227.59 14,878.21 578.06 1,253.08 2,413.40 755.55 340.47 1,974.48

Apr.–Dec. 2004

Table 6.A4(b) Textiles Exports from 2002–03 to April–December 2005 (Rs in Crore)

1,291.92 209.73 190.63 178.82 406.35 273.77 12,286.79 1,397.63 6,125.22 275.70 19,378.28 778.84 1,307.37 3,274.14 1,244.15 439.94 2,558.37

402.68 30.60 7.79 –24.24 25.47 33.69 10.71 5.10 –4.60 21.14 30.25 34.73 4.33 35.66 64.67 29.21 29.57

Apr.–Dec. % 2005 (P) Variation

2,296.13

1,543.27

1,289.45

1,386.31

7.51

540.61 0.00 0.00 0.00 0.00 0.00 96.13 120.22 122.56 77.99 73.28 –6.04 15.77 5.34 1.12 1.04 13.25 1,170.94 60,071.68 62,017.29 58,584.55 43,996.20 53,090.48 20.67 23.54 21.14 16.45 17.18 16.62 — 255,137.28 293,366.75 356,068.88 256,048.96 319,471.33 24.77

3,800.64

Source: Foreign Trade Statistics of India (Principal Commodities & Countries) DGCI&S, Kolkata. Note: (P) = Provisional.

18. Handicrafts (excluding handmade carpets) 19. Carpets (excluding silk) mill-made 20. Silk carpets 21. Silk waste Total Textiles Exports % Textile Exports Total Exports

(2)

1. Knit shirts, MB 2. W/G N-knt Blouse 3. Floor covering 4. N-knt shirts, M 5. Cotton skirts 6. Pile towels 7. Cotton sheets 8. W/G knit blouse 9. W/G slacks, etc. 10. Cot. M/B trouser

(1)

313.87

288.27

286.49

228.30 46.44 4.92 203.86 111.85 1.82

201.88

147.56

139.26

465 M2

340 Doz

342 Doz

363 Nos 361 Nos

339 Doz

348 Doz

347 Doz

24.99 5.57

29.59 4.99

30.21 6.68

63.11 4.54

80.92 3.56

11.53 27.22

82.34 4.38

360.53

341 Doz

(7)

UVR

49.98 8.25

(6)

Vol.

412.19

(5)

Val.

338 Doz

(3) (4)

Sl Cat. Cat. No. description No. Unit

2005

(8)

93.18

79.54

99.44

181.74 134.12

84.42

262.32

289.63

326.45

291.26

Val.

UVR (11)

Val.

12.16 7.66

11.48 6.93

10.62 9.36

37.46 4.85 71.02 1.89

20.31 4.16

43.91

43.33

83.65

90.50 15.88

44.83

73.39 3.57 188.38

10.15 28.53 248.76

76.14 4.29 300.13

27.24 10.69 243.89

(9) (10)

Vol.

2004

(13)

UVR (14)

Val.

UVR

(15) (16)

Vol.

1995

3.59 31.97

5.91 7.43

6.63 6.54

7.77 10.77

21.21 4.27 8.62 1.84

10.17 4.41

7.49 4.26

17.57

19.44

57.24

4.13 4.26

4.13 4.70

6.71 8.53

26.87 13.59 1.98 1.54 1.11 1.38

31.95

45.49 4.14 167.68 39.60 4.23

6.50 38.26 114.67

54.97 5.46 207.72 43.60 4.76

19.37 12.59 159.51 17.53 9.10

(12)

Vol.

2000

49.5

85.5

103.0

25.6 52.0

239.4

9.9

8.4

10.4

41.5

(17)

05/ 04

04/ 05/ 04/ 04/ 95 04 00 95

CAGR in UVR (%)

4.6

9.7

4.6

3 1

20.7 18.2 –27

1

1

5.7 –29 –3

1 –3

9 –1

6

4

1

9 3

0

0 –4 –2

–5 –7 –1

16.4 15.1 –28

4.4

19.0 21.1 70.5 56.4

2 2 –6 –1

6.2 –23 –4

17.1 10.2

8.6

3.9

2.1

4.5

(18) (19) (20) (21) (22)

04/ 00

CAGR in value (%)

Table 6.A5 Total US Imports from India in Select Years, Value in US$ Million, Volume in Million Units (Sorted in Descending Order of Value in 2005)

11. Cotton underwear 12. N-K blouses, W 13. W/G cot. coats 14. Bedsprds/ quilt 15. Baby garm/ Ac 16. Skirts 17. Cotton dresses 18. Pillow cases 19. Cotton nightwear/PJ 20. Trousers, etc. M 21. Bras/Out Bod suit 22. Dresses 23. Knit blouses, W 24. Coats, W/G 25. Wool trousers

116.66

90.14

86.69

71.27

68.31

64.56 57.83

47.38 46.13

44.12

44.08

39.82 29.84

29.28 28.57

352 Doz

641 Doz

335 Doz

362 Nos

239 Kg

642 Doz 336 Doz

360 Nos 351 Doz

647 Doz

649 Doz

636 Doz 639 Doz

635 Doz 447 Doz

9.60 3.05 2.90 9.84

17.09 2.33 6.43 4.64

1.87 23.54

12.28 3.59

22.05 2.15 46.95 0.98

12.37 5.22 36.29 1.59

28.27 2.42

20.89 3.41

25.46 3.41

20.51 4.39

82.17 1.42

38.10 19.57

46.99 24.10

26.67

45.80

31.09 35.90

38.25 53.00

62.08

57.37

68.59

62.74

79.97

14.56 2.62 2.20 8.88

22.97 2.05 7.10 3.40

1.28 20.76

12.78 3.59

14.54 2.14 24.04 1.49

7.94 4.82 35.92 1.48

24.11 2.57

13.62 4.21

21.42 3.20

16.05 3.91

53.63 1.49

38.56 8.39

79.54 14.69

7.77

16.69

5.05 31.67

53.39 46.23

35.72

57.60

26.29

71.73

27.49

11.70 3.29 0.73 11.48

26.24 3.03 5.48 2.68

0.34 23.14

3.25 5.14

2.21 2.29 13.97 2.27

12.45 4.29 17.38 2.66

10.80 3.31

15.63 3.68

10.31 2.55

18.62 3.85

10.36 2.65

2.08 1.48

4.59 3.27

0.98 2.98

0.00 10.60

0.11 3.57

0.17 2.52 9.45 1.95

26.80 0.56

6.49 4.13 0.05 11.73

74.37 21.41 3.47 1.70 0.36 4.76

0.00

0.38

0.42 18.43

53.86 11.61 4.64 32.38 11.50 2.81

2.92

27.96 10.10 2.77

15.03

45.53 10.86 4.19

3.07 3.3

–23.2 46.0

6

12

4

0

8 3 0 8 –14 –6

–6 –6 –1

3

6

36.1 176.6

28.7 61.5

16 –6 –4 11 –6 –3

(Table 6.A5 continued)

–0.3 3.6 23.6 42.6

7

0

14 –9 –5 37 6 –3

13 –3

0 –9

57.5 53.8 1 –2 –2 3.2 6.9 –34 –10 –3

–8.0 –3.4 3.5 5.1

0

0 –1

–5 –13

7.5 –19

14.8 35.8

–0.1

27.1 16.4

–3.3

30.6 38.5

–15.3 –12.3 –4.5 23.8 13.2 30.3

65.3

–3.7

52.4 28.5

68.8 9.1

10.0

24.2

26.4

43.7

45.9

(2)

26. Silk NK blouse 27. Knit shirts, M 28. W/G coats, Wool 29. Pile/tufted fabric 30. Duck fabric 31. Special fabric 32. Suit-type Ct. M/B 33. S/V woven shirts 34. Silk dresses 35. Slacks, etc. W/G 36. N-K shirts, MB 37. Wool slacks, W/G 38. Fab, colour yarn

(1)

22.61

20.71

18.40

17.96

17.78 17.55

16.60

15.28

15.20 14.77

14.73

14.26

13.03

638 Doz

435 Doz

224 M2

219 M2 229 Kg

433 Doz

840 Doz

736 Doz 648 Doz

640 Doz

448 Doz

218 M2

(5)

741 Doz

(3) (4)

(Table 6.A5 continued)

(7)

10.83 1.20

1.06 13.44

4.22 3.49

1.44 10.57 3.99 3.70

2.80 5.47

1.56 10.65

26.46 0.67 35.76 0.49

5.18 3.47

3.19 5.77

7.39 2.80

1.52 14.88

(6)

14.15

11.92

16.47

12.98 26.55

25.17

6.44

23.31 15.00

15.73

21.54

44.40

17.62

(8)

12.00 1.18

0.84 14.25

4.84 3.40

1.29 10.05 9.16 2.90

5.30 4.75

0.63 10.16

37.32 0.62 25.85 0.58

4.62 3.40

4.21 5.12

16.03 2.77

1.32 13.39

(9) (10)

15.32

6.14

18.68

19.10 31.79

21.99

0.61

40.15 12.03

0.37

7.71

26.19

18.96

(11)

(13)

14.06 1.09

0.85 7.26

4.38 4.27

2.13 8.98 8.79 3.62

3.51 6.27

0.06 10.57

58.26 0.69 15.97 0.75

0.13 2.85

2.11 3.65

7.68 3.41

1.49 12.72

(12)

0.00 4.49

0.81 3.54

0.10 4.45

0.78 17.29

(15) (16)

0.10 8.08

0.70 4.20

3.74 8.06 5.86 3.02

1.54 6.10

0.02 3.77

25.11 14.03 1.79

0.84

2.92

30.17 17.68

9.42

0.06

42.50 46.79 0.91 2.47 1.09 2.26

0.01

2.87

0.43

13.52

(14) 2.7

29.3 22.3

14.1 59.1

–1.8

1 –3

4 5 –3

9

–7.9

19.6

–10.6

17.1 –44.4

–39.3

157.9

–2.0 –5.6

18.0 30.4

–3.1 18.9

–9.2 –8.1 –4.4 4.2

3.4 10.3

80.3 58.8

2 0

2

6 2 –4

–6 18

3 –5 –2

5 3 28 –5

15 –7 –2

5 –1 10

–23.7 –12.7 –5.8 8 –2 –4 17.0 5.7 19.8 –15 –6 –13

2

13

1 –5 –5

11

(18) (19) (20) (21) (22)

14.1 155.6 110.4

–14.6

–53.4

28.3

(17)

9.99 8.41

5.52

3.16

222 Kg 301 Kg

313 M2

223 Kg

22.65 0.14

11.62 0.47

41.48 0.24 26.67 0.32

1.57 6.66

2.60

10.10

3.77 0.03

11.68

7.37

24.61 0.11

23.53 0.43

14.26 0.26 0.04 0.92

2.15 5.44

0.99 7.47

0.73 9.14 1.54 9.54

0.00

13.82

0.05 0.14

15.33

6.61

3.58 7.40

4.32

0.00 0.00

33.74 0.41

0.08 0.64 0.21 0.68

1.85 8.28

1.25 5.27

0.59 6.09 0.67 11.05

0.52 8.26

0.24

–10.8

46.5

63.1 –26.0

41.2

–2 –12

–6.6 12.9

2.8 –3.8

9 –2

6 —

0

22 –10 –4

–1

17.0 36.8 –12 11 18.8 — 4 –4

18.0 59.4

–45.4

7.3

8.5

— 26.7

–7.5 –5.0

— –28

1 –4

4 –4 –1

32

11

0.01 0.77 165.1 195.7 80.4 –9 –20 –10 2.16 1.02 25,554.0 –30.6 –34.3 –66 8 –1

0.43 8.07

1.22 8.96

0.06 5.11 0.00 0.00

0.02 5.26

16.79 26.49 0.63

0.01 2.20

3.47

10.90

0.29 0.00

0.08

27.1

10.42

847 Doz

1.46 7.39

6.70 14.74

1.67 5.02

4,616.59 2,335.13 1.98 3,633.27 1,914.78 1.90 2,740.67 1,248.34 2.20 1,614.03 750.42 2.15

10.80

735 Doz

1.36 8.05 1.10 9.88

8.37

21.6

10.93 10.90

842 Doz 443 Nos

2.41 4.91

0.09 2.86

11.82

665 M2

Value and Volume Data Source: Office of Textile and Apparel (OTEXA) website. Note: M/B — Men and Boys, W/G — Women and Girls, N-K — Non-Knit and S/V — Silk and Vegetable Fibres.

39. Floor covering 40. S/V skirts 41. Wool suits, M/B 42. Silk coats, W/G 43. S/V trousers M 44. Knit fabric 45. Combed cot. yarn 46. Cotton sheeting 47. Non-woven fabric Total

166

SAMAR VERMA

Table 6.A6 Peak Tariffs: US Imports in 2004 and Tariff Rates, Selected Products Imports in million US$ Category Imports 0 338 339 347 348 352 340 341 Total Share

82,844 5,182 6,096 5,023 6,331 2,108 2,365

Tariff

Category Imports

19.7% 19.7% 16.6% 16.6% 8.9% 19.7%

638 639 647 648 652 640

1,432 15.4%

641

28,538 34.4%

Tariff

1,532 32.0% 2,357 32.0% 1,806 27.9% 1,723 28.6% 753 15.6% 684 29.1c/kg + 25.9% 768 26.9% 9,624 11.6%

Product all MFA products knit shirts MB knit shirts WG trousers MB trousers WG underwear woven shirts MB woven shirts WG above products

Source: US Department of Commerce, OTEXA; WTO US Tariff Schedules and ITCB and ITCB, Geneva. Note: Category numbers starting with digit 3 are cotton products and those with digit 6 are their counterpart man-made fibre products; MB stands for Men and Boys, WG stands for Women and Girls.

NOTES 1. Mehta (1999). 2. Goldar (2005). 3. Based on comparison of actual imports with trend rate of import growth, Goldar (2005) concludes a ‘sharp increase in imports of textiles in the years 2000–2001 to 2003–04’. 4. It is a different matter that this recent increase in India’s share to over 3.25 per cent threshold of world trade in several textile and clothing products has triggered the US request—under current WTO rules on subsidies and countervailing measures—for a WTO determination of India’s textile export competitiveness that would require the phase-out of many of Indian export subsidies on textiles. 5. The world exports of textiles and clothing grow at average annual growth rate of 11.55 per cent between 1973 and 1990, and 4.38 per cent during 1990 to 2001. During the MFA period, share of industrial countries in textile exports declined by almost as much as the increase in share of developing countries (approximately 19 per cent) (Spinanger and Verma 2003).

INDIAN TEXTILE AND CLOTHING INDUSTRY

167

6. This categorisation is drawn from policy recommendations made by the author in Verma (2002). 7. The government has announced though that customs tariffs would be rationalised to just two rates—10 per cent and 20 per cent—in a few years. 8. According to Credit Rating Information Services of India Limited (CRISIL) (2001), spinning bears almost 55 per cent of total excise revenue collections from this industry, but contributes only 39 per cent to value addition. 9. Report of Expert Committee on Textile Policy 1999, cited in Credit Rating Information Services of India Limited (CRISIL) (2001). 10. The Textile Turnaround 2004–05, Ministry of Textiles. 11. Srinivasan (2006). 12. There is a strong concern for unemployment that this may cause. However, according to Ahluwalia Committee Report (2001), ‘the proposed reforms will have the effect of expanding employment in the organised sector, thus extending the many benefits that at present accrue only to labour in the organised sector to a much larger proportion of working population’. The report mentions the ‘need for a parallel social safety net in the form of unemployment compensation or insurance’. 13. ‘States support textile industry on labour laws flexibility’, www.thehindubusinessline.com, 27 July 2006. 14. It is important to remember, however, that it is the firms, not nations that compete in industries. However, the governments’ role is critical in providing the enabling environment that creates conditions for firms to achieve global competitiveness. 15. Ahmad (2004). 16. Drawn from Material on textile exports for the media event of the Ministry of Textiles on 24 May 2006. Available on the ministry’s website. 17. US imports of textiles and clothing from China were up to 54 per cent in 2005, compared to CAGR of 17 per cent during 1995–2005, increasing the Chinese market share in the US market from 10.9 per cent in 1995 to 25.1 per cent in 2005. India’s share went up from 3.7 per cent to 5.2 per cent in the same period. Chinese export performance is more spectacular in clothing. The US imports of Chinese clothing increased by 70 per cent in 2005, compared to CAGR of 15.7 per cent during 1995-2005, raising its US market share from 10.2 per cent in 1995 to 22 per cent. India’s market share in clothing also grew, but relatively modestly, from 3.2 per cent to 4.3 per cent. Similar story exists in relation to extra EU-25 imports of textile and clothing from China (ITCB data sources). 18. The role, for instance, of the impressive growth in China’s export performance, and the implied threat to Indian industry from them as global competitors, cannot be underestimated. According to a Ministry of Textiles report (Textile Turnaround, 2004–05), while the Indian textile industry was battling the internal contradictions that were consequences of the policies adopted by the previous government, China went ahead with massive expansion and modernisation programmes.

168

SAMAR VERMA

19. The total economic costs of applying rules of origin could be as high as 5 per cent of the value of the product as, which is including the administrative cost of border formalities needed to determine the origin of a product (Herin 1986). 20. Inaugural address by Shri Shankersinh Vaghela, Minister of Textiles, Government of India (GoI) delivered on 25 April 2005 at the KSA 3rd International Textile and Apparel Congress (ITAC) 2005, Mumbai.

REFERENCES AND SELECT BIBLIOGRAPHY Ahluwalia, M.S. 2001. Report of Task Force on Employment Opportunities. Planning Commission, Government of India, June. Ahmad, Munir. 2004. Trade in Textiles and Clothing, Some Hard Facts and the way forward. International Textiles and Clothing Bureau (ITCB), August. CRISIL Advisory Services. 2001. Study on Excise Duty Structures in the Textile Sector. December. Goldar, Bishwanath. 2005. ‘Impact on India of Quantitative Restrictions under WTO’, Working Paper No. 172, Indian Council for Research on International Economic Relations, November, New Delhi. Herin, J. 1986. ‘Rules of Origin and Differences between Tariff Levels in EFTA and the EC’, EFTA Occasion paper No. 13. Geneva. International Textiles and Clothing Bureau (ITCB). Various Years. Several documents and publications. Geneva: ITCB. Mehta, R. 1999. Tariff and Non-Tariff Barriers to Indian Economy: A Profile. New Delhi: Research and Information System (RIS) for the Non-Aligned and Other Developing Countries. Spinanger, D. and S. Verma. 2003. ‘The coming Death of the ATC and China’s WTO Accession: Will push come to shove for Indian T & C Exports?’, in A.L. Winters and P. Mehta (eds), Bridging the Differences: Analyses of Five Issues of the WTO Agenda. India, Jaipur: Centre for International Trade, Economics & Environment. Srinivasan, G. 2006. Garment industry must focus on value creation, labour laws, multiple taxes dent ability to compete: New AEPC chief, 13 February. Available at: www.thehindubusinessline.com Verma, S. 2002. ‘Export Competitiveness of the Indian Textile and Garment Industry’, Working Paper No. 94, Indian Council for Research on International Economic Relations, New Delhi. WTO. 2001. ‘Market Access: Unfinished Business, Post Uruguay Round Inventory and Issues’, Special Studies, April.

Chapter 7 GATS and Developments in India’s Service Sector RUPA CHANDA AND SASIDARAN G.

INTRODUCTION

T

he rapid growth of India’s services sector in the post-reforms era has played a critical role in the country’s emergence as one of the fastest growing economies in the world in recent years. India’s service sector grew at an average annual rate of 9 per cent during the 1990s, contributing to nearly 60 per cent of the overall growth rate of the economy during this period. The share of the service sector in India’s Gross Domestic Product (GDP) has risen consistently over the years from 47 per cent in 1990 to 54.1 per cent in 2005–06, with an average share of 52 per cent between 2000–2001 and 2005–06, thus clearly underlining the growing importance of this sector to India’s economy.1 The contribution of services to India’s trade and Foreign Direct Investment (FDI) flows has also been growing over the past decade, facilitating India’s integration with the world economy. India’s services exports have grown more rapidly than its services output, indicating the strong outward orientation of this sector. There has been a huge increase in India’s services exports in value terms, from US$ 9.7 billion in 1997–98 to US$ 46 billion

170

RUPA CHANDA AND SASIDARAN G.

in 2004–05, an increase of 71 per cent. During the 1990s, India had the highest growth of services exports among all economies, with an average annual growth rate of 17.3 per cent, compared to China at 15.8 per cent and a world average of 5.6 per cent. Between 1997–98 and 2001–02, India’s services exports grew at an average annual rate of 23 per cent compared to a world average of 3.6 percent. During the 2000–05 period, its services exports grew even more rapidly, at an average annual growth rate of 33 per cent compared to 22 per cent for China.2 India’s services exports have also performed much better than its merchandise exports. Between 1995 and 2000, while India’s services exports grew nearly six times faster than world services exports (23.2 per cent compared to 3.7 per cent, respectively), its merchandise exports grew at only 1.4 times the annual average growth rate for world exports of goods (5.4 per cent compared to 3.9 per cent, respectively). During the 2000–05 period, its merchandise exports grew at an average annual rate of 9 per cent compared to 22 per cent for services. As a result, the share of services in India’s total trade has risen to over 25 per cent.3 The most dynamic growth areas in India’s services trade have been Information Technology (IT) and Business Process Outsourcing (BPO) services. Segments such as software services registered growth rates of over 50 per cent in exports in the 1990s compared to less than 10 per cent for exports of traditional products such as textiles and clothing. In 2004–05, software services exports grew by 34.4 per cent to US$ 17.2 billion. In the first half of 2005–06 alone, software services exports grew by 32 per cent to US$ 10.3 billion. India’s share in the world market for IT software and services (including BPO) increased from around 1.7 per cent in 2003– 04 to 2.3 percent in 2004–05 and an estimated 2.8 per cent in 2005–06.4 Owing to such rapid growth in services exports and the presence of such dynamic segments, India has succeeded in raising its penetration of world markets more rapidly in the case of services than for goods. Its share in world services markets stood at 1.4 per cent in 2002–03 compared to 0.9 per cent for global merchandise exports.5 If India is to sustain this momentum in its service sector, it must address the existing and potential protectionist challenges

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

171

to its main activities and modes of export interest. It must also consider accelerating the process of domestic trade and investment liberalisation and supporting regulatory reforms, which could foster competitiveness and productivity in its service sector. The General Agreement on Trade in Services (GATS) could potentially play an important role in addressing some of these barriers and in accelerating the process of domestic reforms in India’s service sector. The GATS provides India with a framework to seek liberalisation commitments from other countries in modes and activities where it has current and potential competitive advantage. It also provides India with an opportunity to make binding multilateral commitments to liberalise its domestic services trade and investment regime, and thus lend credibility to its overall economic liberalisation and reform programme as well as reap the resulting efficiency and spillover benefits that are normally associated with services liberalisation. This chapter traces the evolution of the GATS commitments and offers which have been made by India, and maps them against the autonomous liberalisation in some key service sectors to assess the relationship between India’s unilateral and multilateral liberalisation process, that is, whether one has preceded, facilitated or followed the other and how this approach has varied across different kinds of services. It also examines the commitments and offers placed by other markets in key sectors of interest to India and how these relate to what India has sought from the negotiations. The aim is two-fold. The first is to assess whether the GATS negotiations have had an impact on India’s liberalisation and regulatory reform process in the service sector and, if so, in what manner and to what extent. The second is to assess whether the GATS negotiations have translated into any commercially meaningful market access opportunities for India in the service sector, and if so, again, in what manner and to what extent. The section on India and the GATS negotiations in this chapter summarises the evolution of India’s role in the GATS negotiations, highlighting the key trends in India’s negotiating stance in services. It highlights the important role played by India in these negotiations. Sections ‘Multilateral versus Unilateral Liberalisation

172

RUPA CHANDA AND SASIDARAN G.

in Services by India’ and ‘GATS and India’s market access opportunities’ constitute the core analysis in this chapter. Section ‘Multilateral versus Unilateral Liberalisation in Services by India’ evaluates the nature of GATS commitments and offers made by India in selected services and analyses their significance vis-à-vis the autonomous liberalisation and domestic reforms that have taken place in these same services. The analysis is based on groups of services, which exhibit a similar pattern in terms of the relationship between unilateral and multilateral liberalisation and the associated reasons for the approach taken in that regard. Section ‘GATS and India’s market access opportunities’ assesses the GATS commitments made by other countries in terms of providing enhanced and predictable market access for India’s services exports in key services and modes of interest to India, and assesses them in relation to India’s negotiating position and requests in these areas. Section ‘Conclusion’ concludes by summarising the assessment made in preceding sections and highlights the various interests and concerns that seem to be driving India’s approach to the GATS negotiations. It also outlines the prospects for realising India’s service sector interests under the GATS as opposed to other forums, especially in light of the overall suspension of the Doha Round of negotiations in July 2006 and the extension of a new round of revised service offers to 2007.

INDIA AND THE GATS NEGOTIATIONS The Uruguay Round expanded the scope of the multilateral trading system to cover trade in services through the GATS. The GATS is the first multilateral agreement to provide legally enforceable rights to trade in a wide range of services. The GATS, which came into force on 1 January 1995, was aimed at facilitating trade and investment in services through the progressive liberalisation of restrictions on trade and investment flows in services. The supply of services is categorised into four different modes under GATS. Mode 1 refers to cross-border supply where the service physically flows from the territory of one-member country to the

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

173

other. An example of this Mode is air transport services or voice and Internet-based operations between countries. Mode 2 refers to consumption abroad where the consumer of a particular service moves into the territory of another member country to obtain the service. A prime example of this Mode is tourism services. Mode 3 refers to commercial presence where the suppliers of a service of a particular member country establish a legal territorial presence in another member country to provide their services. An example of this Mode is banking services where subsidiaries or branches of a bank are established in another country. Mode 4 refers to the temporary movement of natural persons from one member country to the other to provide service, and not for entry into the permanent labour market. A good example of this Mode is the movement of software professionals from developing countries like India to the US for the temporary provision of on-site services.

India’s negotiating role in GATS A review of India’s negotiating stance at the WTO reveals a transition, from that of a passive participant during the Uruguay Round to that of a proactive participant since the launching of the services negotiations in 2000 as per mandate (and later subsumed within the Doha Round of negotiations). These negotiations have been conducted on the basis of Negotiating Guidelines and Procedures (NGP) adopted in 2001, which, in turn, were shaped by the proposal made by India and 22 other developing countries. These guidelines recognised the need to accord appropriate flexibility to developing countries and the primacy of the ‘request-offer’ approach as the main method of negotiations. Subsequently, the Doha Ministerial declaration recognised the work already undertaken in the mandated GATS negotiations, including a large number of proposals submitted by members on a wide range of sectors and several cross-cutting issues. The vigorous nature of India’s negotiations at the WTO became visible especially after the Doha ministerial declaration with the

174

RUPA CHANDA AND SASIDARAN G.

number of submissions made by India in services, increasing significantly. India made seven submissions on services between 1991 and 2001. Following the Doha Ministerial, between 2002 and 2005, it made 18 more submissions on services, reflecting the increasing prominence of this sector in India’s multilateral negotiations. India’s communication proposals and submissions have mainly focused on Mode 1 and Mode 4, where India has comparative advantage and thus an offensive interest. India initiated the friends group of Mode 1 and Mode 4 and played a leading role in the formulation and submission of communications to developed countries for greater market access in these two modes. India, along with its coalition members in the friends group for Mode 4, has focused on the need to enhance transparency in Mode 4 commitments, to reduce discretionary scope in the application of restrictions such as economic needs test and lack of recognition of qualifications, which affect Mode 4, and to create alternate administrative mechanisms to address Mode 4.6 In the context of the friends group in Mode 1, India, along with its coalition members, has focused on ensuring a predictable market environment, mainly aimed at pre-empting protectionism with regard to the global outsourcing of services following the emergence of anti-outsourcing sentiment in developed countries.7 Between 2002 and 2003, India submitted initial requests for sector specific commitments to 62 member countries and in turn received initial requests from 27 member countries, including all the major developed countries, in various service sectors. India’s requests centred around the removal of sectoral and cross sectoral restrictions in Modes 1 and 4, while the requests it received centred around the expansion of India’s commitments to include more service sectors and to liberalise its commitments across all modes, and especially in commercial presence, or Mode 3. In response to these requests, India submitted its initial offer in January 2004. This offer, however, did not substantially improve upon its earlier Uruguay Round commitment, mainly because there was little progress in the commitments by other member countries in the modes and sectors of interest to India. In August 2004, India played a very important role in helping formulate a framework agreement that outlined the elements

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

175

and principles for guiding further negotiations among WTO members. The salient features of the services component of this framework agreement included dedicating special attention to the modes of supply of export interest to the developing countries, that is, Modes 1 and 4. This specific mention to modes relevant to developing country interests, in large part, reflected India’s efforts to ensure a substantive and development oriented outcome in the services negotiations rather than a one-way investment liberalisation agenda thrust by developed countries upon developing countries. In August 2005, India submitted a revised offer in which it not only showed a willingness to expand the scope of its Uruguay Round commitments by tabling several new service sectors and subsectors for negotiations, but also signalled that it was willing to remove commercial presence restrictions in some key areas that it had already committed. Eleven sectors and 94 sub-sectors were covered in the revised offer as opposed to seven sectors and 47 sub-sectors in the initial conditional offer. The change in stance reflected a new strategy on the part of India, of being more forthcoming in the services negotiations, by tabling more sectors, including some domestically sensitive sectors, and by offering to bind its commitments at higher levels of liberalisation in areas where India had been a recipient of many requests, in the hope of receiving improved revised offers in modes 1 and 4, where there had been little progress.

Recent developments India’s pro-active and offensive strategy in services was also visible in the run up to and immediately after the Hong Kong Ministerial of December 2005. This is most evident from its endorsement of a plurilateral approach to negotiations (along with the bilateralrequest offer approach), which was also pushed by the EU, the US and other developed countries.8 India broke ranks with other developing countries, which expressed reservations about plurilateral negotiations in services on the grounds that such an approach would lead to greater pressure on them to open up

176

RUPA CHANDA AND SASIDARAN G.

sensitive services in their markets with little assurance of concrete gains in areas like Mode 4. India’s interest in endorsing this alternative approach, without changing the basic architecture and modalities of the GATS negotiations, was to expedite the services discussions by bringing together a critical mass of countries, which were the main demanders, and recipients of liberalisation requests. India again played an important role in framing the key sections of Annex. C of the services text of the Hong Kong Ministerial Declaration, which recommended and sanctioned this new plurilateral approach. India was also successful in introducing an explicit mention of the need to address modes of export interest to developing countries and specific demands in the context of Mode 4 and appropriate flexibility to individual developing countries.9 Following the launching of plurilateral negotiations after the Hong Kong Ministerial, till date, India has received plurilateral requests in 14 sectors, including all major services and crosscutting issues and involving all the major developed countries. India was a primary sponsor of the plurilateral requests in Modes 1 and 2, Mode 4, and architecture and integrated engineering services, and a co-sponsor of the plurilateral request in computer and related services. With the suspension of the Doha Round of negotiations and thus also the services negotiations, the July 31 deadline for submitting offers has obviously not been met. It is difficult at this stage to foresee the shape the final consolidated schedules of commitments will take on the part of India and its main markets of interest. Much will depend on when the overall negotiations resume, the trade-offs struck in other parts of the WTO, and what happens in the interim period till talks are resumed.

MULTILATERAL VERSUS UNILATERAL LIBERALISATION IN SERVICES BY INDIA It has often been noted that multilateral negotiations can provide a means to facilitate and bind in domestic liberalisation and

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

177

reforms, to signal policy stance, and generally, lend greater credibility to a country’s liberalisation programme. Multilateral negotiations can also provide impetus to an oft-needed stock taking exercise of rules and regulations in the domestic economy and implementation of required measures to improve competitiveness. These positive implications are also applicable in the case of services. The following discussion highlights the nature of commitments and offers placed by India in selected services and juxtaposes these developments with the domestic liberalisation and reforms India has undertaken in these services, to show the relationship between the two processes and to assess the thinking that has underpinned India’s negotiating strategy in the GATS. As the analysis shows, there are broadly four clusters of service sectors that characterise the relationship between India’s multilateral and unilateral liberalisation processes across different service sectors. Each of these four clusters is discussed separately in the following discussion:

Cluster A: High profile services with autonomous and multilateral liberalisation There are several services where India has been under pressure to undertake more liberal commitments, particularly in Mode 3. Some of these are also services where India itself has been opening up by allowing domestic and foreign competition, relaxing FDI restrictions, and instituting independent regulators. Cluster A pertains to those services which India has significantly liberalised on its own and also scheduled in the Uruguay Round commitments (though with relatively restrictive terms and conditions, and at less than the regime prevailing at the time), and subsequently submitted improved offers. The two services pertinent to this cluster are telecommunication and financial services. Both these sectors have undergone substantial liberalisation and domestic reforms.

178

RUPA CHANDA AND SASIDARAN G.

Telecommunication services Liberalisation in this sector began in 1991 when private competition in value-added services was permitted. The cellular and basic services segments have since been opened up. In accordance with the National Telecom Policy (NTP) 1994, the Telecom Regulatory Authority of India (TRAI), an independent statutory regulator, was established in 1997. In 1999, a New Telecom Policy (NTP) came into effect, which allowed private operators to shift from a licence-fee regime to a revenue-sharing one. The most significant aspect of the reforms in this sector has been the consistent liberalisation of FDI restrictions in both basic and value-added segments, and the gradual removal of restrictions on private players. In January 2000, national long distance telephony was opened up to private operators, as intended under the NTP 1999. In April 2002, the international long distance service was opened up to competition by privatising Videsh Sanchar Nigam Limited (VSNL) and removing restrictions on the number of operators in this segment. In February 2005, the government increased the foreign holding limit for services such as fixed line basic services, cellular services, unified access services, national and international long distance telephony, V-SAT, public mobile trunked services, global mobile personal communication services, and other value-added services such as voice mail and email services, to 74 per cent. This relaxation improved upon earlier liberalisation of FDI ceilings to levels of 49 per cent and case-based approval by the Foreign Investment Promotion Bureau (FIPB) for additional foreign investment. Table 7.1 highlights the status of liberalisation in the telecommunications sector between 1994 and 2006. ‘Unbound’ refers to no commitment; ‘none’ refers to no restrictions. A comparison of the domestic reforms with the commitments and offers over the 1994–2006 period clearly indicates that for all three segments—basic, cellular, and data and message transmission services—there has been progressive liberalisation on a unilateral basis. This liberalisation has been followed by progressive improvements in the offers placed in this sector, at times at the same level but for the most part at a lower level. In the case

(1) ‘Unbound’ (2) ‘Unbound’ (3) Service permitted to be provided only after operator gets license from Designated Authority, subject to terms and conditions. FDI limit of 25 per cent on wire based services.

Uruguay Round commitments on market access (1994) Revised offer (Aug. 2005)

Domestic reforms between 1994–2006

(Table 7.1 continued)

Foreign equity in cellular (1) No change mobile services limited (2) ‘None’ to 25 per cent in 1994, (3) GSM technology raised to 49 per cent, requirement relaxed further raised to 74 per and FDI ceiling cent in February 2005. raised to 49 per cent.

January 2000: national (1) No change (1) No change long distance telephony (2) ‘None’ (2) No change opened up. (3) Licensing terms (3) No change. April 2002: international and conditions Additional long distance service requirement requirement of opened up, VSNL removed. Foreign FIPB approval for privatised, restrictions equity limit on wire foreign investors on number of operators based services raised having prior removed. to 49 per cent. collaboration. FDI February 2005: FDI ceiling ceiling of 25 per on fixed line basic cent for wire services raised to 74 per based services. cent.

Conditional initial offer (Dec. 2003)

(1) No change Cellular mobile (1) ‘Unbound’ (2) No change services (2) ‘Unbound’ (3) No change (3) As in voice telephony. Only digital (GSM) technology, terrestrial based, will be permitted.

Voice telephone services

Sector/ Sub-sector

Table 7.1 Status Matrix for Actual or Proposed Liberalisation in India’s Telecommunications Sector

(1) ‘None’ (2) ‘Unbound’ (3) Foreign equity ceiling of 51 per cent.

Uruguay Round commitments on market access (1994) (1) No change (2) No change (3) No change

Conditional initial offer (Dec. 2003) (1) No change (2) ‘None’ (3) Foreign equity ceiling increased to 74 per cent.

Revised offer (Aug. 2005)

FDI permitted up to 74 per cent for Internet services, up to 100 per cent for Email services, but subject to licensing and security requirements.

Domestic reforms between 1994–2006

Source: Based on India’s schedule of commitments, initial conditional and revised offers and government policy documents.

Data and message transmission services (Email/Voice mail etc.)

Sector/ Sub-sector

(Table 7.1 continued)

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

181

of voice telephony and cellular mobile services, the multilateral stand of 49 per cent is below the existing policy regime of 74 per cent FDI, while in data and message transmission services (Internet services with gateways and radio paging services), it is at the same level of 74 per cent, although in others like email services, it is below the permitted 100 per cent. The difference in stand across the segments may reflect differences in strategy even within service sectors. The strategy of binding less than the status quo in voice telephony and cellular mobile services may reflect the fact that these are high demand areas and thus India has chosen to retain some flexibility in improving its offers in these segments. Meanwhile, in a segment such as Internet services, there is little to gain by binding at a lower level. Also, this is a segment that has bearing on its services exports through cross border supply (outsourcing related exports) and thus by locking in its existing FDI regime in such areas, India is able to signal predictability of its policy environment to the benefit of its own exports. By and large, domestic reforms have preceded the multilateral commitments. With regard to the adoption of regulatory disciplines specified in the Telecom Reference Paper, India has again committed less than the disciplines it actually applies in practice.10 For instance, on the issue of competitive safeguards, India did not accept the prohibition against cross-subsidisation. It mentioned in its Explanatory Paper that ‘Appropriate measures shall be maintained for the purpose of preventing service suppliers from engaging in or continuing in anti-competitive practices,’ but did not specify anything further on this matter. However, in practice, there are provisions within the TRAI Act to provide effective safeguards against cross-subsidisation, including a December 2002 TRAI guideline for a new accounting system which would make it necessary for operators to keep records separately for each service being offered. On the issue of universal service obligation, in its WTO commitments, India has left the definition of this obligation to its own discretion and specified that such obligations would not be seen as anti-competitive per se. In practice, according to the NTP 1999, provision of access to basic telecom services at an

182

RUPA CHANDA AND SASIDARAN G.

affordable and reasonable price for all has been specified as a universal service obligation. Thus, there is some ambiguity in India’s stand on certain regulatory principles. In other areas, however, India has been adhering to its commitments. For example, India has committed under the GATS to making licensing criteria and terms and conditions of individual licenses publicly available. In practice, it has been issuing circulars expressing its policy intent publicly on issues such as a unified access services licensing regime. With regard to the allocation of scarce resources, India has committed to carrying out objectively and in a timely manner, ‘any procedures for the allocation and use of scarce resources, including frequencies, numbers and rights of way’, and in practice, under the NTP 1999 has committed to review spectrum utilisation from time to time. Thus, as with its commercial presence commitments, India has not bound the full extent of the regulatory reforms it has undertaken in specific areas in order to retain policy flexibility to address domestic considerations, while it has signalled its commitment to the regulatory reform process in areas which are less sensitive and have a bearing on efficiency in this sector and competitiveness in other parts of the economy. Financial services As with the telecommunications sector, liberalisation in India’s financial services sector began around 1991 with the gradual relaxation of various restrictions and controls in this sector. The FDI limits in the banking system have been raised gradually since then. Earlier, only minority participation of up to 20 per cent was permitted for foreign banking companies or financial companies in private Indian banks, through technical collaboration or through the FIPB route, and a 40 per cent limit was set for NRIs and associated Overseas Commercial Banks’ Borrowers. This limit was increased to 49 per cent from all sources on Reserve Bank of India (RBI) automatic route in May 2001 subject to RBI guidelines, and was further raised to 74 per cent in the 2004–05 Union Budget (with the proviso that at least 26 per cent of the paid-up capital be held by residents, except in the case of wholly owned subsidiaries of a

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

183

foreign bank). The current FDI policy allows foreign banks to operate in India through branches, through wholly owned subsidiaries, and through subsidiaries with aggregate foreign investment of upto a maximum of 74 per cent in a private bank, while earlier, only branch presence was permitted.11 However, certain conditions remain on foreign investment in the banking sector.12 Between 1995 and 2000, several key steps were taken towards liberalising insurance services, though progress was slow and legislation was often held up for extended periods in Parliament. In December 1998, the Insurance Regulatory Bill was announced, proposing foreign equity participation of up to 26 per cent in the insurance sector, through joint ventures. The bill was ratified in late 2000, with foreign sector participation permitted via the automatic route upto 26 per cent but through partnerships or joint ventures only. More recently, this limit has been raised to 49 per cent. An independent regulator, the Insurance Regulatory and Development Authority (IRDA), was set up in April 2000 to conduct periodic reviews of the functioning of insurance companies and to regulate and supervise the insurance and reinsurance business.13 Other segments such as mutual funds, the government securities market, and the stock market have also been opened up to foreign and domestic competition, albeit with continued limitations. There has also been a concerted effort at regulatory and institutional strengthening of the financial sector, with the establishment of independent regulators and greater enforcement and supervisory powers being given to institutions like Securities and Exchange Board of India (SEBI), RBI and IRDA. Table 7.2 highlights the status of liberalisation in the financial services sector between 1994 and 2006. Table 7.2 shows that there has been some improvement in India’s multilateral offers vis-à-vis its Uruguay Round commitment in financial services. The main improvement has been in Mode 3 where India has moved from unbound entries in segments like life and non-life insurance to allowing FDI participation of upto 26 per cent, raised the ceiling on the number of foreign bank branches from 12 to 15 to 20, and relaxed restrictions on the form

(1) ‘Unbound’ except for freight insurance (2) ‘Unbound’ (3) ‘Unbound’

(1) ‘Unbound’ (2) ‘Unbound’ (3) ‘Unbound’

Life insurance

Uruguay Round commitments on market access (1994)

Non-life insurance

Sector/ Sub-sector

(1) No change (2) No change (3) No change

(1) No change (2) No change (3) No change

Conditional initial offer (Dec. 2003)

(1) No change (2) No change (3) Foreign equity limit is 26 per cent and FIPB approval required.

(1) No change except that non-life insurance not limited to freight insurance. (2) No change (3) Foreign equity limit is 26 per cent and FIPB approval required.

Revised offer (Aug. 2005)

The bill allowed for equity participation for investors up to 26 per cent of total capital. The foreign equity cap in insurance was raised to 49 per cent recently.

Private sector insurance companies started operating in India in 2000 and the Insurance Regulatory and Development Authority (IRDA) was set up as the apex regulator for this sector.

Domestic reforms between 1994 and 2006

Table 7.2 Status Matrix for Actual or Proposed Liberalisation in India’s Financial Services Sector

(1) No change (1) ‘Unbound’ (2) No change (2) ‘Unbound’ (3) No changes (3) Only through branch except the operations of a licensed following: foreign bank. (a) License limit A limit of 12 licenses increased to per year. 15 per year. (b) Foreign equity ceiling of 49 per cent.

(1) No change (2) No change (3) FDI ceiling kept at 49 per cent. Following changes introduced: (a) Commercial presence allowed for a wholly owned subsidiary of a foreign bank subject to RBI regulations. (b) License limit increased to 20 per year.

Operational autonomy granted to public sector banks. Public ownership in public sector banks reduced by allowing them to raise capital from equity market up to 49 per cent of paid-up capital. Foreign investment in the banking sector has been liberalised by raising FDI limit in private sector banks to 74 per cent under the automatic route including investment by FIIs.

Source: Based on India’s schedule of commitments, initial conditional and revised offers, various policy documents on the financial services sector, and Chanda (2004).

Banking

186

RUPA CHANDA AND SASIDARAN G.

of foreign commercial presence (from branch operations only to permitting wholly owned subsidiaries). Hence, there has been an expansion in the scope of India’s potential commitments in this sector as well as a deepening of this commitment. But despite these improvements, the process of autonomous liberalisation has moved ahead of India’s multilateral position. In banking, FDI participation is now permitted till 74 per cent in private banks while in the revised offer, it remains at 49 per cent. In the life insurance segment, the FDI ceiling has been raised to 49 per cent while in the revised offer, it remains at 26 per cent and earlier in its initial conditional offer, it was unbound, even though life insurance services had already been opened up in 2000. The wedge between autonomous and multilateral liberalisation is greater in the case of financial services compared to telecommunication services as the offers are always below the status quo and the initial conditional offer in particular is far below the liberalisation level already in place at the time (in 2004). This may reflect the fact that the telecom sector has witnessed far more rapid liberalisation than the financial services sector, with clearly perceived benefits of such reforms for other parts of the economy, and thus a greater willingness to capture this liberalisation in India’s multilateral position. Overall, India has not really acceded to the requests it had received in this sector, in terms of making full commitments in Modes 1, 2 and 3, and even when acceding to the request of offering more sub-sectors and activities, it has done so in a limited manner with many attached conditions. In response to requests to increase transparency and fairness in the application of its regulations to foreign financial services providers, India has not done much as there has been little or no change in its national treatment offers relative to its Uruguay Round commitments, notwithstanding significant regulatory reforms in this sector. Key features of liberalisation in cluster A The preceding discussion shows that in services like telecom and financial services, where India is facing considerable pressure to open up, multilateral liberalisation has been led by domestic

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

187

liberalisation. These are services in which India has signalled that it is willing to move its multilateral regime closer to its autonomously liberalised policy regime and thus bind in its policy environment, especially on commercial presence, though typically not concurrently, or to the full extent. Similarly, regulatory reforms have also tended to move ahead of commitments on regulatory issues under the GATS, although it is difficult to say to what extent some of these changes may have been motivated or expedited by the eventual need to adhere to regulatory frameworks in sectors like telecom services under the GATS, and to what extent these changes were brought about purely by domestic compulsions to improve efficiency and enhance competitiveness. Overall, the relationship between multilateral and unilateral liberalisation for this cluster has been characterised by multilateral offers following autonomous liberalisation, with a gradual increase in the scope and depth of offers under GATS, but with binding levels being less than what exists in practice. By maintaining this wedge between autonomous liberalisation and multilateral commitments and offers, the strategy appears to have been to retain policy space in such high demand services, to either reverse or threaten to reverse the policy regime if not satisfied with the progress of the negotiations, or to be able to commit to additional liberalisation and lock in the existing policy regime in future negotiations given improvement or the promise of improvement in commitments on issues like Mode 4. Multilateral liberalisation in these services has been used to lend greater credibility to domestic policy intent.

Cluster B: Low profile services with significant autonomous and multilateral liberalisation Similar to the preceding cluster of services is another set of services, where again, there has been both autonomous and multilateral liberalisation, often to the full extent, the difference being that these are not high demand services. India has not received

188

RUPA CHANDA AND SASIDARAN G.

many requests in these services but has nevertheless unilaterally and multilaterally liberalised them to a great extent. Two services that fit this cluster are health related and social services, and construction and engineering services. Health related and social services This is a sector that has been scheduled by very few countries and does not figure importantly in the initial and revised offers. This reflects the fact that this is seen as social or public good sector, where the government has an important role to play. However, it is interesting to note that India was among those few countries, which scheduled this sector in the Uruguay Round, though with very limited commitments. As Table 7.3 shows, India improved significantly upon this commitment even in its initial conditional offer, by replacing its unbound commitment with an offer of a full commitment in Modes 1 and 2, and increasing the FDI ceiling from 51 to 74 per cent in Mode 3. This improvement reflects the autonomous liberalisation that India has undertaken in health care services since 2000, with the opening up of the hospital segment to 100 per cent FDI participation and the entry of domestic corporate hospitals and Multi-National Corporations (MNCs) in India’s health care industry.14 There are around 20 international players competing to have a share of the Indian health care market today.15 These players are entering mainly through joint ventures with Indian companies, and to a limited extent through other arrangements such as subsidiaries, single ownership, and technology and training collaborations. While the table indicates that the level of domestic liberalisation still exceeds that placed in the offers, the shift in the multilateral stance from the Uruguay Round to the stage of revised offers is large. It indicates the government’s recognition of the changing scenario in the health sector and the potential gains to be realised from the infusion of capital and technology in this sector, particularly from the emergence of hospitals of international standards and the spin off benefits in other areas such as medical tourism exports. The nature of the offers also indicates that India has tried to retain policy space to address considerations such as technology

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

189

transfer, consumer protection, quality and reliability of health care providers, and social concerns by inscribing certain conditions on the kind of technology brought in and the kinds of players involved. Table 7.3 highlights the status of liberalisation in the health services sector between 1994 and 2006. Construction and engineering services Like the health services sector, this is another area where there has been considerable improvement over the Uruguay Round commitment in the initial and conditional offers, to the extent of removing all restrictions on commercial presence and offering to bind the existing FDI regime in key segments. The government has permitted 100 per cent FDI through automatic route in construction for civil works. The negotiating position has also changed from a no commitment or unbound stance to a no restrictions stance, apart from standard FIPB approval requirements. And as in the health services sector, this improvement is seen in the initial offer itself. The willingness to offer greater liberalisation in this sector reflects the growing recognition of the importance of this sector for infrastructure development and overall efficiency and growth of the economy and possibly, the need to signal unilaterally initiated liberalisation in the country’s multilateral negotiating position in this sector. It is worth noting that the revised offer in construction and engineering services meets the demands contained in the recent plurilateral request made to India. Table 7.4 highlights the status of liberalisation in the construction and engineering services sector between 1994 and 2006. As both the above cases indicate, where there is a clear benefit to be realised from liberalisation, either in terms of benefits in other areas within the sector or economy-wide, and where there are no stakeholder-driven sensitivities, the government has been more pro-active about offering further liberalisation commitments. In contrast to the case of telecom and financial services, in this case, the government has gone further and even bound the status quo. The latter may reflect the fact that there is little

(1) ‘Unbound’ (2) ‘Unbound’ (3) Foreign equity ceiling is 51 per cent, only through local incorporation. (4) ‘Unbound’ except as given in the horizontal commitments.

Uruguay Round commitments on market access (1994)

(1) ‘None’, provided transaction is between two established medical institutions, covering areas of second opinion for diagnostics or research. (2) ‘None’ (3) Foreign equity limit increased to 74 per cent. FIPB approval required for foreign investors with prior collaboration. Only through local incorporation. Subject to inflow of latest technology for treatment. Different conditions for publicly funded services. (4) No change

Conditional initial offer (Dec. 2003) (1) (2) (3) (4)

No change No change No change No change except restrictions removed for charitable purposes.

Revised offer (Aug. 2005)

100 per cent FDI subject to FIPB approval. The health insurance market was opened to private competition in 2000, which permitted both general and life insurance companies to offer health insurance.

Domestic reforms between 1994 and 2006

Source: Based on India’s schedule of commitments, initial conditional and revised offers, and various policy documents on the health services sector.

Hospital services

Sector/ Sub-sector

Table 7.3 Status Matrix for Actual or Proposed Liberalisation in India’s Health Services Sector

(1) ‘Unbound’ (2) ‘Unbound’ (3) Foreign equity ceiling is 51 per cent, through local incorporation only. (4) ‘Unbound’ except as indicated in the horizontal section.

Uruguay Round commitments on market access (1994) (1) ‘None’ (2) ‘None’ (3) No change except additional requirement of FIPB approval in case of foreign investors having prior collaboration. (4) No change

Conditional initial offer (Dec. 2003) (1) (2) (3) (4)

‘None’ ‘None’ ‘None’ No change

Revised offer (Aug. 2005)

100 per cent FDI is allowed in all segments through the automatic route. Stipulation on the minimum area developed by a foreign company lowered from 100 acres to 10 acres.

Domestic reforms between 1994 and 2006

Source: Based on India’s schedule of commitments, initial conditional and revised offers, and various policy documents on the construction services sector.

Construction work for civil works

Sector/ Sub-sector

Table 7.4 Status Matrix for Actual or Proposed Liberalisation in India’s Construction Services

192

RUPA CHANDA AND SASIDARAN G.

to gain by binding less than the status quo in such services as these are not high demand areas, and thus provide less room to leverage further improvements on its part to obtain market access gains in Modes and sectors of interest to India. The conditions inscribed reflect mostly social and equity-oriented considerations while in the preceding cluster, they mainly reflect regulatory considerations.

Cluster C: Services with incipient autonomous and multilateral liberalisation A third group of services consists of sectors which were not scheduled in the Uruguay Round, but which have since been tabled for negotiations in the revised or initial conditional offers. Moreover, these are services in which unilateral liberalisation has either been considered or been undertaken to some extent, but is at an incipient and exploratory stage, with lack of clarity on the likely implications of opening up to foreign competition. The services fitting this group include distribution and higher education services. Higher education services This is a sector where there has been a lot of debate about the desirability of opening up and the kinds of regulatory preconditions needed to ensure that there is no adverse fall out from liberalisation. The main issue is again FDI presence. The cap on foreign equity participation in this sector has been raised to 100 per cent under automatic route, as of 2000. There is a 49 per cent sectoral cap for research and teaching activities, while the education testing and training segments remain closed. To date, according to a 2005 study by National Institute of Educational Policy and Administration (NIEPA), the entry of foreign education providers has been through study centres, programme collaboration, franchising, and twinning arrangements, where the foreign providers have minimum stake while the Indian counterpart provides the infrastructure. There has not been any investment

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

193

in setting up branch campuses so far. Most foreign education providers are in commercially-oriented programmes such as management and IT. The main concern has been that there is insufficient enforcement of existing regulations regarding quality and relevance of education provided, consumer protection, and equivalence and accreditation issues, and that such poorly regulated opening up could lead to profiteering, fly-by-night operators, and little or no spillover effects in areas like educational infrastructure or curriculum development. Table 7.5 highlights the status of liberalisation in the education services sector between 1994 and 2006. Table 7.5 shows that there has been a change in approach with regard to higher education services. The change in stance from not scheduling or offering this sector for negotiations to tabling it in the revised offers in part reflects the government’s increased willingness to negotiate in this area, following upon its own steps to permit foreign service providers in higher education. However, more importantly, it suggests a negotiating tactic of responding to requests in this sector by key players such as the US, in the hope of realising gains in offers on key modes such as Mode 1 and Mode 4 by major trading partners. There have been several requests to India to schedule this sector and to allow FDI in higher education services. It appears that by offering education services in the revised offers, the Indian government is signalling that it can be more forthcoming on liberalising a wider range of service sectors, provided there is progress in areas of its interest. Distribution services16 There has been considerable liberalisation of this sector in the segments other than retailing non-retail segments in recent years. FDI of up to 100 per cent with FIPB approval has already been allowed for trading of items sourced from the small-scale sector and for test marketing of items for which the company has approval for manufacturing, subject to certain conditions. Trading of items for the social sector, trading of high-tech, medical and diagnostic items, and domestic sourcing of products for exports are also permitted subject to the provisions of the Export Import

Sector not tabled for negotiations

Sector not scheduled

Sector not scheduled

Primary, adult, secondary, other services

Higher education services

(1) ‘None’ subject to the regulations as applicable to domestic providers in country of origin. (2) ‘None’ (3) ‘None’ but subject to condition that fees charged can be fixed by appropriate regulatory authority and not lead to charging capitation fees or profiteering. FIPB approval required for foreign investors having prior collaboration. (4) ‘Unbound’ except as in the horizontal section.

These segments are not included in the offer:

Revised offer (Aug. 2005)

Foreign Direct Investment (FDI) in education, including higher education, is allowed under the automatic route, without any sectoral cap, since 2000. Limit of 49 per cent on teaching and research. No FDI permitted in training and testing services.

Domestic reforms between 1994 and 2006

Source: Based on India’s schedule of commitments, initial conditional and revised offers, and various policy documents on the higher education sector.

Sector not tabled for negotiations

Conditional initial offer (Dec. 2003)

Sector/ Sub-sector

Uruguay Round commitments on market access (1994)

Table 7.5 Status Matrix for Actual or Proposed Liberalisation in India’s Education Services Sector

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

195

(EXIM) Policy. Wholesale trading of joint-venture-based products is permitted for such trading companies that wish to market manufactured products on behalf of their joint ventures in which they have equity participation in India. FDI up to 100 per cent is permitted for e-commerce activities, but only on a business-tobusiness (B2B) basis and not in retail trading. FDI participation has been raised from 51 per cent to 100 per cent in cash and carry wholesale trading and export trading, through automatic route. FDI is also allowed in franchising (unless otherwise prohibited) and commission agents’ services, (subject to RBI approval) consistent with Foreign Exchange Management Act (FEMA). More recently, the retail segment has been opened up, though amidst considerable debate about the desirability of such liberalisation and the likely impact on the unorganised retail industry. In 2006, the government also allowed 51 per cent FDI in ‘single-brand retailing’ subject to FIPB approval and subject to conditions that (i) only single brand products would be sold; (ii) products would be sold under the same brand internationally; (iii) single brand product-retailing would only cover products which are branded during manufacturing; and (iv) any addition to product categories to be sold under ‘single brand’ would require fresh approval from the government. Although the FDI restriction on multi-brand retailing continues, such retailers can enter the market through local sourcing, manufacturing and franchising routes. The liberalisation of retail services has aroused concerns that the entry of big foreign retailers would lead to the displacement of small traders and cause unemployment among low skilled workers. Proponents of liberalisation, however, argue that this would force consolidation within the sector and lead to the presence of a large domestic players co-existing with foreign players and that domestic constraints such as infrastructure and lack of quality manpower would limit the extent of competition from foreign players. Table 7.6 highlights the status of liberalisation in the distribution services sector between 1994 and 2006. The information presented in Table 7.6 indicates that India has undergone a major shift in its approach to negotiating distribution

Overall sector not tabled for negotiations.

Wholesale trade services (for specified items/groups of items).

Overall sector not scheduled.

Conditional initial offer (Dec. 2003)

Overall sector not tabled for negotiations.

Uruguay Round commitments on market access (1994)

Overall sector not Commission scheduled. agents’ services covering sales on a fee or contract basis of specified items/groups of items.

Sector/ Sub-sector

FDI upto 100 per cent allowed with FIPB approval for specified items and sourcing. FDI up to 100 per cent permitted for e-commerce activities. Only B2B e-commerce allowed.

(1) (2) (3) (4)

‘None’ ‘None’ ‘None’ except as above ‘Unbound’ except as in horizontal section

No limits other than requirement of RBI approval for commission agents and franchising services

(1) ‘None’ (2) ‘None’ (3) ‘None’ subject to the approval of RBI/FIPB, conform with FEMA. FIPB approval required for foreign investors with prior collaboration (4) ‘Unbound’ except as in the horizontal section

Revised offer (Aug. 2005)

Domestic reforms between 1994 and 2006

Table 7.6 Status Matrix for Actual or Proposed Liberalisation in India’s Distribution Services Sector

Sector not scheduled

Franchising

This segment not included in tabled offer.

Overall sector This segment not included not tabled for in tabled offer. negotiations

Overall sector not tabled for negotiations

FDI allowed (unless otherwise prohibited), subject to RBI approval under FEMA

FDI participation of upto 51 per cent permitted in single brand products with FIPB approval. Foreign companies allowed to invest up to 51 per cent in joint ventures. Investment permitted in real estate to benefit retail sector.

Source: Based on India’s schedule of commitments, initial conditional and revised offers, various policy documents on the distribution services, and Mukherjee and Patel (2005).

Sector not scheduled

Retail services

198

RUPA CHANDA AND SASIDARAN G.

services, from not scheduling or tabling it at all to proposing some liberalisation in its revised offers. For the two segments that have been inscribed in the revised offer, namely commission agents’ services and wholesale trade services, the proposed commitment is very liberal and in line with existing policies in these areas. There are no restrictions in the revised offer across relevant modes, excepting the usual regulatory approval related conditions. However, it is interesting to note that a segment such as franchising has not been inscribed in the offer, although it has, in practice, been opened up. Also, the segment most under demand, retail services, has also not been inscribed in the revised offer, although it too has recently been opened up to a certain extent. The change in negotiating strategy in distribution services is in response to the large number of requests India received from all the major developed countries in this area, especially in retailing. By offering to negotiate in this area, India is not only indicating that it is willing to bind the autonomous liberalisation undertaken in this sector but also signalling its willingness to negotiate in additional segments such as retail, provided its interests in the GATS negotiations are met by the demanders. Key features of liberalisation in Cluster C In both the distribution and higher education services sectors, India has shifted from a conservative stand to a pro-active one, looking for a quid pro quo in other sectors and modes in return for offering to lock in the prevailing policy regime and impending liberalisation in key areas like retailing. Indian government officials have said openly that such sectors are their ‘trump cards’ and that if improved offers are not forthcoming in Modes 1 and 4, then they would withdraw their revised offers in these areas. Once again, as in cluster 1, multilateral commitments/offers have followed unilaterally initiated measures. It is also worth noting that in both cases, the revised offer does not include the more sensitive and controversial areas, where the implications of liberalisation are still under debate, where there is no clear consensus on the right approach for liberalisation and there are continued concerns about the lack of regulatory frameworks for ensuring liberalisation is beneficial. For example,

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

199

educational testing services have not been tabled, although players like the US had requested India to table this segment. Retailing has not been tabled despite many requests in this segment. As noted earlier, this exclusion may reflect two things, one that the government wants to keep some negotiating space for future improvement in its revised offer, depending on the progress of the negotiations, and two, that the government is not in a position to offer it yet given domestic sensitivities and political realities and uncertainty about the consequences and thus the need to retain policy space for reversing its autonomous liberalisation if so required.

Cluster D: Limited or no autonomous liberalisation and multilateral liberalisation There is one final set of services where there has been little or no unilateral as well as multilateral liberalisation. These are services where there are a lot of requests from our trading partners to allow foreign commercial presence and to offer full commitments in Modes 1 and 2, but in which there are strong domestic interest groups, which are against opening up, particularly to foreign commercial presence. The failure to get the support from domestic stakeholders, namely regulatory bodies, to liberalisation has resulted in limited or only proposed autonomous liberalisation and no scheduling or tabling of the sector multilaterally. Even when tabled, the offers have been very restrictive in the main modes of interest to our trading partners and there has been no change in the offers over time. In these services, there is really no wedge between the domestic policy regime and what is committed multilaterally as both are highly restrictive. Two business services, accountancy and bookkeeping services (excluding audit services), and legal services characterise this cluster. Accountancy services There are regulatory and reciprocity related issues in this sector, which have led to a conservative stance in the multilateral negotiations. Major players like the US and the EU have been pushing

200

RUPA CHANDA AND SASIDARAN G.

for the removal of all barriers to the establishment of foreign professional accountancy firms in India, through organisations like the International Federation of Accountants (IFAC). However, the Institute of Chartered Accountants of India (ICAI) has been asking the government to ensure that there is a level playing field for domestic firms before such establishment is allowed. It has called for amendments in domestic regulation to permit multidisciplinary professional firms and limited liability partnerships so that domestic firms can compete with foreign firms. It has also petitioned the government to seek reciprocal arrangements for domestic accountants and Indian firms in other countries, in particular, the recognition of Indian accountancy qualifications by major trading partners. It has also sought the removal of other barriers to the movement of Indian accountancy professionals. There is some concern that foreign accountancy firms are already circumventing the law by offering services such as statutory audits through surrogate firms.17 Table 7.7 shows that while the sector has been tabled for negotiations, only Modes 1 and 2, the less contentious modes have been offered. These are also modes, which have bearing on cross border delivery of accountancy advisory and back office services. However, Mode 3 remains unbound, reflecting the resistance from ICAI unless key regulatory and reciprocity related issues are resolved. This lack of liberalisation is also mirrored in the existing policy regime. The fact that India did not make an offer in Mode 3 may either reflect its dissatisfaction with the lack of progress in the Mode 4 negotiations and the uncertainty about obtaining any meaningful market access in this mode. Alternatively, its stand on Mode 3 may reflect its protectionist motives stemming from the fact that Indian accounting firms do not have a global brand name and would not be in a position to compete if commercial presence were opened up in this sector. Legal services In the legal services sector, the regulatory body, the Bar Council of India (BCI), is against opening up to foreign law firms in India. This is again a high demand sector with major players like the US

Not scheduled

(1) (2) (3) (4)

‘None’ ‘None’ ‘Unbound’ ‘Unbound’ except as indicated in the horizontal commitments. Access limited to independent professionals and business visitors only.

Conditional initial offer (Dec. 2003) (1) (2) (3) (4)

No change No change No change No change

Revised offer (Aug. 2005)

FDI not allowed in accountancy sector. Foreign service providers not allowed to undertake statutory audit of companies.

Domestic reforms between 1994 and 2006

Source: Based on India’s schedule of commitments, initial conditional and revised offers, various policy documents and newspaper articles on accountancy services.

Accounting and book keeping services (excluding auditing services)

Sector/Sub-sector

Uruguay Round commitments on market access (1994)

Table 7.7 Status Matrix for Actual or Proposed Liberalisation in India’s Accountancy Services Sector

202

RUPA CHANDA AND SASIDARAN G.

requesting India to allow foreign law firms to be set up in the country and to permit cross border delivery of legal advisory services. The BCI’s concerns again hinge on issues of level playing field, that is, restrictions on the establishment of domestic multidisciplinary firms covering a range of professional services in India, restrictions on advertising of legal services by professionals, and lack of reciprocal treatment for Indian legal professionals and firms in other countries. There is also concern that despite the restriction on foreign commercial presence, foreign law firms have already entered the market through means such as liaison offices, advisory work, regional offices, and informal tie-ups with Indian law firms. Such apprehensions are reflected in India’s refusal to even table this sector for negotiations, unlike the case of accountancy services, where the sector has been tabled though the key mode has not been offered for liberalisation. Although there are many similarities across these two professional services, the resistance in the legal services profession has been even greater than in accountancy services, as the failure to table legal services clearly shows. This is in part because the entry of management consultancy firms in India has already forced competition in the accountancy sector while the legal services area remains protected to a greater degree. Also, while there are concerns about the impact of foreign entry on small firms in both these services, there is greater concern about competence and quality issues in the case of legal services, thus resulting in complete unwillingness to negotiate in this area as opposed to accountancy services where there is some willingness to negotiate but on ‘fair terms’. It is worth noting that non-tabling of sectors is not limited to those services, which have faced resistance to opening up at home. There are some areas like energy services, where some segments have been liberalised for foreign equity participation, but which were not scheduled in the Uruguay Round and have not been offered for negotiations subsequently. FDI is permitted upto 100 per cent through automatic route for exploration and production for the oil and gas segment (excepting natural gas) and the same is permitted for companies undertaking power projects including

Not scheduled

Not scheduled

Conditional initial offer (Dec. 2003) Not scheduled

Revised offer (Aug. 2005)

The Advocates Act and the Bar Council of India Rules that regulate the practice of law in the country, impose many restrictions on Foreign Service providers in legal services. FDI is not permitted in the sector and international law firms are not allowed to establish in India.

Domestic reforms between 1994 and 2006

Source: Based on India’s schedule of commitments, initial conditional and revised offers, various policy documents and newspaper articles on legal services.

Legal services

Sector/Sub-sector

Uruguay Round commitments on market access (1994)

Table 7.8 Status Matrix for Actual or Proposed Liberalisation in India’s Legal Services Sector

204

RUPA CHANDA AND SASIDARAN G.

electricity generation, transmission and distribution, subject to a cap of US$ 300 million and some restrictions on production conditions. Although India has received requests in this sector, with particular interest in commercial presence, and has also liberalised considerably on its own and initiated power sector reforms, its failure to offer it for negotiations could be for two reasons. The first reason is that this is still a sector where there are difficult regulatory issues to be resolved (especially given some past controversial decisions) and thus a need to retain discretion for policy reversal. The second reason could be that this is a sector which India plans to negotiate in future when the timing is more conducive and reciprocal gains in other areas are more likely.

GATS AND INDIA’S MARKET ACCESS OPPORTUNITIES The preceding discussion reveals that GATS has not really stimulated the liberalisation and reform process in India’s service sector. It has tended to lag behind the latter. As regards the impact GATS has had on enhancing and securing market access opportunities for India’s service exports, an examination of the discussions in India’s two main modes of interest, Modes 1 and 4, suggests that again the implications are limited if any.

India and Mode 1 India’s main market access interest in the context of Mode 1 has been to preserve the existing liberal trade and investment regime in this Mode and pre-empt future protectionism in the form of outright bans and conditions imposed on outsourcing contracts by developed countries. Trade in Mode 1 has emerged as the main driver for India’s growing trade in services. Exports of Information Technology (IT)-Information Technology Enabled Services (ITES) have grown from US$ 4 billion in 2000 to around US$ 24 billion in 2006 and ITES exports alone have increased from US$ 1.9 billion to US$ 6 billion over this period.18 India emerges as the most

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

205

attractive offshore destination in rankings by A.T. Kearney and in the Global Services Location Index, 2005, notwithstanding the emergence of other competitors and domestic constraints. India’s strength in Mode 1 stems from its pool of skilled, low cost, and abundant labour, the maturity of its software industry, its English language capabilities, and a supportive business environment among other factors. The dynamic growth of India’s Mode-1-based services exports have not been spurred in any way by the GATS negotiations. Business dynamics have driven this process. This is evident from the absence of any major improvements in the level and scope of liberalisation extended by countries in Mode 1. While some more offers have been forthcoming in this mode, important services with potential for outsourcing, such as legal, accountancy, and health services have either not been offered at all under Modes 1 and 2 or have been offered with restrictive conditions, such as requirements of in-state commercial presence by exporting firms in the importing country (which India had requested to be removed). The failure of the GATS to deliver any meaningful market access opportunities in this Mode is also evident from the state of negotiations. In June 2004, India, together with Chile and Mexico, had jointly tabled a statement seeking support for unrestricted horizontal Mode 1 commitments, except for some sensitive sectors, by the majority of WTO Member countries. Later, along with China, Chile, Mexico and Hong Kong, it jointly tabled a discussion paper and attempted to provide greater focus and specificity to the issues related to the level and nature of commitments in crossborder supply of services. However, following the reluctance of members to make full horizontal commitments, India changed its approach slightly by sponsoring a plurilateral request in Mode 1 which does not ask for across the board full commitments but lists a extensive list of service sectors where cross-border supply is important and where such unrestricted access is sought. It is now difficult to say whether this request will be met in this form given the stalling of negotiations. The inefficacy of the GATS negotiations is also evident from the fact that over this period, there has been a rise in protectionist legislation on outsourcing. While in 2003, there were only four

206

RUPA CHANDA AND SASIDARAN G.

bills restricting offshore sourcing, in 2004, there were some 40 federal bills and 200 state bills in the US. In addition, laws concerning data protection, privacy of information, liability, and consumer protection are becoming increasingly important barriers to cross border trade in services. Such protectionist legislation has made it all the more important to secure a liberal market access regime in Mode 1. However, there has been limited progress in the Mode 1 discussion so far in meeting this objective. Also, given the carve out of services provided in the exercise of governmental authority under the GATS, it has not been possible for India to address the bans on government outsourcing of service contracts, albeit a small part of the outsourcing market. India’s success in Mode 1 is driven by business dynamics and its inherent strengths in providing skilled labour intensive services and aided by the liberalisation of its telecommunications sector.

India and Mode 4 This Mode has been the main area of interest for all developing countries in the GATS negotiations, India being the spearhead for these discussions. Starting with the original communication from India on Mode 4 and the subsequent requests by India, including a collective request with several developing countries, the emphasis throughout has been on improving the horizontal commitments in Mode 4, by: (a) de-linking it from requirements of commercial presence; (b) expanding the coverage of service provider categories to include Independent Professionals (IP) and Contractual Service Suppliers (CSS) to address categories of export interest to developing countries; (c) reducing discretionary scope in the application of various measures affecting Mode 4; and (d) introducing multilateral norms on recognition, among other demands.19 As is evident from an examination of the original commitments and subsequent offers in Mode 4, at the horizontal and the sectoral levels, there has been virtually no improvement. The sectoral offers continue to be unbound except as indicated in the

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

207

horizontal offer and in the latter, there is no change in the case of the US and in the case of the EU change only to the extent of including the categories of contractual service suppliers and independent professionals and limited relaxation of restrictions like economic needs tests. But conditions such as requirement of commercial presence, lack of uniformity in definitions of categories, lack of clarity on the criteria for applying certain measures, continue in the initial and revised offers of players whose markets are relevant for Mode 4. India has submitted a plurilateral request along with 11 other developing countries in accordance with Annex C of the Hong Kong Ministerial text, seeking new and improved commitments on CSS and IP categories and transparency in Mode 4 commitments. It is unlikely that this request will be met, as the US has already indicated and more so given the suspension of the negotiations. Yet as in the case of Mode 1, India’s significance as a supplier of service providers to both developed and developing countries continues and has grown with regard to markets like the US, where India’s share in temporary non-immigrant visas like the H-1B has increased over the past decade, far exceeding that of other developing countries. In services such as IT, science, health, India is the leading supplier of non-immigrant manpower to the US. Thus, it is apparent that the GATS negotiations in Mode 4 have had no bearing on the natural dynamic that is visible in India’s Mode 4 exports, again driven by business interests and India’s inherent strength in this area. The GATS has certainly not enhanced market access opportunities in this Mode.

CONCLUSION The analysis of India’s own liberalisation strategy vis-à-vis its multilateral commitment and reform strategy in services shows that the GATS has not really played a catalytic role in India’s liberalisation process. Liberalisation of services has been undertaken as part of India’s general economic reform programme and has been shaped by domestic compulsions of enhancing efficiency in key

208

RUPA CHANDA AND SASIDARAN G.

input services like telecom and financial services for economy wide benefit and because of synergies with other sectors. Where opening has not been possible, the sector has not figured in the multilateral negotiations or figured only in a limited manner. Multilateral commitments and offers have typically lagged behind the autonomous liberalisation process and there are few occasions of pre-commitment. Also, multilateral commitments and offers have largely been less than the status quo, indicating an overall conservatism in the negotiating strategy and a strategy of keeping room for discretion or future leveraging of the negotiations in certain services. The GATS has also not been instrumental in expanding and securing opportunities for India’s services exports, the latter growing rapidly on their own strengths and spurred by technology and business imperatives. The analysis also shows that there are several categories of services in India’s liberalisation programme. The first pertains to services such as telecom and financial services, where liberalisation is a must for national efficiency and competitiveness reasons and large spillover effects on the rest of the economy. Here, unilateral liberalisation has clearly led and maintaining some discretion for future negotiating space has been important in view of the significance of these services to trading partners. The second group pertains to services such as construction and engineering services where unilateral and multilateral liberalisation have more or less been aligned, because there are no major sensitivities or stakeholder interests involved and the benefits are clearly recognised. The third group pertains to services such as distribution and education services where the desirability of liberalisation is still under national debate but where some potential benefits are also apparent, and where a more forthcoming position in the multilateral negotiations could be used to leverage concessions from trading partners. And finally, there is a fourth set of services where the prevailing view is that without changes in domestic regulations and progress in bilateral discussions, opening up can have adverse consequences, and hence neither unilateral nor multilateral liberalisation has been undertaken.

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

209

This raises the question, whether this relationship and this typology of service clusters will change in future. The answer depends on when the services negotiations resume, what happens outside the services agreement, what kinds of bilateral and regional arrangements emerge during this interim period, and the kind of reform agenda India pursues in services. However, it is likely that India will continue to progressively liberalise and undertake regulatory reforms in its service sector, including the more sensitive services, and that the prospect of reversing such reforms will diminish over time. Hence, the value of locking in through multilateral commitments and the signalling value of multilateral offers is likely to diminish over time. Bilateral and regional deals will further undermine the value of the GATS for India.

NOTES 1. 2. 3. 4. 5. 6. 7. 8.

9.

10. 11. 12. 13.

World Bank (2004c). India Brand Equity Foundation (IBEF) (2006). Hindu Business Line (2006). IBEF (2006). See Chanda (2005a). See WTO, Council for Trade in Services (July 3, 2003). See WTO, Council for Trade in Services (June 2004). Plurilateral negotiations would involve a group of countries submitting a joint request in a sector or on a cross cutting issue like Mode 4 or Mode 1 and another set of countries being the deemed recipient group for this request. In response, the recipients would make their offer against this request, which would be extended on an MFN basis to all member countries and not just the group of demanders. The Hong Kong Ministerial put the deadline for plurilateral requests at 28 February, 2006, the deadline for initial offers at 31 July, 2006 (which has since been extended to mid-2007 due to the suspension of talks), and the consolidation of these offers by 31 July, 2006. Some of the sections pertaining to Mode 4 interests in Annex C of the Hong Kong Ministerial Declaration are very similar to India’s original communication proposal in Mode 4, suggesting that India has been influential in voicing its concerns in this Mode and getting this reflected in a legal text. Kathuria et al. (2004). Joseph and Nitsure (2002). See Chanda (2005b) for a list of these conditions. Indian Banks’ Association (2002).

210

RUPA CHANDA AND SASIDARAN G.

14. The foreign players include Singapore’s Pacific Healthcare, Max Healthcare, Wockhardt and the Singapore-based Parkway Group for example. 15. Here we focus only on the presence of foreign players in the Indian hospital and medical devices market. The Indian healthcare market on the whole also encompasses the drugs and pharmaceuticals sector, which is not considered here. 16. This discussion is entirely based on Mukherjee & Patel (2005). 17. Hindu Business Line (2005). 18. See Nasscom (2006). 19. See Chanda (2004) for details on developing country requests in Mode 4.

REFERENCES AND SELECT BIBLIOGRAPHY Arun, T.G. and J.D. Turner. 2002. ‘Financial Sector Reforms in Developing Countries: The Indian Experience’, The World Economy, Vol. 25. Bagchi, P. 2000. ‘Telecommunications Reform and the State in India: The contradiction of Private Control and Government Competition’, Occasional Paper Number 13. Center for the Advance Study of India. Brummer, J. 2005. ‘India’s Negotiating Positions at the WTO’, Dialogue on Globalization Briefing Papers. Geneva: Friedrich Ebert Stiftung. Chadha, R. 2000. ‘GATS and Developing Countries: A Case Study of India’, Paper commissioned by the World Bank. Chanda, R. 2001. ‘Movement of Natural Persons and the GATS’, World Economy, 24(5): 631–54. ———. 2002. Globalization of Services: India’s Opportunities and Constraints. New Delhi: Oxford University Press. ———. 2004. Movement and Presence of Natural Persons: Issues and Proposals for the GATS Negotiation. Geneva: South Centre. ———. 2005a. ‘India’s Stake in the WTO Services Negotiations’, in Bibek Debroy and Mohammed Saqib (eds), WTO at Ten: Looking Back to Look Beyond, Vol II: Issues at Stake, pp. 21–74. Konark Publishers: New Delhi. ———. 2005b. ‘Trade in Financial Services: India’s Opportunities and Constraints’. ICRIER Working Paper No. 152, January. New Delhi. Centre for International Trade, Economics & Environment (CUTS). 2003. ‘Investment Policy in India—Performance and Perceptions’, Discussion Paper. Dubey, M. 2006. ‘An Appraisal of the WTO’s Hong Kong Ministerial Outcome’, Business Line, 7 February. Gordon, J and P. Gupta. 2005. ‘Understanding India’s Services Revolution’, in Wanda Tseng and David Cowen (eds), India’s and China’s Recent Experience with Reform and Growth. International Monetary Fund: Washington, DC. Hindu Business Line. 2005. ‘Remove Barriers on Foreign Accounting Firms’. 18 February. Available at: http://www.blonnet.com/2005/02/18/stories/ 2005021801731000.htm. Accessed on: 20/07/2006. ———. 2006. ‘IT-ITES Exports rise 33 pc at $24 b’, June 02. (http://www. thehindubusinessline.com/2006/06/02/stories/2006060202800300.htm)

GATS AND DEVELOPMENTS IN INDIA’S SERVICE SECTOR

211

India Brand Equity Foundation (IBEF). 2006. http://www.ibef.org. Indian Banks’ Association. 2002. Indian Banking Yearbook 2001. Mumbai: Thomson Press Ltd. International Telecommunications Users Group (INTUG). 2003. ‘WTO Commitments on Telecommunications—A Submission to the Government of India’. Jha, V., J. Nedumpara, A. Das, K. Karthikeyan and S. Thakur. 2005. ‘Services Liberalisation: Challenges and Opportunities for India’, Chapter 3, India and the Doha Work Programme, pp. 143–219. Joseph, M. and R. Nitsure. 2002. ‘WTO and Indian Banking Sector: The Road Ahead’, Economic and Political Weekly, Vol. 37(24): 2315–22, 15 June. Kathuria, R. Harsha Vardhana Singh and Anita Soni. 2004. ‘Telecommunications Policy Reform in India’, Chapter 5, India and the WTO. Kumar, S. 2005. Trade in Services: Advantage India. New Delhi: Bookwell. Kuruvilla, B. 2006. ‘Services Industry Drives India GATS Negotiations’, Focus on the Global South, 30 June. Menon, A. 1999. ‘India: Adopting a Pro-Competitive Policy for Telecommunications’, presented to the Board of Directors, Telecommunications Alliance, India. Ministry of Finance. Various years. Economic Survey. Government of India. Mohan, R. 2006. ‘Financial Sector Reforms and Monetary Policy—The Indian Experience’, in paper presented at the Conference on Economic Policy in Asia, June. Stanford: Stanford Center for International Development and Stanford Institute for Economic Policy Research. Mukherjee, A. and N. Patel. 2005. FDI in Retail Sector: India. New Delhi: Academic Foundation. Nasscom. 2006. Strategic Review: The IT Industry in India. New Delhi. National Telecom Policy. 1999. Reference Paper. Government of India. Raghuraman, V. and S. Ghosh. 2003. India-U.S. Cooperation in Energy—Indian Perspective. Confederation of Indian Industry (CII). Singh, J.P. 2005. ‘FDI Variations in Emerging Markets: The Role of Credible Commitments—With Special Reference to Asia’, MIT Information Technologies and International Development, Vol. 2(4). Srinivasan, G. 2006. ‘India Moves Ahead in Merchandise Exports’, Hindu Business Line, April 11. Srivastava, A. 2004. ‘GATS—The Indian Scenario’, in Challenges and Options for Government and Business after the Adoption of the WTO July Package. Manila. Varma, J. 2002. Indian Financial Sector After a Decade of Reforms. New Delhi: Centre for Civil Society. Venugopal, K. 2003. ‘Telecommunication Sector Negotiations at the WTO: Case Studies of India, Sri Lanka and Malaysia’, presented at the ITU/ESCAP/WTO Regional Seminar on Telecommunications and Trade Issues. Bangkok. Winters, A. 2005. ‘Developing Country Proposals for the Liberalisation of Movements of Natural Service Suppliers’, Development Research Centre on Migration, Globalisation and Poverty. Working paper T8. World Bank. 2000. ‘Communication from India on Movement of Natural Persons’, S/CSS/W/12. Geneva, November 24.

212

RUPA CHANDA AND SASIDARAN G.

World Bank. 2001. ‘Assessment of Trade in Services’. Communication from Cuba, Dominican Republic, Haiti, India, Kenya, Pakistan, Peru, Uganda, Venezuela and Zimbabwe. Geneva. ———. 2003a. ‘Proposed Liberalization of Mode 4 under the GATS Negotiations’. Communication from Argentina, Bolivia, Chile, the People’s Republic of China, Colombia, Dominican Republic, Egypt, Guatemala, India, Mexico, Pakistan, Peru, the Philippines, and Thailand, TN/S/W/14. Geneva, 3 July. ———. 2003b. ‘Conditional Initial Offers for US, EC, Canada, Australia’. Geneva. ———. 2004a. ‘Joint Statement on Liberalization of Mode 1 in the GATS Negotiations, Communication from Chile, India, and Mexico’, JOB (04)/87. Geneva. 28 June. ———. 2004b. ‘Mode 4—Transparency issues’. Communication from Argentina, Brazil, Chile, China, Colombia, Dominican Republic, Egypt, Guatemala, India, Mexico, Pakistan, Peru, the Philippines and Thailand. Geneva, 29 September. ———. 2004c. Sustaining India’s Services Revolution: Access to Foreign Markets, Domestic Reform and International Negotiations. South Asian Region, India. WTO. 1994. ‘Schedules of Specific Commitments for Selected Countries’. Geneva. ———. 1995. ‘Schedule of Specific Commitments for India’. Geneva. ———. 1997. ‘Schedule of Specific Commitments for India’. Geneva. ———. 1998. ‘Schedule of Specific Commitments for India’. Geneva. ———. 2003. ‘Conditional Initial Offers for US, EC, Canada, Australia’. Geneva, July 3. ———. 2004. ‘India, Conditional Initial Offer’, TN/S/O/IND. Geneva. 12 January. ———. 2004. ‘Joint Statement on Liberalization of Mode 1 in the GATS Negotiations, Communication from Chile, India, and Mexico’, JOB (04)/87. Geneva, 28 June. ———. 2005. ‘Council for Trade in Services, India: Revised Offer’, TN/S/O/IND/ Rev.1, Geneva. ———. 2005. ‘United States, Revised Services Offer’. TN/S/O/USA/Rev.1, Geneva. ———. 2005. ‘EC, Conditional Revised Offer’. Geneva. ———. 2005. ‘Categories of Natural Persons for Commitments under Mode 4 of GATS’. Communication from Argentina, Bolivia, Brazil, Chile, Colombia, India, Mexico, Pakistan, Peru, the Philippines, Thailand and Uruguay. Geneva. ———. 2005. ‘Assessment of Mode 4 offers of members’. Communication from Bolivia, Chile, Colombia, Dominican Republic, Guatemala, India, Indonesia, Mexico, Pakistan, Peru, the Philippines and Thailand. Geneva. ———. 2005. Collective requests on ‘Movement of natural persons’. Geneva. ———. 2005. Communication from Chile, Hong Kong, China, India and Mexico, ‘Discussion paper on relevant issues for liberalisation of Cross border supply in GATS negotiations’. Geneva: World Trade Organisation. ———. 2006. Information and Communications for Development—Global Trends and Policies. ———. Various years. http://www.wto.org for initial and revised offers, sectoral proposals for the South Asian countries and Trade Policy Reviews of various Countries.

Chapter 8 Plurilateral Negotiations in Services SUMANTA CHAUDHURI1

INTRODUCTION

S

ervices is one of the three pillars of market access in the Doha Round along with Agriculture and Non-agricultural Market Access (NAMA), and is becoming increasingly important for all economies including developing ones. However, the negotiation modalities in services differ fundamentally from those in the other two areas. While NAMA negotiations are formula-driven (albeit with exceptions and flexibilities which, too, are expressed as part of the formula), no such magic formula works in services. Negotiations in services have been based on the bilateral request-offer approach using the bottoms-up architecture of the General Agreement on Trade in Services (GATS) where flexibilities are inbuilt. The Doha Round of services negotiations started with this negotiating modality as is contained in the Negotiating Guidelines and Procedures (NGP).2 Two rounds of offers were submitted using only this modality. However, there has been widespread dissatisfaction expressed by a large number of members on both the coverage as well as quality of offers. The reasons provided

214

SUMANTA CHAUDHURI

were not only the general lack of progress in other areas of the Doha Round but also the bilateral request-offer approach itself. Questions were raised on whether the bilateral approach alone was sufficient to deliver ambitious results in services or whether it needed to be supplemented by other negotiating methods or, in the more radical view, even replaced by other approaches. It is in this context that plurilateral negotiations were brought up as one of the possible ways to put more momentum in the services negotiations. It may be mentioned that such an approach is not foreign to services negotiations and the possibility of using this approach has been recognised both in the GATS Article XIX itself as well as the NGP. However, it had not been used in practice by members. The only other experience was with sectoral negotiations as in the case of Financial Services and Basic Telecommunication services in 1997 where there was a predetermined outcome for all participants but with some flexibilities. This debate started gathering intensity in the run-up to the Hong Kong Ministerial Conference (HKMC) as part of efforts to have a meaningful package on services for the Ministers at Hong Kong, which could promote the desired levels of ambition in the services negotiations. However, even before this approach could be properly discussed and debated, a number of apprehensions and misgivings started to emerge particularly from some Non-Governmental Organisations (NGOs) and some developing countries, culminating in this approach becoming almost the ‘villain’ of the Hong Kong Ministerial Declaration (HKMD). The major apprehension seemed to be the possibility of this approach being converted into sectoral negotiations as in the case of financial and basic telecommunication services in 1997 with pre-determined outcomes for the participating members and also that it would be mandatory. Basically, fears were that the flexibility and bottoms-up approach of GATS, which was the greatest source of comfort for developing countries, would be compromised. Some quarters also felt that only sectors of offensive interest to major developed countries like infrastructure sectors would be taken up leaving by the wayside areas of interest like Mode 4, professional services, etc., to

PLURILATERAL NEGOTIATIONS IN SERVICES

215

the developing countries. Doubts were raised on the capacity and resourcefulness of developing countries, especially the smaller ones, to cope with the enormity of this approach. It was under these circumstances that Annex C3 of the HKMD was agreed to by members, including an endorsement of the plurilateral approach as supplementing and not replacing the bilateral request-offer approach. This chapter attempts to fully comprehend and analyse the plurilateral approach and its implications for the market access negotiations in services. It discusses the modality, participation of members, presentation of requests and possible outcomes. It attempts a factual look at the limited experience so far of this approach and, in doing so, also attempts to address many of the misunderstandings that had developed regarding the approach. It also briefly looks at the participation of developing countries and how this approach addresses areas of interest to them. All this is, however, now a best guess, given the suspension of the Doha Round of negotiations4 and, consequently, the deadline of 31 July 2006 for one more round of revised services offers. The latter would have provided the first concrete opportunity of analysing the actual impact of this new approach in terms of members’ offers, but we will have to wait a while before we can now proceed on this path. The Section ‘Background and Rationale for Plurilateral Negotiations’ of this chapter briefly examines the background and rationale for the development of this approach for the services negotiations. The Section named ‘Progress—Pre- and at Hong Kong Ministerial Conference’ traces the history in the run-up to and at the HKMC, culminating in its adoption as part of the Ministerial Declaration. The Section named ‘Process Post-Hong Kong’ looks at the actual experience in using this approach in the negotiations, albeit limited, and, in the process, also attempts to ‘demystify’ it. The Sections named ‘Impact on the Revised Offers’ and ‘Participation of Developing Countries’ look specifically at the impact for all members in general and for developing ones in particular as well as the relationship with the actual outcomes as would be expressed in forthcoming revised offers of members. It also examines briefly how developing countries have actually made

216

SUMANTA CHAUDHURI

use of this approach in promoting their own offensive agenda like Mode 4. The Section named ‘Conclusions’ concludes by summarising the implications in the preceding sections and foreseeing possible future directions. It is again worth reiterating that this chapter is based on the limited experience of six months that World Trade Organization’s members have had in using it, and the possibility of this process emerging further from this experience cannot be ruled out. Regarding the relationship of GATS with liberalisation, the fundamental relationship would not change with plurilateral negotiations. However, there could be a greater possibility of members committing their autonomous liberalisation fully in some sectors/modes given the better trade-offs that this approach can lead to. However, by its very nature, liberalisation following GATS commitments is unlikely in any member. This has more to do with the complex nature of services sectors, the need for setting up regulatory structures in parallel with liberalisation and the need for comfort levels with domestic policies, all of which require time before which international commitments can be taken in line with the autonomous liberalisation. This is true not just in India but for almost all members. However, there is virtue in committing the autonomous liberalisation as it would prevent any vested interests from managing a rollback, and would give predictability and certainty to the domestic policy regime, allowing foreign investors the comfort levels to invest capital and have long-term plans in the host country. Besides, in some cases the negotiations could result in enhanced commitments beyond the current ground situation, for example, in Mode 4, some fresh liberalisation in categories de-linked to commercial presence is likely as in some members these categories do not exist in their current regimes but would require legislative/executive changes to their laws/regulations, etc. In cross-border supply, locking in of existing ground-level policy (which is often no limitations) is possible in some commercially meaningful sectors. This is important to prevent future protectionist backlashes to restrict outsourcing. Absence of GATS commitments could make such protection feasible in future, as it

PLURILATERAL NEGOTIATIONS IN SERVICES

217

would be compatible with GATS. Hence, some definite advantages can accrue from the GATS negotiations, although the range of new liberalisation ushered in by GATS commitments is likely to be very limited.

BACKGROUND AND RATIONALE FOR PLURILATERAL NEGOTIATIONS Article XIX of the GATS has mandated negotiations on progressive liberalisation. This built-in mandate became part of the single undertaking of the Doha Development Round. The NGP for the market access negotiations in services was finalised in March 2001. Both Article XIX and NGP have recognised the role of bilateral, plurilateral and multilateral negotiations. However, the primary method of negotiations agreed to and actually used by members was the Bilateral request-offer approach. Two rounds of services offers have been put on the table based primarily on the Bilateral request-offer process. Each member put bilateral requests to its major trading partners, covering sectors and modes of export interest. These requests were supposedly based on the priority interests in each member but, more often than not, the same request was repeated to each of them rather than focusing on specific barriers or limitations. By and large, the requests made were also too ambitious, asking for full market access and national treatment commitments and not providing clear priorities. Each member then responded to these bilateral requests through its own services offer which would be applicable on a Most Favoured Nation (MFN) basis at the end of the negotiations to all members. The results proved to be far from satisfactory for almost all trading partners as was witnessed by limited addition of sectors/sub-sectors in the schedules of individual members as well as very limited improvements in the quality of offers.5 Consequently, members started questioning whether the bilateral approach was one of the primary reasons for the failure to

218

SUMANTA CHAUDHURI

reach desired levels of ambition in services. There was a general belief that services negotiations had been plagued both by lack of sufficient direction and specificity on outcomes as well as through its complete dependence on the bilateral approach. The solution was not to shelve the bilateral approach but to provide it more teeth by supplementing it with the plurilateral approach. The main objective was to provide indication of levels of ambition and commonality of interests in specific sectors/modes of supply of export interest to members, which would enable requested members to have a better sense of the priorities of the requesting members. Groups of interested members would get together to formulate a collective request to which they would all subscribe and send it to another target group of members in whose markets they had or were expected to have export interests. This would help in specific targeting of members rather than the default option of including all members irrespective of their importance as existing/ potential markets. The process was also expected to be time- and resource-saving as groups of requesting and requested members could meet at the same time instead of each member having to meet with each of the others and would have enable more intensive participation of sectoral experts from respective capitals.

PROGRESS—PRE- AND AT HONG KONG MINISTERIAL CONFERENCE The proponents of the plurilateral approach emphasised it would only supplement the Bilateral request-offer process and not supplant it.6 Further, participation in the plurilateral groups would not be mandatory and no separate outcomes were being expected from these negotiations other than the revised offers of members where the responses of members to all requests (bilateral or plurilateral) would be made. Some developing countries, however, expressed concerns about these being turned into mandatory sectoral negotiations and that the flexibility of individual developing countries to undertake commitments in line with their levels of development

PLURILATERAL NEGOTIATIONS IN SERVICES

219

and development needs and priorities would be eroded. Apprehensions were also raised about the resource and capacity constraints for such a process. Further, concerns were raised about possible imbalances in the nature of sectors that may be taken up in the plurilateral groups favouring only developed country interests. Finally, a clear mandate was obtained at Hong Kong, contained in Annex C of the Ministerial Declaration endorsing the plurilateral approach. The GATS architecture and flexibility for developing countries was fully preserved. The mandate was limited to only a process and it was clear that no separate outcome was envisaged except through the revised offers of members. It was voluntary in terms of participation and recognised the resource constraints of smaller developing countries. There was no specific selection or choice of sectors/modes of supply where plurilateral approach could be used but this was left to the interests of groups of members to pursue any sector/mode of supply. Further, certain timelines were specified at Hong Kong for presentation of collective requests by 28 February 2006, followed by bilateral/plurilateral negotiations, leading to submission of revised offers by July 2006. These timelines were fixed keeping in view the conclusion of negotiations by the end of 2006.

PROCESS POST-HONG KONG The post-Hong Kong scenario saw intensification of various friends groups and other groups for submission of collective requests. Prioritisation of the content of such requests and of target markets for the various sectors/modes of interest to members became the subject of detailed discussions in each of these groups. The deadline of end-February set at Hong Kong was largely met and 22 plurilateral requests (counting the MFN exemptions request as three separate ones involving general exemptions, financial services related and audio-visual services related, respectively) covering a large range of sectors/modes of supply in which

220

SUMANTA CHAUDHURI

members had trade interests were made. Table 8.1 provides the list and composition of these 22 groups. Most of the plurilateral groups were mixed groups involving developed and developing countries as both requesting and requested members. Further, most groups contained a selective list of 30 to 35 members including both requested and requesting members. Tables 8.2 and 8.3 provide the profiles, respectively, of developed countries and important developing ones as requested and requesting members. There seems to have been a fair amount of engagement by developing countries in the various groups. It also appears that contrary to conventional wisdom and the expectations in different quarters, it is not totally a one-sided story. Developed countries, for example, the QUAD, were recipients of several requests themselves. While it is true that in general all developing countries have received more requests than they have made, while the reverse is true for developed ones, there seems to have been reasonable articulation of offensive interests by some developing countries also. Other developing countries have probably chosen a more conservative stance and refrained from joining the groups in spite of having offensive interests themselves. This is probably based on the assumption that pressures to respond to requests favourably would be aggravated if they appear as demanders also. However, this strategy could backfire since there may not be any visible trade-offs for warding of defensive interests in such cases that may have been possible if the offensive interests had been articulated through joining the relevant group. It may also be noted that most of these developing countries have made requests in Mode 4, which is a horizontal request covering a large number of sectors and hence, cannot be strictly compared one-to-one with a specific sectoral request. A similar situation also holds for the plurilateral request in crossborder supply which extends again to a large number of sectors and again a simple counting may be a trifle misleading. Least Developed Countries (LDCs) have been kept out completely from this process and most small developing countries have also not been targeted. For example, Jamaica has received one, Tunisia one and Kenya no request.

Sector/Mode

Total number∗∗∗ of participants

1. Legal Australia 8 17 25 2. Architecture/Engineering Canada 14 24 38 3. Computer Related Services Chile 18 16 34 4. Postal/Courier USA 4 21 25 5. Telecom Singapore 10 25 35 6. Audio-Visual Chinese Taipei 7 29 36 7. Construction Japan 12 20 32 8. Distribution EC∗∗ 8 19 27 9. Education New Zealand 5 21 26 10. Environmental EC 10 23 33 11. Financial Canada 10 21 31 12. Maritime Japan 14 26 40 13. Air New Zealand 6 22 28 14. Logistics HKC∗ 7 34 41 15. Energy EC 10 23 33 16. Cross-border Services (Mode 1/2) India 9 21 30 17. Mode 3 EC 7 14 21 18. Mode 4 India 15 9 24 19. MFN Exemptions (General) HKC 10 18 28 20. MFN Exemptions (Financial) HKC 6 8 14 21. MFN Exemptions (Audio-Visual) HKC 5 13 18 22. Services Related to Agriculture Brazil/Argentina 4 9 13 Source: Author’s own calculations based on plurilateral requests. Notes: ∗HKC–Hong Kong, China; ∗∗ EC–European Communities; ∗∗∗ The numbers are based on the situation existing as of end-May 2006.

Sl No.

Table 8.1 List and Composition of the Plurilateral Groups Number∗∗∗ of Number∗∗∗ of Coordinator requesting members requested members

222

SUMANTA CHAUDHURI Table 8.2 Developed Countries’ Profile of Plurilateral Requests

Sl No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Country Australia Canada EC Hong Kong, China∗ Japan Korea∗ New Zealand Norway Singapore∗ Switzerland United States

Number∗ of requests received 7 12 8 6 5 8 6 7 9 8 8

Number∗ of requests made 13 9 13 11 17 11 11 10 8 9 14

Source: Author’s own calculations based on plurilateral requests. Note: ∗ Korea, Singapore and Hong Kong, China are being regarded as developed countries given their profiles in the services negotiations and the fact that their interests are more akin to developed countries. Table 8.3 Developing Countries’ Profile of Plurilateral Requests Sl No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

Country Argentina Brazil Chile China Colombia Egypt India Indonesia Jamaica Kenya Malaysia Mexico Morocco Nigeria Pakistan Peru The Philippines South Africa

Number∗ of requests received

Number∗ of requests made

14 17 8 16 12 14 14 15 1 0 16 9 6 7 13 11 19 14

2 2 8 5 4 1 4 0 0 0 3 10 1 0 4 3 0 0 (Table 8.3 continued)

PLURILATERAL NEGOTIATIONS IN SERVICES

223

(Table 8.3 continued) Sl No.

Country

19. 20. 21. 22. 23.

Sri Lanka Thailand Tunisia Turkey Uruguay

Number∗ of requests received

Number∗ of requests made

3 18 1 13 7

0 1 1 1 2

Source: Author’s own calculations based on plurilateral requests. Note: ∗ These numbers are based on the situation existing as of end-March 2006. Since then, some minor changes may have occurred as some developing members have joined some plurilateral groups at a later date.

In most of the groups, requesting members are also deemed recipients of the collective request. Hence they, too, are expected to try and meet the contents of the request, commensurate with their own situation. This is a critical concept unique to plurilateral approach as this was never the case in the bilateral approach. The advantage is that the credibility of the requesting members is greatly enhanced if they are themselves willing to undertake at least the minimum levels of commitments they are seeking from the respondents. While there is no legal requirement for all requesting members to become deemed recipients, there could be a greater possibility of enhanced ambition with such reciprocal treatment compared to the bilateral approach. For example, this concept does not feature in the Mode 4 plurilateral request since the categories de-linked from commercial presence contained in the request are more applicable to developed countries, and also because of the historical asymmetry of commitments for such categories by developed members. Another advantage could be greater uniformity in scheduling and classification, if all participants voluntarily use a common approach. Many groups were able to prioritise requests in comparison with bilateral requests which were often maximal in nature. To illustrate, Table 8.4 provides a comparison between bilateral requests received by India from its major trading partners in key sectors such as finance, telecom, energy, distribution, and so on, and the collective request for that particular sector. This table

Requests received from developed countries, requesting full commitments (schedule ‘none’) across Modes 1, 2 & 3; as well as additional requests on transparency and other principles for regulation of financial services

Requests received from developed countries for full commitments in Modes 1, 2 & 3; elimination of all existing limitations under Mode 3

Telecommunication

Bilateral requests

Financial

Sector/Mode

The collective request includes: (1) No national treatment limitations and no substantial market access limitations under Mode 1 & Mode 3; majority foreign capital participation (2) No market access (MA) or national treatment limitations under Mode 2 (3) Commitments to all provisions of the Reference Paper

The collective request calls for: (1) Undertaking commitments for insurance services in Modes 1 & 2 (2) Undertaking commitments encompassing rights to form new companies and acquire existing companies, in the form of wholly owned subsidiaries, Joint Ventures (JVs) and branches (Mode 3) (3) Removing limitations such as monopolies, numerical quotas or economic needs tests and mandatory sessions (Modes 1, 2 and 3) (4) Addressing regulatory issues in the negotiations, including transparency in development and application of laws and regulations; transparent and speedy licensing procedures, etc.

Plurilateral requests

Table 8.4 Comparison between Bilateral and Plurilateral Requests Received/Made by India

Requests by developed countries for full MA and national treatment commitments across Modes 1 and 3, and elimination of all existing limitations

Requests by developed countries for full MA and national treatment commitments across Mode 3 and, wherever feasible, Mode 1

Requests by developed countries for full MA and national treatment commitments across Modes 1, 2 and 3

Energy

Environment

Distribution

(Table 8.4 continued)

In Modes 1, 2 & 3, provide market access and national treatment with no limitations, except for certain flexibilities for individual members, like transition periods, limited number of nondiscretionary Economic Needs Tests (ENTs), etc.

Requests include: (1) Request to schedule ‘none’ where possible under Mode 1 (2) To undertake full commitments under Mode 2 for all subsectors (3) To undertake ambitious commitments under Mode 3 and remove barriers to commercial presence

The collective requests include: (1) A substantial reduction of market access limitations and removal of existing requirements of commercial presence in Mode 1 (2) Commitments in Mode 2 requested whenever technically feasible (3) Removal or reduction of foreign equity limitations and economic needs tests in Mode 3; elimination of JV requirements; and elimination of discretionary licensing procedures

Requests made cover all categories of natural persons, not restricted only to categories de-linked from commercial presence; the categories not defined and the universe not laid down clearly; it also covers all aspects of visas (multiple entry, administrative procedures, renewal, time periods, etc.)

Mode 4

Plurilateral requests

(1) Limited only to categories of Contractual Services Suppliers (CSS) and Intellectual Property (IP); specific (MA) and Non-tariff (NT) limitations to be eliminated/reduced relating to duration of stay, wage parity, ENT, etc. (2) Not directly covering immigration and visa requirements (3) Not covering entry into labour market and, hence, employment related temporary movement

(1) Request for making new and improved commitments that would allow foreign lawyers and law firms to provide legal services covering laws of multiple jurisdictions (2) Removal, to the greatest possible extent, of limitations such as commercial presence and residency requirements for Modes 1 & 2. (3) Limitations on partnerships, limitations restricting recruitment by foreign lawyers, economic needs tests, foreign capital requirements, etc.

Source: Compiled from bilateral and plurilateral requests received/made by India.

Requests by developed countries for full MA and national treatment commitments; and additional commitments to permit provision of legal services on international and third country laws

Bilateral requests

Legal

Sector/Mode

(Table 8.4 continued)

PLURILATERAL NEGOTIATIONS IN SERVICES

227

bears out the impression that there has been an evolution from maximal requests asking for basically the moon in the bilateral requests to requesting removal of specific market access barriers that would have the largest commercial impact in the plurilateral request. In most of these sectors, the bilateral requests asked for full market access and national treatment commitments across Modes 2 and 3, and Mode 1, where technologically feasible; very seldom was there specific mention of limitations that were a priority for removal. On the contrary, in a majority of the plurilateral requests, specific market access and national treatment limitations have been targeted and possible flexibilities in undertaking such commitments mentioned. However, it is true that this pattern has not been repeated in every plurilateral group and a few of them have chosen to follow the maximalist approach of the bilateral requests. In such groups, the responses of the participants have been less positive and revealing, compared to those groups which have done their homework better. A similar pattern also emerges in areas where India has made requests to its major trading partners like Mode 4. The bilateral request made was less focused and specific compared to the request in the plurilateral group. Such a prioritisation of requests should enable more concrete responses from trading partners as well as the possibility of more efficient trade-offs between offensive and defensive interests. The process has been largely voluntary as mandated and restricted to the requesting and requested members only. The other members were not invited to the meetings nor were they expected to contribute in undertaking commitments. In other words, it became restricted to a core group of 30 to 35 members who would negotiate among themselves without undue botheration of other members who are more or less free to determine their levels of commitments. In other words, they have not been transformed into sectoral negotiations of the kind one has seen before in financial and basic telecommunication services. Two rounds of plurilateral meetings have been held in March– April and May 2006.7 There has been much greater participation of sectoral experts from the capital. Fruitful engagement on a number of technical issues including classification, clarification

228

SUMANTA CHAUDHURI

of scope and on relevant regulatory issues has also taken place. There has been a positive exchange among all participants on the current policy regimes domestically. Members have spelt out certain political sensitivities in specific areas that are red lines for them. At the same time, there have been indications of some flexibility in other areas. Plurilateral negotiations have supplemented the bilateral approach and even the latter has become more focused. It has involved broad coverage of sectors and modes of supply, apparently covering interests of all members without any narrow concentration on specific sectors only of interest to developed partners. Consequently, it would appear from the current experience that most concerns of some developing countries/NGOs, expressed earlier, are largely unfounded.

IMPACT ON THE REVISED OFFERS For recipient countries, this approach has enabled better appreciation of the collective requests and removal of limitations that would add value for most demanders. It has also promoted better understanding of the general approach of many members in particular sectors/modes of supply. Responses under the plurilateral approach continue to be those of individual members and not collective responses of all the recipients, though it is true that to some extent individual responses may be shaped by the collective discussions. This is what preserves the flexibility of individual developing countries to undertake commitments in line with their levels of development and their needs and priorities, and thereby fully preserves the GATS architecture. Responses can only be operationalised through the revised offers of each member just as was the case in the bilateral approach. There is no other instrument for the outcome of such plurilateral negotiations to be reflected. The real challenge is to convert such negotiations into meaningful improvements for the revised offers. Here, the objectives—

PLURILATERAL NEGOTIATIONS IN SERVICES

229

modal, MFN exemptions and scheduling clarity contained in Annex C—would serve as the primary guide. It would also be necessary to have balanced results across all sectors/modes of supply of services. Trade-offs between these have become clearer. There might have been some positive responses in the revised offers scheduled for July 2006 but the suspension of the Doha Round has put this test on hold till negotiations resume substantively. The links with other areas of negotiations would continue to be an important determinant of the level of ambition as reflected in forthcoming offers. Similarly, links within services negotiations—rule making, particularly domestic regulation, emergency safeguard measures and balance within market access—itself will also be a crucial factor. These are no different whatever the approach used. However, this approach in conjunction with the bilateral one is more likely to achieve better trade-offs between the different interests of members as compared to use of only bilateral approach. The other foreseeable event is the parallel continuation of the bilateral approach and plurilateral approach; in fact, the primacy of the Bilateral Approach as the main method would continue. This has already been demonstrated. After two rounds of plurilateral meetings in March–April and May, the June–July services cluster saw bilateral meetings as plurilateral meetings had outlived their utility till the revised offers were presented. This pattern is likely to repeat itself again. Once negotiations resume and revised offers presented, there would be a fresh round of plurilateral consultations. The various plurilateral groups would assess how recipients (including demanders as deemed recipients) have responded to the plurilateral request and this would possibly lead to positive engagement. However, as the date for submission of final offers approaches, bilateral negotiations would be likely to rule the roost as members try to gauge the extent to which each other’s requests are likely to be met. Given a common instrument of revised offers for operationalisation of requests, whether in a bilateral or a plurilateral context, this interplay is only to be expected and hardly comes as a surprise. It also probably completely puts to rest certain unfounded fears and

230

SUMANTA CHAUDHURI

apprehensions on the plurilateral approach. However, developing countries still need to be vigilant to ensure that this is the path that the plurilateral approach carts in future as well. But here, they may have equally strong friends among certain developed countries also who too would want this model continued. At the same time, given the newness and limited experience with the plurilateral negotiations, one cannot rule out the possibility of this approach maturing and evolving further, but within these stated contours. Only time will tell, and at this stage of the round, it is this ‘time’ that seems to be the million dollar question.

PARTICIPATION OF DEVELOPING COUNTRIES Contrary to fears, it appears that developing countries that are part of the plurilateral negotiations have found this approach more reasonable and fruitful than simply the bilateral one that is often repetitive and isolated. There has been a much freer discussion among members of their current regimes, of the problems and hurdles that they face in enhancing levels of liberalisation, and of areas where serious efforts at offering improved commitments are being made. This has also enabled a better comparative picture to emerge about members’ experiences/problems in specific sectors/modes of supply and also possible emulation in solving some specific problems. Clarification of issues related to scheduling and classification seems to be another potential gain. There is a more widespread awareness of relevant issues and how different members have approached it, albeit in different ways. On the contrary, such issues have often met with closed and defensive discussions in bilateral meetings. A more informed choice among available alternatives may be possible and, in some cases, even a uniform one if it meets general consensus. Participation of developing country sectoral experts has been greatly facilitated by intensive and well-planned clusters. This is certainly time- and resource-saving, particularly for smaller delegations. One major challenge in services negotiations was

PLURILATERAL NEGOTIATIONS IN SERVICES

231

how to effectively involve sectoral ministries for which GATS negotiations were not a priority, given their preoccupation with domestic policy issues, but without whose active participation the trade ministry was usually unable to form effective responses. There is a greater sense of belonging among such sectoral experts and an appreciation of each others’ points of view. Turning to offensive interests, the apprehension that plurilateral negotiations would cater to only rich and developed country interests seems to be unfounded. A look at the profiles of plurilateral requests clearly indicates that developing countries are demanders in many plurilateral groups, though obviously they are more often the targets. There seems to be no better demonstration of this aspect than the Mode 4 group which is unique because of the existing asymmetry in Mode 4 commitments compared to other modes. The identification of this mode as the most significant by many developing countries and a growing realisation, even amongst developed members, of the close integration between the four modes in actual business models, implies that Mode 4 is of interest to all members and adds significantly to world welfare. Sixteen developing countries are the demanders and have specifically targeted only nine developed members. The request is restricted to categories de-linked from commercial presence as this is where major gaps existed in the schedules of developed members, which has hardly improved in two rounds of Bilateral Request-Offer negotiations. This request is characterised by very clear and specific demands spelling out the categories of interest to the group, market access and national treatment limitations that may be removed for each of the categories along with specific sectors/ sub-sectors of interest in each. It has generally been acknowledged as a reasonable and practical approach fully cognisant of the constraints and sensitivities in Mode 4, thereby keeping out immigration related issues and entry into the labour market. Hence, this request appears to be more difficult to ignore and easier to respond to positively than the varied bilateral requests where the demarcation with permanent movement may not have been so apparent and the interest far more diverse.

232

SUMANTA CHAUDHURI

Another example of the positive engagement of developing countries is architecture/engineering services with equal number of developing country demanders as developed ones, targeting fellow developing country markets. These are important services for a country’s growth, and development and developing countries are beginning to develop export interests. Participation in plurilateral negotiations has enabled them to articulate such interests collectively; individually, this seems to have been much more difficult. This enhanced participation by some developing members could entail more positive responses from other developing countries also. The plurilateral request in cross border supply is a third positive example. The demanders are mainly developing countries along with some developed partners. Targets include all the QUAD members as well as many other developing markets mirroring actual business opportunities. Earlier bilateral requests in Modes 1 and 2 were not that focused and were often clouded by a feeling of ‘lack of technical feasibility’, which prevented articulation of requests and effective responses. Technological changes have drastically altered the scenario and hitherto non-tradable activities have emerged dynamically as tradable ones. This request seems to be based on much greater appreciation of such new, emerging activities. There have been spirited efforts to discuss regulatory issues, including questions relating to jurisdiction and some apprehensions on consumer safety that may be leading members to take a more cautious approach than is warranted by their market conditions. Plurilateral experiences of those members who have successfully met these regulatory challenges have been shared, possibly enhancing comfort levels amongst the participants for favourably considering higher levels of commitments.

CONCLUSIONS To conclude, the plurilateral approach in services negotiations is neither the devil, as some had feared, nor the panacea for

PLURILATERAL NEGOTIATIONS IN SERVICES

233

bringing about an ambitious outcome for services negotiations. The limited experience till date shows that this approach is unlikely to alter the basic architecture of GATS or fundamentally change the outcome of the negotiations. It will continue to supplement the bilateral approach and both will have their own role to play, though possibly the roles for each will differ depending upon the stage of the negotiations. The plurilateral negotiations are also not weighed against developing countries as had been anticipated by some. Possibly, it has led to better articulation of interests by at least some developing countries, which may prompt others in future to also do the same. It is also unlikely to develop into sectoral negotiations of the kind seen in the case of financial and basic telecommunication services earlier as the context is entirely different. However, developing countries need to remain vigilant to ensure that this does not emerge. This approach has also led, in general, to better prioritisation of requests and target markets as compared to the bilateral approach. This should help in more focused responses to the requests and promote better possibilities of trade-offs between the different sectors/modes of supply representing the interests of the participants. It also does not put pressure on smaller developing countries, who are not participants, to follow suit, but allows them to maintain commitments commensurate with their development stages and priorities. This approach, however, will not in itself fundamentally alter the level of ambition in the services negotiations. The links within and outside the services negotiations will continue to be the prime determinants. However, this approach might be one of the contributors to a more positive outcome in services, given that better trade-offs are possible within market access negotiations. The negotiations are restricted to only a limited number of members whose markets have current or future potential rather than the whole spectrum of the membership, and the requests are more pragmatic and leave flexibility to meet individual needs of members, particularly developing ones. Given the suspension of the Doha Round itself, only time can tell whether these possibilities would be reflected in future offers of members.

234

SUMANTA CHAUDHURI

NOTES 1. 2. 3. 4. 5.

The views expressed are personal views of the author. See WTO (2001). Hong Kong Ministerial Declaration. See WTO (2006c). This can be seen in the numerous minutes of the Special Session for Trade in Services where members have voiced their concerns. It is also summed up in the Note of the Chairperson of the Special Session to the Ministerial Conference. 6. A proposal was made by Chile on behalf of a number of members introducing the concept of plurilateral approach. 7. The coordinators of plurilateral groups made brief interventions in the Special Session of the Council for Trade in Services in April and June, indicating briefly how the meetings of the plurilateral groups were conducted.

REFERENCES AND SELECT BIBLIOGRAPHY Ministry of Commerce, India. 2006. ‘Plurilateral Requests at WTO by India’. Available at: http://commerce.nic.in/wto_sub/services/Plurilateral%20Requests/ plurilateral_request.htm. Accessed 18 July, 2006. World Trade Organization (WTO). 2001. Guidelines and Procedures for the Negotiations on Trade in Services, S/L/93. Geneva: WTO, Council for Trade in Services. ———. 2005a. Doha Work Program: Hong Kong Ministerial Declaration, WT/MIN(05)/ DEC: Geneva: WTO. ———. 2005b. Special Session of the Council for Trade in Services: Report by the Chairman to the Trade Negotiations Committee, TN/S/23. Geneva: WTO, Council for Trade in Services Special Session. ———. 2006a. Revised Offers in Services, TN/S/O rev.1 document series. Geneva: WTO, Council for Trade in Services Special Session. ———. 2006b. Report of the Meeting held on 7 April 2006: Note by the Secretariat, TN/ S/M/19, April. Geneva: WTO, Council for Trade in Services Special Session. ———. 2006c. General Council—Summary, July. Geneva: WTO. Available at: http://www.wto.org/english/news_e/news06_e/gc_27july06_e.htm ———. 2006d. Report of the Meeting held on 24 May 2006: Note by the Secretariat, TN/ S/M/20, June. Geneva: WTO, Council for Trade in Services Special Session. ———. Various years. Initial Offers in Services, TN/S/O document series. Geneva: WTO, Council for Trade in Services Special Session.

Chapter 9 The Enhanced Intellectual Property Rights in India PRAVIN ANAND AND NEETI WILSON

INTRODUCTION

I

ndia has made an indelible mark on the world’s civilisations since ages and continues to carry on the tradition in the modern world of globalisation, supporting major developed countries with its knowledge economy. With its skilled professionals and economic reforms, India is steadily moving towards being one of the top creams in view of development and growth. India has attracted praise, investment, tourism and some scepticism from all corners of the world. One of the cornerstones of the Indian growth initiative is the evolution of the Intellectual Property (IP) regime in view of the World Trade Organization (WTO), which continues unabated. Although IP legislation has existed in India for decades, a real awareness and appreciation of IP issues has been noticeable only in the last decade. This radical change is a result of none other than the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement of WTO. In addition to overhauling almost every IP law to harmonise with international standards, India has taken steps to promulgate IP legislation in new areas in order to support growing areas of development. The progress made in 2005 to 2006 in particular has been critical for the consolidation of the IP legislation.

236

PRAVIN ANAND AND NEETI WILSON

This chapter presents the post-1995 IP scenario of India and reviews the progressive change from one milestone to another after India became part of TRIPS till date. The current IP litigation practice has been highlighted with the help of case laws for getting the feel of the enforcement of IP in India. The IP protection available in India before TRIPS, was mainly prevalent in only four forms, namely patents, copyrights, trademarks and designs (see Figure 9.1). Trade secrets did exist but their awareness as IP was very low. Figure 9.1 Intellectual Property in India Prior to TRIPS Agreement

k

ar

Pa

em

te

nt

ad

s

Tr yr Co p

ns

sig

De

igh

t

Intellectual Property

Patents for inventions, which satisfied the criteria of novelty, inventive step and manner of manufacture were granted under the Indian Patent Act 1970. There were only process patents to mention at the very first instant, and the patent rights granted were for 14 years.1 The concept of patenting of living organisms such as micro-organisms was not conceivable. Copyrights existed to protect artistic and literary works along with performers’ and broadcasters’ rights. The Copyright Act, 1957, provided for very strong rights and enforcement measures. India being a member of Berne Convention, recognised copyrights

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

237

throughout the world and international standard prevailed in this form of IP protection. The Indian Copyright Act stands as such with no fingers pointed in view of non-compliance with TRIPS. One may say, Indians can be proud of the copyright law of the country. Trademarks in India were fairly well protected; however, absence of recognition of service marks and collective marks as important trademarks needed to be obviated. Design protection for aesthetic appearance of articles was fairy well established; however, changes were required to provide global standard protection. The IP laws of India thus needed revisions to make them truly world class.

INDIA’S INTERNATIONAL ARRANGEMENTS RELATED TO IP India is a member of various international arrangements related to IP, as shown in Figure 9.2. The Berne Convention (1886) is for the protection of literary and artistic works. The Patent Cooperation Treaty (1970) makes it possible to simultaneously seek patent protection for an invention in a large number of countries by filing an ‘international’ patent application. The Paris Convention (1883) for the protection of industrial property applies to industrial property in the widest sense, including patents, marks, industrial designs, utility models (a kind of ‘small patent’ provided for by the laws of some countries), trade names (designations under which an industrial or commercial activity is carried on), geographical indications (indications of source and appellations of origin) and the repression of unfair competition. The Convention on Biological Diversity (1992) has three main goals: conservation of biological diversity (or biodiversity); sustainable use of its components; and fair and equitable sharing of benefits arising from genetic resources. The Washington Treaty (1989) on IP in respect of integrated circuits, the Budapest Treaty (1977) on the international

238

PRAVIN ANAND AND NEETI WILSON

Figure 9.2 International Arrangements of which India became a Member/ Signatory in the Given Year

nal Internatio the Union for of New n io ct te ro P f Plants Varieties o 978* 1 ) V (UPO

Pa C te o Pa nt nv ri (P CT C e s ) 1 Tre oo ntio 7 at pe n, D y ra ec t . 1 ion 99 8

Budapest Treaty 17 Dec. 2001

Berne Convention WIPO

INDIA

TRIPS 1995

Universal Convention for Copyright (UCC) 1952 Washington Convention for Integrated Circuits 1989 Convention on Bio-diversity (CBD) 1994

Note: ∗ India could not become member of UPOV 1978.

recognition of the deposit of micro-organisms for the purposes of patent procedure, Convention for the Protection of Producers of Phonograms (1971) against unauthorised duplication of their phonograms and the Rome Convention (1961) for the protection of performers, producers of phonograms and broadcasting organisations, are other international treaties of which India is a contracting state. India is also a signatory to the Nairobi Treaty on the Protection of the Olympic Symbol (1981) and is thus under the obligation to protect the Olympic symbol—five interlaced rings—against use for commercial purposes (in advertisements, on goods, as a mark, etc.) without the authorisation of the International Olympic Committee. It was the TRIPS agreement in 1995 that dramatically changed the whole IP scene and brought India to the doorstep of IP evolution. The IP laws have been thoroughly analysed to bring them in conformity with international standards. It was not a process of increasing India’s IP image in the world, it was a question of fulfilling the obligations India had on becoming signatory to the TRIPS.

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

239

INDIAN IP POST-TRIPS The WTO agreement changed the very concept of IP not only in India but also all over the world. India saw tremendous changes in the legal aspect of IP as well as in the awareness of IP increased among the Indian masses. The obscure patent became a household subject of discussion, and newer concepts of IP such as geographical indications emerged. Figure 9.3 depicts the different forms of IP protection available in India in the present scenario, namely patents, trademarks, copyrights, designs, geographical indications, integrated circuits and plant variety.

THE NEW INDIAN PATENT ACT The year 2005 was very significant for Indian patent law. The hotly debated product patents system for pharmaceutical and agrochemicals was finally put into place by the Patents (Amendment) Act 2005, which came into force on 1 January 2005. Figure 9.3 Intellectual Property in India after the TRIPS Agreement

Plant Variety and Farmers’ Rights

Layout Design of Integrated Circuits

Patents Trademark

Intellectual Property

Geographical Indications

Copyright

Design Trade Secrets

240

PRAVIN ANAND AND NEETI WILSON

The new act has had a major impact on the Indian pharmaceutical industry, which consists of around 22,000 small and mediumsized enterprises and 250 large corporations (both national and multinational). In 2006, Swiss drug manufacturer F. HoffmannLa Roche became the first pharmaceutical company in India to receive a product patent under the new patent regime. It was granted a product patent for Pegasys, a new-generation hepatitis therapy drug. At the time of writing, over 20 product patents have been granted to pharmaceutical and agricultural businesses. The new act has changed the way in which Indian pharmaceutical companies do business—for the previous 30 years, they have not had to obtain licences from the original drug manufacturers. Now the pharmaceutical companies are not only learning to respect international product patents, but have also changed their attitude towards investing in Research and Development (R&D) and exploring their own product patent development potential. As the pharmaceutical companies foresaw the inevitability of product patents, they have already begun to change their behaviour. According to the Indian Pharmaceutical Alliance, the industry’s R&D spending rose from US$ 43.4 million in 2000 to US$ 1.74 billion in 2004. Meanwhile, multinational companies such as Merck and Bristol Myers Squibb have recommenced business in India after being forced out by losses caused by cheap copycat drugs. On the administrative front, the patent office has been revamped and its staff, buildings, processes and computer systems upgraded in order to make the examination of patent applications more efficient. Patent examination reports are now expected to be of higher quality, and the time taken for the grant of patents should be shorter. Thanks to the 2005 amendments, the Patent Act has undergone a fundamental revision as prosecution and enforcement have improved, and the outlook for patents has changed dramatically.

PATENTING OF MICROBIOLOGICAL INVENTIONS The Indian Patent Act 2005 has a specific provision in regard to patenting of micro-organisms and microbiological processes.

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

241

It is now possible to get a patent for a microbiological process and also products emanating from such processes. As it is difficult to describe a micro-organism on paper, a system of depositing strain of micro-organisms in some recognised depositories was evolved way back in 1949 in the US. An international treaty called Budapest Treaty was signed in Budapest in 1973 and later on amended in 1980. India became a member of this Treaty with effect from 17 December 2001. This is an international convention governing the recognition of deposits in officially approved culture collections for the purpose of patent applications in any country that is a party to this treaty. Because of the difficulties and virtual impossibility of reproducing a microorganism from a description of it in a patent specification, it is essential to deposit a strain in a culture collection centre for testing and examination by others. An inventor is required to deposit the strain of a micro-organism in a recognised depository, which assigns a registration number to the deposited micro-organism. This registration number needs to be quoted in the patent application dealing with the microorganism. Obviously a strain of a micro-organism is required to be deposited before filing a patent application. It may be observed that this mechanism obviates the need of describing a microorganism in the patent application. Further, samples of strains can be obtained from the depository for further work on the patent. There are many international depositories in different countries such as American Type Culture Collection (ATCC), Deutsche Sammlung von Mikroorganismen (DSM), etc., which are recognised under the Budapest Treaty. The Institute of Microbial Technology (IMTEC), Chandigarh, is the first Indian depository set up under the Budapest Treaty.

ENACTMENT OF THE TRADE MARKS ACT 1999 Special treatment and rights are envisaged for well-known trademarks under the 1999 Act. Well-known trademarks without registration or use are now protected in India. Major changes

242

PRAVIN ANAND AND NEETI WILSON

that have taken place in the Trade Marks Act 1999 (in force since 15 September 2003), which has replaced the earlier Trade & Merchandise Marks Act 1958 (now repealed), include the following: (a) It has enlarged the definition of trademark. It now includes shape of goods, packaging and combination of colours which can be adopted as a trademark. (b) It provides for registration of trademark for services in addition to goods. (c) It provides for a single registration of trade marks with simplified procedures. (d) It has simplified the procedure for registration of registered users (licensing of registered trademark). (e) It provides for registration of collective marks owned by association of persons. (f ) It provides for establishment of an Appellate Board for speedy disposal of appeal from Registrar orders and decisions. (g) It has transferred the final authority for registration of certification of trademarks to the Registrar. (h) It provides for enhanced punishment for the offences relating to trademarks on par with the Copyright Act 1957 to prevent the sale of spurious goods. (i) It prohibits use of someone else’s trademarks as part of cor-porate names or names of business concern. (j) It provides for filing of a single application for goods or services falling in more than one class (multi class filing). (k) It increased the period of registration and renewal from seven years to 10 years. (l) It has made some trademark offences cognisable. (m) The Act has amplified the powers of the court to grant ex parte injunction in certain cases. (n) There are other related amendments to simplify and streamline the administration of the trademarks law and procedures in the country.

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

243

INDIAN COPYRIGHT PROTECTION SCENARIO Copyright is available for creating an original literary, dramatic, musical or artistic work. Cinematographic films including soundtrack and video films and recordings on discs, tapes, perforated roll or other devices are also covered by copyrights. Computer programmes and software are covered under literary works and are protected in India under copyright. The Copyright Act 1957 as amended in 1983, 1984, 1992, 1994 and 1999 governs the copyright protection in India. The total term of protection for literary work is the author’s life span plus 60 years. For cinematographic films, records, photographs, posthumous publications, anonymous publications, and works of government and international agencies, the term is 60 years from the beginning of the calendar year, following the year in which the work was published. For broadcasting, the term is 25 years from the beginning of the calendar year, following the year in which the broadcast was made. The author of a work has the right to claim authorship of the work and to restrain or claim damages in respect of any distortion, mutilation, modification or other acts in relation to the said work which is done before the expiration of the term of copyright if such or other acts would be prejudicial to his honour or reputation. The moral rights are independent of the author’s copyright and remains with him even after assignment of the copyright.

STRICTER PROTECTION FOR TRADEMARKS AND COPYRIGHTS In 2005, trademark and copyright litigation and enforcement in India reached new heights. The Indian courts, shrugging off their erstwhile conservative approach towards the grant of damages, have finally accepted the overwhelming reasons to protect IP rights strictly in order to deter infringers. The Delhi High Court

244

PRAVIN ANAND AND NEETI WILSON

has taken the lead—since January 2005 it has awarded damages against infringers in 22 IP cases, ranging from US$ 2,179 to US$ 2.80 million. These cases dealt with a wide range of issues, from trademark and copyright infringement to the violation of moral rights. The first case to break the no-damages pattern was Time Incorporated v Lokesh Srivastava ((2005) 30 PTC 3 (Del)), in which the Delhi High Court awarded Time Incorporated Rs 500,000 (US$ 10,989) for the imitation of its trademark TIME (transliterated into Hindi) and its unique and well-known red border design. The court drew a distinction between punitive and compensatory damages, extending the use of punitive damages to acts having a criminal propensity. Basing punitive damages on the theory of corrective justice, the court validated the punitive damages application on the grounds that the courts must intervene on behalf of the public, who suffer from the infringement, while making the infringers realise that they will be exposed to financial penalties for infringing the IP rights of a third party. The court went on to cite the US case of Mathias v Accor Economy Lodging Inc (347 F3d 672 (7th Cir 2003)), which approved the use of punitive damages to relieve pressure from an overloaded system of criminal justice by providing a civil alternative to criminal prosecution of minor crimes. The court in the present case took the view that punitive damages should really be punitive and not a mere ‘flea bite’, and the quantum should depend on the flagrancy of the infringement. The Time judgement immediately triggered further damages cases. In both Tata Sons Limited v Fashion ID Ltd ((2005) 30 PTC 182) and Buffalo Networks Pvt Ltd v Jain ((2005) 30 PTC 242), the Delhi High Court awarded the plaintiffs Rs 100,000 (US$ 2,179) each for violation of their respective trademarks through the unauthorised use of domain names incorporating these marks. In a series of three cases involving the infringement of copyrights and the ADIDAS trademark, the Delhi High Court awarded a total of Rs 1.5 million in damages to Adidas-Salomon AG. In Yahoo! Inc v Shah ((2006) 32 PTC 263), the court awarded Yahoo! Inc Rs 500,500 (US$ 11,000) upon finding that the defendant had

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

245

been selling tobacco products under the well-known trademark YAHOO!. Close on the heels of the Time Case came the landmark decision in Amarnath Sehgal v Union of India ((2005) 30 PTC 253), in which the Delhi High Court for the first time awarded damages against the Government of India (GoI) for violation of the moral rights of a famous sculptor. The government was directed to pay Rs 500,000 (US$ 10,989) in damages to Amarnath Sehgal, a world-famous sculptor, for the violation of his moral rights by the government’s acts of distortion, damage and mutilation of a large bronze mural commissioned by the government many years before. The government was also directed to return the mural to the sculptor. Software piracy has always been strongly penalised by the courts in India, where the piracy rate is currently 72 per cent. As a measure to crack down further on this illegal trade, the Delhi High Court in Microsoft Corporation v Yogesh Popat ((2005) 30 PTC 245) awarded Microsoft Corporation Rs 1.975 million for piracy of its software products. This case added two new milestones to the fledgling damages culture: the judgement was not only the highest-ever award of damages in any IP matter in India, but also the first award of damages in any software piracy litigation. The IP sector has unanimously supported the paradigm shift in the judiciary’s approach towards damages in IP rights matters, which looks set to usher in a more favourable legal environment for the creation, promotion and protection of IP rights in India.

COURTS SHUN ILLEGAL PARALLEL IMPORTS The increasing influx of grey-market goods into India poses a serious threat to brand owners. This form of unauthorised parallel trading not only undermines the legitimate differential pricing structures of companies, but also compromises their established distribution systems with vendors and, of course, their reputation among customers. Various issues relating to compliance with

246

PRAVIN ANAND AND NEETI WILSON

local regulations, warranties, safety and product liability further compound the problem. Grey-market goods entering the market are usually imported (or smuggled) into India from China, Thailand and the Middle East. In a bid to curb the trade in illegal parallel imports, the Delhi High Court granted interim protection to Bose Corporation in Bose Corporation v Mehta (Suit No 337 of 2006) (suit pending). Bose, who is the owner of the well-known mark BOSE for hightech audio systems, has brought an infringement suit against the defendant who was selling grey-market BOSE audio systems in India without any authorisation from the company. The defendant made false misrepresentations to the customers by offering products with a Bose product warranty which, in effect, was null and void. The High Court granted an ex parte interim injunction restraining the defendant from dealing in any Bose products and misrepresenting itself as an authorised Bose dealer. Following the Bose order, in General Electric v Altamash Khan (Suit No 1283 of 2006), the Delhi High Court passed an interim injunction restraining the defendant from dealing in General Electric (GE) dehumidifiers without authorisation from the plaintiff. The defendant was found to be trading as GE dehumidifiers and to be misrepresenting itself as a GE dealer. The imported products at issue were not supposed to be sold in India and the accompanying warranties were useless since GE did not sell dehumidifiers in India. The defendant had further tampered with the products by erasing the serial and model numbers, which help identify and track the origin of the products. The court ordered a civil raid at the defendant’s premises which led to the recovery and seizure of 27 grey-market GE dehumidifiers. While the struggle against grey-market products continues, these orders have come as a boost for brand owners. The orders also indirectly protect unsuspecting consumers who are lured into purchasing grey-market goods at a low price, not realising that they are without warranties or after sales-service and that there is a serious risk regarding product safety.

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

247

DESIGN REGISTRATIONS The Designs Act 2000, which has repealed and replaced the Designs Act 1911, modernises the earlier legislation to provide for a wider ambit of coverage and incorporates several user-friendly features in order to harmonise the legislation with similar Acts in other countries. ‘Design’ has now been defined as only the features of shape, configuration, pattern, ornament or composition of lines or colours applied to any article whether in two dimensional or 3D or in both forms. The design should be new and original and should not be disclosed to the public in India or any other country. The 2000 Act is also aimed to enact a more detailed classification of design to conform to the international system and to take care of the proliferation of design related activities in various fields.

SEMICONDUCTOR INTEGRATED CIRCUIT (IC) LAYOUT DESIGN India now has the Semiconductor Integrated Circuits Layout Design Act 2000 in place to give protection to IC layout design. Layout design includes a layout of transistors and other circuitry elements and includes lead wires connecting such elements and expressed in any manner in a semiconductor IC. Semiconductor IC is a product having transistors and other circuitry elements, which are inseparably formed on a semiconductor material or an insulating material or inside the semiconductor material and designed to perform an electronic circuitry function. The term of the registration is 10 years from the date of filing. An IC layout design cannot be registered if it is not original, commercially exploited anywhere in India or in a convention country; inherently not distinctive; inherently not capable of being distinguishable from any other registered layout design. Reproducing, importing, selling, distributing the IC layout design for commercial purposes only constitutes infringement. A person

248

PRAVIN ANAND AND NEETI WILSON

who creates another layout design on the basis of scientific evaluation of a registered layout design shall not be causing any infringement.

GEOGRAPHICAL INDICATIONS (GIs) Geographical Indications (GIs) of goods are defined as that aspect of industrial property which refers to the geographical indication referring to a country or to a place situated therein as being the country or place of origin of that product. Typically, such a name conveys an assurance of quality and distinctiveness which is essentially attributable to the fact of its origin in that defined geographical locality, region or country. Under Articles 1(2) and 10 of the Paris Convention for the Protection of Industrial Property, GIs are covered as an element of Intellectual Property Rights (IPRs). They are also covered under Articles 22 to 24 of the TRIPS Agreement. As part of India’s compliance with the TRIPS Agreement, the GIs of Goods (Registration and Protection) Act 1999 came into force in September 2003. The Act accords recognition and protection to India’s well-known, place-specific natural and agricultural products, including Alphonso (mangoes), Basmati (rice), Darjeeling (tea), Mysore Sandal (soap), Kolhapuri (sandals), Khadi (cotton cloth), Pochampally Ikat (textile) and Kancheepuram silk (silk cloth). By 31 January 2006, 27 GIs had been granted protection under the Act, including a foreign GI application from Peru. A recent addition to the list of registered GIs is the Kashmir Pashmina fabric, which is found and woven only in the state of Jammu and Kashmir. The phenomenal success of Pashmina shawls in the late 1990s led to the mass production of cheap imitations made of artificial fibres rather than the soft belly hair of Himalayan goats. The raw material is known locally as pashm, which is transformed into Pashmina through an eight-step process. The fashion may have passed but the Craft Development Institute, established by the Ministry of Textiles, and the Government of Jammu and Kashmir still thought Kashmir Pashmina worth

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

249

registering as a GIs. The IP Office of India accepted the application in May 2006. The first court case on GIs under the new Act was Scotch Whisky Association v Golden Bottling (Suit No 406 of 2004), in which the court restrained the defendant from using the term ‘Scotch’ and from passing off its whisky as Scotch whisky. The court protected ‘Scotch’ as a GIs and awarded the plaintiff Rs 800,000 in damages.

PROTECTION OF PLANT VARIETY New plant varieties in India come within the purview of the Protection of Plant Variety and Farmers Rights Protection Act (PPV&FR), 2001. The PPV&FR authority has not yet started receiving applications; however, the recent publication in December 2006 of the Protection of Plant Variety and Farmer’s Right Regulations 2006 suggests an early beginning of operations, probably within few weeks. India has enacted the PPV&FR Act, which in addition to meeting the technical features of UPOV,2 provides rights to farmers to use the seeds from their own crops for planting the next crop. Further, there are provisions for benefit sharing with farmers, penalty for marketing spurious propagation material and protecting extant varieties. There is a provision for protecting extant variety and farmers’ varieties as well. The main criteria for a new plant variety to be granted protection under the Act are Distinctiveness, Uniformity and Stability (DUS). The DUS test guidelines for 12 crop species have been finalised and for 13 more species they are in the draft stage. The PPV&FR Authority has also identified centres for the DUS testing for cereals, pulses, oil seeds, forages, flowers, vegetables and fibres.

TRADE SECRETS Undisclosed information, generally known as trade secret/ confidential information, includes formula, pattern, compilation,

250

PRAVIN ANAND AND NEETI WILSON

programme, device, method, technique or process. Protection of undisclosed information is least known to players of IPRs and also least talked about, although it is perhaps the most important form of protection for industries, R&D institutions and other agencies dealing with IPRs. Protection of undisclosed information/trade secrets is not really new to humanity; at every stage of development people have evolved methods to keep important information secret, commonly by restricting the knowledge to their family members. Laws relating to all forms of IPRs are at different stages of implementation in India, but there is no separate and exclusive law for protecting undisclosed information/trade secrets or confidential information.

OTHER RELATED LEGISLATION India enacted the Biological Diversity Act 2002 to ensure maintenance, sustenance and development of its biodiversity. The Act has specific provisions about ownership of IP rights associated with exploitation of biodiversity. One needs to have the approval of the National Biodiversity Authority before exploring the biodiversity in India. In the event of exploitation of biodiversity and associated local knowledge for commercial purposes, there is a provision for sharing of benefits of such work with the local community. No direct flow of funds is expected to reach the community. The benefits will reach the community through state governments. The other Act having influence in the area of IPRs is the Information Technology Act, 2000 which looks at the security aspect of material being transacted on Internet. IP awareness is increasing all over India. Many government departments, educational institutions and Public Sector Undertakings (PSUs) have started their IPRs cells. Prominent among the government departments/agencies are Department of Biotechnology, Patent Facilitating Centre (PFC), Ministry of Telecommunications and Information Technology, Indian Council of Medical Research (ICMR), Indian Council of Agricultural Research (ICAR), Indian Space Research Organisation (ISRO),

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

251

Department of Atomic Energy (DAE), Defence Research and Development Organisation (DRDO) and Indian Council of Forestry Research (ICFR). The Indian Institutes of Technology (IITs) at Delhi, Mumbai, Kharagpur and Roorkee have also set up their cells and evolved their IPRs policies. Among the PSUs, Indian Oil Corporation (IOC) and Bharat Heavy Electricals Ltd (BHEL) are worth mentioning. Among private industries, there are many industries, which have started their own IPRs cells and it may not be possible to list all of them here. There is no doubt that private industries have responded very well to the new IPRs regime. ICAR has come up with guidelines for IP management and technology transfer/commercialisation. Many initiative driven changes have been seen in the Indian IP context and can be easily visualised in the present state of affairs.

ESTABLISHMENT OF SPECIALIST IP INSTITUTES In 2001, the Government of India set up the IP Training Institute (IPTI) at Nagpur. The aim of the institute is to create, use and exploit IP and to act as a nodal agency with regard to IP education. The IPTI conducts training and outreach programmes, and has good infrastructure. The IIT at Kharagpur has also established a new IP institute under its control, in collaboration with the George Washington University Law School, which aims to educate science student on IP issues. The institute was established with a huge corpus fund of US$ 1 million donation from a member of the alumnus of IIT, Kharagpur. Further, the Government, under the guidance of the Union Science and Technology Minister Kapil Sibal, is in the process of establishing an Indian Institute of IP Management to create the human resources required for patent management. The Government’s aim is to create a cadre of people who have received training in multifari ous areas and therefore have the expertise to patent knowledge, and who will be able to respond to

252

PRAVIN ANAND AND NEETI WILSON

the needs of the developing sectors of biotechnology, biosciences and medicine.

DATA PROTECTION The Data Protection Committee consisting of a committee of secretaries headed by secretary in the Chemicals Ministry is likely to give its final report soon, after more than two years of deliberation. The report is likely to have a great impact on innovation in the pharmaceutical industry and foreign investment in the sector. The Chemicals Ministry has prepared two models to meet the demand, and has circulated them among other ministries. One will provide for ‘data protection’, which would mean protection of data against unauthorised disclosure and use. The second model restricts the Drug Controller from granting protection to subsequent applicants, who do not have their own data, and who rely on earlier studies. This would prevent the utilisation of the data itself and that of the results of such data. In addition to the three levels of change described, enforcement of IP in India has received a boost with the appointment of Chris Israel. Israel, an expert in IP practice, has joined the US Embassy in India to exclusively supervise IP enforcement.

ACCESSING INTELLECTUAL PROPERTY IN UNIVERSITIES To discuss India’s pre-eminent reputation for science and technology without mentioning the academia would be to ignore the role (albeit a passive one) that the universities play in creating intellectual property. India’s science and technology infrastructure is sizeable, with over 250 university science and technology departments, 400 national laboratories, 800 engineering colleges and 1,300 in-house R&D units in the industrial sector. While Indian universities are not oblivious to IP issues, the government has never strategically pushed them to explore their own

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

253

potential to create and protect their intellectual property, whereas in other countries universities are central players in innovation and patenting. In 2005, the University Grants Commission, a statutory body and the chief funding body for Indian universities, released draft guidelines for awareness, protection and management of IP rights in the Indian university system. Once finalised, the guidelines will be the first policy documents to address specifically the issue of intellectual property within universities. The guidelines state that universities have the responsibility to set up IP management cells, which would manage the entire IP portfolio of the university and have the authority to file patent applications and enter into related agreements on behalf of the university. All inventors would go through the cell when applying for patent protection for inventions. The guidelines also recommend that universities grant non-exclusive licences unless exceptional circumstances justify the grant of an exclusive licence. In substance, the guidelines are similar to the BayhDole model adopted in the US. The Bayh-Dole Act or University and Small Business Patent Procedures Act gives US universities, small businesses and non-profit institutions intellectual property control of their inventions that resulted from federal government-funded research. The act was enacted by the United States Congress on 12 December 1980. The most important contribution of Bayh-Dole is that it reversed the presumption of title. The Bayh-Dole model permits a university, small business, or non-profit institution to elect to pursue ownership of an invention before the government. As the progressive guidelines take shape, many national universities have already taken the initiative in formulating their own management policies to tap, control and protect their intellectual property. The leaders in the field are the IITs in Bangalore, Delhi and Mumbai, each of which has its own set of IP policies to exploit its own potential while forging alliances with industry to raise and share revenue. While the importance of university-driven technology innovation and commercialisation has been recognised, strong internal

254

PRAVIN ANAND AND NEETI WILSON

regulatory mechanisms and laws are needed to make the structure defensible, enforceable and accountable for a stronger alliance between the government, universities and industry in which greater benefits can be reaped from public money.

CONCLUSION The Indian IP regime has come a long way in recent years and more specifically in IP litigation in recent months, and the outlook for the protection and enforcement of IP rights in India has never looked more positive. With the Indian judiciary showing enthusiasm for and commitment to the protection of IP rights, IP owners have become more proactive in enforcing their rights by all means, and are exploring uncharted waters to obtain unique remedies from the courts. Although the benefits of specialised IP courts are still under debate in India, the present state of affairs is well suited to the protection and promotion of IP rights by brand owners. While much still remains to be done regarding the criminal justice system, the Indian civil system for the protection of IP rights is improving daily. With a one billion-strong consumer pool from which to attract business, India is likely to remain the focus of the next generation global markets, and those who seek early protection of their IP rights in India and enforce them strategically will reap the benefits.

NOTES 1. In case of pharmaceuticals only seven-year patent monopoly rights existed. 2. The International Union for the Protection of New Varieties of Plants (UPOV) is an intergovernmental organisation with headquarters in Geneva (Switzerland). The UPOV was established by the International Convention for the Protection of New Varieties of Plants. The Convention was adopted in Paris in 1961 and it was revised in 1972, 1978 and 1991. The objective of the Convention is the protection of new varieties of plants by an intellectual property right.

THE ENHANCED INTELLECTUAL PROPERTY RIGHTS IN INDIA

255

IP LEGISLATIONS/REFERENCES 1. The Patents Act 1970, as amended by Patents (Amendment) Act 2005. 2. The Protection of Plant Varieties and Farmers’ Rights Act 2001, along with Protection of Plant Varieties and Farmers’ Rights Rules 2003 and Protection of Plant Variety and Farmer’s Right Regulations 2006. 3. The Copyright Act 1957, as amended up to 1999, along with Copyright Rules 1958 and International Copyright Order 1999; 2005. 4. The Design Act 2000, along with Design Rules 2001. 5. The Trade Marks Act 1999, along with Trade Marks Rules 2002. 6. The Geographical Indications of Goods (Registration and Protection) Act 1999, along with Geographical Indications of Goods (Registration and Protection) Rules 2002. 7. The Semiconductor Integrated Circuits Layout Design Act 2000, along with Semiconductor Integrated Circuits Layout Design Rules 2001. 8. The Biological Diversity Act 2002, along with Biological Diversity Rules 2004. 9. The Information Technology Act 2000.

Chapter 10 Can Protection of Intellectual Property Rights be of any Consequence to the Poor People?1 ANIL K. GUPTA

H

ow could poor people ever benefit if a country protected the intellectual property rights (IPRs) strongly? Would not such a protection mainly help the large multi-national corporations, which are known to produce intellectual properties (IP) more often? The implication here is that economically poor people are only consumers of products and services, which may be protected by IPRs laws. These products and services may become costlier as a consequence of protection. In this chapter, I take a diametrically opposite view. My submission is that economically poor people can in many cases be rich in knowledge. As a result, they may produce innovations which may deserve respect, recognition and reward in the market place. Protection of IP and applications of Information and Communication Technologies (ICT) can provide incentives for disclosure and dissemination at the same time. We have to reduce transaction costs for common people to learn from each other as has been attempted by Honey Bee Network. At the same time knowledge providers must not be anonymous and should also not be shortchanged in the marketplace. The creativity at the grassroots

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

257

must get its due. More than 99.9 per cent of the knowledge shared by Honey Bee Network so far is in the public domain. A very small part, therefore, is protected by patents. We have not even insisted on copyright protection. The idea is that people must use and share the knowledge as widely as they can. Having said that, do we have a right to do so without prior informed consent of the knowledge provider? Can we publish their knowledge in the Honey Bee newsletter or its local language variations in Tamil, Kannada, Malayalam, Oriya, Telugu, Gujarati, Hindi, etc., without ensuring that we do not bring unique knowledge of people into the public domain? In an obviously imperfect manner in the ‘network’, we have tried to resolve the paradox of enriching the public domain without depriving knowledge providers of their rights. It is this story that we share in this chapter. In Part One of this chapter, I deal with the issues related to conserving biodiversity and associated knowledge systems. In Part Two, the context of protecting IPRs of the knowledge-rich economically-poor people is described. I mention briefly the alternatives to development from the grassroots to the global in Part Three. IT applications to empower economically poor and knowledge-rich communities and individuals are discussed in Part Four since these have an important bearing on reducing transaction costs for learning across long distances, language cultures, etc. Finally in Part Five, I deal with the reform of IPR systems—making IP protection accessible to small innovators and local communities.

PART ONE: CONSERVING BIODIVERSITY AND ASSOCIATED KNOWLEDGE SYSTEMS Economic development in different regions has often been accompanied by a decline in biodiversity. Biotechnology and other value adding technologies offer a possibility of valorising biodiversity. But the distribution of the gains among different stakeholders generated through added value is obviously the function of institutional arrangements. The kind of ethical practices followed

258

ANIL K. GUPTA

by bioprospectors may determine whether or not the benefits of biotechnological or pharma or agri-business products are shared fairly among different stakeholders. Most drug companies often are very successful in calculating the price of their contribution towards Research and Development (R&D) and consequently in generation and commercialisation of the intellectual property in the form of value added products. But they generally fail to price, equally meticulously, the contributions made by local communities and individuals towards conservation, characterisation and sustainable utilisation of biodiversity and associated knowledge system. The high transaction cost not only in making prior art search but also in filing patents on behalf of small communities and individual innovators make the goal of filing patents on behalf of grassroots innovators very difficult (though National Innovation Foundation, Society for Research and Initiatives for Sustainable Technologies and Institutions [SRISTI] and the Honey Bee Network have filed national patents on behalf of several grassroots innovators through the help of pro bono attorneys in India and abroad). The need for a low transaction cost system is obvious and yet most global dialogues on intellectual property rights have not yet included the need for developing such a system. The fact that most jobs are generated by small enterprises which cannot license the international patents filed at great cost led to the emergence of a proposal for the Australian Innovation Patent System with a maximum of five claims, 10 years duration and product patent grant at almost negligible fees. This is beyond the utility model, which does not confer the product patent facility and is generally suitable for industrial designs or other such innovations and has almost same inventive threshold as standard patent (and thus did not deliver results). In the review of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) of the World Trade Organization (WTO), a discussion on Article 23 providing for negotiations on the establishment of a multilateral system of notification and registration of geographical indications in the context of wines is proposed.

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

259

There is no reason why such a discussion should be restricted only to the wines and not include traditional knowledge as well as contemporary innovations of local communities and individuals. Hence, our proposal for an international registry of innovations made way back in 1990. There are many other policy and institutional modifications that are called for in the IPR laws. For instance, why should not every patent applicant be obliged to disclose whether he or she had obtained the materials or knowledge used in making claims, lawfully and rightfully, through prior informed consent? Similarly, in the case of varieties or animal breeds, acknowledgement of debt due to local communities be made obligatory. It is not my argument that removing the imperfections in the IPR regime will by itself generate economic rewards and social esteem for local knowledge-rich, economically poor people. I realise that the role of non-monetary incentives may be sometimes more important. However, biotechnology, drug and other value adding industries have yet not shown any explicit interest as a stakeholder in generating models of voluntary benefit-sharing. Does it imply that they believe that future gains in biotechnological products may be made only on the basis of public domain biodiversity? The terms of discourse on the subject have not included intranational benefit-sharing responsibilities of, say, the farmers in green revolution regions towards the farmers and pastoralists in biodiverse, rainfed and marginal environments. It is easy to find all faults with an external enemy and in the process deny or delay the need for initiatives and reforms internally. Finally, I would argue that the reform of TRIPS including sui generis system and International Union for the Protection of New Varieties of Plants (UPOV) should be accompanied by domestic policy reforms in developing as well as developed countries. Failure to achieve significant results in the former case should not prevent experimentation of new models in the latter case. There are various approaches that have been evolved by the Honey Bee Network to scout, spawn, sustain and spread

260

ANIL K. GUPTA

grassroots innovations leading to among other things, conservation of biodiversity. My submission is that we need to stem the erosion of knowledge which sometimes is a greater threat than the erosion of resource itself, develop contingent mechanisms among children and young people to keep the knowledge stream flowing, persuade biotechnology and other companies and institutions to develop greater reciprocity towards conservation of biodiversity and strengthen reciprocity amongst the beneficiaries and contributors towards green (crop), white (milk) and blue (fish) revolutions. The empowerment of local knowledge experts will require building bridges between the excellence in formal and informal science. Reform of TRIPS is thus a process involving reform of knowledge producing and networking institutions in any society. The values underlying knowledge protection cannot be rewarded only through monetary instruments. If technology is like words, the institutions are like grammar. We need to generate a dialogue between technology designers and institution builders.

PART TWO: PROTECTING IPRS OF THE KNOWLEDGERICH ECONOMICALLY-POOR PEOPLE The asymmetry in rights and responsibilities of those who produce knowledge, particularly in informal sector, and those who valorise it (in formal sector) has become one of the most serious contentious issues. I will begin with four cases to illustrate the interface between the traditional and contemporary knowledge and global trade. I will then demonstrate that there are possibilities of securing the interests of grassroots innovators and traditional communities within the global trade regime, provided the ethics of extraction can be factored in the calculation of respective incentives or disincentives for cooperation among different stakeholders. To do so, some of the fast emerging and expanding technologies like ICTs will have to be adapted to the needs of local

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

261

communities and individual grassroots innovators. Lastly, I will summarise the policy changes that need to be negotiated in the next round of review of TRIPS and some other trade agreements having bearing on incentives for local innovations and growth of traditional knowledge and institutions.

Case I: The intellectual property in herbal products: Why has the centre of the world moved eastward? The importance of the fact that almost 45 per cent of the herbal patents in the United States Patent and Trademark Office (USPTO) till 1998 were owned by the Chinese, another 20 per cent by the Japanese and about 16 per cent by the Russians has not been properly appreciated.2 Chinese leadership in herbal products proves that with the right kind of incentives, even a developing country can achieve global pre-eminence. Not only that, the first hundred assignees were individuals and not corporations. The notion that R&D by small-scale firms or individual scientists cannot generate globally valuable intellectual property is not true. It is said that one in every five North Americans has used Chinese medicine. The traditional Chinese medicine has succeeded in capturing global markets through available trade routes. How has it happened? Is this a replicable model? To what extent has this trade helped the local communities and individual herbalists in China? Is there a reason to hope that the erosion of traditional knowledge will be stemmed because of the emergence of market and the valorisation of the knowledge? Answers to many of these questions may not be positive. And yet, simply because not all problems have been solved, the example should not deter us from solving at least some problems to begin with. Caution has to be exercised that those stakeholders whose problems get solved first (for instance, traders or petty manufacturers) should not become complacent towards solving the problem of other stakeholders such as herbalists, local communities, conservators of biodiversity in the wild as well as domesticated domains.

262

ANIL K. GUPTA

Case II: Genetic resources recognition fund at UC, Davis: Viability of voluntary sharing of benefits3 When Pamela Ronald, a pathologist at University of California (UC), Davis, cloned a gene which conferred resistance to a major disease of rice, i.e., blast and licensed it to two companies; she was not willing to bear the label of a biopirate. She realised that the wild rice (O. longistaminata) from which the gene was isolated and cloned originated from Mali, from where it had gone to Central Rice Research Institute, India, and in turn to International Rice Research Institute (IRRI). The characterisation and identification of the gene in question (XA 21) took place at IRRI. She met with Professor Barton and conceptualised the Genetic Resource Recognition Fund (GRRF) in which part of the one-time royalty from the companies would be credited apart from contribution from UC, Davis, so as to provide fellowships to the students from Mali and other developing countries. It is true that no money has yet been put in this fund because the companies concerned have not as yet decided to commercialise the gene through its insertion in various rice varieties. Hence, no fellowship has yet been given. The top management of UC, Davis, campus is conscious of the fact that this idea has not been mainstreamed, and thus has not been institutionalised for similar other transactions taking place at this campus or at other campuses of UC. They are planning to initiate discussions on this subject. Assuming that not many scientists will agree to put a part of their income coupled with the share of the university in this fund, the idea will remain an isolated but outstanding example of individual good conscience. Can such voluntary examples show the way for the future? Can these models be replicated through reforms at the higher level, i.e., in the intergovernmental negotiations on TRIPS and trade? Will the postgraduate fellowships to the students from the gene donor country be a good means of sharing benefits and providing incentives for in situ conservation? To what extent is the amount proposed in this fund optimal? There can be many more questions. And yet, the issue remains that the individuals can make a difference, change the perspective

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

263

and generate hope. To what extent can such models provide a basis for influencing the trade negotiations in genes? Is it possible that while generating global solutions we do not constrict the space for creative solutions, no matter how isolated and nonreplicated these are?

Case III: Commercialising traditional knowledge of Kani tribe Tropical Botanical Garden Research Institute (TBGRI) has been doing research on herbal drugs for a long time like many other botanical institutions. Dr Pushpangandan being the coordinator of national project on ethno-botany and Director of this Institute was well aware of the potential of indigenous knowledge of herbal drugs. He and his colleagues identified a drug from the traditional knowledge collected as a part of their study and filed a patent on the same. An Ayurvedic drug company got interested in the commercialisation of this drug and accordingly licensed the right to manufacture and market it. Dr Pushpangandan discussed various ways of sharing the benefits with me and accordingly decided to set up a trust fund of the tribe. He chose this route in preference to the transfer of the benefits to a public sector tribal development corporation. There was criticism of his attempt to share benefits, suggesting either inadequacy, lack of widespread involvement of Kani tribe or that TBGRI did not hire enough Kani people or even paid them well. There was no criticism of thousands of researchers in public and private sectors who have been using traditional knowledge without any reciprocity whatsoever. The consciousness of the Kani tribe about their own knowledge and need for its conservation and application has increased manifold. Dr Pushpangandan had been working on many plants and realised the need for sharing benefits only because of the current global and national concerns. Whether the amount of benefit was adequate or not is an important issue but not the most important one. To what extent Kanis will become conscious of their rights and responsibilities

264

ANIL K. GUPTA

is a more important question. Whether a voluntary decision of this kind will bring about change in the behaviour of other public and private sector users of traditional knowledge within India is again an open question. It is interesting that lots of NGOs and others who see Multinational Corporations (MNCs) as the biggest enemy of the nation do not realise that for the poor tribal, it is no solace whether they are exploited by a domestic company or international company. Globalisation of ethical responsibility is an imperative.

Case IV: Honey Bee Network transforms paradigm of benefit sharing: The case of monetary and non-monetary incentives for communities and innovators4 Honey Bee Network evolved 10 years ago in response to an extraordinary discomfort with my own conduct and professional accountability towards those whose knowledge I had written about and benefited from. I realised that my conduct was no different from other exploiters of rural disadvantaged people such as moneylenders, landlords, traders, etc. They exploited the poor in the respective resource markets and I exploited the people in the idea market. Most of my work had remained in English and thus was accessible to only those who knew this language. While I did share findings of my research always with the providers of knowledge through informal meetings and workshops, the fact remained that I sought legitimacy for my work primarily through publications and that too in English and in international journals or books. The income which had accrued to me had not been shared explicitly with the providers of the knowledge. I had argued with myself that I have spent much time and energy in policy advocacy on behalf of the knowledge-rich, economically-poor people. But all this was of no avail when it came to being at peace with oneself. That is when the idea of Honey Bee came to mind. ‘Honey Bee’ is a metaphor indicating ethical as well as professional values which most of us seldom profess or practice. A honey bee does two things which we intellectuals often do not,

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

265

(i) it collects pollen from the flowers and flowers do not complain, and (ii) it connects flower to flower through pollination. Apart from making honey, of course. When we collect knowledge of farmers or indigenous people, I am not sure whether they do not complain. Similarly, by communicating only in English or French, or a similar global language, there is no way we can enable people to people communication. In the Honey Bee Network, we have decided to correct both the biases. We always acknowledge their innovations by their names and addresses and ensure a fair and reasonable share of benefits arising out of the knowledge or value addition in the same. Similarly, we also have insisted that this knowledge be shared in local languages so that people to people communication and learning can take place. Global trade so far has not created enough space for such knowledge to be exchanged among people in different continents, which reduces their transaction costs of learning from each other around particularly non-monetary green technological innovations. Honey Bee, in that sense, is like a Knowledge Centre/Network which pools the solutions developed by people across the world in different sectors and links, not just the people, but also the formal and informal science. It is obvious that people cannot find solutions for all problems. At the same time, the solutions they find need not always be optimal. There remains a scope for value addition and improvement in efficiency and effectiveness. But it is definite that a strategy of development, which does not build upon on what people know and excel in, cannot be ethically very sound and professionally very accountable or efficient. SRISTI has set up an internal fund to honour 10–15 innovators every year. The fund has been set up from its own resources, supplemented by the licence fee received from a company to whom three herbal veterinary drugs were transferred based on public domain, traditional knowledge. Similarly, patents have been filed or are being filed on behalf of several innovators. In the case of Tilting bullock cart developed by Amrut Bhai of Pikhore village, while the patent is pending, the technology has been licensed to private entrepreneurs for three districts of Gujarat for an attractive financial consideration. This amount has been

266

ANIL K. GUPTA

given to Amrut Bhai through Gujarat Grassroots Innovation Augmentation Network (GIAN). GIAN itself was set up in 1997 as a follow-up of International Conference on Creativity and Innovation at Grassroots held at the Indian Institute of Management, Ahmedabad (IIMA) in collaboration with the Gujarat Government to scale up and commercialise grassroots innovations. The golden triangle linking innovation, investment and enterprise, which I first talked about at Association Internationale pour la Protection de la Propriété Intellectuelle (AIPPI) forum (or International Association for the Protection of Intellectual Property), organised three years ago, has now been operationalised. SRISTI had pursued this linkage through its venture promotion fund before GIAN came into being. Even after that, it continues to provide financial support for action research to small innovators. Whether global linkages among innovators in one country with investments and enterprises in second and third country takes place, is only a matter of time. The four case studies bring out various issues: (a) To what extent has awareness about rights of traditional communities and grassroots innovators among various stakeholders been generated? It seems that professionals like scientists and academics seems to have been far more proactive than the corporations (Shaman Pharmaceutical, Arya Vaidya Shala and Dr Nair’s Technology Foundation are three of the few exceptional companies; most mainstream companies have so far shied away from making any bold attempt to tilt the scales in favour of local communities). (b) Whether the norms of benefit-sharing have acquired the status of a professional value. For instance, before accepting a PhD thesis, a certificate is generally taken from the student that he/she has acknowledged all the contributions in the research work. However, a similar declaration is not insisted upon from the researchers and commercial users of indigenous knowledge that they have made due acknowledgement and reciprocal arrangement with the innovators. The norm of acknowledgement of local

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

(c)

(d)

(e)

(f )

(g)

(h)

267

knowledge has not become a professional value among germplasm collectors as well as ethnobiologists. What combination of monetary and non-monetary incentives would be optimal, for which kind of knowledge system and innovations and under what institutional arrangement? Unless such a contingent framework is developed, it is unlikely that most users of biodiversity will be able to initiate benefit-sharing experiments. We do not know as to what level of intellectual property protection will make the local knowledge system vibrant and buoyant. Is it possible that fears about the erosion of local knowledge increasing due to its valorisation are unfounded? What are the reasons which explain such a lack of information on experiments around benefit-sharing? Why are so few people trying to pursue these experiments? Why are the consumers of value added products in Europe and other Western countries not as conscious of the rights of local communities and grassroots innovators as they are about the rights of the animals? What is preventing the NGOs and governments in third world countries from initiating benefit-sharing measures on their own among the various institutions within the country? Why should intra-country arrangements of benefitsharing as attempted by TBGRI and Honey Bee Network not take place in many countries and await the resolution of North–South conflicts? Not in one case, have the consumers of herbal and other products demanded fairer contracts with the local community in contrast to the boycott of beef burgers in US some time ago to discourage environment unfriendly rearing of beef in Latin America. What is the perception of local communities and innovators themselves on the issues of benefit-sharing?

The context in which local knowledge evolves and gets modified or transformed overtime is discussed in the next part.

268

ANIL K. GUPTA

PART III: ALTERNATIVES TO DEVELOPMENT: FROM GRASSROOTS TO GLOBAL SRISTI, a global NGO set up few years ago, provides organisational support to the Honey Bee Network around the world. It is a network of oddballs who experiment and do things differently. Many of them end up solving the problem in a very creative and innovative manner. But the unusual thing about these innovations is that they remain localised, sometimes unknown to other farmers in the same village. Lack of diffusion cannot be considered a reflection on the validity of these innovations. The innovations could be technological, socio-cultural, institutional and educational in nature, contributing to the conservation of local resources and generation of additional income or reduction or prevention of possible losses. Farmers have developed unique solutions for controlling pests or diseases in crops and livestock, conserving soil and water, improving farm implements, various kinds of bullock or camel carts for performing farm operations, storing grains, conserving land races and local breeds of livestock, conserving aquatic and terrestrial biodiversity, etc. Honey Bee has already collected more than 8,000 innovative practices predominantly from dry regions to prove that disadvantaged people may lack financial and economic resources, but are very rich in knowledge resource. That is the reason we consider the term ‘resource poor farmer’ as one of the most inappropriate and demeaning contributions from the West. If knowledge is a resource and if some people are rich in this knowledge, why should they be called resource poor (a term used in GATT/WTO also)? At the same time, we realise that the market may not be pricing peoples’ knowledge properly today. It should be remembered that out of 114 plants’ derived drugs, more than 70 per cent are used for the same purpose for which the native people discovered their use (Farnsworth, 1988).5 This proves that basic research linking a material and its effect had been done successfully by the people in majority of the cases. Modern science and technology could supplement the efforts of the people, improve the efficiency of the extraction of the active ingredient,

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

269

find causal mechanisms or synthesise an analogue of the same, thereby improving effectiveness. The scope for linking scientific search by the scientists and the farmers is enormous. We are beginning to realise that people’s knowledge system need not always be considered informal just because the rules of the formal system fail to explain innovations in another system. The soil classification system developed by the people is far more complex and comprehensive than the United States Department of Agriculture (USDA) classification systems. Likewise, the hazards of pesticides residues and associated adverse effects on the human as well as entire ecological system are well known. Some of these practices could extend the frontiers of science. For instance, some farmers cut 30–40 days old sorghum plants or Calotropis plants and put these in the irrigation channel so as to control or minimise termite attack in light dry soils. Perhaps hydrocyanide present in sorghum and similar other toxic elements in Calotropis contributed towards this effect. There are a large number of other plants of pesticidal importance found in arid and semi-arid regions, hill areas and flood-prone regions which can provide sustainable alternatives to highly toxic chemical pesticides. It is possible that private corporations may not have much interest in the development and diffusion of such alternatives, which pass control of knowledge into the hands of people. However, an informed, educated and experimenting client always spurs better market innovations, as is evident from the experience of the computer industry. Therefore, we do not see a basic contradiction between the knowledge systems of people and the evolution of market rules to strengthen and build upon it. However, such a model of market would be highly decentralised, competitive, open and participative. Honey Bee in that sense is an effort to mould markets of ideas and innovations but in favour of sustainable development of high-risk environments. The key objectives of SRISTI thus are to strengthen the capacity of grassroots level innovators and inventors engaged in conserving biodiversity to (a) protect their intellectual property rights, (b) experiment to add value to their knowledge, (c) evolve entrepreneurial ability to generate returns

270

ANIL K. GUPTA

from this knowledge and (d) enrich their cultural and institutional basis of dealing with nature. Of course no long-term change in the field of sustainable natural resource management can be achieved if the local children do not develop values and a worldview which is in line with the sustainable lifestyle. Thus education programmes and activities are essential to perpetuate reform. Globalisation in trade and investment through harmonisation of national laws, particularly dealing with intellectual property rights, is one of the major impacts of GATT/WTO. The contribution of knowledge as a factor of production is being increasingly given central importance in economic development. The management of knowledge not just in farms and firms but also in the non-farm sector will become very crucial in coming years. The intellectual property rights deal with the reciprocity in rights and responsibilities of inventors and society at large. In lieu of the disclosure of the patented innovation or invention, the society agrees to recognise the right of the inventor to exclude others who are not authorised from commercial exploitation of the invention. It is a kind of social contract between society and the inventor. Society gains by getting access to the inventive process and product, which can be used by other inventors for making improvements as well as developing substantive new innovations. The inventor benefits by having an incentive to invest by himself/ herself or assign it to someone else interested in commercial exploitation of the invention. If others could easily copy the invention as happens in process patents, then investors will not make major investments and inventors will have no incentive to disclose. The plants and animals were kept out of the purview of patents when the concept was developed initially. However, in the 1950s, discussion started on finding out ways in which more plant varieties could be developed and breeders could be given incentives to innovate and disclose the improvements. There are several ways in which indigenous knowledge, innovation and practices can be protected so that the informal knowledge system continues to grow and symbiotically link with modern science and technology:

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

271

(a) Overcoming informational asymmetries in the formal and informal knowledge systems through IT applications. (b) Reforming the IPR system to make it accessible for small grassroots innovators. (c) Establishing dedicated green venture promotion funds and incubators for converting innovations into enterprises. (d) Reforming the mandate and responsibility of Central Government institutions to make it obligatory for international agricultural and natural resource management institutions to accord priority to adding value to local innovations. (e) Rethinking and redefining the role and responsibility of international financial institutions with respect to ethical, institutional and financial support for grassroots innovations and local knowledge systems.

PART IV: IT APPLICATIONS TO EMPOWER ECONOMICALLY-POOR AND KNOWLEDGERICH COMMUNITIES AND INDIVIDUALS The decline of welfare state in the developed world has been accompanied in recent times with the denial or ‘unfeasibility’ of similar pursuits in the developing countries. Squeezed by structural reforms, lack of new social imagination is as much a commentary on the state of our civic consciousness as on the fragility and bankruptcy of intellectual apparatus drawn from legacy of Marshal Plan and ‘do gooding’ state bureaucracies. I argue that we need a new paradigm of envisioning social change and development, built around overcoming information asymmetries. Knowledge can indeed become a means of power if coalition/networks of relevant actors evolve. The chemistry of evolution of such networks which connect information, institutions, incentives with innovations and enterprises is the subject of this section. French philosopher Abbe Pierre argued that modern (read western) society is confronted with three realities. The first tragedy

272

ANIL K. GUPTA

is the growing power of media and travelling which denied civilised society an excuse that it did not know; the second deals with obligation of developed countries to deal with the rising problem of unemployment by reducing working hours, and the third refers to the challenge of enormous free time (Jack, 1997).6 I argue in this chapter that every time information technologies (ITs) reduce information asymmetries, these can also help in increasing responsibility. One can no more take an excuse that one could not intervene since, as Abbe says, one did not know. But not just that, as I illustrated with the example of Knowledge Network/Centre approach to augment grassroots creativity, IT also helps align key actors in civil society. The alienation, fragmentation and dislocation of knowledge space make it difficult for creative urges of society at the grassroots level to coalesce. The market forces, as these have evolved, are generally successful in bringing certain interests at specific scales together. But market failure is evident when the transaction costs are high. Investment in IT infrastructure can help in reducing these transaction costs for those whose ability to bear it is low. But this will not happen automatically. Just as paving roads in the forests often leads to accelerated deforestation,7 IT infrastructure can lead to faster erosion of local knowledge and wisdom unless appropriate institutional interventions are simultaneously made. Legacy of development: The developmental paradigm has been dominated for at least half a century, by the idea that the role of the state or civil society is to provide what poor people lack, that is, material resources, opportunities for skill or resource augmentation or employment. Strategies never built upon the resource in which the poor people are often rich, that is, their knowledge. So much so that developmental lexicon in the last decade adopted a term with great alacrity, that is, ‘resource poor people’. As if ‘knowledge’ is not a resource or that poor people are poor even in this resource also. This is a blemish that one could find in almost every major developmental writing. We plead that we change it, and right away. Once knowledge is recognised as the fundamental building block of the developmental options for the disadvantaged communities

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

273

around the world, the role of ITs and IPRs becomes conspicuous in this envisioning process. Incentives and Information: Information Technology can be harnessed to generate incentives for knowledge-rich, economicallypoor people to share their knowledge without exhausting their IPRs and creating fear of being robbed of the only resource left with them, that is, their knowledge. It can do so by providing a global registration system such as the International Network for Sustainable Technologies, Application and Registration (INSTAR)8, 9 discussed herein later. IT can also provide glue to hold institutions for conservation together, particularly when the need for horizontal flow of information among communities facing different challenges is very high. Higher the specificity of environmental challenges, higher may be the isolation and fragmentation of local knowledge systems. And yet analogical learning systems thrive precisely on such dissimilarities and discontinuities of knowledge systems in concrete terms. Fragmentation of knowledge space takes place due to various social divisions and cleavages, discontinuities in intergenerational transfer of traditional functional knowledge, and incommensurability between knowledge and the accompanying ecological and other resource contexts. Fragmentation can also arise if contemporary innovations for resource use are not shared widely due to the dominance of external knowledge systems or due to contempt for local and familiar knowledge, as happens in many communities and societies. The analogical learning can help overcome many of these discontinuities by triggering (a) search for solutions in different contexts, (b) provide clues about the kind of relationships that can be pursued, and (c) enrich the repertoire of local communities and innovators so that they can independently locate the ideas for solutions as well as alternative materials. The idea is that even if fish are not found in dry regions, knowledge about another community using plants to numb fish before catching them may easily trigger some other uses of toxic plants in a pastoral community, say, for veterinary medicine or vice versa.

274

ANIL K. GUPTA

IT can provide an institutional mechanism for abstracting and exchanging the heuristics underlying innovations dealing with various challenges. It cannot do certain things, or even if it can, not very well. The ethical values which encourage sharing of knowledge at the local level are also accompanied by general contempt for or indifference towards local innovations in many societies. This chapter provides some practical ways in which low-cost IT applications have provided incentives for sharing local innovations and generating institutional mechanisms for production, reproduction, exchange and critical, but appreciative, peer evaluation of knowledge systems for sustainable resource use. The knowledge systems that enable people to survive, particularly in high risk environments, have involved blending the secular with the sacred, reductionism with holism, short-term options with long-term ones, specialised strategies with diversified ones, whether involving individual or collective material or non-material pursuits. The classical dichotomous approaches have seldom worked. The environmental ethics of these communities have also reflected these blends contrary to the populist rhetoric of so called unitary approaches with one kind of strategies say, holistic ones dominating and displacing the other, say reductionist ones. Higher the stress, whether of physical, technological, market or socio-economic kind, greater is the probability that disadvantaged communities and individuals will generate innovative and creative alternatives for resource use. It must be particularly noted that innovations, whether originating in traditional or contemporary consciousness, could be evolved by communities as well as individuals. Excessive emphasis on communities to the exclusion of individuals may have contributed to the widespread indifference towards the entrepreneurial potential of the knowledge-rich, economically-poor people. The information technology needs in regions with a majority of households managed by women will be quite different from regions dominated by male decision makers. The health needs, agricultural systems, technological challenges and interface between cultural taboos and economic pressures will be most acute in these regions. Knowledge network can generate new choices by

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

275

connecting one group of women who may have overcome some of the socio-cultural constraints to their economic improvement with another group that is struggling to do so. Innovations in technological, cultural or institutional subsets often remain isolated and unconnected despite an otherwise reasonably robust informal knowledge network in existence.

PART V: REFORM OF IPR SYSTEMS: MAKING IP PROTECTION ACCESSIBLE TO SMALL INNOVATORS AND LOCAL COMMUNITIES Publication of indigenous knowledge, innovations and practices and exhaustion of Intellectual Property Rights: The case for international and national registration systems In a recent paper,11 I recognised the problem that arises due to the publication of local knowledge provided by healers, innovators, farmers and tribal individuals and communities. Such a publication brings the knowledge into the public domain. It can no more be protected. At the same time, local language publications make it possible for people to learn from each other. Ideally, it should be possible to register such knowledge without much cost and effort and then publish it. If the National Register on Grassroots Innovations and Traditional Knowledge maintained by National Innovation Foundation (NIF) could be given legal status, such a need can be met immediately. The IP protection prevents bio-piracy and at the same time enables value addition by the private sector, which can then share the benefits. Publication can also prevent bio-piracy but it does not in any way generate the opportunity of benefit sharing though value addition can still take place. If traditional knowledge is considered a prior art as is attempted in the Indian Patent Act, then nobody needs to compensate traditional knowledge holders after using their knowledge for commercial purposes. It is obvious that we do not agree with such an interpretation of the provisions of the Indian Patent Act. We believe that only reasonably accessible traditional

276

ANIL K. GUPTA

knowledge should be considered prior art. To prevent others from exploiting India’s traditional knowledge, we cannot take away the rights of local communities and traditional knowledge holders to protect their own knowledge and benefit therefrom through commercialisation by themselves or third parties. Local language publications make it possible for people struggling with similar problems to learn from these. This happens through publication in local languages as attempted by Honey Bee. However, the challenge is to marry the two goals of easy and quick opportunity for lateral learning (through local language publication) and sharing of benefits through value addition in the same knowledge. A quick legitimacy to databases like Honey Bee and the registration system12 of innovations may provide the answer. Honey Bee will then make its databases accessible to all patent offices in lieu of the protection provided to the communities and individuals whose knowledge is catalogued in it. The alternative of greater secrecy and withholding of knowledge will make every one a loser through (a) greater erosion of oral knowledge, (b) continued unwillingness of younger generation to learn the knowledge, innovations and practices developed over a long period of time, (c) depriving any opportunity to knowledge holders as well as those dependent upon them to improve their livelihood prospects through sharing of possible benefits, (d) lack of material incentives for conservation of endangered species, (e) knowledge-rich, poor communities may migrate out due to low opportunities for subsistence and employment and not take care of local resources or overexploit the resource itself netting very little value in a short period of time, and (f) stifling the very creative and buoyant laboratory of innovations at the grassroots by denying any social esteem for such knowledge through material as well as non-material incentives and general neglect. Since it will be very difficult for any and every community to seek protection of its knowledge and inventive recipes for various purposes such as herbal pesticides, human or veterinary medicines, vegetative dyes, etc., a registration system should be developed. Such a registry will prevent any firm or individual to seek patent on community knowledge as well as on knowledge and

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

277

innovations produced by individuals, without some kind of cross licensing. A proposal for INSTAR has been mooted by SRISTI at several fora during the last 13 years. The basic structure of INSTAR is as follows: It will be possible to achieve the following results from such a registry: Primary entitlements: 1. Acknowledgement of individual and collective creativity. 2. Grant entitlements to grassroot innovators for receiving a share of any return that may arise from commercial applications of their knowledge, innovations or practices with or without value addition. Secondary entitlements: 3. Linking the golden triangle of entrepreneurship by linking investments, enterprise and innovations. Small scale investors in North and South cannot afford to go to various countries, scan the diversity of knowledge and resources, negotiate contracts and invest up front huge investments for value addition. If they do not participate, then the field will remain dominated by only large corporations. This register will help small scale investors seek opportunities of communication with communities and individual innovators and explore opportunities of investment. A large number of potential negotiations will take place, increasing the opportunities for innovative communities and individuals. The competition among the investors, tempered by competition among potential suppliers of various kinds of knowledge as well as diversity, will moderate expectations on both the sides.13 4. An autonomous authority of which local community representatives will be the majority members could be entrusted with the responsibilities of having access to all the contracts. A copy of the contracts may have to be deposited with this authority so as to avoid shortchanging of the communities. These contracts will also be scrutinised

278

ANIL K. GUPTA

to see whether management plans for sustainable extraction of diversity have been drawn upon in a scientifically appropriate manner or not. Penalties may have to be imposed for non-sustainable extraction of herbs by domestic as well as external extractors. Under the Indian Biodiversity Act, local biodiversity management committees were supposed to have this function at least in an implicit form. The local Panchayati Raj bodies can also be empowered to incorporate this as a constitutional function. Unfortunately, no concrete steps have been taken in this direction. The Administrative Reforms Commission is seized of this matter and the author has submitted a proposal in this regard.14 5. Each entry in the register will be coded according to a universal system like the International Standard Book Number (ISBN). The postal pin code of the habitat of the community or individuals registering innovations will be incorporated in the indexation system so that geo-referencing of innovations can be done. In due course the contextual information of innovations can also be incorporated in the system so that this system of innovations can help crossconnect the communities having similar ecological situations or facing similar constraints or challenges. 6. The entry in the register will in the first stage be a mere acknowledgement of creativity and innovation at the grassroots level. But later some of the innovations will be considered appropriate for award of inventors’ certificate or a kind of petty patent which is a limited purpose and limited duration product patent protection for low inventive threshold innovations/traditional knowledge. The essential purpose of this institutional or policy innovation also is to reduce transaction costs of the potential investors and entrepreneurs (a cooperative of consumers, producers, an entrepreneur, or a large firm in private or public sector) in seeking information about investible innovations. This could operationalise G2G™ that is, the Grassroots to Global vision of the Honey Bee Network.15

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

279

7. The award of certificate will also increase entitlement of innovator/s for access to concessional credit and risk cover so that transition from collector or producer of herbs to developer and marketeer of value added products can take place in cases where innovators/traditional knowledge holders deem that fit. 8. The registration system will also be part of the Knowledge Network, linking problem-solving people across the world at the grassroots level. This will promote people to people learning and serve as a multi-language, multi-level, multimedia (oral, textual, electronic) clearing house for local and indigenous communities. Wherever necessary and possible, formal scientific institutions will be linked up in the network. Apart from the registration system, a large number of specific incentives would need to be developed for different categories of knowledge, innovations and practices. Similarly, the incentives for preservation of sustainable lifestyles of indigenous communities would also be different. Knowledge Network for sustainable technological options operationalised through the Honey Bee Network approach implies that innovations in one part of the world may seek or attract investments from another part, if necessary, to generate enterprises (whether commercial or non-commercial, individual or cooperative) in a third place. Several innovative experiments have been started to explore this golden triangle for rewarding creativity. It requires acknowledging that not all innovators may have the potential for becoming entrepreneurs or have access to capital suited for investment. One could have an innovation, say, from India, an investor from Europe and an enterprise in South Africa. Forces of globalisation could after all be also mobilised in defence of poor creative people. Information technologies like any other technology can help bridge as well as widen the gaps between the haves and the havenots. What is very encouraging about the new possibilities that

280

ANIL K. GUPTA

ICT applications offer is the scope for democratising knowledge, which was never so high as now.

Other reforms in the IPR system: 1. Search for prior art and essential disclosure by the applicants: It has been felt for a long time that patent offices issue improper patents because they do not have access, time, perspective and at times even willingness to explore information in databases not available on Internet or in electronic format. Recently, Central Institute of English and Foreign Languages (CIEFL) has submitted a presentation to United States Patent and Trademark Office (USPTO) suggesting modifications in the procedures for searching prior art. SRISTI has also been pleading for the last several years that databases of community as well as grassroots knowledge should be accessed by the patent offices to avoid issuance of trivial or improper patents. Specific steps required in the matter are: z

z

z

z

Various NGOs and other documentation services should be contracted by World Intellectual Property Organization (WIPO) or leading patent offices to convert published data on ethno-biology, indigenous knowledge and other innovations into electronic databases so that each patent office can screen these before issuing any patent. The cost of building up of these databases will have to be raised from multilateral sources. In some cases, it would also include translation from local languages. There should be incentives for groups document-ing local knowledge to share it with patent offices regularly. Every applicant should be required to disclose that material, information or any other knowledge used in the patent application has been obtained lawfully and rightfully. Those patent offices which do not disclose the patent applications before granting the patent should be

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

z

z

z

281

obliged to make the applications public after 18 months of application so that objections can be filed by the interested groups. There is a tremendous amount of knowledge, which is available only in oral form and has not yet been documented. There have been cases when such knowledge communicated in good faith by local people has been used without acknowledgement or reciprocity to claim intellectual property on the same. There should be severe penalty for such attempts so that these act as a deterrent. At the same time, mechanisms should be put in place for a worldwide campaign for a documentation and registration of these knowledge systems. Just as a discussion is going on in the US on linking the application cost of patents with the number of claims, there should similarly be incentives for disclosing extensive prior art. This will encourage applicants to make extra efforts to disclose as much prior art as possible and accordingly get concessions in the cost of application. This is particularly applicable for patent applications on biodiversity based knowledge and resources. Not every localised knowledge, which is not yet documented, should be considered public domain unless it is easily accessible. Therefore, oral traditional knowledge in which some improvements may have been made should be eligible for being considered patentable. This will help the communities to decide whether they would like their knowledge to be public domain and thus become part of prior art or whether they would like it to come in to the public domain after getting protection for a given period of time.

2. Global dialogue on new systems of IPRs for protecting localised traditional knowledge vis-à-vis the protection for traditional lifestyles embodied in geographically indicated products like wine.

282 z

z

ANIL K. GUPTA

The conventional IPR system will limit the rights of local communities and traditional healers up to 14–20 years depending upon the system in vogue in different countries. There is a need for experimenting with different kinds of protection for different kinds of traditional knowledge. Some can be protected through the trademark route, some by geographical indications, and still others through a combination of patent and inventors’ certificate, entitling the communities for sharing benefit for at least two generations, that is, 50 years. It is obvious that a small share provided regularly over a long-term period gives greater certainty than a larger share given only once or for few years. The communities must be enabled to evolve institutions for utilising external resources in a sustainable manner without becoming victims of non-sustainable lifestyles and consumption patterns as had happened in the case of many of the North American native Indian communities. The new systems of protection will have to balance the long-term need for the community to have interest in conserving the knowledge system and the incentives for those who add value to share the benefits for a limited period of time. The longer the period of the protection, the more delayed access will be for those smaller firms which want to add value, reduce cost and make products available for larger consumption. Therefore, the new system we propose should discriminate between rights of communities in the knowledge system vis-à-vis the rights in a specific knowledge output. The rights in the systems should be perpetual. For instance, the classical health systems such as ayurveda, unani or sidhdha have recipes, which are being granted patents in a rather indiscriminate manner. This is improper. The Traditional Knowledge Digital Library (TKDL) developed by the Government of India may help in preventing this. It is

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

z

283

a different matter that this library may be accessible to international patent offices but is inaccessible to national organisations, networks and institutions so far. However, modifications in the codified and classical knowledge should be permissible for patenting with the understanding that a share of the benefit will go into a global/national pool of funds meant for augmenting indigenous systems of medicines all over the world. This is similar to a system for plant varieties in which improved varieties based on land races contribute a share to the global fund for in situ conservation. Since every such benefit is shared ultimately at the consumer costs, it is only natural that consumers should pay for the conservation of diversity. Before granting any patent, the patent office should demand declaration that the data or material used in the patent application has been obtained lawfully, that is, in fulfillment of the laws of the country from where these have been obtained, and rightfully, i.e., through prior informed concerned of the local community and the appropriate authorities.

3. Developing a low transaction cost system for small innovators In addition to the model of INSTAR, we need to experiment with another model based on Australian Innovation Patent System. In Australia it was realised that most of the jobs are created by small firms—a fact which is evident in most countries of the world—and yet it was very difficult for smaller firms to license the standard patterns which are much more costlier. The petty patent system did not serve the purpose because the inventive threshold was similar to the one required in the standard patent system. Therefore, it was proposed to set up an innovation patent system in which the innovations having lower inventive threshold will qualify for a protection for eight years, with

284

ANIL K. GUPTA

a maximum number of five claims. The prior art requirement would be same as in the standard patent and formality examination would also be undertaken on all applications though substantive examination only on the request of the applicant or third party. The scheme provided for the publication of the innovation patent application to occur three months after filing. It also provided for dual protection by standard and innovation patent. (Review of the Petty Patent System, Advisory Council of Industrial Property, Australian Industrial Property Organisation (AIPO) Canberra, 1995.) Conventionally the fees for the petty patent and the standard patent were more or less same and the time taken in the Petty Patent worth lesser. The Australian report cited that, on an average, 300 petty patent applications were filed, with 50 to 60 per cent granted patent. The foreign applicants had rarely used this facility. The majority of the petty patent applications were made by individuals rather than companies. In comparison, Australia received 20,000 applications for standard patents out of which only 10 per cent were made by Australians. As against this, only 1.5 per cent was the share of petty patents. The share of agriculture or veterinary was just about 5 per cent in petty patents. In view of this, a modified system was introduced. If a developed country has evolved a mechanism to help small entrepreneurs, pharma companies which can only make incremental innovations with low inventive threshold, should we assume that small companies in India will have better R&D performance, say, in Australia. It makes sense, therefore, to support IP protection for incremental innovations without in any way letting this window be used for evergreening by large corporations. In the context of the current debate on Section 3D of the Patent Act, we should ask ourselves whether we should restrict the patent protection only to the new chemical entities when we know that the majority of the Indian pharma sector may not be able to develop many such entities in, at least the coming one decade. At the same time,

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

285

incremental innovations are already being made by many companies such as Troikkaa which have filed patents by improving technologies out of the patent. Further, should the efficacy be judged by the Drug Controller of India or the Patent Office? We should also ask ourselves that should a patent application be kept pending till the data on efficacy has been collected and submitted. Normally, a full application has to be submitted within one year of filing. The efficacy data is unlikely to be generated within one year. Should a small Indian company be denied an opportunity to protect its innovation till then? What if a large corporation with much higher resources is able to generate the efficacy data before the small company? Should we not allow lack of efficacy data as a ground for opposing patents at pre- or post-grant stage? There can be no two opinions about preventing MNCs from evergreening of patents through marginal changes. At the same time, a lesson has to be kept in mind. Years ago, while doing a research on matching farmers’ concerns with breeders’ objectives, I realised that it was very difficult to develop a technology which was useful for the poor but could not be taken advantage of by the rich. When Prof. Ruttan16 made this observation, I was not convinced, given my pink heritage. However, after doing research in detail, I found it very difficult to think of technologies that will only help one class. Therefore, to assume that we can create a policy provision, which will benefit small sectors but may not be taken advantage of by large companies is difficult, though not impossible. However, to prevent smaller companies from benefiting from IP protection lest large companies take advantage of the provision seems short-sighted. I am convinced that farmers, healers and local communities need to have the option of protecting their knowledge or putting it in the public domain. While I prefer that all knowledge be treated as an open source, I cannot impose my values on those who wish to benefit from IP protection. Therefore, the product patent regime can be extremely helpful to small

286

ANIL K. GUPTA

herbalists who may have developed unique formulations but may not have an efficient process to make it viable in the marketplace. The distinction that one needs to make from the conventional utility models relates to the subject of protection. The utility models were intended to cover designs and other implemental improvements but not necessarily a kind of product patent for drugs or agriculture. What is recommended here would be further improvement on the Australian innovation system so as to include the term of at least 10 years, claims five–seven, low ever inventive threshold but availability of a product and use patent. Thus an indigenous herbal drug developed by a local healer can receive product patent for 10 years. During this period, potential manufactures may get in touch with the inventor and may negotiate the right so as to file a standard patent if large-scale manufacture was considered desirable and profitable. The fees should be negligible but publication of application within a year should be obligatory and the granting of patent should not take more than a year or 18 months. The global registry can incorporate the information on these patents as well. In addition the plant variety registered should also be catalogued. 4. Given the fact that the children of the herbalists do not want to remain poor as their parents have been, we thought that IP protection might generate opportunities for the healers to get the benefits from the commercialisation of their drugs. There is a need to develop action research programmes, which have generated hope among the children of healers without commercialising the technologies and also without seeking any kind of protection. It is true that development of low cost medicines disseminated among the people can help in reducing health costs considerably. The interest of the poor consumers and poor producers has to be matched. Since providers of knowledge have remained poor and, therefore, the risk of their knowledge

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

287

not getting passed on to the next generation is real, the need for incentives for them to conserve the knowledge associated with biodiversity is very high. These incentives need not be only monetary as mentioned earlier, and need not be restricted to IP, but should include non-monetary individual and collective options as well. 5. Improvements in the Plant Varieties Registration and Protection System. Article 27-3b has been negotiated hard at the recent review. There are several issues, which need consideration: z

z

z

The definition of the variety should include discovered wild or other plants having distinctive and stable properties. France and China have the concept of discovered plant having distinct, uniform and stable (vide DUS Act) properties as eligible for the protection. However, the problem with the uniformity requirement is that heterogeneous or buffering populations characteristic of marginal environment with high fluctuations may not get protection under DUS provisions. In the times to come, genetic uniformity is likely to become a major threat to food security. Therefore, provisions for buffering populations which are distinct and stable over a long period of time (five to 10 years) may be created. The present system is designed primarily for commercial crops in irrigated regions. A national and international register of land races acknowledging community rights should be established. Simultaneously, recognition of the community rights in the extant varieties as mentioned in the PPV&FR Act should be elaborated. The cost of collecting passport information for the varieties should be borne by the PPV&FR Act so that farmer breeders do not suffer on account of their inability to provide such data. The passport information sheet of the Gene bank should include the knowledge of communities with particular focus on women’s knowledge. At present a very small

288

z

z

z

ANIL K. GUPTA

proportion of the passport sheet identifies the community, region or specific farmer for whom the material has been collected. Updating of the passport sheet will be very necessary for operationalising a benefit-sharing system and therefore global efforts to create a fund for the purpose are urgently called for. Every applicant seeking plant variety protection must disclose that the germ-plasm, parent lines or other material used for developing a new variety were collected through prior informed consent and after signing a material transfer agreement (MTA) with the local communities/farmer breeders. The negotiations for an international registry of wines through international registers may be accepted only if similar registration facility for local varieties of crops and indigenous animal breeds is provided. Unlike the International Union for Plant Variety Protection, there is no international agreement for protection of traditional animal breeds and associated knowledge systems. India must plead for a similar arrangement within the country and also at the international level.

6. Reforms at the Consultative Group for International Agricultural Research (CGIAR) level International negotiations must include a need for modifying the mandate of CG institutions so that these are obliged to acknowledge the local contributions in the development of land races; knowledge about uses of local varieties should be included in the passport sheet as mentioned earlier and value addition in grassroots innovations should be a necessary responsibility of these institutions. The global support for these institutions should be contingent on their accepting these conditions. It should also be obligatory on the part of each CG institution to share the germ-plasm with the private sector or others only through MTA. While a moratorium had been placed by the technical advisory committee (TAC) on

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

289

patent on the land races by third parties, it is not sufficient. In fact, we should encourage characterisation and value addition in the land races and the protection of so improved or characterised land race but with the appropriate benefitsharing arrangements. The countries which have provisions of patent as well as plant variety protection must provide research exemptions and privileges to farmers. Pedigree analysis of improved varieties should be undertaken regularly so that rights of communities contributing to land races are acknowledged and reciprocated. 7. Reforms in Financial Institutions No amount of registration or grant of patent will help make local knowledge systems vibrant unless venture promotion grants are available to local entrepreneurs at very low transaction cost. While we have grameen banks or saving and credit self help groups in different parts of the world, we do not have venture promotion funds for small innovations anywhere in the world. The result is the growth of entrepreneurial process is highly stilted. Grassroots Innovation Augmentation Network (GIAN) and Micro Venture Innovation Fund (MVIF) at National Innovation Foundation (NIF) are exception. Similarly, most developing countries do not have incubators to convert grassroot innovations into products. SRISTI has started a project involving India, China and Brazil to provide online incubation support for grassroots innovations in each country. There are many more ideas, which can be taken up to improve the IP protection for grassroots innovators and traditional knowledge holders. The issue is whether we should prevent them from getting some of the benefits associated with protection because the same benefits may accrue to large corporations as well. I do not think so. I believe that our first commitment should be to knowledge producers and innovators in our country. If local communities, which are benefited from the services of the economically poor healers and herbalists and have not generated

290

ANIL K. GUPTA

enough incentives for them, then they should not be expected to subsidise the cost of knowledge production, improvement and dissemination. The state and the market have to play a role in this regard. However, the state, which can only provide manual employment in the Employment Guarantee Programme, may take a long time to understand and appreciate the role of poor people as knowledge generators and providers. The social activists and NGOs which oppose the need for protecting the rights of grassroots innovators, small firms and local communities should provide practical examples of conserving knowledge, resources and institutions without any additional incentives based on market or non-market channels. There is no doubt that IP protection alone cannot answer the questions raised in this chapter about the state of knowledge economy at grassroots level. If out of around 1,000 US patents granted till October last year on psyllium (isab gul) based products grown only in India, only four belonged to Indians, we obviously have practical evidence of what can happen in a commodity market without IP protection. The prices of psyllium in Indian markets are not decided by Indian producers and traders. These are determined by Procter and Gamble, a major buyer along with a few other buyers. Can Indian farmers get better prices by supplying only raw materials for the international markets? Will research on value addition take place in small scale private pharma companies if their technologies are allowed to be copied freely as the case has been for so long? Why do two young entrepreneurs from Vadodara file a patent on developing a technology for blending psyllium in bread if their interests are served by keeping this as an open source technology? Why does the Indian government not acquire the right to such patents and then make the technology an open source for all the small bread bakeries? This way the innovators will also get rewarded and the consumers will benefit. I have been pleading for a National Technology Acquisition Fund for this precise purpose with the Finance Minister and other policy-makers. Do they care?

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

291

NOTES 1. An earlier version of this chapter was discussed at World Trade Forum, Bern, 27–29 August 1999, and discussed at several innovation fora during 2002–06. Some portions have been drawn upon in WIPO documents. 2. I am grateful to Keith Richardson of Derwent Pharmaceutical database for sharing this data with me. 3. Anil K. Gupta, ‘Rewarding Conservation of Biological and Genetic Resources and Associated Traditional Knowledge and Contemporary Grassroots Creativity’, IIMA W.P.No. 2003-01-06, January 2003. This is a study on the role of intellectual property rights in the sharing of benefits arising from the use of biological resources and associated traditional knowledge, based on the data collected from Mali, Nigeria and India, brought out in CD format by WIPOUnited Nations Environment Programme (UNEP), 2002 (Ref: Document/UNEP/ CBD/COP/5/INF/26 dated 10 May, 2000) and later published by WIPO. 4. Gupta (2006). 5. Farnsworth (1988). 6. Andrew (1997). 7. The roads increase the reach of loggers and also reduce their transaction costs (all at public expenses) while local tribal communities are exploited even more because an indifferent state fails to protect their property rights as well as livelihood options. Land alienation takes place rapidly despite laws to the contrary in existence and highly skilled tribal communities (skilled at dealing with nature) are converted into a pool of ‘unskilled labour’. The road and other infrastructure do not empower these local communities in the same proportion as it does their exploiters. 8. ‘Technologies, Institutions and Incentives for Conservation of Biodiversity in Non-OECD Countries: Assessing Needs for Technical Co-operation’, presented at OECD Conference on Biodiversity Conservation Incentive Measures in Cairns, Australia, 25–29 March 1996, published in the proceedings, ‘Investing In Biological Diversity: The Cairns Conference’, Paris: OECD,1997, pp. 305–329. 9. Guruswamy and McNeely (1998) and Cottier et al. (1999). 10. Gupta (1996). 11. Such a registry will prevent any firm or individual to seek patent on community knowledge as well as on knowledge and innovations produced by individuals without some kind of cross-licensing. 12. NIF has received enquiries from such small investors and entrepreneurs from Liberia to Fiji, in all 42 countries around the globe in the last few years. Such an overwhelming interest could arise because NIF has shared the awarded and other innovations in synoptic form at its website (www.nifindia.org). The CD of NIF is shared widely. There is a small risk that some people may copy ideas and then seek protection. If the proposed registry status can be given to the National Register, such risks will be minimised. A similar registry at the global level will make it far more attractive for local creative people share their knowledge

292

ANIL K. GUPTA

without any risk of being shortchanged. This will make people to learn from each other and at the same time protect their interests. The Prior Informed Consent (PIC) framework provided at NIF’s site, developed earlier by SRISTI and modified by NIF and its collaborators, provides a possibility available under Linux general purpose licence. That is, if a farmer or a self-employed small-scale producer wishes to use any knowledge in the registry for one’s own survival, no compensation was due. However, if the innovation or tradition knowledge (TK) was used for generating commercial returns, then a proper licensing agreement was imperative. Such a framework combines the advantage of open source technologies and protected innovations. 13. Gupta (2007). 14. The forces of globalisation have often squeezed the space for grassroots innovations, technologies and enterprises. The opposition to globalisation by civil society organisations around the world is motivated by this one-sided pressure from large corporations on small enterprises. However, we believe that with proper support of the public policy, relevant institutions such as NIF, and adequate resources, we can reverse the globalisation pressure. Grassroots innovations with proper support of risk capital and network of small entrepreneurs carve out a niche at the global level. NIF has succeeded in selling technological innovations by grassroots innovators to entrepreneurs in five continents. While the scale is quite limited, with a budget of hardly US$ 350,000 per annum and a small team, this is not a small achievement. More than 100 patent applications have been filed and three patents have been already granted to grassroots innovators through SRISTI, GIAN and NIF in USA and about a dozen patents in India. More than 24 entrepreneurs have been licensed grassroots innovations and almost all the benefits have gone to knowledge providers with some share for local communities, nature and innovation fund. 15. Ruttan (1982).

REFERENCES AND SELECT BIBLIOGRAPHY Andrew, Jack. 1997. ‘With Both the Eyes on the Human Conditions’, an interview with Abbe Pierre, Financial Times, Weekend Edition, 21/22 June, p. iv. Cottier, Thomas, Peter Widmer and Katharina Schindler (eds). 1999. ‘Rewarding Creativity for Conserving Diversity in Third World: Can IPR Regime Serve the Needs of Contemporary and Traditional Knowledge Experts and Communities in Third World?’, paper presented in AIPPI Forum (1996) on Ethical and Ecological Aspects of IPRs, Interlaken, Switzerland on 13 September 1996, IIMA WP No. 1339, November 1996. Strategic Issues of Industrial Property Management in a Globalising Economy—AIPPI Forum Series, pp. 119–129. Oxford, Portland and Oregon; Hart Publishing. Farnsworth, N.R. 1988. ‘Screening Plants for New Medicines’, in E.O. Wilson (ed.) Biodiversity, pp. 83–97. National Academy Press: Washington, DC.

CAN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS

293

Gupta, Anil K. 1996. ‘Rewarding Creativity for Conserving Diversity in Third World: Can IPR Regime Serve the Needs of Contemporary and Traditional Knowledge Experts and Communities in Third World?’, presented at AIPPI Forum, Interlaken, September, 1996. ———. 2006. ‘From Sink to Source: The Honey Bee Network Documents Indigenous Knowledge and Innovations in India’. Innovations, pp. 49–66. Massachusetts: MIT press. ———. 2007. ‘Knowledge based Empowerment of Local Bodies: Generating Entrepreneurial Approach to Development’, paper presented at the National Colloquium on Decentralisation in Rural Governance, organised by the Administrative Reforms Commission, 2 March 2007. Guruswamy, Lakshman D. and Jeffrey A. McNeely (eds). 1998. ‘Rewarding Local Communities for Conserving Biodiversity: The Case of the Honey Bee in Protection of Global Biodiversity: Converging Strategies’, pp. 180–189. Durham and London: Duke University Press. Ruttan, Vermon W. 1982. Agricultural Research Policy, p. 369. Minneapolis, MN: University of Minnesota Press.

Chapter 11 Trade Facilitation The Next Big Step in India’s Trade Reform JAYANTA ROY AND PRITAM BANERJEE

INTRODUCTION

T

rade facilitation covers all the steps that are taken to smoothen and facilitate the flow of trade. The term has been used widely to cover all types of non-tariff barriers, including product testing and impediments to labour mobility, but in the WTO, discussions are limited to ‘the simplification and harmonisation of international trade procedures’ covering the ‘activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade’.1 It relates to a wide range of activities at the border such as import and export procedures (for example, procedures relating to customs, licensing and quarantine); transport formalities; and payments, insurance and other financial requirements. Trade facilitation assumes added importance today given the current economic regimes of most developing countries, including India. While aggregate demand in India was driven by government expenditure before 1991, it is exports of goods and services that have increasingly taken over this role today. In India’s globalisation drive, foreign trade is playing a more prominent role.

TRADE FACILITATION

295

Hence the urgency to introduce reforms in trade facilitation, making foreign trade transactions as simple and instantaneous as possible. Trade facilitation is important also for a smoother and increased flow of Foreign Direct Investment (FDI) that is a requirement for India’s sustaining its high growth momentum. Trade facilitation assumes even greater importance, now, in the arena of international trade, given recent trends in the structure of goods (and services) traded and the sophistication of such products. Modern supply chain management techniques and the rapid spread of information technologies and e-commerce have progressively increased the use of just-in-time techniques by the manufacturing industry and encouraged the growth of integrated global supply, production and distribution systems. In this environment, where manufacturers rely on the uninterrupted reception of the necessary components to meet production contingencies, business cannot afford to have imported or exported goods tied up for long periods because of unnecessary or overcomplicated trade procedures and requirements. Since transaction costs of trading will negatively impact the competitiveness of those players in the international system that operate with relatively smaller margins and capital base, it means that developing country firms, especially small and medium enterprises, are the ones hardest hit in the absence of meaningful trade facilitation efforts. Since a large number of Indian exporters in some key sectors like textiles, leather and gems, and jewellery belong to this small and medium enterprise category, trade facilitation as an issue assumes added significance for Indian policy-makers. Studies show that the gains from trade facilitation measures can be very substantial. Table 11.1 summarises the conclusions from various sources in the trade facilitation literature on the dimensions of such gains. While the gains documented in Table 11.1 are substantial, there is reason to believe that this is the tip of the iceberg and the real benefits from trade facilitation are even greater. One important reason for this is that a large number of transaction costs in global trade cannot be quantified effectively, despite best

296

JAYANTA ROY AND PRITAM BANERJEE

Table 11.1 Gains from Trade Facilitation: Summary of Conclusions from Trade Facilitation Literature Trade facilitation issues considered

Author

Gains in USD from trade facilitation reform

UNCTAD (2001)

Banking and insurance, customs, business information, transport and logistics (that add up to 10 per cent of the total value of world trade).

400 billion

Wilson, Mann and Otsuki (2003)

Improving the performance of below average countries (i.e., countries with trade facilitation parameters below the global average) in terms of port efficiency.

107 billion

Hummels (2001)

Reduction of 1 day in delivery times by developing countries by targeting delays associated with customs and cargo handling.

240 billion

Walkenhorst and Yasui (2003)

Improvement in logistical efficiency and reduction in transaction costs of trading.

32 billion

Source: Roy (2004a).

efforts in the literature. While there are case studies that present anecdotal evidence on a whole gamut of logistical challenges faced by global traders, the rigorous quantification of this information is only just beginning. The second reason to expect greater gains from trade facilitation reforms is that if this process is holistically viewed as a movement to reduce transaction costs of exchange, it would reform the whole global supply chain. This would involve the increase in efficacy of procurement systems (search costs, finance), shipment (transport, logistics, customs) and payment (banking and financial intermediaries).2 Such reforms will have enormous spillover effects in all aspects of the economy, leading to greater growth, specialisation and more efficient systems of exchange.

TRADE FACILITATION

297

The following sections of this chapter will present the broad issue of trade facilitation in the Indian context. The section ‘Trade Facilitation: The Indian Policy Response’ introduces the government position on trade facilitation at the World Trade Organisation (WTO) through the years and some of the existing institutional systems that address trade facilitation in India. It will also touch upon some trade facilitation issues related to Preferential Trade Agreements (PTA). The section ‘Trade Facilitation and Transaction Costs of Trade in India’ looks at some of the trade facilitation issues and problems that continue to plague India’s global competitiveness. The section ‘Proactive Policies: The Future of Trade Facilitation in India’ concludes with some concrete policy recommendations that will address trade facilitation related concerns in India.

TRADE FACILITATION: THE INDIAN POLICY RESPONSE Trade facilitation became the subject of WTO discussions in 1997, following the 1996 (Singapore) ministerial meeting in which four issues—foreign investment, competition policy, trade facilitation and transparency in government procurement—were made a part of the WTO study programme, hence known as Singapore issues. At the Doha ministerial meeting in 2001, these became a part of the Doha work programme under ministerial declaration. But since several developing countries led by India opposed it, it was decided to launch negotiations only in 2003, after the Fifth Ministerial Meeting, subject to consensus on the modalities of negotiations.3 The Indian position changed at Cancun, where, while rejecting the other three Singapore issues as distractions away from the core agenda of trade and development set in motion at Doha, India accepted trade facilitation as the one Singapore issue to which it was willing to engage in negotiations. This stance represented a growing recognition of the fact that trade facilitation is a matter of highest priority in the domestic trade reform agenda, given the severity of transaction costs prevalent in India. Moreover, there

298

JAYANTA ROY AND PRITAM BANERJEE

was a feeling within policy circles that committing to trade facilitation at the multilateral level will help the government to push through reforms domestically in this area, citing the need to meet international commitments. Second, it will add credibility to our reform efforts and improve our image globally, and enable us to negotiate better in WTO forum with the developed countries in securing greater market access for India and the developing world.4 Additionally, given the integrated and global nature of the supply chain, a multilateral framework on trade facilitation could (a) provide a framework for addressing cross-cutting trade issues; (b) garner support and cooperation of the international trading community and border agencies (in terms of resources and expertise); (c) provide an impetus for capacity building; and (d) increase predictability for business and governments.5 The WTO discussion on trade facilitation revolves around three key areas:

Article VIII Article VIII of the GATT requires contracting parties to impose fees and charges in relation to import and export in a manner that it is limited to the cost of service provided. It also requires parties to recognise the need for reducing the number and diversity of fees and charges and the incidence and complexity of import and export formalities.

Article X Article X of the GATT requires members to publish all laws, regulations, judicial decisions and administrative rulings relevant to importing and exporting in a manner as to enable governments and traders to become acquainted with them. The text of Article X further establishes the laws, regulations, judicial decisions and administrative rulings that pertain to the process of exporting and importing goods. These include classification or valuation of products, rates of duty, taxes or other charges; requirements,

TRADE FACILITATION

299

restrictions or prohibitions on import or export, on transfer of payments related to imports or exports and on sale, distribution, transportation, insurance, warehousing, inspection, exhibition, processing, mixing and others related to export or import.

Article V Article V of the GATT requires freedom of transit of all goods through the territory of each WTO Member, via the routes most convenient for international transit. Article V stresses that there will be no discrimination on such transit rights of goods of one member through the territory of another member based on flags of vessels, the place of origin, departure, entry, exit or destination, or on any circumstances relating to the ownership of goods, of vessels or of other means of transport. Table 11.2 summarises India’s latest negotiating stance on each of these three core issues of trade facilitation and India’s own institutional and policy response in these areas. It needs to be reiterated that while negotiations at the WTO vis-à-vis trade facilitation have been limited to Articles VIII, X and V, the scope of trade facilitation is much broader. In fact, several other areas under the aegis of WTO have direct and indirect impacts on the wider agenda of reducing the transaction costs of international exchange. Some of the key ones are: z z z z z z

Customs Valuation Agreement Agreement on Rules of Origin Agreement on Pre-Shipment Inspection (PSI) Agreement on Import Licensing Procedures Agreement on Technical Barriers to Trade (TBT) Agreement on the Application of Sanitary and Phytosanitary (SPS) measures

It must be noted that when it comes to customs administration, India’s laws concerning clearance of goods have been for a long time based on international conventions, for example, Kyoto Convention 1973, WTO Valuation Agreement (earlier GATT),

Refine article VIII to ensure harmonisation of rules, implementation and risk assessment systems within customs unions like the EU. Harmonisation of technical standards especially with reference to food and agriculture products.6

Ensure that ‘alerts’ issued against a certain exporter or exporters are done in a transparent manner and according to established guidelines that are uniform for all of the smaller points of entry in a country or a customs union.

Article X

Indian suggestions at WTO

Article VIII

Issue

India has set up the Authority for Advance Ruling by the Finance Act 1999. The scheme of advance ruling has become fully operational from 4 February 2004. However, the scope of this scheme is limited and many of the smaller Indian players do not get access to benefits.

Classification codes at the eight-digit level used by the Central Board of Excise and Customs, i.e., CBEC (for purposes of tariff), the Directorate General of Foreign Trade (for purposes of determining importability/ exportability) and Director General of Commercial Intelligence and Statistics (i.e., DGCI&S for statistical purposes) have been unified to evolve a combined nomenclature based on the Harmonised System classification. The CBEC has set basic guidelines on standard processing times. However, it must be kept in mind that such guidelines serve only as intent on the part of CBEC. In order for India to fully implement such guidelines, substantial investment will have to be made in various fronts, including the provision of physical infrastructure and training for personnel.

Domestic institutional implementation

Table 11.2 Indian Policy and Implementation of Trade Facilitation Measures Defined under WTO Negotiations

India has been slowly but surely implementing reforms towards a holistic electronic access to information on all fronts. The government has accepted the Kelkar committee recommendations of setting up a consultative mechanism that includes administrative as well as trade and industry stakeholders, but the process of implementation needs to be expedited.

While India has made no specific submissions India allows transit to Nepal and Bhutan through established institutional channels. India has also granted Sri Lanka on Article V, there are issues regarding access to other South Asian countries through Indian transit rights to Afghanistan and through territories. Bangladesh.

Sources: Sengupta and Banerjee (2005); Taneja (2004).

Article V

In case of adverse finding on an exporter, ensure the right to second opinion (in case of failure to meet standards) through secondary tests. All members will have to maintain a list of accredited laboratories. Within a custom union, the results established by one member state will have to be accepted by the other members of the union.7

302

JAYANTA ROY AND PRITAM BANERJEE

Harmonised System Convention or are otherwise aligned with international best practices.8 As of November 2005, India has ratified and aligned its regulations with the revised Kyoto Convention. The government has been proactive in trying to address the issue of trade facilitation, specifically on issues related to customs administration. To this end, the Working Group on Trade Facilitation (WGTF) was set up in 2004 under the Chairmanship of Jayanta Roy, Principal Adviser Confederation of Indian Industry (CII), and it was mandated to look primarily at those aspects of trade facilitation that concern formalities relating to clearances at customs stations in the following areas: z z z z z

z z z z

Reduce extensive documentation requirements; Ensure full use of information technology; Bring about transparency and accountability; Introduce audit-based controls; Introduce cooperation among all the government agencies involved in clearance of cargo; Introduce self-assessment; Reduce examination of goods to a minimum; Introduction of risk assessment techniques; and Reduction in the dwell time for clearance of cargo.9

Box 11.5 provides a summary of the policy recommendations that came out of the proceedings in WGTF, most of which are in the process of being implemented by the government. Two crucial areas on the trade facilitation agenda that have received less than their fair share of attention are rights of transit as defined by Article V of the GATT and the pursuit of effective trade facilitation related policy in India’s many Preferential Trade Agreement (PTA) engagements. The continued refusal by Pakistan to grant India meaningful access to Afghanistan (and on to other parts of Central Asia), and by Bangladesh to grant meaningful access to India’s North-East to its port in Chittagong and to other parts of India are a violation of the spirit of Article V of the GATT that stresses non-discriminatory transit rights to all WTO Member states. While legal interpretations

TRADE FACILITATION

303

might not help India’s case directly,10 India should try and introduce language in Article V in alliance with a like minded group of countries that will help push India’s case in this matter. India has been actively seeking market rights through PTAs in the recent years. However, none of the PTAs that India has negotiated (or is in the process of negotiating) has a cohesive policy that addresses trade facilitation issues. It must be remembered that any attempt at a trade liberalisation agenda cannot be successful by just dismantling tariff and non-tariff barriers; it requires a focused effort to remove the transactions costs of the trading environment. In fact, there is a general acceptance that such transaction costs are often the most important impediments to trade across borders.11 There is a feeling within policy circles that there are vested public as well as some private interests that are threatened by the trade liberalisation agenda being pushed through under the aegis of the PTAs. For such vested interests, one way of slowing down, if not preventing altogether, effective trade liberalisation is by discouraging trade facilitation efforts within such PTAs. Another strategy is to introduce complicated regulatory mechanisms involving Rules of Origin (RoO) and other NonTariff Measures (NTM) that impede effective market access. Box 11.1 summarises some of the trade facilitation measures incorporated in Indian PTAs. Box 11.1 Summarising India’s Commitment to Trade Facilitation in PTA Negotiations In the case of both India–Thailand and India–ASEAN PTA, a vague commitment has been made to strengthen mutual cooperation in the areas of Mutual Recognition Arrangements, customs cooperation, trade financing and business visa and travel facilitation.12 Such commitments are totally lacking in actual obligations towards trade facilitation measures. A positive development in the case of India–Thailand FTA is the Operational Certification Procedure that clearly delineates the regulatory mechanism of certification and acknowledges specific institutions that will have the right to grant pre-export Rules of (Box 11.1 continued)

304

JAYANTA ROY AND PRITAM BANERJEE

(Box 11.1 continued) Origin (RoO) certification. However, such a positive development is negated somewhat by the sheer proliferation of complicated product-specific RoO within this agreement that add substantive transaction costs to trade.13 It also remains a mystery why the institutional framework for RoO certification has not been applied to quality and standard related NTMs. In India’s case, the Export Inspection Council (EIC) is the designated authority for most of the RoO certification; it also serves as a nodal point for certification on standards and quality. It makes infinite sense to include an institutional mechanism that explicitly grants one institution, the EIC, the responsibility for pre-export certification for both RoO and NTM. Certification by the EIC should then be universally accepted at the PTA partner’s border, while India should extend reciprocal privileges at the Indian border to an institution designated by the partner country. India’s most credible commitment to bilateral trade liberalisation is the India–Singapore Comprehensive Economic Cooperation Agreement (CECA). The CECA makes a positive contribution to trade facilitation in terms of quality and standards-related NTMs. Not only does it set up a good institutional mechanism for the mutual recognition and acceptance of certification on standards, it also sets up a dispute management mechanism specific to standards-related issues in the form of the Joint Committee on Mutual Recognition.14 Another positive development in the CECA is that the RoO are much less complicated relative to India–Thailand and India– ASEAN PTA. Also, like the India–Thailand FTA, the CECA includes Operational Certification Procedures for RoO, leading to greater transparency and lower transaction costs for traders.15 Where the CECA disappoints is customs cooperation. The language of the agreement is full of good intentions, but does little in setting up actual institutional and legal obligations.16 Some of India’s other prominent initiatives, like the Framework Agreement on Economic Cooperation with the Gulf Cooperation Council, do not even include specific language on trade facilitation. Some other exploratory bilateral initiatives like the Joint Study Groups (JSG) with Japan, Korea and China, and the India– United States Commercial Dialogue, have promising language and inten-tions, but whether that will translate into actual commitments on trade facilitation remains to be seen.17

TRADE FACILITATION

305

TRADE FACILITATION AND TRANSACTION COSTS OF TRADE IN INDIA India has several problem areas in trade facilitation and there are substantive transaction costs involved in trading with India. While some impressive gains have been made over the last decade in terms of eradicating transaction costs, a lot of work still needs to be done to bring India up to the global standards in this area. The major work will involve simplification of export/import procedures and streamlining customs procedures and improving port logistics. Another major area of work will involve bilateral and multilateral initiatives that work towards Mutual Recognition Agreements (MRAs) of standards and Pre-Shipment Inspection (PSI).

Export and import procedures In spite of major trade liberalisation introduced since June 1991, the administrative procedures associated with trade are still complex. In order to export, one needs to obtain 257 signatures, make 118 copies of the same information, key punching of what which takes 22 hours. The entire process involves dealing with a multitude of government agencies that are located at various different places. This hardly evokes a protest from established exporters who have a knack of going around the system. But for the potential exporters, this is posing a major irritant.18

Cargo dwell time and Port/Airport logistics The current performance of India’s ports and airports is far below global norms, and remain an impediment to India’s greater integration with the world economy. Table 11.3 presents the typical cargo dwell times in India and compares them to global norms. Table 11.3 clearly shows that India performs far below par of international norms, and thus reforms are urgently needed.

306

JAYANTA ROY AND PRITAM BANERJEE Table 11.3 Typical Cargo Dwell Time

Transaction

International

India (Jan. to March 2004)

Air Freight Import Export

Less than 24 hours Less than 6 hours

4–6 days 1.5 to 2 hours∗

Sea Freight Import Export

Less than 24 hours Less than 12 hours

6–8 days 2 hours∗

Source: Roy (2004b). Note: ∗The clearance of documents required for export before the goods reach customs may take about two days.

Table 11.4 provides an international comparison of time and effort taken (in terms of bureaucratic requirements) to import goods into the country. Table 11.4 indicates that India is the second worst performer next to Bangladesh among a set of emerging countries that includes other South Asian neighbours like Pakistan and Sri Lanka. India ties with Brazil in terms of average time taken for importation at 43 days, better than only Bangladesh at 57 days. Large emerging Table 11.4 International Comparison of Efficiency of Importation Countries India Argentina Brazil China Egypt Indonesia Malaysia Mexico South Africa Thailand Bangladesh Pakistan Sri Lanka

Documents for import (number)

Signatures for import (number)

Time for import (days)

15 7 14 11 9 10 12 8 9 14 16 12 13

27 9 16 8 8 6 5 11 9 10 38 15 15

43 30 43 24 29 30 22 26 34 25 57 39 27

Source: Trading Across Borders Indicators, International Finance Corporation (2005).

TRADE FACILITATION

307

countries that are major competitors for India like China, Thailand, Mexico, Malaysia and South Africa, all do much better than India on all counts. Thus, India’s performance in the area of trade facilitation leaves much to be desired. The need for a credible commitment to trade facilitation as a part of India’s larger engagement in the world economy is essential. Indian exporters are faced by transaction costs in their export markets as well, and reductions of such costs are imperative to India’s export growth. India cannot push other countries or custom unions like the EU for better trade facilitation measures for Indian exporters while being inert to similar needs of exporters from such countries into India. Box 11.2 summarises some key trade facilitation concerns of Indian exporters. Box 11.2 Impediments and Problems Faced by Indian Exporters at Foreign Borders Some of the key problems faced by Indian exporters are: z Inadequate dissemination of regulations and procedures. z Lack of clarity and process descriptions followed in inspection. z Variations in procedures under the same regulations. z Lack of appeal mechanisms and confirmatory procedures. z Use of discretionary actions in disposal of products. The US, EU and Middle East were identified as the most problematic destinations for exports. Agriculture and food products, especially fish and fish products, and miscellaneous handicraft goods were found to be the most difficult export sectors in terms of problems. Destination-specific issues United States The major problem for exporters to the US is security concerns and the related substantial cost of compliance for traders. Moreover, security-related detention details are not communicated effectively. European Union Main problems are related to health and sanitary concerns. Problems also arise over the overlap of jurisdictions between (Box 11.2 continued)

308

JAYANTA ROY AND PRITAM BANERJEE

(Box 11.2 continued) member state internal regulations and the common EU legislation covering the same subject, which results in a subjective and differential treatment of the goods under different member state regulations. Another major concern with the EU is that while the import rules and procedures are clear, the procedures for inspection, detention and disposal are not well laid out at the import point. Japan/South-East Asia The amount of information on the procedures related to the detention and disposal of goods is limited, and English translations of regulations are not easily interpretable, which causes ambiguity in case of disagreement over provisions or grounds for detention. West Asia/Africa/Latin America Non-transparency in procedures and excessive charges are the key issues characterising trade facilitation experiences in these markets. Collusion between customs officials and importers poses financial risks for shippers and exporters in some destinations. Source: UNCTAD (2005).

PROACTIVE POLICIES: THE FUTURE OF TRADE FACILITATION IN INDIA The work done by two specialised policy entities, that is, the Task Force on Indirect Taxes of 2002 and the Working Group on Trade Facilitation (WGTF) of 2004 has defined the overall policy process within the government on trade facilitation in India. The government was increasingly aware of the problems on the trade facilitation front and had asked the Task Force on Indirect Taxes to make recommendations on trade facilitation, based on crosscountry experiences. Following the recommendations made by the Task Force, trade facilitation as an issue featured in the Budget speech of 2003. Jayanta Roy, who had been primarily involved with analysing trade facilitation as a member of the Task Force, was asked to chair a WGTF in April 2004, to follow up on the earlier work. The report was submitted to the Finance Minister in October 2005.

TRADE FACILITATION

309

The WGTF Report provided critical insight into the delays at the Indian custom entry points. Drawing from the WGTF reports, Table 11.5 offers a break-up of dwell times at three key Indian ports: Bangalore, Chennai and Delhi. Table 11.5 Cargo Dwell Time Break-up Bangalore air Activity Manifest Filing Declaration Assessment Duty Payment Examination Total

Chennai sea

ICD, Delhi

Time taken

% of total

Time taken

% of total

Time taken

% of total

2 55 7 29 6 99

2 56 7 29 6 100

53 74 12 55 6 200

26.5 37 6 27.5 3 100

43 46 12 63 11 175

24.6 26.2 6.9 36 6.3 100

Source: Roy (2004b).

A very high proportion of the total time (60–85 per cent) is taken by the importer, either in filing the declaration or paying the duty and making the goods available for examination. Nearly 50 per cent of the declarations are being filed after two days and nearly 25 per cent to 35 per cent after four days. A major flaw in the duty payment system is that only the State Bank of India is allowed to operate at all customs points. Unlike many other countries, India does not allow a line of credit, use of credit cards or a deferred payment system. Based on the findings from the WGTF Report, Box 11.3 offers the reasons behind delays in declaration and duty payment. There are also delays associated with clearance requirements from other ministries related to health, safety, security, and environment concerns. In most countries, this is taken care of by reliance on a sound risk management system, a policy to which India is also now committed, but implementation needs to be expedited. The WGTF Report points out that a large portion of the time consumed when assessments are disputed or are held up on account of alert from any of the enforcement wings, like, Directorate General of Revenue Intelligence (DGRI), Special Investigation and

310

JAYANTA ROY AND PRITAM BANERJEE

Box 11.3 Primary Causes of Delay in Declaration and Duty Payment at Indian Custom Points The main reasons for delayed filing of declarations that were identified by the WGTF Report were as follows: z

z

z

Lack of complete documentation with the importer due to late retirement from the bank. Lack of adequate homework on the part of importer in proper classification of goods or their valuation. Resort to unfair practices thus delaying committing a declaration as much as possible.

The main reasons for delay in payments that were identified in the WGTF Report were as follows: z

z z

Custom House Agent (CHA) needs to get in touch with the importer to get his approval for the funds; the importer in turn needs adequate clarifications in case the duty assessed is higher than his expectations. Banking delays, particularly, in case of outstation importers. Lack of storage space or firm orders for further sales with the importer.

Source: Roy (2004b).

Intelligence Branch (SIIB) or Criminal Intelligence Unit (CIU). Another major cause of delay is related to declarations under export promotion schemes requiring production of licence or certain certificates. It is important for policy-makers to understand that there are wide variations across different custom stations, indicating that there is significant scope for better logistic management at less efficient places. A major step in the reduction of delays can come from the collaboration between the Centre and the states’ governments. After paying customs duties, an importer has to pay octroi. This causes further delay. Since octroi is a percentage of import duty collected, it makes infinite sense for duties be collected at one go and then apportioned between the two authorities. While the preceding paragraphs focus on the problems faced by Indian importers, the WGTF also devoted considerable amount of

TRADE FACILITATION

311

time on the problems faced by Indian exporters, some of which have already been highlighted in the section ‘Trade Facilitation and Transaction Costs of Trade in India’. Box 11.4 summarises the main findings of the WGTF on export facilitation. Immediate focus of trade facilitation policy in India should be on three fronts. First, India needs to reduce cargo dwell time in all customs points to acceptable international norms. Second, India needs to move to a paperless system by making Electronic Data Interchange (EDI), which allows electronic submission, exchange and processing of all required information, fully operational. This EDI system should be implemented on the basis of a common platform (that is, operating system) for all stakeholders. This should not be difficult given the software expertise we possess. Finally, India needs to immediately implement a system based on trust with reliance on self-certification of importers and ex-post audits, and develop a state-of-the-art system of risk analysis and management. A key policy feature of these measures would be to minimise face-to-face contacts between traders and officials. Box 11.5 summarises the important recommendations of the WGTF in this regard. Box 11.4 Export Facilitation Problems in India The WGTF study focusing on the problems of Indian exporters19 found the average dwell time is between one and two hours. It estimated that 85 per cent to 95 per cent of the exports are cleared at sea formations within four hours, while in the case of Air Customs formations this figure is in excess of 98 per cent. It is important to reiterate that dwell time figures for exports may be understated because they do not take into account the clearances required from several other agencies prior to arrival of goods at customs. As was pointed out in the section ‘Trade Facilitation and Transaction Costs of Trade in India’, the process of prior clearances involves up to 257 signatures from different agencies that may even take a couple of days in some cases. In the remaining cases, goods are delayed on account of withdrawal of samples or the verification of price of goods falling under various exports incentive schemes. Source: Roy (2004b).

312

JAYANTA ROY AND PRITAM BANERJEE

Box 11.5 Recommendations of the Working Group on Trade Facilitation As evinced in Table 11.5, a major contributor to dwell time is the unpreparedness of the importer or his agent to file the declaration expeditiously. There is a need to sensitise the importers and their agents to the facilities offered by customs for expedited clearance and the disincentives to be faced from delayed declaration. Two points need to be made clear: z The declaration can be filed, assessed and even the duty paid before the arrival of the conveyance. z The delayed filing of the declaration will automatically lead to compulsory or greater examination of the goods. The second major time consuming activity is the payment of duty. This can be improved with the help of the following: z Enable electronic fund transfer by the importer from his bank account to the Customs’ account. z Extend the concept of designated branches to a larger number of banks. z Permit use of credit cards for payment of duty. z Allow deferred duty payment to established importers on the lines of provisions in the revised Kyoto Convention. All clearances related to applicability of technical standards, printing of Maximum Retail Price (MRP), and implementation of sanitary and phytosanitary requirements should be examined so that their implementation requirements are streamlined in a manner that they do not lead to excessive delays in clearance of goods. All existing implementation requirements could be consolidated and examined in the specially constituted High Level Inter-Ministerial Committee (HLIMC) headed by the Chairman, Central Board of Excise and Customs (CBEC). The same should then be implemented as a part of the risk management module. Customs should be designated as the agency responsible for the implementation of all requirements concerning imports and exports and given the overriding power to clear goods provisionally in appropriate cases except in specific situations which should be clearly specified by the parent ministry. The need for physical interface between user-clients and Customs and the other agencies can be eliminated if the licensing and other (Box 11.5 continued)

TRADE FACILITATION

313

(Box 11.5 continued) regulatory requirements are electronically implemented. This means there is an urgent need for the full implementation of EDI vis-à-vis all participants, most importantly with the DGFT. Much of the delays today in cargo clearance arise due to the lack of co-ordination amongst the various agencies. Too many exemptions distort the clearance process. The declaration forms for imports and exports are extremely long mainly because of too many exemptions. Exemptions also provide opportunities for wrong declaration and evasion. Frequent tampering with the tariff structure and that too by way of exemptions to certain sections of the community creates unwarranted difficulties for the smooth functioning of the EDI. Source: Roy (2004b).

The last five years has seen the government demonstrate a definite level of commitment towards trade facilitation reforms. Based on the recommendations of the Task Force on Indirect Taxes (2002), two committees were set up: the High Level InterMinisterial Committee (HLIMC) headed by the Chairman of CBEC to resolve inter-agency issues and to bring the clearance procedures in tune with the international norms, and the Permanent Trade Facilitation Committee headed by the Commissioner of Customs constituted at each customs station comprising senior representatives of various agencies involved with the clearance, including Custom House Agents (CHA). Despite substantive progress made by these committees, the WGTF (Roy, 2004b) found ample space for reform within them. For example, the representation at the HLIMC from other ministries has not been at a sufficiently senior level, and very few meetings have been held to date. Another key reason for the lack of dynamism in the trade facilitation reforms process has been the poor response from the Chambers of Commerce and other industry and trade associations, which may not have been fully engaged.20 Therefore, a key policy objective should be to activate an institutional mechanism that allows for such public–private partnering and discussion on trade facilitation.

314

JAYANTA ROY AND PRITAM BANERJEE

While the government has accepted the recommendations of the WGTF, and has even begun the process of implementation on a number of areas, there is need to both deepen and expedite the trade facilitation reforms process. The Minister of Finance must monitor EDI regularly, as it is done now, and the causes of delays should be urgently addressed. As a matter of policy, the progress made on trade facilitation should be made public on a regular and institutionalised manner,21 preferably as a part of his budget speech. Customs administration reform and reduction of delays at entry points are crucial, but not the whole story of trade facilitation; as mentioned in the introduction, trade facilitation reform needs to be seen as part of a large scheme of logistics. Some of the other key areas for reform on trade facilitation are: (a) Port logistics: Cargo dwell time, warehousing facilities, and rail and road links from hinterland to ports. (b) Standards harmonisation: Reform of domestic standardsetting and monitoring authorities; move towards regional and global convergence on standards; and mutual recognition agreements. (c) Business mobility: Movement of professionals, transparent visa systems; adequate financial systems, including banking, insurance and clearance mechanism. (d) Administrative transparency and professionalism: Simple and transparent procedures for export and import with public– private cooperation. (e) Trade information and e-business facilities: Proper channels and access to market information, legal systems, and standards and regulations; e-business infrastructure to enable business-to-business contacts. Such a holistic approach, especially with regards to standards, business mobility, transparency and information needs to be made the cornerstone of India’s trade facilitation engagement in PTAs. Moreover, India also needs to learn from proactive trade facilitation policies within PTAs that are being negotiated across the world. Singapore, already a bilateral partner of India through

TRADE FACILITATION

315

CECA, has led the way in such proactive trade facilitation policies through its PTAs with the US and Japan. The Japan–Singapore FTA modalities on dealing with Non-Tariff Measures (NTM) and mutual recognition of certification reflect the needs of a truly modern supply chain system. Another important innovation is the ‘Integrated Sourcing Initiative’ within the United States–Singapore FTA that explicitly recognises the importance of global supply chains in the language of the agreement itself. Box 11.6 discusses the Integrated Sourcing Initiative and the lessons it has for India in some detail. Box 11.6 Integrated Sourcing Initiative in the US–Singapore FTA: Lessons for India The idea behind the Integrated Sourcing Initative (ISI) was to reduce costs and paperwork for traders operating a global supply chain in hi-tech parts and components (specifically information technology and medical equipment products) that were considered to be a key part in the US–Singapore trade relations. The ISI structure has enormous relevance to the bilateral flows of engineering parts and components, information technology and biotechnology products that are essentially part of a disaggregated international production process. The way the ISI works is that for a specific list of products (listed in Annex 3B of the agreement), the ISI eliminates all RoO requirements. Thus, when these listed products are shipped between US and Singapore, the importer does not need to prove that these products meet detailed RoO tests or provide any certification paperwork. It also does away with any merchandise processing fee charges to the importer. The list is open ended and new products can be added by mutual consent of the parties. The ISI removes red tape, delays and cumbersome paperwork from supply chain movements. It, therefore, encourages greater integration of supply chain networks. Given India’s human resource pool and rapidly increasing reputation as a hub for hi-tech engineering, information technology and biotechnology products, it has enormous potential to integrate itself with the production chains existent in US, EU, Japan, China and (Box 11.6 continued)

316

JAYANTA ROY AND PRITAM BANERJEE

(Box 11.6 continued) ASEAN. But to do so, it must proactively pursue the removal of transaction costs of operating within such international production chains based in India. This would require the active pursuit of PTAs with the developed countries like the US and EU,22 but even more so it would require pursuing innovative solutions like the ISI in India’s current PTAs with Thailand, ASEAN and Singapore. India should also introduce such ideas in its exploratory negotiations on PTAs with Japan, China, Korea and the United States.

India needs to be more proactive on trade facilitation multilaterally, that is, at the WTO. India has done well to bring attention to the issues of harmonisation of standards (Article VIII) and accreditation of testing laboratories (Article IX). India has also consistently made technical cooperation and capacity building a major part of its agenda at the WTO.23 However, it needs to insist on additional language within the trade facilitation agenda that would require developed countries to show consistent and preferably some kind of institutionalised commitment to such an exchange. While the reforms outlined address urgent concerns that need expedited engagement, a broader institutional change would be crucial to the trade facilitation process in the longer run. It needs to be pointed out that while customs administrations have a leadership role to play in the area of trade facilitation in several countries, in a majority of these countries it is not a part of the Finance Ministry, which has revenue generation as a primary objective. However, if like in India, customs falls under the aegis of the Finance Ministry then there might be a conflict of interest, that is, if revenue generation is a major objective of the customs department, then trade facilitation will, at best, occupy a distant second priority. A better alternative in the Indian context is to entrust the primary responsibility of trade facilitation in the long run to a restructured Director-General of Foreign Trade (DGFT). In fact, DGFT should be transformed into a Centre for Trade Facilitation (CTF), with a small unit looking after the

TRADE FACILITATION

317

residual export incentives. Housing the CTF in the Ministry of Commerce and Industry has another added advantage, i.e., since trade facilitation will be a part of WTO policy, CTF can better coordinate with the trade policy division in the same ministry.24 The DGFT is well prepared for this role. It has already put in place a system of benchmarking DGFT services provided to trade and industry and monitoring these regularly to check their adherence to the time-frame stipulated. This report is regularly sent to the minister. A similar institutional arrangement that monitors trade facilitation indicators like cargo and custom clearance times can be set up and administered by the DGFT. For such reforms within the DGFT to happen, there also needs to be a change in the culture within the bureaucracy, that is, it should be clear that the key objective of the Commerce Ministry is to promote trade, and not maximise customs revenues. The functions and staffing of DGFT has to undergo a major change. It needs to have expertise on customs, rules of origin, standards, transport and ports, logistics and a trade economist. The mindset has to switch from being a provider of incentives (such as export sops) to a facilitator of trade. This is not going to be easy given the policy inertia induced by decades of import substitution (and sops-oriented export promotion), but it is surely worth a serious try. If India is to become a global player by 2015, it would need to target Gross Domestic Product (GDP) growth at around 10 per cent annually. Such a growth is not possible without harnessing India’s productive and creative potential and entrepreneurial dynamism, both externally and internally. To that end the removal of transaction costs are paramount. Williamson25 has cogently argued that integration into a vertical or horizontal production chain, whether national or global, requires the reduction of contractual costs and the costs of managing and operating within that chain. Since integration into production chains effectively lead to specialisation, growth and increases in productivity, the removal of costs that hinder such integration is of tremendous policy importance. Indeed, one big aspect of liberalisation entails the freedom of entrepreneurs

318

JAYANTA ROY AND PRITAM BANERJEE

to participate in national and global production with minimum impediments. In light of this, trade facilitation is the vital link in the chain towards India’s efforts to emerge as a global player. However, the trade policy discourse within the government, business and media has tended to focus mainly on tariffs (lists and concessions within PTAs and WTO non-agricultural market access formulas) and agricultural market access (domestic support, subsidies and food security). In the context of PTAs, a tremendous amount of time and energy has been devoted to RoO, both by the government and business. Lost amidst all this has been the core agenda of reaching out to global markets efficiently, that is, contained within the principles of trade facilitation. It is time to put trade facilitation at the centre of India’s trade and economic reforms discourse and give it the importance it deserves.

NOTES 1. From the WTO definition on the scope of trade facilitation discussions under the aegis of WTO. www.wto.org 2. National Board of Trade, Sweden (2003). 3. Roy (2002). 4. Ibid. 5. Roy and Bagai (2005). 6. Indian proposal on Article VIII to the Negotiating Group on Trade Facilitation (TN/TF/W/121), July 2006. 7. Indian proposal on Article X to the Negotiating Group on Trade Facilitation (TN/TF/W/122), July 2006. 8. Final Report of the Working Group on Trade Facilitation chaired by Jayanta Roy (2004). 9. Ibid. 10. Afghanistan is not a WTO Member yet and access to its markets does not fall under the aegis of WTO. There is nothing in the language of Article V that obligates Bangladesh from opening borders where India needs them. For a detailed discussion see Sengupta and Banerjee (2005). 11. See Wilson (2003), and Walkenhorst and Yasui (2003) for a detailed discussion. For a general discussion on the transaction costs and its impact on production and exchange, see Coase (1992). 12. See Article 6 of both India–Thailand and India–ASEAN agreements. 13. Annexure B of the India–Thailand FTA. 14. Chapter 5, India–Singapore CECA. 15. Chapter 3 and Annex 3B of the India–Singapore CECA.

TRADE FACILITATION

319

16. Chapter 4 of the India–Singapore CECA. 17. Author’s impression of the research on JSG carried out internally at the CII. 18. Roy (2002). While some changes have taken place since this data was first collected in 1998, the substance of problems remains the same. 19. This study was conducted during June to September 2003 for four sea Customs formations—Mumbai, Chennai, Cochin and Kolkata—and two air Customs formations, namely, Chennai and Mumbai. 20. Roy (2004b). 21. Roy (August 2005). 22. Roy and Banerjee (2004). 23. Indian proposal on Article VIII to the Negotiating Group on Trade Facilitation (TN/TF/W/121), July 2006 and the Indian proposal on Article X to the Negotiating Group on Trade Facilitation (TN/TF/W/122), July 2006. 24. Roy (December 2005). 25. Williamson (1987).

REFERENCES AND SELECT BIBLIOGRAPHY Coase, Ronald. 1992. ‘The Institutional Structure of Production’, American Economic Review, 82(4). Dollar, David, Ximena Clark and Alejandro Micco. 2002. Maritime Transport Costs and Port Efficiency. World Bank Report No. WPS2781. Hummels, David. 2001. Time as a Trade Barrier. Department of Economics. Indiana: Purdue University. International Finance Corporation. 2005. ‘Trading Across Borders Indicators’. Available at http://www.doingbusiness.org/ Lakshmanan, Subramanian, Anderson and Leautier. 2001. Integration of Transport and Trade Facilitation: Selected Regional Case Studies. The World Bank. Lakshmanan and Anderson. 2000. Case Studies in Trade and Transport Integration. Center for Transportation Studies: Boston University. Ministry of Commerce and Industry. Government of India. Available at http:// commerce.nic.in/ National Board of Trade, Sweden. 2003. Trade Facilitation from a Developing Country Perspective. OECD. 2003. Policy Brief on the Business Benefits of Trade Facilitation. Roy, Jayanta. 1998. ‘Trade Facilitation: The World Bank Experience’, Paper presented at the Trade Facilitation Symposium, WTO, 9–10 March. Geneva. ———. 2002. ‘Towards International Norms for Indirect Taxes and Trade Facilitation in India’, Paper prepared for the Task Force on Indirect Taxes, Government of India. ———. 2004a. ‘Trade Facilitation and Transaction Costs as an Agenda for Global Trade Negotiations’, Presentation at the Workshop on major issues in the WTO and their implications for India, 30 April and 1 May 2004, Administrative Staff College of India and The European Commission, Hyderabad.

320

JAYANTA ROY AND PRITAM BANERJEE

Roy, Jayanta. 2004b. Report of the Working Group on Trade Facilitation (WGTF), chaired by Jayanta Roy. ———. 2004c. ‘Transaction Costs are still a Major Deterrent’, Financial Express, 18 August. ———. 2005a. ‘Too Many Agencies, Too Little Accountability’, Financial Express, 24 August. ———. 2005b. ‘Make DGFT a Centre for Trade Facilitation’, Financial Express, 15 December. Roy, Jayanta and Shweta Bagai. 2005. ‘Key Issues in Trade Facilitation: Summary of World Bank/EU Workshops in Dhaka and Shanghai’, World Bank Policy Research Working Paper No. 3703, 2004. Roy, Jayanta and Pritam Banerjee. 2004. India-US Free Trade Agreement: An Analysis of Issues. Confederation of Indian Industry Report. Sengupta, Dipankar and Pritam Banerjee. 2005. ‘Economic Growth, Exports and the Issue of Trade Facilitation’, in Dipankar Sengupta, Debashis Chakraborty and Pritam Banerjee (eds), Beyond the Transition Phase of WTO: An Indian Perspective on Emerging Issues. New Delhi: Academic Foundation. Staples, Brian. 2002. ‘Trade Facilitation: Improving Invisible Infrastructure’, in Hoekman, Mattoo and English (eds), Development, Trade and the WTO. World Bank Publication. Taneja, Nisha. 2004. Trade Facilitation in the WTO: Implications for India. ICRIER. UNCTAD. 2001. ‘Best Practices for Enhancing the Competitiveness of Developing Countries’. Report of the Expert Meeting on Electronic Commerce and International Transport Services. ———. 2005. ‘Trade Facilitation Problems of Indian Exporters’. United States Trade Representative at www.ustr.gov (for the US–Singapore FTA documents). Walkenhorst, Peter, and Tadashi Yasui. 2003. Quantitative Assessment of the Benefits of Trade Facilitation. OECD. Williamson, Oliver. 1987. The Economic Institutions of Capitalism. New York, NY: Free Press. Wilson, John S. 2003. ‘Trade Facilitation, WTO Rules and Capacity Building: What’s at Stake?’, in Development Outreach Magazine, The World Bank Institute. WTO Document (TN/TF/W/121), July 2006. WTO Document (TN/TF/W/122), July 2006. World Trade Organization at www.wto.org

Chapter 12 Anti-Dumping through India’s Liberalisation Process SHARAD BHANSALI

I

n the post-WTO scenario, anti-dumping is perhaps one of the most talked about trade issues. It is also perhaps the most controversial and debatable issues of the WTO agreements. While anti-dumping laws have existed in many parts of the world for decades, its history and use in India is more recent. The use of anti-dumping mechanism by the Indian industry remarkably coincides with the liberalisation process. This chapter seeks to provide an insight into the increasing use of anti-dumping in India and the political and economic reality of anti-dumping at the ground level and the linkages with the liberalisation process. While economic literature abounds with analysis of the use and abuse of anti-dumping measures across the globe, it is essential to understand the concept of dumping as it exists in the WTO Agreement and its corresponding national law. Dumping is said to exist if an exporter sells his products in the importing country at a price which is lower than the prices prevailing in the exporting country. The concept of dumping, as envisaged in the Anti-dumping Agreement, is more of a legal fiction than an outcome of any solid economic rationale.

322

SHARAD BHANSALI

Neither the WTO Agreement on Anti-dumping nor the Indian laws permit any deviation from the definition as far as dumping is concerned. The legal concept of dumping, as it exists, seeks to punish international price discrimination, a thought which is spurned by economists almost unanimously. The only exception provided by the WTO Agreement against the stringent or almost mathematical definition of dumping is the concept of de minimis dumping margin. In simple terms, if the dumping margin of any specific exporter happens to be less than 2 per cent of the export price, no anti-dumping duty can be levied. Interestingly, the price difference on account of freight is also not adjusted while calculating dumping margins. It must, however, be added that the Agreement does not permit imposition of anti-dumping duties until it is proved to the satisfaction of the investigating authorities that such dumping has caused or is likely to cause injury to the domestic industry of the importing country. Article 2.1 of the WTO Agreement is the main provision to define dumping in its conceptual and legal form. For the purpose of this Agreement a product is to be considered as being dumped, i.e., introduced into the commerce of another country at less than its normal value, if the export price of the product exported from one country to another is less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country. It can be seen that several terms have been introduced in the legal definition of ‘dumping’. The two key ingredients for determination of dumping are the normal value and the export price of the exporter from the country under investigation. Normal value is a complex concept and refers to the price which an exporter recovers in the ordinary course of trade in his home market. This price is compared to the export price at which goods are transacted with the importing countries. The difference between the prices is referred to as the dumping margin. In this example, the dumping margin would be US$ 20 in specific terms and 25 per cent when expressed as a percentage of the export price.

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

323

Box 12.1 Dumping Margin Margin of Dumping = Normal Value minus Export Price For example, if the pricing policy followed by a particular exporter for product A in Country X is as follows: Domestic Selling Price : US$ 100 Export Price to India

: US$ 80

The process of determination of dumping margin involves extensive analysis of data to ensure a fair comparison between the export price and the normal value. The comparison is made at the same level of trade, normally at the ex-factory level, and in respect of sales made at, as nearly as possible, the same time. Due allowances are also to be made for differences which affect price comparability, including differences in conditions and in terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are demonstrated to affect price comparability. Under the anti-dumping provisions, the mere existence of dumping is not sufficient for imposition of anti-dumping duties. It is equally important that the domestic industry of the importing country should have suffered material injury. While there is no definition of ‘material injury’ per se, there is enough guidance in the Anti-dumping Agreement for authorities to carry out an analysis to assess whether injury exists in a particular case or not. After material injury to the domestic industry is established, the complainants are required to satisfy the authorities that the said injury is attributable to dumping. The concept is referred to as ‘causal link’. Once the investigating authorities are satisfied about the existence of dumping, injury and the causal link, remedial action can be taken in the form of imposition of anti-dumping duties. In the event, the authorities form the view that despite existence of dumping and injury to the domestic industry, the said injury is attributable to factors other than dumping, no antidumping duties can be imposed. It is clear from the definition of dumping and other provisions of the Agreement that the quintessential issue involved in

324

SHARAD BHANSALI

anti-dumping is the existence of price discrimination in the international markets. Anti-dumping duties do not, at least ostensibly, seek to block imports from any particular source. Therefore, an opportunity is given to the participating exporters to offer price undertakings to the designated authority which are essentially in the form of a commitment by the exporter that he would not export his goods below a particular agreed price. Exporters who offer such price undertakings are allowed to export their goods without any incidence of anti-dumping duties. In other words, if the exporters agree to correct their prices, keeping in view the concerns of the domestic industry of the importing country, no anti-dumping duties need to be paid by them. Theoretically, price undertakings should be offered in most of the cases but it does not happen as it leads to increase in the prices of the exporters who may not remain competitive at the enhanced price levels. The Anti-dumping Agreement also provides for an elaborate system of procedural requirements to ensure that the principles of natural justice are followed at all stages and the interests of all the concerned parties (referred to as interested parties) are taken into account. The procedure requires submission of a detailed application by or on behalf of the domestic industry. After a preliminary analysis, the designated authority decides whether to initiate an investigation or not. Even prior to the initiation, the designated authority is duty bound to inform the governments of the countries concerned about the impending investigation. Thereafter, an opportunity is provided to the exporters and the importers to submit their detailed responses to structured questionnaires. The procedure also allows the interested parties to offer their comments on various aspects of the investigation and in most cases, oral hearings are also granted. The procedure becomes a trifle complex and perhaps a bit opaque due to the provisions of confidentiality under which the supplier of the information can claim confidentiality on commercially sensitive information. The designated authority is required to strike a balance between the rights of the interested parties to protect their sensitive information from competitors and the rights of the opposing parties to defend their interests.

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

325

It is widely believed that the anti-dumping mechanism expects exporters to pay anti-dumping duties in the future, based on the pricing behaviour of the exporters in the past. Considerable amount of criticism against anti-dumping emanates from this belief. This is only partly true. While it is true that duties are required to be paid in the future, based on the past behaviour, there is a specific mechanism whereby the exporters can claim refund of duties, provided they are able to prove that the prices charged by them for the future consignments were not at dumped prices. It is, however, a pity that the Indian laws for such refund have still not been made operational despite the passage of 12 years.

INDIA AS A USER OF ANTI-DUMPING MEASURES Indian laws on anti-dumping were enacted as early as 1985 but the first case was initiated only in the year 1992. Until 1995, very few cases were being initiated in India. Since 1995, and more particularly after 1999, there has been a significant increase in the number of cases initiated by India. The maximum number of initiations in India was in the years 2000–2001, 2001–02 and 2002–03 with 28, 30 and 30 cases, respectively. Thereafter, the number of initiations has stabilised around 12 per year. Table 12.1 Cases Initiated in India Financial year

No. of cases initiated

1992–93 1993–94 1994–95 1995–96 1996–97 1997–98 1998–99 1999–2000 2000–2001 2001–02 2002–03 2003–04 2004–05 Source: Directorate General of Foreign Trade (DGFT) Database.

2 1 5 6 5 14 13 19 28 30 30 14 12

326

SHARAD BHANSALI

India’s contribution to the increasing number of anti-dumping investigations worldwide is also significant. It has become one of the prominent users of this trade remedial measure. The detailed share of each of the WTO members and the relative share of India over the years has been tabulated in Tables 12.2, 12.3 and 12.4 for the number of initiations, definitive duties and measures in force, respectively. It can be seen that India’s share in the global initiations rose from 5.42 per cent in 1997 to 14.35 per cent in 2004–05. In the year 2002–03, India’s share reached a peak of 29.91 per cent in a year in which only one more country, namely, USA was in two digits (12.95 per cent). As regards India’s share in the definitive duties, it went up from 5.17 per cent in 1997 to 19.46 per cent in 2005. Again, the peak was reached in the year 2002–03 at 30.77 per cent. As far as the number of measures in force are concerned, India’s share in the global measures rose from 2.73 per cent in 1997 to 11.39 per cent in the year 2004–05. This, however, can be explained by the fact that the number of cases initiated and finalised prior to 1997 were not too many. An analysis of the aggregate data over the period 1997 to 2004–05 reveals interesting results. India accounts for the highest number of initiations at 16.02 per cent of the total initiations. It also tops the list for definitive duties with 19.15 per cent of the global definitive duties. In terms of the overall measures in force, in the year 2005, India was at second position after the US (21.69 per cent). European Communities (EC) accounted for 12.94 per cent of the measures in force. It must be added that the above analysis is based only on the number of cases and not the volume of trade covered by them. It would be pertinent to note that the WTO Secretariat computes the number of cases depending upon the number of countries involved in a particular investigation, while in India, each investigation is counted as one case irrespective of the number of countries involved. For instance, if India initiates an investigation against four countries under one initiation notification, it would be counted as one investigation in India while the WTO would consider it as four investigations. The method of counting the cases is indeed debatable. India has been arguing that the

India EC USA SA China Australia Korea Brazil Argentina Mexico Canada Turkey Bulgaria Chile Columbia Czech Republic Costa Rica Ecuador Egypt Guatemala Indonesia Israel

1 — 7 0 4 3

0.42 0.00 2.92 0.00 1.67 1.25

13 5.42 41 17.08 16 6.67 23 9.58 — 0.00 42 17.50 15 6.25 11 4.58 15 6.25 6 2.50 14 5.83 4 1.67 — 0.00 0 0.00 1 0.42 — 0.00

1997 No. %

1 1 0 0 8 7

0.44 0.44 0.00 0.00 3.51 3.07

33 14.47 21 9.21 22 9.65 41 17.98 — 0.00 13 5.70 3 1.32 17 7.46 8 3.51 12 5.26 9 3.95 1 0.44 — 0.00 2 0.88 6 2.63 2 0.88

1998 No. %

— 0 4 — 13 1

27 49 29 11 — 18 4 17 23 7 11 2 — 1 3 1 0.00 0.00 1.69 0.00 5.51 0.42

11.44 20.76 12.29 4.66 0.00 7.63 1.69 7.20 9.75 2.97 4.66 0.85 0.00 0.42 1.27 0.42 — — 1 — 1 2

37 29 77 20 — 20 5 10 44 4 41 2 — 4 0 0 0.00 0.00 0.32 0.00 0.32 0.64

11.82 9.27 24.60 6.39 0.00 6.39 1.60 3.19 14.06 1.28 13.10 0.64 0.00 1.28 0.00 0.00

1999–2000 2000–2001 No. % No. %

— — 8 — 5 3

0.00 0.00 2.59 0.00 1.62 0.97

76 24.60 23 7.44 58 18.77 2 0.65 — 0.00 16 5.18 2 0.65 16 5.18 26 8.41 11 3.56 6 1.94 15 4.85 1 0.32 0 0.00 6 1.94 0 0.00

2001–02 No. %

Table 12.2 Initiations

— — 3 — 6 —

0.00 0.00 1.34 0.00 2.68 0.00

67 29.91 15 6.70 29 12.95 5 2.23 17 7.59 14 6.25 11 4.91 9 4.02 4 1.79 8 3.57 7 3.13 11 4.91 — 0.00 — 0.00 — 0.00 0 0.00

2002–03 No. %

6 0

0

0

0.00 0.00 0.00 0.00 2.51 0.00

37 15.48 18 7.53 42 17.57 10 4.18 22 9.21 9 3.77 17 7.11 8 3.35 7 2.93 11 4.60 13 5.44 19 7.95 — 0.00 — 0.00 — 0.00 — 0.00

2003–04 No. %

— — 7 — 2 5

%

2 1 30 0 45 21

0.10 0.05 1.50 0.00 2.25 1.05

320 16.02 228 11.41 282 14.11 131 6.56 66 3.30 141 7.06 58 2.90 93 4.65 133 6.66 66 3.30 108 5.41 74 3.70 1 0.05 7 0.35 17 0.85 3 0.15

Total

(Table 12.2 continued)

0.00 0.00 3.35 0.00 0.96 2.39

30 14.35 32 15.31 9 4.31 19 9.09 27 12.92 9 4.31 1 0.48 5 2.39 6 2.87 7 3.35 7 3.35 20 9.57 — 0.00 — 0.00 1 0.48 — 0.00

2004–05 No. %

1998 No. %

1999–2000 2000–2001 No. % No. %

2001–02 No. %

2002–03 No. %

2003–04 No. %

2004–05 No. % Total

%

Source: Calculated from WTO data on anti-dumping measures.

Jamaica — 0.00 — 0.00 — 0.00 — 0.00 2 0.65 0 0.00 1 0.42 0 0.00 3 0.15 Japan 0 0.00 0 0.00 0 0.00 2 0.64 0 0.00 0 0.00 0 0.00 0 0.00 2 0.10 Latvia — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 0 0.00 — 0.00 — 0.00 0 0.00 Lithuania — 0.00 — 0.00 — 0.00 — 0.00 0 0.00 — 0.00 — 0.00 — 0.00 0 0.00 Malaysia 8 3.33 1 0.44 1 0.42 0 0.00 6 1.94 0 0.00 3 1.26 4 1.91 23 1.15 New 5 2.08 1 0.44 6 2.54 5 1.60 0 0.00 3 1.34 4 1.67 5 2.39 29 1.45 Zealand Nicaragua — 0.00 2 0.88 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 2 0.10 Pakistan — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 4 1.67 5 2.39 9 0.45 Panama — 0.00 2 0.88 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 2 0.10 Paraguay — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 0 0.00 0 0.00 Peru 2 0.83 4 1.75 4 1.69 0 0.00 11 3.56 8 3.57 6 2.51 7 3.35 42 2.10 The 2 0.83 3 1.32 4 1.69 2 0.64 0 0.00 2 0.89 0 0.00 — 0.00 13 0.65 Philippines Poland 1 0.42 0 0.00 0 0.00 0 0.00 3 0.97 0 0.00 — 0.00 — 0.00 4 0.20 Singapore 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 — 0.00 — 0.00 — 0.00 0 0.00 Taiwan — 0.00 — 0.00 — 0.00 — 0.00 3 0.97 2 0.89 0 0.00 0 0.00 5 0.25 Thailand 2 0.83 0 0.00 0 0.00 1 0.32 7 2.27 — 0.00 2 0.84 1 0.48 13 0.65 Trinidad & 0 0.00 1 0.44 0 0.00 1 0.32 1 0.32 2 0.89 0 0.00 0 0.00 5 0.25 Tobago Uruguay — 0.00 — 0.00 — 0.00 3 0.96 2 0.65 — 0.00 — 0.00 — 0.00 5 0.25 Venezuela 4 1.67 7 3.07 0 0.00 2 0.64 0 0.00 1 0.45 0 0.00 — 0.00 14 0.70 Total 240 100.00 228 100.00 236 100.00 313 100.00 309 100.00 224 100.00 239 100.00 209 100.00 1,998 100.00

1997 No. %

(Table 12.2 continued)

India EC USA SA China Australia Korea Brazil Argentina Mexico Canada Turkey Bulgaria Chile Columbia Czech Republic Costa Rica Ecuador Egypt Guatemala Indonesia

0 — 0 1 4

0.00 0.00 0.00 0.86 3.45

6 5.17 23 19.83 19 16.38 18 15.52 0 0.00 1 0.86 6 5.17 2 1.72 10 8.62 7 6.03 7 6.03 0 0.00 — 0.00 2 1.72 1 0.86 — 0.00

1997 No. %

0 0 5 0 2

0 21 16 12 0 15 6 14 13 5 10 0 — 2 1 0

0.00 0.00 3.70 0.00 1.48

0.00 15.56 11.85 8.89 0.00 11.11 4.44 10.37 9.63 3.70 7.41 0.00 0.00 1.48 0.74 0.00

1998 No. %

— 0 10 — 0

32 15 37 16 — 4 — 12 10 5 18 8 — 0 2 0 0.00 0.00 5.41 0.00 0.00

17.30 8.11 20.00 8.65 0.00 2.16 0.00 6.49 5.41 2.70 9.73 4.32 0.00 0.00 1.08 0.00 — — 0 — 3

0.00 0.00 0.00 0.00 1.69

41 23.03 36 20.22 20 11.24 12 6.74 — 0.00 3 1.69 1 0.56 11 6.18 13 7.30 6 3.37 12 6.74 2 1.12 — 0.00 0 0.00 0 0.00 1 0.56

1999–2000 2000–2001 No. % No. %

— — 1 — 0

41 22 36 8 5 9 1 — 26 1 10 9 0 0 0 0 0.00 0.00 0.57 0.00 0.00

23.56 12.64 20.69 4.60 2.87 5.17 0.57 0.00 14.94 0.57 5.75 5.17 0.00 0.00 0.00 0.00

2001–02 No. %

Table 12.3 Definitive Duties

— — 9 — 3

0.00 0.00 4.33 0.00 1.44

64 30.77 14 6.73 13 6.25 8 3.85 11 5.29 6 2.88 — 0.00 4 1.92 25 12.02 4 1.92 1 0.48 24 11.54 — 0.00 — 0.00 — 0.00 0 0.00

2002–03 No. %

1 — 2 — 3

0.60 0.00 1.20 0.00 1.81

38 22.89 8 4.82 15 9.04 2 1.20 26 15.66 12 7.23 5 3.01 3 1.81 2 1.20 8 4.82 9 5.42 11 6.63 — 0.00 — 0.00 — 0.00 — 0.00

2003–04 No. %

0.00 0.00 0.00 0.00 4.03

19.46 4.03 14.09 1.34 13.42 0.67 7.38 2.01 0.67 4.70 4.70 10.74 0.00 0.00 0.67 0.00

%

1 0 27 1 21

0.08 0.00 2.06 0.08 1.60

251 19.15 145 11.06 177 13.50 78 5.95 62 4.73 51 3.89 30 2.29 49 3.74 100 7.63 43 3.28 74 5.64 70 5.34 0 0.00 4 0.31 5 0.38 1 0.08

Total

(Table 12.3 continued)

— — 0 — 6

29 6 21 2 20 1 11 3 1 7 7 16 — — 1 —

2004–05 No. %

1998 No. %

1999–2000 2000–2001 No. % No. %

2001–02 No. %

2002–03 No. %

2003–04 No. %

Source: Calculated from WTO data on anti-dumping measures.

Israel 0 0.00 6 4.44 3 1.62 1 0.56 — 0.00 — 0.00 1 0.60 Jamaica — 0.00 — 0.00 — 0.00 — 0.00 1 0.57 1 0.48 1 0.60 Japan 0 0.00 0 0.00 0 0.00 0 0.00 — 0.00 2 0.96 0 0.00 Latvia — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 1 0.48 — 0.00 Lithuania — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 Malaysia 2 1.72 4 2.96 2 1.08 0 0.00 1 0.57 0 0.00 5 3.01 New 0 0.00 1 0.74 0 0.00 3 1.69 0 0.00 1 0.48 2 1.20 Zealand Nicaragua — 0.00 0 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 Pakistan — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 3 1.81 Panama — 0.00 0 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 Paraguay — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 — 0.00 Peru 3 2.59 0 0.00 6 3.24 1 0.56 3 1.72 6 2.88 7 4.22 The 1 0.86 0 0.00 1 0.54 5 2.81 0 0.00 5 2.40 0 0.00 Philippines Poland 0 0.00 1 0.74 0 0.00 5 2.81 0 0.00 2 0.96 — 0.00 Singapore 0 0.00 0 0.00 0 0.00 0 0.00 0 0.00 — 0.00 — 0.00 Taiwan — 0.00 — 0.00 — 0.00 — 0.00 0 0.00 2 0.96 0 0.00 Thailand 1 0.86 1 0.74 0 0.00 0 0.00 0 0.00 — 0.00 1 0.60 Trinidad & 0 0.00 0 0.00 1 0.54 2 1.12 0 0.00 1 0.48 0 0.00 Tobago Uruguay — 0.00 — 0.00 — 0.00 0 0.00 0 0.00 — 0.00 — 0.00 Venezuela 2 1.72 0 0.00 3 1.62 0 0.00 0 0.00 1 0.48 1 0.60 Total 116 100.00 135 100.00 185 100.00 178 100.00 174 100.00 208 100.00 166 100.00

1997 No. %

(Table 12.3 continued)

0.00 2.01 0.00 0.67 3.36 0.00 0.00 0.00 0.00 0.00 0.67

— 3 — 1 5 — — — 0 0 1

8 0 2 3 5

0 6 0 1 31 12

11 4 2 1 0 17 11

Total

0.61 0.00 0.15 0.23 0.38

0.00 0.46 0.00 0.08 2.36 0.92

0.84 0.31 0.15 0.08 0.00 1.30 0.84

%

— 0.00 0 0.00 — 0.00 7 0.53 149 100.00 1,311 100.00

0.00 0.67 0.00 0.00 0.00 2.01 2.68

0 1 0 — — 3 4

2004–05 No. %

India EC USA SA China Australia Korea Brazil Argentina Mexico Canada Turkey Bulgaria Chile Columbia Czech Republic Costa Rica Ecuador Egypt Guatemala Indonesia

2.73 15.57 34.32 4.89 0.00 5.11 2.27 2.61 3.52 9.20 10.34 3.98 — — — —

0.00 — — 0.11 —

24 137 302 43 0 45 20 23 31 81 91 35 — — — —

0 — — 1 —

1997 No. %

0 0 — 1 —

49 161 326 57 0 57 28 28 39 84 77 34 — 2 8 0

0.00 0.00 — 0.10 —

4.84 15.91 32.21 5.63 0.00 5.63 2.77 2.77 3.85 8.30 7.61 3.36 — 0.20 0.79 0.00

1998 No. %

— — 10 — —

91 190 300 104 — 48 27 42 45 80 88 13 — 0 12 — — 0.00 0.89 0.00 —

8.12 16.95 26.76 9.28 0.00 4.28 2.41 3.75 4.01 7.14 7.85 1.16 — 0.00 1.07 —

1999–2000 No. %

— — 10 — —

121 219 241 109 — 56 29 52 45 66 89 15 — 0 — 1 0.00 0.00 0.90 0.00 —

10.95 19.82 21.81 9.86 0.00 5.07 2.62 4.71 4.07 5.97 8.05 1.36 — 0.00 — 0.09

2000–2001 No. %

— — 11 — —

150 219 264 98 17 56 19 53 58 61 90 24 — 0 — 1 0.00 0.00 0.93 0.00 —

12.62 18.42 22.20 8.24 1.43 4.71 1.60 4.46 4.88 5.13 7.57 2.02 — 0.00 — 0.08

2001–02 No. %

Table 12.4 Measures in Force

— — 14 — 0

210 204 278 96 29 46 16 56 77 54 87 48 — — — 1 0.00 0.00 1.08 0.00 0.00

16.27 15.80 21.53 7.44 2.25 3.56 1.24 4.34 5.96 4.18 6.74 3.72 0.00 0.00 0.00 0.08

2002–03 No. %

1 — 17 — 2

216 165 293 84 56 51 23 54 76 58 85 53 — — — — — — 15 — 7

191 167 280 73 71 52 32 50 56 63 59 68 — — 3 —

0.00 0.00 1.16 0.00 0.54

14.79 12.94 21.69 5.65 5.50 4.03 2.48 3.87 4.34 4.88 4.57 5.27 0.00 0.00 0.23 0.00

2004–05 No. %

(Table 12.4 continued)

0.07 0.00 1.26 0.00 0.15

16.01 12.23 21.72 6.23 4.15 3.78 1.70 4.00 5.63 4.30 6.30 3.93 0.00 0.00 0.00 0.00

2003–04 No. %

— — — — 6 —

1 2 — 4 —

— — — — 0.68 —

0.00 0.23 — 0.23 —

0.10 0.20 — 0.40 —

— — — — 0.59 —

0.79 — 0.10 — — 0.79 2.57

1 2 — 4 5

— — — — 14 —

3 — 1 — — 9 13

0.09 0.18 — 0.36 0.45

0.00 — 0.00 — 1.25 —

0.27 — 0.09 — — 0.80 1.16

1999–2000 No. %

— 2 — 6 5

— — — — 15 —

4 — — — — 8 11

— 0.18 — 0.54 0.45

0.00 — 0.00 — 1.36 —

0.36 — — — — 0.72 1.00

2000–2001 No. %

6 2 7 — —

— — — — 18 —

7 — 7

— 2 —

0.50 0.17 0.59 — —

0.00 — 0.00 — 1.51 —

— 0.17 — — 0.59 — 0.59

2001–02 No. %

8 — 9 — 4

— — — — 23 4

— — 2 1 — — 8

0.62 0.00 0.70 0.00 0.31

0.00 — 0.00 — 1.78 0.31

0.00 — 0.15 0.08 0.00 — 0.62

2002–03 No. %

— — 4 23 4

— 4 — — 29 3

5 4 2 — — 11 10

0.00 0.00 0.30 1.70 0.30

0.00 0.30 0.00 — 2.15 0.22

0.37 0.30 0.15 0.00 0.00 0.82 0.74

2003–04 No. %

— — 3 22 5

— 7 — — 33 —

6 — 2 — — 12 14

0.00 0.00 0.23 1.70 0.39

0.00 0.54 0.00 — 2.56 0.00

0.46 — 0.15 0.00 0.00 0.93 1.08

2004–05 No. %

— — — — — — — 0 0.00 — 0.00 — 0.00 — 0.00 0.57 5 0.49 19 1.69 1 0.09 19 1.60 16 1.24 16 1.19 — 0.00 100.00 1,012 100.00 1,121 100.00 1,105 100.00 1,189 100.00 1,291 100.00 1,349 100.00 1,291 100.00

8 — 1 — — 8 26

— — 0.23 — — 0.45 2.95

1998 No. %

Source: Calculated from WTO data on anti-dumping measures.

Israel — Jamaica — Japan 2 Latvia — Lithuania — Malaysia 4 New 26 Zealand Nicaragua — Pakistan — Panama — Paraguay — Peru 6 The — Philippines Poland 0 Singapore 2 Taiwan — Thailand 2 Trinidad & — Tobago Uruguay — Venezuela 5 Total 880

1997 No. %

(Table 12.4 continued)

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

333

Figure 12.1 Initiation Anti-Dumping Cases (1997–2004) 320 (16%)

891 (45%)

228 (11%)

282 (14%)

131 (7%)

141 (7%) India

EC

USA

SA

Australia

Others

Figure 12.2 Definitive Duties (1997–2004) 251 (10%) 177( 7%) 145 (6%) 1,311 (49%)

100 (4%) 78 (3%)

560 (21%)

India

USA

EC

Argentina

SA

Others

Total

334

SHARAD BHANSALI Figure 12.3 Measures in Force as on 2004–05 280 (22%)

509 (39%)

191 (15%)

71 (5%)

USA

India

167 (13%)

73 (6%) EC

SA

China

Others

methodology of reporting is flawed as it does not reflect the true picture of the impact of anti-dumping measures. In India’s view, the intensity of anti-dumping actions should be judged by the trade volume covered by each measure. Viewed in that manner, the use of anti-dumping mechanism by India would certainly not be as serious as it may appear by a simplistic and seemingly flawed approach being adopted by the WTO. However, the fact remains that the increasing use of anti-dumping measures by India is clearly perceptible. In terms of the profile of countries which have been the target of anti-dumping investigations by India, 36 per cent of the investigations initiated have been against East Asian countries (minus China), while about 20 per cent of the investigations have been initiated against China, followed by 18 per cent against the European Union (Figure 12.4). One of the most interesting trends in anti-dumping initiations is that the developing countries now account for a larger share of the cases as compared to the traditional users of anti-dumping. According to Chad P. Bown, in his recent work titled ‘The World Trade Organization and Anti-dumping in Developing Countries’, the four historically developed country users of anti-dumping—

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

335

Figure 12.4 Cases Initiated 42 (10%) 9 (2%)

80(20%)

19 (5%) 7(2%) 30(7%)

71(18%)

144(36%) China EU East Asia (Without China) North America (USA + Canada + Mexico)

Asia (others) Middle East Latin America (Brazil + Venezuela) Others

USA, EU, Canada and Australia—continue to be active users of antidumping but are no longer the dominant users as they were in the prior decade (1985–94) under the General Agreement on Tariffs and Trade (GATT) regime. A sizeable share of the global anti-dumping initiations and definitive duties is now made up of the new users, namely, Argentina, Brazil, Columbia, India, Indonesia, Mexico, Peru, Turkey and Venezuela. Bown’s paper shows that the nine new users account for 40 per cent of the new initiations and 45 per cent of the new definitive measures in the post-WTO 10-year period (1995–2004) as compared to the prior 10-year period (1985–94) when the historical four ac-counted for 75 per cent of all anti-dumping investigations. Notwithstanding the shift in the users’ pattern of anti-dumping and the increased use of the tool, it is interesting to note that the economists and the consumer organisations almost unanimously consider anti-dumping as a menace or a welfare-reducing instrument of trade policy. On the other hand, the domestic industry

336

SHARAD BHANSALI

supporters feel that anti-dumping can act as a major instrument for protection against the unfair trade practice of dumping. There are indications to the effect that the criticism against excessive use of anti-dumping measures has gone up ever since such instruments have been used by developing countries. Nevertheless, the increase in the number of investigations in India and its remarkable correlation with the liberalisation process can be explained to a great extent.

EXTERNAL LIBERALISATION Developing country markets are almost by definition price conscious markets and India is no exception. Foreign suppliers, in order to compete with the domestic suppliers, price their goods so as to match the prices at which they are available in the domestic market. For instance, if the domestic price of a product in India is Rs 100 per unit, and assuming customs duty of 25 per cent, the exporters will have to sell their products at around Rs 80, so that the landed value for the consumer is Rs 100. Therefore, while it may be true that the domestic producers attempt to follow the import-parity pricing, it is equally true that the exporters to India try to price their products keeping in mind the level of customs duty protection in India. In such circumstances, the pricing policy followed by the exporters would in most cases lead to a difference between the home market price and the export price to India to the extent of the customs duty protection. In terms of the legal framework, dumping has taken place irrespective of the levels of customs duty or the freight involved. However, despite the fact that dumping in the legal sense of the term might exist for a large number of products, anti-dumping actions are limited to certain products only. This happens due to the safety valves provided in the WTO Agreement as well as in the Indian laws, which prevent the possibility of large-scale anti-dumping actions. Until the beginning of the liberalisation process in the early 1990s, the average customs tariffs in India were astronomically high. At the same time, most of the product lines, including the industrial inputs, were under quantitative controls. With the lowering of tariffs and other barriers, many segments of the Indian

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

337

domestic industry were perhaps not fully prepared to face the increasing external competition. There is no doubt about the fact that external liberalisation in the post-WTO scenario could be considered as an immediate and perhaps the most important reason for the rising number of anti-dumping investigations in India. With the average duties hovering around 150 per cent in the preliberalisation era, there was no occasion for the Indian industry to resort to this tool which was available even prior to the existence of WTO. This is reflected in the fact that the first case of anti-dumping was initiated in 1992 despite the existence of the anti-dumping law since 1985. As the progressive liberalisation continued on the customs tariff front without matching internal liberalisation, the pressure also started building up on the domestic industry which perhaps in many cases was not able to come out of the pre-liberalisation mindset. Despite India’s commitments to the WTO for lowering of customs tariffs, the Indian industry was totally unaware of these developments. The direct relationship between the falling tariff protection and the increasing number of cases is apparent from the Figure 12.5. Figure 12.5 Anti-Dumping Cases as Per Year 35

Peak Customs Duty No. of Cases Initiated

30 25

80.00

20 60.00 15 40.00

10

20.00

Years

2004–05

2003–04

2002–03

2001–02

2000–2001

1999–2000

1998–99

1997–98

1996–97

1995-96

1994–95

1993–94

0.00

5 0

No. of Cases Initiated

100.00

1992–93

Peak Customs Duty (%)

120.00

338

SHARAD BHANSALI

The correlation is fairly high, except for the two years of 2003–04 and 2004–05. These two years were aberrations from the general trend. It is a matter of record that it was somewhere around the same time when the EU gave consultation call under the WTO Dispute Settlement Mechanism in as many as 27 cases. It is understood that the EU built up a strong case against the procedures followed by the Indian authorities. It was around the same time that Taiwan also took India to WTO in seven cases. While the disputes have apparently not gone beyond the consultation stage, it is common knowledge that the Anti-dumping Designated Authority put a break on new initiations during this period.

ABOLITION OF QUANTITATIVE RESTRICTIONS Article XI of GATT 1947, which is now a part of the GATT 1994, generally prohibits the use of quantitative restrictions (QRs). The GATT as well as the WTO mandate that imports have to be controlled only through tariffs and not through quantitative means. Article XI of GATT states: No prohibition or restrictions other than duties, taxes or other charges, whether made effective through quotas, imports or export licences or other measures, shall be instituted or maintained by any Contracting Party on the importation of any product of the territory of any other Contracting Party or on the exportation or sale for export of any product destined for the territory of any other Contracting Party. One of the exceptions to this stipulation is the situation where a country has to safeguard its external financial position as elaborated in Article XII and Article XVIII: B of GATT. The latter recognises that economies in such a situation could experience balance of payments (BoP) difficulties arising mainly from efforts to expand their internal markets as well as from instability in

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

339

their terms of trade. The provisions relating to BoP restrictions also contemplate that a country must progressively relax the restrictions as BoP conditions improve and must eliminate measures when conditions no longer justify their existence. India started the phasing out of QRs as a part of its liberalisation process in the beginning of the 1990s. The process started with the dismantling of QRs on industrial raw materials and inputs. By 1997, only 2,714 product lines remained under the QRs. On 1 April 1999, QRs were removed for another 1,285 lines. The process was completed by the year 2001, subsequent to a bilateral agreement between India and the US. With the phasing out of the QRs, the Indian industry had to face further competition for which many parts of the industry were not adequately prepared. Hence, they looked for protection in the form of anti-dumping duties as well as safeguard measures. In fact, the official document of the Ministry of Commerce, while explaining the fallout of removal of QRs, highlighted the protection available by way of anti-dumping and countervailing duties and through safeguard measures.

HISTORICAL POLICY PARADIGM The advent of the liberalisation process in the beginning of 1990s saw a paradigm shift in the industrial policy in India. The policy of import substitution and self-reliance followed for decades was on its way out. One of the fallouts, intended or unintended, of the policy of import substitution and self-reliance was that India established manufacturing facilities without any consideration for the issues of comparative advantage and economies of scale. Indian industry started producing a very wide range of products irrespective of the minimum economic size or the commercial viability of such operations. The result was that in many cases, capacities were created which were very small and unviable, leading to high per unit investment. An analysis of the cases between 1995 and 2005 would indicate that

340

SHARAD BHANSALI

the kind of products which were subjected to anti-dumping duties included chemicals and petrochemicals, pharmaceuticals, textiles, yarns, fibres, steel and other metals, etc. According to the official statistics of the Ministry of Commerce, pharmaceuticals, chemicals and petrochemicals account for 111 out of 188 of the total number of cases initiated in India, which is almost 60 per cent of all the initiations until 2005. A further analysis of the individual products in these two categories would reveal that petrochemicals account for only five items, which perhaps can be considered to have economically viable capacities. Thus, it is the chemicals sector which accounts for an overwhelmingly large number of cases initiated in India. An examination of the individual cases and the findings of the designated authority indicate that the capacities in a large majority of these products was considerably small when compared to the international players they are expected to compete with. The position is quite similar for the product category ‘others’ as well. Thus, one can fairly deduce that certain segments of the Indian industry, which were an outcome of the policy of self-reliance and import substitution, sought to prolong their protection through the mechanism of anti-dumping duties. There is resentment amongst the importers and the user industry against anti-dumping duties on such chemicals for which the Indian industry may not be having economically viable capacities. Whether such industries need to be protected by way of anti-dumping duties is indeed a debatable question. The argument in favour of protection to such otherwise unviable capacities against dumping is sought to be justified on the ground that such production facilities came into existence because of the faulty policies of the government, and the industry needs some more time to adjust to the new economic realities. It was the government policy which led to the creation of such production facilities which also encouraged the adoption of obsolete technology due to the sheer size of operations. It is also argued that such units should not be denied their legal rights once the fact of injurious dumping is established to the satisfaction of the authorities. Supporters of anti-dumping also argue that dumping can injure even the

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

341

Figure 12.6 Number of Cases 19 (11%) 13 (7%)

14 (8%) 87 (47%)

16 (9%)

30 (17%) Chemicals & Petrochemicals Pharmaceuticals Fibres/Yarns

Steel & Other Metals Consumer Goods Others Products

most efficient and world-class businesses and that the ‘inefficient producers’ theory is not true for all products which have benefited from anti-dumping duties. The domestic industry argues that even if their capacities are inadequate or the plant size uneconomical, they are entitled to anti-dumping duty protection if any part of the injury can be attributed to the act of dumping. This argument can at best be justified so long as the anti-dumping mechanism is used as a short-term and purely temporary measure. Nevertheless, if there are sufficient indications before the investigating authorities that the complaining industry is inherently inefficient, then protection through anti-dumping duties would certainly not be warranted—dumping or no dumping. It is also interesting to note that the incidence of ‘dumping’ was perhaps at a much higher level prior to the liberalisation process. It was only after the tariffs started coming down that the injurious effect of ‘dumping’ was felt by the Indian industry. Earlier, with high tariff and non-tariff barriers in place, such

342

SHARAD BHANSALI

enterprises had no difficulty in being commercially viable. Import parity pricing after factoring in the high level of customs duties could be followed without much difficulty. For a large number of products, it was even possible to follow the cost-plus approach as imports were practically banned.

UNDERVALUATION The import control regime and ridiculously high tariff walls over the decades led to an obvious and predictable fallout in the form of large-scale undervaluation by the Indian importers. Rampant undervaluation to avoid or reduce the incidence of high customs duties was the order of the day. With the liberalisation process, it was expected that lowering of the tariffs would lead to reduction in the levels of undervaluation. However, despite a drastic reduction of tariff barriers since 1992 and the dismantling of quantitative restrictions, there are sufficient indications that undervaluation still continues in a substantial manner. It is apparent that the relatively lower levels of current customs duties could not be sufficient incentive to resort to undervaluation. It appears that the real incentive to continue to undervalue the imports emanates from the fact that the value declared to the customs authorities by the importers becomes the basis of all the subsequent transactions. This would mean that all other subsequent taxes like additional duty of customs equivalent to excise duty, VAT/sales tax, etc., will also have to be paid on the basis of the value declared for customs purposes. Even if the customs duties stand reduced substantially, the incidence of other taxes still remains very high, which ensures that the menace of undervaluation continues unabated. The present Indian laws and the ensuing jurisprudence on the issue make it extremely difficult for the customs authorities to check the problem of rampant undervaluation. The Indian laws are based on the WTO Agreement on Implementation of Article VII of the GATT (generally referred to as the GATT Valuation Code). This Agreement obligates customs administrations to accept the

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

343

transaction value except in specified circumstances as laid down in Article 1. However, the Indian government has recognised that these provisions are inadequate to deal with situations such as collusion between the importer and exporter for undervaluation of goods aimed at evading customs duty (Refer WT/GC/W/227 dated 5 July 1999). Verification and enquiry by customs administrations set out in Article 17 would not enable the establishment of fraud in such instances. Furthermore, the importer cannot be expected to fully cooperate with customs administrations when he is a party to undervaluation and to suppression of information. Thus the legal framework, as mandated by the GATT Valuation Code and the Customs Tariff Act, makes it very difficult for the authorities to provide any effective checks. While the national authorities have the responsibility to check undervaluation, the provisions of the GATT Valuation Code are just too weak to handle the situation in developing countries like India where customs tariffs are still high and undervaluation rampant. The penal provisions in case of established undervaluation are weak and, therefore, are no deterrent for the unscrupulous exporters and importers. At the Marrakesh meeting of April 1994, a decision was taken by the ministers to deal with this issue (‘Decision Regarding Cases Where Customs Administrations have Reasons to Doubt the Truth or Accuracy of the Declared Value’ taken by the WTO Committee on Customs Valuation at its first meeting held on 12 May 1995 pursuant to the Marrakesh Decision). India has pointed out to the WTO that this decision sets out the procedures to be observed in such cases and may be particularly useful in cases where a manufacturer’s invoice has not been submitted and where the declared value is much less than the traded prices given in contemporaneous reputed international publications or is less than the price at which the goods are sold in the ordinary course of trade under fully competitive conditions. India has further proposed that for practical applicability, this decision may be incorporated in the WTO Agreement itself as it will help in a significant way in tackling the problem of undervaluation which is reported to be rampant in many developing countries,

344

SHARAD BHANSALI

especially those where the rates of customs duty are relatively high. However, it appears that India has not been able to muster much support for this proposal and no significant progress could be made over the years. It is, therefore, necessary for India to strengthen its own laws to address the unscrupulous practice of undervaluation. It is quite likely that many of the cases of anti-dumping are straight cases of undervaluation but since no efficacious and effective remedy is available in the Indian law and the GATT, antidumping mechanism has come in handy for the Indian industry.

TARIFF ARBITRAGE One of the reasons contributing to the increasing number of antidumping cases is the high level of tariffs still existing in India. The normal impact of high tariffs is that the domestic producer is able to sell its merchandise in the home market at higher prices to the extent of the tariff protection available. While the domestic prices in any country are a function of a large number of factors, the determination of domestic prices vis-à-vis the international prices is primarily a function of the effective level of protection. Theoretically, the domestic price will be the international price plus the tariff rate, assuming that the tariff rate and the effective rate of protection are same. Considering that the domestic industry would prefer to enjoy the tariff arbitrage, the prices should prevail at levels below the theoretical maximum. The following illustration would clarify the situation: 1. International Price (assumed as Normal value) 2. Tariff @ 25 per cent 3. Theoretical Maximum Price in the Domestic Market 4. Export Price 5. Dumping Margin

US$ 100 US$ 25 US$ 125 US$ 92 8.5 per cent

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

345

In practice, the domestic price will be fixed anywhere between US$ 100 and US$ 125 as rarely the domestic industry is in a position to take full advantage of the arbitrage opportunity. Therefore, assume that the price in the domestic market will be US$ 115. In order to match the domestic price, the exporting country will have to necessarily sell below the international price of US$ 100. In this example, the export price will work out to a minimum of US$ 92. The international price being US$ 100 (assumed to be the domestic price of the exporting country also), the dumping margin will work out to be over 8.5 per cent. Thus, existence of dumping margins is a near certainty when the trade takes place between countries, with different levels of tariff protection. The high tariffs also make such countries highly susceptible to anti-dumping actions. The position will be clear using the previous illustration again: 1. International Price (assumed as Normal value) 2. Tariff @ 25 per cent 3. Theoretical Maximum Price in the Domestic Market 4. Export Price 5. Dumping Margin

US$ 100 US$ 25 US$ 125 US$ 100 25 per cent

The exporter from the country with high tariffs will be in a position to export the goods at around US$ 100 for two main reasons. First, an exporter in any competitive market can at best fetch only the international price. Second, the exporter from a country with high tariffs can sell at lower prices due to the high margins in the domestic market. Even assuming that the goods are sold at the international prices, there will be dumping to the extent of 25 per cent (normal value of US$ 125 less the export price of US$ 100). Thus, exporters from countries with high tariffs become highly susceptible to potential anti-dumping actions. This to quite an extent explains the large number of cases against India (Table 12.5).

346

SHARAD BHANSALI Table 12.5 Cases Against India

Year

No.

1997 1998 1999–2000 2000–2001 2001–02 2002–03 2003–04 2004–05 Total

7 12 11 — 12 12 14 12 80

Source: Directorate General of Foreign Trade (DGFT) Database.

ABSENCE OF NON-PREFERENTIAL RULES OF ORIGIN It is also interesting to note that in a large number of cases in India, there have been multiple investigations against the same product. About one-third of the cases are against the same product. The domestic industry had to ask for multiple investigations, the sources of supply being different every time. This has also led to the increased number of investigations. There are two main reasons for this trend. First, the goods subject to anti-dumping duties may be transshipped from other countries which may be obliging in issuing misleading or even false certificates of origin. Absence of non-preferential Rules of Origin has contributed to this problem. It is high time that the WTO finalises the nonpreferential Rules of Origin, which have been dragging on in the WTO for the last several years (since 1996), to avoid multiplicity of investigations.

NO PROVISION FOR CIRCUMVENTION The other major reason for multiplicity of cases is that there are no rules to take care of the circumvention done by the foreign exporting countries. The EC, again a major user of anti-dumping, has its own laws for dealing with circumvention of anti-dumping

ANTI-DUMPING THROUGH INDIA’S LIBERALISATION

347

duties even though the compatibility of these provisions with the GATT Agreement is debatable.

NON-COOPERATION BY EXPORTERS While it is well understood that non-cooperation by an exporter in the investigation process may lead to adverse inferences being drawn by the investigating authorities and a possible punitive dumping margin, it has another interesting fall-out. Non-cooperation by foreign exporters in the investigation process encourages the complaining domestic industry to file more cases for imposition of anti-dumping duties. At times, absence of cooperation or opposition from the exporters from the concerned countries is liable to be misconstrued as presence of injurious dumping.

THE WAY AHEAD It is an acknowledged fact that anti-dumping is a fairly complex exercise which requires deep understanding of law, finance, costing and economics. The need for a strong and well-equipped institution cannot therefore be over-emphasised. Fair, transparent and unbiased decisions can go a long way to make the system more credible. Much of the criticism against anti-dumping as a tool of trade policy can be obviated if the process is followed in a transparent manner. The strengthening of the institutions at the investigation stage as well as the appellate stage is certainly the need of the hour. Despite opposition and widespread criticism of anti-dumping mechanism, it needs to be appreciated that anti-dumping as a tool of trade policy has helped the Indian industry during the transition phase. There are several examples where the Indian industry has not only survived due to the timely protection against dumping but has subsequently thrived. An efficient and responsive anti-dumping administration also sends appropriate signals to the erring exporters who might be inclined to indulge in price

348

SHARAD BHANSALI

undercutting and underselling to the detriment of the Indian industry. It cannot be denied that anti-dumping does suffer from many shortcomings when viewed from the theoretical perspective of perfect competition. But then, the real world of international trade is nowhere close to perfection—either in theory or in practice.

REFERENCES AND SELECT BIBLIOGRAPHY Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade. 1994. (Commonly referred to as the Anti-dumping Agreement). Agreement on Implementation of Article VII of the GATT (Generally referred to as the GATT Valuation Code). Annual Reports of the Directorate of Anti-dumping and Allied Duties. Bown, Chad P. 2006. ‘The World Trade Organization and Anti-dumping in Developing Countries’, World Bank Policy Research Working Paper No. 4014, 1 September. Available at SSRN: http://ssrn.com/abstract=931991 Customs Tariff Act. 1962. Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury) Rules. 1995. (Commonly referred to as the Anti-dumping Rules). Directorate General of Foreign Trade (DGFT), Ministry of Commerce and Industry, Government of India. General Agreement on Tariffs and Trade. 1994. India’s Paper WT/GC/W/227, 5 July 1999. Official website of the Ministry of Commerce & Industry. http://www.commerce. nic.in WTO Annual Reports for the years 1997 to 2006.

Chapter 13 ‘WTO Plus’ Arrangements Impact of Regional Trade Agreements S. NARAYAN AND INDU RAYADURGAM

INTRODUCTION

T

he World Trade Organization (WTO) agreements of 1995 brought in an era of globalisation in trade and an attempt to remove barriers to international trade. Events after Seattle negotiations of 1999 and the subsequent hiccups in the Doha Round have contributed significantly to the growth of bilateral and Regional Trade Agreements (RTAs), which have attempted to carve out separate spheres of trade, to the purported advantage to the contracting countries. Starting from the late 1980s, RTAs have proliferated spanning countries, regions and continents. Of the 149 members of the WTO, all but Mongolia are signatories to one or more RTAs. In the last decade since the formation of WTO, over 200 RTAs have been notified. There are around 300 RTAs under negotiation. An estimated 60 per cent of world trade is now covered by regional agreements. Increasingly, the scopes of the RTAs are growing as well. Many of the agreements include subjects under the Singapore Issues (trade facilitation, investment, government procurement and competition) and others like North American Free Trade Agreement (NAFTA) have a separate dispute settlement mechanism.

350

S. NARAYAN AND INDU RAYADURGAM

This chapter attempts to examine the approach of India towards RTAs, and the advantages and shortcomings thereof.

ECONOMIC REGIONALISM The theory of economic integration refers to the commercial policy of discriminately reducing or eliminating trade barriers only among the nations joining together. The degree of economic integration varies from Preferential Trade Agreements (PTAs) to free trade areas, customs unions, common markets and economic unions.1 Within the WTO, regionalism is viewed as ‘actions by governments to liberalise and facilitate trade on a regional basis, sometimes through free-trade areas and customs unions.’2 Article XXIV of GATT permits signatories to set up regional Free Trade Agreements (FTAs) and customs unions for trade in goods, Article V for trade in services, and the Enabling Clause provides the legal cover for PTAs among the developing countries. In July 2006, the WTO announced the establishment of a new transparency mechanism that has the mandate for expediting reviews of RTAs and examines their consistency with WTO prescriptions. Regional Trade Agreements (either bilateral or multilateral) have witnessed a higher rate of emergence since the 1990s. As of January 2005, 312 RTAs had been notified to the WTO/GATT, 170 of which are currently in force. The RTAs are important in widening markets, deepening integration, and promoting economies of scale in regulation and investment. Agreements among coun-tries with similar economic objectives and status is said to be beneficial for them. Crawford and Fiorentino (2005) identified some common trends among the RTAs.3 They point out that regionalism has acquired a prominent position in the trade policy of many countries. Further, RTAs are showing an increasing degree of complexity: several RTAs include issues (like investment, competition, environment and labour) that are not yet settled in the WTO. It is also seen that South–South partnerships have emerged in

‘WTO PLUS’ ARRANGEMENTS

351

harmony with the North–South and North–North trends. A ‘spaghetti bowl’ of multiple and overlapping RTAs has emerged across the globe. Data on the typologies of the RTAs reveals that Free Trade Agreements (FTAs) are the most common type (84 per cent of the total) compared to 8 per cent of the customs unions agreements and the rest Partial Scope Agreements.4 Configuration of the agreements indicates that bilateralism dominates the scenario. There are differences in the views of analysts on the motivation behind the encouragement of intra-regional trade. One argument has suggested that deeper regional integration was to create a defense mechanism for regional restructuring of industries to exploit the economies of scale in different markets. The Cecchini Report which prepared the White Paper for the creation of a single European market attempted to establish empirically that European economies were losing substantially in welfare terms by not cooperating within the region.5 Another advantage of regionalism appears to be the protection of domestic markets through high tariffs and strong rules of origin. A good example of this could be the establishment of plants by Japanese companies to target regions in order to abide by the strong regulations. An important prerequisite for a sound trade policy could be a strong domestic policy framework, in other words, macroeconomic stability and adequate infrastructural backup. If the prerequisites are in place, then the most effective RTAs could be those which contain:6 z z z z z

z

z

Low External Most Favoured Nation (MFN) tariffs; Few sectoral and product exemptions; Measures to facilitate trade; Large ex-post markets; Measures to promote new cross border competition, particularly in services; Rules governing investment and intellectual property that are appropriate to the development context; and Schedules of implementation that are put in effect on time.

352

S. NARAYAN AND INDU RAYADURGAM

There could be several reasons for engaging in RTAs: (a) Developing countries could see RTAs as enhancing access to new and developed country markets. (b) RTAs could provide developing countries an advantage over other countries in attracting Foreign Direct Investment. (c) Such associations could help harmonise internal economic and commercial policies. This is always done through internal regulatory and structural reforms caused by external obligations and political commitments. For example, Central and Eastern European countries have committed to some degree of reforms in order to be able to enter EU. (d) Regional agreements could also aid in dealing with problems like border disputes, transit, migration and movement of labour. In many cases, RTAs have also included dispute resolution mechanisms as a compliance with WTO rules and regulations. (e) Trade and investment agreements could also help nations to strengthen their political commitments. RTAs could start with preferential trade and end in monetary and political union. ( f ) Another reason why countries like Singapore and Thailand have been entering into a large number of RTAs has been to capitalise on being a hub of overlapping arrangements.7 This hub could provide a variety of cost advantages and exports originating from this hub would be granted preferential access to a number of markets; this would lead to transshipment of goods from and via these hubs, hence the establishment of these places as entrepôt points.

WTO AND RTAs WTO members were afforded the flexibility of entering into RTAs even though some of these agreements deviated from WTO’s principles. The members entering into agreements have to meet

‘WTO PLUS’ ARRANGEMENTS

353

the requirements of GATT Article XXIV which stipulates rules on customs union and free trade areas in merchandise trade and the GATS Article V on agreement in services or the enabling clause of dealing with trade in goods between developing nations.8 WTO’s negotiating committee has approved the rules of new transparency mechanisms for RTAs. Considering the large number of agreements notified to the WTO and many under negotiations, the transparency mechanism would enable the committees to review all the RTAs for their consistency with the norms prescribed by them, more specifically coverage of ‘substantially all the trade’ between members of any RTA within a ‘reasonable’ period of time (not more than 10 years), and absence of new barriers to other members of WTO. WTO was also concerned about the growing involvement of services in the RTAs and thus the eventual risk for discrepancies in the General Agreement on Trade in Services (GATS). Other aspects that have to be addressed by nations entering into agreements are: approaches to the Rules of Origin (RoO), imposition of non-trade barriers, restrictions of ports of imports, indistinct position of enforcement agencies in member-nations and a long ‘ negative list’ of excluded products.9 What are the determinants of successful preferential trading agreements? The literature10 has shown that those most likely to succeed have the following characteristics: (a) large and diverse membership; (b) low external MFN tariffs; (c) comprehensive coverage in terms of measures, sectors and products; (d) liberal rules of origin; and (e) inclusion of measures to facilitate trade and promote crossborder competition. Well-designed agreements also need to be supported by effective monitoring and enforcement mechanisms to ensure consistent implementation.

354

S. NARAYAN AND INDU RAYADURGAM

THE DOHA ROUND One of the major achievements of the Uruguay Round was the fact that it was concluded successfully. It was a psychological advantage for nations, which led to the Doha Round of trade talks. The success of the Uruguay Round led to an increase in World Trade by US$ 170 billion per year by 2002 and a general increase in the standard of living. But US$ 170 billion measured only to 0.6 per cent of the projected world output of US$ 30 trillion at the end of the century.11 According to analysts, it is all the more important to successfully complete the Doha Round of negotiations. The Doha Round is stated to be the largest and the most difficult one, especially considering the number of countries participating and the related issues (see Table 13.1). Delays in the finalisation of the Doha Round are causing serious concerns about the future of multilateralism. Data from the 2006 World Trade Report released by the WTO states that 21 developed nations account for US$ 250 billion of trade distorting subsidies, whereas the remaining nations jointly spend only US$ 50 billion on the same.12 Subsidies are given even to sectors like mining, forestry, automobiles, etc. There is definitely a need for careful, considered negotiations on the part of developing countries, as consensus arrived at in haste may be counterproductive. There appears, however, to be more rhetoric than reason in the aftermath of the recent discussions. A report in The Economist reflects the indifference of the ministers involved in the recent talks to carry the Doha agenda forward. The report also goes on to say that if Doha talks fail, then the future would see the disappearance of multilateralism, which could be replaced by regionalism.13

INDIA’S APPROACH TO TRADE AGREEMENTS Indian trade policy has developed a balanced approach towards multilateral negotiations as well as regional and bilateral agreements. There has also been a strong unilateral movement to opening

Annency

Torquay

Geneva

Geneva (Dillion Round)

Geneva (Kennedy Round)

Geneva (Tokyo Round)

Geneva (Uruguay Round)

Doha (Doha Round)

1951

1956

1960–61

1964–67

1973–79

1986–93

2001–04

Source: Salvatore (2004).

Geneva

1949

Place/Name

1947

Year

144

123

102

62

26

26

38

13

23

Number of participating countries

To liberalise global trade in agriculture, industrial goods and services

Tariffs, non-tariff measures, agriculture, services, intellectual property, dispute settlement and the creation of WTO

Tariffs, non-tariff measures and multilateral agreements

Tariffs and anti-dumping measures

Tariffs

Tariffs

Tariffs

Tariffs

Tariffs

Subject covered

Table 13.1 GATT Trade Rounds 1947–93 and the WTO Round, 2001

To be determined

34

33

35

2

4

3

2

21

Percentage cut in tariffs

356

S. NARAYAN AND INDU RAYADURGAM

up the markets for international trade.14 India’s approach to trade agreements could be studied from a three-part strategy which includes unilateral liberalisation, multilateral and regional liberalisation. Unilateral liberalisation has been linked to the domestic reforms which the country has carried out in order to open up its markets and reduce barriers to trade. India has carried this out systematically from 1991 in order to open up trade and investment opportunities in India. A package of measures that have included reduction of tariffs, removal of quantitative restrictions to import, opening up of financial markets and facilitating foreign direct investment have helped the Indian economy to integrate better with the world economy in the last 15 years. Since 1991, many non-tariff barriers have been eliminated and there has also been a reduction in the average tariff rates by almost 50 per cent. The government has also reduced its stake in many state owned enterprises, leading to privatisation of the same. India’s focus has also shifted to investment cooperation and trade in services. Intensive work is also being carried on aspects like the RoO, Mutual Recognition Agreements (MRAs), anti-dumping provisions, revenue compensation mechanisms, safeguards, dispute settlement modalities, etc. An interesting study indicates that of the 21 per cent point cut in average weighted tariffs of all developing nations between 1983 and 2003, unilateral reforms accounted for almost two-thirds.15 Tariff reductions associated with Uruguay Round accounted for 25 per cent and the proliferation of regional agreements for 10 per cent (see Table 13.2). A World Bank estimate reveals that since the 1980s, about twothirds of trade liberalisation of developing nations has come about unilaterally. India and China are among the countries that have pursued unilateral liberalisation policies in a sustained manner, and the benefits in terms of improved trade flows are evident in both the economies. In another study by the World Bank on South Asia,16 it was concluded that India’s gains in the unilateral liberalisation process are much larger than in the multilateral liberalisation process.

18.6 12.4 10.4 19.9 4.2 29.1 6.9 3.1 8.4 29.1 16.5 6.3

5.8 10.1 15.4 3.7

2002 2004 2003 2004

All

2004 2004 2004 2002 2005 2004 2002 2004 2003 2002 2004 2004

Year

9.1 22.5 29.6 –

20.6 10.3 16.2 22.5 5.9 37.4 8.2 7.3 3.3 50.4 18.7 9.5

Agr

5.3 8.3 13.3 3.3

18.3 12.7 9.5 19.5 4 27.9 6.7 2.5 9.1 25.8 16.2 5.8

Nonagr

50.7 11.6 3.4 37.3

6.6 2.9 4.8 0.3 24.3 1 19.3 50.4 51.3 0 0.7 2.1

All

40.4 4.1 2.9 26.2

10.3 2.6 2.6 0 25.9 2.5 10.4 29.2 66.2 0 4.9 0.1

Agr

52.3 12.8 3.5 39

6 3 5.1 0.3 24 0.7 20.6 53.7 49 0 0 2.4

Nonagr

Duty-free HS subheadings

14.4 0.7 1.6 10.7

0 0 0.5 6.1 5.9 0 0.2 6.2 0.9 0.4 0 0

All

13.3 5.2 7.5 49.9

0 0 0.4 0.9 39.9 0.3 0.7 22.7 4.9 0 0.3 0

Agr

14.6 0 0.7 4.8

0 0 0.5 6.9 0.7 0 0.1 3.7 0.3 0.5 0 0

Nonagr

Non ad valorem duties

55 250 80 350

30 55 65 600 75 182 170 50 300 150 200 65

All

55 250 65 350

30 55 65 600 75 182 170 50 114 150 200 65

Agr

43 28 80 48

30 35 50 135 26 160 170 30 300 100 200 30

Nonagr

Maximum ad valorem duty

Source: Compiled from WTO sources: http://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm

Bangladesh Brazil China Egypt EC India Indonesia Japan Malaysia Nigeria Pakistan The Philippines South Africa Sri Lanka Thailand United States

Import markets

Simple average

Table13.2 Tariff Profiles (MFN Applied Tariffs)

11.2 0.2 2.5 6.7

0 0 1.5 0.5 3.1 1.4 0.9 8.3 7.1 5.2 0.9 3.1

All

5.8 1.2 0 1.9

0 0.4 3 2.5 4.1 1.3 2.9 9 9 0 2.3 9.1

Agr

10.4 10.4 0.8 8.4

0 0 1.5 0.2 7.1 0.4 0.6 9 7.6 1.2 0.6 1.5

Nonagr

National peaks (%)

358

S. NARAYAN AND INDU RAYADURGAM

Almost all of India’s imports (more than 95 per cent) were subject to at least one type of restriction in the pre-reform period. There were categories of importers, different types of import licences and alternative ways of importing. The work to transform the Indian economy from ‘socialist pattern economy’ to ‘market economy’ and integrating it with the global market happened gradually from 1991. Successive rounds of tariff reduction brought maximum tariff levels from over 300 per cent in 1990–91 to 5 per cent in 1995–96.17 The 1997–98 budget reduced the maximum tariff to 40 per cent and import weighted average tariff to 20.3 per cent. It also eliminated licensing requirements for about a third of consumer goods. In 1998, RBI brought flexibility in the repatriation of funds by Foreign Institutional Investors (FIIs) and even Indian companies were given permission to borrow in the international capital market with lesser restrictions. The focus of the government’s Export Import (EXIM) policy an-nounced on 31 March 2001 was on formulating a medium term export strategy to boost exports to gain a 1 per cent share in global trade. This also further removed quantitative restrictions on 715 items. India’s commitments to the WTO agreement reveal that the economy is still heavily protected, but more diversified, flexible and competitive than it was 12 or 13 years ago. In order to accelerate Foreign Investment, the Foreign Investment Promotion Board (FIPB) was set up for faster clearances of FDI proposals. India has also introduced its second generation of reforms which has led to further opening up of the economy to global competition. It is fast emerging as one of the most attractive destinations for FDI. But evidence suggests that the areas of fiscal consolidation (at the state levels), further opening up of trade and investment sectors (in a graduated and sequenced manner), improvement in infrastructure, and reforms of labour and bankruptcy laws need firmer actions.18 On the basis of its tariff rates, India still retains the world’s highest levels and is considered a comparatively closer economy with slow but progressive domestic reforms. At the WTO, India still continues to emphasise its need for special and differential treatment and remains non-committed towards

‘WTO PLUS’ ARRANGEMENTS

359

agreements which require significant changes in its domestic policies. Trade policy in India has also led to several regional trade initiatives. The factors that led to the establishment of regional trade agreements are two-fold. One could be attributed to the global trend of RTAs which made India join other countries and secure access to many emerging markets. This could be called more of a ‘defensive reason’.19 Second, the failure of the institutional arrangements at the multilateral stage (WTO) to gain momentum forced India (like many other developing nations) to pursue RTAs. There is also the advantage that ensues to the new regional partners, in that trade regulations in India have been historically restrictive, and relaxations tend to benefit the regional partners substantially. India’s attempt at regional liberalisation began with the Free Trade Agreement with Sri Lanka in 1998. The strategy was two-fold: to kick start a process of trade integration in South Asia and, at the same time, provide opportunities for the growth of Sri Lanka–India trade, and thus open up economic opportunities for Sri Lanka. In South Asia, India has been the pioneer of RTA activities within and outside the region. It has since signed South Asian Free Trade Area (SAFTA) with its SAARC counterparts and a framework agreement at BIMSTEC (Bangladesh, India, Myanmar, Sri Lanka and Thailand—Economic Cooperation), has a Comprehensive Economic Cooperation Agreement (CECA) with Singapore and is conducting FTA negotiations with the Association of Southeast Asian Nations (ASEAN). In such bilateral preferential relationships through RTAs, there would be clauses for progressive reduction of duties, tariffs and non-tariff barriers. Tariff liberalisation schedules may be asymmetric, allowing one country to gradually open up markets by negotiating for exclusions or a longer implementation period for their sensitive products.20 The India–Sri Lanka agreement provided for the gradual reduction of mutual tariffs, with a greater degree of acceleration from the Indian side. In the Singapore agreement, since there was little scope for reductions on the Singapore side, the duty concessions have been largely from the Indian side.

360

S. NARAYAN AND INDU RAYADURGAM

The estimation of trade impact of preferential trade integration in the South Asian region reveals that for larger countries like India and Pakistan, the source of gains are the agreements with their larger trading partners like the European Community and the US.21 But regional integration leads to greater gains in the value of trade for smaller economies like Bangladesh and Nepal. With ASEAN concluding FTAs with other major Asian powers, such as China, India would find that it would have a declining role and influence in the region, unless it secures duty free access to ASEAN markets. In South Asia, at the request of Bangladesh, Bhutan, India and Nepal, Asian Development Bank (ADB) launched the South Asia Sub-regional Economic Cooperation (SASEC) Programme in 2001. The SASEC Programme promotes economic cooperation in six priority sectors: transport; trade, investment and private sector cooperation; tourism; energy and power; environment; and information communication technology. There are also efforts to link western South Asia with Central Asia under the Subregional Economic Cooperation in South and Central Asia (SECSCA) programme started in 2003. The SECSCA Program provides transport and trade facilitation along the road corridors connecting the Central Asian republics to the Arabian Sea and the Pacific Gulf via Afghanistan. There are now efforts to link East Asia with South Asia through the East–West corridor project involving India, Thailand and Myanmar.22

INDO–LANKA FREE TRADE AGREEMENT (ILFTA) The India–Sri Lanka Free Trade agreement came into effect in March 2000. The two countries have proposed a Comprehensive Economic Partnership Agreement (CEPA) covering more than the 5,112 items for preferential treatment, an agreement on trade in services and measures to facilitate free flow of investments. The percentage of trade has been consistently rising as depicted in Table 13.3. This FTA has clearly increased the trade between the two countries. But only 27 per cent of total imports from India fall into the

‘WTO PLUS’ ARRANGEMENTS

361

Table 13.3 Trade between Sri Lanka and India Year

As a % of exports

As a % of imports

1997 1998 1999 2000 2001 2002 2003 2004

0.94 0.78 1.05 1.05 1.49 3.63 4.80 8.00

9.54 9.16 8.54 8.20 10.09 13.66 16.09 18.00

Source: Chamber of Commerce, Sri Lanka.

category which enjoys concessions under FTA. In a marked contrast 90 per cent of goods exported from Sri Lanka to India are under the category of concessions.23 Under the agreement, both countries are committed to the elimination of tariffs in a phased manner. India has already completed its commitment of reducing duties on the preferential items to 0 in March 2005, except for the 429 items appearing in the negative list. Sri Lanka would do the same by 2008. India’s free trade agreement with Sri Lanka saw its exports to the island nation jump from US$ 500 million in 2000–2001 to US$ 1.3 billion in 2003–04. Similarly, India has emerged as the third largest source of foreign capital for Sri Lanka against a negligible share a few years ago.24 A similar agreement with Thailand provides for a free trade area in goods by 2010 and negotiations are on to add more items to the list of 82 that have already been identified for tariff reduction in a phased manner. ‘The India–Thailand free trade agreement should lead to a 20 per cent jump in exports to India, which is a big market for us’, said Uraiwan Anukul, Director of Thailand’s Export Trade Centre. ‘So far, we have been focusing on countries like Japan and the US and the EU. Now we are encouraging Thai companies to look to new markets in China, India, Africa and the Middle East’, said Anukul.25

362

S. NARAYAN AND INDU RAYADURGAM

FRAMEWORK AGREEMENT ON COMPREHENSIVE ECONOMIC COOPERATION BETWEEN ASEAN AND INDIA This agreement was signed between India and ASEAN at the second ASEAN–India summit on 8 October 2003 in Bali, Indonesia. The ASEAN–India Trade Negotiating Committee (TNC) was constituted and 11 meetings have been held so far.26 The ASEAN– India TNC is undertaking negotiations to establish an ASEAN– India Regional Trade and Investment Area (RTIA) which includes a Free Trade Area in goods, services and investment. Initially, the negotiations between India and ASEAN with respect to RoO have encountered differences. India’s position on RoO is based on two criteria—value addition of 40 per cent and Change in Tariff Heading (CTH).27 ASEAN prefers only value addition and not the latter. Earlier, India had wanted 40 per cent value addition (as in the case of the FTA with Thailand) but for the ASEAN–India FTA (AI–FTA), India has agreed to a 35 per cent norm. Additionally, India had wanted change of tariff at four-digit level, but has now relented to six-digit level.28 Due to a difference of opinion on RoO, the Early Harvest Programme (EHP), agreed under the Framework Agreement, on goods could not be implemented so far. The new time frame for FTA in Goods has been agreed. The AI–FTA was to commence from January 2007 and the negotiations were to be concluded by 30 June 2006. Agreement has been reached on the RoO. The TNC is now negotiating the negative or sensitive list, the modality for tariff reduction and elimination, the dispute settlement mechanism, etc. Negotiations in trade in services and investment are expected to begin shortly. Under the agreement, India would eliminate tariffs in 2011 for all ASEAN countries except the Philippines, as would these countries for Indian products. India and the Philippines would eliminate tariffs for each other on a reciprocal basis by 2016.29 Singapore and Thailand have in their agreements with India agreed to both the criteria. These countries account for 35 per cent of imports and 45 per cent of exports from/to ASEAN. Also another strong argument for

‘WTO PLUS’ ARRANGEMENTS

363

ASEAN to accept both the criteria is the fact that CTH is common in many international negotiations like NAFTA, Mercado Común del Sur (Mercosur), Caribbean Community (CARICOM), Singapore– Japan and Europe’s agreement with several African countries.30 At present, ASEAN–India trade is worth about US$13 billion and the hope is to raise it to US$30 billion by 2007. This is definitely bound to improve after the completion of the agreement. After FTAs with Thailand and Singapore, India has certainly gained confidence in entering into bilateral or regional trade agreements.

SINGAPORE–INDIA LINKAGES—CECA Singapore–India CECA is a very good example of an attempt at convergence of diverse interests. At the time of signing CECA, Singapore’s trade policy projected an open outlook and was all tuned towards projecting the city-state as an international trading centre. It has a flexible trading system, and is simultaneously upholding its commitments under public health, environmental and security factors. But, on the other hand, India has always been a reluctant partner at the multilateral level and has often been viewed as a conservative nation preferring unilateral reform process. Singapore was one of India’s major trading partners in the 1980s, but highly restrictive policies with respect to trade and investment in India could be an important reason for reduction of trade links between the two countries. India’s trade with Singapore as a percentage of world trade decreased from 2.59 per cent in 1980 to 2.39 per cent in 1990.31 The negotiations that lasted between 2002 and 2004 were, therefore, fraught with several obstacles, the most important in RoO, investments, banking and services. India’s negotiations with the RoO have always been very rigid. In the case of the three criteria of RoO,32 Singapore rejected India’s request for implementation of all the three criteria. Singapore made a strong case for product specific relaxation of the RoO criteria for sectors like chemicals, petrochemicals, food processing, electronics and automobiles. The CECA was finally signed in 2005, and the

364

S. NARAYAN AND INDU RAYADURGAM

success has been due to the collaborative pressure of politics and economics from the Indian point of view. India’s ‘Look East’ policy and Singapore’s support for India’s participation in ASEAN and regional groupings have created a positive outlook for this agreement. The trade and investment benefits of the agreement are already apparent. India’s total trade with Singapore during February 2005 was US$ 1,018 million, an increase of 31.94 per cent over February 2004. India’s February 2005 trade constituted 2.37 per cent of Singapore’s global trade. The top five sectors in India attracting FDI from Singapore are telecommunications, services, electrical and electronic equipments, fuel and transportation industries.33 The mid-term review of CECA by both the countries revealed that trade between India and Singapore has doubled over the past two years. India’s exports more than doubled during the same time. Singapore emerged as the third largest investor in India in 2005 and the seventh largest cumulative investor. To carry the process of trade integration forward, several initiatives are under way. A task force has been set up to facilitate cooperation in information technology. Interactions for cooperation in e-governance initiatives and for mutual recognition of accredited school level courses is under way. Singapore Telecommunications Ltd. (SingTel) and Bharti Enterprises of India have a US$ 650 million joint venture to build the world’s largest cable network in terms of capacity. The 50–50 venture would build and operate an undersea fibre-optic network with a total bandwidth of 8.4 Terabits per second, capable of carrying more than 100 million conversations simultaneously, the companies said in a statement. Star Hub of Singapore has a similar joint venture with Reliance India. Tata Consultancy Services (TCS), Asia’s largest software and IT Services company announced that it has signed a Memorandum of Understanding (MoU) with NEC Singapore to explore collaboration in four key areas—security products and solutions, sale of NEC supercomputers, e-government solutions and web integration, and software development. Both companies also hope to explore joint marketing and technology development within this region, including India. Many Indian companies, mainly

‘WTO PLUS’ ARRANGEMENTS

365

trading and software companies, have now set up joint ventures and subsidiaries in Singapore to promote their business activities in the region.34

STRATEGY FOR RTAs A major challenge for India is building a sustainable economic policy framework. It is a challenge of opening the economy to competition and also encouraging domestic actors. The baggage of four decades of controls and an import substitution based economy has not been easy to shed. Even though India has been fairly successful in pursuing the path of unilateral liberalisation, negotiations at multilateral as well as regional forums have not been easy. Quite apart from the concerns of the overly protected local industry, there has been some difficulty in the negotiating teams benchmarking positions. As MFN tariffs are still relatively high, the concessions initially offered at regional and bilateral forums have not been very attractive. There is also considerable stickiness over issues of rules of origin and comprehensive coverage in terms of measures, sectors and products. The further movements of the Singapore CECA as well as the Thailand agreement are stuck on these two issues. Recently, there were sharp comments from Malaysia about the reluctance of India to broad-base the list of goods in the proposed RTA. One argument for India’s entry into the FTA club could be that the level of economic integration in such regional trade agreements is minimal unlike customs unions and economic unions wherein members are induced to deeper economic integration. In an economic union, trade barriers and, laws are made common and mandatory free movement of labour and capital has to be followed, while a single economic policy framework is maintained. But in an FTA, member nations would reduce barriers to trade between them, and simultaneously follow high barrier trade at the international level. So an FTA with Sri Lanka or Singapore makes India flexible for such nations, whereas at the multilateral level, the ‘defensive posture’ would still be in place.

366

S. NARAYAN AND INDU RAYADURGAM

RTAs afford India the flexibility in choosing its partners. It is at this stage that the importance of security relationships in comparison to economic relationships is brought to the fore. Countries that feel threatened by each other could wish for relative economic gains. In order to enhance its security, India consistently opposes powerful blocs at the WTO rounds because norms such as reciprocity and non-discrimination may be difficult to accomplish with a powerful player like USA or EU. The nature of security relationships definitely affects trade. For example, trade with Pakistan has always been minimal and the bilateral bickering has led to stalling of a successful trade consortium in South Asia. At the same time, smaller nations in South Asia such as Nepal and Bhutan have always cooperated with India and benefited from agreements with South Asia’s powerhouse. Within South Asia, trade agreements with the smaller nations offers economic advantage to these nations, as well as a sense of security in the region that is to the advantage of India. The agreements with Sri Lanka and until recently, with Nepal fall within this category. In its approach towards ASEAN and the rest of Asia, the stra-tegic initiatives taken by India have been driven by strong eco-nomic as well as political considerations. There has been a flurry of agreements on trade. AI–FTA, India–Singapore CECA, the agreement with Thailand, sub-regional initiatives such as BIMSTEC and the joint feasibility study with China, Japan, Korea and Malaysia are in progress. There is a strong recognition that future trade linkages with Asia are vital for growth of trade and investment. There is also a need to balance the interests and influence of China in this region. Data shows that welfare gains for India being a part of JACIK (Japan-ASEAN-China-India-Korea) or Economic Integration in East Asia is quite high. According to estimated welfare gains under Scenario III of ‘Trade, investment and mobility of skilled workers’, India’s gains are almost US$ 10,000 million as compared to US$ 6,971 million only under a trade liberalisation scenario.35 It is possible to look at the development of trade policy in India through the triangular prism of unilateralism, multilateralism and

Connectedness dimension

FDI

R&D linkages, Highly skilled people

Trade: CEPs and other trade agreements and export promotion

Factor of production or output demand

Capital

Knowledge, ideas and technology

Trade in goods and services

(Table 13.4 continued)

Korea, ASEAN states (particularly Thailand and Malaysia) and Mexico

Taiwan, Korea and China

Australia, USA, Japan, UK and Germany

Horizon countries Taiwan, Singapore, Hong Kong, South Korea and China

Focus countries Australia, USA, Japan and UK

Australia, USA, Japan Future growth prospects and China Distance and market size Receptiveness to CEP negotiations and trade liberalisation Comparative advantage Trade creation Trade diversion risks

Global R&D leaders Existing linkages Proximity Future R&D expenditure Shared technological specialisations Co-investment potential Receptiveness to R&D collaboration

Source of technology Size of capital markets Existing trade and FDI links Proximity

Criteria—summary

Table 13.4 Focus and Horizon Countries Identified using the Country Selection Criteria by the New Zealand Government36

Labour

Factor of production or output demand

People linkages: Language, skills, means of complementing access in the face-to-face other dimensions contact, migration flows, work and student visas

Current and projected demand

Education exports

Criteria—summary

Market size, distance & familiarity

Connectedness dimension

In-bound tourism

(Table 13.4 continued)

UK and PacificRim (major APEC economies)

East and North Asia (China, Korea, Japan, ASEAN states)

Australia, USA, Japan, Korea, China and UK

Focus countries

India and Pakistan

India and Pakistan

ASEAN countries

Horizon countries

‘WTO PLUS’ ARRANGEMENTS

369

regionalism. Each of the approaches has its strategic as well as political advantages. Of these, the regional associations are important not only in terms of the additional trade and investment opportunities that they have brought and would continue to bring in, but also to enlarge the gains of the Look East policy. In the present scenario of uncertainty over the future of the Doha Round, the regional agreements become all the more important. But carrying the initiatives forward requires more openness in negotiations, as has been pointed out earlier, a greater focus on strengths and weaknesses, and a need to recognise the gains and losses of each agreement. In short, a more professional approach and a quicker resolution of concerns. An example of a focused approach is in Table 13.4 that illustrates the strategy of New Zealand towards RTAs. It is important to understand whether India has prepared and is adopting such strategies.

NOTES 1. Salvatore (2004). 2. Source: See World Trade Organization’s definition of Regionalism, http://www. wto.org/english/thewto_e/whatis_e/tif_e/bey1_e.htm , accessed in August 2006 and latest on 30 August 2008. 3. Van der Mensbrugghe et al. (2006). 4. Ibid., p. 312. 5. ‘Regional Trading Arrangements (RTAs) in the World and Asia: Options for India’, RIS policy brief No.17 , August 2005 , p. 1. 6. Newfarmer (2006). 7. Ibid., Rajan and Sen (2004). 8. Research Department (2005). 9. ‘Being Open with Free Trade’, 2 August 2006. 10. Best practices in designing these agreements have been reviewed by the World Bank. 11. Ibid., Salvatore (2004). 12. Business Standard, 26 July 2006. 13. The Economist , 8 July 2006, p. 14. 14. Razeen (2005). 15. Ibid., Newfarmer (2006). 16. Miria et al. (1997). 17. Nepal paper on economic integration in South Asia.

370

S. NARAYAN AND INDU RAYADURGAM

18. Ibid., Rajan and Sen (2004). 19. ‘FTAs are like street gangs, you may not like them, but if they are in your neighbourhood, it is safer to be in one’, quoted in Rajan and Sen (2004). 20. Crawford and Fiorentino (2005). 21. Mehta and Narayanan (2005). 22. Rana (2006). 23. Sri Lankan Chamber of Commerce. 24. Businessline (2006). 25. Ibid. 26. www.indiabusiness.nic.in/trade-india/fta, accessed on 30 July 2006. 27. ‘After Singapore pact, focus turns to ASEAN FTA’, Businessline, Chennai, 5 July 2005, p. 1. The concept of CTH arises out of the international Harmonised System of Nomenclature or, common customs codes. CTH simply means that during the process of manufacture, the raw material becomes an entirely different product, with the raw material and the finished product falling under different headings in the book of customs codes. 28. This relates to the extent to which a product has to undergo a change, such as steel into an auto component. The higher the digit, more the transformation. 29. Ibid. 30. Ibid. 31. Asher and Rajan (1995). 32. Fixed level of minimum value addition in the relevant nation, change in tariff heading (CTH) at the 4–6 digit level as per the WTO’s harmonised system code and specifications of the kind of value addition. 33. http://www.bridgesingapore.com/office_updates/April%202005.pdf 34. Adopted from Joseph and Parayil (2004). 35. Kumar et al. (2006). 36. Rose and Stevens (2004).

REFERENCES AND SELECT BIBLIOGRAPHY Asher, Mukul and Ramkishen S. Rajan. 1995. ‘Singapore–India Economic Relations: Exploring Strategies for Mutual Benefit’, in M.C. Yong and V.V.B. Rao (eds), Singapore–India Relations: A Primer, pp. 116–195. Singapore: Singapore University Press. Businessline. 2006. ‘New Mantras of Regional Economic Co-operation’, 16 May Chennai. Business Standard. 2006. ‘Some Development Round!’, 26 July. New Delhi. Crawford, Jo–Ann and Roberto V. Fiorentino. 2005. ‘The Changing Landscape of Regional Trade Agreements’, Discussion Paper No. 8. Geneva: World Trade Organization. Hindu on the Net. 2006. Being Open with Free Trade. Available online at: http://www. hinduonnet.com/2006/08/02/stories/2006080204851000.htm. Last accessed on 29 August 2007.

‘WTO PLUS’ ARRANGEMENTS

371

Joseph, K.J. and Govindan Parayil. 2004. India–ASEAN Cooperation in Information and Communication Technologies: Issues and Prospects. Available at: http://www. ris.org.in/dp70_pap.pdf, RIS-DP # 70/2004 Kumar, N. Rahul Sen and Mukul G. Asher. 2006. ‘India–ASEAN Economic Relations: Meeting the Challenges of Globalization’, ISEAS and RIS, Singapore. Mehta, Rajesh and S. Narayanan. 2005. India’s Regional Trading Agreements. UNDP. Miria, Pigato, Caroline Farah, Ken Jun, Would Martin, Kim Murrell and T.G. Srinivasan. 1997. South Asia’s Integration into the World Economy. Washington DC: The World Bank. Newfarmer, Richard. 2006. ‘Regional Trade Agreements: Designs for Development’, in Richard Newfarmer (ed.), Trade, Doha and Development: A Window into the Issues, pp. 243–254. Washington, DC: The World Bank. Rajan, Ramkishen S. and Rahul Sen. 2004. ‘The New Wave of FTAs in Asia: With Particular Reference to ASEAN, China and India’, in Asian Economic Cooperation and Integration: Progress, Prospects and Challenges, pp. 123–60. Manila: Asian Development Bank. Rana, Pradumna B. 2006. Economic Integration in East Asia: Trends, Prospects, and a Possible Roadmap. Working Paper Series on Regional Economic Integration. No. 2, July. Razeen, Sally. 2005. Trade, Development, International Institutions: 2005 and Beyond. Available at: www.lse.ac.uk/collections/internationalTradePolicyUnit/Razeen_ articles/tswalutradedevelopment.doc Research Department. 2005. Economic Integration in South Asia. Nepal: International Finance Division, Nepal Rastra Bank. Rose, Jim and Wayne Stevens. 2004. ‘Global Connectedness and Bilateral Economic Linkages—Which Countries?’ New Zealand Treasury Working Paper, 04/09. Salvatore, Dominic. 2004. International Economics, Eighth Edition. New Jersey: John Wiley Publications. Sri Lankan Chamber of Commerce. 1996. URL: http://www.chamber.lk/inpages/ informationbank/ilfta.pdf The Economist. 2006. ‘Slouching towards Disaster’, 8 July, p. 14. van der Mensbrugghe, Dominique. Richard Newfarmer and Martha Denisse Pierola. 2006. ‘Regionalism vs. Multilateralism’ in Richard Newfarmer (ed.), Trade, Doha and Development: A Window into the Issues, pp. 309–318. Washington DC: The World Bank. www.indiabusiness.nic.in/trade-india/fta

Chapter 14 Shifting Streams India, the Environment and the WTO PRADEEP S. MEHTA

Change is not made without inconvenience, even from worse to better. Samuel Johnson, Dictionary of the English Language

INTRODUCTION

I

ndia was viewed as one of the more proactive developing countries in attaining environmental conservation, both domestically and internationally, before and during the initial stages of trade liberalisation. During the 1980s and early 1990s, numerous national environmental policies came into force, which gave backing to India’s positive approach on the international stage.1 Thus the country played a fundamental role in both promoting and implementing the Multilateral Environmental Agreements (MEAs) during this time. For instance, India was one of the most constructive parties of the Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES) and after having ratified the MEA in 1976, it hosted the third Conference of the Parties (CoP) in 1981.2

SHIFTING STREAMS

373

Yet during the mid-1990s, environmental progress diminished and a passive and conservative stance took effect. It could be said that there was a fundamental shift in the mindset of how to achieve economic growth and at the same time poverty reduction. Before liberalisation, India’s major concern was to achieve development within its domestic boundaries, which subsequently meant relying upon its own labour and natural resources at a sustainable rate. However, in the subsequent years after liberalisation, the strategy differed in the sense that more emphasis was placed on trade and Foreign Direct Investment (FDI) in the achievement of economic growth and its knock-on effect on poverty reduction. Now domestic industry was open to international competition; both labour and natural resources were exploited to gain comparative advantage and compete effectively with competitors in both domestic and export markets. It did not take long before the benefits of trade liberalisation were realised with record economic growth rates in the following years. However, as an offshoot, regard for environmental objectives was seen to hinder the exportled strategy as greater costs were to be incurred in manufacturing, which would mean manufacturers losing their competitiveness. The final domestic/export price would be raised by including the full environmental cost and thus result in Indian products being uncompetitive. With the importance of high economic growth via trade, the environmental dimension has been seen to be neglected during these times. India contributes to only a fragment of world trade, that is, less than 1 per cent as of now, and it is well known that its impact on the transboundary environment has been much less than that of developed countries till date. However, there must be a consideration for the way India industrialises and progresses, since if its per capita emissions reach half of the American level, then the global environment will be seriously destabilised.3 This chapter aims to show the interface between India and the World Trade Organization (WTO) vis-à-vis the environment. The first section explores the history of the WTO and India in terms of environmental negotiations. The following section provides understanding to the current Doha Development Agenda, which

374

PRADEEP S. MEHTA

has presented certain key issues where trade and the environment overlap for India and other WTO Members to determine. Each of these issues is further analysed specifically in the context of India.

WTO NEGOTIATIONS AND INDIA While India was still in the early stages of trade liberalisation, it was compelled to adjust to the arrival of the WTO via the Uruguay Round of trade negotiations (1986–94) as well as the amended multilateral framework of the General Agreement on Tariffs and Trade (GATT). At that time, India was one of the participants in these talks and took a stand against mainstreaming environment in the new multilateral trading system. Given its growth strategy via exports and trade promotion for development, India was apprehensive that developed countries would restrict market access for Indian exports, which would be disguised in the form of environmental measures. Yet by then, there was great pressure for trade-related environment issues to be sheltered under the WTO. There were many factors that spurred this demand: one outstanding justification was the Tuna Dolphin4 dispute in 1991. This dispute was the tip of the iceberg for environmentalists who felt that trade rules hindered environmental protection. The latter lobbied their governments, members of the European Free Trade Association (EFTA—at the time Austria, Finland, Iceland, Liechstentein, Norway, Sweden and Switzerland), that ultimately called on the GATT Director-General to convene the GATT Environmental Measures and International Trade (EMIT) group in 1991; until then no party to the GATT had asked for a meeting of this EMIT Group which had actually remained inactive since its establishment in 1971. Simultaneously, the United Nations (UN) Conference on Environment and Development was held in 1992, which strengthened the bond between trade, environment and poverty reduction, and adopted the Agenda 21, which stated: An open, equitable, secure, non-discriminatory and predictable multilateral trading system that is consistent with the goals of

SHIFTING STREAMS

375

sustainable development and leads to the optimal distribution of global production in accordance with comparative advantage is of benefit to all trading partners. Moreover, improved market access for developing countries’ exports in conjunction with sound macroeconomic and environmental policies would have a positive environmental impact and therefore make an important contribution towards sustainable development.5 In geopolitical language, it is the QUAD, which would often take decisions in the course of WTO trade negotiations, which would then be turned into agreed policy. At that time, QUAD comprised of the US, EU, Canada and Japan. Albeit this geopolitical strength lying in the hands of the developed countries, India’s efforts against mainstreaming environment in the new multilateral trading system remained futile. It was decided that the WTO Committee for Trade and Environment (CTE) would take over the baton from the EMIT Group subsequent to the Ministerial Decision in Marrakesh in April 1994. It was further set out that the CTE was open to all WTO members and selected observers from inter-governmental organisations. Certainly, it came to pass that trade-related environmental issues were to adhere to the WTO framework, the work programme of the CTE was to encompass MEAs and WTO rules, dispute settlement and MEAs, environmental policies related to market access, taxes, technical regulations and labelling, transparency, domestically prohibited goods, intellectual property and services. Between 1996 and 1998, the apprehensions of India for keeping environment under the umbrella of the WTO became evident with the outcome of the infamous Shrimp Turtle case. The US prevented shrimps exported from certain developing countries, including India, from being sold in the US market in 19966 on the ground that such shrimp was not being caught in an environmentally friendly manner, pertaining to the standards of the US. India along with other complaining parties7 viewed the measure as a disguised trade restriction that discriminated against the goods on the basis of its production and processing methods (PPMs), thus violating provisions of the GATT 1994. Conversely,

376

PRADEEP S. MEHTA

the US argued that the prohibition was to conserve natural resources under Article XX(g) of GATT, which related to the conservation of exhaustible natural resources. After the failure of initial consultations at the WTO dispute settlement body (DSB), a WTO Panel was composed in 1997 that circulated its report in early 1998.8 The Panel ruled in favour of the complaining parties that the US measure was inconsistent with Article XI:I of the GATT 1994. However, the US appealed this decision and the WTO Appellate Body reversed the Panel’s findings, ruling that the US restriction was within the scope of measures permitted under Article XX and justified under Article XX(g), though the Member had failed to meet the requirements of the chapeau9 (the introductory paragraph) of Article XX, which defines when the general exceptions can be cited.10 That is, the action by the US was discriminatory because while it provided countries in the western hemisphere, mainly in the Caribbean, technical and financial assistance and longer transition periods for their fishermen to start using turtle-excluder devices, it did not give the same advantage to the four Asian countries (India, Malaysia, Pakistan and Thailand) that filed the complaint with the WTO. This ruling heightened the fears of India as well as other developing countries; the Appellate Body’s decision gave rise to greater possibility for similar protective measures against the country’s exports in the way they are produced when not conforming to the environmental or quality standards of developed countries. Environment was firmly set in concrete within the WTO when the Doha Development Agenda was set out in November 2001. The mandate set out critical areas to enhance the mutual supportiveness of trade and the environment. Negotiations were to take place through a new Committee on Trade and Environment Special Session (CTESS). In particular, members were asked to discuss under Paragraph 31: (a) the relationship between existing WTO rules and specific trade obligations set out in Multilateral Environmental Agreements (MEAs);

SHIFTING STREAMS

377

(b) procedures for regular information exchange between MEA secretariats and the relevant WTO committees, and the criteria for the granting of observer status; and (c) the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services. Furthermore, the Committee for Trade and Environment (CTE) was instructed to continue to pursue activities in its work programme under Paragraph 32, giving particular attention to: (a) the effect of environmental measures on market access, especially in relation to developing countries, in particular the least-developed among them, and those situations in which the elimination or reduction of trade restrictions and distortions would benefit trade, the environment and development; (b) the relevant provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs); and (c) labelling requirements for environmental purposes. India has grown in terms of negotiating strength since the beginning of the Doha Round, which is much more than the clout it had at the beginning of the GATT and WTO. India was one of the founding members of the G-20 (comprising of around 20 developing countries, now known as the G20+) at the fifth Ministerial conference in Cancun; the group primarily rejected the nonsubstantial offers of the developed countries, which caused the collapse of the Ministerial. In fact, the arrival of the G-20 at Cancun was a turning point in WTO’s history, when the poorer members of the WTO could call the shots. This is the reason why many scholars like me argue that Cancun was not a failure, even if it collapsed. At the most recent Ministerial in Hong Kong, India has, indeed, taken a seat at the table of the new QUAD inside what is known as the green room, together with Brazil, another new representative of the developing countries, along with the long standing US and EU. The new QUAD replaces the old one comprising of

378

PRADEEP S. MEHTA

Canada and Japan as the other two rich country members, who used to call the shots in the WTO. Though trade and environment were not on the active agenda, India flexed her newly-found muscles at Hong Kong by putting up a statement under ‘Other Issues’ on the issue of TRIPS and Convention on Biological Diversity (CBD) pointing out the imbalance between the TRIPS and CBD as part of the unfinished agenda of development inherited from the Uruguay Round. The press release11 issued on the occasion also covered environmental goods and services, asserting her stand calling for the ‘environment project approach’ rather than the list approach that was being advocated by the rich countries. India argued that the list approach can be a backdoor method for importing industrial goods on lesser tariffs. These factors, along with its domestic situation, have caused a clear transformation in India’s stance in CTESS and CTE discussions; one can observe that India is ever shifting streams in the trade-related environment debate.

TRADE AND MEAs The premier issue of the Trade and Environment Doha Mandate is the harmonisation of WTO law with respect to MEA trade measures Paragraph 31(i). This outcome should have a knock-on effect as to whether MEAs can be properly incorporated in the governance of trade with regard to instances where trade and the environment overlap. It must be made clear that MEAs have never been covered in WTO trade disputes, even where disputes concerned environmental subjects such as the infamous Tuna Dolphin, Asbestos and Shrimp Turtle cases. India, with the support of Canada, New Zealand as well as other developing countries, placed emphasis on the adaptation of Specific Trade Obligations (STOs), that is, trade measures, within MEAs to accommodate them in WTO rules. On the other hand, the European Communities (EC) and Switzerland both support an approach that determines WTO laws to be changed to take into account STOs within MEAs.

SHIFTING STREAMS

379

After much deliberation, members agreed upon STOs within six MEAs to be considered for combining with WTO law, all of which India has ratified. Consensus among members was achieved to include only trade measures explicitly provided for and mandatory under the same MEAs. This is a very delicate matter for India, as it is known that developed countries’ environmental Non-Governmental Organisations (NGOs) who are stronger than those in developing countries may be able to lobby their interests at the WTO against India’s poor environmental practices. Trade sanctions could be placed for environmental reasons but that could harm trade in India, affecting economic development, and also be harmful to livelihood concerns. The way in which India fulfils its obligations/commitments as a party to each of the six MEAs will be a major factor within its strategy in this area of negotiations. The following sections highlight the key trade-related environmental issues surrounding India in its effort for achieving these MEA objectives.

Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES) CITES’s aim is to regulate international trade in wildlife for conservation purposes. By ratifying the agreement, India is obliged to abide by this goal, albeit India is found lacking in sound management of its wildlife trade where a lack of coherence between the Ministry of Environment and Forests (MoEF) and the Ministry of Commerce and Industry (MoCI) surfaces. There are a limited number of staff working in the regional and sub-regional offices of the MoEF. In all, there are only 15 staff attending to the implementation of CITES. This lack of surveillance by government agencies has given rise to the large number of illegal cases of wildlife trade that take place through porous international borders; there is inadequate control by the state governments of illegal trade.12 Limited staff has also led to the lack of progressive international action at CITES CoP. CITES management of India has no dedicated

380

PRADEEP S. MEHTA

CITES Cell to follow up the submissions made by the country in the CoPs and to properly attend to communications from the CITES Secretariat. Further, there is concern that India has been defaulting in terms of the 10 years review of many species in the appendices of CITES, especially since only 1.3 per cent of the total listed species available in India are listed under the CITES appendices.

Montreal protocol It should be noted that India is the second largest producer of chlorofluorocarbons (CFCs), second only to China, and it has ratified the amendments made to the Vienna Convention in Copenhagen, Montreal and Beijing in 2005. Many Indian exporters have transferred to CFC-free manufacture with the incentive of greater sales in growing export markets. However, this requires investment in technology and currently the companies of the few developed countries, that hold this environmental technology, share it with India. This is important to resolve the trade and environment conflict. It is virtually impossible for India to competitively manufacture products in an environmentally friendly manner without foreign assistance. The government established a task force to evaluate the costs involved in phasing out controlled substances under the Montreal Protocol. The amount was estimated to be US$ 1,400 million for an early phase-out, and a further US$ 2,450 million for a phasingout by 2010.13 Given its task to fulfil the immediate objectives of the newly ratified convention, India must persuade developed country governments to provide more funding through the Multilateral Fund of the Montreal Protocol for Ozone-Depleting Substances (ODS) in order to phase out by 2010.

Basel, Stockholm and Rotterdam conventions In addition to the Basel Convention, India has ratified both the Stockholm and Rotterdam Conventions in 2002 and 2005, respectively;

SHIFTING STREAMS

381

the former’s objective is to promote responsibility and a shared effort by its parties in international trade of hazardous chemicals, while the latter has similar objectives in the international trade of persistent organic pollutants. However, the controversy over the French warship le Clemenceau, imported for dismantling in Alang, India, having left the French port of Toulon on 31 December 2005, towed by a Russian tugboat, and the more worrisome fact that France sold 109 tonnes of products containing asbestos to India in 2004–05, even though such products have been banned in France and all industrialised countries, are two instances that bring to light the key issues plaguing Indian domestic policy, including its implementation for protecting human health and the environment from hazardous wastes and chemicals. In the Indian Hazardous Waste Rules (1989), the list of products banned for trans-boundary movement comprises only 29 out of the 76 items banned by the Basel Convention. And there is still movement of the banned products, which have been imported by India such as mercury, arsenic, asbestos and waste pesticides/herbicides, according to the Directorate General of Foreign Trade data. Table 14.1 Import of Hazardous Substances in India, 2004–05 Commodity Mercury Arsenic and ash and residues containing arsenic Waste pesticides and herbicides (banned under the Stockholm Convention) Asbestos

Volume (in kg) or value (in Rs) 1,123,900 kg Rs 107 crore Rs 84 crore Rs 33 crore

Source: Directorate General of Foreign Trade (DGFT), New Delhi.

The reason why the domestic law has imposed so few bans on the trade of hazardous waste, as compared to the international conventions, is because this industry is labour intensive. For instance, India has opposed the ban on the importation of scrap, which is a

382

PRADEEP S. MEHTA

major component of India’s metallurgical industry and more than half a million livelihoods are dependent upon this industry.14 However, the Basel Ban prohibits all movement of hazardous waste from industrialised countries to developing countries. The Basel Ban can be enforced only if 62 countries ratify it, however, it stands at 61 at present. India has not ratified it even though the country was one of the original promoters.

Biosafety protocol The Cartagena Protocol on Biosafety (BSP) to the Convention on Biological Diversity came into force on 11 September 2003. India ratified the BSP on 17 January 2003. The BSP, fundamentally, pertains to the trade of Living Modified Organisms (LMOs)—a more specific version of Genetically Modified Organisms (GMOs)— and although it would be said to be an MEA, it could also be a multilateral trade agreement. The BSP does have its limitations, which has led to none of the major producers and/or exporters of the LMOs ratifying the protocol, that is, US,15 Canada, Argentina and China. The negotiators of the protocol opted for a trade focus as a means to respond to the problem of environmental safety of LMOs;16 the reason behind BSP negotiators’ choice of focus owes itself to the rapid international commercialisation of biotechnology. This, however, positions the BSP in both environmental and trade fields and has led to problems for its implementation where there is divergence between free traders and environmentalists. And, unlike the CITES protecting endangered species and the Basel Convention reducing hazardous wastes, there is less agreement as to the environmental repercussions of biotechnology which further heightens tension and delays the agenda for BSP implementation. The discussion in CTESS surrounds Article 1 of the BSP, which targets the ‘transboundary movement’ of LMOs to fulfil their objective of safe transfer, handling and use. Many of the rules presented in the protocol relate to conditions where parties can

SHIFTING STREAMS

383

restrict imports of LMOs. This raises the issue of conflict with WTO agreements, which aim to restrict trade protectionist activities. There is a likelihood of future disputes between India and especially non-parties to the BSP, such as the US, due to domestic socio-economic concerns. In such an event, the major exporters of GMOs can bring the case to the WTO dispute settlement body if trade restrictions on GMOs by India breached the WTO rules, even though India is a party to the BSP.

ENVIRONMENTAL GOODS AND SERVICES The environmental goods and services (EGS) global market was estimated at US$ 550 billion in 2003.17 Evidently, developed countries dominate at least 80 per cent of this market, having a comparative advantage in these EGS depicted sectors. The Indian EGS market was assessed at US$ 2.6 billion in 2000, and predicted to rise to US$ 4.7 billion by 2010.18 Although there is little potential for India to export to saturated developed markets, there is more potential for India to export to other developing countries’ growing markets. Overall, India would be a high net importer of EGS if it commits to liberalising its EGS markets, that is, import trade would outweigh export trade. It is also important to note that the government largely sources the domestic EGS industry, although there is a gradual advancement in outsourcing to private small and medium enterprises (SMEs), all of which are highly labour intensive. Interestingly, there are Indian EGS sub-sectors that have healthier potential, especially in the context of South–South trade, since the annual growth rate is predicted to be above 12 per cent.19 These sub-sectors include energy management, renewable energy (where Indian exports were US$ 44.4 million compared to imports of US$ 33 million in 200220) and cleaner technology. An efficient use of EGS can assist in the progress in terms of trade, poverty and the environment in India. The overwhelming urbanisation in India places considerable strain on both water resources and under-equipped sanitation systems. Greater access to enhanced EGS may further remedy such difficult problems.

384

PRADEEP S. MEHTA

Also, liberalisation of trade in Environmentally Preferable Products (EPPs), such as jute and bamboo, generate double gains for India. Not only will this increase export trade of such products, but it will also cause a slowdown of urbanisation as rural farming becomes advantageous. In terms of goods and services for water treatment, it is unequivocal that human development increases both in quality (via education) and productivity (via employment) when the most basic necessity—water—is satisfied. During the negotiations there is a proposition to include these EPPs in the classification of EGS, such as organic products, nontimber forest products and related natural products, as suggested by the UN Conference on Trade and Development (UNCTAD).21 This would imply an attractive enlargement of the EGS global market. India and other southern countries have comparative advantages in these sectors and are seen to be the principal exporters. The global EPP market is suggested to be around US$ 28 billion in 2000.22 However, this EPP market focuses mainly on South–South for trade at present; if further access is achieved in both developing and developed countries’ markets there will be significant potential for Indian EPP exports. India has already indicated its support for the expansion of the list of environmental goods. Environmentally friendly natural products of India’s export interest such as jute, coir, rattan, handloom products, handloom furnishing materials, textiles and clothing made using natural dyes, non-timber forest products and bamboo are among the few. The lists, proposed till date, do not embrace products of interest to developing countries though the provisions and mandate of Paragraph 16 of the Doha Declaration are applicable to environmental goods. Paragraph 16 explicitly mandates special attention to ‘products of export interest to developing countries’ and takes full account of the special needs and concerns of developing and least developed countries (LDCs). Prior to the WTO Ministerial in Hong Kong, two strategies were submitted by WTO members for the classification23 of EGS for trade liberalisation: a ‘list’ approach and the Environmental Project Approach (EPA) by India.

SHIFTING STREAMS

385

The US, EC, Switzerland, New Zealand and Canada have determined ‘list’ approaches to the classification of environmental goods based on the Organisation for Economic Co-operation and Development (OECD) and the Asia-Pacific Economic Cooperation (APEC) listings of EGS for amendment of the definition to their current classification.24 On the other hand, instead of following developed countries’ submissions regarding the ‘list’ approach in these negotiations, India proclaimed its EPA with a certain pride.25 It emphasised that the EPA is a rule-based system and that transparency, flexibility and predictability are intrinsic to the process. Transparency is ensured by the involvement of the WTO CTE in the determination of a set of criteria concerning the EGS, while flexibility is guaranteed by policy space allowed to the national governments through the operations of a Designated National Authority (DNA). Notwithstanding its arguments assuring predictability, for instance, that an exporter would have the assurance if the goods or services are part of a project that falls under the agreed criteria, his/her application would be given due regard, most developed countries remain unconvinced of this aspect. Under this approach, environmental goods and services used in environmental projects would qualify for specified concessions for the duration of the project. Such projects would be approved by the DNA and could include those endeavouring to meet national or international environmental targets, facilitating thereby the realisation of national environmental goals and compliance with bilateral and multilateral environmental agreements. However, the DNA would depend on the efficiency of the national authorities, which would naturally differ vastly from country to country. Matters might become mired in red tapism and politics when authority is transferred to a national level, not to mention that instituting these authorities would be time consuming. But then again, in this context, it might be remembered that the DNA envisaged under the EPA, can be likened to the DNA set up by developing countries under the Kyoto Protocol’s Clean Development Mechanism.

386

PRADEEP S. MEHTA

Table 14.2 compares the pros and cons of the two submitted approaches. Table 14.2 Pros and Cons of Environmental Project Approach and List Approach Environmental project approach

List approach

Positives 1. More directly aimed at environmental and development issues compared to the list approach, which shall be beneficial in these areas to developing countries. 2. Allows flexibility at the national level. 3. Employs more attention to the problem of dual end use of EGS than does the list approach. 4. Avoids re-negotiations on technological advancement. 5. Takes into account the inherent integration of EGS.

1. Its simplicity and definitiveness reduces confusion and unnecessary disputes. 2. Beneficial to market efficiency as it relaxes the need for government intervention in EGS markets. 3. ‘Living’ list addresses future environmental goods classification.

Negatives 1. Clarity and predictability is dependent on further development of the approach, especially the criteria to be developed by the CTE remain vague. 2. The focus of environment and development issues may only complement EGS provided by developed countries, as developing countries suffer with such issues only. Hence, this would undoubtedly provide more scope for developed countries’ exporters rather than developing countries’ exporters of EGS.

1. Detrimental effects could occur in developing countries regarding trade in the actual goods and services currently listed for liberalisation. 2. Little account has been taken of the fact that in most developing countries the EGS market is largely government controlled. 3. Currently the support for many EPPs serves a purpose to developing countries but members have not found a proper solution to the PPM issue that is associated with such goods. (Table 14.2 continued)

SHIFTING STREAMS

387

(Table 14.2 continued) Environmental project approach

List approach

3. The EPA should be questioned as to the possibility of excess government intervention (DNAs) in the EGS market, and whether this may slow down the efficiency of the companies in the industry.

4. There is no noteworthy answer to the problem of dual end use of EGS. 5. EGS are treated as mutually exclusive under the list approach, which ignores the fact that EGS are inherently integrated.

The strong proactive stand India has taken in these particular negotiations is a sign of India’s geopolitical power, wherein other developing countries are supporting the EPA and, at the same time, developed countries are reconsidering their own ‘list’ approach in line with the EPA. This augurs/inspires the possibility for the same proactive strategy to be carried out in other areas of trade-related environmental negotiations.

TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS AND THE CONVENTION ON BIOLOGICAL DIVERSITY India is said to be one of the 12 mega biodiversity areas in the world, with over 45,000 wild species of plants and 77,000 wild species of animals. Thus, there is a great need and responsibility for biodiversity conservation and, at the same time, consideration of these bio-resources for economic use in relation to economic development. On 18 February 1994, India ratified one of the key agreements adopted at Rio, namely, the Convention on Biological Diversity (CBD), eventually bringing it into force on 19 May 1994. At the same time, India is signatory to the WTO Agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPs). Hence, as a corollary, India is compelled to fulfil the objectives of these multilateral agreements but there are a few issues raised regarding the relationship between the Agreement on TRIPs and CBD.

388

PRADEEP S. MEHTA

TRIPs maintains that patents can be imposed for all innovations and processes in all fields of technology (provided that they are new, involve an inventive step and have industrial production capability), which in a sense supports private Intellectual Property Rights (IPRs). In the context of biodiversity, the TRIPs agreement under Article 27.3(b) provides that members may exclude animals and plants from patentability though micro-organisms for products and microbiological and non-biological processes for plant and animal production must be subject to patenting. Further, the provision grants members flexibility in the way they provide protection of plant varieties, by means of offering the options of either patents, an effective sui generis system or a combination of both. On the other hand, a country’s sovereign rights over its biodiversity are acknowledged by the CBD. Such interpretation permits parties to establish protection practices over their biodiversity regarding applications for patents, such as evidence of ‘Prior Informed Consent’ (PIC) perhaps through disclosure requirements such as ‘country of origin’. The TRIPs agreement lacks cognisance of such sovereign rights, hence currently disclosure of PIC and country of origin for patent applications are not considered. India26 has constantly expressed to the WTO Council for TRIPs the view that there is an inherent conflict between the two instruments, and the TRIPs Agreement needs to be amended to remove such conflicts. It suggested that Article 27.3(b)27 be amended or clarified to prohibit the patenting of all life forms or on inventions based on traditional knowledge, or those that violate Article 15 and other provisions of the CBD. For example, there have been many cases of misappropriation of traditional knowledge in India, patents granted for multinationals on neem, wound-healing properties of haldi, or on anti-diabetic properties of karela, jamun, and brinjal, which all originate from traditional knowledge.28 Developed countries such as the US, Canada and Australia have, however, put forward that there is no conflict and no likelihood of conflict between the two multilateral agreements.29

SHIFTING STREAMS

389

Further expansion of the TRIPs agreement is called for by these members, which find that exceptions to patentability authorised by Article 27.3(b) are unnecessary. In addition, these members propose that establishing national regimes of protection for traditional knowledge is essential before engaging in such discussions of international action. Yet India as well as many other developing countries lack resources to effectively implement protection of their biodiversity. Some of the root causes include: poverty and lack of sustainable alternative livelihoods for resource dependent communities, lack of integration of biodiversity and livelihood/ poverty considerations into development planning around biodiversity rich areas, lack of financial and social incentives to local communities from conservation efforts and related funding, and the inability to effectively translate and replicate lessons and benefits of the very diverse and successful previous experiences in participatory forest/natural resource and benefit-sharing programmes in the country. With respect to plant varieties’ protection, comprehension of the fact that in India, farming is not simply a business but a way of life should be highlighted. For instance, it is estimated that about 60 per cent of the population in India is engaged in agriculture. Now, the US, EC, Switzerland and Japan encourage members to use the sui generis system of the International Convention for the Protection of New Varieties of Plants (1991) as they consider this system to be the only ‘effective’ sui generis system. However, under this system the traditional farming practices such as the saving and exchanging of seeds would become more restricted and, likewise, agri-biodiversity would get limited. Similarly, subsistence farming would be affected adversely as farmers would be unable to afford excessively priced seeds from Trans-National Corporations (TNCs). India has expressed concern to the WTO Council for TRIPs about the potential problems of the cooperative relationships among neighbouring farmers and the difficulty of traditional farmers in having the capacity required to use the system to protect their own interests.30 Furthermore, it has stated that the TRIPs has not specified criteria by which to judge whether a sui generis system is ‘effective’ and this should be left to

390

PRADEEP S. MEHTA

members to decide. India contends that the Food and Agriculture Organization’s (FAO) International Undertaking on Plant Genetic Resources or the CBD, provides a more adequate and effective sui generis system for developing countries.31

ECOLABELLING Around the world, ecolabels are becoming an important addition to the toolkits of environment regulators. The expectation of ecolabelling, by both international organisations such as the Global Ecolabelling Network and national governments, is that it will have a positive impact on the environment. The presumed knock-on effect of ecolabelling refers to the changing of both consumer and producer behaviour in support of making environmentally friendly choices. There is the opportunity that an ecolabel programme will give rise to consumers being more aware of environmental issues and buying environmental products via informing consumers that a labelled product is more environmental-friendly than other products in the same product category.32 Likewise, this may encourage the industry to manufacture and market such environment-friendly products. If the entire product life-cycle is taken into consideration in the ecolabel criteria, then the environment performance of the whole supply chain could be improved. Further, once an ecolabel is adopted by some of the companies, their competitors may also introduce products with improved environmental performance.33 There are numerous ecolabelling schemes set up in many developed countries; India also launched its own ecolabelling scheme titled ‘Ecomark’ in 1991. However, it is highlighted in Table 14.3 that the schemes of the developed countries are by far more extensive than the Indian Ecomark. In India, even though there were both resources and political will when the scheme was initially launched, there was no political backup from the mid-1990s onwards. Till present, the MoEF, Government of India has been unable to maintain the momentum and subsequently the scheme has failed to acquire adequate support from the Ministry of Finance.

SHIFTING STREAMS

391

Table 14.3 Ecolabelling Schemes in Selected Few Countries Name

Year started

Product categories∗ covered

No. of products awarded

Germany-Blue Angel Canada-Ecologo Japan-Ecomark India-Ecomark

1977 1988 1989 1991

88 50 68 16

3,355 3,000 4,647 3

Notes: Figures as of January 2005. The estimates vary from paper to paper. ∗Product categories selected for the Ecolabel Scheme could include: wood substitutes, cosmetics, paper, batteries, textiles and washing machines, etc.

There have been no disputes regarding ecolabelling involving India till date; however, there is a great likelihood of this happening in the future, given that there is potential for an ecolabel, which could present a Non-Tariff Barrier (NTB) to Indian exporters, to be justified under the WTO rules via two agreements: Sanitary and Phytosanitary Measures (SPS) and Technical Barriers to Trade (TBT). These agreements have been created to ensure that there is least conflict on regulations, standards, certification and testing procedures and sanitary measures in different countries, which seek to provide adequate health and safety protection to their people and, at the same time, these agreements aim to ensure that such measures do not act as unnecessary trade barriers. This basic postulate is stated upfront in the preamble of the two agreements. However, these environmental standards can and in some cases do act as NTBs to the exports of India as well as other developing countries, and even developed countries.34 Principle 11 of the Rio Declaration on Environment and Development also says, ‘Standards applied by some countries may be inappropriate and of unwarranted economic and social cost to other countries, in particular developing countries.’ Indian exports are vulnerable to ecolabels established in major markets, depending on the cost of compliance involved and access to technology required in the process.35 Therefore, the proposal for the inclusion of SPS measures for Doha negotiations has encountered resistance from India.

392

PRADEEP S. MEHTA

On the other hand, there are positive benefits received by Indian exporters for attaining higher developed countries’ standards. For example, the Indian textile manufacturer Century Textiles and Industries, applied for the German ecolabel ‘Eco-tex’. Initially, meeting Eco-Tex requirements was difficult even though the cost borne by Century Textiles for Eco-Tex certification was less than US$ 2,000. It involved the company finding alternative dyes, reformulating recipes, checking quality, testing amines and retraining mill workers. However, the substitution exercise led to optimisation of the dyeing recipe so that a 10 to 15 per cent cost increase in most of the shades was offset by a 20 to 30 per cent cost saving in two of the most popular colours. More importantly, the certification brought several market advantages. The marketing department could get an 8–10 per cent higher price due to ‘EcoTex’ and overall quality improvements. Additionally, the market widened by 10 per cent in the first year alone. Many new buyers from the US and the UK (who re-exported to Germany) turned to Century due to the Eco-Tex certificate.36 External pressure for achieving higher environmental standards needs to be backed up by financial and technical assistance. An appropriate mechanism must be set in place. Article 9 of the SPS Agreement certainly encourages but does not compel developedcountry members to provide technical assistance that will enable a developing country to maintain and expand its market access. India has called for such assistance to be bound to specific commitments by industrialised countries.37 One example of effective financial and technical assistance being received by India for attaining higher environmental standards, is highlighted by the Indo-German Export Promotion Project in the leather sector.38 Germany imposed a ban on the use of toxic fungicide pentachlorophenol (PCP) in 1989, and similar restrictions followed in Denmark, Sweden and US. This chemical was used in the tanning process of India’s leather industry and the ban could have caused great harm to Indian leather exports. Yet, financial and technical assistance was provided under the project facilities to be set up for testing PCPs and for their removal.39

SHIFTING STREAMS

393

However, setting higher environmental standards domestically can also be part of the solution. This may raise the cost of manufacture as industry will need to invest in environmentally sound technology, but, on the other hand, this will open new foreign markets to companies and increase revenue. But the greatest problem here is that there is no domestic market for such goods, and low income Indian consumers would choose the cheaper less environmental-friendly product. An effective national campaign should be carried out to raise the awareness for both consumer and business demand for the Ecomark. The campaign should take effect on a continuous basis to set in motion a market for green products. In addition, ecolabels can be used as NTBs; therefore, domestic as well as international requirements need to be balanced while forming criteria. India should press for mutual recognition of the schemes of different countries, as it will prove beneficial for industries. Otherwise a situation may arise where companies having Indian Ecomark certificate would need to apply for an ecolabel of the destination country, leading to dual cost. If getting an Indian Ecomark would suffice for exporting the product to any country in the world, then an individual exporter would save substantially on certification costs and this alone will act as sufficient inducement for him to adopt the Ecomark.

CONCLUSION The Commerce and Industry Minister, Kamal Nath, maintains that the nexus between trade and environmental policy must be mutually supportive and not work to the detriment of both.40 Now that India is in a stronger geopolitical position than it was a decade ago, in the early stages of the WTO, and having established a strong leadership on the WTO platform, it has the opportunity to direct trade in a way that supports its poverty reduction goals. It must also return to its progressive movement of the 1980s and early 1990s for achieving environmental conservation. As trade policy, poverty reduction endeavours and

394

PRADEEP S. MEHTA

environmental goals must be made mutually supportive; the days of these three factors being mutually exclusive must be put behind us. This indeed does not apply to India only but to all countries of this endangered Earth. There could not be a more critical time for India to be proactive on the environmental front. Ultimately, the transfer of viable environmental technology and transition to environmentally honest pricing is the call of the day.41 India must take a strong stand for the transfer of environmentally sound technology suitable for its environment, which is laid out in the provisions of several WTO Agreements as well as other MEAs, but has not been carried out effectively because of lack of compliance obligations in these provisions. Such assistance is important to resolve the trade and environment conflict. It is virtually impossible for India to competitively manufacture products in an environmentally friendly manner without it. Further, progress must be made for environmentally honest pricing with a holistic view, taking into account both producers and consumers in a feasible manner. As Indian manufacturers are not reflecting the full environmental costs in their export prices, this leads to developed countries’ consumers buying products cheaper without suffering environmental problems that India must suffer. Only where the environmental costs are transboundary are consumers in these countries more likely to pay higher prices, which comes from the pressure of international agreements.

NOTES 1. The Environment Protection Act (1986), Wildlife Protection Act (1972, amended 1991), The Forest Conservation Act (1980), The Air Prevention and Control of Pollution Act (1981, amended 1987), The Water Prevention and Control of Pollution Act (1974, amended 1988), The Hazardous Wastes Management and Handling Rules (1989, amended 1998), Manufacture, Storage and Import of Hazardous Waste and Chemicals Rules (1989). 2. Likewise, India ratified the Vienna Convention in 1991 and the Basel Convention in 1992; it further acceded to the Montreal Protocol in 1992 and ratified the Convention on Biological Diversity in 1994.

SHIFTING STREAMS

395

3. Mahbubani (2004). 4. Mexico contested that the US had violated the GATT Agreement, having banned Mexican tuna imports because the Government of Mexico was not taking steps to prevent the killing of dolphins while catching tuna. 5. Agenda 21. International Cooperation to Accelerate Sustainable Development in Developing Countries and Related Domestic Policies. Ch. 2, para 2.5. 6. Section 609 of US Public Law 101–162. 7. Malaysia, Pakistan and Thailand. 8. Report of the Panel ‘United States—Import Prohibition of Certain Shrimp and Shrimp Products’ WT/DS58/R, 15/05/1998. 9. Chapeau refers to the preamble of Article XX of GATT. 10. Report of the Appellate Body ‘United States—Import Prohibition of Certain Shrimp and Shrimp Products’, WT/DS58/AB/R, 12/10/1998. 11. http://commerce.nic.in/Dec05_release.htm 12. Report of the Expert Group, ‘Specific Trade Obligations in Multilateral Environmental Agreements and the WTO Rules’, Madras School of Economics, funded by the Ministry of Commerce and Industry, Government of India, 2006. 13. Bharucha (1997). 14. Jha et al. (1999). 15. The US must ratify the CBD before being able to ratify the BSP. 16. Hobbs et al. (2005). 17. Environmental Business International (EBI) and Joint Environmental Markets Unit ( JEMU). See note by the UNCTAD secretariat, ‘Environmental Goods and Services in Trade and Sustainable Development’, 5 May 2003, paragraph 13. 18. ERM Market Forecasts. See Kumar and Bhasin (2005). 19. Chaturvedi (2003). 20. Government of India et al. (2003). 21. Note by the UNCTAD secretariat, 5 May 2003. Environmental Goods and Services in Trade and Sustainable Development. 22. Singh (2005). 23. The World Customs Organisation Harmonised System identifies environmental goods via code levels, but this classification is deemed to be limited; environmental services are determined in the present GATS classification list, nevertheless this list is agreed to be outdated also. 24. Joint Working Party on Trade and Environment. 25. Submission by India, 4 July 2005. Structural Dimensions of the Environmental Project Approach. TN/TE/W/54, CTE, WTO. 26. India, IP/C/W/198, IP/C/W/195, IP/C/M/48, IP/C/M/36/Add.1, IP/C/M/30, IP/C/M/24. 27. Article 27.3(b) provides that members may exclude animals and plants from patentability; though micro-organisms for products and microbiological and non-biological processes for plant and animal production must be subject to patenting. Further, it grants members flexibility in the way they provide protection of plant varieties, by means of offering the options of either patents and an effective sui generis system or a combination of both.

396

PRADEEP S. MEHTA

28. Das (2005). 29. United States, IP/C/W/209, IP/C/W/162, IP/C/M/46, IP/C/M/25, Canada, IP/C/ M/47, IP/C/M/40, IP/C/M/37/Add.1, IP/C/M/36/Add.1, Australia, IP/C/W/310, IP/C/M/47, IP/C/M/46, IP/C/M/40, IP/C/M/38, IP/C/M/36/Add.1. 30. India IP/C/M/28. 31. International Treaty on Plant Genetic Resources for Food and Agriculture (2001) adopted on 3 November 2001 in Rome. 32. Goodland (2002). 33. Morris (1997). 34. The EU have blocked GMOs from US and Canada. 35. Jha et al. (1999). 36. Unlocking Trade Opportunities: Case Studies of Export Success from Developing Countries, International Institute for Environment and Development, 1997. 37. WTO Trade Policy Review: India 1998. 38. Launched in 1988, http://www.igep.org/igep/aboutus.htm 39. Jha (1997). 40. Nath (1997). 41. That is, prices should reflect their full environmental costs.

REFERENCES AND SELECT BIBLIOGRAPHY Bharucha, V. 1997. ‘Impact of Foreign Environmental Standards: India,’ in V. Jha, G. Hewison and M. Underhill (eds), Trade, Environment and Sustainable Development: A South Asian Perspective. London: Macmillan. Chaturvedi, A.K. 2003. Trade and Liberalisation of Environmental Goods and Services: India’s Opportunities and Constraints. New Delhi: TERI. Das, Kasturi. 2005. ‘Combating Biopiracy—The Legal Way’, Centre for Economic Studies and Planning (CESP), India Together. Available at: http://indiatogether. com/2005/may/env-biopiracy.htm Goodland, Robert. 2002. ‘Ecolabelling: Opportunities for Progress Toward Sustainability’, Consumer’s Choice Council. Government of India, Ministry of Commerce and Industry, UNCTAD and TERI. 2003. Summary Report on Seminar on Trade Liberalization in Environmental Goods and Services, July, para. 22. Geneva. Hobbs A.L., J.E. Hobbs and W.A. Kerr. 2005. ‘The Biosafety Protocol: Multilateral Agreement on Protecting the Environment or Protectionist Club?’, Journal of World Trade, Vol. 39(2): 281–300. Jha, A. 1997. ‘Environment, Trade and India’s Leather Exports’, in V. Jha, G. Hewison and M. Underhill (eds), Trade, Environment and Sustainable Development: A South Asian Perspective, Ch. 10. UNCTAD. Jha V., A. Markandya and R. Vossenaar. 1999. Reconciling Trade and the Environment: Lessons from Case Studies in Developing Countries. UK: Edward Elgar. Kumar R. and A. Bhasin. 2005. ‘Trade in Environmental Services: An Indian Perspective’. CUTS International.

SHIFTING STREAMS

397

Mahbubani, K. 2004. Can Asians Think? Understanding the Divide between East and West. New Delhi: Penguin Books. Morris, J. 1997. ‘Green Goods? Consumers, Product Labels and the Environment’, The Environment Unit. The Institute of Economic Affairs. Nath, Kamal. 1997. ‘Trade, Environment and Sustainable Development’, in V. Jha, G. Hewison and M. Underhill (eds), Trade, Environment and Sustainable Development: A South Asian Perspective, Chapter 1. UNCTAD. Singh, S. 2005. Environment Goods Negotiations: Issues and Options for Ensuring Winwin Outcomes. International Institute for Sustainable Development (IISD).

Epilogue

T

he new G-4 Members (US, EU, Brazil and India) have been meeting at several locations to try to bridge gaps in their negotiating positions, so far without much success. The last meeting at Potsdam was no different. In fact, the low expectations of the four became evident when Peter Mandelson, European Union (EU) Trade Commissioner, said, and that too just before the meeting, that ‘the Potsdam Meeting may not finish the Doha Round’. The negotiations have now moved back to Geneva, to be driven by the Chairs of the negotiating groups. They have the responsibility of coming up with compromise texts in their respective areas. In the words of the Pascal Lamy, Director General (DG) of the WTO, ‘Prior convergence among these Members would have been helpful to pave the way towards multilateral convergence. But helpful does not mean indispensable. This negotiation is an endeavour among the 150 members of the WTO.’ Sifting through the statements made by participating members after the failure of the Potsdam Meeting, it appears that there was continued intransigence on all sides. While the US was unwilling to accept a ceiling of US$12 billon to US$ 14 billion on overall trade-distorting domestic support demanded by India and Brazil, both the US and the EU continued to demand ‘new trade flows’ in agricultural and non-agricultural products which the developing countries would not agree to. The Doha Round is not just about agreeing on the modalities to liberalise markets for agriculture and industrial goods further. Even if, somehow, the countries are able to sort out their differences in these two areas in the coming months, there is a whole chapter on services that needs to be written from scratch. There are also numerous other issues, including rules on anti-dumping and countervailing duties, which have to be sorted out before the negotiations conclude.

EPILOGUE

399

In such a situation, it is perhaps for the better that the WTO negotiations have moved back to Geneva, to their original multilateral mode. Also, the continuation of any alarmist hype of Doha being in a ‘make or break’ situation is unlikely to help the general cause. We feel that, in the present circumstances, the current G4 has neither the ability to make painful pre-commitments on reform at WTO, nor much credibility with the rest of the WTO members to be negotiating on their behalf. That said, and regardless of whether the Doha Development Round (DDR) succeeds or not, the reform efforts in India must continue. There exists a fairly large domestic constituency which holds the WTO responsible for most of India’s ills, particularly in the agriculture sector, and which opposes further tariff reductions and liberalisation. But the experience with the liberalisation efforts of the last 16 years indicates that reforms have been mainly beneficial. We now need to tackle the more difficult reform areas like governance, education, public sector, labour, agriculture and social services. We must also ask ourselves if India’s leadership role at the multilateral fora serves our national interest at present. In the authors’ view—it does not; worse still, it acts as a significant distraction to the more urgent tasks at hand at home. These include paying attention to our exporters, especially from the small and medium enterprise (SME) sector that accounts for over 60 per cent of merchandise exports. This sector needs to have access to technology, financial support and markets. There are other tasks as well, like getting on with agricultural reforms that are so necessary to empower the farmer and reduce his dependence on farmland activities. So what should be India’s role henceforth? It would appear that India would be better off abdicating the leadership role in favour of China and focusing on setting its own house in order. It is in India’s larger economic and social stability interests to liberalise the agricultural sector, and this can be done unilaterally rather than through a commitment in the multilateral regime. This will give us the high ground from which to demand reforms from our Organisation for Economic Co-operation and Development (OECD) partners. And, as we have argued earlier, these unilateral reforms yield welfare gains in any case.

About the Editors and Contributors

THE EDITORS Suparna Karmakar is currently working as a Senior Fellow with the Indian Council for Research on International Economic Relations (ICRIER), New Delhi, in the capacity of a trade economist and trade policy (in particular WTO) expert. She is the project coordinator of the ICRIER’s research on WTO issues, funded by a grant from Sir Ratan Tata Trust Fund. She is also the project leader for the ICRIER initiative in the creation and maintenance of an India-specific online NTB database. Her current focus of research is in the areas of different regulatory barriers and technical standards that impede multilateral trade in goods and services and market access. She looks into the impact of bilateral and regional trade agreements on WTO commitments of members/industrial sectors. Rajiv Kumar is presently the Director and Chief Executive of ICRIER. Prior to this he was the Chief Economist at the Confedration of Indian Industry (CII). He has a D.Phil in Economics from Oxford University. From 1995 to 2004 he served the Asian Development Bank in various capacities. He has also worked with the Department of Economic Affairs, Ministry of Finance, Government of India. As a professor at the Indian Institute of Foreign Trade he taught postgraduate management courses. He has been associated with the World Bank, United Nations Conference on Trade and Development (UNCTAD), United Nations Economic and Social Commission for Asia and the Pacific

ABOUT THE EDITORS AND CONTRIBUTORS

401

(ESCAP) and United Nations Industrial Development Organization (UNIDO) on short-term consultancy assignments. His articles have been published in various national and international journals and books. Bibek Debroy is Professor with the International Management Institute in New Delhi, and a columnist and contributing editor with the Indian Express. He was the Director at the Rajiv Gandhi Institute for Contemporary Studies, Rajiv Gandhi Foundation, Delhi, between 1997 and 2005. He was educated in Presidency College, Kolkata; Delhi School of Economics; and Trinity College, Cambridge. He has worked at Presidency College; Gokhale Institute of Politics and Economics, Pune; Indian Institute of Foreign Trade (IIFT), Delhi; National Council of Applied Economic Research, Delhi; and as Consultant, Department of Economic Affairs, Ministry of Finance, Government of India. He was also the Director of a project known as LARGE (Legal Adjustments and Reforms for Globalizing the Economy), set up by the Ministry of Finance and United Nations Development Programme (UNDP) to examine legal reforms. He is the author of several books and papers and has been named in many biographies.

THE CONTRIBUTORS Pravin Anand has been practising both as an advocate, and as a patent and trademark attorney and is a senior partner of Anand and Anand. He completed his law studies at the University of Delhi and has been a counsel in some interesting intellectual property cases. He serves on the editorial board of several international intellectual property journals such as IP Asia, Entertainment Law Review and Computer & Telecommunications Law Review. He is the author of several papers on intellectual property and has spoken extensively at various forums such as WIPO, AIPPI,

402

INDIA’S LIBERALISATION EXPERIENCE

INTA, LES, IBA, LAW ASIA and UN Conference on LDC’s in the Digital World at Brussels. He has served on several international and national expert groups and committees, including the Patent Law drafting committee for revising and recommending changes to the law. He is the Chairman of IPR Promotion Advisory Committee (IPAC) constituted by the Government of India and also the Chairman of IT Committee set up by FICCI. Anand has been selected as an honoured member of the WHO Historical Society. He has also appeared as an expert witness before Parliamentary committees to give evidence on amendments to trademark, patent and copyright law. Pritam Banerjee is currently a doctoral student at the School of Public Policy, George Mason University, US. He holds a Masters degree in Economics from Jawaharlal Nehru University, New Delhi. He has worked with the World Bank and the Confederation of Indian Industry on trade and related issues, and has several publications including an edited book Beyond the Transition of the WTO—An Indian Perspective on India’s engagement with the WTO. Sharad Bhansali is a specialist in WTO matters. He has a Master’s degree in Business Management from the University of Delhi, and in Economics from Boston University, USA. He is also a law graduate from the University of Delhi. Bhansali has worked with the Indian Revenue Service (Customs & Central Excise) for more than 20 years. He worked in several capacities in the Department of Revenue and other Ministries and was the first Director of the Directorate General of Anti-dumping & Allied Duties in the Ministry of Commerce & Industry. Mr Bhansali has to his credit the distinction of handling a large number of anti-dumping and anti-subsidy cases in India and against India. He had been retained by the Ministry of Commerce to draft the new anti-dumping and anti-subsidy laws for India. Besides, as a UN expert he has also drafted the trade remedial laws for Nepal. He has made significant contribution to the process of antidumping mechanism in India and is regularly invited by the

ABOUT THE EDITORS AND CONTRIBUTORS

403

Government of India, apex chambers of commerce and industry and research and academic institutions to contribute to the field of trade remedial laws and WTO matters. He also regularly advises the Government of India in the ongoing negotiations in the WTO. Bhansali is currently the Managing Partner of APJ-SLG Law Offices, a well-known full service law firm. Rupa Chanda is a Professor of Economics at the Indian Institute of Management, Bangalore (IIMB). She received her doctorate from Columbia University and Bachelor’s degree from Harvard University. At IIMB, she Chanda lectures on Macroeconomics and International Trade. Earlier, she worked as an Economist at the International Monetary Fund (IMF), Washington, DC. She has been a consultant to the International Labour Organization (ILO), World Health Organization (WHO), UNDP, UNCTAD, OECD, ICRIER, and IIFT. Her research interests concern WTO, trade in services, and migration. She is a member of the Ministry of Commerce’s Expert Group on Services, the Planning Commission’s High Level Group on Services, and the Commerce Ministry’s Board of Approval for Special Economic Zones (SEZs). She is a recipient of teaching and research awards. She has many publications including Globalization of Services: India’s Opportunities and Constraints (2002), by Oxford University Press, and India’s Trade in Services: Prospects and Strategies (ed. 2006), by Wiley-India, and journal and other articles on various aspects of trade in services. She has presented at many conferences and seminars. Sumanta Chaudhuri is in the Indian Administrative Service, and is currently posted as Secretary, Department of Public Enterprises and Chief Executive Officer, West Bengal Industrial Infrastructure Development Corporation in West Bengal. He has an MA in Economics from Delhi School of Economics. Until recently, he was posted as Counsellor, Permanent Mission of India to the WTO at Geneva, where he was India’s main

404

INDIA’S LIBERALISATION EXPERIENCE

negotiator for services and rules. He has more than 10 years’ experience in various capacities in the field of International Trade and Commerce, particularly multilateral trade issues, having served as Private Secretary to the Union Cabinet Minister for Commerce and Industry; Director, Trade Policy Division, Department of Commerce. He has been a resource person/speaker at various international conferences held by WTO, World Bank, OECD, UNCTAD, IOM and ESCAP. He has also written articles on various services issues like Mode 4. Biswajit Dhar is a Professor and Head of the Centre for WTO Studies at the Indian Institute of Foreign Trade and has been working extensively on the multilateral trading system for more than a decade and a half. He has been a member of several expert groups set up by the Government of India for advising on strategies to be adopted in the context of India’s engagement with the WTO. He was a member of the official Indian delegation to the Fifth and the Sixth WTO Ministerial Conferences. Dhar has been interacting closely with several institutions involved in working on issues relating to trade and development. Besides institutions based in India, he has been working with a number of international and inter-governmental organisations. He has presented research papers in several international and national conferences and has publications in reputed national and international journals. Sasidaran G. is currently working as a Research Associate at the Indian Institute of Management, Bangalore (IIMB). He has completed his Masters from the Madras School of Economics (MSE), and his Bachelor’s from Loyola College, Chennai. His research interests concern WTO related issues, empirical international trade and applied econometrics. His masters’ dissertation focused on the implications of the phasing out the Multi Fibre Agreement on the Indian textile industry. He has also published a short note on business cycles in India in the Economic and Political Weekly. Anil K. Gupta is a Professor at Indian Institute of Management, Ahmedabad’s (IIMA), Centre for Management in Agriculture.

ABOUT THE EDITORS AND CONTRIBUTORS

405

He has been a fellow at the World Academy of Art and Science, California, USA. He worked on a three year Pew Award (1993–96) for Biodiversity Conservation and Environment granted to 10 outstanding scholars around the world. He established the Society for Research and Initiatives for Sustainable Technologies and Institutions (SRISTI) and Grassroots Innovation Augmentation Network (GIAN), two NGOs to support the Honey Bee Network (a global network of activists, scholars, policy-makers and farmers around the issue of indigenous technological and institutional innovations for sustainable natural resource management, and building bridges between formal and informal science) to scale up and convert grassroots innovations into viable products. He has received the Asian Innovation Award Gold from Far Eastern Economic Review for coordinating SRISTI and Honey Bee Network and was invited by International Herald Tribune to write a special article on Riches of Poor in 2001. He was awarded the Padma Shri by the President of India in 2004 for his distinguished achievements in the field of management education and he was also nominated for Stockholm Challenge Award, 2000. Pradeep S. Mehta is the founder Secretary of the Jaipur-based Consumer Unity & Trust Society (CUTS International), a leading economic policy research, advocacy and networking, nongovernmental group in India, with offices in London, Nairobi, Lusaka and Hanoi. He has studied commerce at the Calcutta University and law at the Rajasthan University, Jaipur. He serves on several policy-making bodies of the Government of India, related to trade, investment, competition, environment and consumer affairs, and is currently Honorary Advisor to the Commerce & Industry Minister of India. He has also served as an NGO Advisor to the WTO Director-General, Supachai Panitchpakdi. He chairs the advisory committee of the South Asia Watch on Trade, Economics and Environment (SAWTEE), Kathmandu. In the past, he has served on the governing boards of

406

INDIA’S LIBERALISATION EXPERIENCE

the International Centre for Trade and Sustainable Development (ICTSD), Geneva, Consumer Coordination Council, New Delhi and on the Global Policy and Campaigns Committee on Economic Issues of Consumer International, London. A prolific writer, gifted speaker, skilled trainer and organiser in the social science field, Mehta has been named as one of the 30 most famous columnists in India by a leading newspaper in India. He has published/edited several books and papers on trade, investment, competition and development. S. Narayan is a Visiting Senior Research Fellow and Head of Research at the Institute of South Asian Studies at the National University of Singapore. He has nearly four decades of public service in development administration in state and central governments, starting in 1965. His last appointment was as the Economic Advisor to the Prime Minister (2003–04). Prior to his appointment as Advisor, he was the Finance and Economic Affairs Secretary, and Secretary in the Departments of Revenue, Petroleum, Industrial Development and Coal since 1997. He contributes regularly to newspapers and journals. He has written books and journals on India’s economic reforms, trade related issues and Indian states. He obtained his Ph.D. from the Indian Institute of Technology in New Delhi. He has an M.Phil (Development Economics) from Cambridge University and Master of Business Management (Finance) from the University of Adelaide. He graduated with an MSc (Physics) from the University of Madras (Madras Christian College). T C A Srinivasa-Raghavan obtained his Master’s degree in Economics from the Delhi School of Economics in 1970, is currently a Consulting Editor at Business Standard. He has earlier worked at the Financial Express, Indian Express and The Economic Times and Macmillan as Economics Editor and also as a Consultant with Reserve Bank of India (till 30 June 2007), Asian Institute of Transport Development, New Delhi and ICRIER.

ABOUT THE EDITORS AND CONTRIBUTORS

407

He has also been a Fellow of Wolfson College, University of Cambridge, (1983) and Queen Elizabeth House, University of Oxford, UK (1990). He was a Visiting Fellow at the Delhi School of Economics for a year (1999). He has also authored research projects for the ICRIER on trade in services (1987), the Delhi School of Economics on insurance liberalisation (1999) and the Asian Institute of Transport Development on infrastructure finance (1999). He currently works at National Media Centre, Gurgaon. Indu Rayadurgam completed her second Masters in International Studies at the National University of Singapore (NUS) in July 2005 and her first Masters in the same discipline at Stella Maris College, Chennai, India, in April 2004. After completion of Masters from NUS, she worked for a brief period at the Lee Kuan Yew School of Public Policy before joining the Institute of South Asian Studies, Singapore Her Master’s research project was on ‘The Impact of Globalization on India’s Status in the International System’. Her research has focused on regional trade agreements, India’s economic reforms and regional cooperation initiatives. Her current and long-term interest is on urbanisation in South Asia, with specific reference to India’s urban policies and governance. Jayanta Roy is a macro economist and international trade specialist. He is the Principal Advisor in the Confederation of Indian Industry, New Delhi. He is also the Chairman of the Working Group on Trade Facilitation set up by the Ministry of Finanace, Government of India (GoI). He has over 30 years of post-PhD experience in Development Economics and Policy, working for the World Bank and GoI. His special expertise is in the area of trade policy, including WTO policies, export development and trade facilitation. He held senior policy making positions in the Government of India, where he was a key member of the team that designed and implemented economic and structural reforms to open up the Indian economy. He also worked as a Lead Economist in the World Bank for a

408

INDIA’S LIBERALISATION EXPERIENCE

number of countries including Turkey, Egypt, Jordan, Lebanon, Yemen, and Saudi Arabia. He has written extensively on trade policies and institutions and taught at the World Bank Institute, Cornell University, University of California–Santa Cruz, University of Warwick, UK, and the Indian Institute of Management, Calcutta. He holds a PhD in economics from the University of California, Berkeley. Samar Verma is the head of Global Economic Justice Team, Oxfam GB, Oxford, UK. He has a Ph.D. in Economics and an MBA (Finance). Based in Oxford, UK, he provides strategic leadership to Oxfam’s economic analysis and global policy and advocacy on linkages between trade, agriculture and climate change policies and sustainable development. He brings into this role his multisectoral experience from working in the industry as well as in economic research. Prior to his current role, until early 2006, he was leading Oxfam’s ‘Make Trade Fair’ Campaign in South Asia, based in the Oxfam’s regional office in New Delhi. Before joining Oxfam, he worked as a Senior Fellow at ICRIER, where he did a comprehensive study on global competitiveness of Indian textile and clothing sectors, in addition to publishing several papers and articles on WTO issues. He began his career with the corporate sector, working as economist in a cotton textile conglomerate The Arvind Mills Ltd., based in India. He is also the Founder-Chairperson of the Centre for Trade and Development (Centad), a research-based policy advocacy on economic justice issues in South Asia. Neeti Wilson is presently working as a Senior Associate in the patent department of Anand and Anand, New Delhi. Wilson is a registered Patent Agent at the Indian Patent Office with a background of biotechnology. She holds a Ph.D. degree from TERIUniversity, New Delhi. She was also associated with the Patent Facilitating Centre, TIFAC under the women-scientist scholarship. She has a Postgraduate Diploma in Patents Law from Nalsar University of Law, Hyderabad and has completed an advanced course on biotechnology and intellectual property from WIPO.

ABOUT THE EDITORS AND CONTRIBUTORS

409

Wilson has written original research articles published in international journals and has been associated with many project reports. She has delivered lectures in various workshops related to Intellectual Property Rights (IPRs). She was a member of the committee which developed guidelines for intellectual property management and transfer/commercialisation of technologies in the ICAR system. Her main areas of practice include IPRs, patent drafting and prosecution, patent mining, biotechnology, plant variety protection, biodiversity and life sciences.

Index

9/11 terror strikes, 63 Administrative Reforms Commission, 278 Africa Growth and Opportunity Act (AGOA), 74, 147 Aggregate Measure of Support (AMS), 82 Agreement: bilateral free trade, 65; on textiles and clothing, 31, 134; plurilateral, on government procurement, 43; plurilateral, on trade in information technology products, 43; regional trade, 41, 349–350, 365 Agreement on Agriculture (AoA): 78; data on implementation of, 101; enforcement of, 91; implementation of, 102; negotiations for the review of, 95 Agricultural and Processed Food Products Export Development Authority (APEDA), 49 agricultural commodities, 79, 89 agricultural markets, global, 30 agricultural products, place-specific natural and, 248 agricultural sector, performance of, 53 agricultural tariff: structure of, 92; total, lines, 93 agriculture: exposure of, to international trade, 24; fortunes of Indian, 101; India’s WTO commitments in, 79–85; lack of concessions on, products, 23; market access, 24; negotiations on, 96 airfreight, international, assistance, 84

American Type Culture Collection (ATCC), 241 anti-dumping: 35, 42–43, 51, 324, 347; actions, 345; administration, responsive, 347; agreement, 324; criticism against, 325, 347; criticism of, mechanism, 35, 347; Indian laws on, 325; investigations, 326; investigations, suo moto, 48; measures, 45; measures on batteries (Bangladesh), 45; provisions, indiscriminate use of, 65; supporters of, 340 anti-globalising sentiments, 66 Apparel Training and Design Centres (ATDCs), 145 Asia-Pacific Economic Cooperation (APEC), 385 Association for Southeast Asian Nations (ASEAN): 25; India FTA, 362; India Regional Trade and Investment Area, 362; Singapore’s support for India’s participation in, 364 Australian Innovation Patent System, 258, 283 author of a work, 243 authorship of the work, 243 balance of payments (BoP): 42, 80, 90; provisions relating to, restrictions, 339 ban on the importation of scrap, 381 banks, private, 186 Bar Council of India (BCI), 200 Basel Convention, 380, 381 Basel, Stockholm and Rotterdam conventions, 380–382

INDEX Bayh-Dole Act, 253 Berne Convention (1886), 236, 237 Bharti Enterprises, 364 biodiversity: conservators of, 261; management committees, 278 Biological Diversity Act 2002, 250 biological diversity, conservation of, 237 bio-piracy, 275 biotechnological products, 259 biotechnology and other value adding technologies, 257 Bose Corporation v Mehta, 246 Bose product warranty, 246 brand owners, 245–246 broadcasting, 243 Budapest Treaty (1977), 237, 241 Buffalo Networks Pvt Ltd v Jain, 244 business: opportunities in goods and industrial products, 65; stakeholders, 65 business-to-business (B2B), 195 Cairns Group countries, 98 Cancun Ministerial Conference, 98 Cancun Ministerial meeting, 62, 68 Caribbean Basin Initiative (CBI), 147 Carnegie Endowment for International Peace, 25 Cartagena Protocol on Biosafety (BSP), 382 Cecchini Report, 351 cellular mobile, 181 Central Rice Research Institute India, 262 Centre for Trade Facilitation (CTF), 35, 316 CFC-free manufacture, 380 Chambers of Commerce, 313 Change in Tariff Heading (CTH), 362 Chinese exporters, 151 Chinese leadership in herbal products, 261 cinematographic films: 243; films, records, photographs, posthumous, publications, anonymous publication, 243

411

coalitions, issue-based developing country, 68 commitment: analysis of the implementation of, relating to export competition, 88; domestic support, 82, 85; implementation of, 85–95; implementation of, made by the WTO members, 85; multilateral, 187; multilateral, and offers, 208; multilateral, and reform strategy in services, 207; national treatment, 217 Committee on Trade and Environment Special Session (CTESS), 376 communication, India’s, proposals and submissions, 174 Comprehensive Economic Partnership Agreement (CEPA), 360 computer programmes and software, 243 conservation, environmental, 36 Consultative Group for International Agricultural Research (CGIAR), 288 Contract Labour (Regulation and Abolition) Act 1970, 145 controversy over the French warship le Clemenceau, 381 Convention for the Protection of Producers of Phonograms (1971), 238 Convention on Biological Diversity (1992), 237–247, 382 Convention on International Trade in Endangered Species of Wild Flora and Fauna (CITES), 372, 379 Copyright Act 1957, 43, 236, 242, 243 copyright: 236; infringement of, 244; law, 54; protection in India, 243 cotton textiles, 148 countries: developed, demands in trade negotiations, 125; developed, profile of plurilateral requests, 222; developing, 70, 220 Craft Development Institute, 248 Credit Linked Capital Subsidy (CLCS), 144

412

INDIA’S LIBERALISATION EXPERIENCE

credit subsidy, 83 Criminal Intelligence Unit (CIU), 310 cross border supply, plurilateral request in, 232 cross-subsidisation, 181 Custom House Agents (CHA), 313 customs administration reform and reduction, 314 customs duty, basic, 49 Customs Tariff Act, 343 customs unions, 350 data protection, 252 Data Protection Committee, 252 declaration: and duty payment, 310; under export promotion schemes, 310 Defence Research and Development Organisation (DRDO), 251 de-industrialisation of the developing countries, 131 Department of Atomic Energy (DAE), 250 de-reservation, 142 design: 236; protection for aesthetic appearance of articles, 237; registrations, 247 Designs Act 2000, 247 Developing countries, participation of, 230–232 Development: economic, 257; and growth, 235; of trade policy in India, 366 Director General of Revenue Intelligence (DGRI), 309 Directorate General of Commercial Intelligence and Statistics (DGCI&S), 148 Director-General of Foreign Trade (DGFT), 35 disagreement between the US and India, 24, 30 disasters, 110 dispute: between rich and poor nations, 23; settlement mechanism, 36, 65, 349

Doha Development Agenda (DDA), 98, 125, 373 Doha Development Round, 72 Doha Ministerial Declaration (DMD), 96, 173 Doha negotiations, proposal for the inclusion of SPS measures for, 391 Doha Round: 126, 354; delays in the finalisation of, 354; suspension of, 229 Doha talks, 57 Doha Work Programme (DWP), 40 domestic food, 110 domestic support: implementation of the discipline on, 85; tradedistorting, 96 drug companies, 258 Drug Controller, 252 Drug Controller of India, 285 Drug Price Control Order (DPCO), 53 dumping: definition of, 323; determination of, margin, 323; incidence of, 341; injurious effect of, 341; legal definition of, 322; unfair trade practice of, 336 Dunkel Draft, 67 duties: anti-dumping, 325, 340; goods subject to anti-dumping, 346 ecolabelling schemes, 390 ecolabelling, 390 ecolabels, 393 Ecomark, 390 economics, clash between, and politics, 72 Eco-Tex certification, 392 Electronic Data Interchange (EDI), 311 Emergency Safeguard Measures, 229 EMIT Group, 375 employment: and immigration, 64; guarantee programme, 290 energy management, 283 entrepreneurship, golden triangle of, 277 environment regulators, 390

INDEX environmentally preferable products (EPPs), 37 environmentally sound technology, transfer of, 394 European Free Trade Association (EFTA), 374 European Union, domestic support granted by, 113, 114 Everything But Arms (EBA), 74 excise duties: additional, 140; on polyester filament yarn, 140; on synthetic fibre, 141; rationalisation of, structure, 139 exclusive marketing rights (EMRs), 49 EXIM policy, government’s, 258 Export Credit and Export Credit Guarantee Programme, 90 Export Inspection Council (EIC), 304 export: agricultural, and food aid programmes of the United States, 118; competition, 88; cotton textile, 148; credit and guarantees, 88; environmentally friendly natural products of India’s, 384; facilitation, 311; facilitation problems in India, 311; fluctuations in the use of, subsidies, 89; of goods and services, 294; and import procedures, 305; India’s mode 1 based services, 205; Indian textile and clothing, 148; Indian textile and clothing, into the US, 149; Indian, performance, 148; ITES, 204; marketing, of agricultural products, 84; medical tourism, 188; merchandise, 170; of IT-ITES, 204; of MMF textiles, 148; outlays on, subsidies, 117; pent-up, 149; performance of the Indian textile and clothing industry, 146–151; predominance of cotton in Indian, and consumption, 141; readymade garments, 148; residual, incentives, 317; share of US in the total global, 87; subsidies granted by India, 112; subsidies, 43, 84, 88–89, 91;

413

subsidy and incentive structure, 42; support for agricultural, 90; trading, 195 exporters: impediments and problems faced by Indian, at foreign borders, 307; Indian, 151; potential, 305 failure of the 2006 talks, 23 firms, Indian legal professionals and, 202 food aid: 89; discipline on, 89; international, 88; rising, 89 Food and Agriculture Organisation (FAO), 390 foreign applicants, 284 foreign bank branches, 183 foreign banks, 183 Foreign Direct Investment (FDI): 139, 169, 295, 373; clearances of, proposals, 258; participation, 186; restriction on multi-brand retailing, 195 foreign education providers, 193 Foreign Exchange Management Act (FEMA), 195 Foreign Institutional Investors (FIIs), repatriation of funds by, 258 Foreign Investment Promotion Bureau (FIPB), 178 foreign trade: 294; transactions, 295 franchising, 195 Free Trade Agreements (FTAs): 46, 64, 351; India’s, with Sri Lanka, 361; India–Sri Lanka, 360: India– Thailand, 361 free-trade areas, 350 Friends Groups, 219 full market access, 217 G-10, 103 G-20, 377: countries, 30; current membership 22, 103; formula, 131 G-33, 46, 103 General Agreement on Tariffs and Trade (GATT): 31, 39, 66, 117, 213, 338, 374; Article V of, 299; Environmental

414

INDIA’S LIBERALISATION EXPERIENCE

Measures and International Trade (EMIT), 374; valuation code, 343 General Agreement on Trade in Services (GATS): 32; absence of, commitments, 216; and India’s market access opportunities, 204; architecture, 228; commitments and offers made by India, 172; commitments on regulatory issues under, 187; evolution of, commitments, 171; failure of, 205; India’s negotiating role in, 173; inefficacy of, negotiations, 205; mandated, negotiations, 173; modalities of the, negotiations, 176; negotiations, 171, 205–207; risk for discrepancies in, 353 General Electric v Altamash Khan, 246 generic medicines, 49 Genetic Resource Recognition Fund (GRRF), 262 geographical indication, 248–249 Geographical Indications of Goods (Registration and Protection) Act 1999, 248 globalization: 235; Indian reactions to, 26; in trade, 349 goods and services tax (GST), 46 government procurement regimes, 43 Grameen Banks, 289 grassroots innovations, 260, 266 grassroots innovators: 258; rights of traditional communities and, 266 Green Box: 30, 86; measures, 102; subsidies, 25; support provided by India, 83 grey-market: goods, 245–246; products, struggle against, 246 Group Workshed Scheme, 144 Gujarat Grassroots Innovation Augmentation Network (GIAN), 266 Hank Yarn Obligation (HYO), 142 Harmonised System Convention, 302 health care, India’s, industry, 188 herbal drugs, research on, 263

herbal patents in United States Patent and Trademark Office, 261 High Level Inter-Ministerial Committee (HLIMC), 313 Honey Bee, 265, 269 Honey Bee Network: 256–258, 264, 267–268; grassroots to global vision of, 15, 278 Hong Kong Ministerial Conference (HKMC), 100, 214 Hong Kong Ministerial Declaration (HKMD), 129, 215 Hong Kong ministerial text, 207 hospitals of international standards, 188 IC layout design, 247 import: automobile, regimes, 44; commodities subjected to, prohibitions, 103; control regime, 342; duty on textile and apparel, 139; EU-25, of textile and clothing, 150; impact on, 137; implementation of, licensing provisions, 93; India’s, 258; of packaged commodities, 48; QRs on, 48; of textiles and clothing, 137; policy, restrictive, regimes, 43; using QRs, 80 importation, International comparison of efficiency of, 306 incremental innovations, 285 Independent Professionals (IP), 206 independent regulators, 183 India: ASEAN trade, 363; and mode 1, 204; and mode 4, 206; and GATS negotiation, 172; and NAMA, 130; as a user of anti-dumping measure, 325–336 Indian Biodiversity Act, 278 Indian Copyright Act, 237 Indian Council of Medical Research (ICMR), 250 Indian domestic policy regime, 134 Indian enterprises, 55 Indian firms, 200

INDEX Indian Hazardous Waste Rules (1989), 381 Indian Institute of Intellectual Property Management, 251 Indian large-scale manufacturers, 142 Indian patent law, 239 Indian Patents Act, 49, 236, 239–240, 275 Indian performance in post-quota period, 148 Indian Space Research Organisation (ISRO), 250 India–Singapore Comprehensive Economic Co-operation Agreement (CECA), 304 individual licenses, terms and conditions of, 182 Indo-German Export Promotion Project, 392 Indo–Lanka Free Trade Agreement (ILFTA), 360–361 Industrial Disputes Act 1948, 145 industrial property, protection of, 237 industrialised countries: 28, 70; terror strikes on, 63 industry structure, realignment of, 141 information dissemination, 54 Information Technology (IT), 170, 250 Information and Communication Technologies, applications of, 256, 280 infrastructure development, 189 infringement, 244, 247 input, 111 INSTAR, 277, 283 Institute of Chartered Accountants of India (ICAI), 200 Institute of Microbial Technology (IMTEC), Chandigarh, 241 insurance, 110 Insurance Regulatory and Development Authority (IRDA), 183 Insurance Regulatory Bill, 183 Intellectual Property (IP): 235; Appellate Board, 242; awareness, 250; enforcement of, 54; enforcement

415

of improved legislation on, 43; in herbal products, 261; in India after the TRIPS agreement, 239; India’s international arrangements related to, 237; Indian, regime, 33, 254; institutes, establishment of specialist, 251; lack of, protection, 43; laws of India, 237; laws, 238; laws, changes in, 54; legislation, 33, 235; legislation, consolidation of, 235; litigation, 33; management, 253; office of India, 249; protection, 256, 285, 290; protection available in India, 239; protection available in India before TRIPS, 236; protection for grassroots innovators, 289; protection for incremental innovations, 284; in universities, 252 Intellectual Property Training Institute (IPTI), 251 International Association for the Protection of Intellectual Property, 266 International Convention for the Protection of New Varieties of Plants, 289 International Federation of Accountants (IFAC), 200 International Rice Research Institute (IRRI), 262 international trading system, 71 International Union for the Protection of New Varieties of Plants UPOV, 259 Investigation: anti-subsidy, 51; multiplicity of, 346 Investment: 111; barriers to, 43 Intellectual Property Rights (IPRs); 40–41, 250, 256; associated with exploitation of biodiversity, 250; conventional, system, 282; enhanced, in India, 235; imperfections in, 259; laws relating to all forms of, 250; management of, in the Indian university system, 253; new systems of, 281; of the knowledge-rich economically-poor people, 257;

416

INDIA’S LIBERALISATION EXPERIENCE

offices, 49; offices, upgradation and modernisation of, 54; private, 388; protection and enforcement of, in India, 254; protection of, 33; systems, reform of, 275 Kashmir Pashmina, 248–249 Knowledge: centre/network, 265; cost of, production, 290; economy, 235; India’s traditional, 276; indigenous, 280; localized, 281; network for sustainable technological options, 279; output, 282; producers, 290; rich, applications to empower economically poor and, communities and individuals, 271–274; rich, poor communities, 276; system, 282; withholding of, 276 Kyoto Convention 1973, 299 Kyoto Protocol’s Clean Development Mechanism, 385 labour, contractual, 146 large-scale manufacture, 286 law firms: foreign, 202; foreign, in India, 200 layout design, evaluation of a registered, 248 Least Developing Countries (LDCs): 220; participants, 128 legal services, 200 less than full reciprocity (LTFR), principle of, 129 liberalisation: 43, 53, 197, 317; aggressive, 69; anti-dumping through India’s, Process, 321; autonomous and multilateral, 177, 186; autonomous, 172, 186–188, 197, 199, 216; beginning of, process, 336; classification of EGS for trade, 384; commitments, 189; in construction and engineering services sector, 189; domestic, 176, 186; and domestic reforms, 177; in education services sector, 193; external, 336; external, in the post-WTO scenario, 337; of

FDI ceilings, 178; of FDI restrictions, 178; features of, 186; in health services sector, 189; gains from, 73; in India’s accountancy services sector, 201; in India’s distribution services sector, 196; in India’s education services sector, 194; in India’s financial services, 182; in India’s legal services sector, 203; in India’s telecommunications sector, 179; India’s, 39; India’s economic, 40; India’s gains in the unilateral, process, 356; India’s, experience, 52; India’s programme, 208; Indian reactions to, 26; Indian, 41; initiatives, 137; in market access, 51; multilateral, 28, 55, 69, 172, 186, 199; multilateral versus unilateral, 171; multilateral versus unilateral, in services by India, 176; perceptions about, 52; post-1991, 40; potential impact of WTO-mandated, 29; privatisation and globalisation (LPG), 40; process, 339; progressive, 178, 337; progressive, of restrictions on trade and investment, 172; proponents of, 195; prospects of agricultural trade, 78; regional, 36, 359; relationship between multilateral and unilateral, 187; relationship of GATS with, 216; reservations about, 53; of retail services, 195; of services, 31, 207; of service sectors, 54; status of, in the distribution services, 195; status of, in the telecommunications sector, 178; tariff, schedules, 359; of trade in environmentally preferable products (EPPs), 384; unilateral, 36, 49, 52, 192, 208, 356; unilateral and multilateral, 208; of world markets, 62 literary works: 243; protection for, 243 Livestock Importation Act, 48 living standards in developing countries, 23

INDEX local knowledge: empowerment of, experts, 260; publications, 276 Look East policy: gains of, 369; India’s, 364 IP litigation practice, 236 man-made fibre (MMF), 136 manufacturing: Indian, 52; removal of, of knit fabric and woven garments from SSI reservation list, 141 market access: 99, 229, 231; commitments, 80, 91–95 Marrakesh meeting of April 1994, 343 material transfer agreement (MTA), 288 medicines, low cost, 286 Microsoft Corporation v Yogesh Popat, 245 Microsoft Corporation, 245 Ministry of Commerce and Industry (MoCI), 379 Ministry of Environment and Forests (MoEF), 379 Ministry of Telecommunications, 250 mode 4: 207; plurilateral request, 223 Montreal protocol, 380 Most Favoured Nation (MFN), 217 Multi Fibre Arrangement (MFA): 134; applied tariffs for agricultural products, 120; bound tariffs for agricultural products for OECD countries, 119; bound tariffs for agricultural products, 120; exemptions, 229 Multilateral Environmental Agreements (MEAs), 36, 372 multilateral trade negotiations, 40, 47, 57 multilateralism, 366 multi-national corporations, 256 Munidad Andina de Naciones (ANDEAN), 147 Mutual Recognition Agreements (MRAs), 356 Nairobi Treaty on the Protection of the Olympic Symbol (1981), 238

417

national and global production, 318 National Biodiversity Authority, 250 National Essential Drug List, 49 National Innovation Foundation (NIF), 275 National Institute for Fashion Technology (NIFT), 145 National Institute of Educational Policy and Administration (NIEPA), 192 National Rural Employment Guarantee Act, 146 National Technology Acquisition Fund, 290 National Telecom Policy (NTP) 1994, 178 Negotiating Guidelines and Procedures (NGP), 173, 213, 217 negotiations: background and rationale for plurilateral: 215; country groupings in WTO agriculture, 103; Doha, 25, 63; Doha round of, 4, 59–66, 172, 176, 215; Doha Round of multilateral trade, 57; Doha Round of services, 213; international, 288; multilateral, 58, 64, 69, 176–177; plurilateral, 214, 216–218, 228, 230–233; post-Doha, 95, 97; postUruguay Round of trade, 125; suspension of, in mid-2006, 24; trade, 61, 63 net food-importing developing countries (NFIDCs), 90 New Telecom Policy, 178 Non-Agricultural Market Access (NAMA): 24, 46, 128, 139, 213; Formulae, 129; or non-agricultural market access, 126 non-cooperation, 347 non-tariff barrier (NTB), 37, 79, 135, 391 Non-Tariff Measures (NTM), 303, 315 North American Free Trade Agreement (NAFTA): 36, 147, 349; creation of, 73 Open General Licence (OGL), 138

418

INDIA’S LIBERALISATION EXPERIENCE

operationalisation of requests, 229 Organisation for Economic Cooperation and Development (OECD): 385; countries, 92 organised mills: 145; nonpreferential rules of, 346 outsourcing, legislation on, 205 Overseas Commercial Banks’ Borrowers, 182 Paris Convention (1883), 237 Patent Cooperation Treaty (1970), 237 patent: 49, 236; facilitating centre PFC, 250; innovation, 284; innovation, system, 283; law, 54; office, 240; product, 240; product, applications, 49; product, regime, 285; protection, 44; protection on pharmaceutical and agro chemical products, 49; specification, 241; standard, 284; system, 284 patenting: concept of, of living organisms, 236; of microbiological inventions, 240 Patents (Amendment) Act 2005, 239 Patents Amendment Bill, 49 peak tariffs, 92, 135 Permanent Trade Facilitation Committee, 313 petty patent: applications, 284; system, 283 pharmaceutical: Indian, alliance, 240; industry, 240, 252; industry, Indian, 240, 284 Plant Varieties Registration and Protection System, 287 plurilateral approach: 229; apprehensions on, 230 plurilateral group, 220, 221, 227 plurilateral meetings, 227, 229 policy of import substitution and selfreliance, 339 polyester filament yarn, 140 ports and airports, India’s, 305 poverty reduction: 53; endeavours, 393

power projects, companies undertaking, 202 PP&VFR: 287; Authority, 249 Preferential Trade Agreements (PTA), 297, 350 price discrimination: 324; international, 322 prior informed consent (PIC), 388 product specific cuts, 132 production and processing methods (PPMs), 375 productivity and quality of cotton, 143 product-retailing, single brand, 195 product-specific aggregate measurements of support, 108 professionals, skilled, 235 protection: to IC layout design, 247; of literary and artistic works, 237; of plant variety, 249; of undisclosed information, 250 protectionism: 51; future, 204 protectionist legislation, 206 Public-Private Partnership (PPP), 144 QUAD, 375, 377 Quantitative Restrictions (QRs): abolition of, 338; elimination of, 27; elimination of, in general, 54; elimination of, on some agro products, 54; on imports, 136, 338; phasing out of, 339; removal of, 80, 137 quota: binding, 149; phase-out, 146 readymade garments, 148 reform: causal relationship between the, and exports, 146; deep, 72; domestic, 70, 172; domestic and structural, 28, 71; domestic policy, 135; domestic policy, during ATC period, 138; domestic, with the commitments and offers, 178; economic, 39, 235; in financial institutions, 289; fiscal duty, 140; in IPR system, 280; in trade facilitation, 295; India’s trade policy, 42; India’s trade, agenda, 34; Indian, experience, 26; of labour and

INDEX bankruptcy laws, 258; policy, data on production and consumption of textiles, 146; policy, during ATC period, 139; regulatory, 32, 187, 209; unilateral, 55; unilateral, in the Indian economy, 27 Regional Trade Agreements: 352; impact of, 349; reasons for engaging in, 352 regionalism: 369; economic, 350–352 registered user, 242 registration, period of, and renewal, 242 regulatory barriers, removal of domestic, 64 renewable energy, 283 Research and Development (R&D), 240 Restriction: on advertising of legal services by professionals, 202; disguised trade, 375; on movement of service providers, 63 Retail: industry, unorganised, 195; segment, 195; trading, 195 Retailing: 199; single-brand, 195 RiceTec, 49 rights: financial penalties for infringing the IP, of a third party, 244; and responsibilities, 260; special treatment and, 241 Rome Convention (1961), 238 Rotterdam Conventions, 380 Rules of Origin (RoO): 303; India’s negotiations with, 363 Sanitary and Phytosanitary Measures (SPS), 391 Sanitary Import Permit, 48 Saving and Credit Self Help Groups, 289 Scheme for Integrated Textile Park (SITP), 143–145 Scotch Whisky Association v Golden Bottling, 249 Seattle Ministerial Meeting, 47 Seattle Negotiations of 1999, 349

419

Securities and Exchange Board of India (SEBI), 183 semiconductor, 247 Semiconductor Integrated Circuits Layout Design Act 2000, 247 service: accountancy, 199; accountancy and bookkeeping, 199; back office, 200; barriers on, 43; basic telecommunication, 214; Business Process Outsourcing (BPO), 170; cellular mobile, 181; commission agents, 195; construction and engineering, 189; contractual, suppliers, 206; cross border delivery of legal advisory, 202; data and message transmission, 181; distribution, 193; environmental goods and, global market, 283; environmental goods and, 37, 283; financial, 186, 214; financial and basic telecommunication, 214; health related and social, 188; health sector, 189; India’s construction, 191; India’s health, sector, 190; India’s, exports, 23, 170; legal, profession, 202; negotiations, 217–218; plurilateral approach in, negotiations, 232; plurilateral negotiations in, 213; providers, India’s significance as a supplier of, 207; software, 170; software, exports, 170; telecommunication, 178, 186 Singapore Issues (trade facilitation, investment, government procurement and competition), 36 Singapore Telecommunications Ltd. (SingTel), 364 Singapore–India CECA, 363 single brand products, 195 Single–Undertaking, 73 Society for Research and Initiatives for Sustainable Technologies and Institutions (SRISTI): 258, 265, 268, 277, 280; objectives of, 269 software piracy, 245 soil classification system, 269

420

INDIA’S LIBERALISATION EXPERIENCE

sourcing: integrated, initiative, 315; integrated, initiative in the US– Singapore FTA, 315 offshore, 206 South Asia Sub-regional Economic Cooperation (SASEC) Programme, 360 South Asian Free Trade Area (SAFTA), 359 Special and Differential (S&D) measure, 84 Special Products (SPs), 99–100 Special Safeguard Mechanism (SSM), 99–100 Standards of Weights and Measures (Packaged Commodity) Order of 1977, 48 subsidiaries: with aggregate foreign investment, 183; in Singapore, 365; wholly owned, 183 subsidies: 94, 111; agricultural, 57; on average supply of seeds, 83; of the developed countries, 132; disciplining of agricultural, 102; effective disciplining of agricultural, 99; on electricity, 83; exempt, 86; farm, 24, 30; fertiliser, 83; India’s exports, 84–85; for internal transport, 84; irrigation, 83; nonproduct specific, 83; regime, 98; on skimmed milk, 89; total non-product specific, 83; withdrawal of, 102 surrogate firms, 200 sustainable development, 36 Swiss Coefficients, 129 Swiss Formula, 129, 131 synthetic, global consumption of, 141 tariff: agricultural, 99; on agricultural imports, 24; agricultural, lines, 93; agricultural, reduction, 57; applied, 82; arbitrage, 344–346; binding, 127, 132; commitments, 81; commitments, India’s, in the agricultural sector, 81; commitments, India’s, under the AoA, 81; cutting,

132; escalation, 91–92, 128, 135; escalations in areas of export interest, 97; existence of high, 97; harmonisation approach (better known as the ‘Swiss formula’), 98–99, 129, 131; high, 128; non-ad valorem, 92; peaks and tariff escalations, 24; peaks, 128; profiles, 257; protection, 92; rate quotas, 49, 57, 93; rate quotas established by India, 104; reduction, 42; reductions associated with Uruguay Round, 356; use of non ad valorem, by select WTO members, 120 Task Force on Indirect Taxes of 2002, 308 Tata Consultancy Services (TCS), 364 Tata Sons Limited v Fashion ID Ltd, 244 taxes, indirect, Kelkar Task Force’s recommendations on, 46 technical advisory committee (TAC), 289 technical barriers to trade (TBT), 391 technology innovation, universitydriven, and commercialisation, 253 Technology Mission on Cotton (TMC), 143 Technology Upgradation Fund Scheme (TUFS), 143 technology upgradation, 143 telecom and financial services for economy wide benefit, 208 Telecom Regulatory Authority of India (TRAI), 178 Textile Centre Infrastructure Development Scheme (TCIDS), 143 textile: duty structure of, 140; exports, 148, 156; global prices of, and clothing, 149; global trade in, and clothing, 147, 151; human resources issues in, industry, 145; India’s, industry, 135; Indian, and clothing industry, 31, 135–146, 154; Indian, sector, 153; industry, 144, 145; reasons for the decline in, and clothing, 147;

INDEX skilled manpower requirements of the, industry, 145; US imports of, and clothing, 149; world trade in, and clothing, 138 Time Case, 245 Time judgement, 244 Tokyo Round, 66 Trade & Merchandise Marks Act 1958, 242 Trade Agreement: with Sri Lanka, 359; on the international trade architecture, 36; India’s approach to, 354–360 trade: and environment, 378; and investment agreements, 352; definition of, 242; Doha Round of, talks, 354; facilitation, 294, 297, 299, 302, 303, 307, 316; facilitation agenda, 302; facilitation and transaction costs of trade in India, 305–308; facilitation engagement in PTAs, 314; facilitation, future of, in India, 308; facilitation, gains from, measures, 295; facilitation in India, 297, 308; facilitation, India’s commitment to, in PTA negotiations, 303; facilitation measures defined under; WTO negotiations, 300; facilitation measures, 303; facilitation policy in India, 311; facilitation process, 34; facilitation, recommendations of the working group on, 312; facilitation reforms, 313; in illegal parallel imports, 246; impact of preferential trade integration, 360; in India, 237; in mode 1, 204; Indian, policy, 36; international, and business, 39; Kasmati, registration, 49; liberalisation, 25, 36, 49, 74; liberalisation, initial stages of, 372; mark offences, 242; policy in India, 359; protection for, and copyrights, 243–245; Register of, 242; registration of, for services, 242; secrets, 236, 249–250; well-known, 241;

421

well-known, without registration, 241 Trade Marks Act 1999, 241–242 trademarks law, 242 Trade Policy Review Mechanism (TPRM), 41, 47 Trade Related Aspects of Intellectual Property Rights (TRIPS): 45, 236, 258; agreement in 1995, 238; agreement, expansion of the, 289; agreement, India’s compliance with the, 248; obligations, 49 reform of, 259–260; Trade Union Act 1926, 145 trademarks: 236; and copyright litigation, 243; definition of, 242; Kasmati, registration, 49; registration of, for services, 242; in India, 237; protection for, and copyrights, 243–245; Register of, 242; wellknown, without registration, 241 trade-offs: 229, 233; in WTO negotiations, 59; issue of, 132 Trade Related Aspects of Intellectual Property Rights and the Convention on Biological Diversity: 387; trade-related investment measures (TRIMs), 43, 45 trading: cash and carry wholesale, 195; dynamics of the international, system, 59; market oriented agricultural, system, 95; multilateral, system, 57, 65, 85; system, 60; system, importance of the multilateral, 57; wholesale, of joint venture based products, 195 Traditional Knowledge Digital Library (TKDL), 282 traditional knowledge: 54; misappropriation of, 388 TRAI Act, 181 TRAI guideline for a new accounting system, 181 training collaborations, 188 transaction costs: of international exchange, 299; of trading, 295

422

INDIA’S LIBERALISATION EXPERIENCE

transnational corporations (TNCs), 289 transport: internal, and freight charges, 84; internal, subsidies, 84 tribal development corporation, 263 Tropical Botanical Garden Research Institute (TBGRI), 263 TRQs: implementation of, 94; implementation of the, during 1995–2000, 93

Videsh Sanchar Nigam Limited (VSNL), 178 Vienna Convention, 380 voice telephony, 181

UN Conference on Trade and Development (UNCTAD), 384 unauthorised duplication, 238 undervaluation, 342–344 undisclosed information, 249 unilateralism, 41, 366 Unit Value Realisation (UVR), 149 United Nations (UN) Conference on Environment and Development, 374 United States Department of Agriculture, 269 United States Trade Representative (USTR), 63 United States, domestic support granted by, 113 universal service obligation, 182 University and Small Business Patent Procedures Act, 253 University Grants Commission, 253 Uruguay Round: 64; approach, 97; approach of average tariff cuts, 99; commitment, 174–175; negotiations, 53, 67, 79, 91, 95; objective of, negotiations, 80; success of, 354; of trade negotiations (1986–94), 374 US Trade Promotion Agreement (TPA), 24 USDA classification systems, 269 USPTO, 280

Washington Treaty (1989), 237 welfare gains for India, 366 welfare state, decline of, in the developed world, 271 workers: contract, 146; mobility of skilled, 366 Working Group on Trade Facilitation (WGTF), 302, 308, 313 World Trade Organization (WTO): 39, 78, 258, 136–373; acceptance amongst the, membership, 102; Agreement on Agriculture (AoA), 29; Agreement on Anti-dumping, 322; Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), 387; agreements of 1995, 349; agriculture negotiations in, 99; Committee for Trade and Environment, 375; Council for TRIPs, 289; Dispute Settlement Board of, 65, 283; Dispute Settlement Mechanism, 338; Doha, 56; failure of initial consultations at the, dispute settlement body (DSB), 376; harmonisation of, 378; history of, and India, 373; impact of, 136; impact of, commitments, 53; implementation of the, AoA, 101; implementation of, obligations, 26; India’s negotiations at, 173; membership of, 80; negotiations, 53; negotiations and India, 374–378; perceptions about, 52; specific, commitments, 53; talks, 23

Variety and Farmers Rights Protection Act PPV&FR 2001, 249 veto power, 62

Yahoo! Inc v Shah, 244 Yahoo! Inc, 244 YAHOO!, 245