The WTO deadlocked: understanding the dynamics of international trade

The WTO Deadlocked

The WTO Deadlocked Understanding the Dynamics of International Trade

DEBASHIS CHAKRABORTY AMIR ULLAH KHAN

Copyright © Debashis Chakraborty and Amir Ullah Khan, 2008 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 2008 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, phototypeset in 10.5/12.5 pt Garamond by Diligent Typesetter, Delhi and printed at Chaman Enterprises, New Delhi. Library of Congress Cataloging-in-Publication Data Chakraborty, Debashis. The WTO deadlocked: understanding the dynamics of international trade/by Debashis Chakraborty and Amir Ullah Khan. p. cm. Includes bibliographical references and index. 1. India—Commercial policy. 2. World Trade Organization. 3. International trade—India. I. Khan, Amir Ullah. II. Title. HF1589.C422

382'.30954—dc22

ISBN: 978-0-7619-3606-0 (HB)

2008

2008016119

978-81-7829-769-9 (India-HB)

The SAGE Team: Sugata Ghosh, Vikas Jain, Rajib Chatterjee and Trinankur Banerjee

Contents List of Tables, Figures and Boxes List of Annexures List of Abbreviations Foreword by Biswajit Dhar Preface 1. India and the WTO: The Increasing Participation at the Multilateral Level 2. Agreement on Agriculture: The Pandora’s Box? 3. The SPS–TBT Measures and Environmental Concerns 4. NAMA Negotiations: The Way Ahead 5. Trade in Textiles and Clothing in the Post-MFA Period 6. Anti-Dumping, Subsidy, and Countervailing Measures and Safeguards Mechanism: The Battle Over Contingency Measures 7. Intellectual Property Rights: Where Do We Stand? 8. Trade in Services: Emerging Key Interest Area 9. Regionalism in the Era of Multilateralism: The Changing Focus 10. Ensuring an Efficient Dispute Settlement System at the WTO 11. Looking beyond Hong Kong: What Next for India? Annexures Bibliography Index About the Authors

vi viii x xvi xix 1 21 45 58 79 93

117 131 150 173 193 203 298 321 328

List of Tables, Figures and Boxes Tables 2.1 4.1 5.1 5.2 5.3 5.4 6.1 8.1 9.1 10.1 10.2 10.3 11.1

The Overall Trade Distorting Support (OTDS) of Developed Countries The Formula Debate Integration with the Principles of GATT Competitiveness of Indian Textile Industry at Various Stages Comparison of Revealed Comparative Advantage for India vis-à-vis Its Neighbours (SITC—3 digit) Post-MFA Growth of India’s Textile Exports to the US (Selected Categories) Trend in Imposition of Anti-Dumping Cases Structure of India’s Service Exports India’s Negotiating Collaborations and Regional Agreement Partners Analysis of Complaints by Developed/ Developing Members Cases at DSB Involving India Trade Policy Reviews of India An Analysis of India’s Submissions at WTO

23 67 80 81 81 89 97 134 165 174 182 189 196

Figures 1.1 1.2 2.1 2.2 2.3 3.1 3.2 3.3 4.1

India’s Share in Global Goods and Services Trade China’s Share in Global Goods and Services Trade Trends in AMS and PSE in India (1987–2000) Alleged Violation of Agreement on Agriculture—Article-wise Actual Violations of Agreement on Agriculture—DSB Rulings Alleged Violation of SPS Agreement—Article-wise Actual Violations of SPS Agreement—DSB Rulings Alleged Violation of TBT Agreement—Article-wise The State of Tariff Bindings

3 3 24 37 38 53 54 54 73

List of Tables, Figures and Boxes

5.1 5.2 6.1 6.2 6.3 6.4 6.5 6.6 6.7 8.1 9.1 9.2

Annual Percentage Change in Textile Exports to the Developed World (First-half of 2005) Alleged Violation of Agreement on Textile and Clothing—Article-wise Global Anti-Dumping Initiations (1980–2004) Alleged Violation of Anti-Dumping Agreement—Article-wise Actual Violations of Anti-Dumping Agreement—DSB Rulings Alleged Violation of Subsidy and Countervailing Measures Actual Violations of Subsidy and Countervailing Measures—DSB Rulings Alleged Violation of Safeguard Measures Actual Violations of Safeguard Measures—DSB Rulings Contribution of Various Modes of Supply in Global Services Trade Evolution of Regional Trade Agreements in the World, 1958–2006 Regional Trade Agreements in Southern and Western Africa

vii 83 87 95 103 105 108 110 113 114 135 151 158

Boxes 2.1 2.2 4.1 4.2 7.1 8.1

Commerce Minister’s Speech on the Derbez Draft Gains in Agriculture for India from the Hong Kong Ministerial Implications of July 2004 Discussion Gains in NAMA for India (Industrial Products) Gains for India on TRIPS Gains for India in Services

29 33 68 71 126 145

List of Annexures 1A 1B 1C 1D 1E 2 3 4A 4B 4C 5 6A 6B 6C 6D 7A 7B 7C 7D 8A 8B 8C 8D 8E 9A 9B 9C 10A

The Openness Measures for Indian Economy Export Ratios of India by HS Sections Import Ratios of India by HS Sections The Trend in India’s Export Direction The Trend in India’s Import Direction Completed WTO Cases on Agriculture-related Issues WTO Cases on SPS–TBT-related Issues Tariff Reforms of Select Countries Tariff Escalation by 2-Digit ISIC Industry WTO Cases on Tariff-related Issues WTO Cases on Textile-related Issues WTO Cases on Anti-Dumping-related Issues An Analysis of DSB Complaints Involving Dumping WTO Cases on Subsidy and Countervailing Measures-related Issues WTO Cases on Safeguards-related Disputes Completed WTO Cases on TRIPS-related Disputes International Norms and Indian Law on IPRs Major Amendments in Indian IPR Legislations Membership of India in International IPR Conventions Leading Exporters and Importers of Global Service Trade Main Problems with the Modes of Service Trade Completed WTO Cases on Services-related Disputes Summary of Key Sectors of Importance to India India’s Sectoral Revised Offer for Trade in Services—Select Sectors Merchandise Exports within Bloc India’s Involvement in RTAs—A Summary An Analysis of Trade Scenario between India and Proposed Partners Completed WTO Cases Involving DSU-related Disputes

203 204 205 206 207 208 211 215 218 220 222 223 228 229 233 238 242 244 245 246 249 250 252 254 262 263 267 270

List of Annexures

10B 10C 10D 10E 10F 10G 10H 11 12

WTO Disputes Involving India as Respondent WTO Disputes Involving India as Complainant Select Cases Involving India in DSB as Third Party India’s Submission on DSU—1 India’s Submission on DSU—2 India’s Submission on DSU—3 Summary of DSB Rulings against Select WTO Members An Analysis of Current Cooperation between India and Select Prefrential Trade Partners List of Groupings at the GATT/WTO

ix 271 275 280 282 384 385 287 289 291

List of Abbreviations AB ABI ACP ACWL AD ADA ADD AIDS AMS AOA APEC ASEAN ASSOCHAM ATC BAPIO BIAs BIMST–EC BIS BITs BOP BPO CACM CAP CBD CBEC CECA CENTAD CFTA

Appellate Body Argentina, Brazil and India Africa, Caribbean and Pacific Advisory Centre on WTO Law Anti-Dumping Anti-Dumping Agreement Anti-Dumping Duty Acquired Immunodeficiency Syndrome Aggregate Measurement of Support Agreement on Agriculture Asia-Pacific Economic Cooperation Association on South-East Asian Nations Associated Chambers of Commerce and Industry of India Agreement on Textiles and Clothing British Association of Physicians of Indian Origin Bilateral Investment Agreements Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation Bureau of Indian Standards Bilateral Investment Treaties Balance of Payment Business Process Outsourcing Central American Common Market Common Agricultural Policy Convention on Biological Diversity Central Board of Excise and Customs Comprehensive Economic Cooperation Agreement Centre for Trade and Development Comprehensive Free Trade Agreement

List of Abbreviations

CGE CII CL CSS CTE CTESS CTH CTS CU CUTS CVD CVM DDA DGFT DMD DNA DPCO DS DSB DSM DSP DSU DTTs DWP EAEC EBA EC EEC EFTA EHS EPA EPW ENT ESCAP EU FAO

Computable General Equilibrium Confederation of Indian Industry Compulsory Licensing Contractual Service Suppliers Committee on Trade and Environment Committee on Trade and Environment Special Session Change in Tariff Heading Council for Trade in Services Customs Union Consumer Unity & Trust Society Countervailing Duty Countervailing Measure Doha Development Agenda Directorate General of Foreign Trade Doha Ministerial Declaration Designate National Authority Drug Price Control Order Dispute Settlement Dispute Settlement Body Dispute Settlement Mechanism Dispute Settlement Panel Dispute Settlement Understanding Double Taxation Treaties Doha Work Programme East Asia Economic Caucus Everything But Arms European Community European Economic Community European Free Trade Association Early Harvest Scheme Environment Project Approach Economic and Political Weekly Economic Needs Test Economic and Social Commission for Asia and the Pacific European Union Food and Agricultural Organization

xi

xii The WTO Deadlocked FDA FDI FICCI FIPB FIPS FSC FSIS FTA FTAA GATS GATT GC GCC GDP GI GM GNIE GoI GPA GSP GTAP HACCP HIV HS HT IBSA IBSAC ICT IDBI IFPRI IIAs IIPA ILO IP IPR ISO ITA ITES

Food and Drug Administration Foreign Direct Investment Federation of Indian Chamber of Commerce and Industries Foreign Investment Promotion Board Five Interested Parties Foreign Sales Corporation Food Safety Inspection System Free Trade Area Agreement Free Trade Area of the Americas General Agreement on Trade in Services General Agreement on Tariffs and Trade General Council Gulf Cooperation Council Gross Domestic Product Geographical Indications Genetically Modified Government not Included Elsewhere Government of India Government Procurement Agreement Generalised System of Preferences Global Trade Analysis Project Hazard Analysis Critical Control Point Human Immunodeficiency Virus Harmonisation System Hindustan Times India, Brazil, South Africa India, Brazil, South Africa, China Information and Communication Technology Industrial Development Bank of India International Food Policy Research Institute International Investment Agreements International Intellectual Property Alliance International Labour Organization Independent Professionals Intellectual Property Rights International Organization for Standardization Information Technology Agreement Information Technology-Enabled Services

List of Abbreviations

JACIK LAIA LDC LMG LMO LMT LTA LTFR MFA MFN MFP MNCs MNP MNT MRA MRPL MST MTS MUT NAFTA NAMA NASSCOM NGMA NGOs NGTF NMCC NT NTBs NTMs OECD OSHA OTDDS OTDS PPM PRC

xiii

Japan, ASEAN, China, India and Korea Latin American Integration Association Less Developed Countries Like Minded Group Living Modified Organisms Local Market Tests Long Term Arrangement Less Than Full Reciprocity Multi-Fibre Arrangement Most Favoured Nation Ministry of Food Processing Industry Multinational Corporations Movement of Natural Persons Management Needs Tests Mutual Recognition Agreement Minimum Required Performance Limit Marke Schadstoffgeprufter Textilien Maritime Transport Service Marke Umweltschonender Textilien North American Free Trade Agreement Non-Agricultural Market Access National Association of Software and Services Companies Negotiating Group on Market Access Non-Governmental Organisations Negotiating Group for Trade Facilitation National Manufacturing Competitiveness Council National Treatment Non-Tariff Barriers Non-Tariff Measures Organisation for Economic Co-operation and Development Occupational Safety and Health Administration Overall Trade Distorting Domestic Support Overall Trade Distorting Support Parts Per Million People’s Republic of China

xiv The WTO Deadlocked PRO PSE PSI PTAs PVP QR R&D RBI RCA RGICS RIA RIS ROO ROW RTAs S&D SAARC SAFTA SACU SADC SCM SDT SEBs SI SITC SME SPs SPS SRM SSI SSM TBT TDCA TEDs TF TFA

Preferential Rules of Origin Producer Support Estimates Pre-Shipment Inspection Agreement Preferential Trade Agreements Plant Variety Protection Quantitative Restriction Research and Development Reserve Bank of India Revealed Comparative Advantage Rajiv Gandhi Institute for Contemporary Studies Regional Integration Agreement Research and Information System for the NonAligned and Other Developing Countries Rules of Origin Rest of the World Regional Trade Agreements Special and Differential South Asian Association for Regional Cooperation South Asian Free Trade Area South African Customs Union South African Development Community Subsidy and Countervailing Measures Special and Differential Treatment State Electricity Boards Singapore Issues Standard International Trade Classification Small and Medium Enterprises Special Products Sanitary and Phyto-Sanitary Specified Risk Materials Small-Scale Industry Special Safeguard Mechanism Technical Barriers to Trade Trade, Development and Cooperation Agreement Turtle Excluder Devices Trade Facilitation Trade Facilitation Agreement

List of Abbreviations

TI TK TMB TNC TPR TPRM TRIMS TRIPS TRQs TSE TUF TUFS TUPE UK UN UNCTAD UNEP UPOV UR US/USA USAID USDA USFDA USRBT USTR VER WB WHA WPDR WTO

xv

Trade and Investment Traditional Knowledge Textile Monitoring Body Trade Negotiations Committee Trade Policy Reviews Trade Policy Review Mechanism Trade Related Investment Measures Trade Related Aspects of Intellectual Property Rights Tariff Rate Quotas Total Support Estimate Technology Upgradation Fund Technology Upgradation Fund Scheme Transfer of Undertakings and Protection of Employees United Kingdom United Nations United Nations Conference on Trade and Development United Nations Environment Programme International Union for the Protection of New Varieties of Plants Uruguay Round United States of America United States Agency for International Development United States Department of Agriculture United States Food and Drug Administration United States Barriers to Trade and Investment United States Trade Representative Voluntary Export Restraints World Bank World Health Assembly Working Party on Domestic Regulation World Trade Organization

Foreword The book is not markedly novel as compared to other literature available in this field, barring two main points. First, it attempts to provide an overview of Indian negotiating strategies in various areas, including agriculture and non-agricultural market access and services. Second, for each agreement covered in the current volume, the authors have analysed the potential as well as actual violations of these agreements on the basis of the World Trade Organization (WTO) case laws, arguing in favour of future reform of the actually violated provisions. The volume sets the tone by describing India’s tryst with the multilateral trading system. Until the turn of the century, or roughly till the Seattle ministerial, the presence of India at the WTO negotiating forums was not very prominent. However, in the period since, India has emerged as a major player in the negotiating dynamics of the WTO. The discussion on agriculture familiarises the reader with the ongoing negotiations in this area. The key issues of the subsidy question and agricultural tariff reform have been given due prominence. India’s negotiating stances are also mentioned in this context. Sanitary and Phytosanitary Measures and Technical Barriers to Trade have often been seen as the harbingers of neo-protectionism, as these standards are prone to misuse. The authors have reviewed various concerns cited on this ground and looked into the Indian experience as well. The major focus of the negotiations on Non-Agricultural Market Access (NAMA) has been on the determination of an appropriate formula for tariff reduction. Lately, the emphasis has shifted to the determination of suitable coefficients for both developed and developing countries. The discussion in this volume gives an account of the ongoing negotiations and the viewpoint of the major players across the table. For a long time, developing countries, including India, considered the continuation of the Multi-Fibre Arrangement (MFA) to be a major barrier to their exports. The phasing out of the MFA in the recent years has been a boon for Indian players, although the sector would still continue

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to face tariffs, standard-related barriers and contingency measures. The post-MFA developments, India’s preparedness in this regard in particular, have been documented. It is believed that the contingency measures under the WTO, that is, anti-dumping, subsidy and countervailing measures, and safeguard provisions contain enough room to provide for potential misuse. An attempt has been made to analyse the areas within those agreements, which are misused most frequently. The inclusion of the Agreement on Trade Related Aspects of Intellectual Property Rights as a part of the WTO regime has been one of the major concerns of developing countries. These countries have been wary of the fact that a strengthened regime of intellectual property protection could have adverse implications for access to medicines for their population. The authors have discussed briefly the provisions of the TRIPS Agreement and the Indian scenario. After discussing the debate on TRIPS and public health, Indian negotiations on the TRIPS front are briefly described. Negotiations on trade in services started under the WTO after the negotiation on trade in goods, and owing to the adoption of request–offer approach here, the WTO members have always been cautious. The volume provides a brief overview of the ongoing state of play in the negotiations and discusses India’s negotiating stances on this area. The number of regional/preferential trade agreements has been on the rise in recent years. Almost all the WTO members are part of these arrangements and India is no exception to this trend. The authors have discussed the WTO provisions relating to the regional/preferential trade arrangements and have provided an overview of the existing Indian preferential trade agreements. They also take into consideration the ongoing debate over preparation of the negative lists, drafting of the rules of origin, and so on. Dispute settlement is the safety valve of the WTO system. This critical aspect of the WTO has been given due importance in the volume by focussing on two sets of issues. In the first place, key provisions have been spelt out. Second, the major issues pertaining to the ongoing Doha Round negotiations have been discussed alongside India’s proposals in this regard. In the final section, the authors have analysed India’s submissions to the WTO on various fronts over the years and have commented on its future agenda. They have tried to reflect on the developments taking place

xviii The WTO Deadlocked through the establishment of bilateral and regional trade agreements, and the likely implications of these developments on the negotiating dynamics at the WTO. The volume encapsulates the complex array of issues that are being discussed at the WTO, particularly in the context of the ongoing Doha Round negotiations. These negotiations are being conducted as a part of a single undertaking. In other words, all areas included in the negotiating mandate are being negotiated simultaneously. The importance of the single undertaking is that no agreement can be reached until the WTO members reach an agreement on each of the areas included in the mandate. By covering all the key areas included in the negotiating mandate, the authors of the present volume provide the readers an opportunity to assess the outcome of the Doha Round negotiations. February 2008

Biswajit Dhar Head, Centre for WTO Studies New Delhi

Preface India’s position at the GATT/WTO forums has historically been a complex one. As a founder member of the multilateral trading system, it has been a steadfast supporter of multilateralism even when it was at its protectionist best. Now, while it continues to be a relatively high tariff country with restrictions in select sectors, it leads a small group of countries that prefer a multilateral institution to bilateral and plurilateral agreements. However, the Indian position has not been time-invariant and the recent inclination towards regional trade agreements (RTA) simultaneously with multilateral negotiations is worth a mention here. The reason, perhaps, is the realisation that the earlier argument on the optimality of one agreement over 150 agreements is often defeated by the fact that agreements with each member country are not required. What it needs is bilateral agreements with a few major partners and key trading blocs. The slow pace of the RTA negotiations in the recent period over the potential threat perception of the domestic industry marks another recent change. What really causes this kind of a response? The best possible way to respond is that in India, the debate on international trade has been and continues to be a debate on globalisation. The believers of the infant industry argument argue that small businesses cannot compete with large foreign firms and imports lead to a shift of production away from indigenous sources, thereby causing unemployment. It is further argued that free trade leads to dumping of poor quality goods from across the border, with possible harmful repercussions on health and environmental front. Also, reliance on imports leads to dependence on foreign countries, who might then exploit their economic advantage for political benefit. In addition, free investment regimes leading to free flow of currency, make domestic economies vulnerable to the whims of foreign investors and cause crises like the ones experienced in Latin America and East Asia. However, free trade not only benefits the countries involved, but also results in higher returns for the entire world by causing globalisation

xx The WTO Deadlocked of production and consumption. It allows countries to leverage their comparative advantages and leads to specialisation in goods and services that they are relatively more efficient in producing. Free trade improves the chances of countries, especially the poor ones, to conduct business internationally, allowing local firms to widen their portfolios and enter large foreign markets. In this context, trade policies assume significance and political mindset prevails over issues such as import restrictions, export regulations, tariffs and duties. It is important for policymakers in various countries to understand that unrestricted free trade and the free exchange of goods, services and human resources lead to a convergence in prices and stability across the world. Protectionism actually hurts the consumer as local prices rise and hurts domestic manufacturers who are unable to get raw material from the cheapest sources. It is ironic that the debate against trade surfaces in a country like India that has been the pioneer of trade across borders and has historically been both a supplier of and a market for foreign goods. The rich heritage of Indian trade with the Roman civilisation, East and West Asian, and Red Sea countries, and its presence on the silk and spice route map is worth a mention here. Moreover, trade was instrumental in the emergence of modern Indian cities, like Agra, Delhi, Srinagar, Ahmedabad, Mumbai, Surat, Hoogli, Patna and Murshidabad, in various parts of the country. For instance, when the effects of the Multi-Fibre Arrangement phase out on the Indian textile and garment sector is discussed now, its heritage of textile export needs to be remembered. The export of cotton from Gujarat to Arabia to Southeast Asia, silk and natural colour dyes to the Far East, the indigenous varieties of silk like tussar and munga from the eastern states, coloured and printed cloth material from Malabar are noteworthy. However, trade rapidly declined after the East India Company took over Mughal reins, and the high tariffs and discriminating protection subsequently caused deindustrialisation. It is in this backdrop that one must look at the trade policy that independent India defined for itself. The strong urge for removal of colonial legacy in the post-Independence period played a major role in the Industrial Policy Resolution (IPR)(1948), which stated: The Government of India agree [8] with the view…that participation of foreign capital and enterprise…will be of value to the rapid

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industrialisation of the country…the conditions under which they may participate in Indian industry should be carefully regulated in the national interest…. It will provide that, as a rule, the major interest in ownership, and effective control, should always be in Indian hands…. In all cases, however, the training of suitable Indian personnel for the purpose of eventually displacing foreign experts will be insisted upon. The IPR (1956) declared: Parliament has adopted the socialist pattern of society as the objective of social and economic policy… the State will progressively assume a predominant and direct responsibility for setting up new industrial undertakings and for developing transport facilities. It will also undertake State trading on an increasing scale. The IPR (1977) was announced along the same track— Self-reliance must continue to be a paramount objective of the country’s industrial and economic policy…. The creation of a strong and diversified industrial economy does not mean that the country should not or need not participate in international trade, both as exporter and importer of industrial goods.... Relaxation of quantitative restrictions, must, however, be consistent with our overall Plan priorities. Ever since economic reform began in India, by stealth in the 1980s and openly in the 1990s, trade policy reforms demonstrated the shift from a policy of import substitution and export pessimism. This has been facilitated by the introduction of an outward looking and liberal trade policy, removal of quantitative restrictions, rationalisation of tariff levels, removal of licensing requirements for setting up industrial units, and removal of licences and quotas for exports and imports, and so on. The average tariffs for foreign goods have been brought down to meet the country’s WTO obligations. From a mean tariff level of around 110 per cent in 1991, the mean effective tariffs have been brought down to less than 22 per cent on most products, and it should further reduce in coming period. On the goods front, a small number of goods fall in the

xxii The WTO Deadlocked ‘restrictive list’ of imports, the restrictions being principally on account of security, health and environment protection issues. Otherwise, most of the goods are freely importable on payment of the specified customs duty without licensing requirements. There exist some import restrictions only on goods reserved for production by the small-scale sector units in the country, or the home- or village-based units requiring low skills and employing a large number of people. As a result, imports have been growing rapidly in line with exports. This has been reflected in India’s rising share in world trade, both for exports and imports. Rising imports in today’s India is not necessarily the kind of bad news it used to be decades ago. The credit partly goes to the vibrant agriculture sector, which has left the foodgrain crisis days behind. Today, a country that is capable of importing large quantities of goods and services is a strong country that can use these imports to produce more goods. Also, it has enough resources to pay for this level of rising imports. With a strong foreign exchange reserve that now stands at US$ 290 billion, and a rich NRI population that remits more than US$ 28 billion a year, the foreign exchange regime in India is on a strong wicket. This changing perspective is reflected in the investment attractiveness of the country as well. FDI inflows in 2006–07 were US$ 16 billion and the target for 2007–08 is US$ 30 billion. This is a big jump over the corresponding figure of US$ 5.5 billion in 2005–06. What is also interesting is the diversity of India’s exports. Unlike most countries that depend on trade with the US alone, India’s exports are distributed to a large number of countries. In India’s export basket, with consolidation, the importance of the European Union (EU) is on the rise. The UAE comes next with nearly a tenth of India’s exports headed there. In imports too, India buys from a large number of countries and here, too, Saudi Arabia, Australia and the UAE are important partners. A diversification in the export–import basket is important for countries for reducing their dependence on a handful of markets. The Indian external sector is clearly diversified, both in terms of the large number of products it exports and imports, and in the number of countries it trades with. Even when there are trade restrictions a lot of informal trade takes place, as seen between India and Pakistan when the two countries did not allow goods to formally move across borders. Informal trade between India and Bangladesh is also worth a mention. What hampers trade are wars, internal strife, currency fluctuations, domestic monetary policies, and increasingly, issues related to piracy and counterfeiting. However, some of these are no

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longer as critical, as no longer do countries trade with each other like they used to. Trade is now largely an inter-firm affair, involving both big and small players. In fact, in countries like India, it is the small-scale sector that is responsible for a substantial volume of exports. Trade has also diversified beyond the trade in commodities and manufactured goods, with rapid increase in investment of capital in manufacturing, extractive, agricultural, transportation and communication assets, supervision of employees hired or managed in different countries, investment in international services like banking, advertising, tourism, retailing and construction, and so on, and transactions involving copyrights, patents, trademarks and process technology. Coming back to India and the WTO, the country had earlier opposed liberalisation and tariff reduction in non-agricultural goods, but now argues strongly for bringing industrial tariffs down and has been doing so unilaterally. It also argues for keeping some protection for the agricultural sector. It was earlier opposed to bringing Intellectual Property Rights (IPR) into the trading domain, but is now an advocate of IPR protection. India was dragged, crying and screaming, into the discussion on trade in services during the Uruguay Round (UR), and today, it is amongst the most aggressive supporters of liberalised service trade. There are many such instances where the world would find India’s stance inconsistent and that is why the oft-repeated charge that India has been unduly defensive at the WTO. The current book is an audacious attempt to analyse India’s evolving stance at the WTO, which itself is an arduous task. Services and investment are the other important areas. The growth rate of the service sector components of India’s GDP has been remarkable and unprecedented. This sector has also contributed significantly to growth in exports in the last decade. However, the partners still complain about the investment restrictions in various service sectors and that would be the next major challenge for India. India’s current cautious step is again interesting. The country was among the lowest recipients of FDI among developing countries until the 1970s. In the 1970s, the total cumulative inflow of FDI was about US$ 450 million amounting to 0.20 per cent of gross domestic investment. India was traditionally a country that foreign investors and multinational corporations avoided. It started opening up its market from July 1991 by lowering tariff and non-tariff barriers (NTBs) and liberalising investment policies. Even after the open door policies, low interest rates and fast paced economic growth, the flow of FDI was slow despite the fact that other developing countries witnessed a rising trend then.

xxiv The WTO Deadlocked In the recent past, especially in the last three years or so, there has been a surge of dollars coming into the Indian economy by way of export earnings, FDIs, portfolio investments and Non-resident Indian (NRI) repatriation. This has fuelled an unprecedented supply of dollars in India. A large number of foreign institutional investors (FIIs) are now putting their money into India’s capital markets. The boom at the stock exchange had attracted more than US$ 17 billion by October 2007. NRIs had already made India the largest recipient of non-resident repatriation by sending home more than US$ 28 billion last year. With the exception of mining, agriculture and the retail sectors, India has significantly opened up its economy for foreign investment and that is the reason it has become such a favourite destination of the foreign investors, including the US. Till the 1990s, it was Europe that invested in India. The scenario has changed in the recent past and a large number of American firms, including AT&T, GE, GM, Ford, IBM Corp, Motorola, Mobil, Pepsi and Exxon, have invested in India. Most investment comes into three different sectors—infrastructure, consumer goods and oil. Nonetheless, infrastructure continues to be of lesser quality as compared to any of the East Asian and Latin American economies it competes with for attracting FDI. The upward surge in FDI in the last two years is, despite such problems, indeed, remarkable. One underlying reason is, perhaps, the fact that India entered into a number of investment treaties and double taxation avoidance agreements with several countries. Also, India’s rising domestic income makes it a large market and its trained workforce makes it an ideal manufacturing centre. The impressive capital accounts scenario has been instrumental during the last year in reopening the capital account convertibility question that was virtually closed 10 years back. The huge dollars inflow and the world market condition coupled with the interaction of a weakening dollar and a consequently stronger rupee ensured that imports become cheaper. That is the reason India’s manufacturing sector, that imports its machinery and raw material, has no reason to complain. Also, rising oil prices have not meant higher cost of petrol and diesel to the consumer in India, because of the cheaper dollar. With a trade deficit that is already high, India could not have asked for more. Imports are going up, but the impact is softened as dollars become cheaper by the day. On the other hand, during the quarter October–December 2007, the declining trend in exports has been a worrying trend. There are some exports that do depend on a weak rupee and these exports are indeed going to suffer, in some low value items like

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textiles and call centres/BPOs. Indian participation at the WTO in the coming future may reflect these developments. The draft texts circulated in January and February 2008 is a case in point here. The feeling is that the measures suggested both under the agriculture and the Non-Agricultural Market Access (NAMA) do not suit India’s interests. For industrial tariffs, India would have to substantially cut duties; which, if one looks at the tariff structure prevailing in the country, should be brought down in any case. And it is a matter of time that these are brought down to ASEAN levels unilaterally. But while the text is being debated, the familiar arguments are floating: why should developing countries cut down tariffs drastically while the developed ones only make marginal reductions, and such others. On agriculture, India finds the US offer of cutting down subsidies by a fourth insufficient. It is also unhappy with the manner in which tariff escalation provisions neglect India’s primary export interests (milk and milk products, meat and meat products, mangoes and other fruits, and so on). It is interesting to note that, at times, India led the group of developing countries and least developed countries (LDC) at the WTO on these and other questions but had also realised from time to time the costs associated with it, given the growing diversity among that group. On all possible external fronts, India is poised for growth and consequent challenges. The questions that now need to be asked are: 1. Does the ongoing negotiations and the framework agreement put the Doha Development Agenda (DDA) back on track? 2. Is there any reason to think that the multilateral trading system, after having been nearly pushed towards extinction, is again alive and kicking, and can deliver, particularly to developing countries? 3. Will India continue to romance both the bilateral and the multilateral approaches, and what can be the possible outcomes? 4. Will it also strive to improve its own Regional Trade Association with South Asia and other immediate neighbours? 5. Will it continue to play the developing country leadership role in coming years? 6. Would the Indian strategy of engaging with the EU through an FTA or a comprehensive agreement mark a change in its attitude towards developed countries? The book is an attempt to find answers to some of these questions.

1 India and the WTO: The Increasing Participation at the Multilateral Level INTRODUCTION The basic objectives of establishing the World Trade Organization (WTO) in 1995 were to raise standards of living and income, ensure full employment, expand production and trade, and an optimal use of the world’s resources. While the volume of world trade has increased considerably over the last decade, the barriers to trade are, however, yet to be phased out. The timeline of removal of the existing barriers is also quite uncertain given the present status of negotiations. It is already clear that the negotiations at the Hong Kong Ministerial of the WTO held in December 2005 and afterwards could not resolve many of the unfinished modalities. The Hong Kong deadline of negotiations on modalities—April 2006—has already been missed and the divergent viewpoints of the developed and the developing countries make the chances of arriving at a consensus soon quite bleak. India, as a member of various developing countries’ groups, has been quite active in the WTO negotiations since the late 1990s. The increasing association with the General Agreement on Tariffs and Trade (GATT)/ WTO was fuelled by the growing openness (expressed by total trade to GDP ratio in Annex 1A) of the Indian economy since the initiation of economic reform in 1991, which received a further boost with the inception of the WTO in 1995. However, quite interestingly, looking at the composition of trade, presented in Annexes 1B and 1C, we observe that India’s exports and imports at the Harmonisation System (HS) sectional level have shown limited fluctuations over the years. While the proportional presence of chemical and pharmaceutical products, base

2 The WTO Deadlocked metal industries, machinery and equipment, and gems and jewellery has increased in India’s export basket, the same for agriculture has declined both in the case of exports and imports. It has been observed that exports of value-added items have been on the rise in the recent period. The proportional share of textile products—the highest contributor to the export basket—has also declined over the last decade, signifying its relatively slower growth rate—because of the MFA-quota regime up to 2005—vis-à-vis the other growing sectors. In the case of imports, trade in machinery and equipment has played a major role throughout the last decade. The importance of petroleum and mineral products as well as gems and jewellery has also increased significantly.1 The relative stability at the aggregate level, perhaps, implies that in spite of the growing trade in newer product lines at the more disaggregated level, the importance of traditional sectors is still significant, which partly explains India’s low key approach at the WTO during the initial years. However, India’s trade destinations have diversified significantly, as observed from Annexes 1D and 1E. Presently, the developing countries in Southeast Asia account for a significant proportion of India’s trade in comparison with the same 10 years back, while the contribution of North America and the European Union (EU) is declining in India’s trade basket. Perhaps, this has led India to go actively for preferential trade arrangement negotiations with a number of Southeast Asian countries on one hand and, on the other hand, to confront the EU and the US at the WTO forums on trade liberalisation. In other words, the decline in the importance of developed country markets in the trade basket has been instrumental behind the country’s move to adopt a stronger standpoint against them at the multilateral negotiations on market access issues. The stated objective of the Foreign Trade Policy (2004–09) of the Ministry of Commerce has been to double the percentage share of India’s global merchandise trade within the next five years. In the case of merchandise trade, India was in a comfortable position during the 1940s, but thanks to the policy of self-reliance and the import-substitution strategy adopted subsequently, its trade share significantly declined over the next three decades. Although both export and import shares of India in the global market increased marginally during the first decade of the WTO (Figure 1.1), they look quite modest in comparison with the neighbour China (Figure 1.2), the corresponding figures for whom have more than doubled

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Figure 1.1 India’s Share in Global Goods and Services Trade 2.50 2.00 1.50 1.00

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over the same period, despite the fact that the latter became a member of the WTO only in 2001.2 India’s trade in the services, however, has increased at a much faster rate over the period 1992–2005, as observed from Figure 1.1. During the period 1995–2005, while merchandise export and import of India has grown at an average rate of 12.49 and 15.24 per cent, respectively, Figure 1.2 China’s Share in Global Goods and Services Trade 8.00 7.00 6.00 5.00 4.00 3.00 2.00

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4 The WTO Deadlocked the same for service trade were 24.73 and 18.65 per cent in that order. This has also led India to aggressively ask for liberalisation of Mode 1 and Mode 4 of services trade since the beginning of negotiations on that front. On the whole, the poor presence of India in the global market calls for the continuation of a proactive approach at multilateral negotiations for the removal of existing trade barriers on its exports, apart from enhancing the level of competitiveness of domestic industries.3 The goal of the current volume is to look at India’s negotiating strategies on the key areas of trade interest and analyse their relative success in influencing the decisions at the WTO forums. Over the years, India’s negotiating strategy has focussed not only on GATT agreements with direct trade implications like agreement on agriculture (AOA) or agreement on trade in services, but has also concentrated on the institutional issues like working of the dispute settlements mechanisms and so on. In the current chapter, India’s participation at the WTO ministerial meetings is discussed and its changing focus at the multilateral level is described. In the subsequent chapters, India’s negotiating strategies are narrated agreement-wise.

INDIA AT THE WTO4 As already mentioned, the urge to go for active negotiation at the multilateral level was felt by India only 2001 onwards. India’s participation pattern in the GATT/WTO forum has undergone a drastic change over the years; from inadequate participation in the negotiations during the 1960s and the 1970s to an increasing association over the last decade. In the following sections, the evolution of India’s negotiating stance at the WTO over the last decade is discussed, from which a distinct trend is noticed. It is occasionally required to look back to look beyond, that is, in order to discuss India’s future options, it is necessary to critically analyse its past track record. For the sake of maintaining the chronological order, India’s changing outlook towards the WTO and the negotiating process is discussed on a Ministerial-to-Ministerial basis.

GATT AND URUGUAY ROUND (1948 TO 1994) During the pre-Uruguay Round period (that is, during all the eight GATT rounds during the period 1947–85), India mostly played a

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passive role; the reason being the absence of export-promotion in the development strategy before the early 1990s. Besides, the focus of the GATT discussions before the Uruguay Round (UR) was on tariff liberalisation and lowering the misuse of anti-dumping provisions. While increase in import through progressive tariff cuts (as per the GATT agenda) was contradictory to the import-substitution policy followed by India, owing to limited export interest it was not much bothered about initiation of anti-dumping procedures either. Instead of GATT, it was more interested in discussing trade and development issues at the United Nations Confrence on Trade and Development (UNCTAD) forums through developing countries’ groups like G–77 in collaboration with countries like Brazil (Draper and Sally 2004). A shift in attitude was noticed for the first time during the UR, although the implications of including agriculture and trade related aspects of intellectual property rights (TRIPS) under GATT were not welcomed by several domestic entities (Khan and Debroy 2005; Sharma 1995). It is somewhat ironic that India at the initial stage of the UR tried to oppose the inclusion of trade in services under GATT in association with Brazil and Egypt (Chisti 1991: 103), while at present it is a major proponent of liberalisation of at least two modes of trade in services: Modes 1 and 4. The alliance of India and Brazil led to the formation of a group named G–10, the success of which was rather limited (Blinova et al. 2006: 4). India also joined another developing country grouping named G–15, established in 1989, which again was never a successful bargaining coalition. A pro-GATT mindset emerged in India since the adoption of the new export-oriented growth strategy in 1991, once the need was felt to eliminate the high degree of tariff and non-tariff barriers (NTBs) present in principal export markets. Nonetheless, India was still unsure about the full impact of the coming change on the domestic economy and, therefore, did not dare to adopt an aggressive stance on any issue at the negotiating table immediately.

SINGAPORE MINISTERIAL (1996) The first ministerial in Singapore was held shortly after the inception of the WTO and, owing to the fact that several elements of the UR were yet to be implemented, nothing major happened during the

6 The WTO Deadlocked event. The most important discussion during the ministerial was the introduction of the ‘Singapore Issues’ (namely, transparency in government procurement, trade facilitation, competition policy, and trade and investment), which in the later period emerged as a major bone of contention between the developed and developing countries. The Information Technology Agreement (ITA), which talked about tariff elimination for trade in information technology products on a most favoured nation (MFN) basis, was also signed on this occasion. Among other issues discussed at the ministerial, labour standard related concerns and the impact of regional trade arrangements (RTAs) could be mentioned here. India and several other developing countries formed a negotiating collaboration named the Like Minded Group (LMG) before the ministerial, with a goal of highlighting the high cost of the UR commitments on developing countries and the unrealised promises. However, India did not play any significant role during the Singapore Ministerial; perhaps, because it was not too unhappy with the export growth rate being experienced during that period. Another reason behind the non-proactive approach was, perhaps, the fact that the ministerial declaration reaffirmed its commitment towards the development needs of the developing countries: ... we recall that the WTO Agreement embodies provisions conferring differential and more favourable treatment for developing countries .... We acknowledge the fact that developing country Members have undertaken significant new commitments, both substantive and procedural, and we recognize the range and complexity of the efforts that they are making to comply with them. In order to assist them in these efforts, including those with respect to notification and legislative requirements, we will improve the availability of technical assistance under the agreed guidelines. (Paragraph 13)

GENEVA MINISTERIAL (1998) The second ministerial meeting, which coincided with the 50th anniversary of GATT, was also a relatively non-controversial event. The Global E-Commerce Agreement was signed at the ministerial and several implementation issues were discussed by the members. The ministerial

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declaration commended the successful negotiations in the area of basic telecommunications and financial services, and implicitly talked about the possibility of launching a new round in the coming period, apart from expressing concern over the marginalisation of several less developed countries (LDC) and small economies: We recall that the Marrakesh Agreement Establishing the World Trade Organization states that the WTO shall provide the forum for negotiations among its Members concerning their multilateral trade relations in matters dealt with under the agreements in the Annexes to the Agreement, and that it may also provide a forum for further negotiations among its Members concerning their multilateral trade relations, and a framework for the implementation of the results of such negotiations, as may be decided by the Ministerial Conference. (Paragraph 9) As in the case of Singapore Ministerial, India was not very active at the event in Geneva as well. However, the submissive role played by it during the first two ministerial meetings of the WTO started changing from early 1999, when India started weighing the benefits of a proactive approach for the first time (Chakraborty 2005). This shift in emphasis was not fuelled by any single event, but was the result of a series of seemingly unrelated episodes, as discussed in the following pages. First, immediately after the liberalisation (which included devaluation of Indian currency) exercise was initiated in 1991, India experienced a double-digit export growth for some time, which played a major role in stressing the growing importance of the multilateral body in the mind of the policymakers. However, after joining the WTO, India’s export growth rate actually declined, much to the dissatisfaction of the country. For instance, India’s export growth rate during 1993–94 and 1994–95 was 20 and 18.4 per cent, respectively, as compared to 5.3 and 4.6 per cent during 1996–97 and 1997–98 in that order. The problem worsened after 1997, with a number of Asian countries devaluing their currencies in the aftermath of the East Asian economic crisis (World Bank 1998). In other words, the compulsion for enhancing market access was severely felt from late 1998 onwards, which was further strengthened with the failure of the Seattle Ministerial in 1999.

8 The WTO Deadlocked Second, during 1995–99, India had to appear at the WTO dispute settlement body as the respondent quite frequently. It consequently lost a number of disputes lodged by developed countries, which forced it to implement several WTO commitments domestically (for example, compliance with TRIPS: Dispute Settlement [DS]—DS 50 and DS 79; removal of quantitative restrictions on imports of agricultural, textile and industrial products: DS 90–94 and DS 96; measures affecting the automotive sector: DS 146).5 While the liberalisation measures thus undertaken increased imports in volumes, exports did not go up as per expectation in key destinations (the EU and the US were among the complainants in a number of cases), thereby further fuelling the urge to go for proactive negotiating strategies. Third, despite a general reduction in tariff barriers as a part of the WTO reform agenda, the presence of tariff peaks and tariff escalation hampered India’s export interest to a major extent (Singh 2000). On top of it, the introduction of new NTBs in developed as well as several developing countries considerably lowered the volume of market access for India generated through tariff reduction. While primary exports suffered owing to imposition of unnecessarily stringent Sanitary and Phytosanitary (SPS) measures and environmental standards, the manufacturing items suffered from measures like anti-dumping investigations, rules of origin requirements and other standard-related, procedural and other barriers (Bhattacharyya 1999; Government of India 1999). On the other hand, liberalisation of key export interest items for India, like textile, was not easily forthcoming and in most of the developed countries, it took place only during the last phase of the 10-year-long transitional period (Verma 2004). This led India to realise that a mute participation at the WTO negotiating forums is not likely to solve all these problems. Fourth, apart from concerns over market access in merchandise products, the emergence of the service sector as the major foreign exchange earner also took place during the late 1990s, and the urgency to ensure a favourable trade environment in this arena was felt intensely. The exports of the service sector, despite all the advantages, did not increase to the expected level owing to the imposition of several barriers on them (Mehta 1999). Given the country’s interest in maintaining the flow of professional service providers to the developed countries, ensuring freer mobility of natural persons in those markets (Mode 4 of service trade)—that is, increasing the number of annual working visa permits granted and enhancing transparency in the visa application procedure—became the major negotiating agenda.

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Fifth, the key implementation issues—like special and differential treatment (SDT)—for developing countries or agreement on technical barriers to trade, in India’s opinion, were never accorded the desired attention by their developed counterparts. Developing countries, because of their lack of expertise in multilateral negotiation relied more on the benevolence of their developed counterparts in the initial period on these fronts. However, by 1998, it was realised that in the absence of any proactive approach in this regard, developed countries were not going to yield easily. Sixth, the patenting of a variety of Basmati (‘Texmati’, by Ricetech) in the US and the indication of an upcoming patent application in traditional plants like neem (Azadirachta indica), haldi (Curcuma longa), and so on, stressed the need to pursue a proactive approach in protecting the indigenous and traditional knowledge base of the country in no uncertain terms. The need to protect the biological diversity through negotiation in the TRIPS forum was also felt. Last, but not the least, developed countries started talking about the incorporation of labour and environmental issues under the wings of the WTO in the late 1990s, which was against the interest of their developing counterparts. A sizable proportion of India’s exports was already being affected by various standard related issues (Government of India 1999; Mehta 2005), and further accentuation of these measures through their legitimisation under the WTO was the last thing India was looking for. Therefore, leaving the reluctance towards multilateral negotiations, India started playing an active role in the trade forums. Before the Seattle Ministerial, India submitted a total of 24 preparatory notes to the General Council, explaining its position and demanding modifications in the various WTO agreements. Among the key issues figuring in the Indian submissions, the proposals on unilateral trade measures taken by several members, technology transfer, misuse of subsidy and countervailing measures, ensuring the working of the agreements on textile and clothing in the interest of developing countries and Trade Related Investment Measures (TRIMS) deserve special mention.

SEATTLE MINISTERIAL (1999) Before the Seattle Ministerial, India joined a number of developing countries coalitions (Narlikar 2003). First, it became a member of

10 The WTO Deadlocked ‘Friends of Geographical Indications’, the negotiating agenda of which is self-evident. Second, a negotiating group on services, namely G–24, was formed with the goal of retaining flexibilities for the developing countries members so as to fulfil their development objectives. India also maintained a close association with the old partners in the G–15 forum on SDT provisions (Gibbs 1998). In the Seattle Ministerial, a new round of negotiations was expected to be launched as per the Geneva Ministerial Declaration, popularly known as the Millennium Round at that time. The WTO released a note before the ministerial on 28 June 1999, which also talked along this line. However, dissatisfaction among the developing countries was rising owing to non-realisation of many UR commitments (covering agriculture, textile, other manufacturing industries and the service sector). The promised quid pro quo of the UR, in return for accepting TRIPS, TRIMS and services, was yet to be delivered (Debroy 2005). However, instead of addressing the market access issues of the UR, there was an attempt by the developed countries to overload the ministerial negotiating agenda by including the Singapore Issues (SI), labour and environmental standards, and so on. As a result, apart from the protests on the streets, the developing countries members—including India—also got vocal, and ultimately the ministerial failed. Despite the failure of the Seattle Ministerial, India rejoiced over the outcome owing to three reasons: (a) for the first time the developing and poorer countries got united, (b) a perceived developed country game plan (to include environment and labour standard in the WTO) was foiled, and (c) the Indian standpoint on various issues was widely supported. However, it was also accepted that the ministerial had not been an unmixed gain for India, … we cannot gloat over it because we have pinned our hopes on institutions and implementation. India took a leading role in deciding those issues, in formulating those issues, but, at the Conference, we could not achieve anything. So, from this point of view, it is an opportunity lost.6 Supporting the statement of the Chairperson at the meeting,7 India maintained the standpoint that another ministerial meeting should be

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convened only after arriving at a broad consensus among members on major issues, including negotiation on new areas. In addition, it argued that inclusion of any new topic in the agenda for negotiation should be done on a consensual basis, only after the realisation of the UR level of market access. Beforehand, there should be a thorough discussion on that issue, in order to convince the developing countries about the benefits of its inclusion in the WTO.8 Before the Doha Ministerial, India broadly raised the following concerns, which were in line with its demands raised at Seattle: (a) issues pertaining to non-realisation of anticipated benefits (for example, Agreement on Textiles and Clothing and Agreement on Agriculture), (b) inequities and imbalances in some of the agreements (for example, TRIPS, Subsidies and countervailing measures, Anti-dumping, and such others), and (c) non-operational and non-binding nature of SDT.9 Furthermore, since early 2001, India became quite active and started sharing its views with other developing country members of the WTO through various forums. For instance, a few days ahead of the Doha Ministerial, India presented its views on key issues in an informal meet of the WTO Trade Ministers held in Mexico City.10

DOHA MINISTERIAL (2001) At Doha, developed countries were keen to launch a new round, which received support from a number of developing countries as well. Furthermore, several members, including developing countries like Chile and Costa Rica, wanted the inclusion of new issues like SI in the negotiating agenda. India opposed both but received little active support from other developing countries barring an unexpected ally, Pakistan. However, it firmly held its position that before launching a new round, the promise on realisation of the UR commitments must be fulfilled (Singh 2001). Mostly because of its lone battle, India’s voice became particularly audible at the ministerial forum for the first time. Finally, India agreed to accept the joint ministerial declaration only after developed countries agreed to include its concerns in the document, which is widely known as the Doha Development Agenda (DDA). India particularly stressed the following gains achieved by it, quoting the following aspects of DDA:

12 The WTO Deadlocked 1. Accordance of due importance to implementation issues. 2. Acknowledgement of the ILO as the appropriate forum for discussing labour-related concerns. 3. Discussion of market access issues in agriculture, with focus on SDT for developing countries. 4. Acknowledgement of the importance of ensuring free movement of natural persons in service trade. 5. Inclusion of a separate declaration on TRIPS and Public Health. 6. Discussions in the area of market access on non-agricultural products, and acknowledgement of the special needs and interests of developing countries. 7. Assignment given to the Council for TRIPS to address the issues of biological diversity, protection of traditional knowledge and folklore.11

FROM DOHA TO CANCUN Although the extent of gains realised by India has been questioned (Anant 2001), the Doha episode made it clear that even a developing country could influence the WTO negotiating agenda, provided it is able to act strategically. Buoyed by the Doha experience, India started actively coordinating with other developing country members on various issues.12 It has become quite clear since 2002 that the success of future negotiations would depend on the liberalisation of agricultural trade, primarily in the EU. Although the EU proposed various reform policies during this period, their non-implementation due to internal conflicts left developing and developed countries equally unhappy. Several events before and after the Doha Ministerial played a major role in ensuring the continuance of India’s aggressive strategy at the multilateral forum. First, before Doha, the borderline of the right of the patent-holder (usually a developed country company) and the public health policy of a developing country became a major subject of debate, with India as an interested party. In the face of the HIV/AIDS epidemic in 2001, South Africa decided to import a generic (and of course much cheaper) version of the patented medicine from Cipla, an Indian firm, through The Medicines and Related Substances Control Amendment Act (1997). However, protests from a number of interested developed

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countries caused South Africa to terminate this process.13 The African countries were quite unhappy with this event and raised the issue at the WTO. This occasion provided India the opportunity to form a coalition at multilateral level with 46 other developing countries, which submitted a joint proposal on ‘TRIPS and Public Health’ to the WTO before the Doha Ministerial.14 The proposal demanded that the WTO should ensure that the TRIPS Agreement does not infringe upon the sovereign right of the members to formulate their own public health policies and adopt suitable measures for providing affordable access to medicines to their citizens. Second, India emerged as a major victim of anti-dumping procedures in the post-WTO period, with the leading export-earning sectors—like textile—suffering in particular. India moved the Dispute Settlement Body (DSB) for addressing the concern in a number of textile-related cases as the complainant, and the termination of the alleged measures after winning some of them (for example, DS 33 involving the US; DS 34 involving Turkey; DS 141 involving the EU) was a major psychological boost towards furthering proactive strategies. On the other hand, losing a case on the application of the rules of origin (ROO) on textile products (DS 243 involving the US) forced India to focus more on market access concerns.15 Third, increasing participation at the DSB made India aware of the loopholes in the dispute settlement system as well as the in-built capacity constraints for the developing countries in it, and 2002 onwards negotiations on that front also took off. Fourth, slow progress of the MFA phase-out always remained a major concern area, which called for active negotiation by the developing countries (Commonwealth Business Council 2001). However, 1995 to 2003 was a long period, and frustration level was increasing all the time for good reasons. It was observed that in the EU and the US markets, quotas on most of the key products of India’s export basket were to be liberalised only after 31 December 2004, thereby hurting its interest considerably. Hence, ensuring proper market access for textile products emerged as a core negotiating agenda. Last, but not the least, from mid-2003, the negotiation pattern of the developing countries (including India) focussed extensively on agriculture, which has been a direct consequence of the EU–US joint submission on that front during that period.

14 The WTO Deadlocked A few days ahead of Cancun, the EU and the US jointly circulated a proposal to ‘liberalise’ agricultural trade, which, however, focussed rather more on the NAMA issues. Several developing countries, led by Brazil, India and China, promptly submitted an alternative plan to the WTO (the G–20 proposal) demanding an immediate removal of the export and production subsidies to agriculture in developed countries.16 In addition to the question of agricultural subsidisation, India also called for a discussion on the improvement of NAMA, liberalisation of the service trade (mainly movement of natural persons [MNP]), acknowledgement of public health concerns in developing countries, and so on at Cancun (2003).

CANCUN MINISTERIAL (2003) The Cancun Ministerial was supposed to be a mid-term stocktaking affair as the DDA was already being implemented. Four unresolved issues were expected to be discussed at the meeting, namely, ensuring agricultural liberalisation, treatment of SI, addressing public health concerns under TRIPS, and finally, ensuring SDT to developing countries. Unfortunately, agriculture alone overshadowed the meeting to a great extent. At Cancun, the EU–US came out with a joint draft declaration, with little promise made on lowering the subsidy level in agriculture by a specific deadline. Developing countries rejected the proposition unanimously. Furthermore, at the end of the conference, the Ministerial Draft issued by the Mexican Foreign Secretary and the Cancun Conference Chair Mr Luis Ernesto Derbez on 13 September 2003, popularly known as the Derbez Draft (JOB [03]/156/Rev.2), displeased nearly each and every WTO member. While developing countries considered the Derbez Draft to be another version of the EU–US draft, and instead stressed on taking the G–20 Draft as the basis of negotiation, the EU and the US were critical on the Draft’s provisions for domestic support. The stream of events was instrumental in the formation of G–33, with its objectives being ensuring food security, livelihood security and rural development concerns of the developing countries, with India as a key member of this newly formed group as well. India refused to accept the Derbez Draft primarily on three grounds. First, it felt that the draft did not adequately acknowledge the developing country perspective on the domestic support by not asking the developed

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countries to remove/lower it within a targeted time period. Second, while in Doha (2001) it was decided that the negotiations on modalities for the SI would commence only after arriving at explicit consensus among the WTO members on that front, the Derbez Draft decided to initiate negotiations on these issues on its own. In other words, it backtracked from the DDA, which was something completely unacceptable to India and other developing countries. Finally, although the distorting effect of cotton subsidy in developed countries on their developing counterparts was well known, the draft simply promised advisory support to the affected economies for crop diversification, instead of asking the violators (mostly developed countries) to comply with the WTO norms in the first place. The dissatisfaction put a deadlock in the multilateral negotiation process, although India kept on participating in informal negotiations.17

THE JULY 2004 DISCUSSION AT GENEVA The deadlock in the multilateral negotiation process was broken in July 2004, when five countries—Australia, Brazil, the EU, India and the US—came forward to discuss various issues, which lasted two weeks. To the satisfaction of the international community, the negotiating countries finally came out with a draft announcement (known as the July 2004 Draft), which formed the framework for future negotiations. The new draft (WT/L/579, dated 2 August 2004) was much more comprehensive than the Derbez Draft in addressing the developing country concerns in terms of various provisions on agriculture. However, while the members agreed to continue discussions on modalities, no specific solution was reached. In case of important areas like NAMA, it was mentioned explicitly that a decision had not been reached and additional negotiations on specific issues were required. The draft promised to keep the concerns of the developing countries in mind and, much to the satisfaction of the African countries, it responded to their concern on cotton: … attaches importance to the development aspects of the Cotton Initiative and wishes to stress the complementarity between the trade and development aspects…. Members should work on related issues of development multilaterally with the international financial institutions, continue their bilateral programmes, and all

16 The WTO Deadlocked developed countries are urged to participate. In this regard, the General Council instructs the Director General to consult with the relevant international organizations, including the Bretton Woods Institutions, the Food and Agriculture Organization and the International Trade Centre to direct effectively existing programmes and any additional resources towards development of the economies where cotton has vital importance. (Paragraph 1b) India emerged as a leading developing country at the WTO negotiations in the post-Geneva period. As a part of the developing country coalitions (G–20 and G–33), it tried to keep the pressure on the developed countries for agricultural subsidy reform before the Hong Kong Ministerial. For instance, the G–20 Ministerial Declaration (New Delhi, 18–19 March 2005) noted the need to ‘…observe necessary sequencing of issues identified in the “July Framework” so as to ensure progress in each of the three pillars….’18 The document was also vocal on the pace of lowering cotton subsidies and the elimination of tariff escalation in developed countries, apart from stressing the need to ensure SDT for developing countries to preserve food security, rural development and livelihood concerns within their territories. A similar view was expressed at the G–33 Ministerial Meeting in Jakarta, where ministers from the member countries met on 11–12 June 2005 to finalise the guiding principle for negotiation in Hong Kong to make positive contributions to the negotiations. The declaration talked about the need to guarantee Special Products (SPs) and the Special Safeguard Mechanism (SSM) for the developing countries to ensure their development objective and decided to collaborate with other developing country groupings like African Group; African, Carribean and Pacific group of states (ACP); LDCs; and the G–20 on that front.19 The multi-country submission before the Hong Kong Ministerial on trade and development has also focussed on the need to ensure SDT for the developing countries, clearly marking India’s interest in this field.20

HONG KONG MINISTERIAL (2005) AND BEYOND Despite nearly 100 hours being spent at the negotiating table in Hong Kong, the ‘success’ of the ministerial was limited, barring the reduction commitment in agriculture and the guidelines on trade in services. It was

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decided that all forms of export subsidies in agriculture by developed countries would be eliminated by the end of 2013, with the substantial part of it getting eliminated by the middle of the implementation period, that is, 2010. This came as a response to the joint demand by G–20 and G–33, asking for a road map and modalities to remove trade subsidies in three to six months time before the ministerial. In addition, in agriculture, a major developing country group, namely, G–110, was formed in Hong Kong.21 India joined another new developing country group on NAMA, namely, NAMA–11, formed in Hong Kong, which negotiated for rapid liberalisation of market access in non-agricultural products in developed country markets. While the discussions held in Hong Kong resulted in a much more acceptable ministerial declaration22 as compared to the Derbez Draft circulated at Cancun, the developing countries could not achieve what had been their primary goal for two years—reduction in domestic subsidisation in agriculture in developed countries. Similarly, there existed enough scope for expanding market access in other areas in the developed country markets (for example, Mode 4 of services trade for India). At best, it could be argued that arriving at some agreement is probably better than a Cancun-type no-deal, which nonetheless portrays the result of the Hong Kong Ministerial as a second-best outcome. It also became quite clear in Hong Kong that there is no incentive for countries to graduate out of the LDC status. On the contrary, there is a perverse incentive for some to move to the LDC status, as Pakistan attempted to, in Hong Kong (Debroy 2006). Pakistan, on its part, argued that the provision of preference to the LDC is a major concern for the developing countries at the margin, and pointed out that the developed countries are more concerned with playing the blame game rather than delivering meaningful market access to their developing counterparts: Since the EU and a number of other developed countries (except the US which provides such access to some LDCs only) already provide duty free access under schemes such as ‘Everything But Arms’ (EBA), they also put pressure on the US to provide immediate duty free access. Through this tactics, the EU was trying to deflect pressure on them to provide greater market access on agricultural goods. If the tactics had succeeded, this would have meant duty free exports of textile and clothing to the US market from all LDCs including those which are efficient producers.... This would have resulted in

18 The WTO Deadlocked serious erosion of our market share in the US. We therefore insisted that such concessions should take into account the impact on other developing countries at similar level of development. The US also showed reluctance to grant duty free access on textile and clothing to LDCs which have an efficient T&C industry.23 India, nonetheless, believed that the Hong Kong Ministerial Declaration effectively addressed its core concerns and provided it with enough negotiating space for future work, leading up to modalities in key areas (for example, agriculture, NAMA, TRIPS and services). The Hong Kong Declaration decided that the deadline for establishment of modalities for agriculture and NAMA would be 30 April 2006 and comprehensive draft schedules have to be submitted by 31 July 2006. However, both the deadlines have long been missed due to lack of agreement among the members and the current state of negotiations can hardly be termed encouraging.24 This has led Debroy (2006) to contemplate whether instead of organising ministerial conferences every two years, having continuous official-level meetings at Geneva would lead to a more efficient outcome.25 In the following chapters, we look at the negotiating strategies followed by India on its key areas of interest so far. Apart from the three core areas—agriculture, NAMA and services—we focus explicitly on the textile sector, a major contributor in India’s export basket. Also, we focus on sanitary and phytosanitary–technical barriers to trade (SPS–TBT) concerns, and contingency measures (anti-dumping duty, countervailing duty and safeguard measures), which impede market access of India’s primary and manufacturing exports, respectively. Moreover, India is currently a member of a number of regional trading arrangements, and hence a focus on them is necessary. The country has tried to keep Singapore issues out of the negotiating forum for a long time, but in the recent period, it has agreed to include only trade facilitation in the discussion agenda. Therefore, we look at the relevant concerns on that front as well. The dispute settlement provision under the WTO is a unique provision and its working is a much-debated issue. India has also participated in the debate in various capacities, and her views are analysed here. Finally, the last chapter explores India’s future options at the multilateral negotiating forums and draws the conclusions.

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NOTES 1. The high volume of both export and import in gems, jewellery and precious stones, and machinery and equipment indicates a significant intra-industry trade in intermediate as well as final products in these categories. 2. See Panitchpakdi and Clifford (2002) for details on China’s accession. 3. India, it seems, has already identified the second point as a priority, as the National Manufacturing Competitiveness Council has already been set up in 2004 in order to enhance the competitiveness of the domestic industries. The Council brought out ‘The National Strategy for Manufacturing’ in February 2006. 4. A part of the discussion under this section is drawn from the arguments of Chakraborty and Sengupta (2005, 2006a). 5. See Chaisse and Chakraborty (2006) for a detailed account. 6. India and the WTO, Vol. 1, Nos. 11–12, November–December 1999, pp. 4–5. (Excerpts from the Commerce and Industry Minister Murasoli Maran’s reply to the shortduration discussion on the Seattle meet in the Rajya Sabha on 9 December 1999.) 7. In the closing Plenary Session at Seattle, the Chairperson noted, ‘During this time, the Director General can consult with delegations and discuss creative ways in which we might bridge the remaining areas in which consensus does not yet exist, develop an improved process which is both efficient and fully inclusive, and prepare the way for successful conclusion. The Ministerial will then resume its work’ (ibid.: 2). 8. India and the WTO, Vol. 3, Nos. 6–7, June–July 2001, pp. 4–5. 9. Ibid.: 6–9. 10. India and the WTO, ‘India reaffirms position on WTO issues at Mexico meet’, Vol. 3, No. 9, September 2001. 11. India and the WTO, Vol. 3, Nos. 10–11, October–November 2001, pp. 1–2. (Statement by Mr Murasoli Maran, Minister for Commerce and Industry—in the Rajya Sabha on 21 November 2001 and in the Lok Sabha on 21 November 2001—regarding the Fourth Ministerial Conference of the WTO.) 12. The fact has been reflected in the number of joint submissions to the WTO, as discussed in the last chapter of the volume. 13. The concern over access to affordable medicines was shared by other international forums as well. ‘The World Health Assembly’s (WHA) annual meeting in May 2001 devoted substantial attention to the lack of access to essential drugs…. A special session of the UN General Assembly on HIV/AIDS in June 2001 addressed the role of global trade policy in effecting the availability of low cost generic drugs and national manufacturing capacities’, Dasgupta (2003: 33–34). 14. India’s Communication to the WTO with African and other developing countries, dated 29 June 2001 (IP/C/W/296). 15. India claimed that the rules of origin requirement in the US on imports of textiles and apparel products was inconsistent with paragraphs (b), (c), (d) and (e) of Article 2 of the Agreement on Rules of Origin. However, the Panel ruled that India failed to establish its claims.

20 The WTO Deadlocked 16. For the detailed proposal, see India and the WTO, Vol. 5, No. 8, August 2003, pp. 5–7. 17. ‘On the occasion of the Ministerial Meeting of the G–20 held in Brasilia, on 11 and 12 December 2003, the Group had the opportunity to meet with Commissioner Lamy to discuss the present status of the Doha Round and how to move forward in the negotiations on agriculture’ (India and the WTO, Vol. 5, No. 12, December 2003). 18. ‘G–20 Ministerial Declaration’, available at http://www.commerce.nic.in/wto_sub/ g20/min_decln.htm 19. ‘G–33 Ministerial Declaration’, available at http://www.mission-indonesia.org/ modules/article.php?lang=en&articleid=277&preview=1 20. WT/COMTD/W/145, dated 1 December 2005. 21. ‘There was also a coming together of two developing country groupings, the G–20 and the G–90, to form the G–110, united not in what they wanted to get out of the negotiations but in their resolve not to be used against each other by the EU and the US’ (UK House of Commons Report, April 2006). 22. WT/MIN(05)/W/3/Rev.2, dated 18 December 2005. 23. Pakistan’s official documents, available at http://www.wto-pakistan.org/news1. htm 24. Chances are quite high that success of the recently circulated draft texts on agriculture and NAMA would be limited. 25. However, it has to be noted that during ministerial meetings, NGOs do perform a useful role by enhancing negotiating capacity for smaller countries that lack it. For instance, the Central African Republic did not even have a delegation in Hong Kong.

2 Agreement on Agriculture: The Pandora’s Box? INTRODUCTION There was no attempt to liberalise agricultural trade and integrate it into the General Agreement on Tariffs and Trade (GATT) framework before the Uruguay Round (UR) (1986–94). The new agreements attempted to put disciplines on domestic support programmes through computation of an aggregate measurement of support (AMS). Reduction commitments followed on the base period AMS, if the computed AMS was found to be higher that the threshold level set for a particular country.1 Some policies (placed under green box, blue box, and so on) were, however, exempted from AMS calculations. In addition, trade-distorting quantitative restrictions (QR) on imports had to be converted into tariffs and after this tariffication, tariffs had to be reduced.2 Although the tariff issue was attended to some extent in this manner, the problem of tariff rate quotas (TRQs), however, remained for a number of product categories.3 The export subsidies on agricultural products were also subject to reduction commitments. There is sufficient evidence to demonstrate that the promised agricultural liberalisation, which accounted for the bulk of the market access liberalisation promised in the UR, has not happened.4 Rather perversely, using exemptions, export subsidies on agricultural products in developed countries became higher after the UR began to be implemented. The QR have been converted into artificially high tariff equivalents, referred to as dirty tariffication. Like the case of industrial products, there are specific duties, high peak tariffs and tariff escalation. The TRQs have led to a huge tariff divergence on both sides of the threshold. Exemptions have been freely used to violate the spirit of the

22 The WTO Deadlocked AMS liberalisation. While negotiations on subsidy questions (domestic as well as export) may seem to be independent of the market access component, the two are actually related, since subsidies distort markets that are sought to be thrown open.5 The agricultural negotiations since 1995 can be classified into four distinct phases. The first six years, 1995–2000, represented the transitory phase and agriculture did not emerge as a direct issue in the discussions. The second phase was initiated in March 2000 and concluded in March 2001, when more than a hundred members submitted proposals outlining their future commitments and negotiations followed from that point. The third phase began in March 2001 with a stock-taking meeting and continued for a year. The fourth phase of the negotiations was initiated in March 2002 with the DDA (2001) as a reference point to determine the methodology to be followed during the actual reform process, and was scheduled to be concluded by March 2003.6 Based on the decided modalities, members were supposed to submit comprehensive draft schedules by June 2003, which were to be discussed at Cancun (2003) and other WTO forums.7

THE AGRICULTURAL SUBSIDY QUESTION Although the presence of stringent and often overprotective SPS norms in some countries poses a major problem,8 the actual hurdle in freeing agricultural trade is the issue of subsidisation. The extent of subsidisation in a country is generally measured through the AMS and producer support estimates (PSE). The AMS can be calculated separately both for product specific and non-product specific categories. The product specific AMS is calculated for a particular crop that receives market price support, non-exempt direct payments, or any other subsidy that is not exempted from reduction commitments under the AOA. On the other hand, the non-product specific AMS is calculated using non-exempt direct payments, that is, those that are not based on price differentials and are generally estimated using budgetary expenditures.9 The members are supposed to keep their domestic support within the bound rates specified in the members’ schedules. Alternatively, PSE represents an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support

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agricultural producers at farm-gate level arising from policy measures regardless of their nature, objectives or impacts on farm production or income.10 It has been observed that developed countries like Canada, the EU, Japan and the US protect their domestic agriculture through high levels of agricultural subsidies, causing substantial losses for the developing countries, both in their home and export markets.11 Although the percentage PSE index is highest in Japan, the level of subsidisation in the EU creates much greater distortions due to its larger domestic market size and wider presence in global export of agricultural products.12 Among the sectors attracting major subsidies, sugar industries in the US13 and foodgrains in Japan14 deserve special mention. In 1997, the US foreign sales corporation (FSC) tax exemption, which offered special tax breaks to US MNCs, was ruled as being trade-distorting by the WTO (DS 108-Complaint by EU).15 Similarly, in the EU, it was observed that the PSE level had increased steadily, mostly owing to increase in subsidies offered to livestock and meat products through the Common Agricultural Policy (CAP). The huge volume of subsidy often created problems, relating to overproduction and resulting in substantial welfare losses for the consumers.16 Apart from the concern over the absolute subsidy level, the policy cushion available to developed countries is another major problem area. It is observed from Table 2.1 that the bound and applied subsidy levels differ significantly for a number of developed countries, with exceptionally high differences for Japan and Canada. This further implies that these countries could distort trade to a major extent in a WTO Table 2.1 The Overall Trade Distorting Support (OTDS) of Developed Countries (US$ million) Country

Bound Level

Applied Level

Variance (%)

US EU Japan Canada

44,118 93,503 43,622 5,412

23,299 62,679 7,096 1,391

47 32 83 74

Source: World Bank (2006), Quoted from Ranjan (2006a). Note: The data in the table correspond to the average of the last three years of notified support for each region or country: EU and US: 1999–2001, Japan: 2000–2002, Canada: 1998–2000.

24 The WTO Deadlocked compatible manner, by raising their support to the permissible limit. On the other hand, Ranjan (2006a) notes that even if these countries reduce their bound subsidy rates to some extent, the applied rate, that is, the current level of distortion would remain unchanged leaving no direct effect on trade flows. Naik and Singh (2003: 60) noted that Indian exports stand to lose heavily due to the distortions in the world market, and worse, sometimes in the domestic markets as well.17 There is all the more reason for India to actively negotiate at a multilateral forum because of the fact that it has always been a provider of a negative support to agriculture. Figure 2.1 shows that the AMS and PSE for Indian agriculture throughout the UR negotiation period have been negative. The reason behind India’s weak participation at the WTO negotiations on agriculture in initial years was limited export interests and insulated domestic markets due to Balance Figure 2.1 Trends in AMS and PSE in India (1987–2000) (As per cent of value of production of selected commodities)

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

–20

1988

0

1987

20

–40 –60 –80 –100 –120 Product specific AMS Total AMS Source: Gulati and Narayanan (2003).

Non-product specific AMS PSE

of Payment (BOP) restrictions. However, in 1999, that protective cover proved to be WTO-incompatible and was removed in the following period, leaving India with no option but to negotiate at the multilateral forum from 2001 onwards.18 In Doha (2001), India refused to participate

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in the launching of a new round before the realisation of market access promised in agriculture under UR.19 The DDA ultimately took note of all four of India’s concerns, namely, ensuring market access, removing domestic and export subsidies and the concerns over food security.

THE AGRICULTURAL TARIFF QUESTION A brief note on the agricultural tariff question would be relevant here. Under the WTO’s AOA, member countries are committed to reducing tariff barriers as well as domestic and export subsidies over a reasonable period, as negotiated under the WTO.20 However, ‘tariff escalation’ and ‘tariff peaks’ significantly affect market access conditions.21 Under the WTO negotiations, two formulas for tariff reforms are currently being discussed. The first is the ‘Uruguay Round Approach’, introduced during the 1986–94 UR agriculture negotiations. This requires the members to implement a specified average percentage reduction in tariffs over a pre-determined period. The average tariff reduction requirement was 36 per cent and 24 per cent for developed (over six years) and developing countries (over 10 years), respectively. The second is the ‘Swiss Formula’ (proposed by Switzerland during the 1973–79 Tokyo Round negotiations), which is a special case of a harmonised formula tariff cut.22 Ironically Switzerland now prefers the UR approach to, Swiss formula, while Uruguay opts for the Swiss formula. It is observed that under the UR formula, the specified (that is, flat-rate) percentage reductions lead to lower reductions on high tariffs. Moreover, the combination of average and minimum reduction commitments allows countries to control their actual tariff reductions on individual products. On the other hand, the Swiss formula uses a single mathematical formula to generate a narrow range of final tariff rates from widely varying initial tariffs, irrespective of the initial tariff rate. The gap between the initial and the projected final tariff can then be divided into equal annual steps. Understandably, here the focus of the negotiations has been determining the ‘coefficient’ to be used in the formula. A comparison of the hypothetical tariff cuts under these two formulas reveals that high initial tariff scenario results into higher final tariff levels by using the UR formula as compared to the Swiss formula (various WTO web-resources). Moreover, under the former,

26 The WTO Deadlocked the range of final tariffs shows a wider variation as compared to the latter (6.4–96 per cent, as compared to 7.14–21.43 per cent). India has understandably favoured the UR approach for agricultural tariff reduction at the WTO negotiating forums.23 On the other hand, the developed countries are in favour of the Swiss formula.24 India had argued in the pre-Doha period that developing country members should be exempted from making any obligation to provide any minimum market access.25 In the later period, it strongly criticised the US and the EC joint proposal on ‘the Blended formula’ for tariff reductions (presented on 13 August 2003) in association with its G–20 partners, which was discussed at the Cancun Ministerial. The G–20 submission opined that the approach ‘... would prevent proper delivery on the Doha mandate for market access… maintain the protectionist status quo... would impose an overly onerous burden of tariff reduction on developing countries… it would enable developed countries to protect their tariff peaks on products of export interest to several Members.’26 In the subsequent period, India as a part of the G–33 proposal talked about the introduction of Special Products (SPs) and Special Safeguard Mechanism (SSM) to ensure effective Special and Differential (S&D) for developing countries.27 The G–33 proposal maintained that the agricultural tariff reduction formula must preserve the intended objectives of S&D and not erode them. The suggestions of the proposal included ensuring less than full reciprocity in tariff reductions undertaken by the developing countries, flexibility to the developing countries to determine their SPs, no tariff reform commitments for all SPs, and so on.

TRACKING THE NEGOTIATIONS DOHA TO CANCUN Since the Doha Declaration, the CAP followed by the EU started facing increasing pressure from other members.28 The WTO’s European Union Trade Policy Review (2000) also acknowledged that ‘The operation of the CAP had also been of concern, both in terms of limiting market access on the EU market and the spill-over effects on world markets on the heavy use of export subsidies.’29 In the face of constant pressure from trade partners, during late 2002, the EU proposed tariff cuts on

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agricultural products by 36 per cent as part of the WTO negotiations, assuring that these reductions were already incorporated in adjustments made to the CAP, along with offering duty-free, quota-free access for primary exports from the developing countries.30 However, the US pointed out that although certain reduction commitments were made in export subsidies for wheat, oilseeds, olive oil and tobacco, major areas like dairy products and sugar industries were completely bypassed.31 On 25 July 2002, the US became the first WTO member to put forward a comprehensive agricultural trade reform proposal, calling for elimination of export subsidies, cuts of US$ 100 billion in annual allowed global trade-distorting domestic subsidies and lowering the average allowed global tariffs from 62 per cent to 15 per cent. The US also proposed that the WTO members should agree in these negotiations on a specific date for elimination of agricultural tariffs and trade-distorting domestic support.32 In December 2002, the Chairperson of agricultural negotiations, Stuart Harbinson, distributed a draft (Harbinson Draft) among the members on the modalities of agricultural negotiations, which was based on the proposals received between March and December 2002. The final version was circulated in March 2003.33 However, members received the Harbinson Draft with caution. In June 2003, the EU announced major revisions in the CAP by delinking the bulk of direct payments with production.34 Although the proposal did not necessarily reduce the subsidy level as a whole, it created a starting point for discussion in the imminent Cancun Ministerial.35 However, countries like Australia were openly skeptical over the actual outcome of the new policy.36 In early July, France protested against the subsidy reform proposals of the EU, claiming it to be unacceptable, despite promising active participation in the reform process!37 The stream of events within the EU displeased most of the key players, and the US trade representative Robert Zoellick pointed out that the success of the Cancun Ministerial was dependent on the EU’s ability to effectively reform the CAP.38 However, one month before the Cancun Ministerial, the EU and the US (a major critic of the EU even up to a few days ago) jointly tabled a proposal to ‘liberalise’ agricultural trade. The joint proposal, however, made no definite promise to lower subsidy at home and proposed to focus more on NAMA instead. It was expressed that the compromise

28 The WTO Deadlocked between the EU and the US would hurt the net-food exporting countries and the producers in the developing countries (Peters and Vanzetti 2004). Several developing countries, including India, Brazil and China, promptly came out with an alternative plan (G–20 proposal), which demanded immediate action to end export-dumping and production subsidies in agriculture, and improvement of market access.39

THE DERBEZ DRAFT At Cancun, due to difference of opinion among members, no clear consensus evolved. During the ministerial meeting, the EU and the US proposed a draft declaration, with little promise on liberalisation, which was rejected by the developing countries. The revised Ministerial Draft (Derbez Draft), intending to please all quarters, ended up displeasing everybody. While the developing countries felt it to be too close to the EU–US draft on several counts and insisted on considering the G–20 Draft as a basis of negotiations instead, the EU and the US disapproved of the draft’s provisions on domestic support. It was clear that the draft could not be a reference point for negotiations, as nobody was willing to compromise their interests. The Derbez Draft was extensively criticised at various intellectual forums as well.40 The views expressed by India shortly after the ministerial are presented in Box 2.1. As a part of the G–20 group, India subsequently focussed on the need to reduce all trade-distorting domestic support measures, elimination of Article 6.5 of the AOA (direct payments under production-limiting programmes), capping the Green box direct payments for the developed countries, maintaining de minimis at the existing levels for the developing countries, maintaining SDT for the developing countries, and so on.41 As a part of the G–33 network, it extensively argued in favour of making SPs and the SSM an integral part of the SDT in the agriculture framework.42 In order to enable developing countries to benefit from the proposal completely, the G–33 talked about a stand-alone category for the SPs, decided exclusively by the developing countries themselves, for which there should be no tariff reduction commitment at all.43 Furthermore, the proposal demanded that the products, once considered as SPs, must also have access to SSM. Although after Cancun, the developing countries felt much excited over the formation of the negotiating coalitions and considered rejection of the EU–US draft as their major success, at the

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Box 2.1 Commerce Minister’s Speech on the Derbez Draft44 … Domestic support subsidies of various categories also distort trade... when it came to developing countries reducing tariff, the 13th September draft, effectively involved higher reduction of tariffs by the developing countries as against the developed countries… it was scary due to the kind of reductions we would have had to face, in the face of no substantial reduction in subsidies… in relation to the Singapore issues, the 13th September draft was even more curious.... On cotton again, four African countries are predominantly a onecrop nation whose economies have been very badly, adversely affected on account of huge cotton subsidies to 25,000 farmers in one country—they receive a subsidy of $3.7 billion annually. The amount of $3.7 billion annually is the subsidy which is shared amongst 25,000 farmers. The effect of that is to distort cotton prices which effects the economies of Mali, Burkina Faso, Benin and Chad. So, para 27 of the 13th September draft again spoke in terms of a study to be undertaken and almost the feel of para 27 was that some of the countries should be aided and advised, and then persuaded for crop diversification, because subsidies in any case cannot be reduced…. It is obviously clear to me that this draft cannot be a starting point of any further negotiation. Secondly, it is also seen that the consensus element has become negligible....

end of the day—practically speaking—the EU and the US turned out to be the real winners. In other words, the failure at Cancun provided these two developed countries with the excuse that they were looking for in order to delay the liberalisation of domestic support and export subsidy programmes in agriculture.

THE JULY 2004 DISCUSSIONS In July 2004, the deadlock in the negotiation process of the WTO was finally broken as five countries, namely—Australia, Brazil, the EU, India and the US or the Five Interested Parties (FIPS), came forward to negotiate at Geneva. During the two-week-long discussion, India was unhappy with the initial drafts, where it felt that the need to set disciplines on Blue and Amber boxes for the developed countries, and inclusion of SSM and SPs provisions for the developing countries were not being properly addressed.45 Finally, the negotiating countries agreed upon a draft announcement (henceforth, the July 2004 Draft),

30 The WTO Deadlocked which was much more comprehensive, as compared to the Derbez Draft or the Harbinson Draft in addressing the developing country concerns, in terms of all the three pillars of agricultural trade—market access, domestic support and export subsidy—as well as the sectoral concerns (for example, cotton). The members agreed to resume negotiations on various aspects of freeing agricultural trade with this draft as a starting point. In the following pages, we will focus on the broad issues that are going to benefit the developing countries, except the net importing ones. 1. First, for a long time, the developing countries have stressed the importance of cotton and textile products for their economic development process, and were asking for increased market access in developed countries. For the first time, an explicit focus has been paid to cotton. 2. Second, in the case of domestic support, the reduction in the final bound total AMS has to be done using a tiered formula, where ‘the draft calls for a 20 per cent cut in the current level of domestic subsidies in the first year itself.’ Moreover, responding to the growing concern over the potential misuse of the de minimis provisions, the draft agreed that the reductions in it ‘... will be negotiated taking into account the principle of special and differential treatment. Developing countries that allocate almost all de minimis support for subsistence and resource-poor farmers will be exempt’ (Paragraph 11). 3. Third, trade-distortions caused by the Blue box support measures have always been a major source of contention in agricultural negotiations, where the developing countries are the losers. The provisions relating to the Blue box measures have been discussed and putting a cap on their use was decided, ‘Blue Box support will not exceed 5% of a Member’s average total value of agricultural production during a historical period.’ In addition, it has been observed that the Blue box reform in a number of member countries often involves only a mere reshuffling of those subsidies into the Green box, in an attempt to gain legitimacy.46 The July draft promised a review of the Green box criterion in order to ensure minimum trade distortion apart from looking into ‘improved obligations for monitoring and surveillance of all new disciplines foreshadowed in paragraph 48’ (Paragraph 16).

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4. Fourth, an agreement was reached on various forms of tradedistorting export subsidies that needed to be eliminated. In particular, the scope of limiting export credit and guarantee schemes in the EU and the US, especially with payment schedules beyond 180 days, is enormous and would benefit the developing countries significantly. Furthermore, SDT was granted in the form of a longer implementation period for phasing out of all export subsidies and for fulfilling national development goals, 5. Fifth, for ensuring an increased level of market access for all commodities, further negotiations and substantial commitments on tariff reductions were proposed, In addition, the draft intended to liberalise the relatively protected sectors increasingly. The developing countries’ concerns were adequately addressed, and the establishment of an SSM was proposed for them (Paragraph 42). Moreover, additional flexibility was granted to developing countries in terms of identifying an appropriate number of SPs. 6. Sixth, the draft noted, ‘Tariff reductions will be made from bound rates’ (Paragraph 29). It has been pointed out by various studies that the developed countries were well prepared for the reduction consequences during the UR, and therefore, agreed on the bound rates with substantial policy leverage. In short, the absolute level of tariff reform has been much higher in case of the developing countries as compared to their developed counterparts. The July 2004 text seems to respond to the developing country concern on that ground. However, in spite of the advantages that the July 2004 draft had in terms of responding to the developing country concerns, it contained a number of grey areas. It was merely a means to restart the negotiations and definitely not the end. The three developed countries, Australia, the EU and the US, had consented to start negotiations on improving market access, without committing on doing the same in a time-bound fashion. Chakraborty (2004) pointed out that the grey areas like determination of ‘historical period’, ‘exceptionally large percentage of its trade-distorting support in the Blue Box’, ‘wholly disproportionate cut’, ‘appropriate number’ of sensitive products and special products would not be easy. Also the agreed provisions work both way and there is an inherent danger in implementing them. For

32 The WTO Deadlocked instance, even if the developing countries manage to obtain the benefits from the SPs provision, their gains could be nullified, at least partly, if the developed countries declared a number of these SPs as ‘sensitive’ items for them (Chand 2005a).

HONG KONG MINISTERIAL (2005) India, taking note of the fact that July 2004 did not ensure an agreement on agricultural trade reform, kept on collaborating with other negotiating partners at various forums before the Hong Kong Ministerial (for example, G–20 and G–33 meetings in 2005). In October 2005, the EU and the US came out with a joint proposal, making a conditional offer for reducing farm subsidies in return for greater market access, only to be rejected by India.47 Earlier in the FIPS meeting, India rejected two tariff reduction formulae proposed by US–Australia (Progressivity within a band) and the EU (Pivot within a band), respectively, claiming those approaches to be variants of the Swiss formula that had already been rejected by the G–20. The G–20 earlier agreed to the banded formula approach in the agricultural market access negotiations and proposed a formula with 54 per cent and 36 per cent tariff cuts for the developed and developing countries respectively on farm products. The EU, in return, offered to reduce tariffs by 38 per cent, which was rejected by several members, including the US. This set the stage for Hong Kong. Agriculture has been a major area of negotiation at Hong Kong. The principal elements of the Hong Kong Ministerial Declaration represent significant gains for India (see Box 2.2). It was decided that in Domestic Support, developing countries like India with no AMS commitments would be exempted from making any cuts on their de minimis support. Second, Green box criteria would be reviewed to allow programmes of developing country members with minimal trade distorting effects to be incorporated into the Green box. Third, all forms of export subsidies by the developed countries and other export measures with equivalent effect (such as export credits, guarantees and insurance in excess of 180 days, and so on), will be eliminated by the end of 2013, with the substantial part eliminated by the middle of the implementation period, that is, 2010. Fourth, developing countries would be able to continue to provide marketing and transport subsidies for five years after the elimination of export subsidies, that is, up to 2018. Fifth, developing

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Box 2.2 Gains in Agriculture for India from the Hong Kong Ministerial48 • The interests of Indian farmers have been fully protected in the Hong Kong Ministerial Agreement. • We have been able to secure an agreement that the WTO will not come in the way of Domestic Support given to farmers in developing countries like India, which has a preponderance of small farmers. Therefore, all the programmes of the government aimed at benefiting farmers are not subject to any WTO discipline. • There is also an agreement that developing countries will be able to declare an appropriate number of SPs on a self-selection basis. These products will be outside the ambit of the tariff reduction formula. This will help our farmers in protecting their important crops from international competition. • We have also have an SSM, which means that we will be able to raise import duties on agricultural products, if there is a surge in their imports or a fall in their prices. Our farmers should not worry about their income levels falling due to unfair competition from subsidised imports. • An agreement has been reached on the complete elimination of Export Subsidies on all agricultural products by developed countries. This will not only help in protecting our farmers from unfair competition in the domestic market, but will also open up new opportunities for export of agricultural products.

countries would be able to self-designate an appropriate number of tariff lines as SPs, based on food security, livelihood security and rural development indicators. Sixth, to safeguard farmers against a surge in imports, the developing countries will have to take recourse to an SSM, with both import quantity and price policy tools. Seventh, on cotton, export subsidies by the developed countries will be fully eliminated in 2006 and trade-distorting domestic support in the developed countries on that front would be reduced faster than other agricultural products. The series of discussions on modalities to liberalise agricultural trade in mid-2007 led to the circulation of a draft paper by the WTO on 17 July 2007, the corrected version of which was later circulated among the members in August 2007.49 The draft proposed that the base overall trade distorting domestic support (OTDDS) would be determined by taking into consideration factors like final bound total AMS, value of production in the 1995–2000 base period and Blue box payments. It also proposed to apply a tiered formula for reducing such OTDDS

34 The WTO Deadlocked measures. The reduction would depend on the volume of the existing level of AMS. The SDT (or, Less Than Full Reciprocity [LTFR]) principle was maintained through the proposal that the final bound total AMS applicable to the developing countries with final bound total AMS commitments shall be two-thirds of the reduction commitments applicable to their developed counterparts. The document further suggested that developing countries with no AMS commitments need not make commitments on reductions in OTDDS. The proposal also talked about reduction in product-specific AMS, Blue box supports and cotton subsidy. A tiered formula was proposed for tariff reduction as well. The proposal also talked about the problems of tariff escalation. The negotiating agenda of G–33 has also been responded to in the draft through the SDT provision. It is proposed that the developed and developing countries would be able to designate up to [4][6] per cent (may be [6][8] per cent subject to conditions) and up to onethird of their tariff lines as sensitive products, respectively. The draft further proposed that each developing country will have the right to self-designate an appropriate number of tariff lines as SPs, which would be determined by a list of indicators (to be agreed). On SSM, which would be used by the developing countries in ‘special’ situations, the draft reaffirmed the possibility of using two distinct triggers: price and quantity. Two proposals were made: one, no preferential trade would be counted in the trigger; two, price- and quantity-based remedies would not be simultaneously imposed on the same product. This broadly responds to the long-standing claims of the developing countries, including India, although the modalities (that is, numbers) are still subject to discussion. Taking the negotiation on agricultural market access forward from this point, on 21 December 2007, the WTO agricultural negotiations committee circulated four documents on the core issues. The first document focussed on reducing the OTDDS.50 The second document attempted to arrive at an agreement on the final bound total AMS through the use of a tiered formula.51 The third document talked about the de minimis reform commitments over five years.52 The fourth proposal talked about imposing overall and product-specific limits on Blue box measures.53 The chances of successfully concluding the Doha Round significantly depend on the willingness of the WTO members to agree on these modalities.54

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THE INDIAN NEGOTIATING APPROACH Apart from the submissions made as a part of the developing country coalitions (G–20 and G–33), India has also been individually advocating SDT for the developing countries for some time, with the goal of obtaining special safeguard provisions and flexibility in domestic policies for agriculture.55 The focus has also been on the necessity of analysing the impacts of the SPS-related barriers on agricultural exports.56 The problems associated with tariff peaks and tariff escalation in the developed countries57 and the exclusion of the developing countries from certain commitments were always part of its agenda.58 Furthermore, it has criticised the notion of uniformity in negotiating basis, as suggested by the US, between developed and developing countries as well as the concept of Sectoral liberalisation (that is, zero-for-zero initiatives) implied in the US and Canadian proposals on market access after the Seattle Ministerial.59 It also believed that ‘...developing countries can be expected to reciprocate in market access, subject to their economic and social conditions, development needs, food and livelihood security and rural development requirements, only if they get adequate concessions and commitments by developed countries in all three pillars.’60 The Indian approach to agriculture negotiations has been defensive, perhaps due to the fear of self-reliance in foodgrain production being destroyed.61 The Indian AMS level is quite low and it has no specific export subsidies on agriculture, so the question of disciplining them is not serious. In the absence of reforms that facilitate diversification, agriculture has been equated with foodgrain production and foodgrain policy, which has not helped the sector. There are also differences in perception across the Ministry of Commerce and the Ministry of Agriculture. In this framework, having only tariff as the policy tool for protection of domestic sectors might seem a tough option for India. However, the SSM and SPs clauses, once fully implemented, may take care of any Indian perceived threats about import surges in specific sectors. India has reaffirmed her seriousness in protecting the interest of the farmers62 as well as the need to operationalise SPs and SSM clauses at times.63 Edible oils, milk and milk products, fruits and vegetables, rubber, cotton and silk, tea and coffee, and alcoholic beverages, and so on, are currently included in the list of sensitive products identified by the Ministry of Commerce.

36 The WTO Deadlocked In the GATT/WTO system, the tariff lines need to be bound and tariff reduction commitments would be undertaken on bound rates. Binding rates must be higher than the MFN (most favoured nation) applied rates. India has bound 73.8 per cent of tariff lines—100 per cent for agricultural products and 69.8 per cent for non-agricultural products.64 The maximum bound rate is 300 per cent for agricultural products. In the recent period, the simple average of applied tariff rates for India was 30 per cent for agricultural products. There exists a wide tariff cushion between the applied tariff and the bound tariff, if various product groups within agriculture are considered. There is a unilateral Indian attempt to reform tarrif schedule that is independent of multilateral negotiations and commitments. The recommendations of the Kelkar Task Force Report (2002) on Indirect Taxes could be mentioned here. However, agriculture tariff reform has always been slower as compared to the manufacturing products. India’s recent RTAs may contribute significantly in lowering its agricultural tariff further. Perhaps, it would be easier for India to negotiate at the WTO forums after that. In course of the UR, the developed countries promised agricultural liberalisation in return for services, intellectual property and investment. That promised agricultural liberalisation is still forthcoming, thanks to the grey areas within the AOA itself. The problem has been compounded by the presence of safeguard and special safeguard clauses, NTBs through SPS measures, and so on. It is, therefore, not easy to expect that the Doha Round would be able to provide a solution to all these issues. The negotiations during Geneva (2004) and Hong Kong (2005) have already highlighted that. It needs to be stressed that the concept of the developed and developing countries used in the WTO forum is not homogeneous. Not all developed countries are opposed to agricultural liberalisation and not all developing countries support it. For instance, the developing countries that are net food importers will also suffer from agricultural reform because elimination of subsidies will mean higher global prices. Often, the perception is that India does not have much to gain even if markets in the developed countries are opened up, as agricultural export interest of the country is limited. This may be true for rice and wheat to some extent but India’s export potential is still considerable in the case of tea, coffee, spices, cashew, oilmeals, fresh fruits and vegetables, meat and meat preparations, and marine products, and so on, although marine

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products are not technically counted as agriculture within the WTO. Moreover, its export volume in floriculture and horticulture is increasing. The need of the hour is to stress the potential. Joining both G–20 and G–33 should be viewed in that light: the former asks for reform in agricultural export market to satisfy the country’s offensive interest, while the latter satisfies its defensive interest by asking for SPs and SSM.

THE DISPUTES ON AGRICULTURAL ISSUES One of the major products of the prolonged negotiation on modalities is the emergence of newer disputes, taking advantages of the loopholes in the existing system. The scenario can be analysed by looking at the WTO disputes on agriculture. The alleged violations of AOA in the disputes lodged at the dispute settlement body are noted in Figure 2.2. The Figure 2.2 Alleged Violation of Agreement on Agriculture—Article-wise Annex II Article 21 Article 19 Article 15 Article 5 Article 1 Article 14 Article 13 Article 11 Article 6 Article 7 Article 10 Article 9 Article 8 Article 3 Article 4 0 10 20 Source: Constructed from WTO case updates.

30

40

50

38 The WTO Deadlocked violations have so far have been made on the ground of Article 4 (market access), Article 3 (incorporation of concessions and commitments), Article 8 (export competition commitments), Article 9 (export subsidy commitments), Article 10 (prevention of circumvention of export subsidy commitments), Article 7 (general disciplines on domestic support), Article 6 (domestic support commitments), Article 11 (incorporated products), Article 13 (due restraint), Article 14 (SPS measures), Article 1 (definition of terms), Article 5 (special safeguard provisions), Article 15 (SDT), Article 19 (consultation and dispute settlement), Article 21 (final provisions) and Annex II (domestic support: the basis for exemption from reduction commitments). Interestingly, the alleged violation on the ground of market access is the highest, while the same for exemption from reduction commitments are the lowest. While the complainant countries have not pursued some of the lodged cases at the WTO forum, a significant number of disputes have reached the Dispute Settlement Panel (DSB) and the Appellate Body (AB) stage. A select list of the AOA related disputes are presented in Annex II. The Dispute Settlement Body (DSB) has identified actual violations in several cases, notably on the ground of Article 3.3 (non-provision of listed subsidies), Article 8 (export competition commitments), Article Figure 2.3 Actual Violations of Agreement on Agriculture—DSB Rulings Annex II Article 14 Article 5.5 Article 10.3 Article 4.2 Article 9.1 Article 8 Article 3.3 0 1 2 3 Source: Constructed from WTO case updates.

4

5

6

7

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9.1 (list of export subsidies subject to reduction commitments), Article 4.2 (removal of all quantitative restrictions except those under Article 5), Article 10.3 (establishing export subsidy in exports), Article 5.5 (condition for imposing additional duty in case of special safeguard measures), Article 14 (SPS measures) and Annex II (domestic support: the basis for exemption from reduction commitments). The potential threat to the developing countries on the ground of these violations in the light of the earlier discussions is obvious. The scenario of actual violations is shown in Figure 2.3. Looking at the list of the countries defeated at the DSB, it is observed that most of the time the EU policies have been declared WTO-incompatible, and Canada, Japan and the US policies have also come under fire on various occasions. The ‘Quad’ has always been the traditional culprit in providing support to its domestic agricultural lobby. In this background, it is imperative that India should keep the list of most violated provisions of the agreement in mind during the negotiations and evaluate the implications of any offer by partners or the commitments to be made at the negotiating table in that light.

NOTES 1. The threshold was 5 per cent for developed countries and 10 per cent for developing countries. The less developed countries (LDC) have been exempted from tariff reduction commitments to agriculture in this round (Pal 2007). 2. There was a difference between the developing and developed countries in terms of the reductions required and in terms of the timeframe over which reductions had to be brought about. 3. The TRQs have low tariffs for imports below a threshold and higher tariffs for imports above that threshold. The problem has been mentioned by Chand (2004). 4. Although according to the United Nations Conference on Trade and Development (UNCTAD) and the WTO Annual Reports, 90 per cent of the welfare gains from market access liberalisation were supposed to come from agriculture, the developing countries are yet to witness it. These are welfare gains rather than trade gains and hence accrue to consumers in the developed countries also, through lower prices. 5. The problem may be seen from CUTS (1/2005). 6. Apart from the market access or subsidy issues, various non-trade concerns including food security, environment, structural adjustment, rural development and poverty alleviation, were also scheduled to be discussed during this phase. See Naik and Singh (2003: 7). 7. The deadline for agreeing on modalities was to ensure completion of the negotiations by 2005. ‘At the November 2001 Doha Ministerial Conference, the agriculture

40 The WTO Deadlocked

8.

9.

10. 11.

12.

13.

14.

15.

negotiations became part of the single undertaking in which virtually all the linked negotiations are to end by 1 January 2005.’ The current negotiations, available http://www.wto.org/english/tratop_e/agric_e/negoti_e.htm For a detailed analysis of the trade-distorting effects of SPS policies, see Bhattacharyya (1999), UNESCAP (2000), Otsuki et al. (2000), Maskus and Wilson (2001), Chaturvedi and Nagpal (2002), Mehta et al. (2002), Mohanty and Manoharan (2002), Mehta and George (2005) and Mehta (2005). Gulati and Narayanan (2003) noted that all domestic support measures are not included in the calculation of AMS. Most of the AMS components fall in the Amber box measures and therefore constitute only around 40 per cent of total support to agriculture. PSE is a much more robust measure of farm support when compared with the AMS technique. For details, see Gulati and Narayanan (2003: 13–15). Jank et al. (2003: 33) note, ‘ …more than 95% of domestic support measures and export subsidies are concentrated in the US, EU and “like-minded” protectionist countries.’ The ‘like-minded’ countries consist of Japan, Korea, Czech Republic, Hungary, Iceland, Norway, Poland and Switzerland. Farm subsidies account for around 50 per cent of the EU’s annual budget. The EU spends the equivalent of US$ 53.5 billion a year on the Common Agricultural Policy (CAP). In contrast, the US government limits such spending to US$ 19.1 billion a year under the WTO agreements. Both schemes are, however, equally trade-distorting. The joint share of the EU and the US in world exports is more than 20 per cent, as seen from the various issues of International Trade Statistics. In addition, although after becoming an active member of the Cairns group, Canada is much more serious on liberalisation of agricultural trade, areas like the dairy sector are still heavily subsidised. Groombridge (2001: 1) notes, ‘Nowhere is there a larger gap between the U.S. government’s free-trade rhetoric and its protectionist practices than in the sugar program. Through preferential loan agreements and tariff-rate quotas, the U.S. government thwarts price competition to maintain an artificially high domestic price for sugar—a price that can be twice the world market price or higher…. The U.S. sugar program is a classic case of concentrated benefits and dispersed costs: a very small number of sugar growers receive enormous benefits, while the costs of providing those benefits are spread across the U.S. economy, specifically to consumers and confectioners.’ ‘The support received by farmers in Japan and the costs to consumers of agricultural products remain above the Organisation for Economic Co-operation and Development (OECD) average and have increased since 1997’ (WTO Trade Policy Report, Japan [2000], p. 86). The report acknowledged an increase of 14 per cent and 15 per cent in PSE and CSE respectively during 1997 and 1999, indicating an increase in support to agriculture, although the AMS declined marginally. The panel found that the US had acted inconsistently with its obligations under Article 3.1(a) of the Subsidies Agreement as well as with its obligations under Article 3.3 of the AOA. Although the appellate body (AB) reversed certain provisions of the panel ruling, it concluded that the US acted inconsistently with its obligations under Articles 10.1 and 8 of AOA. The US promised to implement the recommendations.

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16. According to critics, the CAP promotes overproduction of grains, beet sugar and other products, which are major export items to the Third World markets. Gulati and Narayanan (2003: 31) have pointed out a one-to-one correspondence between commodities with high PSE and high export subsidy. The WTO Special Study (2001: 4) notes, ‘...the potential impact of export subsidies on agricultural markets is still significant’. 17. ‘In fact in some cases, such as cotton in India, the efficient producers are unable to compete in their own domestic market. Cotton imports in India have increased substantially due to the availability of cheap US cotton, as a consequence of the subsidies provided by the US to their farmers.’ They also feared that the downfall in the export of wheat by the US during 2001–02 might not benefit the developing countries, as increasing allocations in Farm Bill, the instrument to assist the farmers in the US, would help the producers to still compete in the international market. 18. For details, see WTO disputes DS 90 (involving US), DS 91 (involving Australia), DS 92 (involving Canada), DS 93 (involving New Zealand), DS 94 (involving Switzerland) and DS 96 (involving EU). India lost the case against the US, while others were amicably settled. 19. ‘ ... the still unmet promises and unfulfilled obligations of the developed nations made in the Uruguay Round have cast the legitimate concerns of the developing nations into a sharper focus in the run-up to the Doha Ministerial Conference. This is, indeed, the rationale for India’s insistence that the incomplete agenda of the Uruguay Round should be first completed, before starting any new round of trade negotiations.’ Speech by the then Prime Minister, Shri Atal Bihari Vajpayee, at the International Conference on ‘Concerns of Developing Nations in the WTO Regime’, organised by The Institute of Chartered Accountants of India, in collaboration with the United Nations Conference on Trade and Commerce (UNCTAD), Directorate General of Anti-Dumping and Allied Duties, Ministry of Commerce and Industry, Government of India, 20 August 2001, New Delhi, India and the WTO, August 2001, p. 11. 20. The reasonable period for the developed and developing countries is six and 10 years, respectively. The AMS for the domestic sector and value of export subsidy in case of the developed countries were scheduled to be reduced by 20 and 36 per cent, respectively. The figures stood at 13 and 24 per cent for the developing countries, in the same order. 21. WTO Annual Report (2003: 11) notes, ‘Even in industrialized countries, where average tariff protection is low, tariff “peaks” exist in certain sectors, notably agricultural products, textiles, clothing and footwear. These peaks constitute prima facie evidence that the domestic dead-weight and net welfare losses caused by tariff protection as well as the costs to consumers could be high. The losses and costs to consumers are also likely to be high in developing countries, where overall tariff protection tends to be relatively high.’ Also see WTO Special Study (2001) for details. 22. Any harmonising method significantly narrows the gap between high and low tariffs. 23. Submission of the WTO members at the Special Session of the Committee on Agriculture (JOB[03]/53, dated 11 March 2003).

42 The WTO Deadlocked 24. See Mehta et al. (2004) for details. 25. Indian submission to WTO (Document No. G/AG/NG/W/102, dated 15 January 2001). 26. G–20 submission to WTO (Document No. TN/AG/GEN/9, dated 7 May 2004). 27. G–33 submission to WTO (Document No. JOB[04]/65, dated 1 June 2004). 28. The EU practically stalled agricultural subsidy reform, as it bought time on each occasion to bring its domestic regulations in line with the WTO obligations. 29. Trade Policy Review, European Union (2000), Part 1, p. ix. 30. However, the move was not an open-ended one. ‘The cuts in subsidies and tariff are conditional on similar cuts from other developed countries, particularly the US. The US, Canada, Japan, Australia and the 15 EU members would also cut export subsidies by 45% and domestic subsidies as part of the deal’ (http://news.bbc.co.uk, 16 December 2002). 31. In March 2003, the US termed the EU attitude to be quite disappointing owing to the absence of any proper time-bound commitment in reduction of export subsidies. 32. United States Trade Representative (USTR) Press Release, 26 November 2002. 33. See ‘Modalities Phase: First Draft’, WTO http://www.wto.org/english/tratop_e/ agric_e/negoti_mod1stdraft_e.htm 34. The new proposal involved the merging of most of the old premiums paid under the CAP into a ‘single farm payment’, independent of production and linked to compliance with environmental, food safety and animal welfare standards. The single farm payment was supposed to enter into force in 2005, although member states were allowed to apply for a transitional period until 2007. However, Naik and Singh (2003: 59) point, ‘…the changes will allow most subsidies to be shifted to the “green box” under the Agreement of Agriculture, hence considered to be non-trade distorting or minimally trade-distorting.’ 35. Pascal Lamy commented that the negotiation would be successfully completed only if the US and other trading partners were willing to put their own farm programmes on the negotiating table, ‘referring to the legislation signed last year that boosted U.S. crop and dairy subsidy payments by US$ 57.1 billion from the previous farm bill.’ www.producer.com, 8 July 2003. 36. In Canberra, Australian Minister for Agriculture, Fisheries and Forestry, Mr Warren Truss said, ‘After weeks of debate and with a mountain of evidence that the CAP needs to change, EU ministers have adopted what can best be called a marginal and mediocre change.’ http://www.affa.gov.au/ministers/truss/releases/03/03179wt.html, 27 June 2003. 37. http://deltafarmpress.com/ar/farming_eu_subsidy_reform_2/, 27 June 2003. As of now Sweden, the UK, Denmark, the Netherlands and Germany are in favour of the reforms while France, Spain and Ireland are maintaining a stance that is its polar opposite. 38. ‘… we’ve got to bring European and Japanese levels (of subsidies) down. The European cap on what’s called the amber box domestic subsidies that distort production is, depending on exchange rates, about $65 billion, and ours is $19.1 billion so we’ve got to bring that down and harmonize it.’ 39. The other major members of the group are Argentina, Bolivia, Chile, Colombia, Costa Rica, Guatemala, Mexico, Paraguay, Peru, Thailand and South Africa.

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40. The International Food and Agricultural Trade Policy Council (2004: 1) report actually identified 25 channels to improve the draft by arguing, ‘… if the Derbez text is to be the basis for further negotiations it must be improved considerably to make sure that reforms are real and meaningful for both developed and developing countries.’ 41. G–33 submission to WTO (Document No. JOB[04]/65, dated 1 June 2004). Earlier India asked, ‘A separate safeguard mechanism on the lines of the Special Safeguard provisions (Article 5 of AOA) including a provision for imposition of Quantitative Restrictions under specified circumstances, should be made available to all developing countries irrespective of tariffication in the event of a surge in the imports or decline in prices and to ensure food and livelihood security of their people.’ Individual submission by India (Document No. G/AG/NG/W/102, dated 15 January 2001). 42. The focus on special products has evolved over India’s earlier negotiations on ‘strategic products’ along the same lines with 11 other developing countries earlier (Document No. JOB[03]/59, dated 20 March 2003). It was proposed that ‘The total number of self-declared strategic products at any one time are limited to [X] per cent of the total domestically produced agricultural products based on tariff lines in a country’s schedule.’ The notion is well in line with the earlier submissions, ‘.. certain degree of protection in terms of moderately high tariff levels and Special Safeguard clause are a must for sustainable agricultural development in developing countries.’ Individual submission by India (Document No. G/AG/NG/W/33, dated 13 July 2000). 43. Text of keynote address by Mr Arun Jaitley at FICCI–UNCTAD Seminar on ‘Reflections on Post-Cancun Agenda: The Way Ahead’, 22 October 2003, New Delhi, India and the WTO, Newsletter (October–November 2003). 44. G–20 submission to WTO (Document No. JOB[03]/162/Rev.1, dated 29 August 2003). 45. Mr Kamal Nath told the media that the draft fails to take into account a number of major concerns of India. Brazil also cautiously responded that the draft needs more revision. ‘India Rejects WTO Draft’, Hindustan Times, 31 July 2004. 46. Naik and Singh (2003) note that the developed countries account for 88 per cent of total Green box subsidies, and the magnitude of trade distortion in their favour is quite obvious. 47. ‘On domestic support, in response to US proposals for an 80% reduction in “Amber box” subsidies, the EU proposed a 70% cut, up from an earlier offer of 65%, but contingent upon “proportionate reductions” by the USA and Japan… Indian and Brazilian representatives claimed that although the proposals were an advance the EU and US “did not do enough to cut actual payments, as opposed to merely lowering ceiling levels”. India rejected the idea that on the basis of these proposals a new peace clause could be agreed’ (available at http://agritrade.cta.int/news0511. htm, last accessed on 30 September 2005). 48. India and the WTO, Vol. 7, No. 12, December 2005. 49. See the paper on Revised draft modalities for agriculture (WTO Document No. TN/AG/W/4 and TN/AG/W/4/Corr.1). 50. Working Document No. 5, available at http://www.wto.org/english/tratop_e/agric_e/ workdoc_5otds_e.pdf (last accessed on 3 January 2008). 51. Working Document No. 6, available at http://www.wto.org/english/tratop_e/agric_e/ workdoc_6ams_e.pdf (last accessed on 3 January 2008).

44 The WTO Deadlocked 52. Working Document No. 7, available at http://www.wto.org/english/tratop_e/agric_e/ workdoc_7deminimis_e.pdf (last accessed on 3 January 2008). 53. Working Document No. 8, available at http://www.wto.org/english/tratop_e/agric_e/ workdoc_8bluebox_e.pdf (last accessed on 3 January 2008). 54. Subsequently, the draft text on agriculture circulated in February 2008 (Document No. TN/AG/W/4/Rev. 1, dated 8 February 2008) focussed on reduction in the Overall Trade-Distorting Domestic Support through a tiered reduction formula. It also talked about limiting the product-specific AMS, de minimis, issues pertaining to the Blue box support, enhancement of market access in general and cotton in particular, issue of tariff escalation, tariff simplification, administration of tariff quotas, treatment of special products, special safeguard mechanism, and so on. In addition, SDT provisions are incorporated in the proposal. The draft is an improvement over the July 2007 scenario and several G–20 and G–33 demands are included in it. The willingness of the WTO members to agree on these modalities would greatly influence the outcome of the Doha Round. 55. Individual submission by India (Document No. JOB[03]/7, dated 22 January 2003). 56. Individual submission by India (Document No. G/AG/NG/W/70, dated 18 January 2001). 57. Submission by 11 countries (Document No. G/AG/NG/W/37, dated 28 September 2000). 58. ‘...Special dispensation for developing countries provided under Article 27 read with Annex VII of the Agreement on Subsidies and Countervailing Measures should prevail over Article 8 of AOA.’ Individual submission by India (Document No. G/AG/NG/W/102, dated 15 January 2001). 59. Individual submission by India (Document No. G/AG/NG/W/33, dated 13 July 2000); Individual submission by India (Document No. G/AG/NG/W/102, dated 15 January 2001). 60. Individual submission by India (Document No. JOB[02]/175, dated 18 November 2002). 61. The analysis by Hoda (2003) and the papers in Hoda (2002) represent a comprehensive survey. 62. Dated 17 November 2005. 63. Dated 10 November 2005. 64. World Trade Report, 2005, available at http://www.wto.org/english/res_e/booksp_e/ anrep_e/wtr05-tariff_e.pdf (last accessed on 30 November 2007).

3 The SPS–TBT Measures and Environmental Concerns INTRODUCTION A largely agricultural economy like India has lots to gain if resources are invested for promotion of agricultural exports. The share of agricultural exports in the total exports of the country has been only 13.58 per cent in 2002–03 and around 12 per cent in 2006–07. For the past five years, the contribution of agriculture towards the GDP of the country has been around 18–20 per cent. Both the figures are much less as compared to the potential, given the fact that 56 per cent (190.94 million out of 336.75 million of total employment) of the total labour force is employed in the agricultural sector. Thus, growth in the agriculture sector would benefit a large section of the population. Even though the share of agriculture in the total domestic output has decreased drastically from the corresponding level during the 1950s, the sheer size of this sector ensures that India is among the largest producers in the world for some, if not all, commodities (The Hindu 2000). This includes production of grains like wheat and paddy, dairy products, fruits and vegetables, marine products, and so on. Yet when it comes to the processing of these commodities, there is ample scope for improvement. For instance, only 2 per cent of the fruits and vegetables produced domestically are processed. Similarly, only 15 per cent of the milk produced is processed. On an average, only about 7 per cent of the food output in India gets processed. This is much less when compared to other countries. Twenty-three per cent of food products in China are processed. The corresponding figures are 45 per cent and 88 per cent in the Philippines and the UK, respectively. This clearly reflects the need to promote value adding activities in Indian agriculture.

46 The WTO Deadlocked Recently, food processing industry in India has started growing. There is a separate ministry catering to the needs of the sector, providing the correct incentives and environment, for encouraging its growth. The emphasis is on establishing new processing units whose output can cater both to domestic and international markets. Yet it is important to understand that there are certain issues that need to be addressed simultaneously if India has to compete internationally in processed food exports. These include maintenance of proper hygienic conditions in order to satisfy the SPS measures in the developed countries. This is a major problem for the food processing sector in India as many of the consignments are rejected as they do not meet the hygiene levels specified by the importing countries.

THE SPS–TBT MEASURES AND ENVIRONMENTAL ISSUES Before going into the details of the problems being faced and their likely solutions, it is important to know what SPS measures are. These are the minimum human, animal or plant health related measures that have been specified under the WTO agreement on the issue. The basic purpose of the agreement is to safeguard the health of plants, animals and humans against any infection or disease-causing agents, coming into any country with the food products being imported from the rest of the world. The WTO agreement only specifies the minimum standards and the methodology of determining these. Based on these guidelines, the actual standards to be followed are determined independently by the member countries. However, the standards set by codex, an international body, are becoming increasingly acceptable the world over, and thus, are used as a benchmark by domestic organisations. This freedom of determination of separate (or appropriate) standards implied that most countries, especially the developed countries, had set some very high standards for the exports entering their territory. Further, these high standards were being justified on the grounds that they were necessary for the health and safety of the residents of the importing country. The problems are cumulated owing to the presence of the terms like ‘appropriate level’, ‘sufficient scientific evidence’, ‘reasonable period of time’, ‘required domestic standard’, ‘scientific evidence’, and so on, in the WTO–SPS Agreement, which are not defined in numeric terms. Hence, interested countries often

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get an opportunity to protect their domestic sector through imposition of these standards. Ganslandt and Markusen (2001) have shown that higher standards imposed by the developed countries always result in increasing profitability by domestic firms, but reduction of the same in the developing countries. The Mutual Recognition Agreements (MRAs), which enable the members to acknowledge each other’s standards, can partially solve this problem. The Technical Barriers to Trade (TBT) measures, on the other hand, concern adoption of unnecessarily stringent production process or packaging and labelling requirements, the absence of which in no circumstances degrades the product quality. It has been observed, at times, that developed countries tend to block imports from developing countries using this route. Moreover, exports can be blocked using the environmental concern as well. The idea is that the polluting industries should have a ‘green label’, that is to say, they must have a certification that a clean production process has been followed. The idea is that if the firms in a country operate facing a lower environmental standard, the flexibility of not adopting green techniques, in effect, means an indirect subsidy to the firms. It is expected that this mechanism would help the producers to behave responsibly. However, there is every possibility to misuse these provisions as veiled protectionist tools or NTBs against imports. These high standards have often been a cause of discord between trading nations. The exporting countries allege that these standards are set at unreasonably high levels. They also contend that the purpose is not just to ensure health safety, but there is a hidden agenda of using them as trade barriers against the exporting countries. It is felt by the developing countries that unreasonably high standards—which are difficult to meet—would reduce their export opportunities by blocking access to some of the markets and would thus hamper their growth. These countries have been highly vocal about their opinion and have registered their complaints with international tribunals under the WTO. On the other hand, the developed countries imposing these standards maintain that the only purpose of setting high standards is to safeguard the health of their citizens. They even claim that the standards are feasible and can be adopted easily using the existing technology. It has been argued that compliance cost for conforming to SPS standards in the developing countries is quite high with respect to their developmental resource and, therefore, would act as a major problem

48 The WTO Deadlocked (Oyejide et al. 2001). Henson et al. (2000) arrived at the conclusion that developing countries are strongly constrained by their developed counterparts in terms of SPS barriers, and regarding problems faced in export markets, the EU is ranked first, followed by Australia, the US, Japan and Canada. Otsuki et al. (2000) have undertaken a more specific approach and analysed the impact of the new EU afflatoxin standard on African countries. The result clearly suggested that the new standard would reduce African export of cereal, dried fruits and nuts to the EU by 64 per cent, or US$ 670 million, while an insignificant risk reduction to the extent of 0.2 death per billion would be achieved. Hooker and Caswell (1999) have also discussed the trade restrictions erected by SPS through administrative and other procedures. Oyejide et al. (2001) have shown that there exist various types of NTBs on agricultural products in the EU and the US markets, and SPS is predominant among these measures. While most of the studies tend to point out the problems caused by SPS measures, Thilmany and Barret (1997) argue that SPS measures may also increase effective demand, fuelled by the consumers’ concern for safety of the product. However, owing to the fact that SPS measures could also act as a quota, the total effect of SPS measures on the volume of trade is ambiguous. The Commonwealth Report (2001) has also shown that the compliance cost for the small exporters is too high and they often shift from the affected market to another destination. Jensen and Thursby (1996) have argued that governments set standards in order to improve the R&D propensity of domestic firms, which influences their competing capacity. The OECD (1999) had undertaken a survey to estimate the trade impact of standard related measures among a large number of firms located in various countries. The study strongly supported the contention that standards act as a relatively greater entry deterrent for small enterprises and, often, they are forced not to enter a particular market because of high compliance cost. The study also pointed out that the duplicative and discriminatory testing and certification requirements act as a substantial barrier to trade. Boom (1995) has examined the effect of minimum quality standards with a model of vertical product differentiation. Casella (1996), in a detailed literature survey, also highlights the potential trade restrictiveness of standard related measures. The economic effects of environmental measures have also received the attention of economists. Bhagwati and Srinivasan (1996) have pointed

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that unilateral sanctioning on environmental grounds is an inappropriate measure for promoting cleaner environment. Jha et al. (1999) have shown that labelling requirements act as a major obstacle for developing nations. It has been argued by Stephenson (1997) that developing countries lag far behind their developed counterparts in terms of technical expertise. Therefore, they are less capable to enforce the standard adopted by the developed countries. Indian exports have long been subjected to various restrictive measures in terms of SPS, environmental measures or labour standards related issues in the EU and the US markets. Several studies have been undertaken to focus on these barriers. Bhattacharyya (1999) has shown that Indian exports are subject to various measures in the EU and the US markets, and the value of products affected by these measures is on the rise. ESCAP (UNCTAD 2000) also arrived at similar conclusions. Chaturvedi and Nagpal (2001) expressed their concern over the growing trade-off between environmental standards and its effectiveness to govern the trade in environmentally sensitive goods and the efficiency of it as a tool to manage environmental concerns. In a later study, Chaturvedi and Nagpal (2002) expressed the potential threat on Indian exports, as the proportion of environmentally sensitive goods in the export basket is quite high. Mehta et al. (2002) have focussed on the SPS measures faced by India and concluded that the experience of Indian exports under various international initiatives on safety regulations suggests that scientific merit of the involved processes is dubious. The idea of higher standards does not necessarily hold true, since rejection of Indian consignments in the first instance (for example, egg powder by the EU) and then accepting them through other unfair means is a common experience (ibid.: 61). Focussing on the Shrimp–Turtle Dispute, Srivastava and Ahuja (2002) concluded that the sanction did not cause a major burden, at least in the short run, since the exporters shifted to alternative exports such as cultured shrimps. However, the authors argued that the case might be cited as a reference for future impositions.1 Chimni (2002), however, pointed out that the way the AB has overturned certain rulings of the Panel, bears grave consequences for the future. He argues that the AB verdict actually paves the way for increasing incidence of unilateral trade measures in future. Mohanty and Manoharan (2002) have shown that the EU member countries use several NTBs, many of which are neither consistent regionally nor compatible with the WTO framework.2

50 The WTO Deadlocked

INDIA IN THE SPS–TBT PLANE The stringent SPS measures have affected export of primary products to many countries like the US. For instance, the quarantine and other phytosanitary regulations in the US on the import of fresh fruits and vegetables have resulted in a practical ban on imports of Indian fruits like mangoes and grapes.3 The United States Department of Agriculture (USDA) clearance granting process is time-consuming and fatal for perishable products.4 In addition, the Food Safety Inspection System (FSIS), since 1995, has introduced a system of process controls to prevent food safety hazards known as Hazard Analysis Critical Control Point (HACCP), first introduced for seafood industries and later extended to all meat and poultry products. The Food and Drug Administration (FDA) wants to extend this regulation to fruit and vegetable juices.5 Since December 1995, the sanitary requirement has been intensified and now products need to be accompanied by certificates for chemical and biological hazard analysis, potential hazards in processing identification, and preventive measure application records.6 In the EU, on the other hand, the applied measures often cross the ‘required domestic standard’ provision and are not applied on the basis of available scientific evidence.7 India is the largest producer of milk and milk products in the world. Yet it cannot export to the European countries because they allow import of milk or milk products only if they are obtained from a completely mechanised milking process. The problem in India is that very small players, who find it difficult to install the large and costly machinery, carry out the entire process of milk production. This is an example of TBT measures. On another occasion, export of peanuts from India to several European countries was banned, as the amount of Alfatoxins, a naturally occurring toxin, was found higher than the specified limits there. Most of the European countries specify very strict levels for Alfatoxins. For example, the tolerance level in Belgium and Switzerland is zero and one parts per billion (ppb), respectively, while the same in Germany and Denmark is four ppb. The varying standards in the EU countries make it further difficult for Indian producers to comply with them (RGICS 2001). The problem is that Alfatoxins occur naturally under the dry and humid conditions, which makes the job further difficult for the Indian producers. In addition, the pesticide residue regulation of the EU affects Indian tea and coffee export appreciably despite the claim that the residue level in Indian export is below the objectionable level.

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Although until now, most of the standards and technical regulations are enforced through self-declarations, third party certification is becoming increasingly important and approval of government agencies like Occupational Safety and Health Administration (OSHA) and the FDA has become mandatory for a wide range of products.8 The US system for assessing conformity of products and processes makes the system increasingly complex, costly and burdensome, with tests being duplicated by authorities at different levels of governments.9 This creates a lot of problems for foreign exporters.10 One reason for worry is the unavailability of timely information to the producers. For example, a consignment of ‘egg powder’ from India was rejected in the EU. The reason given for that by authorities in the destination country was non-compliance with the rule of ‘Minimum Required Performance Limit (MRPL)’. The ground reality was that the rule had been announced just before the date of the consignment reaching the importing country. No concession was made for the fact that the producer of the good in question did not have the time margin so that the newly announced rule could be complied with. The huge number of consignments that were rejected by the USFDA is a worrying trend (Mehta 2005). In addition, there are more than 2,700 state and municipal authorities in the US requiring safety certificates. Often, individual states set environmental standards going far beyond what is provided for at the Federal level.11 Similar stringent policies are also in force in Japan.12 Among TBT–Environment concerns, the labelling requirement is often redundant for the imposing country.13 The ‘Blue Angel’ of Germany is most restrictive among other labelling requirements in terms of stringency. For example, every three years product requirements are to be tested for a number of ‘environmentally-sensitive’ products. This poses unnecessary testing requirements, adding burdens for the exporters.14 These examples clearly reflect the current situation of the food processing industry in India. The need of the hour is the introduction of new and better technology to comply with stringent standards. Timely information on different standards in partner countries is also required. Moreover, the food standards within the country should also be comparable to international standards, that is, products certified by Indian agencies be made acceptable internationally. Currently there are specific standards for different food categories. Food Products Orders, Essential Commodities and the Prevention of Food

52 The WTO Deadlocked Adulteration Act, and so on, specify the code of conduct for the producers and sellers of foodstuff. The standards aim at regulating sanitary and hygienic conditions at all levels of the supply chain by laying down minimum requirements for product standards, sanitary and hygienic conditions of premises, surrounding environment and personnel, the water being used for processing, and so on. However, multiple agency supervision (for example, Ministry of Commerce, Ministry of Agriculture, Ministry of Rural Development, Ministry of Health and Family Welfare, Ministry of Food Processing Industry, Ministry of Civil Supplies, Consumer Affairs and Public Distribution, Ministry of Environment and Forests, and so on) looking at issues from different angles haunts the system and creates confusion. The Bureau of Indian Standards (BIS) has set more than 17,000 standards, out of which 150 are mandatory while others are voluntary. Among other institutions and agencies, the Ministry of Food Processing Industry (MFP) formulates the procedures and standards for the food processing industries. The rules are applicable to the materials to be used for the machine and equipment that touch the food, quality of water used for production, requirements of in-house laboratories, assessment of the quality by food technologists, standards pertaining to chemical content, physical characteristics, contamination levels and additive levels allowed in food, and so on. The purpose of the Food Safety and Standards Bill 2005 has been to put an end to these confusions and ensure conformity with international standards.

MISUSE OF THE SPS PROVISIONS Looking at the WTO disputes on SPS issues, an attempt is made to check which SPS provisions are most frequently misused. It is observed from Figure 3.1 that the violations have so far have been made on the ground of Article 2 (harmonisation), Article 5 (adaptation to regional conditions), Article 3 (condition of equivalence), Article 8 (technical assistance), Article 7 (control, inspection and approval procedures), Article 6 (transparency), Article 4 (assessment of risk and determination of appropriate level of SPS protection), Article 10 (consultations and dispute settlement) and Article 13 (final provisions). Allegedly, violation has also been made under Annex B (transparency of SPS regulations) and Annex C (control, inspection and approval procedures) of the SPS agreement.

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Figure 3.1 Alleged Violation of SPS Agreement—Article-wise Article 13 Article 10

Article 4 Annex C Article 6 Article 7 Article 8 Annex B Article 3 Article 5 Article 2 0 5 10 15 Source: Authors of the present volume.

20

25

30

35

Analysing the completed WTO cases, it is observed that the major proven violations of the SPS agreement concern Article 5.1 (adaptation of SPS measures to regional conditions), Article 2.2 (application of SPS measures conforming to international standard deemed necessary to protect human, animal or plant life), Article 3.3 (accepting the measures of other countries as equivalent, provided domestic SPS requirements are met), Annex B (transparency of SPS regulations), Article 7 (control, inspection and approval procedures), Article 5 (adaptation to regional conditions), and so on. The violations are noted in Figure 3.2. The grounds of the violations show that at each level of determining a standard, there is a possibility of misusing the Agreement. The alleged violations under the TBT agreement are noted in Figure 3.3. The major violations are made under Article 2 (preparation, adoption

54 The WTO Deadlocked Figure 3.2 Actual Violations of SPS Agreement—DSB Rulings Article 2.3 Article 5.5 Article 5.6 Article 5.7 Article 7 Annex B Article 3.3 Article 2.2 Article 5.1 0 1 2 Source: Authors of the present volume.

3

4

5

and application of technical regulations by central government bodies), Article 5 (procedures for assessment of conformity by central government bodies), Article 12 (SDT for developing countries), Article 6 (recognition of conformity assessment by central government bodies), Article 7 Figure 3.3 Alleged Violation of TBT Agreement—Article-wise Article 1 Article 9 Article 3 Article 7 Article 6 Article 12 Article 5 Article 2 0 5 10 15 Source: Authors of the present volume.

20

25

30

35

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(procedures for assessment of conformity by local government bodies), Article 3 (preparation, adoption and application of technical regulations by local government bodies and non-governmental bodies), Article 9 (international and regional system) and Article 1 (general provisions). Like the SPS case, it can be concluded that the potential misuse under the discretionary power of the importing country can act as a major barrier on the developing country exporters.

CONCLUSION Although since the UR negotiation, agricultural tariff has declined to a great extent, the prevalence of the SPS measures has not allowed the developing country export to grow to the desired extent. The problem of conforming to the stringent international standards is more complicated for India, since a large section of the local food processing industry comprises of small- or medium-sized players. Most of them do not have the adequate means and resources to make their products internationally acceptable. A similar problem is observed in case of manufactured products due to TBT issues and environmental measures. The adoption of newer technology and better product standards would be beneficial for the country in two different respects. On the domestic front, increased awareness and better buying capacity among the consumers create a higher demand for better quality products. On the international front, the export basket can be expanded to hitherto unexplored destinations. Apart from the technological uplift, few other conditions are necessary to ensure food processing export growth, namely, better infrastructure, transportation and storage facilities, easy availability of credit, availability of information on production and marketing including international norms of hygiene, and so on. Increasing focus on them is the need of the hour. There is no doubt that the Indian bodies take care of the SPS–TBT concerns and the environmental issues. However, a lot still needs to be achieved. The compliance level has increased in recent years (Chakraborty and Chakraborty 2007) and there is a greater participation from the government level resulting in more active policies. Apart from introducing appropriate regulatory framework, the government is providing several facilities to producers willing to undertake technological upgradation.

56 The WTO Deadlocked Also, on the international front, the government has several times argued on the stringency of the SPS–TBT procedures and their use as veiled NTBs (Government of India 1999). A combination of these kinds of internal and international efforts will be increasingly important in the coming days.15

NOTES 1. ‘…legitimised the imposition of unilateral trade prohibition and process-related conditions and extra-jurisdictional requirements to protect environment, certainly for the transboundary environmental concerns and may subsequently pave the way for such requirements becoming part and parcel of international trade…. Thus, the outcome of the shrimp–turtle case has all the potential for strengthening the hand of protectionist lobbies, in the name of conservation and protection of the environment.’ 2. ‘For example Germany required for the use of a specific type of dye in carpet for import, and this unilateral policy had adversely affected export prospects of some of the South Asian countries. We are, in fact, looking for such type of NTMs for the study,’ Mohanty and Manoharan (2002: 9). 3. Litchis could be exported only with a label stating that they were not for exporting to Florida (ESCAP Study 2000: 115). 4. The unjustifiable procedural hassles also deserve particular attention. ‘One undue obstacle is the restriction, in the case of approved citrus consignments, of the ports of landing to those on the North Atlantic shores. This requirement leads to unnecessary costs of land transport into the southern and western parts of the US. If the products were pre-cleared in the Member State of production, and moreover subject to cold-treatment during transport, there is no phytosanitary justification for the port restriction’, USBTI (2001: 24). 5. The field interaction with the fresh mango and processed mango product exporters during the RGICS, Commonwealth Secretariat and MOC project (2001) revealed that HACCP analysis, when strictly enforced, would act as a significant NTB in general, and prohibitive for the small exporters in particular, due to massive cost escalation. 6. WTO Trade Policy Review, United States (1999), p. 127. 7. For instance, import ban on livestock, meat and diary products from 18 Central and Eastern European countries on the basis of outbreak of hoof-and-mouth diseases in 1994, ban on the use of certain ‘specified risk materials’ (SRM) in food and feed, medical, industrial products , and so on, for concerns over ‘mad cow’ disease in 1997, could be cited. The way of imposition was far from ‘only to the extent necessary’. The stand of the EU on growth promoting hormones is also fairly restrictive and has been rejected by the WTO DSB as ‘necessary’ for protecting human health. 8. It needs to be mentioned that the FDA’s ‘Food Defect Action Levels’ programme imposes regulatory action on any product that might be harmful to consumers

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9. 10.

11. 12. 13.

14.

15.

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irrespective of the fact whether or not they exceed the defect levels (WTO Trade Policy Review 1999: 124). Also, in a few sectors, third party certifications are still mandatory. Self-certification is not accepted. For example, laws like Fastener Quality Act contain difficult accreditation and certification requirements even after a modification in 1998. In addition, certification by third parties also has problems of its own. ‘... the private organisations providing quality assurance may impose the use of certain specific product components under their own programmes that are not in conformity with international quality assurance standards (such as the International Organisation for Standardisation [ISO] 9000 series). In some cases (e.g., that of telecommunications network equipment) an expensive evaluation procedure is required which does not lead to certification and does not take account of any additional requirements by individual buyers’, USRBT (2001: 20). WTO, US Trade Policy Reviews. WTO, Japan Trade Policy Reviews. For example, the Danish Eco-labelling requirements on paper products stipulate that sulphur emissions generated during the production process should be reduced due to problems of sulphur emissions and acid rain in the EU countries (ESCAP 1997). The major objection to the establishment of the MST (Marke schadstoffgeprufter Textilien) and MUT (Marke umweltschonender Textilien), two types of label proposed under Blue Angel, is that their application will violate Article 9 of the GATT, because the awarding of criteria for these labels will constitute a discrimination against manufacturers and exporters in third countries. The verdict of the dispute settlement panels would also play a key role in this regard (see Nag and Chakraborty 2007).

4 NAMA Negotiations: The Way Ahead THE BACKGROUND TO NAMA Tariff negotiations on industrial products under the General Agreement on Tariffs and Trade (GATT) date back to the late 1940s and the 1950s. Subsequently, the tariff negotiations under GATT focussed on lowering the customs duty and other trade barriers on the basis of MFN treatment to the members. The widely discussed Swiss formula, favoured by several developed countries, was first discussed during the Tokyo Round of GATT (1973–79). Interestingly, while during the Tokyo Round, the participants used an agreed mathematical formula to cut tariffs across the board, in the UR they negotiated cuts on a product-by-product basis.1 The GATT (1994), at the end of the negotiation, chalked out a welldefined reform agenda for the member countries, giving assurances that tariff reduction would be done on a mutually advantageous basis. The assurance was necessary for the developing countries who wanted to retain the policy space to use industrial tariffs as effective tools to pursue their developmental goals. The bound rate of tariff for all industrial product categories was determined at the negotiations and the members were asked to implement them within the specified period of time. Under the WTO agreement, the member countries were bound to expand the level of market access on industrial products to their trade partners. As noted by a WTO Special Study (2001), the following four were the main features of the UR negotiation on market access in the case of industrial products: 1. Both developing and developed countries agreed to significantly increase the share of their imports of industrial products whose tariff rates are bound. 2. For the developed countries, the share of industrial tariff lines subject to bound tariffs increased from 78 per cent to 99 per cent.

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3. For the developing countries, the increase in coverage was even more impressive, rising from 21 per cent to 73 per cent. The average tariff on developed countries’ imports of industrial products was cut by 40 per cent on imports from all sources and by 37 per cent on imports from the developing countries. 4. For the developing countries, the reductions averaged 25 per cent on industrial products imported from the developed countries and 21 per cent on industrial products imported from the developing countries. Apart from the MFN treatment obtained by the members, the Generalised System of Preferences (GSP) is worth mentioning here. It was implicit in the arrangement that a preference would be granted by all the industrialised countries to all the developing countries under a common system. However, from time to time, the developing countries and less developed countries (LDC) have complained about the malfunctioning of the provision. On the other hand, there has been dissatisfaction among the developing countries at times over the allocation of the GSP and the consequent loss of market in the developed countries.2 Presently, four tariff-related concerns are important at the WTO negotiations, namely, tariff reduction, sectoral coverage, tariff bindings and preference erosion; and the first issue, that is, the modalities of tariff reform, has emerged as the most important concern in the recent period. Since the UR, tariff averages for the NAMA products have decreased for the developed countries from 6.3 per cent to 3.8 per cent, while for developing countries tariff bindings increased from 21 per cent to 73 per cent (FICCI 2007). Despite reduction in average tariff levels of WTO members, the problems of tariff peaks and tariff escalation still remains a major concern. In general, a tariff rate above 15 per cent or more is considered as ‘tariff peak’, and it is observed that a number of developing country interest areas—like textiles and leather—attract such peak rates (RIS 2003a; Singh 2000; WTO 2001). ‘Tariff escalation’ describes the practice of imposing higher import duties with the level of processing, thereby discouraging the developing countries from exporting value-added products. Taking note of this fact, Mehta (2001) concluded, ‘In the forthcoming negotiations, India and developing countries should not concentrate on reduction in average tariff rates, but their concerns should be reduction in dispersion of tariffs (or reduction in peak tariffs), and tariff escalation.’ Considering

60 The WTO Deadlocked the tariff trends in the EU and the US, Singh (2001) noted that there is a case for the adoption of a comprehensive approach for reducing industrial tariff rather than following a sectoral approach. The WTO (2003d: 4) noted that: While eight successive rounds of trade negotiations under the GATT, over the last half-century, have succeeded in significantly reducing tariffs there is still ample scope for further liberalization. Tariff peaks, high tariffs and tariff escalation still prevail in many markets. Some developed country markets, where the average tariff levels are very low, are characterized by tariff peaks and escalation in labour-intensive manufactures. In Annex 4A, a cross-country view of tariff reform over the last decade has been presented. It is observed that while the simple average and weighted average tariff has gone down, the presence of international peaks still remains a major area of concern. As seen from Annex 4B, the extent of tariff escalation, both in the developed and developing countries, is another problem area. The two tables also make the danger for India clear, in no uncertain terms. India is one of the countries with high applied tariff rates and several trade barriers (Das 2003), with considerable degree of tariff escalation for various sectors. Once the modalities are finalised, it has to undertake reductions according to the agreed-upon formula, which might bear consequences for the domestic sector. However, Virmani et al. (2004) have shown that the Indian industry would gain from further reduction of tariffs in the coming years in terms of efficiency. Various studies attempted to estimate the welfare consequences for the developing countries due to tariff barriers. de Cordoba et al. (2005) have shown that the current WTO proposals on industrial goods liberalisation could result in an overall welfare gain of up to US$ 69 billion for the developing countries, in terms of GDP, and large aggregate employment gains in key sectors, such as textiles and apparel.3 The computable general equilibrium (CGE) analysis by Chadha et al. (2003) revealed that India’s welfare gain is expected to be 0.68 per cent of its 2005 GDP (an additional US$ 2.8 billion) when only UR promises are met, and could be further extended to 1.7 per cent of the 2005 GDP (that is, US$ 7.0 billion) when the DDA is implemented. Annex 4C shows a number of cases lodged at the WTO involving tariffrelated disputes, showing the skirmishes on that front. Apart from the tariff

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barriers, the NTBs on manufactured goods are also an area of concern. Anti-dumping duty (ADD) on manufactured items is already a major issue, which is discussed in Chapter 6. Among other measures, import licensing provisions could also be mentioned here.4 Kulkarni (2005) noted that the sectors of India that with considerable export interest are most affected by the NTBs include marine, auto components, pharmaceuticals, leather and textiles. The problems in this category usually span over standard-related issues, certification requirements, and so on. Nuisance tariff (that is, very low amount of tariff) and non-ad valorem duties also create problems for the exporters from the developing countries.

THE NAMA NEGOTIATIONS Although the WTO text promised a fair level of market access for the developing countries, for whom the export basket is increasingly becoming manufacture-intensive, the question of determining the modalities for further reform is still open. The Singapore Ministerial (1996) took place shortly after establishment of the WTO and, therefore, the stress was rather on timely adoption of the WTO legal text. Hence, NAMA was not the major point of discussion there. The ministerial declaration stressed on progressive liberalisation and elimination of tariff on goods in general, and welcomed the liberalisation move promised by various member countries, especially in ‘…information technology products on an MFN basis as well as the addition by a number of Members of over 400 products to their lists of tariff-free products in pharmaceuticals…’. Further, the declaration partly acknowledged the lack of transparency prevalent in the system and promised that, ‘With respect to industrial market access, monitoring of implementation would be enhanced by the timely availability of trade and tariff data.’ The Geneva Ministerial (1998) and the Seattle Ministerial (1999) did not focus explicitly on tariff-related issues. Before the Seattle Ministerial (1999), the developing countries pointed out that ‘the issues of tariff peaks, tariff escalations and non-tariff barriers in the developed countries overhanging from the Uruguay Round must be addressed effectively for market access to be meaningful.’5 Along this line, before Seattle, a number of the developing countries submitted their views on the trade-restrictiveness of the developed country policies with respect to NAMA and demanded removal of the barriers. In particular, the recipient countries of the GSP treatment asked the

62 The WTO Deadlocked developed countries to ensure proper functioning of the rules of origin (ROO) requirement, withdrawal of the built-in restrictions (such as tariff quota limitations and competitive country criteria) and removal of other limitations on the imports from the LDC, and so on. In addition, the countries demanded that the preferential access accorded to them should not be denied on the basis of any non-trade concern.6 The NAMA debate at the WTO basically focussed on whether to introduce the tariff cut according to the initial level of tariff barriers prevalent in a member or on the ability of a particular member to undertake that reform. In a way, the questions are inter-linked, as the developing countries are not in a position to implement tariff cuts that are as deep as their developed counterparts. Before Doha, the discussion focussed on the appropriateness of adoption of a linear formula for that purpose, which was of the following form:

t1 = a + c × t 0 where the initial tariff rate prior to negotiations and the final tariff rate are t0 and t1 respectively, and c is a constant parameter. If the value of a is less than zero, then tariffs below a threshold are reduced to zero, and tariff rates above that level are cut by an increasing percentage. On the other hand, having a greater than zero implies that tariff rates below a certain threshold are not reduced at all, while the same above the threshold are cut by an increasing percentage. In this regard, the DDA promised to protect the interests of the developing countries through ensuring less than full reciprocity (LTFR), that is, the need to undertake lower tariff cut by them as compared to their developed counterparts: We agree to negotiations which shall aim, by modalities to be agreed, to reduce or as appropriate, eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries. Product coverage shall be comprehensive and without a priori exclusions. The negotiations shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments, in accordance with the relevant provisions of Article XXVIII bis of GATT 1994 (emphasis by the authors).

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However, as seen from the text in the paragraph earlier, the decision has been open-ended, much depending on the negotiating skill of the developing countries. The negotiations on non-agricultural products were launched in January 2002 by creating a negotiating group on market access (NGMA) and the members were expected to agree on the ‘modalities’ (IATP 2005). The NGMA came out with a ‘Programme of Meetings for the Negotiations on Market Access on Non-Agricultural Products’7 on 19 July 2002, which talked about two target dates for its fulfillment. ‘The first was 31 December 2002 for the submission of proposals on modalities for the market access negotiations and the second was 31 May 2003 for agreement on those modalities.’8 Also, it talked about updating the existing gaps in the WTO trade and tariff database at an early date. During late 2002, the US came forward with a proposal for eliminating tariff barriers on all consumer and industrial goods by 2015, and urged the other WTO members to do the same.9 In particular, the proposal called for reduction and harmonisation of the tariff schedule of all the WTO members over 2005–10, ‘…WTO members would eliminate all tariffs at or below 5 per cent by 2010, cut all other tariffs through a “tariff equalizer” formula to less than 8 per cent by 2010, and eliminate tariffs in certain highly traded industry sectors as soon as possible, but not later than 2010.’ In addition, the members were requested to make equal annual cuts in remaining tariff barriers between 2010 and 2015, ultimately leading to zero tariffs. Not many countries were enthusiastic about this proposal and members failed to establish modalities for future negotiations before the Cancun Ministerial (2003). During this phase the EU10 and North Korea11 supported a linear tariff cut in their proposals.12 India, during early 2003, made three individual submissions where it talked about the need for tariff reform on one hand and, on the other hand, ensuring SDT provisions for the developing countries for keeping some flexibility in their developmental policy. In these submissions, India focussed on ensuring LTFR and a longer implementation period for the developing countries.13 It also asked for significant flexibilities for the developing countries in tariff reform for— (i) deciding on the actual bindings on some tariff lines while still maintaining the percentage reduction on an average basis, (ii) deciding individual tariff bindings so that at least up to 10% of the presently unbound tariff lines still considered sensitive or strategically important for a developing country could be left unbound, but

64 The WTO Deadlocked no sector is to be kept completely unbound. The binding of the unbound tariff lines is in itself to be considered a concession in terms of Article XXVIII bis:2(a).14 Indian submission in the following period further re-emphasised that two different coefficients be used for the developed and developing countries for the purpose of tariff reduction15—the coefficients being 0.5 and 0.33 for the developed and developing countries, respectively. The proposal was in line with the DDA on LTFR principle in reduction commitments by developing members. India was unhappy with the WTO exploring the application of both the reduction coefficients of 0.5 and 0.33 for all members, claiming that ‘this gives an incomplete picture, since it was India’s intention that developed Members would have to reduce tariffs by 50% while developing Members would have to reduce their tariffs by 33%.’16 Apart from these individual submissions, during early 2003, India collaborated with several developing countries and the joint submission again focussed on the need for providing SDT to the developing countries: No core modality would be complete unless it specifically addressed products of particular export interest to developing countries in developed markets where there is a prevalence of tariff peaks… developing country members would need to retain some flexibility to continue to maintain certain unbound tariff lines, which are domestically highly sensitive or strategically important, as unbound… during the negotiating process, members shall commit to converting all their specific and mixed duties into ad valorem tariffs without exception. Developing countries should however have the flexibility to retain non-ad valorem rates for upto 3% of the total tariff lines in their national nomenclature.17 In order to reach an agreement on a possible outline of modalities on tariff reduction by 31 May 2003, the NGMA met five times between January and August 2003, and received a number of proposals from the members. Based on the relevant discussion, the Chairman submitted a report on ‘Draft Elements of Modalities for Negotiations on NonAgricultural Products’18 on 16 May 2003. Incorporating the comments of the members, a revised draft was prepared and circulated to members on 19 August 2003.19 In the subsequent period, a full report20 was presented

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to the TNC before the Cancun Ministerial Meeting on the status of discussions on NAMA modalities.21 During the first half of 2003, the developed countries attempted to offer certain flexibilities to their developing counterparts. Canada, the European Community (EC) and the US submitted a joint proposal shortly before Cancun (2003), which agreed for LTFR and SDT in tariff cut for the developing countries, following a Swiss formula: ‘.... modalities... shall include a simple, ambitious, harmonising formula applied on a lineby-line basis (e.g., Swiss Formula), with a single coefficient of [x]... the formula will incorporate special and differential treatment.’22 Although the proposal talked about devising appropriate mechanisms to deliver flexibility for developing countries and maintaining LTFR by reducing the formula cut applicable to the developing country tariffs, the idea of using a single coefficient was definitely not welcomed. Before the Cancun Ministerial (2003), Pierre Louis Girard, the NAMA Chair, came out with the following non-linear formula for discussions:

T1 =

B × T2 × T0 B × T2 + T0

where T1 is the final bound rate, T2 is the average of the base rates, T0 is the base rate and B is a coefficient. This formula was more sympathetic to the developing countries as each country’s tariff average was part of the tariff cutting formula. India was in broad agreement with the Girard formula.23 However the problem was still with determination of the actual value of the coefficient. At Cancun, the limelight was on agriculture and the negotiations focussed mostly on the removal of domestic subsidies in the primary sector. However, the commitment to NAMA was mentioned in the Derbez Draft, following the Doha mandate. Given the fact that the NGMA was yet to arrive at a uniform modality acceptable to the members, the negotiating period was kept open-ended so as to consider the views of all the concerned parties. It was noted in the ministerial declaration: We agree that the Negotiating Group should continue its work on a non-linear formula applied on a line-by-line basis which shall take fully into account the special needs and interests of developing and least-developed country participants, including through less than full reciprocity in reduction commitments.

66 The WTO Deadlocked The negotiation was particularly important owing to the fact that the declaration left the definition of ‘product coverage’, ‘participation’, and ‘adequate provisions of flexibility for developing-countries’ to be negotiated. Ranjan (2006b) notes that developing countries were not particularly happy with the Derbez Draft, owing to its stand on a non-linear formula for tariff reduction, limited flexibilities and the proposal to use the applied rate instead of the bound rate for the treatment of the unbound tariff lines (‘for unbound tariff lines, the basis for commencing the tariff reductions shall be [two] times the MFN applied rate in the base year’). On the whole, the declaration provided some policy space. For example, longer implementation periods for tariff reductions for the developing countries, exclusion of LDC from applying the formula and participation in the sectorial approach.

CANCUN TO GENEVA AND BEYOND A number of earlier proposals submitted by the WTO members on NAMA came to the forefront in the post-Cancun period for arriving at mutually acceptable modalities. A summary of these proposals is provided in Table 4.1. It is interesting to note that in the Chinese proposal, ta is the simple average of the base rates, P is a peak factor defined as the ratio of the tariff rate over the average rate (t0/ta) and B is an adjusting coefficient for the year of implementation (B = 1 for 2015 or B = 3 for 2010). Instead of having a fixed coefficient like the Swiss formula, the Chinese formula includes a variable factor here depending on the simple average of base tariff and an additional parameter for the year of implementation. Here for the same tariff rate, members with lower tariff averages would experience relatively higher reduction rates than members with higher tariff averages. Given the already low average tariff level and 100 per cent tariff bindings, clearly China wanted to make the most of the commitment it had already undertaken. India, on the other hand, proposed a simple linear cut on the individual bound tariff lines of each member, with a higher percentage cut for developed countries than for developing countries (A = 1 for developed countries and A = 0.67 for developing countries), asking for reduction in any tariff in excess of three times the national average tariff, over the linear cut.

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Table 4.1 The Formula Debate Country

Document

The Proposed Formula

China

TN/MA/W/20 (24 December 2002)

t1 =

(t a + ( B × P )) × t 0 (t a + P 2 ) + t 0

India

TN/MA/W/10/Add. Step (1) t1=c×t0 where c=(1–(A×Y/100)) 2 (18 March 2003) and Step (2) t1≤3×ta1

Japan

TN/MA/W/15 (20 November 2002)

t1wa =

A × t 0wa +α A + t 0wa

South Korea TN/MA/W/6/Add.1 • If tariff rates are above twice the national (7 January 2003) average but less than 25 per cent t1=(t0 × 0.8) – (0.7 × (t0 – 2 × ta )) • If the tariff rate is less than twice the national average, but still above 25 per cent t1=(t0 × 0.8) – (0.7 × (t0 – 25)) US

TN/MA/W/18 (5 December 2002)

t1 =

8 × t0 8 + t0

Source: Compiled from TN/MA/S/3/Rev.2 (dated 11 April 2003).

While Japan’s proposal called each member to make the reduction commitments on the basis of a target level of a trade-weighted tariff average according to a formula, Korea, on the other hand, talked about a 20 per cent minimum reduction by tariff line, followed by a further reduction to harmonise the tariff profile. The US proposal covered the elimination of tariff rates at or below 5 per cent and the application of a Swiss formula on the tariff profile for all other tariff rates. The proposed coefficient in the formula was 8, which implied a maximum tariff rate of 8 per cent after tariff reductions for any tariff profile. It was perceived that following the developed country proposals would be too difficult for India’s domestic firms (Reddy 2003). The deadlock in the aftermath of Cancun halted the negotiation process for some time, and only during July 2004 did five countries—Brazil, Canada, the EU, India and the US—come forward to break the ice.24 While the members were finally able to come out with a declaration that vowed to ‘reduce or as appropriate eliminate tariffs, including the reduction

68 The WTO Deadlocked or elimination of tariff peaks, high tariffs, and tariff escalation, as well as non-tariff barriers, in particular on products of export interest to developing countries’, and stressed the need to ensure SDT, it also contained a number of unresolved issues. As the declaration puts, ‘Additional negotiations are required to reach agreement on the formula, the issues concerning the treatment of unbound tariffs..., the flexibilities for developing-country participants, the issue of participation in the sectorial tariff component and the preferences.’ The major implications of the the July 2004 discussion, as noted by Ranjan (2005a, 2006b), are summarised in Box 4.1. Although according to the draft, Paragraph 8 flexibilities were independent of any other commitments (for example, tariff reduction formula), developed countries in the later period have attempted to link these two. The EC, for instance, proposed a Swiss formula of the following form in March 2005:

T1 =

X ×T0 X +T0

where T1 is the final tariff, X is the given coefficient and T0 is the initial tariff. Box 4.1 Implications of July 2004 Discussion

•

•

•

•

Most of the contentious issues on NAMA have been left for the future negotiations, as noted in the first paragraph in Annex B. Additional negotiations are required to reach an agreement on the formula for tariff reduction, the treatment of unbound tariffs and the flexibilities for developing countries. Paragraph 8 of Annex B states that the flexibility to the developing countries in the NAMA negotiations will be available in either of the following two ways: (1) Applying less than formula cuts for up to 10 per cent of the tariff lines, or (2) Not applying formula cuts for up to 5 per cent of the tariff lines. The agreement promised to provide longer implementation periods for developing countries.

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According to the proposal, the developing countries that accept this Swiss formula ‘could use the provisions of Paragraph 8 of Annex B of the July Decision in full’, that is, developing countries availing flexibilities would have to cut their tariff rates as steeply as developed countries. It further proposed a single coefficient for both the developed and developing countries. On the other hand, the US came out with a Swiss formula with dual coefficients—one set of coefficients for the developed countries and another for the developing countries, respectively, but claiming that the two coefficients must be ‘within sight of each other’ (that is, almost similar magnitude for the coefficients for both groups of countries).25 Its proposal put the two-coefficient approach as an alternative to Paragraph 8 of Annex B, visualising that the tariff reduction formula should bring the existing bound tariffs below the existing applied tariff rates (Ranjan 2006b). It has been observed that application of the EC-proposed Swiss formula with single coefficient would compel India and Pakistan to reduce their MFN bound tariff rates on ‘fish and fish products’ by 66.8 and 66.7 per cent, respectively. On the other hand, applying the same formula with the same coefficient would result in a meagre reduction of 9 and 18.7 per cent on ‘fish and fish products’ by the EC and the US, respectively (Ranjan 2005a), marking a clear violation of the LTFR principle. Among other members, Norway has proposed a non-linear tariff cutting formula of the following form:

T1 =

A ×T0 A +C

where T1 is the new bound tariff after formula cut, T0 is the old bound tariff and A is the coefficient, with different values for the developed and developing countries. C is the credit available to a country for binding 100 per cent tariff lines, by foregoing the flexibilities given in Paragraph 8 of Annex B. Understandably, the developing countries were not very enthusiastic about this proposal. The Caribbean group also submitted a Swiss formula of its own, which incorporates the average tariff of a country and a credit factor to the developing country members, stressing the imporatance of the revenue generation role of tariffs in the developing countries. In 2005, Argentina, Brazil and India (ABI) submitted a communication to the NGMA, which is the Girard formula26 in principle:

70 The WTO Deadlocked

T1 =

B ×T2 ×T0 B ×T2 +T0

where T1 is the final rate, T0 is the bound rate, T2 is the average of the current bound rates and B is a coefficient. It is observed that a country’s average tariff is part of the formula, thereby taking care of their development needs. However, the developed countries pointed that the ABI proposal would not lead to substantial cuts in the developing countries tariff rates, thereby defeating the purpose (ASSOCHAM 2005). The ABI document further talked about the SDT requirement for the developing countries through LTFR and flexibilities to exclude a certain percentage of tariff lines from tariff cuts. The submission also voiced concern over the presence of tariff peaks, tariff escalations and high tariffs on products of export interest to the developing countries and demanded participation in the sectoral initiatives to reduce or eliminate tariff to be only on a non-mandatory basis. It has been argued that other developing countries like Pakistan would be better off by supporting the ABI approach (ITC 2007). At the Hong Kong Ministerial (2005), the concern over the proper formula brought several developing countries (Argentina, Brazil, Egypt, India, Indonesia, Namibia, the Philippines, South Africa and Venezuela) together to form a core group on NAMA (NAMA–11), which was successful in retaining the flexibilities for them in the NAMA negotiations (Paragraph 15 of the Hong Kong Declaration). The WTO members finally agreed to have a modified ‘Swiss formula’ of the following form for cutting tariff rates (Paragraph 14 of the declaration):

T1 =

( B × X ) ×T (B × X ) + T

where T1 is the final tariff rate, T is the initial tariff rate, and B and X are coefficients (the exact structure to be negotiated). This new coefficient will be either greater than B or smaller than it, depending on the value of X attached to it. This creates a possibility of having two different coefficients, one each for the developed and developing countries, or more than two coefficients (Ranjan 2006b). It has also been decided that the flexibilities to the tariff reduction formula will be a stand-alone provision, which is a breather over the EU proposal

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of linking the available flexibility with the reforms undertaken. Further, it was decided that the adopted coefficients ‘shall’ fully take into account the special needs of the developing countries, including LTFR in reduction commitments, and reduce the tariff peaks and tariff escalation. However, in return, the developing countries would have to bind their unbound tariff now. All these prompted India to claim that it stands to gain from the Hong Kong Declaration on NAMA (see Box 4.2). In the subsequent period, the discussions on NAMA continued and a set of draft modalities was circulated in July 2007. Later, several developed countries including Canada, the EU, Japan, New Zealand, Norway, Iceland, Switzerland and the US insisted for accepting the draft modalities, which Box 4.2 Gains in NAMA for India (Industrial Products)27

•

•

•

•

•

Interests of the Indian industry have been fully protected.... Preservation of adequate negotiating space was a goal and has been ensured for the future. While building in necessary provisions to safeguard India’s defensive interests, provision to promote our export interests too have been strengthened. …adoption of a Swiss formula with coefficients… preserves all the proposals on the table, including the one submitted by Argentina, Brazil and India (ABI), which envisages a multiple coefficient Swiss Formula based on each country’s tariff average. A clear instruction to focus on reduction of tariffs, especially tariff peaks and tariff escalation, on products of export interest to the developing countries has been included in the declaration. The concept of LTFR reduction commitments by the developing countries has been firmly reiterated and incorporated in the paragraph relating to the formula. It has been ensured that flexibility for the developing countries will be included in the final package. This reinforces the Paragraph 8 provisions of the July Framework Agreement allowing exemption of a specific number of tariff lines from formula cuts.

72 The WTO Deadlocked requires the developed and developing countries to reduce tariff by using a coefficient between eight and nine, and 19 to 23, respectively, in the Swiss formula. India and Brazil strongly refused to give-in to this demand.28 The other major area in NAMA, the sectoral approach, involves cutting or eliminating tariffs on certain sectors independent of the tariff cutting formula that is followed for other sectors (Paragraph 16 of DDA), which could be of key interest to members. Hoda (2002: 135) notes, ‘…sectoral liberalization on a plurilateral basis is an additional tool which can be employed during the rounds as well as in the interval between rounds…. Such negotiations can help to maintain the momentum for liberalization of world trade when more comprehensive negotiations are not taking place.’ This provision has so far been extensively favoured by the developed countries, while the developing countries are not too keen about it. The NGMA, in 2003, proposed seven sectors for discussion, where the export interest of the developing countries existed under this track, namely, electronics and electrical goods, fish and fish products, footwear, leather goods, motor vehicles—parts and components, stones, gems and precious metals, and textile and clothing (Ranjan 2005a). It has been observed that the US is keen on discussing sectoral coverage issues on several manufacturing industries, while the EU particularly focusses on textile and clothing items for that purpose (ASSOCHAM 2005). India believes that the sectoral approach should be voluntary in nature and needs to be taken up only after the issue of tariff reduction formula is settled. It also believes that the ‘zero-to-zero’ approach proposed by some of the developed countries is a violation of the LTFR principle. It had also earlier questioned the discussion on ‘zero-to-zero’ approach in its submission after the Doha Ministerial citing the development needs of the developing countries as a case in point.29 However, the Hong Kong Declaration has stated that the participation in sectorals will not be mandatory for member countries, giving it some breathing space. Ideally, India may like the possibility of having zero duty in garments, leather products, and gems and jewellery in the EU and the US; but having zero duty for textile and auto components imports is a very difficult proposal, and unlikely to get support from domestic stakeholders. Therefore, India is not currently participating in this forum. However, it is also argued that it may be in India’s interest to intensify negotiations under the textile and clothing sector (Aggarwal et al. 2007). Tariff binding is the other important issue, currently under negotiation. Two central concerns are discussed under this heading: (1) the number

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of tariff lines to be bound, and (2) the rate at which the unbound tariff lines should be bound. On the first question, the developed countries want the developing countries to increase bindings up to 100 per cent over a period of time. As seen from Figure 4.1, the current binding level in India is quite low, even as compared to the same in several developing countries. Interestingly, India is currently planning to enter into Free Trade Area (FTA)/Comprehensive Economic Cooperation Agreement (CECA) with some of them. Paragraph 5 of Annex B of the July text states that for the treatment of the unbound tariff lines, the basis for commencing the tariff reductions shall be twice the MFN applied rate in the base year. However, the developing countries objected to this proposal by pointing out that this would result in a very low bound rate for them. Developing countries, including India, believe that the bound rate, instead of the applied rate, should be taken as the reference point in this regard. Also, Paragraph 17 of the Hong Kong Declaration notes adoption of a non-linear mark-up approach to establish base rates for presently unbound tariff lines. The Figure 4.1 The State of Tariff Bindings (%) South Korea (2002) Sri Lanka (2004) Pakistan (2004) The Philippines (2003) India (2004) Thailand (2003) Malaysia (2003) Indonesia (2003) Egypt (2002) Argentina (2004) Brazil (2004) China (2004) Mexico (2004) 0

20

40

Source: World Development Indicators (2005).

60

80

100

120

74 The WTO Deadlocked same paragraph further states that these marked-up bound tariff rates will be subject to tariff reductions in the coming period. There is an urgent need to determine higher marked-up bound tariff rates so as to insulate the developing country interests against future import surge. If the mark-up is low, then the marked-up bound tariff will also be only marginally higher than the applied tariff. Moreover, when these newly bound tariff lines are subject to a tariff reduction formula in future, it may result in the final bound rate being lower than the initial applied tariff rate (Ranjan 2006b). Pakistan, in its submission,30 claimed that there should be a non-linear mark-up of at least 30 per cent. The ABI (2005) proposal talked about reducing unbound tariffs through a formula, not applied on the unbound tariffs on a line-by-line basis, which would provide some flexibility to them. However, the EU has been totally averse to this approach (ASSOCHAM 2005). Finally, there is the question of preference erosion. Erosion in preferential treatment for LDC due to tariff liberalisation in the developed countries has emerged as a major problem for the concerned group of countries. Currently, the LDC stand to gain from measures like ‘Everything But Arms (EBA) Initiative’ under the GSP, which grant them duty free and quota free access to the EC, except for arms and ammunitions. This prompted the developing countries and the LDC (mainly from Africa, Caribbean and Asia-Pacific region), during the late 1990s, to ask for continuance of the Lomé arrangements under a waiver for a period of 10 years, since the then ongoing waiver was to come to an end in February 2000. They further asked that the waiver, once granted, should not be challenged by any member state during the course of its validity.31 The concern is supported by Hammouda et al. (2006) who argue that whatever modalities are followed, African countries are not likely to gain much from the NAMA negotiations. Clearly, the possibility of arriving at an agreement on the modalities does not appeal to this group for obvious reasons. RIS (2003a: 76) pointed out that in the pre-Doha period, a number of developing countries and LDC were unsure about the additional gains from tariff reduction in the developed countries, and therefore did not negotiate whole-heartedly. The African group has recently asked for a suitable treatment of their products currently enjoying non-reciprocal preferential access and introduction of a correction coefficient to improve

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the preference margins of the products that are enjoying preferential access (Ranjan 2005a). Mauritius has also suggested formation of a ‘Competitiveness Fund’ for the countries whose preferences are being eroded, for allowing them to undertake competitive adjustment. At Hong Kong, Pakistan noted: ‘Eventually it was agreed that all developed countries would provide duty free access for 97% of products originating from LDC. Accordingly, 3% tariff lines which are likely to cover sensitive sectors such as textiles and clothing, would not be exempt from duty at present. Thus countries such as Pakistan would continue to enjoy level playing field vis-à-vis our competitors.’32 The agreed upon work schedule under the NAMA was supposed to finalise the modalities by June 2006. However, the deadline was missed and in the following period, the WTO members were not ready to commit to an agreed upon modality. This calls for the developing countries to proceed cautiously at the negotiating forums.

THE FUTURE On 22 June 2006, the Chairman of the NAMA Negotiating Group prepared a draft text on NAMA modalities. Although NAMA–11 participated in the process closely, unfortunately, no agreement could be reached. The Chairman’s letter regretted the lack of consensus and noted: ‘... progress in the NAMA negotiations have, at all times, been both constrained by and conditional upon progress in the agriculture negotiations.’33 Evidently an agreement on modalities is impossible, unless there is a dilution of the agricultural reform agenda, and Brazil and India agree and simultaneously yield on NAMA. Chances are bleak that these two countries should do so, for the sake of salvaging Doha Work Programme (DWP) over national interest. The link between agriculture and NAMA has been acknowledged in the Paragraph 24 of the Hong Kong Ministerial Declaration: ‘…we instruct our negotiators to ensure that there is a comparably high level of ambition in market access for Agriculture and NAMA. This ambition is to be achieved in a balanced and proportionate manner consistent with the principle of special and differential treatment.’ This perhaps re-stresses the fact that without consensus on agriculture, having the same on NAMA would be almost impossible. The new

76 The WTO Deadlocked discussions on NAMA in September 2007 expected the WTO members to undertake major reform commitments: around 73 per cent tariff cut in the case of the EU for the products with highest tariff, and lowering of average industrial duties to 12 per cent in the case of India. It involved reduction of tariff by Brazil and China as well (Hindustan Times, 4 September 2007). However, a consensus is yet to be arrived at.34 Right now, necessarily the negotiation process is stuck with the determination of the coefficients. Until and unless that part is clear, it is very difficult to analyse whether the LTFR provision is really being granted or the developing countries are actually obtaining ‘real market access’ from their developed counterparts. Until that part is clear, it is quite likely that issues like unbound tariffs, the level of the mark-up, credit for autonomous liberalisation and Paragraph 8 flexibility for the developing countries would be very difficult to solve. For instance, the African countries already feel marginalised in the forum, with trade growth eluding them. All the WTO meetings since July 2006 have failed to achieve their target; as in July 2007, WTO DG Pascal Lamy had to admit the unhappiness of the members about the present form of the draft. The inertia of the stalemate did not change over the next six months. Meanwhile, the positive aspect is India’s tariff liberalisation programmes under the preferential route. Given the fact that India is achieving a lower tariff schedule slowly but surely, the good point is that when the negotiation gains momentum, the country will be in a much better position to bargain with the demands of the developed countries.

NOTES 1. See ‘Understanding the WTO’, September 2003, available at http://vienna. usembassy.gov/en/download/pdf/wto_about.pdf (last accessed on 2 December 2007) for details. 2. It was observed during the Rajiv Gandhi Institute for Contemporary Studies (RGICS)—Commonwealth Secretariat study (2001) that the EU GSP treatment of processed food products from Africa poses a threat to the similar exports by the Indian firms. 3. Quoted from the United Nations Conference on Trade and Development (UNCTAD) Study (2005). However, the study notes that despite the long-run gains, in the short run a number of sectors might be exposed to the risk of adjustment. According to the report, the sectors with greatest risk of employment losses in the developing countries in the short run include motor vehicles, electronics and non-ferrous metals.

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4. See ‘Chair reports “unsatisfactory” information on import licensing’, for details, http://www.wto.org/english/news_e/news05_e/implic_15june05_e.htm. 5. ‘G–15 Ministerial Meeting in Preparation for the Third Ministerial Conference of WTO at Seattle: Chairman’s Summary (Excerpts)’, 17–18 August 1999, Bangalore, India, India and the WTO, Vol. 1, No. 8, pp. 10–12. 6. Submission by Zambia, Jamaica, Kenya, Pakistan, Sri Lanka, Tanzania, Uganda and Zimbabwe (WTO Document No. Job[99]/3169 and Add. 1). 7. WTO Document No. TN/MA/3. 8. WTO Annual Report (2003: 50). In addition, the members also agreed to notify non-tariff barriers (NTBs) that their exporters come across at various destinations. The deadline for the submission of such notifications was 31 January 2003. 9. See ‘U.S. Proposes Tariff-Free World, WTO Proposal Would Eliminate Tariffs on Industrial and Consumer Goods by 2015’, Press Release dated 26 November 2002, available at http://www.ustr.gov/Document_Library/Press_Releases/2002/ November/U.S._Proposes_Tariff-Free_World,_WTO_Proposal_Would_Eliminate_ Tariffs_on_Industrial_Consumer_Goods_by_2015.html 10. TN/MA/W/11/Add.1, 13 December 2002. 11. TN/MA/W/6/Add.1, 7 January 2003. 12. The details are provided in WTO Document No. TN/MA/S/3/Rev.2 (dated 11 April 2003). 13. Document No. TN/MA/W/10/Add.1, dated 8 January 2003. 14. Document No. TN/MA/W/10/Add.2, dated 18 March 2003. 15. Document No. TN/MA/W/10/Add.3, dated 10 April 2003. 16. It is observed that if a larger coefficient is used both for the developing and developed countries, the tariff rates of the developed countries will not be reduced and hence the presence of tariff peak and tariff escalation will remain there. In case a smaller coefficient is used for both the developing and developed countries, the tariff rates of the developing countries will come down significantly and will hamper their developmental needs. So the developing countries stressed on the need to have two different coefficients, a small one for the developed countries and a large one for the developing countries. 17. Document No. TN/MA/W/31, dated 25 March 2003. 18. WTO Document No. TN/MA/W/35. 19. However, RIS (2003a: 85) noted that the proposal made in the report for cutting tariffs significantly would not be acceptable for a number of developing countries. 20. WTO Document No. TN/MA/12. 21. WTO Annual Report (2004: 22). 22. WTO Document No. TN/MA/W/44, dated 1 September 2003. 23. ‘India cautions WTO members of backlash if reforms are forced—Farmers’ interests is the key concern’, Speech of Mr Arun Shourie, Minister of Communication, IT and Disinvestment, Mini Ministerial at Montreal (28–30 July 2003), India and the WTO, Vol. 5, No. 6–7, p. 4. 24. ‘Since the Cancun Ministerial Meeting and for the remainder of 2003, the Negotiating Group on Market Access has not met.’ WTO Annual Report (2004: 22).

78 The WTO Deadlocked 25. The US suggested the value of 10 and 15 for developed and developing countries, respectively. 26. Document No. TN/MA/W/54, dated 15 April 2005. 27. India and the WTO, Vol. 7, No. 12, December 2005. 28. CENTAD Trade News, ‘India opposes proposal on Market Access in WTO Talks’, available at http://www.centad.org/tradenews_485.asp (last accessed on 3 January 2008). 29. Document No. TN/MA/W/10, 22 October 2002. 30. Document No. TN/MA/W/60, 21 July 2005. 31. Submission by Zambia, Jamaica, Kenya, Pakistan, Sri Lanka, Tanzania, Uganda and Zimbabwe (WTO Document No. Job[99]/3169 and Add. 1). 32. Pakistan’s official documents, available at http://www.wto-pakistan.org/news1.htm (last accessed on 1 March 2006). 33. Towards NAMA Modalities (Document No. JOB[06]/200, dated 22 June 2006). 34. It is observed from the draft text on NAMA recently circulated in February 2008 (Document No. TN/MA/W/103, dated 8 February 2008) that the members are yet to agree on the modalities for tariff reform: ‘While most Members who will apply the formula have accepted the ranges proposed in the July text (8–9 for developed country Members and 19–23 for developing country Members) as a basis for nogotiation, there had been no convergence on this issue.’ The draft also focused on the NTB issues. In this light, the chances of arriving at a consensus on NAMA soon does not look promising.

5 Trade in Textiles and Clothing in the Post-MFA Period THE FEAR AND THE FACTS Textile is a classic case of lobby formation by players in the developed countries, severely affecting the economic interests of the developing countries. Export of cotton textiles by the developing countries had been regulated since the mid-1960s, as the Long Term Arrangement (LTA) on these categories was negotiated for the first time in 1962. In the subsequent period, during the mid-1970s, the US persuaded the major developing country exporters to accept the Multi-Fibre Arrangement (MFA), which imposed a quota on the export growth rate of the latter group of countries. The working of the MFA regime came under discussion at the UR (Hoekman and Kostecki 2001) and the Agreement on Textiles and Clothing (ATC), as agreed at the UR, decided that the MFA would be phased out over a 10-year period in accordance with the schedule shown in Table 5.1, after which trade in this category would be integrated under the WTO. In essence, once the MFA is completely phased out and all quantitative restrictions are withdrawn, the only remaining barrier on textile and garments would be tariff duties. Thus, textiles became one special area where the general WTO commitments were not immediately applied after its inception in 1995. Several analyses on the likely impact of the MFA phase-out in the pre-2005 period found that China and India would emerge as the major beneficiaries of the liberalisation exercise, while the brunt would be borne by several Southeast Asian and Latin American countries (Nordas 2004; Spinanger and Verma 2003). Earlier studies have also pointed out the potential gains for the Indian textile sector in the wake of the MFA phase-out (Exim Bank 1995). However, there is an urgent need to enhance the competitiveness of the sector, which is constrained by

80 The WTO Deadlocked Table 5.1 Integration with the Principles of GATT

Steps 1 January 1995 (to 31 December 1997) 1 January 1998 (to 31 December 2001) 1 January 2002 (to 31 December 2004) 1 January 2005 - Full integration into GATT (and final elimination of quotas)

Percentage of Products to be Brought Under GATT (Including Removal of Any Quota)

How Fast Remaining Quotas Should Open Up, if 1994 Rate was 6 per cent

16 per cent (minimum, taking 1990 imports as base) 17 per cent

6.96 per cent year

18 per cent

11.05 per cent

8.7 per cent per year

49 per cent (maximum) No quotas left

Source: WTO (1999).

the existing bottlenecks in the economy (Banik and Bandopadhyay 2000; Carver et al. 2004; Verma 2002). The problems faced by the sector include lower penetration of mechanisation at various stages of production, absence of shuttle-less looms in a major segment of the industry, abysmally low investment per machine1 and low capacity utilisation trends, all of which low labour cost alone cannot compensate for. Most of these problems resulted from the government decision to reserve the sector as a small-scale industry until recently, which never allowed the firms in this category to enjoy economies of scale in stark contrast with their Chinese counterparts (their major competitors in the global market). The net result was that India remained moderately (and not highly) competitive in various product segments as seen from Table 5.2. In this connection, the comparison of Revealed Comparative Advantage (RCA) results on textile and clothing products reported by Nordas (2004) could be noted. It is observed that in the case of textile products as a whole, India’s RCA (4.67) is quite poor in relation to several developing countries like Pakistan (18.35), Nepal (10.37), Cambodia (8.84), Bangladesh (8.74) and Egypt (5.44). A similar scenario is observed for clothing, where India’s RCA (3.90) again looks quite modest in comparison to Macao (19.97), Bangladesh (18.63), Cambodia (18.06), Sri Lanka (14.36), Nepal (11.66), Hong Kong (10.09) and Pakistan (6.53). Looking at the RCA figures at a more disaggregated level, in comparison with its Asian neighbours, Ghosh

81

Textiles and Clothing in the Post-MFA Period Table 5.2 Competitiveness of Indian Textile Industry at Various Stages

Process Spinning Weaving Processing

Garmenting

Determinants of Competitive Advantage

India’s Competitive Position

Quality, cotton price Technology, automation, power, finance Scale economy, technology, environment issue, finance Labour cost, productivity, brand fashion design

Medium Low Low

Medium

Emerging Competition Indonesia, Turkey Vietnam, The Philippines China, Vietnam, The Philippines Bangladesh, Sri Lanka, Morocco, East Europe, Mexico

Source: Verma (2002).

(2004) has noted that although India possess comparative advantage in categories like standard international trade classification (SITC) 848 (apparel and clothing accessories excluding textiles), 843 (men’s or boys’ coats, jackets, knitted) and 844 (women’s or girls’ coats, capes, knitted); in case of several other categories, its competitiveness is quite moderate (see Table 5.3). This indeed calls for targeted policy actions. It could be argued that since textile and clothing products were subject to quantitative restrictions, RCA might not be the right indicator for Table 5.3 Comparison of Revealed Comparative Advantage for India vis-à-vis Its Neighbours (SITC—3 digit) Category Code Country Bangladesh China India Indonesia Korea Pakistan Sri Lanka Thailand

842

843

844

845

846

847

848

1 3 8 6 7 4 2 5

2 4 3 6 8 5 1 7

1 7 3 6 8 4 2 5

2 3 6 5 7 4 1 8

3 4 6 7 8 2 1 5

8 4 5 7 3 2 1 6

8 4 2 7 5 1 3 6

Source: Quoted from Ghosh (2004).

82 The WTO Deadlocked measuring competitiveness. It is further observed that in case of apparel exports, on average, nearly 46 per cent and 36 per cent of India’s total exports to the EU and the US, respectively, were subjected to NonTariff Measures (NTMs) (Ghosh 2004). The ROO-related barriers are of particular concern (Rangarajan 2004). Therefore, India’s actual gain might turn out to be much lower than the perceived one. Through a global trade analysis project (GTAP) study Spinanger and Verma (2003) noted that in the case of textile exports, China (PRC), Chinese Taipei, Japan and Bangladesh register a growing trend in the post-MFA phase, while virtually all other economies experience losses (including India and Mexico). In case of clothing exports, the study observed that while PRC’s share in the total world trade would cross 25 per cent in the base year, India’s gains from the quota phase-out would be partly nullified by Chinese accession to the WTO. Looking at the market-wise export projections in the post-MFA period, it has been observed that in the EU market, both India and China are expected to increase their market share, while African countries, the US, Canada, Turkey, Central and Eastern European countries, South Korea and Taiwan will lose (Nordas 2004). In case of textiles, while the preand post-quota figures for China were estimated to be 10 and 12 per cent, respectively, the corresponding figures for India had been 9 and 11 per cent. However, for clothing products, China’s gains from quota removal (18–29 per cent) are much higher as compared to India’s (6–9 per cent). A mixed scenario is observed in the US market, where China and India stand to gain most from the MFA phase-out. In the case of textiles, India’s share remains unchanged at 5 per cent, while China increases its share from 11 to 18 per cent. India’s performance is much better in the clothing segment, where its share increases from 4 to 15 per cent, although it looks far too modest in comparison with the same for China (16–50 per cent). African countries and Mexico were incurring maximum losses of the MFA phase-out in the US market. In short, both in case of the EU and the US, most of India’s projected gains would be in clothing, not textiles. The National Textile Policy of the Government of India (2000), keeping the MFA phase-out in mind, had earlier set a target of exporting US$ 50 billion worth of textiles, including US$ 25 billion worth of garments, by 2010 (from the present level of US$ 11 billion). In the post-MFA period, India witnessed a mixed performance of the sector; while in the first quarter of 2005, India’s textile exports fell by 15.4 per cent, in the

Textiles and Clothing in the Post-MFA Period

83

Figure 5.1 Annual Percentage Change in Textile Exports to the Developed World (First-half of 2005) 60 50 40 30 20

Pakistan

Morocco

Thailand

Swaziland

Indonesia

Romania

Bulgaria

Lao PDR

Egypt

Bangladesh

Cambodia

Peru

Jordan

Turkey

Sri Lanka

India

0

China

10

Source: World Bank (2006).

next quarter they increased by almost 10 per cent (Pal Chaudhuri 2005). Against the backdrop of the bleak projections made during 2003–04, the fact that India has emerged as the world’s second fastest growing exporter of textiles for the first half of 2005 turned out to be a pleasant surprise (see Figure 5.1). However, given the spectacular success of China, there is clearly enough scope for Indian firms to grow further, through innovations and realisation of economies of scale. Exports from China in the post-MFA period registered such a high growth rate that the EU and the US seriously considered re-imposition of import quotas against Chinese products for some time, but later remained satisfied with ‘corrective’ measures’ only (Hindustan Times 23 May 2005). Nevertheless, the stream of events stressed the fact that China cannot increase its market share too fast in the short run.2 As a result of the ‘discussion’ with the EU and the US, in order to arrest its export growth, China finally had to increase the export tariffs on 74 categories of its textile products from 1 June 2005. The increment ranged from 1 Yuan to 4 Yuan per unit from the initial level of 0.2 Yuan (Hindustan Times 21 May 2005). On the contrary, the silence of the EU and the US on India’s textile and garment exports in the post-MFA

84 The WTO Deadlocked period is proof of the fact that its success rate is nowhere near the same achieved by China. While policymakers have tried to explain this decent export performance of the cotton textile industry with the recent fiscal and procedural reforms announced (The Hindu 28 February 2006) by the government, others argued that exports have performed satisfactorily despite an indifferent performance in productivity, simply because of the appreciation of the US dollar against the rupee (Hashim 2005).

INDIA’S RESPONSE TO INCREASE IN TEXTILE AND GARMENT EXPORT3 Given the fact that textiles and garments taken together are the highest contributors to India’s merchandise exports basket, ensuring market access for this sector was of utmost importance to the country right from 1995. It was observed shortly after the inception of the WTO that the process of integration of products in this category was very slow, with the developed countries often deliberately delaying it. During the first three years of inception of the WTO, the US and the EU eliminated only a handful of quota items (Verma 2004). After eight-and-a-half years, the following number of quotas still remained operational—851 out of 932 in the US, 222 out of 303 in the EU, and 292 out of 368 in Canada, respectively.4 Furthermore, since MFA reform is measured in volume terms, the developed countries bypassed the reform by back-loading the phase-out schedule by keeping most of the high value items of clothing and made-ups out of the integration process till the end of the transition period. Relatively low value items like yarn and fabrics were integrated first. As a result, it has been observed that about 80 per cent of restrained imports were integrated only on the last day of the 10-year phase-out schedule, that is, on 31 December 2004 (Verma 2004). Clearly this resulted in a major loss of export for the developing countries. India soon identified the back-loading of the quotas in the developed countries as a major factor behind the less than satisfactory expansion of Indian textile and clothing exports, and tried to negotiate along that line in association with the other developing countries. The proposal by 15 developing countries on this aspect highlighted that while the quotas are fully utilised in a number of cases, a number of restraining importing members maintain that in the post-MFA period there will be no carry

Textiles and Clothing in the Post-MFA Period

85

forward available from 2005, thereby significantly hurting the business interest of the developing countries: In general, the carry forward rates in US bilateral agreements for a majority of products and exporting countries were 6%–7%. For major exporting Members, however, they were lower, at 1%–3%. In EU bilateral agreements, the general rate was 5%, but for major exporting Members 1%–2.75%. In Canada, the general rates were 5%–6%.5 The developing countries further feared that the denial of carry forward with the elimination of quotas would be reflected in supplies, thereby generating downward pressure on prices in 2004, which is likely to further fuel protectionist interests like the imposition of anti-dumping investigations. Increasing initiations of anti-dumping investigations and imposition of duties on textile imports from the developing countries have always been a major concern area. Often, investigations into the same products were revived back-to-back. For instance, in the case of cotton fabrics, these measures continued for almost five years. In the case of bed linen exports, anti-dumping investigations were imposed in one form or the other since January 1994, which led India and 10 other developing countries to suggest: It may be recalled that due to the long legacy of quota restrictions, trade in textiles and clothing remains ever vulnerable to disproportionate protectionist pressures. …87% (of anti-dumping cases in a member) involved imports from developing countries. Most often, the investigations were prompted by motivated complaints lodged by industry associations…. In virtually all cases, the investigations or measures adopted proved to be unjustified because these were either dropped by the investigating authorities themselves or the very methodology used by the importing Member in its dumping determinations was found by a dispute Panel and the Appellate Body to be inconsistent with its WTO obligations… developed Members shall implement a grace period of two years during which no investigations in the context of anti-dumping remedies on imports of textile and clothing products from developing countries shall be initiated.6 However, the developed countries did not accept this proposal.

86 The WTO Deadlocked Apart from the question of anti-dumping, tariff protection to this sector in developed countries is another major concern (Kelegama 2005). It is observed from Annex 4B that tariff levels in the textile sector are quite high as compared to the overall tariff levels. However, India is in a weak negotiating position on this front in the sense that its own tariff level on textile and garment products is also quite high, even when compared to several developing countries, showing presence of tariff escalation as well. In other words, India cannot afford to be very vocal on this issue involving other countries, as that might trigger increasing attention on Indian policies. The EU is already willing to bring textiles under the sectoral initiate under NAMA, for which India is not yet prepared. India has so far quite satisfactorily defended its interest at the DSB on textile and clothing related cases. To date, it has moved the DSB seven times as a complainant on cases involving textile and clothing products and on four occasions, it has won the complaint (DS 32 against the US; DS 33 against the US; DS 34 against Turkey; DS 141 against the EU). DS 141 deserves particular mention, where the EU anti-dumping duties on cotton bed-linen were found WTO-incompatible and India was forced to move to the compliance panel, as the respondent did not phase out the alleged provisions even after completion of the reasonable period. In two cases (DS 140 against the EU; DS 229 against Brazil) no panel was formed, as the alleged measures were modified in the period following India’s decision to move to WTO. However, India was defeated in the last case it registered as a complainant (DS 243), which concerned the WTO-compatibility of the US ROO requirements applicable to textiles and apparel imports as set out in Section 334 of the UR Agreements Act, Section 405 of the Trade and Development Act of 2000, and the customs regulations implementing these provisions.7 A few textile and apparel related disputes are described in Annex 5. Analysing the textile related disputes lodged at the WTO, it is observed that the alleged violations are made usually in the case of a handful of articles, namely six articles. The number of alleged violations is plotted in Figure 5.2, and it is observed that most of the time, the complainants projected violation of Article 2, followed by Article 7 and Article 6. Article 2 describes that any restriction not notified to the Textile Monitoring Body (TMB) within 60 days of the agreement entering into force has to be terminated, and no new restriction in terms of products or members shall be introduced, while the existing restrictions have to be relaxed in a phased manner over a 10-year period. On the other hand, Article 7 talks

Textiles and Clothing in the Post-MFA Period

87

Figure 5.2 Alleged Violation of Agreement on Textile and Clothing—Article-wise Article 3 Article 4 Article 8 Article 6 Article 7 Article 2 0

2

4

6

8

10

12

about the obligation of the members for providing improved market access by tariff reduction and tariff bindings, and reduction or elimination of the NTBs, and any discrimination against imports. Article 6 describes the transitional safeguard mechanism, which should be applied ‘as sparingly as possible’; only when a member can demonstrate that the particular product is being imported in such increased quantities that it either creates injuries to domestic industries or poses material threat. While calculating injuries, the influence of other factors must be eliminated from the analysis. However, since quite a few violations are allegedly made on these three grounds, it seems the misuse of these provisions is quite rampant. The other three articles allegedly misused are Articles 8, 4 and 3. Article 8 narrates the functions of the TMB, the key organisation to monitor disputes and other functions in textile related cases. Article 4 describes the importation rule; while importing members are not bound to accept shipments in excess of the restrictions any change in the rules shall not be implemented in such a way that it would adversely affect the access of a member. Article 3 concerns conformity with GATT. However, negotiations at the multilateral level alone cannot safeguard the interest of a sector without an increase in the efficiency of domestic enterprises.8 Government efforts during the last couple of years towards enhancing the competitiveness of the sector are worth mentioning. A significant proportion of the textile firms in India was making losses

88 The WTO Deadlocked in the late 1990s, and the lack of financial resources caused a poor investment in capacities, thereby further weakening their position. In order to tackle the problem, the government accepted the N.K. Singh Committee report, which recommended restructuring of all loans (with an upper limit of 9 per cent). The N K Singh committee has proposed an asset reconstruction fund for the textile industry with a corpus of Rs 30 billion. The fund is aimed at helping heavily indebted mills to swap existing expensive loans with cheaper funds for their modernisation projects. It will cover all segments of the industry and will have a governmentguaranteed alternative debt recovery procedure. A seed capital of Rs 5–8 billion is to be provided by the government and the balance amount is likely to be raised through infrastructure bonds and external borrowings. (Economic and Political Weekly 2003) The package for the organised textiles industry, aimed towards the restructuring of high cost debts of textile units in the organised sector, deserves special mention in this regard. Second, in order to improve the technological scenario, the government provided a support of 5 per cent on the loans taken from various bodies like the Industrial Development Bank of India (IDBI) under Technology Upgradation Fund (TUF), used only for new capacity creation, which immensely benefited the sector.9 Third, the working of the TUF reached mostly the firms placed in the upper segment of the industry, with little consequence for the firms at the lower end. Therefore, the decision to withdraw restrictions on the import of second-hand machinery has been particularly effective for technological upgradation of firms placed in the lower segment of the industry.10 Fourth, the government recently identified 17 high-end textile and clothing products which are potentially eligible for geographical indications (GI) marks. A number of these products have already been granted registration under GI of goods and Registration and Protection Act 1999 (Nayak 2005). Among the indirect policies, the steady progress of the ‘Golden Quadrilateral’ project has been a major success in improving the road network and the time-cost has been substantially reduced. In addition, allowing private investment in ports has been a major step in introducing an element of professionalism in cargo handling, as the loading time in ports like Kandla and Mundra has been drastically reduced. Furthermore, earlier State Electricity Boards (SEBs) did not allow the firms to operate

Textiles and Clothing in the Post-MFA Period

89

own power plants, and the withdrawal of this restriction in the recent period has significantly lowered the per-unit cost of the furnace oil-based plants run by textile firms (Chakraborty and Sengupta 2006b). All these recent policies undid the malice done by the reservation policy to some extent and allowed a section of the firms to improve their scale of production as well as technological level to face the challenges of international players. It has been observed by Tewari (2005) that for a number of categories within clothing, India has indeed experienced a very high export growth rate to the US. Furthermore, in the case of textiles for a number of categories, India has emerged as the market leader, while in some cases it came second only to China (Table 5.4). Interestingly, it has been observed that a number of Table 5.4 Post-MFA Growth of India’s Textile Exports to the US (Selected Categories) SITC No. Description

2004

2004 YTD 2005 YTD (Jan–May) (Jan–May) % Change The In 1,000 Dollars (2004–05) Scenario

6584 Bed-linen (bed, 554,997 table, kitchen, toilet) 6585 Curtains and 151,397 home furnishings 6541 Woven fabric of 104,061 silk and silk waste 6589 Made-ups 80,888 (n.e.s.) of textile materials 6581 Packaging 26,278 materials (textiles) 6583 Blankets and 20,265 travelling rugs (not electric) 6539 Woven pile, 13,686 chenile fabrics of man-made fibres Total - (Above 7) 951,572 Others 691,764 Total textiles 1,643,336 Source: Quoted from Tewari (2005).

214,546

283,631

32 India is top supplier; China is 3rd 14 India is 2nd after China 1 India is top supplier

61,576

70,007

41,453

41,916

32,557

35,695

10 India ranks 5th

7,996

13,614

8,057

10,759

70 India is 3rd largest 34 India ranks 5th

6,552

8,623

372,737 283,591 656,328

464,245 315,587 779,832

32 India is top supplier

25 11 19

90 The WTO Deadlocked Chinese firms have recently approached Indian exporters for sub-contracting, mainly to ‘prevent them from getting additional export orders’ from the developed countries, while the Chinese firms are facing restrictions in those markets. It is reported that some Bangalore-based apparel companies have already accepted such contracts (Hindustan Times 15 November 2005). Thanks to the recent technology upgradation policies adopted by India, the industry has been able to create an impression in the international market on textiles and clothing in the post-MFA phase. The government is trying to further augment the existing scenario by introducing a scheme similar to the TUF that would provide interest subsidy on term loans for setting up 100 more handloom clusters at a cost of Rs 500 million during the next financial year.11 Also according to the 2006–07 Budget, the allocation for the TUF scheme was to be increased from Rs 4.3 billion to Rs 5.3 billion. A recent focus on the cluster development approach as a conscious development strategy is noticed, which could enhance the competitiveness of the exporting firms significantly. On the whole, it could be concluded that India’s negotiating strategy in the case of textiles has been quite balanced—while on one hand, it freed the industry domestically from the hassles of regulations and created a level-playing field for the firms suffering from the impact of the earlier policy regime, on the other hand, it negotiated for better market access at the multilateral level. However, India’s success in the coming years will greatly depend on the continuation of this balance and the ability to solve existing problems. Although the scale efficiency of the textile and garments sector has marginally increased after 1995 (Barua and Chakraborty 2004), labour productivity has remained low due to the absence of technology and other reasons, which have been traditionally explained by poor work efficiency, inadequate size of spindle cops and the quality of cotton used to produce yarn or cloth (Gokhale 1992), resulting in lower production: …average production per spindle for 20s count is 84.5 kg in India as against 196 kg in Hong Kong and 204 kg in the US. In weaving, too, Indian textile productivity levels are substantially lower than in Hong Kong and Japan. Average production per spindle in India is about 40 per cent of that in other countries and productivity per operative in automatic weaving in Hong Kong is about 280 per cent higher than that in the comparable Indian figure. (Mariappan and Chidambaram 2003)

Textiles and Clothing in the Post-MFA Period

91

Moreover, Indian exports generally consist of mostly low end and low value-added items, which needs to be changed (Ghosh 2004). Therefore, apart from production-related aspects of improving R&D and productivity, there exists enough scope to undertake more effective promotional activities such as developing brands and delivery on time (Beena 2006). It has been observed that with the formation of new regional trading blocs, there has been a shift in the market share for the US towards Mexico and the Caribbean countries. Similarly, Europe now looks towards its eastern neighbours, all at the cost of Asian exporters. And with the complete dismantling of quotas, India’s competition from South Asian countries is also likely to be more stringent. Ecological and social awareness are likely to result in increased pressure on the industry to follow international labour and environmental norms. Therefore, it is very important for the Indian textile sector to value-add to its exiting products. The quality of raw material, processing, packaging and storage needs a quick upgradation (Chakraborty and Sengupta 2006b). Product diversification and exploring new markets also becomes critical. Only then would the textile and clothing sector in India be able to successfully respond to the post-2005 challenges. The reason for highlighting low labour productivity as a concern area is the fact that Indian products lack price competitiveness vis-à-vis several competitors. There has been a large-scale shift of manufacturing facilities over the last couple of years from the EU and the US to lowcost destinations like the Caribbean, Latin America, East Europe and Asia, including Bangladesh and Sri Lanka, where production units are mainly geared towards re-exporting to industrial countries thereby lowering India’s global market share (EPW 3 August 2002). However, the textile sector in India is not a major recipient of global FDI. India has been lucky during the first period in the post-MFA era, while several Southeast Asian countries like Taiwan have suffered (Huang and Chu 2006). However, given their high production capacity, mechanisation levels and investments, these countries are bound to reclaim a part of their lost share. Low labour cost cannot be a neutralising factor for low labour productivity. The challenge for India is, therefore, to effectively maintain a dynamic policy to tackle the labour productivity and efficiency problem, and respond to the market access curbing measures—like antidumping—from time-to-time. In addition, the heterogeneity in the textile and clothing sector across the SAARC countries makes collaboration among them a potentially viable option (Robbani 2004). India, thanks

92 The WTO Deadlocked to its better production capabilities, would surely benefit from such an arrangement. The cooperation under the SAARC formalised through South Asian Free Trade Area (SAFTA) may contribute in this process, as it is sensible for Bangladesh, Nepal or Sri Lanka to source inputs from India and Pakistan (Adhikari and Weeratunge 2007).

NOTES 1. While the investment per machine is around US$ 250 in India, the comparable figures are around US$ 3,000 in South Korea and Hong Kong. 2. It should be mentioned here that during the negotiations on China’s accession in the late 1990s, the US secured a few important policy measures from China. First, it got the right to keep quotas on Chinese clothing exports for four years in the post-transitory period, that is, up to 2008. Second, it secured the right to impose safeguard measures to restrict the rapid increase in import of a particular product from China (Panitchpakdi and Clifford 2002: 196). Furthermore, a special provision in the WTO agreement enables any WTO member to specifically target Chinese exports up to 31 December 2013, which could significantly affect its textile and garments exports (WTO 2001: paragraph 16, point 9). 3. Points mentioned in this section are drawn from the arguments of Chakraborty and Sengupta (2006b). 4. Indian Submission to the WTO, dated 14 July 2003. 5. Developing country submission to the WTO (Document No. WT/GC/W/503, dated 14 July 2003). 6. Developing country submission to the WTO (Document No. WT/GC/W/502, dated 14 July 2003). 7. On 20 June 2003, the Panel announced that India failed to establish that ‘(a) Section 334 of the Uruguay Round Agreements Act is inconsistent with Articles 2(b) or 2(c) of the RO Agreement ; (b) Section 405 of the Trade and Development Act is inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement ; and the customs regulations contained in 19 C.F.R. § 102.21 are inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement.’ WTO, Updates of Disputes (Document No. WT/DS/OV/22, dated 14 October 2004). 8. D’Souza (Undated: 2) notes, ‘Interest groups that used to seek exemptions and concessions from the state and pursue strategies of shifting tax burdens down or up the value chain increasingly realize that the emerging competition is such that investing time and resources on multilateral negotiations at the WTO is meaningless unless priority is given to the restructuring of domestic industry so that they may benefit from the opening up of trade when the Agreement on Textiles and Clothing ceases to exist in end 2004.’ 9. http://www.eximbankindia.com/techno-up.html 10. http://www.thehindubusinessline.com/bline/2003/01/04/stories/2003010401680400. htm 11. The Hindu, ‘Analysis of the Budget’, 1 March 2006.

6 Anti-Dumping, Subsidy, and Countervailing Measures and Safeguards Mechanism: The Battle Over Contingency Measures Anti-dumping, subsidy, and countervailing measures and safeguards provisions are the contingency measures available under the WTO framework. In other words, the goal of these provisions is to correct the anomalies created by unfair business practices or protect the domestic sector from sudden increase in imports.1 Interestingly, dumping per se is not GATT/WTO incompatible; it is an offence only when a causal link between the intentional dumping by the exporting country and an injury to the domestic industry in the importing country is established. Only when this link is established can the anti-dumping (AD) procedure be initiated. To initiate an AD investigation, there has to be a written complaint on behalf of the importing industry, supported by a ‘significant’ share of domestic producers, fulfilling two complementary criteria. First, the application must be supported by producers who account for at least 50 per cent of the total output and, second, producers supporting the complaint must account for at least 25 per cent of output produced by producers who are not indifferent to the issue. Any unsubstantiated complaints are to be rejected. Investigation will also be terminated if the margin of dumping is found to be minimum or de minimis, defined as less than 2 per cent, expressed as a percentage of the export price, or if the volume of dumped imports from any country accounts for less than 3 per cent market share of imports of the like product in the importing country, unless such exports collectively account for more than 7 per cent of the total imports. To restrict the misuse of anti-dumping duty (ADD), there

94 The WTO Deadlocked is also a sunset clause available. Unless revalidated through a ‘fresh’ review, any ADD will expire after five years from the date of imposition. In other words, continuation of ADD indefinitely is not allowed. However, it is observed that various countries through back-to-back investigations bypass this provision and continue to impose ADD for some products for well beyond five years (for example, the experience of textile export from India). According to the GATT/WTO agreement, the normal value of a product is the price charged, ‘in the ordinary course of trade, for the like product when destined for consumption in the exporting country.’ A product is dumped when it is exported at a price lower than the ‘normal value’ of a product or that of a comparable (like product) category. If, however, no like product is sold in the domestic market of the exporter or if the volume of these sales is insignificant, two alternative procedures can be applied for determining the normal value. The first option is to compare the export price of the product in question with the export price of a like product in a third country. If, however, there are no such reasonable export prices available for comparison, a second option is to construct the normal value on the basis of the cost of production in the country of origin, with mark-ups for administrative, selling and general costs and profits. The calculation of the normal value through either of these methods may or may not prove the existence of dumping. However, the vagueness in ‘best available information’ requirement is often manipulated to prove dumping. To make things worse, the notification procedure, a much-needed measure for ensuring transparency, is seldom followed properly (Debroy and Chakraborty 2007). The WTO-incompatibility of AD procedures of various countries is now a much-debated issue in trade policy literature. Although the industrial tariff level has significantly declined since 1995, the misuse of AD provision has lowered the extent of realised market access. Over the last decade, it has evolved as a major trade-distorting mechanism, benefiting the domestic industries of the initiator.2 It is observed from Figure 6.1 that although the initiations have shown a declining trend since 2001, they are, nevertheless, still at a very high level. It has been noted from time to time that there exist several loopholes in the provision through which a country can practise protectionist measures (Agarwal 2004; Banik 1998; Debroy and Banik 2000; Lindsey and Ikenson 2002; Raju 2004). Messerlin (2001: 157) commented, ‘There is no anti-dumping provision in GATS, and following the disastrous experience of anti-dumping in goods—one can only hope that there will never be.’

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364 234 206

310

294

355 234

224 243 256

320 297 157

200

157

250

232 213 191 228

225 243 257

300

312

350

292

354

400

364

Figure 6.1 Global Anti-Dumping Initiations (1980–2004)

150 100 0

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

50

Source: Raju (2007).

The misuse of the dumping provision as permitted by the agreement can be observed by looking at the grey areas involved in calculation of dumping. For example, the problem may arise in the course of applying the average pricing principle, which compares the weighted average of ‘normal values’ with the weighted average prices for all comparable export transactions, or the home market prices and export prices on a transaction to transaction basis. The rule is, however, not followed in a number of cases. The agreement allows countries to deviate from this rule when export prices differ considerably among purchasers, regions or periods. In such instances, a weighted average home consumption price may be compared with an individual export transaction. This kind of comparison is often manipulated to suit the imposition of ADD. Similarly, currency conversion method for comparison between home consumption price and the export price can also be manipulated by selecting the date of transaction, and so on. For dumped products, creating ‘constructed value’ by using ‘any reasonable method’ is another grey area. Also, it has been noted at times that real world situation leading to ‘underpricing’ is never taken care of (Banik 1998). In a large number of cases, the imposition of ADD has been proved WTOincompatible (Annex 6A), which indicates adoption of a faulty practice in the first place. The global misuse pattern is also quite skewed: it has been observed that only 18 countries account for almost 90 per cent of total use of AD measures (Aggarwal 2007).

96 The WTO Deadlocked The problems are two-fold for a developing country like India. For instance, its import-competing industries tend to lose if anti-dumping action is waived. On the other hand, Indian exporters suffer from the anti-dumping investigations in the developed country markets. The debate over shrimps with US could be mentioned here (Bhattarcharyya 2006) as an example. This is a reason why developing countries argue for modifying the Anti-Dumping Agreement (ADA).

ANTI-DUMPING DISPUTES INVOLVING INDIA: A REVIEW OF ISSUES While the second problem mentioned in the last paragraph is a serious one, the first has emerged as a considerable challenge for India in recent times. The point becomes clear from a comparative analysis of the three Trade Policy Reviews on India. While the first review (WTO 1998) has been critical of India on tariff reform front, import restriction procedures, absence of full compliance with trade related aspects of intellectual property rights (TRIPS), lack of liberalisation of domestic service sectors, and so on, the second review (WTO 2002), despite praising the reform measures, identified the increasing trend in AD investigations as one of the major future concerns:3 India has become one of the major users of anti-dumping measures, with some 250 cases initiated since 1995…. Moreover, the number of anti-dumping measures in force has risen steadily, especially since 1997, from 19 notified measures in force, to 131 in 2001 (Chart III.3). The majority of the initiations have been for chemical and related products (47.2%); a large number of actions have been initiated against imports from the European Union (19.2%) and China (18.8%).4 The concerns have been highlighted in the recently published third review as well. India’s emergence as a major user of the AD provisions becomes clearly visible from Table 6.1, where the cases faced and imposed by three countries—the EU, India and the US—are compared. It was observed that during 2001–03, India crossed the two developed countries—the traditional users of AD provisions—in terms of initiations. Although the initiations declined over the next two years, they still remains a problem area.

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Table 6.1 Trend in Imposition of Anti-Dumping Cases India Period 1 January–31 December 1995 1 January–31 December 1996 1 January–31 December 1997 1 January–31 December 1998 1 January–30 June 1999 1 July 1999–30 June 2000 1 July 2000–30 June 2001 1 July 2001–30 June 2002 1 July 2002–30 June 2003 1 July 2003–30 June 2004 1 July 2004 – 30 June 2005 1 July 2005 – 30 June 2006

EU*

US

A

B

A

B

A

B

5 20 13 33 40 27 37 76 67 37 30 30

3 10 7 12 6 11 – 12 12 14 12 8

33 23 41 21 32 49 29 23 15 18 32 26

21 35 59 42 20 32 – 39 32 19 19 13

13 21 16 22 28 29 77 58 29 42 9 9

6 21 15 15 7 10 – 11 12 23 13 13

Source: WTO Annual Reports (various issues). Notes: *The data includes the (AD) measures imposed on individual EU member states as well. A—Anti-dumping investigations initiated by the country. B—Anti-dumping investigations initiated against the country.

India is, however, not an exception. During the 1980s, the AD provision was mainly used by the developed countries. The trend has completely changed over the last decade as noted by the WTO Annual Report (2003: 10–11): The increasing use of contingency measures, particularly antidumping actions, is also a key area of interest to Members. Although the upward trend was somewhat reversed in 2001, when the number of new anti-dumping measures in force fell to 159 from 235 in the previous year, this is still considerably greater than the numbers imposed in 1995, 1996 and 1997. More Members, including developing countries, are resorting to them increasingly. The rising trend in the use of such measures prompted Members to place the matter on the DDA. Quite naturally, the increasing usage of AD procedures by India has caught the attention of the international community. The WTO Annual Report (2004: 47) notes,

98 The WTO Deadlocked Of the 1,323 measures in force reported, 21% were maintained by the United States, 16% by India, 15% by the European Communities, 7% each by South Africa and Canada, and 6% by Argentina. Other Members reporting measures in force each accounted for 5% or less of the total. The US and China have raised concerns over the frequent initiations of anti-dumping investigations in India. Even Bangladesh moved to the WTO against India on one occasion and the measure in force had to be withdrawn. However, India claims that the procedures it is following on the imports are in line with the relevant WTO provisions.5 Annex 10B provides the cases lodged against India at the DSB, including the cases on dumping. Since the publication of the 2002 review, India has faced three cases as a respondent on the working of its AD procedures—the EC for consultation on imposition of AD measures in India on 27 commodities (DS 304),6 Bangladesh (DS 306)7 and Taiwan (DS 318). The alleged violations common in all three cases are Article 1 (conformity of applied procedures with the ADA), Article 3.1 (examination of the impact of dumped imports on prices of domestic ‘like products’ and their producers), Article 3.2 (investigation on significant increase in dumped imports and price undercutting), Article 3.5 (demonstration of causal relationship between dumped import and injury), Article 6.8 (final determination on the basis of ‘available facts’), Article 6.9 (full opportunity to all interested parties to defend their interests before final determination), Article 12.2 (detailed notification of the findings) and Annex 2. The results of these three cases could have profound implication for all future cases against India in this area. However, the complainants did not pursue the cases. Annex 10C shows the cases involving India as complainant, including the cases on dumping. The last case (DS 345—involving the US) is currently being reviewed. In the second last case (DS 313—involving the EC), the measures at issue, in violation with Articles 3.4, 3.5, 4.1 and 9.2 of the ADA were withdrawn after India moved to the DSB, which could be termed as a success. On three occasions (DS 229—involving Brazil, DS 168—involving South Africa, DS 140—involving the EC), no panel was formed, although India alleged major violations in the working of the AD investigations of the respondents in each case. On three other occasions, the DSB ruled in India’s favour. In DS 141 (involving the EC), although the panel rejected

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several claims made by India, the measures applied by the EC were ruled WTO-inconsistent on the ground of Article 2.4 (‘fair comparison’ between export price and normal value), Article 3.4 (consideration of ‘all relevant economic factors’ for determination of dumping) and Article 15 (developing country concerns). In DS 206 (involving the US), despite getting most of the claims rejected, India was able to prove WTO-inconsistency of certain US policies. Finally, in DS 217 (involving the US), the US procedures were ruled WTO-incompatible with Article 5.4 (support to the application by domestic industry), Article 18.1 (imposition of no specific action in disagreement with GATT 1994) and Article 18.4 (adoption of ‘all necessary steps’ to conform to the ADA). It is interesting to note that the violations faced by India in foreign markets (both developed and developing) and the alleged violations made by it are generally different. Taking note of the growing use of contingency measures, the DDA included ‘clarifying and improving disciplines under the Agreements on Implementation of Article VI of the GATT 1994 and on Subsidies and Countervailing Measures’ as a task. The slow pace of multilateral negotiation coupled with misuse of contingency measures forced India to focus more on modification of the ADA for relaxing several provisions for the developing countries. In fact, India’s submission, which asked for revision of the floor levels, technically acknowledged the occurrence of dumping from developing countries as well, at least on some occasions: 1. The existing de minimis dumping margin of 2 per cent of export price below which no anti-dumping duty can be imposed (Article 5.8), needs to be raised to 5 per cent for imports from developing countries. 2. The threshold volume of dumped imports which shall normally be regarded as negligible (Article 5.8) should be increased from the existing 3 per cent to 5 per cent for imports from developing countries. Moreover, the stipulation that anti-dumping action can still be taken even if the volume of imports is below this threshold level, provided countries which individually account for less than the threshold volume, collectively account for more than 7 per cent of the imports, should be deleted. 3. The lesser duty rule shall be made mandatory while imposing an anti-dumping duty against imports from developing country Member by any developed country Member.8

100 The WTO Deadlocked In the subsequent period, India modified its stance to some extent and asked for reform in Article 5.4 (lower limit on the proportion of domestic production affected by dumping), Article 2.2.2 (procedure for collecting cost and profit data), Article 2.4.2 (procedures for establishing margins of dumping), Article 3.4 (consideration of all relevant economic factors for examining the impact of dumping), Article 3.5 (demonstration of injury by dumped imports), Article 3.8 (application of anti-dumping measures with special care), Article 6.8 (final determination on the basis of ‘available facts’), Article 11 (Duration and Review of Anti-Dumping Duties and Price Undertakings) and, finally, Annex 2 (determination on the basis of best information available when collecting direct evidence is a problem) in its submission.9 The SDT subsequently became a major issue in India’s negotiating agenda. At the General Council session on 24 July 2003, India proposed a specific short-term dispensation in the favour of developing countries in the form of a grace period of two years during which no (AD) investigations on imports of textile and clothing products from developing countries shall be initiated.10 India justified this demand by pointing the long duration of the initiations that hurt the developing country interests, ...investigations into the same products were revived back-to-back, extending over long periods. In the case of one product (cotton fabrics), these were continued for five years. In the case of another (bed linen), these have been going on in one form or the other since January 1994.11 The subsequent discussions contributed little in improving the scenario in (AD), and subsidies and countervailing measures, which noted that the focus of the Negotiating Group on Rules should now be on ‘identifying issues to seeking solutions’. The Hong Kong Ministerial Declaration (2005) for the first time mentioned (AD) provisions in a separate annex (Annex D.I on rules) and talked about the necessary improvements in rules, that is, the possibility of an amendment in its text: 1. Consider that negotiations on anti-dumping should, as appropriate, clarify and improve the rules regarding, inter alia, (a) determinations of dumping, injury and causation, and the application of measures; (b) procedures governing the initiation, conduct

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and completion of anti-dumping investigations, including with a view to strengthening due process and enhancing transparency; and (c) the level, scope and duration of measures, including duty assessment, interim and new shipper reviews, sunset, and anticircumvention proceedings; 2. Recognise that negotiations on anti-dumping have intensified and deepened, that participants are showing a high level of constructive engagement, and that the process of rigorous discussion of the issues based on specific textual proposals for amendment to the AD Agreement has been productive and is a necessary step in achieving the substantial results to which Ministers are committed; 3. Note that, in the negotiations on anti-dumping, the Negotiating Group on Rules has been discussing in detail proposals on such issues as determinations of injury/causation, the lesser duty rule, public interest, transparency and due process, interim reviews, sunset, duty assessment, circumvention, the use of facts available, limited examination and all others rates, dispute settlement, the definition of dumped imports, affiliated parties, product under consideration, and the initiation and completion of investigations, and that this process of discussing proposals before the Group or yet to be submitted will continue after Hong Kong.

IDENTIFYING AREAS OF MODIFICATION IN THE ANTI-DUMPING AGREEMENT12 Before identifying the areas for modification of the ADA, we analyse the outcome of the ADA complaints lodged at DSB, placing them under seven different categories, following the framework devised by Chaisse and Chakraborty (2005). In the first two columns, we present ‘win’ and ‘loss’ in a particular case. We define ‘win’ by a complainant if it wins at the panel level and even if the AB later reverses certain legal interpretations of the verdict, since the existence of a WTO-incompatible policy has been established. However, rejection of the claims, both at the panel and the (AB) levels, is termed as ‘loss’. The third column clubs three options— ongoing cases, cases currently with the AB and cases where verdict is expected within a specified time. The fourth option notes the cases where parties jointly request the DSB for the suspension of proceeding after the panel formation, which shows that either of the two sides is willing to

102 The WTO Deadlocked negotiate on the alleged measures in force. The fifth column shows the cases where no panel had been formed, which shows mutual discussion, probably leading the respondent to guarantee the desired market access for the complainant to resolve the dispute. Two other possibilities cannot be ruled out in this case. First, a (developed country) complaint might have been raised for harassing the respondent as a trade policy instrument and, second, a (developing country) complainant might have lacked the necessary technical expertise to support his claim, and decided to opt out before the formation of the panel. Sixth, we note the cases where a mutually agreeable solution has been notified to the DSB. In the final column are placed the cases where the alleged measure was promptly discontinued after the initial notification at the DSB. The last column, on one hand, indicates the existence of a WTO-incompatible measure in force and, on the other hand, highlights the effectiveness of the dispute settlement mechanism (DSM) as a credible threat mechanism. The results are summarised in Annex 6B. Apart from looking at the overall scenario, we also focus on the US, the largest violator of the provision (in terms of cases lodged against it). From the overall scenario reported in the upper panel, we see that every third case lodged at the DSB on AD has represented a valid concern, that is, the misuse of the concerned provision has been proved. Only on two occasions the complaints have been defeated. There has been no request to suspend the panel proceeding on the issue of dumping for the disputes under consideration and, on one occasion, amicable settlement has been notified to the WTO. In a large number of cases, no panel has been formed. Finally, on three occasions, the respondent has removed the alleged WTO-incompatible measure (DS 23—involving Venezuela as respondent, DS 89—involving the US as respondent, and DS 313—involving the EC as respondent) after an initial request for consultation was made to the DSB. The analysis involving the US as respondent has been reported in the lower panel. Since the analysis is done on the basis of complaints, column A represents the cases where the US practices have been defeated. Column B, on the other hand, represents the scenario when the US policies in question were ruled WTO-consistent by the WTO. Two points deserve particular mention. First, it is observed that the US accounts for more than 50 per cent of the cases where the policies of the importing country have been ruled WTO-incompatible. Second, interestingly, only the US has been able to twice win a case as respondent (DS 221—involving Canada as the appellant, DS 244—involving Japan as the appellant).

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Here we try to identify the areas of potential misuse in the ADA on the basis of the cases lodged at the DSB, which should form a part of India’s negotiating agenda in the coming period. The article-wise alleged misuses are shown in Figure 6.2. It is observed that the maximum number of disputes lodged question the imposition of Article 5 (concerning initiation procedures and subsequent investigation) and Article 2 (determination of dumping), followed by Article 3 (determination of injury to domestic industry) and Article 6 (concerning evidence), respectively. The mishandling of these four AD provisions, which actually cover almost the entire procedure, is a case in point. Other ADA provisions attracting disputes are Article 1 (conformity of applied procedures with the ADA), Article 12 (public notification of the procedures and explanation of the determinations), Article 18 (procedures relating to final provisions) and Annex 2 (determination on the basis of best information available when collecting direct evidence is a problem). India has already indicated misuse of some of these provisions. Violations are also made on the ground of Article 9 (imposition and collection of ADD), Article 11 (duration and review of ADD and price undertakings), Article 7 (provisional measures) and Article 4 (definition of domestic industry). While the affected exporters have claimed at Figure 6.2 Alleged Violation of Anti-Dumping Agreement—Article-wise Article 5 Article 2 Article 3 Article 6 Article 1 Article 12 Article 18 Annex 2 Article 9 Article 11 Article 7 Article 4 Article 10 Article 15 Annex 1 Article 8 Article 17 0

5

10

15

20

25

30

35

40

45

104 The WTO Deadlocked various occasions that the imposition of provisional measures as well as the duration and review of ADD often do not reflect the reality, the very basis of the initiation, that is, harm to a significant section of ‘industry’ (Article 4), has been challenged at times. Among other alleged violations, Article 15 (special regard to developing countries), Annex 2 (procedures regarding on the spot investigations) and Article 8 (price undertakings) deserve mentioning. Only a handful of less important articles in the ADA have not been violated so far over the last 13 years. We further focus on the actual misuse of the ADA provisions from the final rulings of the DSB (both panel and AB) on the misuse of various articles of the ADA.13 The findings are illustrated with the help of Figure 6.3. The observations are briefly summarised in the following: 1. First, Article 2.4 (‘fair comparison’ between export price and normal value) is declared WTO-incompatible maximum number of times, followed by Article 3.4 (consideration of ‘all relevant economic factors’ for determination of dumping) and Article 6.8 (final determination on the basis of ‘available facts’). These three clauses, taken together, show the extent of violation in determination of the dumping margin and the investigation procedure. In line with Article 6.8, violations of Annex 2 and Article 3.5 (demonstration of causal relationship between dumped import and injury) are also quite high. 2. Second, the determination related concerns, that is, Article 3.1 (examination of the impact of dumped imports on prices of domestic ‘like products’ and their producers), Article 3.2 (investigation on significant increase in dumped imports and price undercutting) and Article 18.4 (adoption of ‘all necessary steps’ to conform with ADA) have also been declared WTO-incompatible quite often. This shows that the investigations may often be undertaken with an inclination to prove dumping. 3. Third, Article 5.8 (immediate termination of investigations in the absence of sufficient evidence), Article 12.1 (public notification of sufficient evidence to reach the interested parties), Article 18.1 (imposition of no specific action in disagreement with GATT 1994) and Article 2.2 (procedure for collecting cost and profit data) are ruled WTO-incompatible three times each, showing a willingness to protect the domestic industry on the violator’s part.

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Figure 6.3 Actual Violations of Anti-Dumping Agreement—DSB Rulings Article 2.4 Article 6.8 Article 3.4 Annex 2 Article 3.5 Article 18.4 Article 3.2 Article 3.1 Article 18.1 Article 12.1 Article 5.8 Article 2.2 Article 12.2 Article 11.3 Article 11.2 Article 6.1 Article 6.9 Article 6.4 Article 6.2 Article 6.1 Article 5.5 Article 5.3 Article 5.1 Article 4.1 Article 3.7 Article 1 Annex 1 Article 15 Article 12.3 Article 11.4 Article 11.1 Article 10.4 Article 10.2 Article 9.5 Article 9.4 Article 9.3 Article 7.4 Article 6.5 Article 5.4 Article 5.2 Article 3.8 Article 3.3 0

1

2

3

4

5

6

7

8

The other violated provisions include Article 4.1 (definition of domestic producers), Article 5.3 (examination of the accuracy and adequacy of the evidence provided), Article 6.2 (providing full opportunity to all interested parties to defend their interests throughout the investigation),

106 The WTO Deadlocked Article 6.4 (timely opportunities for all interested parties to see all information), Article 6.9 (full opportunity to all interested parties to defend their interests before final determination), Article 11.2 (reviewing of the need for continuing the duty after the lapse of ‘reasonable period of time’), Article 3.7 (determination of threat on the basis of facts, and not merely on allegation, conjecture or remote possibility), Article 12.2 (detailed notification of the findings), Article 5.2 (evidence of dumping, injury and their causal link in the written application) and Article 10.4 (imposition of definitive ADD only after determination of threat). India’s future negotiating agenda on systemic reform of the ADA should focus on these articles.

SUBSIDY AND COUNTERVAILING MEASURES The objective of the agreement on subsidy and countervailing measures (SCM) is to prohibit injuries to the domestic industry in a member country against imports benefiting from prohibited or actionable subsidies in another member. Like the ADA, for initiating a SCM investigation, a written application by or on behalf of the domestic industry must be submitted, detailing all the relevant information about the subsidy in question. For any investigation to initiate, producers responsible for at least 50 per cent of domestic production of the like product should back the application. If the concerned figure was less than 25 per cent, no investigation would take place. In special circumstances, the authorities can initiate an investigation without a written request, but as soon as the fallacy of the application is established, it should be terminated. The investigation procedure also should not affect the customs clearance and be withdrawn at the moment when the exporting country agrees to eliminate or limit the subsidy programme or revise the prices to wipe out the injurious effect to the domestic industry. The determination of injury is made by taking into consideration the effect of the subsidised import on prices in domestic market for like products and the consequent impact of these imports on domestic producers of such products. It needs to be checked whether there has been a significant increase in the subsidised import (absolute or relative to production and consumption) or a significant price undercutting

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by the subsidised imports compared to the prevailing price of the like product. Provisional measures can be applied on the basis of a preliminary affirmative determination but these measures shall not be applied sooner than 60 days from the date of initiation of the date of investigation. Furthermore, the provisional measures should not exceed a period of four months. If the existence of actionable subsidies is proved, countervailing duty (CVD) may be imposed on products. The CVD may or may not be the full amount of the subsidy, but would never be higher than it. If the definitive duty is less than the amount guaranteed by the cash deposit or the final determination is found to be negative, any cash deposit made during the period of its application has to be refunded. A countervailing measure (CVM) is usually applied only for the required period, to the extent necessary to counteract subsidisation in the exporting country, which is causing injury in the importing country. Any definitive CVD is to be terminated on a date not later than five years from its imposition (sunset clause). If required, the period can be raised on application. The special need of the developing countries is given due care in the agreement with longer implementation period and flexibility in terms of the permissible volume of the import originating in developing countries. Like in the ADA, several provisions of the SCM agreement also pave way for imposing trade-restrictive procedures. First, according to the agreement the CVD should be in force for a time period ‘as long as’ required. In other words, it should be imposed only to the necessary extent. However, several countries often use this provision as a tool to block import ‘as long as possible’. The absence of any explicit time frame provides a policy instrument to some members. Second, the agreement does not explicitly mention whether the amount of CVD should be equal to the margin of subsidy provided or less. It is said that if lesser duty can successfully wipe out the injury to the domestic industries, then the duty should be lower than the margin calculated. But the provision is not binding upon the members. So there is a tendency in both the EU and the US (the major users of this provision) to exaggerate the extent of injury to the domestic industry concerned and charge the full amount even when the imposition of a lower duty can be adequate for the domestic industry. Third, for initiating countervailing investigations and imposing duties, the government should establish a material link

108 The WTO Deadlocked between the subsidy obtained by the exporting firms abroad and the injury caused to the domestic producers. In order to eliminate the impact of other factors, the government of the importing country should check the prevailing circumstances carefully and then proceed with definitive measures. However, in a number of cases, it is observed that the link between domestic injury and level of subsidy provided to foreign firms is not established properly. The driving force in these cases is the injury of one or two leading firms, whatever may be the level of subsidy obtained by foreign producers. Annex 6C describes some of the WTO cases on SCM. It is observed that the SCM agreement has been misused on quite a few occasions, both by developed and developing countries. Like in the case of AD, the US actions have been proved WTO-incompatible on several occasions. An analysis in line with the same carried out in the case of ADA earlier is repeated here and the alleged violations are reported in Figure 6.4. It Figure 6.4 Alleged Violation of Subsidy and Countervailing Measures Annex 5 Annex 1 Article 30 Article 27 Article 20 Article 16 Article 13 Article 7 Article 4 Article 22 Article 17 Article 12 Article 15 Article 6 Article 5 Article 21 Article 2 Article 32 Article 14 Article 19 Article 11 Article 10 Article 1 Article 3 0

2

4

6

8

10

12

14

16

18

20

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is observed that the major violations are being reported under Article 1 (definition of a subsidy), Article 2 (specificity of the subsidy), Article 3 (prohibition), Article 4 (remedies), Article 5 (trade effects), Article 6 (serious prejudice), Article 7 (remedies), Article 10 (application of Article VI of GATT 1994), Article 11 (initiation and subsequent investigation), Article 12 (evidence), Article 13 (consultations), Article 14 (calculation of the amount of subsidy in terms of the benefit to the recipient), Article 15 (definition of injury), Article 16 (definition of domestic industry), Article 17 (provisional measures), Article 19 (imposition and collection of countervailing duties), Article 20 (retroactivity), Article 21 (duration and review of countervailing duties and undertakings), Article 22 (public notice and explanation of determinations), Article 27 (SDT for developing country Members), Article 30 (dispute settlement) and Article 32 (other final provisions). Allegations have also been made on misuse of Annex 1 (illustrative list of export subsidies) and Annex 5 (procedure for developing information concerning serious prejudice). Again like the case of ADA, almost all the major articles of the agreement have been allegedly violated. Looking at the results of the concluded cases on the SCM measures (Figure 6.5), we observe that actual violations have taken place mostly under Article 1.1 (definition of a subsidy), Article 3.1 (coverage of prohibition), Article 3.2 (removal of subsidies mentioned under Article 1), Article 10 (application of Article VI of GATT 1994), Article 14 (calculation of the amount of a subsidy in terms of the benefit to the recipient), Article 15.5 (demonstrating causal link between subsidised imports and actual damage to domestic industry), Article 15.7 (consideration of the factors while determining existence of a threat of material injury), Articles 17.1–17.4 (provisional measures), Article 19.1 (amount of the countervailing duties and lesser duty rule), Article 19.4 (non-imposition of duties in excess of the subsidised amount), Article 20.6 (injury caused by massive import in a relatively short time), Articles 21.1–21.3 (imposition of duties for a period as long as necessary), Article 27.4 (phasing out the export subsidies by a developing country member over a period of two years after reaching competitiveness) and Article 32.1 (imposition of every final action against a member in accordance with the SCM agreement). In short, just like the AD procedures, actual violations have also taken place under each and every major provision of the SCM agreement.

110 The WTO Deadlocked Figure 6.5 Actual Violations of Subsidy and Countervailing Measures—DSB Rulings Article 32.1 Article 27.4 Article 21.3 Article 21.2 Article 21.1 Article 20.6 Article 19.4 Article 19.1 Article 17.4 Article 17.3 Article 17.1 Article 15.7 Article 15.5 Article 1.1 Article 14 Article 3.2 Article 10 Article 3.1 0

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It is observed from the WTO Annual reports that while India suffers from the initiation of the SCM measures, it is not an initiator of this policy. During July 2003–June 2004, five such measures were imposed on India. The SCM on iron metal castings and sulfanilic acid in the US could be mentioned in this regard. In the later period also, it has faced SCM initiations in its partner countries. It is likely that India would continue to face this problem in future, both in the case of primary and manufacturing items. The threat on export items has already forced India to take note of the problems associated with the misuse of SCM provisions at times and in the post-Doha period, it has called for a systemic reform of a number of SCM provisions: 1. A new provision to be added in Article 27.10 to provide for countervailing duties on imports from developing countries being

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restricted only to that amount by which the subsidy exceeds the de minimis level. Article 27.10(b) shall be amended to provide for countervailing duty not being imposed in the case of imports from developing countries where the total volume of imports is negligible, that is, 7 per cent of total imports. Article 27.2 shall be amended so that the prohibition in Article 3.1(a) does not apply to export subsidies granted by developing countries where they account for less than 5 per cent of the free of board value of the product. Article 27.11 shall be amended to provide for the de minimis level of subsidisation below which countervailing duty shall not be imposed in case of imports from developing countries being raised above 3 per cent. Article 27.3 shall be amended so that the prohibition of paragraph 1(b) of Article 3 shall not apply to developing country Members. The reference to expiry of this flexibility after five/eight years from the date of entry into force of the WTO Agreement shall be deleted. It should also be clarified that the provisions of the amended Article 27.3 shall be applicable, notwithstanding the provisions of any other agreement in the WTO acquis.14

On the other hand, on the domestic front, a number of subsidisation schemes are currently in force in India; for example, export credit scheme and duty drawback scheme are worth a mention here. However, India being a low income developing country need not discontinue the ongoing schemes; while the other developing countries are under the obligation to discontinue the same after a transitional period of eight years. Hoda and Ahuja (2004) have analysed the subsidy programmes of India, which can potentially turn out to be actionable in the long run, and have concluded that the country must seek clarification and improvement on several provisions of the SCM Agreement (for example, inclusion of depreciation of capital goods consumed in the production process). However, there are domestic as well as external challenges ahead. For instance, recently, major sugar producers like Australia and Thailand have approached the WTO regarding the subsidies provided to Indian sugar exporters (CENTAD 2007a).

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SAFEGUARD MEASURES The safeguard provisions outline the procedures to be followed by the WTO members in special circumstances. Countries can resort to this measure only when import of any particular product poses a serious threat to the domestic industry (for example, the quantity of the imported product rises increasingly absolute or relative to the domestic production). Any application sought for imposition of the safeguard measures must be followed by an extensive investigation, with prior public notice for all partners to negotiate on it and subsequent publication of the findings. It also must notify the WTO committee on safeguards about its intention to go for safeguard provision, which must contain evidence of serious injury caused by increased imports, details about the proposed measure, proposed date of introduction, expected duration and time-table for progressive liberalisation. In special circumstances where the delay in applying safeguard measures could be critical to the domestic industries, that is, the evidence of injury to domestic industry is clear and significant, the authorities can impose a provisional measure on imports which under no circumstances shall exceed 200 days. The safeguard measures thus imposed should take the form of tariff increases to be promptly refunded if the investigation reflects that the effect of increased import is not threatening the domestic industry. The investigation procedure should consider all relevant factors like the rate and amount of the increase in import of the product concerned in relative and absolute terms, the share of the domestic market taken by increased imports, changes in the level of sales, production, productivity, capacity utilisation, profits and losses, and employment, and so on. The safeguard measures are supposed to be applied only up to the necessary level so that serious injury is prevented. If quantitative restrictions (QRs) are applied, such a measure shall not reduce the quantity of imports below the level of a recent period, which shall be the average imports in the last three representative years, for which statistics are available. The allocation of quota, if any, is imposed after consultation with partners. However, if this is not possible, the quota should be distributed in proportions with reference to a representative period. Deviation from this is possible when the import from a particular country increases disproportionately in relation to the total increase in import of the product.

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Figure 6.6 Alleged Violation of Safeguard Measures Article 11 Article 6 Article 9 Article 7 Article 8 Article 3 Article 12 Article 5 Article 2 Article 4 0

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Safeguard measures can be applied at most for a period of four years. However, the duration can be extened only when the imports undoubtedly cause serious threat to the product. The total period of safeguard measures imposed including provisional measures and extension shall not exceed eight years. However, depending upon the gap between two successive uses, a safeguard measure can be applied again. Nevertheless, a member proposing to apply safeguards on import shall endeavour to maintain a substantially equivalent level of concession to the trading partners who are affected by such measures. The agreement takes care of the special needs of the developing country members. No safeguard measure can be applied on the developing country’s imports provided its share is less than 3 per cent. However, if the level of total import from the developing countries exceeds 9 per cent, then safeguard measures can be applied on them. Looking at the agreement on safeguards, it is observed that there is enough scope for countries to tactfully bend the agreement in their favour. For example, countries can impose provisional safeguard measures when the material injury is very high. But it is the domestic government that determines the material injury. If interested, it can omit the causal link

114 The WTO Deadlocked Figure 6.7 Actual Violations of Safeguard Measures—DSB Rulings Article 12.2 Article 8.2 Article 9.1 Article 12.3 Article 12.1 Article 7.1 Article 3.1 Article 5.1 Article 8.1 Article 4.1 Article 2.1 Article 4.2 0

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between the material injury of domestic firms and the operation of the exporting firm. India has suffered owing to the misuse of this provision. In its dispute with the US involving restrictions on imports of woven wool shirts and blouses from India (imposed by the US on 14 July 1995, but effective retrospectively from 18 April 1995, and extended till 17 April 1997), it had to move to the DSB. Although the US had withdrawn the transitional safeguard measure on 22 November 1996, India asked the panel to complete its work and provide a ruling. Annex 6D described some of the WTO cases on safeguard measures from which the violations of this provisions becomes evident. Carrying out a similar analysis for the cases concerning the safeguard agreement at DSB (Figure 6.6), we see that most of the alleged violations have been made under Article 2 (limitation of a safeguard only in case of material

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injury to domestic industry), Article 3 (application of safeguard measure only after following the investigation by competent authorities), Article 4 (scenarios where provisional safeguard measures may be applied), Article 5 (imposition of safeguard on an imported product irrespective of its source), Article 6 (definitions of important terms like ‘serious injury’ and ‘domestic industry’), Article 7 (determination of causal link between increased imports and injury to domestic industry), Article 8 (application of safeguard measures only to the necessary extent), Article 9 (allocation of quota on the supplying countries in case of safeguard actions), Article 11 (extension of the safeguard period) and Article 12 (total period of safeguard measure application). It is further observed from Figure 6.7 that the actual violations under the safeguard are made mostly under Article 4, Article 2, Article 8, Article 5, Article 3, Article 7, Article 12 and Article 9 in that order. According to WTO provisions, the anti-dumping, subsidy and safeguard provisions are to be utilised only in the case of emergencies. However, in recent times they are being used more as rules rather than exceptions with protectionist objectives. The goal of the developing countries like India should be to identify the areas for future reform under these existing WTO provisions. While India has already notified the WTO at times on the potential reform areas in these agreements, the current analysis serves as an input so as to widen India’s negotiating agenda on this front in the coming period.

NOTES 1. It is observed that there has been a significant increase in anti-dumping measures, while the use of countervailing or safeguard measures is limited (Mitra and Ranjan 2004). 2. ‘The antidumping laws are simply a popular means by which domestic firms can stifle foreign competition under the pretence of “fair trade”’ Irwin (2002: 127). 3. The non-notification of a single case against India at the DSB for a long time (1999–2002) signifies the increasing WTO-compatibility of India’s domestic regulations (Chaisse and Chakraborty 2005). 4. India, WTO Trade Policy Review (2002). 5. See the Annual Report (2003–04) of the Directorate General of Anti-Dumping and Allied Duties. 6. The details about the consultation are outlined in WTO Document WT/DS304/1 (dated 11 December 2003).

116 The WTO Deadlocked 7. The case lodged by Bangladesh is particularly important owing to the fact that this is the first time a developing country and an Asian country has moved the DSB against the former. 8. India’s submission to WTO (Document No. TN/RL/W/4, dated 25 April 2002). 9. India’s submission to WTO (Document No. TN/RL/W/26, dated 17 October 2002). 10. ‘India seeks Transparency in the Cancun process’, India and the WTO, Vol. 5, No. 6–7, p. 7, 2003. 11. India’s submission to WTO (Document No. WT/GC/W/502, dated 14 July 2003). 12. Several arguments made in this section draw from the analysis of Chakraborty (2007b) and Chaisse et al. (2007). 13. An article is dropped from the violation list if its use is ruled WTO-incompatible by the panel, but reversed by the (AB). 14. India’s submission to WTO (Document No. TN/RL/W/4, dated 25 April 2002).

7 Intellectual Property Rights: Where Do We Stand? INTRODUCTION1 Like agriculture and services, trade related aspects of intellectual property rights (TRIPS) was the other new issue included at the (UR). It included seven forms of Intellectual Property Rights (IPRs), namely, patents, copyright and related rights, trademarks, geographical indications, undisclosed information, integrated circuits and industrial designs. The negotiation witnessed a bitter tussle among the developed and developing countries, with the latter group worrying over the possible implications. Many developing countries believed TRIPS to be a non-trade concern, which leaves no room for its inclusion at the multilateral forum. On the contrary, the developed countries stressed that lax IPR protection leads to widespread piracy and loss for companies located within their territory.2 The high degree of copyright violation, as claimed by the US exporters, was a case in point (IIPA yearly reports). They also tried to convince the developing countries that TRIPS compliance would lead to ready access to updated technology and medicines for them. Moreover, the incentive would also attract the developing country firms to spend resources on R&D activities, which would earn inflow of royalty payments in the long run. However, the developing countries were not entirely convinced. Nonetheless, at the end of the eight-year long negotiation period, TRIPS became part of the GATT/WTO package, much to the dissatisfaction of the developing countries. The concerns of the developing countries over the inclusion of TRIPS at the WTO spanned over several areas. First of all, the possibility of patenting seeds raised concerns on their affordability for the developing country farmers, thereby leading to concerns on food and livelihood security as well. Second, the ruling out of reverse engineering with the incorporation of product patent regime caused a concern on the

118 The WTO Deadlocked potential implications on health security in the developing countries. More threatened were the developing countries without any production capacity in this regard. Third, the concerns on geographical indications (GI) were very much there. Concerns on basmati (attempt to register ‘texmati’ as basmati type rice by Rice Tech), and so on, in the later period validated their concerns (Devaiah Undated). Fourth, the fear of losing the traditional knowledge (TK) due to biopiracy was another concern and the attempt by some Western firms to patent certain medicinal applications of neem, haldi, and such others, proved the concern to be valid. All these issues cumulatively led to the apprehensive mindset. Understandably, during the initial years of the WTO, most disputes on the TRIPS front involved the developed countries as complainant (Annex 7A) and the developing countries as defendants. In one case, a developing country (Brazil) was also the complainant and the defendant was the US. India features as defendant in two identical cases, one brought by the US and the second by the EU. India was allowed a transition period till 1 January 2005 (Article 70 of TRIPS) to introduce product patents in food, chemicals and drugs. In these sectors, the Indian Patents Act of 1970 only allowed process patents. The EU and the US took this dispute to the WTO and India lost at that level. Interestingly, a number of disputes resulted in mutual solutions, perhaps, with the developing countries sensing defeat.

INDIA AND TRIPS India’s apprehension over the inclusion of TRIPS during the UR was also based on the developing country concerns, not owing to an absence of IPR protection system in the country. Since the colonial Designs Act (1911) caused prevalence of high drug prices coupled with unavailability on several occasions in the pre-independence period,3 it was corrected through the Patents Act (1970) by limiting the right of the innovators to some extent. The granting of product patents was stopped and a shorter time span (five years from grant or seven years from application) was implemented. Moreover, importation and working of patent were declared dissimilar. All these measures coupled with the Drug Price Control Order (DPCO) greatly contributed to the public health scenario in India by making cheap medicines available4 (Tancer and Srinivas 1999), although the number of foreign drug patents in India declined since 1970 (Dasgupta 2003: 29).

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Several issues were involved in the context of patents. One, protection of plant varieties and microorganisms, and Indian law did not allow for the patenting of life forms. Two, protection of plant varieties through patents or through a sui generis system, which caused a concern for the agriculture sector. Three, likely impact of switching to product patent on the pharmaceutical sector.5 For granting of a product and process patent in any field of technology, the invention must be new or novel, there must be an inventive step so that the invention is non-obvious, and the invention must be useful in the sense of commercial or industrial application. India needed to introduce product patents on drugs, pharmaceuticals and agro chemicals with a uniform duration of 20 years for all products. In the post-liberalisation period, the main argument against the DPCO was that it limited the incentive for firms to reinvest in R&D activities. Moreover, many of the world’s latest formulation (around 92 per cent) discoveries reached India very late.6 It is also argued that strict IPR regime encourages FDI inflow and technology transfer.7 The Pharmaceutical Policy (2002) indicated a drastic reduction in the number of drugs under price control. Domestic firms, however, claimed that unless the permissible profit margins increased, they would be unable to compete in the product patent after 2005.8 The government fulfilled the WTOcompliance by the stimulated deadline, causing the Indian players to decide their strategy accordingly (Hindustan Times 29 May 2007). Conforming to copyright protection, which extends to literary, scientific and artistic works, and rights over their reproduction, performing, recording, broadcasting rights, translation and adaptation, and so on, was easier. The Copyright Act (1957) was already in place but it did not protect non-economic rights before 1994. The Act was amended (Section 57) in December 1994 and moral rights were protected through it. The copyright legislation also protects software, but before 1994 the terms of protection were not very clear. The TRIPS agreement requires that for copyrighted works other than cinematographic or photographic works, the duration of protection should be 50 years from the date of authorised publication or life of the author plus 50 years. For cinematographic works, the duration of 50 years will be reckoned from after the work has been made available to the public. For photographic works, the duration of protection is 25 years from the date of making of the work. India provides a longer duration for protection. For literary, dramatic, musical or artistic works (other than photographs) published during the life of the author, copyright exists for the lifetime of the author plus 60 years

120 The WTO Deadlocked after his death (increased from 50 years), which may not be optimal from consumer interest angle (Debroy et al. 2005). The duration of protection for cinematographic films and photographs is also 60 years. The Trade and Merchandise Marks Act (1958) and the Designs Act (1911) were earlier in place for India to look at trademarks scenario. The TRIPS agreement stipulates that trademarks should be registered for a period of not less than seven years like the Indian law. Although the Indian provision does not directly allow service marks, the same was protected through actions for passing-off. Since India’s apprehension on hybrid marks was reduced in the post-reform period, it was easier for the country to come to terms with the TRIPS conditions. Also, non-use of a trademark leads to cancellation both in the Indian legislation and the TRIPS agreement. Industrial designs under TRIPS are ornamental features of products and include shapes, lines, motifs and colours and so on, which were protected by the Designs Act, 1911. Hence, conforming to the WTO regulation was not difficult. The TRIPS agreement did not require the enactment of specific legislation on undisclosed information (trade secrets). It was only necessary to ensure that such information cannot be disclosed to, acquired by or used by those who have no access to it, without legitimate authorisation. India was put on the priority watch list under Special 301 of the US for failing to provide an adequate level of protection or enforcement. According to the TRIPS agreement, the GI for a country must be protected with some additional and special protection provided to wines and spirits. To protect their GI, countries do not necessarily need to enact a new and specific statute; ensuring a legal means may suffice. The same was provided for in India through the Trade and Merchandise Marks Act in the earlier period. However, the basmati–texmati debate made India aware of the problems of not having an explicit GI norm and the same was introduced subsequently: The Geographical Indications of Goods (Registration and Protection) Act, 1999.

DEBATE OVER TRIPS AND PUBLIC HEALTH: THE MAJOR ISSUE The right to public health as an inseparable part of human rights has been discussed at various forums from time to time; for example, Article 25(2) of the Universal Declaration of Human Rights (1948), International Covenant on Economic, Social and Cultural Rights (1966), and Alma

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Ata Declaration (1979), all of which vowed to protect and promote public health.9 Now, Article 6 of TRIPS talks about the possibility of ‘parallel imports’, which allows use or sale of licensed goods outside the territory in which they have been licensed. Another important provision, ‘compulsory licensing’ (CL), described in Articles 30 and 31 of TRIPS, allows production of a patented product by domestic players even without the authorisation of patent holder, subject to fulfilment of certain conditions. In other words, generic manufacturers may produce their cheaper versions of the patented drugs. Citing various bottlenecks in application of those provisions, however, the developing countries describe them as grossly insufficient (Chakravarthy 2003). To make things worse, the agreement does not indicate the conditions for the exception and allows issuance of CL predominantly for the domestic market (Article 31[f ]). The developing countries willing to take the benefit of this provision need to furnish suitable proofs to the WTO to back their decision, and ensure minimum trade diversion and complete transparency.10 Many poor countries have expressed their serious concern that unqualified patent protection will result in substantially higher prices for products, with adverse consequences for the health and livelihood of their citizens. It is observed that countries with insufficient or no domestic manufacturing capacity in pharmaceuticals have no generic manufacturers to produce the drugs domestically. An option for these countries is to import such drugs through the CL route. However, the supply of drugs for these countries to import may be limited due to TRIPS compliance. One solution could be to remove Article 31(f), thereby permitting export even under the CL route. However, the realisation of it is extremely unlikely due to the attitude of the EU and the US. These two have always cited adverse business implications for their transnational firms owing to this CL provision. The clash of interest between the two sides reached its peak a few months before the Doha Ministerial, when South Africa on the face of HIV/AIDS epidemic faced shortage of drugs at an affordable price, and decided to import a generic version of the patented medicines produced by Cipla, an Indian firm, at a much cheaper rate through Medicines and Related Substances Control Amendment Act. However, in the face of huge protests from a number of developed countries, South Africa finally backed out. The African countries brought the issue to the WTO forum at Doha Ministerial, which was duly supported by the other developing countries including India.11 Finally, in the Doha Declaration a special provision was included to recognise the right of member states to take

122 The WTO Deadlocked measures to protect public health and access to medicines at an affordable price, over and above the obligation to protect IPR. The Ministers at Doha could not, however, come to an understanding on an agreeable solution regarding the problem of the developing countries without domestic pharmaceutical manufacturing capacity. This became popularly known as the Paragraph 6 problem, named after the paragraph dealing with this issue in the Doha Declaration. One major outcome of the negotiating agenda of this group has been to reach an agreement in late 2005 to modify the WTO Agreement on TRIPS, if more than two-thirds of the WTO members agree to ratify it by late 2007. However, to date very few members have ratified it. Perhaps, the diverse nature of the developing world and their conflicting interests are the villains here.

INDIA’S NEGOTIATING STANCES ON TRIPS Under this section, a brief account of India’s submissions under rhe TRIPS negotiating forums is provided. In the pre-Seattle period, focussing on electronic commerce, India raised concerns on transfer and dissemination of technology as an unachieved objective in the TRIPS agreement and expressed desire to integrate development dimension of e-commerce in the discussions in the TRIPS Council.12 Before Seattle, India termed the information-gathering exercise on patenting of lifeforms as incomplete and argued that there is a case for re-examining the need to grant patents on them. It pointed to the ‘...many grey areas in defining the scope of patentable microorganisms and microbiological processes multilaterally... it should be left to national policy to decide what are patentable microorganisms.’ On protection of plant varieties, India opined in favour of the development of own standards by the WTO members, ‘...which are effective sui generis systems under the TRIPS Agreement.’13 It also joined a developing country group called ‘Friends of Geographical Indications’.14 The negotiating agenda of the group becomes obvious from its name. In the post-Seattle period, the Convention on Biological Diversity (CBD) evolved as one of the major areas of discussion. India maintained, ‘It is widely agreed that the TRIPS Agreement is incompatible with the Convention on Bio-Diversity... need... to incorporate a provision that patents inconsistent with Article 15 of the CBD must not be granted.’ It further asked for ensuring transfer of technology on fair and mutually advantageous terms through Articles 7 and 8 of the TRIPS agreement.15

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Transfer of technology, CBD–TK concerns and GI issues dominated India’s subsequent submissions to the WTO. The country called for a level playing field and non-discrimination by arguing that owners of environmentally sound technology and products should supply them at fair and most favourable terms and conditions upon demand to any country. To protect the developing country interest against any event of bio-piracy, it wanted a material transfer agreement, ‘...where the inventor wishes to use the biological material’ and a transfer of information agreement to materialise, ‘...where the inventor bases himself on indigenous or traditional knowledge.’ It also criticised the higher level of GI protection available only for wines and spirits, and proposed extension of similar protection for its key export items like ‘basmati rice, Darjeeling tea, Alphonso mangoes, Kohlapuri slippers’, and so on.16 In the later period, India focussed on protection of TK associated with biological resources, documentation of such TK, development of a sui generis system, and such others, in its submissions.17 Another individual submission of India demanded clarification on Articles 7 and 8 of the TRIPS agreement.18 In the subsequent period, India started exploring with greater emphasis the possibility of deepening the GI protection to products other than wine and spirits. This led India to collaborate with other developing. The developing country submission advocated creation of general standards of protection available to all GI to pre-empt unfair practices.19 The point was later stressed through another proposal before Doha, which argued that Article 22 of TRIPS enables legal uncertainty and free-riding on GI.20 A later developing country submission further clarified the danger for the South owing to the lower level of GI protection for their products: A producer may use a geographical indication for his product, even if it does not originate in the territory purported, as long as the product’s true origin is indicated on the label…. The extension of the level of protection of geographical indications for wines and spirits to geographical indications for all other products is in the best interest and to the benefit of all WTO Members….21 Shortly before Doha, India collaborated with the African group on the TRIPS and Public Health front arguing that ‘…nothing in the TRIPS Agreement will prevent Members from adopting measures to protect public health.’22 The point was further stressed by a later submission, ‘Nothing in the TRIPS Agreement shall prevent Members from disclosing

124 The WTO Deadlocked or using information held by its authorities or the patent holder … where such disclosure or use is necessary to implement effectively any compulsory licences or other measures adopted by public authorities in the public interest.’23 The interest on GI persisted in the subsequent period as well, as the developing country submission argued that ‘…cost of extension, if any, would be more than offset by the benefits of more effective protection of geographical indications in world trade….’24 In the post-Doha period, the relationship between TRIPS and CBD emerged as one major negotiating agenda for India. While it mostly collaborated with other developing countries on this front, it submitted individual proposals as well. Acknowledging the fact that the TRIPS agreement and CBD should be mutually supportive, an Indian submission pointed out that the TRIPS agreement contains no provisions to prevent bio-piracy of another country’s genetic resources by foreigners. This becomes largely possible since the requirement of prior informed consent of the owners of the biological resources for invention and commercial application in abroad is not properly in place. On this ground, India asked for an amendment in the TRIPS agreement.25 The EU and the US were not accepting the Paragraph 6 provision of the DDA easily. Apart from the domestic consumers, the Indian pharmaceutical sector, which has a considerable export interest, was the other major sufferer group. This led India in association with other developing countries to point out the problem for the developing countries, ‘…situations where no patents exist in the countries in need of access to public health-related products, or cases where economies of scale make domestic production for a particular product impractical or too costly.’26 Interestingly in the later period, the EU (15) also joined hands with several developing countries on the question of extending the GI protection to other products. Claiming that the administrative costs of extending such protection to all products are negligible, the joint submission claimed, ‘There are today no economic or systemic reasons for protecting geographical indications for certain products differently from others.... A multilateral system will facilitate the protection of all geographical indications in international trade.’ It also argued that the consumers would not be misled if such a system were put in place.27

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In the pre-Cancun period, the developing country joint submissions attempted to chalk out the multilateral reform agenda to be pursued at the Ministerial Conference and, hence, the interest areas like public health and protection of TK dominated the submissions. India in this period stressed on the different nature of TRIPS, which ‘…unlike other WTO agreements, is a sui-generis agreement which is not designed to protect market access or the balance of tariff concessions but rather to establish minimum standards of intellectual property protection….’ This led India to propose ‘...limit use of the flexibilities inherent in the TRIPS Agreement to secure objectives relating to public health, nutrition, the transfer of technology and other issues of public interest in sectors of vital importance to socio-economic and technological development.’28 The developing country submission on TK focussed on disclosure of the (a) source and country of origin of the biological resource and of the traditional knowledge used in the invention, (b) evidence of prior informed consent under the relevant national regime, and (c) evidence of benefit sharing under the relevant national regime.29 The same points on TK were stressed in another submission in the post-Cancun period as well.30 Before the Hong Kong Ministerial, India focussed extensively on the relationship between TRIPS and CBD in association with other developing countries. Like the earlier submissions, the focus of the newer ones was on prior informed consent and benefit sharing for patent application.31 The proposals further stressed that although post-grant opposition or re-examination proceedings needs to be there to put a check on wrongly granted patents, those procedures should not be considered as an alternative for a disclosure requirement.32 A later proposal shortly before the Ministerial pointed out the conflicts between TRIPS and CBD, and responded to the US proposal33 on patent disclosure under the CBD. The proposal further commented on the new patent disclosure requirements.34 In line with this agenda, in the post-Hong Kong period, India in association with several developing countries submitted a proposal on disclosure of origin of biological resources and/or associated TK.35 India claimed the following gains for the country from the negotiations at the Hong Kong Ministerial (Box 7.1). A major challenge in the coming days is that unable to further expand the scope of the TRIPS agreement along their intended lines, the developed countries, especially the US and the EU, are now increasingly

126 The WTO Deadlocked Box 7.1 Gains for India on TRIPS36 • It has been decided that discussions in the two areas of interest to India, namely Geographical Indications and Biological Diversity, will be further intensified so as to be completed by 30 June 2006. The issue of Public Health had already been satisfactorily resolved. • In the TRIPS and CBD relationship, this should enable us, by the end of the Doha Round, to create a balance between private intellectual property rights and rights of communities over genetic material and traditional knowledge. • The benefit from an extension of the higher level of protection for geographical indications to products of interest to developing countries would increase the welfare of farmers and artisans, by enabling them to get better price realisation, and more markets for agri-products and handicrafts, like Darjeeling tea, Basmati rice, Alphonso mangoes, Pochampalli silk and other such items. • A crucial issue relating to TRIPS and Public Health was resolved just before Hong Kong. The TRIPS agreement has been amended to enable poor countries with insufficient manufacturing capacities for drugs to be able to make or import them irrespective of whether they were patented or not. In case of necessity, therefore, India could issue a Compulsory Licence for domestic use, or even purely for export to other developing countries.

taking recourse to bilateral and regional trade and investment treaties to build more extensive protection for intellectual property rights than set out in the TRIPS agreement. This kind of backdoor entries of the ‘TRIPS-Plus’ standards is a major area of concern (Musungu and Dutfield Undated, RIS 2007). Perhaps, India and its partners would increasingly focus on this issue in the coming days.

INDIAN ENTITIES: READY FOR THE CHALLENGE? The perception during the UR was that the WTO TRIPS framework would force India to forego an enormous amount of leverage. However, this proposition is perhaps a bit far-fetched. When India went into the process of negotiations in 1986, the perception was that India would generally gain in the areas of market access and rules of GATT and lose in the new areas (for example, TRIPS). This perspective has changed

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somewhat since the initiation of economic reforms in the early 1990s. Perhaps, it could be argued that India is going to gain through TRIPS as well, if the loss in patents in the short run is more than compensated by the gains made in other forms of IPR. Software copyright can be a case in point, given the high volume of Indian exports on this front. Indian negotiations have so far tried to maximise the gains from the multilateral reform. In the domestic pharmaceutical sector, around 50 companies control a major part of the market. While the allegation of over-dependence on reverse engineering by the developed countries was true in the preliberalisation period, the recent period has witnessed a changing trend and somewhat more focus on R&D activities. Nonetheless, there is enough room for improvement, as the R&D expenditure of even some of the bigger players is not encouraging. There is an urgent need on their part to increasingly focus on inherent capacity building to face the postproduct regime challenges. The other domestic challenge would be to document the GI properly and register the TK in a methodical manner in the developing countries immediately so as to track their misuse. The actions on international front, that is, negotiations, should be backed by these actions on the internal front as well. Though the US and its pharmaceutical industry is largely against the exercise of the CL provision, yet ironically the patent legislation under the US law is far more liberal than that which it is trying to impose on developing countries. Under the US law, if the government wants to use a patent, it can do so without the need for a CL and without negotiating with the patent holder. The patent holder can ask for compensation but has no other rights. In fact, in the US, many CLs have also been granted in order to remedy anti-competitive practices. In some cases, the licences have been granted royalty free (Lalitha 2002b). Perhaps, one important job for the Indian negotiators in the coming days would be to negotiate with the US on these fronts. It should be noted that TRIPS is not a transient phenomenon and India should concentrate on using the flexibilities in TRIPS to her advantage. In order to benefit from the TRIPS agreement, developing countries need to improve their regulatory framework, laws and service, which will enhance inventive activity. TRIPS can open new horizons for a country’s industry and can ensure success through competition. IPR cannot remain static and will have to evolve with new technologies and

128 The WTO Deadlocked international developments. India, in association with other developing countries, needs to keep this particular aspect in mind.

NOTES 1. The discussion draws from the arguments of Chakraborty and Ghosh (2004). 2. Morris et al. (2001) noted that the lack of IPR protection discourages the innovators from the developing countries to patent their invention in their own country and they prefer the US instead! 3. For instance, the recurring plague epidemic in the colonial period deserves special mention. Dasgupta (2003: 31). 4. The RIS Study (2003b) notes that various studies have calculated the range of increase in pharmaceutical sector prices anywhere between 26 and 242 per cent with the introduction of product patents on 22 existing pharmaceutical products. This huge range made the domestic sector uncomfortable about the actual impact of product patent regime on affordability of essential medicines. 5. The price consequences of a strict TRIPS regime in developing countries, as witnessed in case of China, is another area of concern. The drug prices registered an upshot in China after the introduction of product patents in 1993 RIS (2003b: 88). The National Health Policy (2001) has noted that, ‘Global experience has shown that the introduction of a TRIPS consistent patent regime for drugs in a developing country would result in an increase in the cost of drugs and medical services.’ 6. Debroy (1998) mentions the delay in availability of newly patented drugs in Indian market. Also see AAP Newsfeed (1998). 7. For details, see Maskus (1997). However, RIS study (2003b) notes that weak IPR regime in the Southeast and East Asian economies allowed them to experience firm level technological learning and boosted their growth performance. 8. There is still ample scope to improve the patent system in India. For instance, obtaining a patent used to take almost three times longer in India due to antiquated systems and procedures in the offices of the Controller General of Patents, Designs and Trademarks. However, the government has initiated modernisation of patent offices with the use of the Patent Information System (PIS), based in Nagpur. Interestingly, Indian patent fees are among the lowest in the world; it used to take around Rs 2,150 for maintaining a patent for 15 years a few years back (around US$ 55). On the other hand, filing the patent application alone is more than 10 times costlier in the EU, the US, Japan, South Korea and China. 9. India is a member of the Alma Ata Declaration. 10. The generic manufacturer is obliged, prior to shipment, to post information on the website on the quantities supplied to each importing country and the distinguishing features of product. It is issued only for the amount required by the importing Member and must be exported in total to the importing country. NGOs have pointed out that such obligations discourage the generic manufacturer to apply for a CL (Cecilia 2003).

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11. India in association with several other developing countries submitted a joint proposal on ‘TRIPS and Public Health’ before the Doha Ministerial, which aimed at correcting the inequities and imbalances in TRIPS. The partners included Brazil, Dominican Republic, Ecuador, Nigeria, Paraguay, the Philippines, Peru, South Africa, Sri Lanka and Venezuela. The proposal demanded that WTO should ensure that the TRIPS agreement does not infringe upon the sovereign right of the members to formulate their own public health policies and adopt measures for providing affordable access to medicines. ‘India and the WTO’ Newsletter, June–July 2001, p. 12. The proposal can also be seen at the following developing country submission (Document No. IP/C/W/296, dated 29 June 2001). 12. India’s submission to WTO (Document No. IP/C/W/147, dated 13 July 1999). 13. India’s submission to WTO (Document No. IP/C/W/161, dated 3 November 1999). 14. India’s membership in this group was only too natural as it got involved in the famous basmati debate with a US firm at that time. The members of the group were Dominican Republic, Egypt, Honduras, India, Jamaica, Kenya, Pakistan, Sri Lanka and Thailand. Similar views were also expressed by some of the transition economies like Bulgaria, Czech Republic, Romania, Slovakia and Slovenia. 15. India’s submission to WTO (Document No. IP/C/W/196 (dated 12 July 2000). 16. India’s submission to WTO (Document No. IP/C/W/195 (dated 12 July 2000). 17. India’s submission to WTO (Document No. WT/CTE/W/156; IP/C/W/198, dated 14 July 2000). 18. India’s submission to WTO (Document No. IP/C/W/214 (dated 6 October 2000). 19. Developing Country submission to WTO (Document No. IP/C/W/204/Rev.1, dated 2 October 2000). 20. Developing Country submission to WTO (Document No. IP/C/W/247, dated 29 March 2001). 21. Developing Country submission to WTO (Document No. IP/C/W/247/Rev.1, dated 17 May 2001). 22. Developing Country submission to WTO (Document No. IP/C/W/296, dated 29 June 2001). 23. Developing Country submission to WTO (Document No. IP/C/W/312; WT/GC/ W/450, dated 4 October 2001) 24. Developing Country submission to WTO (Document No. IP/C/W/308/Rev.1, dated 2 October 2001). 25. India’s submission to WTO (Document No. IP/C/W/356, dated 24 June 2002). 26. Developing Country submission to WTO (Document No. IP/C/W/355, dated 24 June 2002). 27. Joint submission to WTO (Document No. IP/C/W/353, dated 24 June 2002). 28. Developing Country submission to WTO (Document No. IP/C/W/385, dated 30 October 2002). 29. Developing Country submission to WTO (Document No. IP/C/W/403, dated 24 June 2003). 30. Developing Country submission to WTO (Document No. IP/C/W/420, dated 2 March 2004).

130 The WTO Deadlocked 31. Developing Country submission to WTO (Document No. IP/C/W/442, dated 18 March 2005). 32. Developing Country submission to WTO (Document No. IP/C/W/443, dated 18 March 2005). 33. US submission to WTO (Document No. IP/C/W/449). 34. Developing Country submission to WTO (Document No. IP/C/W/459, dated 18 November 2005). 35. Developing Country submission to WTO (Document No. WT/GC/W/564/Rev.2; TN/C/W/41/Rev.2; IP/C/W/474, dated 5 July 2006). 36. India and the WTO, Vol. 7, No. 12, December 2005.

8 Trade in Services: Emerging Key Interest Area With the share of the services sector continually growing in the world economy, liberalising trade in services has become a major concern area. The importance for that is all the more for the developing countries which are newer entrants in this field. The SDT provision available under trade in merchandise products for the developing countries under the WTO is there for trade in services as well, which reflects the negotiations during the UR. The SDT treatment was particularly necessary to convince the developing countries to accept the inclusion of trade in services under the GATT. For instance, India in association with countries like Brazil and Egypt tried to block the inclusion of an explicit agreement on services under the WTO during the UR (Chisti 1991). It was decided in the WTO agreement that the pace of liberalisation of the domestic service sector by any country may reflect its development level and national policy objectives. In other words, the developing countries were not expected to liberalise as quickly or as extensively as their developed counterparts. They were allowed to make specific commitments so as to strengthen their domestic services capacity and to provide access in sectors and modes of supply which were of export interest to them.1 In addition, through Article V of General Agreement on Trade in Services (GATS) the developing countries receive flexibility in the application of the conditions for an economic integration. Broadly, the GATS framework rests on three pillars. The first is a Framework agreement containing basic obligations which all member countries must follow. The second concerns the national schedules of commitments containing specific commitments which are the subject of a continuing process of liberalisation. The third is a number of annexes addressing the special situations of individual services sectors. It is recognised that providing the MFN treatment may not be possible for

132 The WTO Deadlocked every service activity and, therefore, parties may indicate specific MFN exemptions. Conditions for such exemptions are included as an annex and provide for reviews after five years and a normal limitation of 10 years on their duration. Since domestic regulations, not border measures, provide the most significant influence on services trade, the provisions spell out that all such measures of general application should be administered in a reasonable, objective and impartial manner. Restrictive business practices should be subject to consultations between parties with a view to their elimination. The GATS framework contains obligations with respect to recognition requirements (educational background, for instance) for the purpose of securing authorisations, licences or certification in the services area and encourages parties to harmonise standards on that front through internationally agreed criteria. The market-access provisions under GATS intend to progressively eliminate the limitations on numbers of service providers, on the total value of service transactions or on the total number of service operations or people employed. The national-treatment provision contains the obligation to treat foreign and domestic service suppliers in the same manner. However, it does provide the possibility of according the service providers of other parties a treatment different from that being accorded to domestic service providers. However, in such cases the conditions of competition should not, as a result, be modified in favour of the domestic service providers. Four modes of supply have been defined under GATS. Mode 1 (cross-border supply of services) refers to the delivery of services by a provider based in one country to the consumer located in another. For example, the provision of service by Indian companies to the US companies under business process outsourcing (BPO). Under Mode 2 (consumption abroad ), the services are consumed in a country by nationals of another country. Health-tourism is a good example where an American citizen can come to India for medical treatment. Mode 3 (commercial presence) deals with the services provided by a foreignbased operator to consumers in another country. For example, US banks based in India providing banking services to Indian consumers. Mode 4 (movement of natural persons) relates to the services provided by nationals of one country by travelling to and working in another country. For example, Indian software professionals working in an American firm located in the US. The GATS framework permits

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member countries to negotiate specific commitments applying to the movement of people, providing this for member countries under the agreement. It requires that people covered by a specific commitment shall be allowed to provide the service in accordance with the terms of the commitment. Nevertheless, the agreement would not apply to measures affecting employment, citizenship, residence or employment on a permanent basis. Unlike trade in goods, the GATS framework operates on a request–offer, positive list approach on liberalisation commitments. This approach allows countries not to undertake any commitment in certain sectors in the negotiations and they are under no legal obligation to supply information to their trading partners on the nature of discriminatory or access-impeding regulations maintained at the domestic level. Generally, each member comes out with a ‘wish list’ for obtaining market access from partners and submits this ‘request’ to the services council. Following the negotiations on the basis of the ‘requests’, each member produces an ‘offer’ list, showing the maximum market access it is willing to provide. However, there may not be any correspondence between requests and offers as countries liberalise only up to the point that satisfies their economic interests and not the same of their partners. Although services liberalisation is beneficial for the economy, this gives the members a chance to sequence it and monitor its pace, which is quite important (McGuire 2002). Banerjee (2006) has noted that the negotiation system under GATS is seriously flawed, thereby impeding the scope of market liberalisation. First, given the fact that commitments are negotiated on a sector-by-sector basis and then followed by a mode-by-mode analysis in each sector, even a bilateral negotiation involves huge time and, consequently, significant transaction costs. Furthermore, having a balance of concessions in the GATS between countries in a multilateral framework becomes difficult, as member countries often do not hold a reciprocal interest in each other’s markets. Second, since under the MFN framework the offers are not member specific, but multilateral, that is, any market concession to a WTO member is extended to all members, the free rider problem plays a major role here. Therefore, it makes sense for the countries to understate their own ‘offers’ but to wait and gain from other’s offers. As a result of this kind of ‘mutual non-cooperation’, the concessions on market access negotiated at the GATS always remain sub-optimal.

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THE SERVICE TRADE Looking at the major export and import destinations of the three core segments of service trade (transportation, travel and other commercial services) from Annex 8A, it is observed that US and the major EU member countries are the key players.2 However, the Asian economies are also coming up the ladder in recent years, and the names of Singapore, South Korea, Hong Kong, China and China (PRC) deserve special mention. Although India’s global market share in this sphere has increased in recent years, it is clearly not as high as China or other Asian economies. For instance, India does not figure among the top 15 trading nations in the case of travel services, a major component of the overall services trade. Although it is not a major exporter of transportation services in global terms, its share in world imports has increased considerably over the years, in line with its increasing trade volume. Only in the case of other commercial services, thanks to the growing contribution of software and related service, its market share is increasing in the case both of exports and imports. The last point becomes clear through an analysis of the structure of India’s service exports (Table 8.1). While during the 1960s and the 1970s, travel and transportation services were major contributors to the economy, since the late 1990s, the export of software has increased considerably. The miscellaneous services, the contribution of which to export declined to some extent during the late 1990s, increased again Table 8.1 Structure of India’s Service Exports Year

Percentage Share in Total Service Exports Amount* Travel Transportation Insurance GNIE Software Miscellaneous#

1970–71 1980–81 1990–91 2000–01 2003–04 2004–05

292 2,804 4,551 16,268 24,949 51,326

16.8 43.5 32.0 21.5 16.5 9.8

49.7 16.3 21.6 12.6 13.1 9.9

5.5 2.3 2.4 1.7 1.7 2.0

13.7 4.0 0.3 4.0 1.1 0.8

Source: RBI (2005). Notes: * US$ million. GNIE—Government not included elsewhere. # Excluding software services.

0.0 0.0 0.0 39.0 48.9 33.7

14.4 33.9 43.7 21.3 18.7 43.9

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Figure 8.1 Contribution of Various Modes of Supply in Global Services Trade 1%

38%

41%

Mode 1 Mode 2 Mode 3 Mode 4

20% Source: Various web resources.

considerably during 2004–05. Within the software service category, both IT services and IT-enabled services like BPO are currently experiencing a high growth rate. WTO (2001), and Hoekman and Kostecki (2001) discuss the contribution of the four modes of supply in global trade. It is observed that Mode 1 (cross-border supply) and Mode 3 (commercial presence) account for the maximum volume of trade (around 40 per cent), while Mode 2 (consumption abroad ) comes next (Figure 8.1). However, the contribution of Mode 4 (movement of natural persons) is almost insignificant as compared to the other three modes. It needs to be noted that a major proportion of India’s exports falls under Mode 4. Despite the sharp growth rate in the service sector, India’s role in the global service economy is still limited and it must increase its export base in other categories of services as well.

THE TRADE BARRIERS As compared to the developed countries, developing countries like India have a distinct advantage in terms of labour cost as far as trade in services is concerned. In addition, the country enjoys a comparative advantage vis-à-vis several other developing countries as well. It has been observed that the RCA of the service sector for several Asian

136 The WTO Deadlocked countries is on the decline, while the same for India is on the rise (De 2006; Karmakar 2005). Given the fact that several Southeast Asian economies are getting increasingly skill-scarce in a relative costeffective sense, Indian professionals could meet this gap effectively if the requisite market access is easily forthcoming. However, realisation of market access is a major problem area owing to the existing barriers. Several studies have been conducted on the existing barriers on trade in services. It has been found that the tariff equivalents of several countries are quite significant (WTO 2001) and sometimes are more tradedistorting than the applied average tariff in manufacturing (Francoise and Hoekman 2000). Broadly, the barriers on trade in services can be placed in five categories. First, there are quantitative restrictions, either in the form of outright prohibition (for example, ban on foreign providers against entry in domestic services like insurance and education services) or in the form of upward limit on certain types of services. Second, the price-based instruments can be mentioned (for example, visa fees, entry or exit taxes, discriminatory airline landing fees and so on). Third, licensing or environmental certification requirements sometimes significantly impede market access (for example, certification from foreign providers of professional, business, transportation and tourism services). Fourth, government procurement policies to favour domestic industry by preferential policies or outright prohibitions are another major area of concern. Finally, discriminatory access to distribution and communications systems is a problem area in case of sectors like telecommunications, air transport, advertising, insurance, and so on. The major problem areas in the four modes, as noted by CUTS (2005a), are presented in Annex 8B. While it is observed that in case of Mode 1, the protection of local interest is emerging as a major problem, the absence of insurance cover puts a dampening effect on trade in Mode 2. In case of Mode 4, lack of transparency and presence of various standards is a problem area. Several disputes lodged at the WTO dispute settlement body on service-related barriers are summarised in Annex 8C. Moreover, in some cases, the reciprocal rights provision plays a key role. For instance, a country may argue that it would not allow legal professionals from another country to come and practice in its territory, until and unless its citizens do not get a similar right in that country (WTO, Trade Policy Reviews of various countries).

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THE WTO NEGOTIATIONS ON SERVICES TRADE The Singapore Ministerial (1996) and the Geneva Ministerial (1998) were not eventful affairs as far as trade in services was concerned. Since January 2000 negotiations on services began as per the WTO schedule, and members started submitting requests to each other. India, in association with other developing countries, maintained that the negotiation should be carried on keeping in mind the appropriate flexibility requirement for the developing country members, so that they open up fewer sectors, liberalise fewer types of transactions and progressively extend market access in line with their development situation. It further stressed that the focus of the liberalisation must be on sectors and modes of supply of export interest to the developing countries.3 India also raised questions on the implementation of the Marrakesh Agreement in its submission, asking for an assessment of the same on the basis of the submissions made by member states and international organisations, including the WTO. It demanded that such conclusions should be drawn by the end of March 2002 and be carried out henceforth in a continuous basis with the assistance of United Nations Conference on Trade and Development (UNCTAD) and other relevant UN agencies wherever necessary. It also called for technical and financial assistance to developing countries and less developed countries (LDC) for this purpose. Apart from the SDT focus, given the importance of Mode 4 of service trade in India’s export basket, liberalisation of movement of professionals was soon identified as a key interest area as the country called for the need to adopt strategies to improve the structure of members’ commitments in this category.4 The agenda included removal of existing limitations by modifying Economic Needs Tests (ENTs) and administrative procedures relating to visas, work permits, introducing norms to address social security issues, strengthening the GATS disciplines on recognition of qualifications, and so on. In addition, India’s proposal favoured establishment of multilateral norms to facilitate MRAs among members. For example, norms for professional service sectors where no formal accreditation or licensing procedures are required, norms concerning equivalence of work-related and academic qualifications, and norms concerning temporary licensing. India kept on highlighting these issues at various fora before the Doha Ministerial, as a result of which the DDA (2001) responded to India’s concerns by asking the members to submit initial requests for specific commitments:

138 The WTO Deadlocked The negotiations on trade in services shall be conducted with a view to promoting the economic growth of all trading partners and the development of developing and least-developed countries. We recognize the work already undertaken in the negotiations, initiated in January 2000 under Article XIX of the General Agreement on Trade in Services, and the large number of proposals submitted by members on a wide range of sectors and several horizontal issues, as well as on movement of natural persons…. Participants shall submit initial requests for specific commitments by 30 June 2002 and initial offers by 31 March 2003. As observed from Table 8.1, India’s software service export started rising since the late 1990s but the country was not being able to realise its full export potential owing to various restrictions in the developed countries. Given the fact that negotiating on the computer and related services involved both off-shoring and travelling abroad, India focussed on both liberalisation of Mode 1 and Mode 4 for enhancing trade in these categories. It stressed the need for guaranteeing speed and flexibility in movement of personnel for this purpose and called for ensuring issue of short-term visas at very short notice and greater provision of mobility for the visa holder and removal of numerical restrictions put on the entry of professionals in the foreign markets. It further asked for greater transparency, simplicity and certainty in the visa regime and removal of local policies like the social security levies and charges imposed on professionals from other countries, arguing that such professional service suppliers will not stand to benefit from any social security cover in the host country.5 Since early 2003, the WTO members were gearing towards the upcoming Cancun Ministerial and India became very active in submitting its viewpoints to the WTO on various service related issues, individually as well as collectively in association with other developing countries. In its joint submission with 37 developing countries on Maritime Transport Service (MTS), India argued that binding substantive liberalisation of this sector is crucial to ensure the overall success of this current round of trade negotiations and called for active participation of the members to achieve ‘meaningful liberalisation’, ‘consistent with sustainable development, security and safety, and thereby securing broad coverage of this sector in the multilateral trading system and the GATS framework.’6 Apart from the submissions in association with other developing countries, India made several informal individual submissions to the WTO from time to time, mostly involving problems faced by Indian exporters.

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In line with the concerns over Mode 4 exports, India’s key interest area, one major concern involved the recognition of educational qualification or experience obtained for the professionals from the developing countries. Given the problems faced by professionals, India urged that the regular session of the Council for Trade in Services (CTS) should focus on the implementation of Article VII of GATS, especially ‘...Information exchange on Article VII: 5 with a view to specific information on the use of multilaterally agreed criteria for recognition purposes.’7 Before Cancun, restating the interest of the developing countries in ensuring higher market access in Mode 4, India and several developing countries also focussed on the need to enhance the commitment level in the developed countries and the need to de-link Mode 4 from commercial presence.8 The submission stressed that the inability of the administrative procedure in various countries to distinguish between temporary movement and permanent immigration, and the application of the normal immigration rules on the professionals is a major problem area. This led the developing countries to effectively differentiate between these two scenarios. It also highlighted other problems faced by the developing countries; for example, lack of transparency in visa approval, delays in obtaining visas, existence of artificial barriers like ENT, Local Market Tests and Management Needs Tests (MNT) to determine the need for entry as well as the number to be allowed to enter, lack of recognition of professional qualifications, licensing requirements, and so on. Interestingly, the developing country submission tried to convince the developed countries by arguing that enhancing market access in Mode 4 would be mutually beneficial citing the changing demography in the latter market: There is a much greater convergence of interests in Mode 4 between the developed and the developing countries in the current negotiations as compared to Uruguay Round. A strong impetus to such movement is the large gap between the projected needs and the local availability of certain categories of personnel in developed countries, further accentuated by their increasingly aging populations. Welfare gains from freer movement of natural persons would, therefore, accrue to both groups of countries as has been documented in recent studies…. Recognition of common categories of movement, both linked to as well as delinked from commercial presence in the horizontal commitments of Members could prove useful and valuable....

140 The WTO Deadlocked In addition to all these sector-specific concerns, India also raised a number of questions before Cancun on the depth of the ongoing negotiation process, spanning over factual and analytical issues as well as issues questioning the relative value of the offers received from the WTO members.9 At Cancun (2003), the ministerial declaration took note of the ongoing negotiations and decided that the CTS would review the progress in negotiations by 31 March 2004. However, the question of recognition of qualifications remained alive in the negotiating forum, and India had to call for the development of disciplines for professional services in this regard shortly after Cancun.10 The major issues focussed upon in the submission included the problem associated with licensing requirements, licensing procedures, qualification requirements and qualification procedures in case of professional services. The Indian submission recommended to the Working Party on Domestic Regulation (WPDR) for the developing disciplines for professional services as required by Paragraph 2 of the Document S/L/63 and enhancing the possibility of establishing meaningful mutual recognition agreement (MRA) bilaterally between members through the consideration of the following options: ...examine the extent of applicability of the accountancy sector guidelines to all Professional Services is a valuable one that needs to be expedited. Effective operationalization of Article VI: 6 of GATS by establishing guidelines for recognition of qualification. This was also clearly mandated under Para 2(c) of S/L/3 and in accordance with Para 2 of S/L/70, it is part of the task of the WPDR …. Development of possible multilateral guidelines and principles guiding the establishment of such Recognition Agreements taking a cue from the Accountancy Sector guidelines and building on them with a view to exploring their inclusion as an Additional Commitment under Article XVIII of the GATS.… Possibility of undertaking Additional Commitments under Article XVIII of GATS for verifying a foreign service provider’s competence to provide the service with a view to laying down a transparent procedure for recognition and to reduce the burdensomeness of domestic regulations on this score. The concept could be to introduce a hierarchy of measures with the burden of proof being placed on the domestic regulator to move from a less burdensome measure to a more burdensome one.

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Since early 2004, it was obvious that another round of discussion among members was due, given the poor show at Cancun. India, in line with its key concern, kept focussing on the need for easing of measures aimed to enhance trade in Mode 4 by arguing that administering a test of service provider’s competence and/or educational attainment to verify the foreign service provider’s competence is, perhaps, the least burdensome measure, with minimum trade repercussions. It further stressed that only in case of absolute necessity should a foreign service provider be required to make up ‘objectively verifiable deficiencies in their education, training and experience’.11 The Indian proposal to the CTS Special Session for the review of progress with other developing countries focussed on the lack of liberalisation of Mode 4 of trade in general and the practice of linking movement of natural persons with commercial presence in the developed countries in particular. The submission highlighted that the initial offers presented by the developed members do not show any real improvement to the existing commitments in Mode 4. While some members have not modified their existing commitments at all, others have only introduced some minor changes here and there with no serious implications in real terms. Basically, commitments remain limited to the categories of personnel related to commercial presence, despite the expressed interest of the developing countries for commitments in categories de-linked from commercial presence as well. The disappointing process of the liberalisation of Mode 4 in developed countries led the developing countries to stress the need for securing higher market access in this front: ...Developing Members in general have comparative advantages only in a narrow range of services activities. The primary mode for most of these relates to Mode 4. The liberalisation of this mode of supply would, therefore, provide effective market access to service providers from developing Members and contribute significantly to the implementation of Article IV of the GATS. In the subsequent period it was decided at the Geneva meeting (2004) that revised offers from the members on trade in services should be tabled by May 2005 and India’s concern over liberalisation of Mode 4 was also acknowledged there:

142 The WTO Deadlocked A date for the submission of a round of revised offers should be established as soon as feasible…. Members shall aim to achieve progressively higher levels of liberalization with no a priori exclusion of any service sector or mode of supply and shall give special attention to sectors and modes of supply of export interest to developing countries. Members note the interest of developing countries, as well as other Members, in Mode 4. (Annex C) Fourteen developing countries, including India, in the post-July Framework period submitted an informal draft paper to the WTO for ensuring the liberalisation of Mode 4.12 The document reiterated their concern over the lack of transparency as one of the major impediments in this area and argued that there is ample room to improve it for regulatory procedures. Claiming the ineffectiveness of the existing GATS rules on ensuring transparency for movement under Mode 4, the document stressed the need to make all current administrative measures on entry, temporary stay and work authorisation available to the partners, in a consolidated form and, wherever possible, do so electronically on websites or otherwise to remove the element of unpredictability from the procedure. Given the fact that the tourism sector could play a significant role in the trade basket of the developing countries, India along with eight developing countries submitted a proposal to the WTO in the subsequent period on that front.13 The document discussed the problems posed by various regulations present in the developed country markets. The key points included ensuring greater flexibility in Mode 4 and criticised the current policy in the developed countries requiring commercial establishment or presence for this purpose. The submission demanded facilitation of movement of natural persons supplying services in tourism and recognition of their qualifications, elimination of anti-competitive practices and unfair competition, elimination of requirements for commercial establishment or presence and elimination of nationality or residency requirement. Before the Hong Kong Ministerial, the issue of freeing trade in environmental goods and services, by ‘reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services’ as per the DDA came to the forefront. Several developed countries were interested to ensure market access in the developing countries on this

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count and submitted their own list for discussion, wherein they have a comparative advantage. However, most of the developing countries were on the back foot on this front. The primary focus of negotiations has been on the identification of goods. New Zealand came out with a proposal for adoption of a ‘single consensus list’ of environmental goods but was also willing to settle for a dual-list approach in case agreement on one list could not be obtained.14 It also talked about a ‘living list’ which would allow an agreed list to be updated keeping the technological progress in view. The EC suggested arriving at some guiding principles for identification of environmental goods.15 The US had proposed the use of two lists for this purpose—Core and Complementary; while the first would deal with Environmental Remediation and Pollution Prevention, and Clean Technologies, arrived at by consensus, and definite concessions would have to be committed, the second would contain products on which consensus could not be arrived at.16 India criticised this ‘List Approach’ by pointing out several limitations to it (for example, problem of dual use, problems of the developing country Small and Medium Enterprises (SME), overemphasis on goods by neglecting services, and so on), and proposed the adoption of an ‘Environment Project Approach’ (EPA) instead.17 The EPA proposed by India requires meeting certain criteria set by the Designate National Authority (DNA) in the member countries. Once approved, the goods and services included in the project would qualify for specific concessions for the duration of the project (ranging from large commercial ventures to individual purchases) and would need approval again for another project. According to India, the criteria could be crafted by letting the Committee on Trade and Environment Special Session (CTESS) first to specify certain broad categories and criteria for selection; the countries could subsequently adopt those meeting their national environmental priorities. Since each project is contemporary, the changing needs of members will be observed by definition and there would be an incentive to employ the latest technology and products for each project. Also, there would be space for capacity building, technology transfer and technical assistance for developing countries.18 India further noted that the EPA would be an effective mechanism for the reduction or elimination of NTBs in respect of identified goods and services in an approved project, thereby substantially deepening the DDA by providing scope for the developing countries and the LDC to develop capacities and achieve national priorities.19

144 The WTO Deadlocked

HONG KONG DECLARATION (2005) The Hong Kong Declaration has provided a breathing space for the developing countries in services negotiations. It has asked the members to participate actively in the negotiations ‘with appropriate flexibility for individual developing countries as provided for in Article XIX of the GATS’, and acknowledged that the LDC are not expected to undertake new commitments. Furthermore, it has provided a guiding objective for the members in Annex C of the declaration, arguing, ‘In order to achieve a progressively higher level of liberalization of trade in services, with appropriate flexibility for individual developing country Members, we agree that Members should be guided, to the maximum extent possible, by the following objectives in making their new and improved commitments.’ The guiding objectives suggested under various modes of supply in the ministerial declaration takes note of various concerns raised by India from time to time, as seen from the following: 1. Mode 1: Commitments at existing levels of market access on a non-discriminatory basis across sectors of interest to members, removal of existing requirements of commercial presence. 2. Mode 2: Commitments at existing levels of market access on a non-discriminatory basis across sectors of interest to members. 3. Mode 3: Commitments on enhanced levels of foreign equity participation, removal or substantial reduction of economic needs tests, commitments allowing greater flexibility on the types of legal entity permitted. 4. Mode 4: Removal or substantial reduction of economic needs tests, indication of prescribed duration of stay and possibility of renewal, if any, for Contractual Services Suppliers (CSS), Independent Professionals (IP) and Others, de-linking from commercial presence, removal or substantial reduction of ENT to be reflected in new or improved commitments under Intra-corporate Transferees and Business Visitors, and such others. The Hong Kong Declaration further noted, ‘the request–offer negotiations should also be pursued on a plurilateral basis in accordance with the principles of the GATS’, which might turn out to be an advantage as well as a disadvantage for India. Given the fact that some of the issues

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raised by India under various modes on services trade have been noted in the declaration, it currently is in a joyful mood and believes that its interest is protected. The gains as perceived by India are noted in Box 8.1. However, CENTAD (2006b: 12) notes that the developing countries have made several commitments under Modes 1, 2 and 3 on an enhanced level of foreign equity participation and elimination, or substantial reduction of necessary criteria applied by a country and surrendered their right of flexibility in that process. Hence, in the long run, India might suffer on that count. Since May 2005, 30 revised offers have been submitted to the WTO, including the submissions from Malaysia, Turkey, Chile, the EU, Norway, Japan, New Zealand, Australia, South Korea and Canada. India has also tabled a revised offer. The following deadlines were supposed to be followed for various stages of negotiations: submission of plurilateral requests by Groups of members (28 February 2006); developing appropriate mechanisms for according special priority including to sectors and modes of supply of interest to LDC (31 July 2006); submission of Box 8.1 Gains for India in Services20 • In Services, the policy space essential for developing countries, including India, has been fully preserved. A right mix has been achieved between flexibility for the developing countries and securing market access for areas of export interest to India like Mode 4 categories de-linked from commercial presence and Mode 1. The primacy of the Request–Offer process has been maintained. • Further, guidance on commitments at existing levels of Modes 1 and 2 (cross-border supply), which includes BPO and e-enabled services, has been secured. Similarly, commitments for CSS and IP of developing countries in Mode 4 (movement of natural persons) have been provided for. • Given that flexibility for the developing countries has been fully preserved, each member, including India, can decide on the level of commitments that they would take commensurate with their levels of development and national policy objectives. In other words, there is no compulsion on developing countries to open up service sectors. • An important gain is that the Hong Kong Declaration provides guidance on elimination or substantial reduction of ENT, which is one of the principal barriers to services exports from developing countries like India. This had been one of India’s main demands in services negotiations.

146 The WTO Deadlocked second round of revised offers (31 July 2006); and communication of final draft schedules (31 October 2006). However, the slow progress on agriculture has delayed the services negotiation as well, as the talks were suspended in July 2006. In October 2007, WTO Director-General Pascal Lamy admitted that the future challenge for the WTO members is to enhance the level of negotiations under trade in services.

THE CURRENT SCENARIO FOR INDIA A number of the WTO members, both developed and developing countries, have submitted their request to India so far. The major sectors covered till date include accountancy service, construction and engineering service, legal service, computer and related service, education and training service, environment service, banking service, telecom service, tourism service, and such others. On the other hand, the major requests made by India to partner countries cover computer related service, banking service, maritime transport service and such others. The major areas where requests are made are summarised in Annex 8D.21 India has submitted its Conditional Initial Offer after Cancun Ministerial, where it offered to undertake several commitments under Modes 1 and 4, apart from improving access in several critical service sectors like accounting services, engineering services, computer and related services, medical and dental services, construction and related engineering services, financial services, health services, tourism services and maritime transport services, and so on.22 The current level of India’s commitments could be observed from her revised offer tabled before the Hong Kong Ministerial.23 The latter document reveals that although India is willing to make commitment on several sectors, using its prerogative as a developing country, it has chosen to retain some control over the market access. However, India generally has not used any limitation on National Treatment. In the case of several service categories, the foreign equity ceiling (26 or 51 per cent limit earlier) has been removed, and only the requirement of obtaining approval from the Foreign Investment Promotion Board (FIPB) has been retained. It has tabled a substantial initial offer in Mode 4 category by including all the categories of natural persons like intra-corporate transferees, business visitors, contractual service suppliers and independent professionals.

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It has also expanded the sectoral coverage of both the contractual service suppliers and independent professionals. The committed sectors and the proposed limitations on them, as offered by India, are summarised in Annex 8E. However, countries like the US maintain that India needs to remove the FDI restrictions in the financial services sector as that is adversely affecting the investment flows in that sector (Hindustan Times 31 May 2007). While India negotiated on a number of issues over the last decade, its focus has been primarily Mode 4-centric, and not ‘across-the-board’. Also, the hesitant approach adopted by India to ‘offer’ in services negotiations has often been criticised (Banerjee 2004; Draper and Sally 2004; Mattoo and Subramanian 2003). On Mode 4 front, however, she has earned an unexpected ally in Bill Gates, one of the major ‘user’ of software professionals from India, who demanded from the US policymakers that the H1-B visa cap on the number of foreign tech workers should be abolished.24 It is probably not entirely coincidental that a week later the US granted additional 20,000 H1-B visas for the fiscal year 2005 (Hindustan Times 6 May 2005). However, it can be argued that the Mode 4 process has become a victim of India’s success in the BPO sector (Mode 1). In the US, there is a strong political constituency against outsourcing of jobs as it is interpreted as the reason for loss of jobs. India is seen as a threat to employment in the US because of the perception that employment is being created in the BPO segment in India at the cast of jobs in the US (Hindustan Times 25 August 2004).25 Next year also, an extra 30,000 H-1B visas were granted, which was again praised by Microsoft (23 October 2006). The software industry body National Association of Software and Services Companies (NASSCOM) has also done its due in this front (Hindustan Times 7 May 2007). However, the scenario is not that colourful elsewhere either. The UK visa norms, for instance, have always been a major bone of contention. For instance, a new Immigration Law was enacted in April 2006 to provide preference for Work Permit Visa to doctors coming from East Europe. In the earlier period, a student could have stayed over in the UK after clearing his examination until getting a job offer, but the new regulation requires him/her to leave the country if there is no job offer within the visa period. The British Association of Physicians of Indian Origin (BAPIO) tried to fight against this provision at the London High Court, but its plea was rejected in February 2007. In early 2007, it was announced that the entry

148 The WTO Deadlocked norms would be made more stringent with introduction of a points-based system for various tiers, based on skills of the workers (Hindustan Times 20 April 2007). The new system has been formally announced recently (Hindustan Times 6 December 2007). Its effectiveness in permitting Indian workers to enter the EU market would soon be clear. Closer home in Sri Lanka, an interesting development took place in 2006 on the MNP. The island country imposed a tax of nearly US$ 2,500 on every locally produced movie which rents the service of foreign actors. This is expected to bear a negative impact on the import of services of Indian actors (that, export of India) in the country. It has been argued that the legislation is, perhaps, a reaction to the fact that foreign actors are winning the awards at local film festivals (Hindustan Times 8 May 2006). Other barriers on services trade between the two countries have been noted earlier (Taneja et al. 2004). India is currently in the process of extending the existing FTA into a CECA with thorough negotiation. It is expected that the barriers would be taken care of once the CECA comes into force. The coming days would be quite crucial for India. The pace of ongoing liberalisation will compel India to open up the sector for foreign players in the near future.26 So far, India has already opened some of the service sectors like healthcare services and financial service including banking and insurance, but has not committed to opening education services under the negotiations. It has, however, included education on the list of services as an item to be liberalised. The Indian private sector plays a major role in higher education. However, each country can still decide freely the commitments it wants to make, and especially the educational sectors it wants to expose to market forces. Looking across the table, its own interest may get hurt from the existing barriers on education services in other countries (Raychaudhuri and De 2006). Presently, the Members are in a ‘request and offer’ phase and the negotiations are not concluded. There is an urgent need for an impact assessment of opening up of these sectors in India for a better implementation of GATS at the domestic level.27 Linking domestic liberalisation with market access abroad may be one viable option for certain sectors. Given the fluid status of the current negotiations, following the RTA route for augmenting services export is another way out and India’s bid to include services and investment in all the recent PTA negotiations deserves special mention here. As of now, India is party to only one services RTA—the India–Singapore CECA (Das 2006). The number is all set to increase with the conclusion of newer RTA ventures.

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NOTES 1. Article XIX of GATS permits developing countries to make fewer specific commitments than industrialised countries in negotiations. 2. The term ‘Other Commercial Services’ includes eight different heads of services, namely— (1) Communication Services, (2) Construction Services, (3) Insurance Services, (4) Financial Services, (5) Computer and Information Services, (6) Royalties and License Fees, (7) Personal, Cultural and Recreational Services and (8) other business services. 3. India’s submission to WTO (Document No. S/CSS/W/13, dated 24 November 2000). 4. India’s submission to WTO (Document No. S/CSS/W/12, dated 24 November 2000). 5. India’s submission to WTO (Document No. S/CSS/W/141, dated 22 March 2002). 6. India’s submission to WTO (Document No. TN/S/W/11, dated 3 March 2003). 7. India’s submission to WTO (Document No. JOB[03]/120, dated 24 June 2003). 8. India’s submission to WTO (Document No. TN/S/W/14, dated 3 July 2003). 9. India’s submission to WTO (Document No. TN/S/W/16, dated 25 July 2003). 10. India’s submission to WTO (Document No. JOB[03]/192, dated 30 September 2003). 11. India’s submission to WTO (Document No. TN/S/W/19, dated 31 March 2004). 12. Developing Country submission to WTO (Document No. JOB[04]/142, dated 29 September 2004). 13. Developing Country submission to WTO (Document No. TN/S/W/23, dated 29 September 2004). 14. New Zealand’s submission to WTO (Document No. TN/TE/W/46, dated 10 February 2005). 15. EC submission to WTO (Document No. TN/TE/W/47, dated 17 February 2005). 16. US submissions to WTO (TN/MA/W/18/Add.5 and TN/TE/W/38). 17. India’s submission to WTO (Document No. TN/TE/W/51, dated 3 June 2005). 18. India’s submission to WTO (Document No. TN/TE/W/54, dated 4 July 2005). 19. India’s submission to WTO (Document No. TN/TE/W/60, dated 19 September 2005). 20. India and the WTO, Vol. 7, No. 12, December 2005. 21. Chanda (2006) provides a detailed sectoral overview of India’s opportunities and challenges for trade in services. 22. India’s Conditional Initial Offer (Document No. TN/S/O/IND, dated 12 January 2004). 23. India’s Revised Offer (Document No. TN/S/O/IND/Rev.1, dated 24 August 2005). 24. ‘The whole idea behind the H1-B thing is, “Don’t let too many smart people come into the country”. The thing basically doesn’t make sense. That’s just wondering ourselves in this global competition,’ Gates told policymakers on Capitol Hill on Wednesday, Hindustan Times, 29 April 2005. 25. California Senate passes anti-BPO bill’ (Hindustan Times 25 August 2004). 26. This, however, may not necessarily mean a threat to the domestic players. It has been argued that Essential Safeguard Measures (ESM) in services may be good for LDC like Nepal or Bangladesh but it may not be so for India (Kulkarni 2007). 27. Sen (2004) tries to argue as to why India finds it difficult to engage in the multilateral negotiation process.

9 Regionalism in the Era of Multilateralism: The Changing Focus INTRODUCTION Since its inception in 1995, the WTO has been fairly successful in pushing the world towards freer trade, as reflected from the steady increase in the number of member countries.1 Presently, more than 96 per cent of world trade is carried on between WTO members, and the provision of granting the MFN treatment to each other acts as a major force behind trade promotion.2 In this framework, a simultaneous ‘club’ formation through trade blocs within the WTO implies that members find bilateral trade more attractive than the multilateral option, the slow pace of multilateral negotiations perhaps adding credence to this claim. A trade bloc or RTA could be defined as a preferential arrangement under which signatory countries trade with each other in the presence of more lenient duty structures (or ‘zero’ duty, in the case of FTA) than the same accorded to excluded countries. The preference could relate either to lower tariffs on the entire trade schedule, or just to specific groups of products, as decided by the involved parties.3 In particular, the trend of regionalism took off only in the post-WTO period, when most of the new trade blocs came into existence. By 2001, the number of regional agreements notified to the WTO had crossed its tally of member countries.4 A word of caution has been sounded from various quarters that these blocs might pose a threat to the pace of multilateral negotiations or the MFN principles (Ranjan 2006a), and the WTO is also aware of these concerns. However, some studies argue that RTAs would help in the multilateralism process. Figure 9.1 shows the notifications of RTAs to GATT and WTO during 1958–2006.5 Presently, more than 150 agreements are in force and it was observed in June 2002 that only four

151

Regionalism in the Era of Multilateralism Figure 9.1 Evolution of Regional Trade Agreements in the World, 1958–2006 250 200 150 100

2006

2003

2000

1997

1994

1991

1988

1985

1982

1979

1976

1973

1970

1967

1964

1961

0

1958

50

Source: Chakraborty and Sengupta (2006).

WTO Members, namely, Japan, Hong Kong (China), Macau (China) and Mongolia were not part of any RTA.6 Japan has, however, started exploring the RTA route for enhancing trade and bargaining power at the WTO over the last few years by initiating discussions with Singapore, Mexico, Malaysia and the Philippines. The possibility of India–Japan trade and investment cooperation is being explored (FICCI 2006). Clearly the shadow of regionalism is looming large over the future of multilateralism. It needs to be mentioned that regionalism is a not new a phenomenon to the world trading system, as the 1960s and the 1970s witnessed the formation of several regional blocs. However, the recent drive towards regionalism is newer and much wider owing to several reasons. First, while the bloc formation in earlier times was more or less restricted to countries with a comparable level of development, the occurrence of developed–developing country blocs is much more frequent these days.7 Second, the RTAs were truly ‘regional’ in earlier days, where the members usually belonged to same geographical area, barring few exceptions.8 On the contrary, a number of the recent RTAs are truly global in character, extending far beyond the geographical boundary of one continent. 9 Third, the emergence of overlapping regionalism in recent times (‘Spaghetti bowl’, as termed by Bhagwati 2002) has not

152 The WTO Deadlocked been observed before.10 Commenting on this trend, the WTO Annual Report (2003: 27) notes: The rapid growth in regional trade initiatives began a decade or so ago and seems to have developed into a headlong race: virtually every WTO Member is today engaging further on the RTA track as part of its trade strategy, increasingly for defensive reasons, to protect market access…. The proliferation of RTAs, especially as their scope broadens to include policy areas not regulated multilaterally, increases the risks of inconsistencies in the rules and procedures among RTAs themselves, and between RTAs and the multilateral framework. This is likely to give rise to regulatory confusion, distortion of regional markets, and severe implementation problems, especially where there are overlapping RTAs. A World Bank (2000) study on RTAs noted that more than one-third of world trade takes place within RTAs.11 Understandably, the coverage of intra-RTA trade has expanded in recent years. The operational structure of agreements (either customs union [CU] or FTA) could vary, but the only commonality among the RTAs is the objective of reducing barriers to trade between member countries. Not only has the number of RTAs grown tremendously over the last decade, so has their ‘product coverage’, where goods, services and investment receive preferential treatment.12 Given this scenario, a couple of issues deserve immediate attention. First, whether the WTO provisions on RTAs contain any grey areas through which trade restrictive policies could be pursued. Second, whether establishment of RTAs could potentially divert trade away from non-member countries and further act as a retarding force to multilateral negotiation. Finally, the analysis focuses on the recent Indian response to regionalism.

ARTICLE XXIV—A REVIEW OF ISSUES The WTO regulations on RTAs are contained in Article XXIV of the GATT Agreement, which clearly states that the purpose of RTAs is to facilitate trade between constituent territories and not to raise barriers

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on other countries. Non-member countries are, therefore, not supposed to face any discrimination with regard to regulatory procedures or other type of barriers, as compared to the member countries. The article also requires that the applied trade duties and other commercial regulations in the post-bloc formation period should not be higher or more restrictive than they were in the pre-bloc period (Article XXIV, Paragraphs 5a and 5b). The agreement distinguishes between two types of RTAs, namely CU or FTA that countries can enter into. The CU refers to the convergence of two or more customs territories in a single customs territory, thereby allowing internal free (or preferential) trade among the members, while charging a uniform tariff on the goods coming from non-member sources. On the other hand, internal free trade is ensured in case of FTA, but the members reserve the right to charge differential tariff to non-members. The latter option provides much higher policy leverages to a country, as compared to the former one.13 In order to avoid any unnecessary protectionist mechanism, it is mentioned clearly that the provisions of Article XXIV should not violate natural advantages accorded to any nonmember contracting party. Article XXIV mentions what procedure the countries should follow if they want to join a CU or FTA. Any member country willing to enter one such agreement has to notify its decision to all contracting parties with relevant documents. Countries can enter into an interim agreement to facilitate transition, but the process should not be an open-ended one. They have to act following a constructive plan and schedule for the formation of the final CU or FTA, to be concluded within a reasonable length of time. If there is any substantial change in the plan or schedule, the RTA members need to share a full account of the developments with other nations. If, after having studied the plan and schedule included in an interim agreement, other WTO members find that such agreement is not likely to result in formation of a CU or FTA within the period contemplated by the parties to the agreement or that such period is not a reasonable one, they shall make recommendations to the parties involved in the agreement (Article XXIV, Paragraph 7b). Full compliance by the RTA-aspirants to these recommendations is not binding (World Bank 2000). In the post-bloc period, the contracting parties to a CU have to maintain a uniform tariff regime to other parties. But if any member has a tariff structure which is lower than the proposed duty in the union, and it has to increase

154 The WTO Deadlocked any rate of duty inconsistently with the provisions of Article II, the procedure set forth in Article XXVIII would be applied.

PROVISIONS FOR DEVELOPING COUNTRIES In addition to the general provisions, there are special rules for the developing countries willing to join RTAs, known as the ‘Enabling Clause’, which was introduced in 1979. The provision significantly relaxes the conditions for RTA formation involving only the developing countries (Irfan and Marceau Undated). The relaxation is granted in terms of conditions on coverage of trade and allows reduction of tariffs on mutual trade as per their intention. In addition, NTMs can be addressed ‘in accordance with criteria which may be prescribed’ by the WTO members. They also face less stringent regulations concerning the need to give the RTA treatment to non-member country firms with ‘substantial business’ within their territories. These provisions are supplemented with the non-operational requirement that the RTA does not constitute a barrier to MFN tariff reductions or cause ‘undue difficulties’ for other ‘contracting parties’. According to the World Bank (2000), developing countries also receive ‘flexibility’ on ‘substantially all’ provisions regarding non-discrimination to non-members. Twentytwo preferential arrangements have been notified to the WTO under the Enabling Clause, including the Latin American Integration Association (LAIA), Association of South-East Asian Nations (ASEAN), and the Gulf Cooperation Council (GCC).

ARTICLE V OF THE GATS Since Article XXIV forms part of the GATT Agreement, it covers only provisions related to RTA trade in industrial and agricultural products. The provisions related to RTA trade in services are addressed under Article V of the GATS, which applies the non-discrimination criterion on a sector-by-sector basis, rather than following an ‘on the whole’ basis. Article V also requires that services exporters from non-member countries, who were engaged in ‘substantive business’ in an RTA territory in the pre-bloc period, must receive a treatment equivalent to their counterparts located within the bloc. However, Article V provides no clarification on what it means by ‘substantially all trade’ other than stating that this must

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be ‘understood in terms of the number of sectors, volume of trade, and modes of supply.’ It also requires that, for sectors covered, ‘substantially all discrimination’ is to be removed; however, not specifying any limit to it. Fifty-eight agreements have been notified under the WTO under Article V of the GATS (for example, South African Development Committee [SADC] negotiations for a RTA on trade in services).

LOOPHOLES IN ARTICLE XXIV Although Article XXIV of the GATT is constructed to prevent RTA members from discriminating against non-members, there exist a number of loopholes and ambiguities in the WTO provisions. The grey areas in Article XXIV of the GATT principally arise from the use of terms that are not properly clarified and can easily be interpreted by any country for protectionist purposes (World Bank 2000): 1. First, Article XXIV is vague about the expression ‘substantially all trade’, to which bloc formation should leave no impact. Logically, it should cover the major sectors of importance. Now, the presence of ambiguity provides the bloc members a policy instrument, which could be utilised as protectionist measures to the advantage of their domestic industries.14 2. Second, a similar lack of clarity with respect to NTBs and assessment of the overall level of trade restriction is there in the agreement, which leaves space for trade-distorting policies and, hence, future trade disputes. RTA members could thereby interpret provisions in a manner suitable to them and use such barriers in a WTO-compatible way. The increased use of anti-dumping duties in RTA member countries testifies this.15 It has been noted that if the RTA removes NTBs instead of tariff, the importing country would gain (Mikic Undated). 3. Third, the Rules of Origin (ROO) used by most of the RTAs are often weakly defined. Hence, it has emerged as one of the major disputed issues in the recent period.16 The ROO intend to ensure that goods qualifying for tariff-free trade are produced in a member country and not just passing through it. Therefore, imports from non-member countries are liable to pay tariff in the country of final sale, while any value-addition occurring within the RTA could pass tariff-free.

156 The WTO Deadlocked ROO act as a considerable NTB to non-member imports since the costs of compliance are high, involving very complex procedures, which significantly complicate the trade negotiating process.17 In addition, ROO requirements are often arbitrary, comprising of differing formulae. For example, some RTAs impose a ceiling on the use of imported parts and materials. Others require that any goods sold within the RTA must have a certain percentage of local value-added or of local components—a requirement known as the ‘cumulation clause’. To make things worse, many combine both of these principles.18 The value-added criterion is used most frequently, often with additional criteria like change in tariff heading (CTH), signifying substantial transformation. In some cases, exceptional sector or product-specific rules are also applied. The depth of ROO requirements in various types of arrangements is more common in the post-1990 RTAs (Chakraborty 2003). 4. Finally, Article XXIV requires that the members should remove ‘other restrictive regulations of commerce’. But without any specific explanation, the coverage of the phrase ‘other’ becomes very ambiguous. RTA members can thus still resort to suitable policy tools to impede imports from non-member countries. Owing to this, one of the major areas under the DDA negotiation is to enhance the transparency level under the RTAs, which was re-stressed at the Hong Kong Ministerial. The WTO Annual Report (2007: 3) has noted: ... pursuant to the Decision adopted by Ministers at the Hong Kong WTO Ministerial, the General Council in December adopted a Decision establishing on a provisional basis a Transparency Mechanism for RTAs. The Transparency Mechanism is being implemented on a provisional basis, in accordance with paragraph 47 of the Doha Ministerial Declaration, and its operation will be reviewed by Members within one year.

MOVING TOWARDS TRADE DIVERSION? Free trade is theoretically welfare-enhancing for trading nations in general and for small countries in particular. The RTAs are, however, considered to be potentially trade diverting. Furthermore, since the opening up of trade

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always occurs at the expense of domestic producers, they generally form a powerful lobby resisting further liberalisation of the market. Trade diversion due to RTA formation promises export accession in the RTA market to this lobby and, therefore, generates no protest from them. In trade blocs, the expense of trade-diversion is borne by producers located somewhere in non-member countries. Producer lobbies thus often induce governments to adopt policies leading to trade-diversion (Elger et al. 2006). The increasing trade-inwardness of various blocs explains the recent uneasiness regarding trade-diversion. Annex 9A shows the trends in intrabloc exports over the last 30 years, which portrays a mixed trend. While the intra-bloc export of the developed country groupings like Asia-Pacific Economic Cooperation (APEC), the EU and North American Free Trade Agreement (NAFTA) are quite high, the same among all the developing country blocs are not so, barring the exception of East Asia Economic Caucus (EAEC), which, however, includes Japan as a member. It is observed that the trade-inwardness of various blocs is also growing over the years. India is a member of two blocs shown in the table, namely the Bangkok Agreement and SAARC. For both the blocs, the initial volume has been quite low and trade-inwardness has increased at quite a slow rate. It deserves to be mentioned that most of India’s major trade partners are members of more than one bloc. The problem of multiple blocs is particularly significant in case of Latin American and African countries, as highlighted by the World Bank (2000) and Bhagwati (2002), and often it is very difficult to understand which bloc they actively belong to. The point could be understood more clearly from Figure 9.2, which shows the regional arrangement involving a number of developing countries and LDC in southern and western Africa. It is clearly understood from the figure that the overlapping RTAs and the applied ROOs are capable of generating major trade disputes. A number of studies have reported trade diversion in various RTAs. Focussing on several major RTAs, Dee and Gali (2003) have shown that while past estimates revealed most preferential trade arrangements (PTAs) to be trade-creating in net terms, the scenario is actually the reverse. The analysis concluded that most blocs do not create additional trade, either for members or for non-members of the agreement. Among the 18 recent PTAs examined in the analysis, 12 of them have diverted more trade from non-members than they have actually created among member countries. Looking at the major trade blocs, trade-diversion in the EU is a longdebated issue. According to the World Bank (2000), the estimated cost of

158 The WTO Deadlocked Figure 9.2 Regional Trade Agreements in Southern and Western Africa Cross-Border Initiative Common Market for Eastern and Southern Africa Djibouti Egypt Eritrea Ethiopia Sudan

SADC Angola Congo

Burundi Rwanda Malawi Zambia Zimbabwe

Southern African Customs Union Namibia Swaziland Lesotho

South Africa Botswana

East African Cooperation Tanzania

Kenya Uganda

Indian Ocean Commission Mauritius Seychelles

Comoros Madagascar

Mozambique

Source: World Bank (2000).

the Common Agricultural Policy (CAP) protection, even at a conservative scale, is around 12 per cent of the total EU farm income, which obviously diverts trade away from the developing country producers. Bayoumi and Eichengreen (1995) have shown that the total loss of export of the rest of the world (ROW) due to European Economic Community (EEC) formation over 1957–73 totals US$ 24 billion. Focussing on the economic impact of the single European market in 1992 on trade partners, Page (1992) concluded that while the overall benefits for the ROW could balance the costs, many developing countries would be directly affected by individual sectoral changes ranging over primary, manufacturing as well as service industries.19 Analysing the potential impact of the Egyptian– European Partnership Agreement, Ghoneiml (2003) suggested that trade diversion might take place due to compliance requirement with extensive ROO provisions, although it did not make an attempt to quantify it. The paper concluded with a worrying note that no matter what methodology is used for determining ROO in the Partnership Agreement, European industries seeking protection would always find their way to influence the structure of ROO applied for achieving their objective. However, a recent analysis has reported a limited trade diversion because of the EU enlargement process (Wilhelmsson 2006).

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Trade diversion because of NAFTA is also worth mentioning. A global trade analysis project (GTAP), global general equilibrium model by Yang (1998) on the welfare impact of NAFTA showed that while Canada, the US and Mexico gained on one way or the other, ROW faces a loss both in allocative efficiency as well as terms of trade, indicating trade diversion. Looking at the data over the period 1992–98, Fukao et al. (2002) have shown that the extent of trade diversion is most alarming for imports of textile and apparel products, which is of extreme importance to developing countries. Burfisher et al. (2001), and James and Umemoto (1999, 2000) also arrive at a similar conclusion, especially regarding the textile exports from East Asia. Krueger (1999) and the World Bank (2000) noted the impact of the increased barriers against non-NAFTA imports during ‘tequila crisis’ in Mexico during late l994 to early l995. Trade diversion in other blocs has also been cited in international trade literature. Bohara et al. (2001) have focussed on the effect of Southern Common Market (MERCOSUR) and reported trade diversion in several sectors. Gupta and Schiff (1997) have shown the trade-diverting impact of RTAs through two representative case studies, bovine cattle and beef trade in the Andean Pact and white maize trade in Central American Common Market (CACM). Yeats (1998) shows that MERCOSUR actually became less, rather than more, competitive in products where trade was reorienting most rapidly towards the region as the RCA index for three product categories, namely transport equipment, non-electrical machinery and electrical machinery, that accounted for a major proportion of intra-MERCOSUR trade, was very low.20 Chudnovsky et al. (1996) also concluded that capital goods import had been diverted away from more efficient producers by the tariff policy of the bloc. However, it has been argued that the East Asian RTAs are likely to create more trade among members without diverting trade from non-members.21 The extent of trade-inwardness of the blocs is likely to go up in the coming future, with the recent expansion of EU–15 to EU–25 (2004) and, recently, further to EU–27. In addition, the completion of the negotiations on Free Trade Area of the Americas (FTAA) is expected in coming years.22 Although it has been argued that increasing tradeinwardness is not an explicit result of bloc formation, as in most cases the volume of trade among the bloc members was historically significant (that is, even in the pre-bloc period), there is another major shortcoming

160 The WTO Deadlocked of regionalism. The frequent use of regional arrangements by Latin American and African countries up to the late 1980s and their weak participation in multilateral rounds suggests the possibility of substitution of multilateralism by bilateralism.23 Krishna (1998) had shown that larger the trade diversion away from the RTA, the bleaker is the possibility that bloc members will engage in multilateral negotiations to liberalise trade further. In this background, India’s perception towards regionalism needs to be studied more closely.

EVOLUTION OF INDIAN VIEWS ON RTAS In the pre-Doha period, India was mainly reliant on multilateral liberalisation for export growth and was not part of any active tradebloc. However, from 1995 onwards, the number of RTAs and PTAs was on the rise globally. This led to trade diversion owing to increasing trade-inwardness of the blocs and India also started raising its voice over circumvention of procedural liberalisation undertaken due to the RTAs, especially in the case of textile products, at several occasions.24 Its decision to stay loyal to the process of multilateral liberalisation has been praised by the WTO during the initial years.25 Since the late 1990s, however, India started getting worried about the sluggish export growth rate and tried to enter into an FTA with the APEC (Doss and Cabalu 2000). Perhaps, the lack of reform in certain key areas prompted APEC members not to support India’s inclusion at their meeting in Vancouver in 1997 for another 10 years (Woo 2005).26 Recently, APEC leaders have decided to review the question of new membership only in 2010. Hence, India needs to wait for three more years to join the club (Hindustan Times 10 September 2007). In the subsequent period, India became particularly vocal on various protectionist loopholes present in the RTA system and on 6 June 2003 formally submitted a proposal to the WTO Negotiating Group on Rules.27 Voicing concerns over the ongoing practices under Article XXIV of GATT, the document demanded modification of the same so that the RTAs ‘complement multilateral trade liberalisation and not create complications for that goal or occur at the cost of trade or development of countries not members of particular RTAs’. The document also strongly advocated in favour of continuing with the ‘Enabling Clause’ framework, arguing:

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… any attempt to dilute the provisions of the Enabling Clause would be contrary to the spirit of the WTO framework as well as of the Doha Ministerial Declaration. The development dimension of the Enabling Clause is that while developing countries seek greater economic integration with other countries, they also need to have enough policy space to be able to adjust to greater competition in the domestic markets or to calibrate their market liberalisation to their individual level of development. It also provides them flexibility in making structural adjustments, a mechanism to build public consensus for trade liberalisation led reforms and also a laboratory to learn the lessons of market opening without paying a prohibitive price in terms of social and economic upheavals, that may, at times, be paid when such an opening up is at the multilateral level. The submission expressed dissatisfaction over the question of transparency regarding the formation of RTAs under GATT Article XXIV and the measures applied against the Indian textile and garment industry, especially with respect to ROO provisions: ... some of the existing provisions of preferential rules of origin have significant trade diversionary effect or create barriers to trade of nonRTA Members. One such identified element is the requirement in some PROs that the raw materials used for the next stage product conversion taking place in a RTA Member country should be sourced from one of the RTA Member countries. For instance, there is a requirement in the PRO of a major RTA that for a large category of fabrics, made-up articles and apparels to get the benefit of preferential tariff under that RTA, these should contain yarn or fibre made in a RTA Member country.... The effect of such rules for non-RTA Members is very harmful, particularly for such countries, which enjoy a traditional market access for fabrics in such countries. Another complex origin rule identified in a RTA is that for clothing and coats to be entitled to the benefit of preferential tariff, linings should originate from the fabric stage from one of the RTA Member countries. Such rules appear to go far beyond the requirement of substantial transformation envisaged under value addition criteria. Quoting the problems associated with preferential duties and diagonal cumulation, the submission further stressed that compliance with the

162 The WTO Deadlocked complex value-addition norms hurts developing countries more than their developed counterparts.28 The problems led India to recommended that ‘… it would be useful to arrive at an understanding that ROO are other regulations of commerce and that they should meet the criteria set forth in GATT Article XXIV:4 and XXIV:5, namely, that they shall not raise barriers to trade of non-Members of RTAs.’ The document also called for elimination of all existing barriers in the RTAs, which are caused by ‘... putting the provisions for harmonisation of rules of recognition for SPS/ TBT measures between the RTA Members on a fast track procedure or a simplified procedure.…’ In addition, it called for maintaining the MFN principle in safeguard actions initiated within the RTAs by claiming, ‘The provisions of GATT Article XXIV do not appear to permit any derogation from the principle of MFN treatment for safeguard measures. It would be useful to affirm this principle in the results of the present negotiation so that there is no scope of adopting a differing interpretation on this issue and thereby keep members of an FTA or a Customs Union out of the purview of a safeguard action if it is initiated by one of the members of the FTA or the Customs Union.’ However, since experiencing isolation at the Doha Ministerial (2001), India also started opting for increased involvement at various forums with other developing countries. The battle over the EU–US plan on agriculture at Cancun (2003) and the consequent delay in liberalisation of non-agricultural trade established that increased market access in the developed countries would not easily be forthcoming. The experience forced India to move consciously towards regionalism in the post-Cancun period. The RTA partners included the developing country WTO members, spread over Asia, Africa and Latin America (Baru 2003). The move was expected to facilitate two objectives; first, to ensure an assured export market, and second to enhance bilateral relations with the other developing countries. However, it has often been expressed by various quarters that India would gain most by following the track of multilateral liberalisation (Agarwal 2004). On the other hand, some studies point that instead of concentrating on Asia, FTA with the US would be a better option (Lawrence and Chadha 2004). It has also been argued that FTAs involving East and Southeast Asian countries, especially Japan, ASEAN, China, India and Korea (JACIK) would be much more beneficial for the members (Kumar 2005). Furthermore, some studies point out that India’s global trade potential

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is maximum in the Asia-Pacific region, followed by Western Europe and North America (Batra 2004). In that light, India’s growing integration with the Asian economies perhaps reflects its economic interests. India currently envisions creation of a major FTA in Asia covering all major Asian economies, including China, Japan and South Korea, and possibly extending to Australia and New Zealand.29 At present, India is involved in a number of PTA negotiations, which not only focus on freeing trade in merchandise products but also on trade in services as well as investment measures. Moreover, building transport linkages in order to facilitate trade (for example, BIMST–EC) and ensuring energy security (for example, GCC) are among the other major motives behind the focus on regionalism (Nag and Chakraborty 2006). In the following points, the major RTA involvements of India are summarised (a detailed account of them is provided in Annex 9B)— 1. Preferential Trade Agreements (PTAs): India is a member of the Bangkok Agreement signed in 1975 (other members: Bangladesh, China, Republic of Korea, Lao PDR and Sri Lanka) and SAARC (other members: Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, and Maldives), which was converted into South Asian Free Trade Area (SAFTA) by 2006. It has also signed in January 2004 a preferential agreement with MERCOSUR (Brazil, Argentina, Uruguay and Paraguay), hoping to convert that into an FTA in future. A PTA between India and Chile was signed in March 2006, which may in future be upgraded to Indo–Chile FTA. 2. Free Trade Agreement (FTA)/Comprehensive Economic Cooperation Agreement (CECA): The FTA with Sri Lanka has become effective from 1 March 2000 and India is now in the process of negotiating for a CECA with it. The phasing out of customs tariffs with Indo–Thailand FTA has started from 1 September 2004, which will be fully operational from 2010. The liberalisation on the Indo–ASEAN FTA is also in progress. India–Singapore CECA was signed in June 2005 and a Trade and Economic Framework Agreement between India and Australia was recently signed in March 2006. Very recently, India has decided to enter into an FTA with GCC (Hindustan Times 27 March 2006).

164 The WTO Deadlocked 3. Ongoing Negotiations: The Joint Study Groups constituted for exploring the possibilities of FTAs are operational at different stages for China, Japan, Korea and Malaysia. Also, the negotiation for BIMST–EC (Bangladesh, India, Myanmar, Sri Lanka, Thailand, Nepal and Bhutan) is in progress. Discussions to have FTAs/CECAs with Canada, the EU, Japan and Mexico are currently in various stages of development. It is quite interesting to note that a Canadian team that visited India in March 2007 showed interest in entering into an FTA with India, if the Doha Round of talks would fail at the WTO (CENTAD 2007b). This clearly explains that a stalemate at multilateral negotiations is a sure recipe for regionalism. In addition to the aforementioned negotiations, India has also entered into talks on preferential arrangements with Bangladesh and Southern African Customs Union (South Africa, Botswana, Namibia, Lesotho and Swaziland). Discussion is on for the formation of Joint Study Groups or Working Groups focussing on the possibility of exploring preferential trade with Mauritius, Egypt and Israel. It is observed from Annex 9C that the importance of the WTO members with whom India has already entered into an RTA or is currently negotiating, is, as a whole, rising. However, it is also observed that the rising importance is more prominent in case of larger markets; for example, Brazil in Latin America, China in Asia and South Africa in Africa (Chakraborty and Nag Forthcoming). While the trade impact of the preferential arrangements would be clearer in the coming future, it needs to be noted that a number of these countries have jointly submitted communications to the WTO at times, as seen from Table 9.1. Therefore, it can be concluded that apart from economic concerns, the shift in attitude towards RTAs has also been guided by trade diplomacy. One major determinant of India’s recent focus on RTAs is the slow pace of multilateral liberalisation: ‘The Uruguay Round took eight years to negotiate. The Doha Round has already taken four. When the WTO process reaches its final culmination, perhaps in the next fifteen years or so, regional FTAs would become redundant. But that is a long way off ’ (Government of India 2004a).30 The fact that one of the prime reasons for emergence of bilateralism across ASEAN and in East Asia has also been the slow progress in multilateral trade liberalisation (Sally and Sen 2005), makes the possibility of cooperation between India and this group

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Table 9.1 India’s Negotiating Collaborations and Regional Agreement Partners Negotiating Alliance at WTO Like minded group (General) G–20 (Agriculture)

G–33 (Agriculture)

NAMA–11 (Non-agriculture) ABI (Non-agriculture) G–24 (Services)

Friends of geographical indications (TRIPS)

Non-Asian RTA Partners

Asian RTA Partners Indonesia, Malaysia, Pakistan

–

China, Indonesia, Pakistan, The Philippines, Thailand

Argentina, Brazil, Chile, Paraguay, South Africa, Uruguay China, Indonesia, South Korea, Botswana Mongolia, Pakistan, Laos, The Philippines, Sri Lanka Indonesia, The Philippines Argentina, Brazil, Namibia, South Africa – Argentina, Brazil Indonesia, Malaysia, Pakistan, Argentina, Brazil, The Philippines, Sri Lanka, Paraguay, Uruguay Thailand Pakistan, Sri Lanka and – Thailand

Sounce: Authors of the present volume.

all the more promising. According to India, till the WTO negotiations are completed, RTAs would supplement and complement the multilateral trading order, and there is a need to use them to the country’s advantage: ‘It is a recognized fact that...RTAs…confer greater bargaining power in multilateral negotiations by tying in partner countries through regional commitments’ (Government of India 2004c).31 One major criticism, however, is that a number of recent bilateral agreements of India are actually redundant and have been signed without proper analysis of their implications and the ROO consequences (The Indian Express 23 October 2004). Nag and Chakraborty (2006) show the extent of bloc overlap in India’s economic integration plan, revealing that a number of Asian countries are India’s partners in multiple PTAs, potentially leading to conflicting outcomes. For instance, while the direct FTA with Sri Lanka could probably be justified by the current lower volume of intra-SAFTA trade, the individual FTA and CECA with Thailand and Singapore, respectively, or recent discussions with

166 The WTO Deadlocked Malaysia for FTA are questionable, as India is already negotiating for an FTA with ASEAN. Nonetheless, Sri Lanka and Thailand are also part of the proposed BIMST–EC FTA, currently being negotiated by India. Moreover, it is often alleged that the ROO in the FTAs failed to tackle the question of value-addition properly and as a consequence, several primary and manufacturing producers in India have suffered. The losses suffered by traditional products of Kerala in the post Indo-Sri Lanka FTA could be mentioned in this regard (Choudhury 2006). The problem in determining ROO with the partners is already visible. India usually applies twin criteria for determining ROO in FTAs: (1) value addition method, and (2) change in tariff heading (CTH), arguing that the value addition method alone is not adequate for the purpose, as high wage rates or high rent can increase the product value even without substantial physical value addition. However, ASEAN in mid2005 objected to adoption of the second criterion and preferred only value addition norm to be operational. As a result of this debate, a new set of ROO had to be formulated (Financial Express 11 June 2005). In case of the Indo–Thailand FTA and the BIMST–EC FTA, the two sides were not able to finalise the interim ROO in time, due to which the implementation of the Early Harvest Scheme (EHS) had to be deferred. The major difference in that case centred on the question whether to have a general set of ROO or have a system of product specific rules or both. While India preferred having both a general set of rules entailing change in tariff heading at HS–4 digit level and a 40 per cent local content norm with product-specific derogations wherever necessary, Thailand wanted the 40 per cent value addition norm to be the only indicator of substantial transformation (Mehta and Narayanan 2005). The multiple bloc phenomenon is capable of creating another problem. Under SAFTA, the non-LDC are supposed to compensate the LDC for their revenue loss caused by the tariff reforms undertaken during the integration process in the form of grant in US dollars. However, BIMST–EC does not contain any such provision. Hence, it makes more sense for India and Sri Lanka to access the Nepal and Bangladesh markets through BIMST–EC FTA rather then SAFTA (USAID 2005). Therefore, which ROO is to be adopted here is a tricky issue. Since in these blocs, the negotiation on services and investment would follow only after the completion of trade in goods negotiation, the second stage of the reform is, therefore, also getting delayed in this debate.

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Interestingly, the perception of Indian policymakers may also play a key role in determining the sensitive/duty-free list for the CECAs/FTAs. For instance, one of the major driving motives behind going for the Indo–GCC FTA is perhaps meeting India’s energy security through import of petroleum products. Around 70 per cent of India’s crude oil import originates from the six GCC countries. However, a recent news item indicated that the Revenue Department would prefer to keep crude oil out of the duty-free list, anticipating revenue loss owing to the customs duty exemption (Hindustan Times 30 July 2007). Although several studies point out that Indian industry would actually gain from further reduction of tariffs in terms of efficiency (Virmani et al. 2004), various segments of the industry have often expressed concern over the growing number of FTAs, selection and implementation of different ROO norms and their consequences for domestic players (FICCI 2005). Concerns on the actual benefits to be realised from India’s Southeast Asian integration are recently being raised by scholars. For instance, in case of the Indo–Singapore CECA, the additional market access obtained by India through tariff concessions is limited as Singapore imposes tariff rates on only four commodity lines of the beverages industry and India does not have export competitiveness in those items. However, a large proportion of the trade volume with Singapore is subject to various NTBs (orders and licence measures for considerations of public safety, health, environment and the like) and it is unlikely that these barriers would be removed as a consequence of the integration (Mehta and Narayanan 2005). On the other hand, the domestic industry feels threatened by a potential surge in imports as a result of the preferential agreements. The creation of an FTA cell in the Ministry of Commerce and Industry to deal with the adverse impact, if any, of FTAs on specific sectors and also, to obtain suggestions for amendments to the agreements for inclusion or exclusion of items of concern to domestic industry in 2005 is, in part, a recognition of their anxiety (Government of India 2005f ).32 In addition, the Commerce Ministry had decided to move cautiously during the implementation of the RTAs (Hindustan Times 11 April 2006), which might affect the deadline of the current agreements. The pace could further slow down in the light of a letter sent by the National Advisory Council Chairperson to the Prime Minister asking for ‘very careful scrutiny’ of the India–ASEAN FTA to safeguard interests of domestic farmers, although the Prime Minister assured them that there was no need

168 The WTO Deadlocked to worry (Deccan Herald 7 May 2006). Special consideration is already being provided to the primary sector. For instance, India’s Sensitive List, where the Trade Liberalisation Programme (TLP) under SAFTA does not apply, includes the sensitive tariff lines relating to agro-commodities (Government of India 2005a).33 However, given the fact that the several proposed FTA partner countries like Australia, Indonesia or Malaysia are members of the Cairns Group, keeping agriculture out of any future arrangement with them might be difficult. India decided to keep ‘sensitive’ areas like agriculture and textile products out of the purview of the ongoing ASEAN–FTA negotiations (Hindustan Times 11 April 2006), and ASEAN subsequently suspended FTA talks with India saying that the excluded items account for around 30 per cent of Southeast Asia’s exports to India (Financial Express 26 July 2006). Although the negotiation has started recently, the tension still remains. For instance, several ASEAN countries like Indonesia and Malaysia want increased market access for crude and refined palm oil, asking for a significant cut in the bound rate of duty for those products. Other ASEAN members, like Vietnam, want duty reduction in primary products like pepper and tea, which again might be politically difficult (Hindustan Times 19 November 2007). Moreover, removing the aversion of the domestic industry towards opening the domestic market to Chinese products can also be a major problem (Hindustan Times 26 June 2006). Clearly, India’s RTA strategy is not going to be a smooth sailing in the coming days. It should be borne in mind that entering into the RTAs might fulfil the export objectives of India in the short run, but given the RTA explosion all over the world, its competitiveness would soon be challenged by the partners. For instance, ASEAN is going to finalise a trade deal with China and Japan in the coming future (Hindustan Times 23 August 2007), which would put their exports at equal footing in the ASEAN market. The ASEAN is currently in negotiations for preferential agreements with South Korea, Australia and New Zealand as well (Hindustan Times 24 November 2007). Therefore, be it at the international or the domestic level, the focus of policymaking should be on enhancing the competitiveness of the local firms. Once that goal is achieved, entering into RTAs would be politically much easier.34 Another interesting challenge for India would be to institutionalise the investment agreement in the CECAs that are currently being negotiated.

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It is generally argued that although the gain through trade in goods could be limited for a number of RTAs, the balance could tilt in India’s favour if services and investment are included in those arrangements. Investment is one of the Singapore issues on which the developing countries like India are not yet ready to negotiate. It is not that the absence of a multilateral agreement on investment would greatly constrain the scenario; so many bilateral investment treaties (BITs) are already there to be used as prototype. Nevertheless, the Indian action to protect its own interest in this regard would be an interesting case study.

NOTES 1. As against 123 participant countries in the Uruguay Round (1986), with entry of Chinese Taipei in 2002, and Armenia and Macedonia in 2003, the total membership of the WTO reached 14 5 in 2003. As on March 2008, there were 151 member countries and 31 observer nations. 2. WTO Annual Report (2001: 22). 3. RTAs also differ considerably in the mix of goods and sectors they cover. For example, in the India–Sri Lanka FTA, the number of products in India’s ‘Open List’ is greater than that contained in Sri Lanka’s corresponding list. 4. ‘In 2001, 19 new regional trade agreements (RTAs) were notified to the WTO, increasing the total number of agreements notified by Members and in force to 159. Most WTO Members were parties to at least one RTA, and many to two or more’ (WTO Annual Report 2002: 112). The WTO Committee on RTAs (2000) recognised the total number of RTAs to be 240, of which 172, or roughly 70 per cent, were said to be in force as of July 2000, while the remaining 68 RTAs were under negotiation. WTO Annual Report (2003: 37) mentioned, ‘As of June 2002, only four WTO Members—Japan; Hong Kong, China; Macau, China; and Mongolia—were not party to a regional trade agreement (RTA).’ The WTO Annual Report (2004: 68) further notes, ‘Eighteen RTAs were notified to the WTO in 2003, increasing the total number of notified agreements in force to 193.’ 5. WTO Annual Report (2003: 27). 6. Ibid.: 26. 7. In support of the point, the RTAs between the EC and the East European transition economies and the African countries could be referred. 8. For instance, EEC (1957), SADC (1980) or ASEAN (1967) could be mentioned. 9. For example, the EU has signed RTAs with several Mediterranean countries and the US has signed two separate agreements with Israel (1985) and Singapore (2001). An agreement has been reached with Australia for establishment of the FTA. In addition, negotiations for entering into FTA with Morocco, Chile and Southern African Customs Union are going on. The proposed RTA between the US and Singapore, or the US and Australia, are representative examples.

170 The WTO Deadlocked 10. For a detailed account of the new elements in recent RTAs, see Fisch (2001). 11. This figure increases to 59 per cent if Asia-Pacific Economic Cooperation (APEC) is included in the analysis World Bank (2000: 10). 12. The WTO Committee on Regional Trade Agreements (May 1998) noted that the number of RTAs providing coverage for all industrial products and selected agricultural products increased in the post-1990 period. In addition, ‘The … conditions—no internal tariffs and substantial coverage—are important in heading off pressure to use tariffs to fine-tune political favoritism toward either domestic industries or partner countries; they help to prevent governments that restrict RIAs from swapping trade-diverting concessions and, thus, from avoiding politically more painful trade creation. These conditions essentially require a serious commitment to integrating member markets as a condition for proceeding’ World Bank (2000: 108). 13. It is seen from the global experience that ‘Free-trade areas are generally, except in Africa, much more prevalent than customs unions. They account for almost 90 per cent of all RTAs identified in this study. Few, if any, FTAs provide for the complete elimination of all tariffs and non-tariff measures between their parties.’ WTO Committee on Regional Trade Agreements (WT/REG/W/41: 3), dated 11 October 20003. 14. Fisch (2001: 217) notes, ‘...existing WTO rules are open to a variety of interpretations and lack the precision necessary to form the basis for any credible examination process.’ 15. It is observed that the initiations of anti-dumping investigations in the RTA member countries like the US, Australia, Canada and blocs like the EU are quite frequent for a considerable period of time. 16. It is argued that developing countries should try to incorporate SDT principles in ROO through negotiations (Harilal and Beena 2004). 17. For example, the EU’s agreements with Poland and NAFTA contain 81 and 200 pages, respectively, in the ROO section. The North American Free Trade Agreement (NAFTA)’s ROO have serious protectionist effects in some sectors and can successfully divert trade from lower- to higher-cost sources. For example, most varieties of clothing produced in Mexico gain tariff-free access to the US and Canadian markets, only if inputs are sourced virtually 100 per cent in North America. In the automobile industry, NAFTA’s 62.5 per cent local content requirement has induced Japanese automobile manufacturers with plants in Canada to produce components in the US, rather than import cheaper ones from Japan. The NAFTA ROO require colour television tubes to be of North American origin, causing five television tube factories to be planned or established in North America by Japanese or South Korean firms, at the expense of expansion in Southeast Asia (World Bank 2000: 76). It is argued that there is enough room for simplification of the ROO norms (Harilal and Jha 2007). 18. WTO Committee on RTAs (1998: 4), (WT/REG/W/26), dated 5 May 1998. 19. The trade-diversion level is actually higher, as the author pointed that the simultaneous occurrence of GATT negotiations has checked the possibility of adoption of a higher protectionist policy during EU expansion.

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20. Yeats (1996: 16) concluded, ‘MERCOSUR members experienced a strong comparative disadvantage for these goods in markets that did not incorporate discriminatory trade measures against outsiders … the preferences that MERCOSUR countries extend to one another are far higher than the GSP margins that developing countries have argued are vital to their ability to compete in international markets.’ 21. Lee and Shin (2005) note that blocs like APEC follow a non-discriminatory liberalisation principle, offering the best tariff preferences available for APEC members to non-APEC partners as well. 22. However, members are yet to agree on various points, which is causing the delay in FTAA Negotiations. For instance, ‘Brazil wants to exclude from the FTAA talks issues on investment, services, government procurement, and intellectual property. Brazil has traditionally resisted going beyond WTO commitments in these areas. On the other hand, the United States desires to discuss investment, services, government procurement, and intellectual property within the FTAA while insisting that domestic agricultural subsidies and anti-dumping should be dealt with by the WTO’ Ishmael (2005). 23. Foroutan (1998) has reported a negative relation between RTA membership and trade liberalisation. ‘Even if the conditions were applied without exception they would not preclude harmful RIAs: Wholly GATT compatible RIAs can be predominantly trade diverting, excluded countries can suffer terms-of-trade declines, and institutions can arise that make liberal policies less likely, World Bank (2000: 109). 24. India and the WTO, Vol. 1, No. 8, August 1999, p. 3. 25. The WTO Annual Report (2003: 11) praised the believers in multilateralism by saying, ‘As some Members (notably Australia; Hong Kong, China; India; and Singapore) have shown, unilateral liberalization can also be in their national interest.’ 26. However, India has later entered into partnership with many APEC member countries (ASEAN, Australia, Singapore, Thailand, and such others) in recent period. Perhaps one of the driving motives behind India’s bid to enter into FTA with ASEAN has been to indirectly access the APEC market (Nag and Chakraborty 2006). 27. Document No. TN/RL/W/114. 28. In this connection, it needs to be mentioned that India lodged a case against the US (DS 243) complaining on the WTO-compatibility of the latter’s ROO applicable to imports of textiles and apparel products as set out in Section 334 of the Uruguay Round Agreements Act, Section 405 of the Trade and Development Act of 2000, and the customs regulations implementing these provisions. However, India’s claim was rejected as, on 20 June 2003, the Panel announced that India failed to establish that ‘(a) Section 334 of the Uruguay Round Agreements Act is inconsistent with Articles 2(b) or 2(c) of the RO Agreement; (b) Section 405 of the Trade and Development Act is inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement; and the customs regulations contained in 19 C.F.R. § 102.21 are inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement.’ WTO, Updates of Disputes (Document No. WT/DS/OV/22, dated 14 October 2004). 29. Press Release, Ministry of Commerce, Government of India, ‘Signing of Trade and Economic Framework between India and Australia’, 6 March 2006. 30. Press Release, Ministry of Commerce, Speech of the Commerce Minister, 17 December 2004.

172 The WTO Deadlocked 31. Press Release, Ministry of Commerce, 13 August 2004. 32. Press Release, Ministry of Commerce, 7 January 2005. 33. Press Release, Ministry of Commerce, Govertnment of India, ‘SAFTA comes into effect from 1st January 2006—a historic milestone for South Asia, says Kamal Nath’, 26 December 2005, Available at http://www.commerce.nic.in/Dec05_release. htm#h22 34. Progress on this front is currently on, and the National Manufacturing Competitiveness Council has already carried out detailed analysis to identify impediments for growth and suggest possible remedies for 11 sectors. The analysis has concluded that growth and employment implications are quite prominent for sectors like textiles and clothing, leather products, auto components, drugs and pharmaceuticals, food processing and IT hardware. There exists considerable export interest in these sectors as well. The Council also noted that many entities in knowledge-intensive sectors (for example, pharmaceutical, biotechnology, ICT, automobiles) have developed capabilities in innovative R&D activities by acquiring new components of knowledge and devising better linkages between them.

10 Ensuring an Efficient Dispute Settlement System at the WTO One of the major drawbacks of the erstwhile GATT framework was its failure in ensuring the timely and apt resolution of disputes among members. Keeping this problem in mind while drafting the final text of the WTO, a rule-based DSM was incorporated. Although the members are required to comply with their WTO commitments at the end of the transitional period, at the moment of inception, problems were likely to arise with regard to violations of commitments or simply owing to misinterpretation of various agreements. In addition, in the posttransitional phase, any member could lodge a formal complaint with the DSB if another member was not terminating its WTO-incompatible policies. With this background, the presence of a weak DSM could have eroded the faith of members in the multilateral system. Therefore, the objective of the Dispute Settlement Understanding (DSU) is to provide ‘security and predictability to the multilateral trading system’ (Article 3.3 of DSU). In short, the DSM has enormous impact on the world trade system and trade diplomacy (Jackson 2000). It is observed from the cases lodged at the DSB so far that both the developed and developing countries have used this facility extensively (Table 10.1). The registration of 373 cases over the past 13 years is proof of the confidence of the WTO members in the DSM. It has been observed that disputes on industrial products are more frequent.1 The developed countries (the EU and the US, in particular) have been the major users of this provision, although the developing countries have not been lagging behind recently. However, due to the lack of relevant infrastructure vis-à-vis their developed counterparts, the developing countries are yet not very comfortable in approaching DSB all the time. In a total of six cases, the developed and developing countries have jointly moved to the DSB, where the respondent has been a developed country. On the other hand,

174 The WTO Deadlocked Table 10.1 Analysis of Complaints by Developed/Developing Members Complaints by Developed Country Members Respondents – Developed Respondents – Developing

134 86

Complaints by Developing Country Members Respondents – Developed Respondents – Developing

80 57

Complaints by both Developed and Developing Country Members Respondents – Developed Respondents – Developing

6 0

Source: WTO Dispute Settlement Update (2007).

till date no developed–developing country joint effort has been notified to DSB against a developing country.2 There are three major features of the new DSM, which are instrumental in ensuring its higher efficiency vis-à-vis the same under the erstwhile GATT regime. The first one of the features is known as ‘Compulsory Jurisdiction’. The first is ‘Compulsory Jurisdiction’. While in GATT, consensus was required for the Contracting Parties to establish a panel, the WTO establishes it unless there is a consensus not to do so. In other words, the requirement of obtaining consent of the respondent in order to establish a panel is no longer required. Once a member requests establishment of a panel, that criterion is automatically satisfied and the DSB establishes a panel. The second is the ‘Integrated Character’ of the DSU; the provisions deal with any dispute arising from the WTO Agreements, GATT 1994, other agreements on goods, services and the DSU itself with a single set of rules. The third feature is the ‘Binding Nature’ of the Panel and AB reports. As soon as a panel report is adopted by the DSB, it becomes binding on disputing parties, and the losing party must bring its legislation and procedure into line with those recommendations. A DSB report must be unconditionally accepted by the parties to the dispute (DSU Article 17.14).3

THE PANEL AND APPELLATE BODY PROCEDURE The dispute settlement procedure usually has to be concluded within the WTO prescribed timeframes and, if it is not possible to do so within that

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period, the parties have to be informed about the cause and the extent of the delay. The panel and appellate body procedure, with the prescribed deadlines, is briefly discussed in the boxes. Step 1 Step 1 All requests for consultations are submitted in writing to the DSB and the relevant councils and committees. The request should accompany all necessary documents and information. Step 2 Once a request for settlement of a standing dispute is placed, the requested party should respond within 10 days from the day of receipt of the request and enter into consultations within a period of 30 days. If the consultations between the two involved parties fail to settle a dispute (that is, the consulting parties jointly consider so) within 60 days after the request was made, the complaining party may ask for establishment of a panel. In urgent cases (like perishable product), members enter into consultations within a period of no more than 10 days from the date of request. If the consultation fails to settle the dispute within a period of 20 days after the request was made, the complaining party may request formation of a panel. If the respondent either does not respond or does not enter into consultation within the specified period, the requesting country reserves the right to proceed directly for the establishment of a dispute settlement panel through a written request. Step 3 The panel is composed of three members unless the parties to the dispute agree, within 10 days from the establishment of the panel, to have a panel comprising five members. If there is no agreement on the selection of panelists within 20 days from the establishment of the panel, at the request of either party, the Director General forms the panel in consultation with relevant authorities. The members must be informed about the composition of the panel thus formed within 10 days. Interested parties could reserve their third party rights. Step 4 The panel sets precise deadlines for written submissions by the parties who, in turn, have to comply with it. It then listens to the arguments of the complainant and the respondent in that order. When the panel considers that it cannot provide its report within six months (for example, in case of disputes concerning complex technical standards), or within three months in case of urgency, it informs the DSB in writing about the reasons behind this delay and proposes a new deadline.

176 The WTO Deadlocked Step 5 If a country disagrees with the panel report, it can appeal against the same to the DSB within 60 days, on the basis of which an Appellate Body (AB) is formed. The proceedings shall not exceed 60 days from the date a party formally notifies to DSB. If the AB considers that it will not be able to submit the report within the specified period, it informs the DSB about the causes of the delay. In no case the proceeding should exceed 90 days.

THE IMPLEMENTATION OF REPORTS However for the DS provision to work as the ‘safety-valve’ of the WTO system, the implementation of the verdict on the dispute is most important. Once the Panel (or the AB, as the case may be) report is tabled, it is imperative that the losing ‘defendant’ promptly bring its legislation in line with the rulings or recommendations (DSU Article 19.1). The losing party must communicate its intention to do so at a DSB meeting held within 30 days of the report’s adoption (Article 21.3 of DSU). However, if some genuine problem makes immediate implementation of the recommendation not feasible, a ‘reasonable period of time’ is granted on the basis of a mutual agreement. If the member still does not implement the recommendations within the agreed upon timeframe, the disputing countries determine a mutually acceptable compensation for this failure (for example, tariff reductions in areas of particular interest to the complainant) through negotiation. However, the agreed compensation must conform to the MFN requirements (DSU Article 22.1). If even after 20 days the parties fail to arrive at any satisfactory compensation, the complainant can seek permission from the DSB for imposing limited trade sanctions (that is, retaliatory measures) against the respondent, the amount of which is open to arbitration. The DSB grants authorisation to undertake such policies within 30 days of the expiry of the ‘reasonable period of time’ unless there is a consensus against this action. These checks and balances considerably enhance the credibility of the DSM under the WTO, although theoretically speaking there can be limitations to it, as pointed out later. While under GATT (1947), the developing countries were at a disadvantageous position due to their lack of trained personnel resources, delays in resolution of a dispute and other procedural problems, the SDT provision under the WTO DSM is a great help (Chisti 2001: 14). To rectify

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the anomalies, several provisions are embedded in the DSU for preventing exploitation by the developed countries. For instance, Article 8.10 allows appointment of at least one panelist from a developing country member, involving a developed–developing country dispute. Articles 12.10 and 12.11 provide SDT to the developing countries in terms of extension of period of consultation, keeping their special treatment requirement in mind. In addition, Article 27.2 requires the WTO to assist the developing countries with qualified legal experts. Similarly, Articles 24.1 and 24.2 talk about exercising due restraint in matters under the DS procedures, compensation, retaliation or similar procedures involving the LDC.

DISCONTENT OVER DSM In spite of all these positive measures enshrined in the WTO text, the working of the DSM has often been questioned by the developing countries, who claimed that the procedural problems or legal provisions still act as a barrier on them (Bourgeois 2001; Das 1998: 9).4 The 1994 Ministerial Decision required dispute settlement rules to be reviewed by 1 January 1999. The review of the DSB was initiated in 1997 and the deadline was extended to 31 July 1999 (Document No. WT/GC/M/32, dated 9 February 1999). No agreement was reached even within the extended period (Document No. WT/GC/M/48, dated 27 October 1999). However, Paragraph 30 of the DDA agreed to continue negotiations on improvements and clarifications of the DSU, based on the work already done as well as any additional proposals by the members, with a goal to reach agreement on improvements and clarifications by May 2003.5 The discussion was not concluded in time and members decided to continue the negotiations beyond 31 May 2003 towards an agreement. Before Cancun, the General Council set the new deadline to be 31 May 2004 (Document No. WT/GC/M/81, dated 28 July 2003).6 However, the negotiations are still continuing and Paragraph 34 of the Hong Kong Ministerial Declaration talked about concluding the negotiations soon. With the negotiating focus increasingly on modalities in agriculture and NAMA, this provision has gone into the background. The major issues of dissatisfaction over the functioning of the DSM, as perceived by India and other developing countries, are mentioned in the following paragraphs. First, the time taken from the establishment of the panel by the DSB to adoption of a report should generally not exceed nine months (if the panel report is accepted) to 12 months (if

178 The WTO Deadlocked the report is appealed).7 However, even in that case the complainant (particularly if a developing country) has to bear the entire burden of the exercise, while the prolonged schedule actually provides a breather for the respondent. The country facing the barriers has to suffer a lot even if it wins the case after a long legal battle. Often the importer switches to another exporter in the meantime (Das 2001). This loss of market due to the lengthy DSP procedure boils down to a major indirect trade diversion. Studies have suggested amendment in relevant provisions in Articles 4, 5, 6 and 12 of the DSU, in particular, involving developing countries as complainant (RIS 2003a: 116) and the need to ensure greater discipline on the part of complaining parties at the consultation on a mandatory basis (Chisti 2001: 40) to correct this anomaly. Second, since the obligation for ‘burden of proof’ practically rests on the victim in most cases, going to the DSB as a complainant becomes a costly affair for the developing countries. For instance, today, if the US imposes a ban on Indian rice export on certain standard-related concern, it is entirely the latter’s headache to lodge complaint with the WTO, consult scientists and legal experts and present the case to the DSP with necessary proofs.8 In other words, even if India wins the case after a tussle of nine months, at least in the short run the purpose of the US is served. In addition, the loss of the exporters facing the ban in between is not easy to compensate. Third, the role of the secretariat in selecting the panelists has been criticised for the lack of consideration to ensure equal representation of members. Similar question may be raised with respect to the formation of the AB. To make things worse, panels and ABs often tend to go beyond their capacity. The panel’s actions have often prompted doubts about their inclination.9 Fourth, limitations of the working freedom provided to the AB, which has not been given remand authority in view of time-bound character of the DSB, are mentioned occasionally (Chaisse and Chakraborty 2006). According to Article 17.13 of DSB, the AB can only uphold, modify or reverse the legal findings and conclusions of the panel. Furthermore, the DSB rulings are not supposed to change the obligations of the countries under the WTO. However, the panels and ABs often seem to overstep their respective mandate and provide ‘authoritative interpretation’ to an agreement leading to virtual ‘amendment’, reserved only for the members as per Articles IX and X of the WTO Agreement. For instance, in the case involving Korea and the US on public procurement (DS 163), the

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panel had gone to the extent of identifying errors in treaty negotiations (Chisti 2001: 30). Fifth, debate over consideration of Amicus Curiae submissions in a dispute is worth mentioning. Amicus Curiae briefs are submissions made to court by a disinterested party, expected to assist the judges (that is, the panelists). In the WTO, although Amicus Curiae submissions are not mentioned either in the DSU or the Working Procedures, the AB ruled that panels and the ABs have the right, but not the obligation, to receive such submissions from individuals or entities (basically NGOs). In one case (DS 135—Measures Affecting Asbestos and Asbestos-Containing Products), the AB communicated a request for Amicus briefs to NGOs all over the world, through the WTO website. The AB was later sharply criticised for it, especially by the developing countries. Subsequently, the AB rejected all Amicus briefs submitted, ruling that the briefs failed to conform to the promulgated Working Procedure (Chaisse and Chakraborty 2004a). The developing countries do not feel comfortable with this provision. Sixth, the loss of market owing to lengthy dispute procedure is particularly significant for the developing countries, who have to depend on a narrow export basket. Once the DSB passes its verdict in a case, the losing country (if respondent) needs to rectify its policies within a reasonable period of time, usually negotiated between the two sides. However, it has often been noticed that the losing side does not implement the recommendations during the reasonable period of time, thereby causing continued economic losses to the winner. India has experienced this twice, against Turkey (DS 34—textile and clothing products) and the European Community (EC) (DS 141—bed linen).10 A similar experience was noticed in the EU import regime for the banana case, although India was not a disputing party to that. Currently, the DSB does not have any power to force the defaulter member to implement these provisions at an early date and there is an urgent need to modify it. Furthermore, cross-retaliation is a WTOcompatible tool for the winner if the violator does not bring its policy in line with its WTO-commitment even after losing the case at the DSB. The extent of retaliation depends on the level of estimated trade loss due to continuation of the WTO-incompatible measures. However, given the inequality of bargaining power of the developed and developing countries, and absence of clear guidelines indicating the procedure to

180 The WTO Deadlocked determine such compensation or suspension of concession, the provision is an inefficient one.11 This could be a credible threat only if all other nations or at least the majority of the WTO members jointly suspend the concession available to the defaulter. Chisti (2001: 34) points out that the EU–US case on banana raised two important questions: ‘(i) who determines whether a defending party has failed to comply; and (ii) when the right to retaliate arises.’ Seventh, although the WTO provisions in paper vouch to protect the developing country interests, in practice they fall short of target (Poywing Undated). For instance, the ‘special attention’ for the developing countries, as mentioned in Article 4.10, is vague in language, and hence difficult to realise. The ambiguity is more severe as most of the articles note the obligations for the members involving the developing country provisions as ‘shall’ or ‘should’, while ‘must’ would have been ideal for ensuring their objective. For instance, although Article 12.11 requires a panel to take into account the SDT provisions for a developing country disputing party, it is hardly followed (RIS 2003a: 113).

INDIAN PARTICIPATION AT THE DSB12 With increase in India’s trade volume, the possibility of it attracting disputes has also increased on two accounts. On one hand, Indian exports increasingly face a wide range of barriers (for example, anti-dumping and countervailing measures, and standard related barriers) in overseas markets. On the other hand, the domestic procedures on imports have been challenged on the basis of their WTO compatibility at times. India started participating actively in the DS forum only after 1995. During the GATT days, India was involved in only one dispute against Poland in the early 1990s regarding modification in tariff structure on imported cars from non-EEC sources by the latter. India requested consultation and establishment of a panel under Article XXII:1 and XXIII:2 of GATT 1947, respectively, which was established in December 1994. However, India later withdrew its claims in October 1995 and the dispute was mutually settled in 1996 (WTO TPR, India 1998). Focussing at the disputes engaging India, the following observations could be made. First, after the 1990s, India’s trade policy became increasingly WTOcompatible, if the number of cases lodged against it is considered to be a

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suitable proxy, as summarised in Annex 10B. Since inception, a total of 19 cases have been filed against India. While the fourteenth (DS 279) case has been filed during early 2002, the preceding one (the thirteenth, DS 175) was filed three-and-a-half years ago in 1999. Five cases have been filed against India since then, one in 2003 and two in 2004. One case was lodged against it in 2006 and one in 2007. However, cases involving India as complainant do not portray any such time-trend, and are more or less evenly distributed over the last decade as seen from Annex 10C, signifying presence of NTBs faced by Indian exports throughout the transitory phase. In all, India has lodged 17 cases at the WTO, winning a number of these cases. In one particular case, the violator (DS 141 against the EC—anti-dumping measures on imports of cotton-type bed-linen) did not bring its policy in line with its WTO commitment even after conceding defeat at the AB stage and India had to move to compliance panel to resolve the dispute. Second, an opponent-specific analysis of India’s participation in the DS process shows an interesting trend. Among cases involving India as respondent, nine cases have been lodged by the EC, followed by the US with four cases. Switzerland, New Zealand, Canada and Australia have lodged one case each, all of which basically concern a single dispute (QRs on imports of agricultural, textile and industrial products). Taiwan has also moved to the DSB against India once. So far, only one case has been lodged against India by any developing country, namely, Bangladesh (2004), on anti-dumping provisions. However, a slightly different picture emerges when the cases concerning India as the appellant are considered. It could be seen that although the developed countries have been the respondents in most of the cases (five and seven cases has been lodged against the EC and the US, respectively), on five occasions the respondents have been developing nations (Argentina, Brazil, South Africa, Turkey, Poland). Third, the distribution of cases by subject shows an interesting trend. While a majority of the cases filed by India involves imposition of antidumping duties and WTO-incompatible import measures on textile products, the cases involving India as respondent are centred on three broad issues, namely, import restrictions, anti-dumping investigations and domestic patent regime. In particular, the last five cases have been filed agasinst the anti-dumping investigation procedure of India, import and sales of wines and spirits, additional duites on imports, and so on. At

182 The WTO Deadlocked times, there have been indications that other cases might follow (USTR 2006: 313–14). Fourth, apart from direct involvement, India has also participated extensively in a number of cases as an interested third party, and a brief account of some select cases is provided in Annex 10D. The table shows no particular trend regarding origin of cases, as the defaulters/appellants include both the developed and developing members alike. However, looking from a topical perspective, a clear trend emerges, showing India’s participation mostly in cases on TRIPS, textile products, primary products and anti-dumping. Since these disputes coincide with India’s interest areas, it could be concluded that the country is fast emerging as quick learner in the WTO dispute resolution process, willing to learn from the experiences of others as well. Finally, while participation to the DSB in any capacity has some significance, the ultimate result of the cases is of immense importance on future trade policy of the country. A brief summary of the cases involving India is provided in Table 10.2, which shows that as complainant, India has won seven cases out of the total of 17 cases. However, in one case (DS 243—the dispute regarding the ROO requirement for textiles and apparel products, against the US) it failed to substantiate its claims at the DSB. In several cases, although the measures of the respondents have been ruled WTO-incompatible, certain claims of India have been rejected by the panel (DS 206—anti-dumping and countervailing measures on steel plate from India, against the US). The remaining cases are either Table 10.2 Cases at DSB Involving India (Updated to 15 November 2007)

Complaint by Developed countries Developing countries

Complaint by Developed countries Developing countries

Cases Involving India as Respondent Amicably Continuing/ Win Loss Settled Recent Request 0 –

5 –

9 1

4 –

Cases Involving India as Complainant Amicably Continuing/ Win Loss Settled Recent Request 6 1

1 0

Source: Compiled from WTO documents.

5 3

1 –

Total 18 1

Total 13 4

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not being pursued or have been settled amicably. On the other hand, to date it has failed to win a single case as respondent and lost five cases out of 19 cases lodged against it. The case against Bangladesh was mutually settled after India withdrew its measure in question through Customs Nofication No. 01/2005, dated 4 January 2005.13 This, in a way, suggests either the legitimacy of the claims filed by the complainant countries or an inadequate defence on India’s part.

INDIAN SUBMISSIONS TO THE WTO India has been quite active in voicing its dissatisfaction over various issues concerning the DSU from time to time14 and submitted several proposals to the WTO along with other developing nations in the postDoha period. The guiding motive has been to ensure a better working of the system in the interest of the developing countries. A brief account of India’s submissions to the WTO in association with other developing countries has been provided in Annexes 10E to 10G. The broad issues refer to the procedural, legal and enforcement-related impediments they often encounter while initiating or during facing a complaint, and even when it is over. The proposals called for making several DSU agreements binding to ensure strict compliance by developed countries, keeping the ‘special’ requirement of the developing countries in mind. The developing countries jointly emphasised the need to enhance transparency within the WTO and retaining its governmental character in order to ensure a level playing field for them. In the following, the key points made in the Indian submissions, in association with the other developing countries, are highlighted.

NEED TO PROTECT DEVELOPING COUNTRY INTERESTS The DSU includes SDT for developing countries in various clauses, but the inherent ambiguity leaves enough room for differing interpretations. India and other developing countries believed that owing to the presence of tentative phrases like ‘shall’ and ‘should’ in a number of DSU articles, there is ‘...no way to ensure that such treatment is accorded ... in practice’15 and the responsibility should be made binding on developed countries legally through appropriate modifications.

184 The WTO Deadlocked HIGH LEGAL COSTS Given the lack of requisite legal expertise to handle the cases, the developing countries and LDC often have to depend on foreign legal advisors based in Brussels or New York, which is extremely expensive.16 This puts them at a disadvantageous position as compared to their developed counterparts.17 In this light, there is an urgent need to protect their interest so as not to allow the developed countries to use the DSP as an instrument for harassing them. Since the ‘burden of proof ’ rests on the respondent, India believes a developed country should not be allowed to initiate a case against a developing country, unless it is able to demonstrate that the alleged violation by the former causes economic losses to it above the de minimus level.18 It also calls for amendment in the WTO provisions so as to provide compensation to them for the loss suffered during the dispute, the amount of which should be determined by a WTO panel. In addition, the developing countries should be given active support from the WTO both as complainant and respondent, so that they could present their national interests properly in front of the panel. Transfer of financial resources from the developed to the developing countries is often advocated. It is interesting that other developing countries like China once proposed that developed countries should not be allowed to initiate more than two cases per year against a developing country (Perumal 2005), which clearly is not an advisable solution. Arguably, a better solution would be to establish a full-fledged Advisory Centre on WTO Law (ACWL) in accordance with the long-standing demand of developing countries, proposed to finance technical (legal) assistance for DS cases on a cost-sharing basis. Before the Seattle Ministerial, OECD countries, mainly the EU and the US were not willing to support this contention. However, in Seattle an agreement for establishing an ACWL was signed (Hoekman and Mavroidis 2001).

SUSPENSION OF BENEFITS India strongly believes that the question of suspending favourable treatment, that is ‘retaliation’, at the end of the ‘reasonable period of time’ should not be left entirely to negotiations between unequal trade partners, and proper guidelines should be laid in this regard. According to India:

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the tremendous imbalance in the trade relations between developed and developing countries placed severe constraints on the ability of developing countries to exercise their rights under Article 22. The economic cost of withdrawal of concessions in the goods sector was likely to have a greater adverse impact on the prevailing developing-country Member than on the defaulting developedcountry Member.19 This view has received support from others like Poywing (Undated).

PARTICIPATION OF NGOS India argues that there should not be any room for NGOs to take part in the DSP. There was a move by the US to facilitate NGO participation in the DSP during the late 1990s, which met the protest of several developing countries and was also opposed by India, primarily due to three reasons (Chaisse and Chakraborty 2006). First, the ultimate compliance obligations under the WTO are to be fulfilled by the governments, not the NGOs. Therefore, involving NGOs might change the inter-governmental character of it.20 Second, government positions for a case are finalised only after considering all relevant stakeholders’ viewpoints. If NGOs have a further chance to influence the DSB, then the system loses efficiency. Third, the developing countries would always be in a disadvantageous position vis-à-vis their developed counterparts as their NGOs are relatively under-equipped to send briefs without being asked for or even to formal invitations to do the same owing to resource constraint and other problems.21 Therefore, it is argued that legitimising Amicus Curiae briefs would only widen the present gaps between developed and developing countries. Whether the Amicus Curiae briefs should be accepted or not is still one of the subjects of negotiations under the process of DSU review.22

STRUCTURE OF DSB India is in favour of the current system of selection of the members by mutual agreement between the parties and strongly opposes any move to destabilise it. There was a draft proposal from some members several

186 The WTO Deadlocked years back that there should be a permanent seven-member panelists committee, from which three panelists could be selected at random for a particular dispute. India strongly opposed this proposal on the ground that it would lead to increasing uncertainty within the system. It is widely held by the developing countries that the choice of panelists in most of the cases is made from the developed countries. The provisions under Article 8.10 need to be more strictly enforced, in order to have at least one panelist from developing country members in a dispute involving a developed and a developing country. Poywing (Undated) has argued that having two out of three panelists, or three out of five panelists, from developing countries in a dispute involving the developing countries or the LDC would send a proper signal in this regard.

AUTHORITATIVE INTERPRETATION BY PANELS AND APPELLATE BODIES India is not happy with the way in which certain unilateral trade measures regarding SPS and environmental concerns were partially upheld by the DSB.23 It believes that the panels and ABs should strictly confine within their rights conferred by the WTO DSU and any other right should be revoked. More specifically, it believes that any change in the character or coverage or any other issue of the WTO should solely be reserved for the members’ negotiation.

TRANSPARENCY IN DSB PROCEEDINGS There is no official negotiating history of the WTO, on the basis of which cases could be analysed. The WTO Secretariat sometimes provides notes to Panels as official negotiating history in certain disputes as references. However, these papers are generally kept strictly confined to the panel members and not even shared with the complainant or the respondent, thereby hurting the right of the countries as members to access information.24 The system needs to be rectified immediately and there should be complete transparency in the procedure. Even the developed countries have occasionally expressed concern over this procedure at times.25 A limited improvement has taken place with the recent hearing of two disputes (DS 321 and 320: Continued suspension of obligations in the EC—hormones dispute):

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For the second time since its creation in 1995, the WTO dispute settlement system opened dispute panel hearings in 2006 to WTO delegates, journalists, NGO representatives, scholars and other members of the public... watched live the proceedings of the dispute-settlement panels at the WTO headquarters in Geneva via closed-circuit broadcast.26 However, there is enough room for improvement. The recent submissions of India focus on sequencing, remand and the procedures for removal of authorisation for suspension of concessions or other obligations27 and the role of third parties in future disputes and the consequential changes to the working procedures.28 Interestingly, India’s long-time collaborator at the GATT/WTO forum, Brazil, has joined hands with it only recently on this front, which is likely to continue in the coming future. However, it is often mentioned that despite the increasing involvement at the DSB, the pro-active stance adopted by India in various other WTO forums has not been properly reflected in this area, as proper planning and strategic appointments are still not being explored by the country as a tool.29

THE RESULTS OF DSB: A GLOBAL PERSPECTIVE In this section, the efficiency of the DSB framework is estimated through a formal analysis following the Chaisse and Chakraborty (2005) framework, as described under Chapter 6 (Annex 6B) of this book. The analysis is summarised in Annex 10H. It is seen that the analysis of cases involving the EC, a regular customer at the DSB, shows a mixed trend. It has more than once revoked the WTO-incompatible policy in force and the last one in that category was done in a dispute against India (DS 313). Furthermore, it conceded defeat in a number of cases, ranging over procedural as well as standard-related disputes. The non-formation of panel as well as amicable settlement is also very common in its case. In most of the cases, the WTO-incompatible policies, as mentioned by the Trade Policy Review (2002, 2004), on it have been successfully challenged by its partners. India, on the other hand, produces a classic case, where it lost in one-third of the lodged cases. A number of cases, where defeat has been conceded in the related disputes, were amicably settled. As already mentioned, India has failed to win a single case as respondent and all the

188 The WTO Deadlocked defeated policies were warned against in the preceding Trade Policy Reviews (1998, 2002). Although Japan has managed to win one case, it has lost five others. A number of cases have been amicably settled or the panel has not been formed. The US has, however, been a major victim of the DSM, as expected from the analysis of trade policy reviews (TPR) and lost nearly 40 cases while winning only around 10. On four occasions, requests have been made to suspend the panels’ provisions and thrice it has revoked the ongoing WTO-incompatible policies, which is an indicator of presence of the same. On the whole, the concerns raised by the Trade Policy Reviews (2001, 2003, 2006) on the US have been supported by the DSB. The finding indeed supports the developing country concern over modifying the procedural hassles inherent within the DSB, for better functioning of the WTO system.

INDIA’S FUTURE PARTICIPATION? The DSB results have brought a mixed outcome for India so far. On one hand, it had to bring its regulations on domestic patent regime and import restrictions in line with its obligations under the WTO while, on the other hand, it has caused the EC to change its anti-dumping regulation in the aftermath of the bed-linen case. On several occasions, the violator country has discontinued the alleged measure (for example, DS 313 against the EC, DS 32 against the US) after India moved to the DSB. However, the fact that it failed to win a single case as respondent demands one to analyse its domestic policies. A comparative analysis of the three TPR reports on India is provided in Table 10.3. While the first review (1998) has been critical of India on various accounts like tariff reform, import restriction procedures, absence of full compliance with TRIPS, non-liberalisation of domestic service sectors and such others, the latter review (2002) has put words of high praise for the reform measures already undertaken during this period. Most of the disputes involving India as a respondent up to 1999 were results of absence of reform in those fields (see Annex 10B). The non-notification of any case against India at the DSB for a long time (1999–2002) signifies the increasing WTO-compatibility of India’s domestic regulations. The concerns raised over India’s unfinished reform agenda in the 2002 report are not too many, but as seen from the cases relating to

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Table 10.3 Trade Policy Reviews of India Policies Praised

Trade Policy Review (1998) Policies where Further Reform Advocated

• Rapid reform in tariff rates over 1993–94 to 1997–98. • Overall economic reform measures. • Amendment in Copyright law in line with TRIPS.

• Complex structure of tariff regime and tariff escalation. • Import restriction on consumer goods. • Restrictive import licenses and other procedural hassles on imports. • Presence of indirect subsidies, export subsidies and other incentives. • Unfinished compliance with TRIPS. • Reform in case of agricultural products. • Transparency in decision making. • Reform in services.

Trade Policy Review (2002) • Simplification of tariff • Increase in use of contingency measures structure. on imports. • Complete elimination of • Wide range of price and distribution quantitative restrictions. controls in agriculture. • Reduction in export • Existence of certain commodity specific restrictions. entry restrictions. • Review of FDI policy. • Move towards full conformity with TRIPS. • Significant reform in certain key service sectors, e.g., telecommunication, financial services and to some extent in infrastructural services. Trade Policy Review (2007) • Reduction in trade barriers. • Internal structural reform. • Reform in certain service sectors.

• Complex tariff scenario, announcement of tariff changes throughout the year and with numerous exemptions. • High initiation of anti-dumping duties. • Continuance of certain price control mechanisms. • Relatively higher tariff barriers on certain manufacturing sectors.

Source: Chaisse and Chakraborty (2007).

190 The WTO Deadlocked anti-dumping measures in particular, they are going to play a major role in India’s future DSB participation as respondent. In particular, the increased use of anti-dumping measures by India on imports in recent years could be mentioned.30 The recent request of the EC for consultation on imposition of anti-dumping measures in India on 27 commodities, or the cases lodged by Bangladesh and Taiwan are indicative of this fact. The recent (2007) review has expressed concern over the use of anti-dumping procedure and certain tariff related barriers. In this regard, the recent wine and spirit related dispute and the additional tariff related concerns involving the EC and the US, respectively, should be taken as a warning signal, as similar cases might follow. Given India’s past track record as respondent at the DSB, it must first put its own house in order. The DSB has so far played the role of an efficient safety valve in the WTO system and has been instrumental in enhancing the credibility and assurance of justice, something that was lacking during the earlier GATT regime. Now given the inability of the members to arrive at an agreement on modalities even in agriculture and NAMA, even in the post-Hong Kong period, newer disputes might come to forefront in coming days. In this scenario, in the light of views of the developing countries including India on the various DSU provisions, the article needs to be strengthened by incorporating apt and timely concerns, for retaining the supremacy of multilateralism in the post-Hong Kong period.

NOTES 1. ‘The maximum cases that have been registered, measuring by the obligation enforceable by the DSU, pertain to industrial products (more than 99 disputes submitted to the DSU). This is followed by 62 cases in anti-dumping and 50 cases in agriculture’ (RIS 2003a: 112). 2. In case of the anti-dumping cases against India, if the panels involving Bangladesh and the EC and Chinese Taipei were clubbed, it would be the first of its kind. 3. Jackson (2000: 166) counts at least 11 clauses which strongly suggest ‘the legal effect of an adopted panel report is the international law obligation to perform the recommendation of the panel report’. 4. DS 152, mentioned in Annex 10A, could be highlighted in this regard, although it did not involve the developing countries as interested parties. 5. Paragraph 47 of the Ministerial Declaration leaves open the possibility that the DSU reform will be outside of the single undertaking (WTO Document WT/MIN(01)/ DEC/1, adopted 14 November 2001). Chaisse and Chakraborty (2006).

Ensuring an Efficient Dispute Settlement System at the WTO

191

6. The WTO Annual Report (2004: 2) expressed dissatisfaction by noting that, ‘... in general the negotiations did not move forward as far or fast as anticipated, with important spring deadlines in agricultural and non-agricultural market access and on dispute settlement being missed.’ 7. Nonetheless, panels sometimes take a long duration. 8. Uncertainty is another major problem in the system. RIS (2003a: 113) notes, ‘In event of all the evidence and arguments against and in favour of the case cannot make any headway, a Panel may “give the benefit of doubt” to the defending Member.’ 9. Chisti (2001: 37) has established the point with two examples. Comparing the panel’s verdict on the Super 301 and Special 301 clauses of 1974 Act and the US Trade and Competitiveness Act of 1988 (brought by the EC) and the TRIPS obligation of India (brought by the US), she has argued that the verdicts of the two panels are in contrast. ‘The decision went against India for there was no new law whereas the US assurance was enough for the panel to envisage “trade security” in the context of unilateralism.’ 10. While India ultimately won the case against the EU after a long tussle, it was noticed that the biggest exporter firm to the EU had stopped exporting, as the duration was too long. The incident reinforces the urgency of incorporating necessary provisions at the earliest (Das 2001). 11. Noting this fact, the Commonwealth Business Council (2001: 67) suggested elimination of the retaliation option altogether in favour of compensation. 12. Arguments used in this section draw from Chaisse and Chakraborty (2006). 13. See http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds306_e.htm (last accessed on 6 December 2007) for details. 14. For a detailed analysis, see India and the WTO, April 1999. 15. India and the WTO, April 1999, p. 6. 16. It has been observed in the EU–US banana dispute that the AB recognised the right of countries to appoint private lawyers to represent member governments and noted that the WTO should extend more financial support and personnel for proper functioning and consistent ruling of the cases. 17. Developing countries in most of the cases lack the expertise to deal with the complicated issues. ‘On the other hand major developed countries have their permanent in-house resident misions at WTO with required human resources and legal experts to effectively tackle any trade dispute agaist them’, RIS (2003a: 115). India has had to consult foreign legal experts occassionally. 18. For instance, Das (2001) mentions in the EC–banana case that Papua New Guinea could not participate in the case due to the high legal cost, although the outcome of the debate was of enormous interest. On the other hand, most of the cases involve the EU or the US as one of the involved parties, reinforcing the validity of the claim. 19. See India’s submission (Document No. TN/DS/M/5, dated 27 February 2003). 20. Speyer (2001: 283) says, ‘Dispute settlement must remain firmly in the hands of governments, otherwise the WTO will be paralysed.’ 21. WTO Newsletter, Ministry of Commerce, December 2000, p. 18. 22. Document No. TN/DS/W/18, dated 7 October 2002. 23. For instance, a number of cases could be cited. For example, the US–Shrimps Turtle, and the EC–Hormones cases, as described in the WTO Newsletter, Ministry of Commerce, March 2001, p. 2. Chimni (2002: 138) has also raised concern that

192 The WTO Deadlocked

24.

25.

26. 27. 28. 29.

30.

the verdict has cleared the way for inclusion of environment in WTO, although no decision in this regard could be arrived so far. In his words, ‘When the Appellate Body Report in Shrimp Turtle II is read with the work programme on “Trade and Environment” included in the Doha Ministerial Declaration it becomes clear that the third world countries have lost the battle of keeping environment regulation out of WTO.’ For instance, in the Canada–EC dispute on pharmaceutical patents and generic products, the Panel Report quotes from an ‘Informal GATT Secretariat note’ to which WTO Members do not have access (India and the WTO, March 2001, p. 3). On 9 August 2002, the US submitted a proposal to the WTO to expand transparency and public access of the DSP. The proposal called for opening the WTO DS proceedings to the public and give greater public access to briefs and panel reports. USTR Press Release, 26 November, 2002. WTO Annual Report (2007: 5) Joint submission of WTO Members (Document No. JOB[04]/52, dated 19 May 2004). Joint submission of WTO Members (Document No. JOB[05]/19, dated 22 February 2005). ‘It is therefore unfortunate that India has supported the election of a commerce secretary to the Appellate Body with no background in international law’, Chimni (2002). The WTO Trade Policy Review, India (2002) notes that, ‘While import licensing and tariff restrictions are generally declining, there appears to have been an increase in other import measures. India has become one of the major users of anti-dumping measures, with some 250 cases initiated since 1995.’ Also WTO (2006) and USTR (2006) recently identified India as a major initiator of anti-dumping duties.

11 Looking beyond Hong Kong: What Next for India? Shortly after the Hong Kong Ministerial, India has been jubilant over inclusion of various clauses in the declaration. The higher morale resulted from the 6 December 2005 notification of WTO, which involved approval by the General Council (GC) to change the trade related aspects of intellectual properly rights (TRIPS) provision relating to patents and public health (WTO, 6 December 2005). The provision would formally be a part of the TRIPS agreement, when two-thirds of the members ratify it by 1 December 2007. This would enable countries lacking domestic production capabilities to import drugs produced under compulsory licence. Once implemented, this would mark the first amendment of a core WTO agreement. The fact that a core WTO agreement was selected for amendment for the first time was heartily welcomed by the developing countries. This came as a result of India’s long pursuit in this sphere in association with African countries. Perhaps this success led India to focus on the implementation of issues relating to TRIPS and CBD and extension of the protection of GI at the Hong Kong Ministerial with renewed energy. The lessons learnt by India from the current stream of events is, perhaps, more intense association with the other the developing countries at the WTO forums. In addition to the G–20 and G–33 forums earlier established, India became a member of NAMA–11 in Hong Kong, with its concern over liberalisation of trade for non-agricultural goods. Furthermore, on the fourth day of the Hong Kong Ministerial a North–South divide emerged, with G–20 and G–90 (the LDC group) coming together to form G–110, partly to push the development agenda of DWP, sometimes interpreted as additional aid. Looking at sheer numbers, one might argue for the developing country solidarity on the development front. But the new group might create more problems in terms of negotiation than it actually is likely to solve. It is argued that because of lack of domestic

194 The WTO Deadlocked reforms, India’s negotiating strategy becomes a difficult task, as it has to strike a balance between various sectors like nineteenth century agriculture, twentieth century manufacturing and twenty-first century services (Debroy 2006). Now making the developing countries a part of the deal is quie important. Working out a duty-free, quota-free package for LDC, with differing development status, could only be more complex. Draper and Sally (2004) have argued that a smaller group of developiong countries is always better for successfully carrying out the negotiations. Quite understandably the negotiations on market access progressed slowly during early 2006, with the US trade representative Rob Portman threatening in early 2006 that his country might abandon the WTO if the other WTO members did not show more willingness to open their markets (Hindustan Times February 2006). In the subsequent period, Pascal Lamy, the Secretary General of the WTO, visited India during early April to persuade her to adopt a ‘flexible position’ in market-access issues (mostly NAMA), arguing that until and unless developing countries like Brazil and India agreed to offer something, it was difficult to arrive at a deal (Hindustan Times 6–7 April 2006). On the other hand, India maintained that until and unless the practice of sidelining the developing countries in the WTO talks continued, the scenario was not likely to improve (Hindustan Times 26 April 2006). Although the EU submitted a detailed proposal on subsidies (Hindustan Times 30 May 2006), the negotiations still did not proceed forward. The US also contributed to the commotion by refusing to further bring down its subsidies (especially in agriculture), claiming that their offer made during October 2005 was yet to get a matching response from other developed countries (Hindustan Times 31 May 2006). The scenario did not improve at the G–6 trade ministers meet in Geneva during the last week of July 2006. Brazil and India were representing the G–20 agenda at that meeting, asking the US to undertake real reform commitments (Hindustan Times 22 July 2006). Unfortunately, no progress was made at the discussion, following which the trade talks had to be suspended (Hindustan Times 26 July 2006). To make things worse, the US has recently threatened to withdraw the preferential trade benefits to 13 developing countries under the Generalised System of Preferences (GSP) by ordering a review whether to ‘limit, suspend or withdraw’ the current preference. While several G–20 members figured in this list (including Brazil, India and South Africa), surprisingly China has been excluded

Looking beyond Hong Kong

195

from the review process (Hindustan Times 9 August 2006).1 It needs to be remembered that China played a low key role at the Hong Kong Ministerial and did not join NAMA–11. At a later date, interestingly, the US threatened to impose economic sanctions on China on the ground of the broken trade promises of the latter (Hindustan Times 13 December 2006). Clearly, the developed countries would continue to follow a carrot and stick policy in the coming days to their advantage and to weaken the developing country bargaining coalitions. The interactions among the WTO members during 2007 also failed to end the stalemate. The inconclusive outcome of the G–4 meetings in Delhi, Brussels and Potsdam during April to June 2007 is especially worth mention in this regard (Ismail 2007). During mid-2007, the WTO attempted to ensure a consensus among the member countries through enhanced commitments from them in terms of higher cuts in manufacturing tariffs (Hindustan Times 18 July 2007). However, the meeting between Brazil, the EU, India and the US in Germany failed to bridge the gap. The concerns of the developed countries even with the US subsidisation programme became clear during this period (Hindustan Times 5 September 2007). The US, on the other hand, maintained that its offer did not receive matching response from the other developed countries (Hindustan Times 31 May 2007). Later, the meeting in Geneva during September also produced little success. The appreciating trend of the Rupee did not make things easier for India, which led the country to contemplate offerring sector specific refund to taxes and levies to exporters for ensuring a level playing field (Hindustan Times 23 October 2007). It was observed that in November 2007, exports grew by 26.82 per cent as compared to previous month’s growth rate of 35 per cent, thanks to the appreciating trend (Hindustan Times 2 January 2008). Apart from hurting the exports, the strong Rupee, on the other hand, fuelled import of manufacturing goods in the recent period as well, thereby hurting domestic manufacturers. Perhaps, in a way, this constrained India’s potential to ‘offer’ at the multilateral forum. On the service front, a number of IT majors like Infosys, Wipro, Satyam, and such others, tried to respond to the appreciating trend of the Rupee by increasing their onsite efforts (Hindustan Times 23 July 2007). While the scenario for the developing countries would become clearer from the proposals tabled, India needs to focus on her gains from such exercise. Table 9.1 in Chapter 9 shows the negotiating collaborations of

196 The WTO Deadlocked India. Since market access gains in the short run are not easily forthcoming, we might look at the depth of India’s bargaining collaborations so as to gauge their potential success in future multilateral negotiations. A comparison of the same with the post-Doha period will be appropriate here. Despite India’s claims about huge gains at the ministerial, scholars remained sceptical about it.2 But now, the scenario is much better with unilateral reforms at home making the WTO driven reforms easier to handle. Debroy (2006) notes that now there is greater expertise within the commerce ministry and willingness to seek external advice. The fact becomes clear by analysing the submissions made by India to the WTO over the last decade. While the figures in Table 11.1 show the number of Table 11.1 An Analysis of India’s Submissions at WTO (Number of submissions) Category

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total

Agriculture

7 (–) Competition 1 policy (–) Dispute 0 settlement Environment 2 (–) General 0 council Investment 1 (–) NAMA 0

4 (2) 1 (–) 0

6 (1) 0

0

29 (9) 4 (–) 0

3 (–) 1 (–) 1 (–) 0

7 (5) 1 (–) 0

0

0

0

0

3 (–) 0

1 (–) 0

0

Trade 0 facilitation Trade and 0 development

0

2 (–) 0

2 (1) 7 (2) 0

1 (1) 4 (4) 0

0

0

0

0

WTO rules Services TRIPS

7 (–) 3 (–) 0

0

2 (–) 4 (–) 1 (–) 0

0

0

0 0

0

Source: Compiled from WTO Documents.

1 (–) 2 (–) 4 (3) 0 1 (1) 4 (1) 1 (0) 2 (–) 1 (–) 4 (3) 0 3 (2)

6 (4) 0

2 (2) 0

0

0

0

0

1 (1) 1 (–) 8 (7) 0

1 (1) 0

2 (2) 3 (0) 0

0 1 (0) 0

0

0

3 (3) 2 (–) 7 (6) 3 (3) 3 (2) 1 (1)

3 (3) 3 (2) 0

1 (1) 0

4 (1) 5 (–) 5 (3) 1 (1) 0

0

5 (4) 1 (1) 0

0

0

0

2 (2) 8 (1) 0

33 (9) 7 (–) 8 (7) 12 (–) 51 (23) 12 (1) 11 (7) 12 (2) 25 (15) 24 (16) 11 (3) 4 (3)

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submissions made by India to the WTO, the figures in the parenthesis depict the number of joint communications. A number of the early submissions (that is, during the late 1990s) have been explanatory notes to the other WTO members or preparatory notes before the ministerial meetings, rather than tangible negotiating agenda. However, from 2001, the pace of actual negotiation process has intensified appreciably. Clearly the number of joint submissions made to the WTO has increased in the post-Doha period. It is observed that while service and TRIPS remained India’s core interest areas throughout, agriculture turned out to be an important issue in the post-Cancun period, the G–20 and the G–33 submissions during 2004 being the proof of it. However, despite regular meetings of G–20 and G–33, no new submission has been made in recent years. Trade in environmental goods and services emerged as a major issue in 2003 and India is actively negotiating on that front. Also, after agreeing to discuss trade facilitation (TF), one of the SI, she has started negotiating on that front from 2005 onwards. Eight submissions on TF in 2006 show India’s seriousness on that front. Looking at the Indian approach towards SI, its learning curve at the multilateral negotiating forum becomes quite clear. India initially opposed inclusion of any SI in the negotiating forum at Doha, but later agreed to include only TF, as it suits the best interests of the country. It, however, stressed after the Cancun Ministerial that ‘... there should be no attempt to seek an early harvest on Trade Facilitation in advance of progress on core issues in Doha Work Programme.’3 The driving motive to accept TF in the July text has perhaps been the fact that India’s key export items like leather, textiles, chemicals and engineering products face the biggest problem with customs/port procedures abroad (Exim Bank 2002). Among the excluded areas, in competition policy, India’s submissions have mostly focussed on non-discrimination (for example, granting of national treatment).4 Interestingly, the country was quite active in the early years of the millennium on the trade and investment (TI) forum and tried to link movement of capital with movement of labour, one of its key interest areas.5 However, before Doha, India slowly shifted its position by raising concerns over the progress of technology transfer in the developing countries, and cited it as an obvious reason for regulating the FDI inflow.6 Between 1995 and 2001, India entered into Bilateral Investment Treaties (BITs) with 41 countries (Das 2003) and, perhaps owing to this

198 The WTO Deadlocked reason, its post-Doha submissions stressed the advantages of BITs very strongly.7 Before the Cancun Ministerial, India focussed on several issues ranging over the extent of constitutional powers available to the authorities to make rules and regulations related to foreign investment, disclosure and accounting procedures, effects of technology transfer, and so on.8 Subsequently, the July 2004 declaration decided that no negotiation on TI would take place during the Doha Round, as a result of which the issue was not raised at the Hong Kong Ministerial (2005), giving India some time to decide whether to prefer BITs over a multilateral approach.

FUTURE NEGOTIATIONS? While the considerable increase in the number of proposed RTAs involving India since Cancun could causally be linked with India’s growing dissatisfaction with the pace of multilateral liberalisation, a couple of questions need to be addressed here. First, are the proposed blocs a result of conscious economic decision? Second, what is the degree of cohesiveness among them, so as to use them as successful bargaining coalitions in future? Finally, given the fact that a number of the proposed partners are already members of G–20 network, what are the chances of replicating the ‘success’ of agricultural negotiation in case of other areas; for example, NAMA or services? It is easier to address the first question and the answer is in affirmative. There exist complementarities between the export pattern of India, and East and Southeast Asian countries (Karmakar 2005; Nag 2005). Also there is a significant trade potential for Indo–Brazil and Indo–South Africa trade. Furthermore, apart from the export industries, the import industries, which depend on raw material imports, would benefit from the lowering of tariff barriers on trade from these destinations. By comparing the trade scenario with the proposed partners for the years 1996–97 and 2004–05, both in terms of ranks and market shares (Annex 9C), we observe that barring a handful of exceptions like Brunei, Paraguay and some others, the importance of proposed partners in India’s trade basket is on the rise (measured in terms of either export or import ranking of the proposed partners or both). Furthermore, as of 2004–05, the total shares of these countries account for nearly 44 per cent and 34 per cent of India’s export and import respectively. In this scenario, it is only logical to expect that preferential agreements would provide further

Looking beyond Hong Kong

199

boost to bilateral trade and investment. There is only one problem. It was initially expected that the internal objection to the adverse impacts of liberalisation should not be overwhelming, since negotiations in most of these proposed blocs would be completed over a period of 10 years, with partners having their ‘sensitive lists’.9 However, as it turned out, drawing the sensitive lists and drafting the ROO norms has been quite a difficult exercise owing to the conflicting interests of the parties. The Indian industry also expressed its reservation against the potential adverse impact of some of these arrangements at times. Considering the second question, apart from the willingness to enhance bilateral trade further, the urge to extract higher market access from other markets (most notably the EU and the US) is a major commonality for the members of the India-centric preferential trade agreements. First, Annex 11 shows the current level of cooperation between India and the partners at multilateral negotiations, where the number of joint submissions by India and a partner country is reported category-wise. The level of cooperation is quite appreciable with several South Asian and Southeast Asian partners like Indonesia, Malaysia, Pakistan, Sri Lanka and Thailand (currently part of proposed Indo–ASEAN FTA, BIMST–EC, SAFTA, Indo–Thai FTA, and such others). The West Asian countries, however, are yet to enter into any negotiating collaboration with India, presumably owing to the dissimilarity in trade pattern.10 The cooperation with Latin America is likely to go up in the coming days. Collaboration in NAMA is already quite extensive with Argentina and Brazil. The areas currently characterised by maximum cooperation among India and the proposed RTA partners are agriculture, issues under GC (mainly trade in textile and garments, increasing use of contingency measures, and so on) and services. Interestingly, regional neighbours like Pakistan and Sri Lanka have rallied heavily behind India on the TRIPS front, clearly owing to similarity in production basket (for example, GI, protection of biodiversity) and export pattern. Given the significance of labour-intensive products in the export basket of India’s proposed RTA partners and the trends in multilateral negotiations, the current level of cooperation is likely to be strengthened further in future. Second, there exists a striking similarity between the NTBs imposed on exports of India and a number of ESCAP countries (that are currently in the process of becoming RTA partners), in the EU and the US market. For instance, the growing number of anti-dumping investigations is a case in point. A likewise similarity exists with the major Latin American

200 The WTO Deadlocked exporters like Brazil as well. Hence, it was easier for the G–20 or the G–33 to come together. Third, apart from demanding market access for exports, the developing countries have also been vocal on ensuring sufficient protection to their domestic entities, as evident from the joint submissions to the WTO regarding ‘special products’ (SPs), ‘special safeguard mechanisms’ (SSMs) and ‘special and differential treatment’ (SDT). Clearly, this is another area where India and the partners stand to gain extensively by pursuing a joint negotiating agenda. Stated alternatively, at least the potential is already there. Finally, let us turn to the third question, that is, whether the G–20 solidarity in case of agriculture is replicable in case of services. There are already questions on the future cohesiveness of G–20 (Ranjan 2005a). It has also been noted that G–4 discussions might send wrong signals to other G–20 members (Pal 2005: 48). It seems that a tacit understanding among the developing countries has already been reached, as India’s support in case of agriculture is being returned by Brazil at negotiations on Mode 4 in services (Draper and Sally 2006). Also, the collaboration with Brazil on the TRIPS front, over the years, looks quite robust. However, this kind of collaboration is not exciting for all the developing countries or LDC. For instance, till the end of 2007, the ratification of the TRIPS amendment was not done by two-thirds of the WTO member states. Only few countries managed to do so. This is an opportunity foregone for the developing countries.11 It has also been noticed that apart from Pakistan, countries like China, Indonesia, Thailand and the Philippines are fast emerging as strong negotiating partners in case of trade in services, and an explicit focus is on liberalisation of Mode 4, where India’s prime interest lies.12 But a major solidarity on other fronts is yet to emerge. The reason, perhaps, is the fact that the G–20 consensus in case of agriculture was achieved through an external shock, that is, the EU–US joint proposal before the Cancun Ministerial. The consensus thus achieved was ‘negative’ in nature and was easier to form. Replicating the same in case of services through ‘positive’ measures, that is, through offers by consensus would not be so easy.13 Perhaps, collaboration in newer areas like TF would be easier. More importantly, the level of support from proposed partners in India’s pursuit in other areas would greatly depend on the level of access realised by them in Indian market. In other words, the pace of the RTAs’ conclusion in the coming future is going to play a major role.

Looking beyond Hong Kong

201

While the developing country negotiating coalitions in the short run have delivered at the WTO negotiating forums, chances are high that in the long run they would have to undertake further reform commitments. In that scenario, in the case of agriculture, the Cairns group members like Argentina and Brazil would not have much problem thanks to their vibrant agriculture sector. In manufacturing, again, the low level of tariff binding and the high level of bound tariff jointly put India in a weak position. Extending the ABI forum might be difficult in that case. China is already maintaining a distance with this group on NAMA, owing to its competitiveness in the case of manufacturing products and reform commitments already undertaken. Only in the case of contingency measures like anti-dumping, collaboration with other developing countries is possible. In case of services also, the beginner’s advantage might not be ever lasting, with other developing counties coming forward. Actions of the US have already made it clear that it would try to weaken the developing country solidarity. The slow progress of multilateral trading system can be substituted by the regional trading blocs in the short run, but undertaking reform commitments in that forum is also necessary sooner or later. And, more the number of sectors India likes to keep out of the purview of the RTA, the higher has to be the concessions offered in the included sectors. Therefore, the country needs to fast undertake domestic reforms to strengthen the economy and remove the existing barriers (Das 2003; USTR 2006); otherwise, the negotiating options in long run would dry up. Meanwhile, reforming the misuses of various provisions in the WTO agreements by the WTO members, as identified in this volume, should be included in the negotiating agenda of the country. The attention has already been on reforming the provisions of the anti-dumping agreement, which are frequently misused. India should point out similar provisions in other agreements as well, so as to realise a significant increase in market access for its exports. The provisions identified in this volume may serve as an input for that purpose.

NOTES 1. The 13 countries are Argentina, Brazil, Croatia, India, Indonesia, Kazakhstan, the Philippines, Romania, Russia, South Africa, Thailand, Turkey and Venezuela. 2. Mattoo and Subramanian (2003: 328) opined that India’s position at Doha was in reality ‘characteristically but perhaps not unjustifiably defensive’. Anant (2001: 4243–45) also noted , ‘The consequence of the government’s approach to the WTO

202 The WTO Deadlocked

3. 4. 5. 6. 7. 8. 9.

10. 11.

12.

13.

and to trade negotiations is to create a self-fulfilling prophecy. Our flawed rejectionist approach to negotiations, with the absurd threats to leave, imply that we are unable to address our own immediate trading concerns....’ Developing Country Proposal to WTO (Document No. WT/GC/W/522, dated 12 December 2003). India’s submission to WTO (Document No. WT/WGTCP/W/216, dated 26 September 2002). India’s submissions to WTO (Document No. WT/WGTI/W/39, dated 4 June 1998; Document No. WT/WGTI/W/72, dated 13 April 1999). India’s submissions to WTO (Document No. WT/WGTI/W/105, dated 26 June 2001; Document No. WT/WGTI/W/148, dated 7 October 2002). India’s submission to WTO (Document No. WT/WGTI/W/150, dated 7 October 2002). India’s submission to WTO (Document No.WT/WGTI/W/152, dated 19 November 2002). The tariff elimination on goods trade between India and ASEAN countries would be complete by 2016, starting from January 2006, although in case of some countries, it will be achieved by 2011. In case of the BIMST–EC, the tariff elimination for developing country imports under normal track will be achieved by June 2012, starting from July 2007. In case of the Indo–Thailand FTA, the zero-duty imports will be achieved by 2010. India’s decision to enter into RTAs with the GCC countries is more influenced by the economic need of mineral fuel importation from most of these countries. CENTAD Trade News, ‘WTO’s IPR Committee to discuss TRIPS, Related Issues’, available at http://www.centad.org/tradenews_485.asp (last accessed on 3 January 2008). See the developing country joint proposals entitled ‘Review of Progress in Negotiations, Including Pursuant to Paragraph 15 of the Guidelines for Negotiations’, dated 29 September 2004 (Document No. TN/S/W/23); Informal Paper on ‘Mode 4-Transparency Issues’, dated 29 September 2004 (Document No. JOB[04]/142); ‘Review of Progress as established in Paragraph 15 of the Guidelines and Procedures for the Negotiations on Trade in Services’, dated 31 March 2004 (Document No. TN/S/W/19); ‘Implementation of Paragraph 15 of the Guidelines and Procedures for the Negotiations on Trade in Services’, dated 25 July 2003 (Document No. TN/S/W/16) and ‘Proposed Liberalization of Mode 4 Under GATS Negotiations’, dated 3 July 2003 (Document No. TN/S/W/14). Jank (2005) notes that, ‘The truth is that everyone is somehow responsible for market access failures, and if the G–20 becomes an obstructionist force, all the liberalizing ambitions of Doha can go to waste.’

9,771 11,744 10,895 12,452 15,674 20,232 27,658 32,553 44,041 53,688 69,751 82,674 106,353 118,817 130,100 139,752 159,561 203,571 209,018 255,137 293,367 361,879

1983–84 1984–85 1985–86 1986–87 1987–88 1988–89 1989–90 1990–91 1991–92 1992–93 1993–94 1994–95 1995–96 1996–97 1997–98 1998–99 1999–2000 2000–01 2001–02 2002–03 2003–04 2004–05

11.00 20.19 –7.23 14.29 25.88 29.08 36.70 17.70 35.29 21.90 29.92 18.53 28.64 11.72 9.50 7.42 14.17 27.58 2.68 22.06 14.98 23.35

Export Growth (%) 15,831 17,134 19,658 20,096 22,244 28,235 35,328 43,198 47,851 63,375 73,101 89,971 122,678 138,920 154,176 178,332 215,236 230,873 245,200 297,206 359,108 490,532

Import (M)

(Rs Crore)

10.76 8.23 14.73 2.23 10.69 26.93 25.12 22.28 10.77 32.44 15.35 23.08 36.35 13.24 10.98 15.67 20.69 7.27 6.21 21.21 20.83 36.60

–6,060 –5,390 –8,763 –7,644 –6,570 –8,003 –7,670 –10,645 –3,810 –9,687 –3,350 –7,297 –16,325 –20,103 –24,076 –38,580 –55,675 –27,302 –36,182 –42,069 –65,741 –128,653

10.38 –11.06 62.58 –12.77 –14.05 21.81 –4.16 38.79 –64.21 154.25 –65.42 117.82 123.72 23.14 19.76 60.24 44.31 –50.96 32.53 16.27 56.27 95.70

471,191 490,027 514,059 536,337 556,874 615,206 656,469 693,051 702,067 738,003 781,345 888,031 899,563 970,083 1,016,595 1,082,747 1,148,367 1,792,292 1,870,387 1,978,055 2,052,586 2,226,041

–1.29 –1.10 –1.70 –1.43 –1.18 –1.30 –1.17 –1.54 –0.54 –1.31 –0.43 –0.82 –1.81 –2.07 –2.37 –3.56 –4.85 –1.52 –1.93 –2.13 –3.20 –5.78

5.43 5.89 5.94 6.07 6.81 7.88 9.59 10.93 13.09 15.86 18.28 19.44 25.46 26.57 27.96 29.38 32.64 24.24 24.28 27.92 31.79 38.29

Import Trade TB GDP at TB as Total Trade as Growth (%) Balance (TB) Growth (%) Factor Cost % of GDP % of GDP

Annex 1A The Openness Measures for Indian Economy

Source: Calculated from Economic Surveys (various issues).

Export (X)

Year

Annexures

87–88

88–89

89–90

90–91

91–92

92–93

93–94

94–95

95–96

96–97

97–98

98–99

Source: Calculated on the basis of DGCIS Data.

3.613 6.892 0.395 3.057 7.247 9.711 2.643 3.062 0.077 0.572 23.624 1.613 1.150 16.748 6.525 6.464 2.327 0.819 0.014

3.405 7.077 0.292 2.306 8.111 10.239 2.903 2.516 0.092 0.605 22.491 1.292 1.176 17.247 8.016 6.020 2.538 0.808 0.004

99–00 2000–01 2001–02 2002–03

I 4.237 3.530 3.125 3.605 4.018 4.020 4.324 4.930 3.929 4.188 4.280 3.848 3.891 4.016 II 14.582 10.270 10.848 9.734 9.856 6.514 8.131 7.796 11.177 9.713 9.722 11.503 8.889 7.021 III 0.136 0.063 0.285 0.270 0.406 0.313 0.472 0.603 0.848 0.585 0.506 0.512 0.714 0.522 IV 2.708 2.864 3.430 3.227 3.715 4.867 4.797 3.122 3.757 5.244 4.388 2.665 2.309 2.357 V 9.118 6.926 7.629 7.543 6.991 6.336 5.628 5.028 4.543 4.227 3.439 2.450 2.194 6.382 VI 4.646 15.103 8.399 7.864 8.621 6.968 7.080 7.853 7.746 8.793 9.448 9.056 9.510 9.538 VII 0.784 0.762 1.127 1.207 1.137 1.839 2.000 2.599 2.467 2.210 2.084 1.890 1.983 2.394 VIII 5.584 4.817 5.068 5.392 4.712 5.000 4.011 4.293 3.837 3.256 3.385 3.463 2.925 3.029 IX 0.117 0.091 0.087 0.080 0.092 0.074 0.227 0.168 0.118 0.128 0.099 0.073 0.080 0.080 X 0.208 0.137 0.193 0.186 0.203 0.259 0.836 0.384 0.476 0.433 0.334 0.376 0.449 0.542 XI 26.506 20.386 23.989 27.433 27.236 28.120 25.738 27.298 25.625 27.391 26.897 27.211 26.001 26.038 XII 2.877 2.505 2.457 2.864 2.684 2.369 2.270 2.181 1.918 1.760 1.589 1.852 1.756 1.551 XIII 0.308 0.351 0.384 0.434 0.571 0.719 0.795 0.996 1.024 0.974 0.944 0.914 1.066 1.180 XIV 16.772 20.010 19.175 16.205 15.387 16.942 18.035 17.179 16.643 14.183 15.327 17.861 20.951 16.710 XV 2.409 3.255 3.987 4.088 4.541 6.065 6.243 5.528 5.583 5.827 6.203 5.380 6.249 6.677 XVI 4.707 4.860 5.293 5.230 4.849 4.311 4.349 4.656 5.047 5.555 5.826 5.310 5.401 6.121 XVII 1.622 1.652 1.957 2.218 2.769 2.927 2.659 2.933 2.815 2.889 2.664 2.293 2.226 2.378 XVIII 0.627 0.542 0.684 0.464 0.416 0.319 0.359 0.374 0.377 0.435 0.449 0.501 0.675 0.737 XIX 0.002 0.001 0.003 0.001 0.001 0.005 0.003 0.002 0.001 0.003 0.011 0.001 0.002 0.005

Year

Annex 1B Export Ratios of India by HS Sections

Source: Calculated on the basis of DGCIS Data.

90–91 0.093 2.870 0.453 0.487 31.616 12.784 2.658 0.390 0.907 1.789 2.211 0.084 0.413 12.239 8.600 11.793 2.114 2.290 0.002

89–90

92–93

88–89

91–92

87–88

I 0.667 0.411 0.175 0.022 0.075 II 2.121 4.668 2.127 1.062 1.616 III 4.569 2.760 0.710 0.865 0.715 IV 1.284 0.374 0.661 0.410 0.466 V 21.349 19.335 22.078 30.406 32.266 VI 8.329 10.945 11.986 9.774 13.396 VII 3.382 3.770 3.719 3.509 3.666 VIII 0.113 0.179 0.300 0.437 0.401 IX 1.081 1.290 1.126 1.091 0.875 X 2.664 2.453 2.156 2.475 1.851 XI 2.032 2.437 2.189 2.126 1.726 XII 0.063 0.059 0.065 0.083 0.086 XIII 0.456 0.570 0.482 0.480 0.457 XIV 9.159 11.317 12.137 8.924 10.168 XV 11.556 12.783 13.315 11.494 8.668 XVI 17.489 15.604 14.736 13.825 11.518 XVII 3.417 2.669 4.220 3.966 1.916 XVIII 2.266 2.452 2.565 2.573 2.030 XIX 0.003 0.000 0.002 0.001 0.001

Year

94–95

95–96

96–97

97–98

0.048 0.064 0.092 0.033 0.066 2.247 2.023 1.629 1.991 2.561 0.472 0.979 2.014 2.209 1.816 0.493 3.103 0.520 0.359 0.642 28.888 25.918 24.577 30.607 25.649 11.388 13.161 16.388 11.283 12.219 2.694 3.012 3.355 2.823 2.479 0.496 0.443 0.370 0.366 0.365 0.620 0.792 0.666 0.696 1.025 1.915 1.811 2.217 2.084 2.237 2.320 2.957 2.558 2.005 2.022 0.111 0.108 0.103 0.079 0.076 0.304 0.470 0.399 0.330 0.364 12.441 8.306 7.979 10.139 15.895 7.741 9.193 8.592 8.793 7.847 13.015 14.997 16.664 14.968 15.566 5.444 3.908 2.925 3.798 2.538 1.997 1.893 1.995 1.543 2.020 0.000 0.000 0.001 0.001 0.002

93–94

Annex 1C Import Ratios of India by HS Sections 0.084 2.389 4.545 0.946 20.554 11.553 2.402 0.365 0.107 2.049 2.034 0.077 0.397 21.358 6.056 14.153 1.905 2.252 0.002

98–99 0.097 1.725 3.930 0.758 30.357 10.740 2.132 0.316 0.929 1.684 2.266 0.070 0.348 20.592 4.972 12.425 2.294 1.968 0.003

0.063 1.240 2.793 0.285 36.047 8.442 1.856 0.394 0.973 1.814 2.309 0.069 0.367 19.149 4.223 14.063 1.883 1.958 0.001

0.055 2.193 2.887 0.342 32.276 9.461 2.128 0.441 1.076 1.867 2.980 0.058 0.459 18.189 4.969 14.454 2.240 2.361 0.002

0.066 1.979 3.046 0.314 33.471 8.517 2.036 0.347 0.675 1.612 2.673 0.051 0.399 17.057 4.333 16.606 3.092 2.259 0.004

99–00 2000–01 2001–02 2002–03

26.425 1.736 0.103 1.200 1.035 0.276 1.508 20.641 1.416 1.362 8.672 9.994 16.306 5.152 0.047 2.647 1.483

EU countries Other WE countries East Europe Southern Africa West Africa Central Africa East Africa North America Latin America East Asia ASEAN WANA NE Asia South Asia CARs countries Other CIS countries Unspecified

26.769 1.996 0.105 1.414 1.303 0.258 1.401 20.593 2.012 1.482 7.086 11.084 15.673 4.692 0.133 2.943 1.057

1997–98

Source: Compiled from India’s Trade data.

1996–97

Region 27.627 1.652 0.122 1.435 1.748 0.214 1.593 23.097 1.840 1.386 4.907 12.688 13.839 5.094 0.187 2.261 0.310

1998–99 26.196 1.623 0.088 1.009 1.593 0.204 1.264 24.371 1.791 1.334 6.077 12.345 15.202 3.878 0.160 2.724 0.145

1999–00 23.946 1.880 0.085 0.911 1.747 0.174 1.258 22.355 2.287 1.108 6.539 12.598 14.098 4.386 0.187 2.201 4.241

2000–01 23.128 1.569 0.079 1.057 2.393 0.208 1.273 20.759 2.191 1.156 7.888 13.183 13.285 4.678 0.157 2.062 4.933

2001–02

Annex 1D The Trend in India’s Export Direction

22.473 1.575 0.116 1.215 2.023 0.220 1.204 21.992 2.458 1.146 8.761 14.281 14.916 5.283 0.162 1.586 0.589

2002–03 22.624 1.734 0.182 1.240 1.995 0.237 1.348 19.193 1.784 1.102 9.119 15.953 14.704 6.725 0.238 1.386 0.438

21.516 1.647 0.210 1.521 1.970 0.188 1.381 17.494 2.591 1.023 10.063 17.180 15.819 5.586 0.210 1.095 0.506

2004–05

(Percentage share) 2003–04

26.890 3.190 0.278 1.211 4.229 0.125 0.293 10.044 1.464 3.583 7.498 15.892 11.763 0.619 0.042 1.664 11.216

1996–97

26.050 6.757 0.192 1.512 3.182 0.080 0.244 9.968 1.379 3.795 8.187 15.740 12.182 0.591 0.093 1.984 8.064

1997–98

Source: Compiled from India’s Trade data.

EU countries Other WE countries East Europe Southern Africa West Africa Central Africa East Africa North America Latin America East Asia ASEAN WANA NE Asia South Asia CARs countries Other CIS countries Unspecified

Region 25.573 7.339 0.117 3.377 3.305 0.018 0.394 9.497 1.723 3.646 10.185 18.175 13.834 1.165 0.040 1.608 0.003

1998–99 22.269 5.505 0.122 4.202 6.579 0.006 0.311 7.923 1.883 2.407 9.307 19.446 12.411 0.842 0.062 1.564 5.160

1999–00 21.055 6.434 0.078 2.106 0.893 0.008 0.184 6.752 1.412 2.339 8.207 6.059 11.118 0.975 0.061 1.289 31.032

2000–01 20.587 5.816 0.134 2.878 0.927 0.015 0.288 7.156 1.957 2.712 8.533 6.166 12.871 1.146 0.055 1.377 27.381

2001–02

Annex 1E The Trend in India’s Import Direction

20.811 4.071 0.097 3.518 0.879 0.009 0.299 8.158 1.703 2.317 8.386 5.841 12.707 0.864 0.064 1.311 28.965

2002–03 19.184 4.733 0.123 2.508 0.743 0.014 0.236 7.371 1.526 3.521 9.511 6.304 15.120 0.908 0.065 1.549 26.586

17.143 5.663 0.175 2.068 0.744 0.015 0.195 6.956 1.836 3.467 8.119 8.427 14.761 0.898 0.055 1.656 27.824

2004–05

(Percentage share) 2003–04

Complainant

Thailand

Brazil

Australia

Case No.

DS 283 (2003)

DS 266 (2002)

DS 265 (2002)

European Communities

European Communities

European Communities

Respondent

The EC measures are inconsistent with— • Articles 3.3, 8, 9.1, 10.1 and 11 of the Agreement on Agriculture; • Articles 3.1 and 3.2 of the SCM Agreement; • Articles III:4 and XVI of GATT 1994.

The EC measures are inconsistent with— • Articles 3.3, 8, 9.1(a) and (c), and 10.1 of the Agreement on Agriculture; • Articles 3.1(a) and 3.2 of the SCM Agreement; • Articles III:4 and XVI of GATT 1994.

The EC measures are inconsistent with— • Article III:4 of GA TT 1994; • Articles 3.1(a), 3.1(b) and 3.2 of the SCM Agreement; and • Articles 3.3, 8, 9.1 and 10.1 of the Agreement on Agriculture.

Alleged Violation

EU is currently appealing against certain points of the panel ruling.

The Panel found that EC, through its sugar regime, had acted inconsistently with its obligations under Articles 3.3 and 8 of the Agreement on Agriculture, by providing export subsidies within the meaning of Article 9.1(a) and (c) of the Agreement on Agriculture in excess of the quantity commitment level and the budgetary outlay commitment level specified in Section II, Part IV of Schedule CXL.

WTO Ruling

Annex 2 Completed WTO Cases on Agriculture-related Issues

Brazil

Australia

United States

DS 267 (2002)

DS 169 (1999)

DS 161 (1999)

Korea

Korea

United States

Same as DS 169

The Korean measures are inconsistent with— • Articles II, III, XI, and XVII of GATT 1994; Articles 3, 4, 6, and 7 of the Agreement on Agriculture; • Articles 1 and 3 of the Import Licensing Agreement.

The actionable subsidies provided to US upland cotton producers are inconsistent with— • Articles 5(c), 6.3(b), (c) and (d), 3.1(a) (including item [j] of the Illustrative List of Export Subsidies in Annex I), 3.1(b), and 3.2 of the SCM Agreement; • Articles 3.3, 7.1, 8, 9.1 and 10.1 of the Agreement on Agriculture; • Article III:4 of GATT 1994.

(Annex 2 Contd.)

The panel found that the measures are inconsistent with— • Articles II:1(a), III:4, Article XI:1 of the GATT 1994 • Articles 4.2, 6 and 7.2(a) of the Agreement on Agriculture Although the Appellate Body reversed some of the Panel’s findings, it upheld the conclusion that the measures are inconsistent with Articles 6 and 7.2(a) of the Agreement on Agriculture.

The Panel found that the three United States export credit guarantee programmes are prohibited export subsidies, which have no Peace Clause protection and are in violation of the relevant WTO disciplines. In addition, it found that the United States also grants several other prohibited subsidies in respect of cotton. The Appellate Body modified certain legal interpretations of the panel, but upheld all the major findings.

New Zealand

United States

DS 113 (1998)

DS 103 (1997)

Source: WTO Documents.

Complainant

Case No.

(Annex 2 Contd.)

Canada

Canada

Respondent

The export subsidies granted by Canada on dairy products and the administration of the tariff-rate quota on milk— • Articles II, X and X1 of GATT 1994 • Articles 3, 4, 8, 9 and 10 of the Agreement on Agriculture • Article 3 of the Subsidies Agreement • Articles 1, 2 and 3 of the Import Licensing Agreement

The Canadian dairy export subsidy scheme (commonly referred to as the ‘special milk classes’) is inconsistent with— • Article XI of GATT • Articles 3, 8, 9 and 10 of the Agreement on Agriculture

Alleged Violation The Panel found that the Canadian measures are inconsistent with— • Article II:1(b) of GATT 1994 • Articles 3.3 and 8 of the Agreement on Agriculture by providing export subsidies as listed in Article 9.1(a) and 9.1(c) of the Agreement on Agriculture. The Appellate Body reversed the panel finding on Article II:1(b) of GATT 1994, and the interpretation of Article 9.1(a) of AOA in Canada’s favour. However, it upheld the Panel’s finding that Canada was in violation of Articles 3.3 and 8 of the Agreement on Agriculture in respect of export subsidies listed in Article 9.1(c) of the Agreement on Agriculture.

WTO Ruling

Complainant

Argentina

Canada

Case No.

DS 293 (2003)

DS 292 (2003)

European Communities

European Communities

Respondent

The EC Measures Affecting the Approval and Marketing of Biotech Products are inconsistent with— • Articles 2.2, 2.3, 5.1, 5.5, 5.6, 7 and 8, and Annexes B and C of the SPS Agreement; • Articles 2.1, 2.2, 2.8, 5.1 and 5.2 of the TBT Agreement; • Articles I:1, III:4, X:1 and XI:1 of the GATT 1994; and • Article 4.2 of the Agriculture Agreement.

The EC Measures Affecting the Approval and Marketing of Biotech Products are inconsistent with— • Articles 2, 5, 7, 8 and 10, and Annexes B and C of the SPS Agreement; • Article 4 of the Agriculture Agreement; • Articles I, III, X and XI of the GATT 1994; and • Articles 2, 5 and 12 of the TBT Agreement.

Alleged Violation

Annex 3 WTO Cases on SPS–TBT-related Issues

(Annex 3 Contd.)

The Panel recently ruled that the bans imposed on GM crops by EU member states are not justified.

WTO Ruling

Complainant

United States

United States

Case No.

DS 291 (2003)

DS 245 (2002)

(Annex 3 Contd.

Japan

European Communities

Respondent

Japan’s import regime of apples from the United States are inconsistent with— • Article XI of GATT 1994; • Articles 2.2, 2.3, 5.1, 5.2, 5.3, 5.6, 6.1, 6.2 and 7 and Annex B of the SPS Agreement; and • Article 14 of the Agreement on Agriculture.

The EC Measures Affecting the Approval and Marketing of Biotech Products are inconsistent with— • Articles 2, 5, 7 and 8, and Annexes B and C of the SPS Agreement; • Articles I, III, X and XI of the GATT 1994; • Article 4 of the Agriculture Agreement; and • Articles 2 and 5 of the TBT Agreement.

Alleged Violation

The Panel noted that Japan’s measures are inconsistent with— • Article 2.2 of the SPS Agreement • Article 5.7 of the SPS Agreement • Article 5.1 of the SPS Agreement. The Appellate body upheld the main findings of the Panel.

WTO Ruling

Peru

Canada

United States

DS 231 (2001)

DS 135 (1998)

DS 76 (1997)

Japan

European Communities

European Communities

Japan’s quarantine treatment requirement is inconsistent with— • Articles 2, 5 and 8 of the SPS Agreement • Article XI of GATT 1994 • Article 4 of the Agreement on Agriculture

The EC measures Affecting the Prohibition of Asbestos and Asbestos Products is inconsistent with— • Articles 2, 3 and 5 of the SPS Agreement • Article 2 of the TBT Agreement • Articles III, XI and XIII of GATT 1994

The EC measures concerning the Trade Description of Sardines is inconsistent with— • Articles 2 and 12 of the TBT Agreement • Article XI:1 of GATT 1994 • Articles I and III of GATT 1994.

(Annex 3 Contd.)

The Panel found that Japan acted inconsistently with— • Articles 2.2 and 5.6 of the SPS Agreement • Annex B and, consequently, Article 7 of the SPS Agreement. The Appellate Body upheld the basic finding of the Panel.

The Panel noted that— • the ‘prohibition’ part of the Decree of 24 December 1996 does not fall within the scope of the TBT Agreement; • with respect to the products found to be like, the Decree violates Article III:4 of the GATT 1994 However, the panel noted that Canada fails to establish some of its claims. The Appellate Body however reversed a number of rulings of the panel, and concluded that Canada has not satisfied its burden of proving several claims.

The Panel concluded that the EC Regulation was inconsistent with— • Article 2.4 of the TBT Agreement. The Appellate Body upheld the Panel’s finding.

Canada

Canada

Brazil

DS 48 (1996)

DS 18 (1995)

DS 4 (1995)

DS 2 Venezuela (1995) Source: WTO Documents.

Complainant

Case No.

(Annex 3 Contd.)

United States

Australia

European Communities

Respondent

The US gasoline regulation is discriminatory and is inconsistent with— • GATT Articles I and III • Article 2 of the Agreement on TBT

The EC regulations regarding the importation of livestock and meat treated with certain substances having a hormonal action is inconsistent with— • Articles 2, 3 and 5 of the SPS • Articles III or XI of GATT 1994 • Article 2 of TBT • Article 4 of the AOA The quarantine regulation on importation of Salmon was inconsistent with— • GATT Articles XI and XIII • Articles 2.2, 2.3, 5.1, 5.5 and 5.6 of the SPS Agreement

Alleged Violation

The panel found the alleged regulation to be inconsistent with GATT Article III:4. The Appellate Body modified a number of panel findings but upheld the main findings of it.

The Panel found that Australia’s measures complained against were inconsistent with Articles 2.2, 2.3, 5.1, 5.5 and 5.6 of the SPS Agreement. The Appellate Body upheld the major conclusions of the Panel.

The Panel found that the EC ban on imports was inconsistent with Articles 3.1, 5.1 and 5.5 of the SPS Agreement. The Appellate Body upheld the Panel’s finding that the EC import prohibition was inconsistent with Articles 3.3 and 5.1 of the SPS Agreement, but reversed the same on Articles 3.1 and 5.5 of the SPS Agreement.

WTO Ruling

Australia 1991 1993 1998 2000 2004 Canada 1989 1995 1998 2000 2003 China 1992 1994 1996 2000 2004

Year

14.3 11.9 7.4 6.5 –

7.4 24.2 26.5 6.7 –

30.6 27.9 17.4 10.7 –

8.6 10.1 7.5 3.9 3.9

41.0 36.3 23.6 16.3 9.8

B

13.1 9.8 5.3 5.8 5.1

A

32.2 35.5 22.6 14.7 6.0

6.0 7.2 3.8 0.8 0.9

9.1 7.7 3.7 4.0 3.8

C

All Products

77.6 – – 42.5 16.0

14.6 – – 9.1 6.5

30.3 – – 6.2 5.9

D

0.0 – – 0.00 0.0

3.4 – – 4.1 3.6

1.4 – – 1.0 2.9

E

35.4 32.2 25.4 16.5 10.0

5.1 14.2 16.1 2.8 1.9

– – – – –

– 24.3 22.1 – –

5.9 49.3 54.9 – –

B

2.5 5.5 6.7 0.4 0.4

1.6 1.3 0.7 0.8 0.7

C

13.9 19.6 20.0 18.8 5.6

Primary Products

3.2 2.5 1.2 1.7 1.4

A

Annex 4A Tariff Reforms of Select Countries*

42.3 37.6 23.1 16.2 9.7

9.9 8.9 5.1 4.2 4.2

14.3 11.7 6.4 6.2 5.6

36.5 40.6 23.2 13.7 6.0

6.7 7.7 3.2 0.9 1.0

10.3 9.7 4.4 4.5 4.4

C

(Annex 4A Contd.)

– 28.8 15.8 – –

7.1 6.6 6.1 – –

– – – – –

B

Manufacturing Goods A

European Union 1989 1994 1998 2000 2003 India 1990 1997 1999 2004 Japan 1989 1998 2000 2004 United States 1989 1995 1998 2000 2004

Year

(Annex 4A Contd.)

5.9 6.3 5.6 4.4 –

43.6 14.0 12.3 –

7.9 7.7 7.0 –

6.8 7.0 11.8 10.7 –

79.0 30.0 32.5 28.3

5.6 5.7 4.5 2.9

5.6 5.9 5.2 4.0 3.2

B

4.1 7.7 6.0 2.4 1.4

A

3.8 4.1 2.8 1.8 1.8

3.0 2.0 2.0 2.4

49.6 27.7 28.5 28.0

3.8 6.6 3.5 1.8 1.3

C

All Products

8.0 – – 5.8 4.0

9.1 – 7.1 8.1

97.0 – 93.1 92.4

3.9 – – 1.8 1.9

D

12.7 – – 8.0 6.8

3.3 – 3.0 2.8

0.9 – 0.6 0.0

18.2 – – 7.2 10.6

E

3.7 5.5 6.4 4.3 2.7

8.3 8.9 8.3 5.3

69.1 25.7 30.9 30.0

– – – – –

– – – – –

– – – –

– 22.6 21.7 –

B 2.7 4.9 3.4 1.3 0.9

C

2.0 2.7 3.2 1.4 1.1

3.3 4.5 3.4 3.9

25.4 22.6 23.2 36.9

Primary Products

8.7 10.3 9.4 4.6 2.2

A

6.0 6.0 4.9 4.0 3.3

4.7 4.5 3.2 2.4

80.2 31.3 32.8 27.9

2.7 6.9 4.8 1.8 1.2

– – – – –

– – – –

– 9.8 8.0 –

– – – – –

B

4.1 4.4 2.7 1.9 1.9

2.7 1.5 1.2 1.6

69.9 29.5 32.7 25.3

4.4 7.0 3.5 1.9 1.4

C

Manufacturing Goods A

17.2 7.7 7.0 –

5.3 26.1 –

19.7 16.7 10.8 –

15.1 33.3 –

14.2 11.0 7.9 –

42.2 11.9 14.4 13.2

14.8 11.1 7.9

21.9 13.0 8.4 6.4

17.0 9.3 7.3

28.0 20.0 7.6 4.5

22.4 18.4 3.8 2.6

9.4 6.0 4.2

13.0 13.8 5.2 5.2

10.5 9.5 5.7

31.9 14.6 12.7 8.0

77.2 – 8.8 1.6

46.1 24.7 21.1

50.3 – 11.2 3.5

11.8 – 3.1

92.2 – 57.4 38.0

0.1 – 0.0 0.0

7.2 0.4 1.0

0.3 – 0.0 0.2

12.5 – 0.7

0.5 – 0.0 0.0

29.6 21.6 11.9 5.7

15.2 7.0 4.5

19.9 12.3 6.3 8.0

14.6 21.0 12.0

37.9 8.6 11.3 9.1

– 12.8 – –

– – –

– 19.6 – –

– 47.2 –

– 5.7 – –

18.5 16.8 7.5 5.0

4.6 10.0 2.1

5.8 9.3 2.8 3.1

5.5 17.0 6.1

18.8 7.1 6.3 2.0

27.7 19.5 6.9 4.2

17.4 10.3 7.8

22.3 13.2 8.9 6.1

14.9 8.2 7.4

42.5 12.6 14.7 13.6

– 10.4 – –

– – –

– 15.7 – –

– 13.5 –

– 7.8 – –

23.6 18.9 3.3 2.0

10.5 5.4 4.6

15.6 14.9 6.7 5.8

13.5 7.8 4.7

37.9 16.4 15.0 10.2

Source: World Development Indicators (various issues). Notes: *A — Simple mean tariff, B — Standard deviation of tariff lines, C — Weighted mean tariff, D — Share of tariff lines with international peaks, E — Share of tariff lines with specific tariffs.

Brazil 1989 1997 2000 2004 Korea 1989 1996 2002 Indonesia 1989 1996 2000 2003 Malaysia 1988 1997 2003 The Philippines 1989 1995 2000 2003

Brazil (2000)

Japan (2002/03)

EU 15 (2002)

United States (2001) Canada (2002)

Country

1 2 3 1 2 3 1 2 3 1 2 3 1 2 3

Stage* of Processing

3.2 9.0 13.1 7.9 6.8 34.3 12.4 19.9 18.4 25.4 20.3 22.6 9.5 14.0 16.3

Food, Beverages and Tobacco

2.2 9.8 10.3 1.0 7.0 13.5 0.9 6.7 9.7 9.8 6.8 12.0 10.6 18.7 22.2

Textiles and Leather 0.1 2.2 2.3 0.0 2.1 5.2 0.0 3.0 2.1 0.0 4.3 2.0 5.0 9.9 17.7

Wood and Furniture 0.0 0.6 0.9 0.0 0.4 1.0 0.0 2.1 1.5 0.0 0.6 0.3 6.6 14.4 14.9

Paper, Printing and Publishing 2.0 4.6 4.1 1.5 2.9 4.7 1.7 4.5 3.8 2.5 2.8 2.0 9.6 10.1 12.0

Chemicals 0.0 2.3 5.4 0.0 0.7 3.8 0.0 2.9 4.0 0.0 1.5 1.1 9.0 10.3 14.3

Non-metallic Products

Annex 4B Tariff Escalation by 2-Digit ISIC Industry

0.3 2.1 2.5 0.0 0.9 3.0 0.0 1.9 0.0 0.4 1.1 3.0 5.2 12.9 19.0

Basic Metals n.a. 2.7 2.2 n.a. 1.3 2.6 n.a. 2.0 2.5 n.a. 1.6 0.3 n.a. 16.7 15.6

Fabricated Metal Products and Machinery 1.6 0.6 3.5 1.2 0.0 4.8 1.2 1.8 2.9 0.2 0.1 2.7 11.6 14.2 20.3

Other

2.2 5.2 5.7 3.9 3.9 8.9 7.3 4.9 7.0 14.6 4.9 7.8 9.3 11.9 15.8

All Sectors

1 2 3 1 2 3 1 2 3

62.5 99.3 36.2 36.4 36.6 48.3 10.5 10.3 15.3

5.2 8.8 11.4 25.1 28.5 34.2 5.4 20.7 29.1

4.4 5.9 6.4 17.0 31.1 34.8 0.0 4.9 15.7

1.8 7.8 5.4 7.1 34.7 29.4 0.0 7.7 8.0

6.6 8.0 7.5 25.4 33.6 33.2 3.6 3.1 7.7

Source: WTO Annual Report (2003). Notes: *1 = First stage of processing; 2 = Semi-processed; 3 = Fully processed.

South Africa (2001)

India (2001–02)

Korea, DP (2000)

5.0 7.5 7.9 35.0 34.1 34.1 0.0 4.9 6.8

1.7 6.0 8.0 23.8 33.0 35.0 0.0 3.3 0.0

n.a. 8.0 6.4 n.a. 21.7 29.2 n.a. 2.6 5.2

5.9 8.0 7.8 35.0 35.0 33.5 3.5 4.5 7.2

29.0 10.9 10.7 28.1 32.3 33.0 5.6 11.6 10.5

United States

European Communities

United States

DS 84 (1997)

DS 75 (1997)

DS 68 (1997)

DS 62 (1996)

DS 67 (1997)

European Communities

DS 87 (1997)

European Communities

Korea

European Chile Communities

DS 110 (1997)

Respondent

Complainant

Case No.

The reclassification of certain computer equipment is inconsistent with Article II of GATT 1994.

The Liquor Tax Law and Education Tax Law of Korea are inconsistent with Article III:2 of GATT 1994.

Chile’s Special Sales Tax on spirits is inconsistent with Article III:2 of GATT 1994.

Alleged Violation

Annex 4C WTO Cases on Tariff-related Issues

The Panel found that the EC acted inconsistently with Article II:1 of GATT 1994. However, the Appellate Body reversed the Panel’s conclusion that the EC tariff treatment of LAN equipment is inconsistent with Article II:1 of GATT 1994.

The Panel concluded that Korea had violated Article III:2 of GATT 1994. The Appellate Body upheld the panel’s findings on all points.

The panel found that Chile’s Transitional System and its New System for taxation of distilled alcoholic beverages was inconsistent with Article III:2 of GATT 1994. The Appellate Body upheld the legal interpretations of the panel.

WTO Ruling

United States

Canada

European Communities

DS 11 (1995)

DS 10 (1995)

DS 8 (1995)

Source: WTO Documents.

United States

DS 31 (1996)

Japan

Canada

Japanese liquor tax system is discriminatory as it levies a substantially lower tax on ‘shochu’ than on whisky, cognac and white spirits, and thereby inconsistent with its WTO-commitments.

The prohibition or restriction on importation of certain periodicals is inconsistent with Articles III and XI of GATT 1994.

The panel found that the Japanese tax system is inconsistent with Article III:2 of GATT. Although the Appellate Body upheld the main conclusion of the Panel, it pointed out several areas where the Panel had erred in its legal reasoning.

The Panel found the measures applied by Canada to be in violation of GATT rules. The Appellate Body upheld the Panel’s findings on Article III:2 of GATT 1994, but reversed some other conclusions.

Pakistan

United States

Costa Rica

DS 192 (2000)

DS 56 (1996)

DS 24 (1995)

Source: WTO Documents.

Appellant

Case No.

United States

Argentina

United States

Respondent

Costa Rica alleged that US restrictions on textile imports from Costa Rica were in violation of the ATC Agreement.

US alleged that the Argentine measure were inconsistent with— • Articles II, VII, VIII and X of GATT 1994 • Article 2 of the TBT Agreement • Article 7 of the Agreement on Textiles and Clothing

The transitional safeguard measure is inconsistent with Articles 2.4, 3, 4, 6 and 7 of the ATC.

Alleged Violation

Annex 5 WTO Cases on Textile-related Issues

The panel found that the US restraints were not valid with its WTO commitment. The verdict has been upheld by the Appellate Body as well.

The Panel found that the alleged measure is inconsistent with— • Article II of GATT • Article VIII of GATT

Although the Panel noted that Pakistan failed to establish a number of the claims, it ruled US action to be inconsistent with Articles 6.2 and 6.4 of the ATC. The Appellate Body upheld the Panel’s overall conclusion.

WTO Ruling

Appellant

United States

Canada

Argentina

Case No.

DS 295 (2003)

DS 277 (2003)

DS 268 (2002)

United States

United States

Mexico

Respondent

WTO Ruling

Final determinations of the US Department of Commerce are inconsistent with— • Articles 1, 2, 3, 5, 6, 11, 12, and 18 of the ADA • Articles VI and X of the GATT 1994 • Article XVI:4 of the WTO Agreement

US measures are inconsistent with— • Article VI:6(a) of the GATT 1994 • Articles 1, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.8, 12 and 18.1 of the ADA • Articles 10, 15.1, 15.2, 15.3, 15.4, 15.5, 15.7, 15.8, 22 and 32.1 of the SCM

(Annex 6A Contd.)

The Panel concluded that the USDOC acted inconsistently with certain provisions of the ADA, but did not act inconsistently with other provisions of that Agreement.

The Panel found that US acted inconsistently with— • Articles 3.5 and 3.7 the ADA • Article 15.5 and 15.7 of the SCM Agreement

The Panel result is expected soon. Certain provisions of Mexico’s Foreign Trade Act and its Federal Code of Civil Procedure were inconsistent with— • Articles 5.8, 6, 6.1.1, 6.8, 7, 9, 9.5, 10.6, 11 and 11.1 of the ADA • Articles 11.9, 12.1.1, 12.7, 17, 19, 19.3, 20.6, 21 and 21.1 of the SCM

Alleged Violation

Annex 6A WTO Cases on Anti-Dumping-related Issues

Appellant

Canada

Japan

Brazil

Case No.

DS 264 (2002)

DS 244 (2002)

DS 241 (2001)

(Annex 6A Contd.)

Argentina

United States

United States

Respondent

Articles 1, 2, 3, 4, 5, 6, 9, 12 and Annex II of the Anti-Dumping Agreement, Article VI of the GATT 1994, and Articles 1 and 7 of the Customs Valuation Agreement

Sunset review of the anti-dumping duties on several commodities are inconsistent with— • Articles VI and X of GATT 1994 • Articles 2, 3, 5, 6 (including Annex II), 11, 12, and 18.4 of the ADA • Article XVI:4 of the WTO Agreement.

The determination under section 735 of the Tariff Act of 1930 is inconsistent with— • Articles 1, 2.1, 2.2, 2.4, 2.6, 5.1, 5.2, 5.3, 5.4, 5.8, 6.1, 6.2, 6.4, 6.9 and 9.3 of the ADA • Articles VI and X:3(a) of the GATT 1994

Alleged Violation

The Panel found that Argentina had acted inconsistently with its obligations under Articles 2.4, 2.4.2, 3.1, 3.2, 3.3, 3.4, 3.5, 5.1, 5.8, 6.1.1, 6.1.3, 6.8 and Annex II, 6.10 and 12.1 of the Anti-Dumping Agreement.

The Panel rejected all of Japan’s claims challenging various aspects of the US laws and regulations regarding the conduct of ‘sunset’ reviews of anti-dumping duties under US law. Although the Appellate Body reversed four of the Panel’s legal findings, they concluded that the US had acted WTO-consistently.

The Panel found that USDOC failed to comply with the requirements of Article 2.4.2 of the AD Agreement. The Appellate Body upheld most of the findings and reversed some in Canada’s favour.

WTO Ruling

Brazil

Turkey

Japan

Korea

DS 219 (2001)

DS 211 (2000)

DS 184 (1999)

DS 179 (1999)

United States

United States

Egypt

European Communities

US determination of Anti-Dumping Duty is inconsistent with— • Article VI of GATT 1994 • Articles 2, 6 and 12 of the ADA

Certain provisions of the Tariff Act of 1930 and related regulations are inconsistent with— • Articles VI and X of the GATT 1994 • Articles 2, 3, 6 (including Annex II), 9 and 10 of the ADA

The Investigations by Egypt is inconsistent with— • Articles 2.2, 2.4, 3.1, 3.2, 3.4, 3.5, 6.1, 6.2, 6.6, 6.7 and 6.8, and Annex II Paragraphs 1, 3, 5, 6 and 7 and Annex I, Paragraph 7 of the ADA • Article X:3 of the GATT 1994

EC had acted inconsistently with— • Article VI of GATT 1994 • Articles 1, 2, 3, 4 , 5, 6, 7, 9, 11, 12 and 15 of the ADA

(Annex 6A Contd.)

Although the Panel rejected some of Korea’s claims, it concluded that US acted inconsistently with Article 2.4 of ADA.

The Panel found that US acted inconsistently with Articles 2.1, 6.8, 9.4, 18.4 and Annex II of the ADA. The Appellate Body, however, reversed the Panel’s findings on several points.

Although the Panel rejected a number of claims made by Turkey, they found the Egyptian measure to be inconsistent with a number of WTO Agreements.

The Panel concluded that the EC had acted inconsistently with Articles 2.4.2, 12.2 and 12.2.2 of the ADA. Although the Appellate Body rejected several claims made by Brazil, they concluded that EC acted inconsistently with Articles 6.2 and 6.4 of the ADA.

Mexico

European United States Communities

DS 156 (1999)

DS 136 (1998)

Guatemala

United States

Japan

DS 162 (1999)

Respondent

Appellant

Case No.

(Annex 6A Contd.)

The existence of 1916 Act in parallel with the Tariff Act of 1930 is inconsistent with— • Articles III:4, VI:1 and VI:2 of GATT 1994 • Article XVI:4 of the WTO Agreement • Articles 1, 2, 3, 4 and 5 of the ADA

The definitive measure is inconsistent with— • Articles 1, 2, 3, 5, 6, 7, 12 and 18 of the ADA and its Annexes I and II • Article VI of GATT 1994

The judicial decisions under the US 1916 Act are inconsistent with— • Articles III, VI and XI of GATT 1994 • Several provisions of ADA

Alleged Violation

The Panel concluded that the 1916 Act is inconsistent with— • Article VI:1 and VI:2 of the GATT 1994 • Articles 1, 4 and 5.5 of the ADA • Article XVI:4 of the WTO Agreement The Appellate Body upheld all of the findings and conclusions of the panel

The alleged measure is inconsistent with Article 3.1, 3.2 3.4, 3.5, 5.3, 5.5, 5.8, 6.1.2, 6.1.3, 6.2, 6.4, 6.5, 6.8, 6.9, 12.1.1 and Annex I of the ADA.

The Panel concluded that the US has acted inconsistently with— • Article VI:1, VI:2 and XVI:4 of the GATT 1994 and • Article 1, 4.1, 5.1, 5.2, 5.4, 18.1 of the ADA The Appellate Body upheld all of the findings and conclusions of the panel.

WTO Ruling

Poland

Korea

Mexico

DS 122 (1998)

DS 99 (1997)

DS 60 (1996)

Source: WTO Documents.

United States

DS 132 (1998)

Guatemala

United States

Thailand

Mexico

The alleged measure is inconsistent with Articles 3.1, 3.2, 3.4, 3.7 and 3.7(i), 5.2, 5.3, 5.8, 7.4, 10.2, 10.4, 12.1, 12.1.1(iv), 12.2 and 12.2.2 of the ADA.

The anti-dumping investigation is inconsistent with Articles 2, 3, 5 and 7.1 of the ADA.

The Panel found that the measure is inconsistent with Article 5.3 of the ADA. However, the Appellate Body reversed the Panel’s finding that the dispute was properly before the Panel, as Mexico did not comply with Article 6.2 of the DSU in its request for a panel since it did not identify the measure it was complaining against, and could not make any conclusions on the findings by the Panel.

The Panel found the alleged measures is The anti-dumping duty on certain types inconsistent with Article 11.2 of the ADA. of Dynamic Random Access Memory Semiconductors is inconsistent with Articles 6 and 11 of the ADA.

The imposition of final duties is inconsistent The Panel found that the measure is inconsistent with Articles 2, 3, 5 and 6 of the ADA. with— • Articles 2 and 3 of the ADA • Article VI of the GATT 1994 The Appellate Body upheld the major findings of the Panel.

The Mexican measure is inconsistent with Articles 2, 3, 4, 5, 6, 7, 9, 10 and 12 of the ADA.

228 The WTO Deadlocked Annex 6B An Analysis of DSB Complaints Involving Dumping* Year

A

B

C

Overall D

E

F

G

Total

1996 1997 1998 1999 2000 2001 2002 2003 2004 Total

1 1 4 4 3 4 2 0 0 19

0 0 0 0 0 1 1 0 0 2

0 0 0 0 0 0 0 4 2 6

0 0 0 0 0 0 0 0 0 0

1 1 1 4 4 4 3 2 5 25

1 0 0 0 0 0 0 0 0 1

1 1 0 0 0 0 0 0 1 3

4 3 5 8 7 9 6 6 8 56

Year

Countries Complaining against United States’ Anti-Dumping Policies A B C D E F G

1996 1997 1998 1999 2000 2001 2002 2003 2004 Total

0 1 1 3 1 2 2 0 0 10

0 0 0 0 0 1 1 0 0 2

0 0 0 0 0 0 0 3 1 4

0 0 0 0 0 0 0 0 0 0

1 0 0 0 0 2 2 0 3 8

1 0 0 0 0 0 0 0 0 1

0 1 0 0 0 0 0 0 0 1

Source: Constructed from Dispute Settlement Updates, WTO (2005). Notes: * A — Win for appellant B — Loss for respondent C — Continuing/Result expected soon D — Request to suspend Panel proceeding E — Panel not formed F — Amicably settled G — Discontinuation of the alleged measure by the respondent

Total 2 2 1 3 1 5 5 3 4 26

Canada

European Korea Communities

DS 277 (2003)

DS 273 (2002)

United States

United States

Korea

DS 296 (2003)

Respondent

Complainant

Case No.

Korean measures are inconsistent with Articles 1, 2, 3.1, 5(a), 5(c), 6.3 and 6.5 of the SCM Agreement

The US measure is inconsistent with— • Article VI:6(a) of the GATT 1994 • Articles 1, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.8, 12 and 18.1 of the ADA • Articles 10, 15.1, 15.2, 15.3, 15.4, 15.5, 15.7, 15.8, 22 and 32.1 of the SCM

Section 771 of the US Tariff Act of 1930 is inconsistent with— • Articles VI:3 and X:3 of the GATT 1994 • Articles 1, 2, 10, 11, 12, 14, 17, 22, 32.1 of the SCM Agreement

Alleged Violation

The Panel found that the Korean measures are— • consistent with Articles 3.1(a) and 3.2 of the SCM Agreement • inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement The Panel further concluded that EC failed to demonstrate some of its claims. (Annex 6C Contd.)

The Panel found that the measures are inconsistent with— • Articles 3.5 and 3.7 of the ADA • Article 15.5 and 15.7 of the SCM Agreement

Panel concluded that the alleged measures are— • inconsistent with Articles 1.1(a)(1)(iv), 1.1(b) and 15.5 of the SCM Agreement; • consistent with Article 2 of the SCM Agreement. The Panel either rejected or exercised judicial economy on all other claims by Korea. US expressed its willingness to appeal certain provisions of the Panel ruling.

WTO Ruling

Annex 6C WTO Cases on Subsidy and Countervailing Measures-related Issues

Complainant

Canada

Brazil

Canada

Case No.

DS 257 (2002)

DS 222 (2001)

DS 221 (2001)

(Annex 6C Contd.)

United States

Canada

United States

Respondent

US actions concerning Section 129(c)(1) of the Uruguay Round Agreements Act are inconsistent with— • Article21.3 of the DSU • Article VI of the GATT 1994 • Article 10 and notes 36, 19.2, 19.4 and notes 51, 21.1, 32.1, 32.2, 32.3 and 32.5 of the SCM Agreement • Articles 1, 9.3, 11.1, 18.1-4 and note 12 of the ADA • Article XVI:4 of the WTO Agreement

Subsidies granted to Canada’s regional aircraft industry is inconsistent with Article 3 of the SCM Agreement.

The US measures were inconsistent with— • Articles 1, 2, 10, 11, 12, 14, 15, 19, 22 and 32.1 of the SCM Agreement • Articles VI:3 and X:3 of GATT 1994

Alleged Violation

The Panel concluded that that Canada had failed to establish that Section 129(c)(1) of the Uruguay Round Agreements Act was inconsistent with Articles VI:2, VI:3 and VI:6(a) of the GATT 1994; Articles 1, 9.3, 11.1 and 18.1 and 18.4 of the AD Agreement; Articles 10, 19.4, 21.1, 32.1 and 32.5 of the SCM Agreement; and Article XVI:4 of the WTO Agreement.

The Panel found that US procedure was inconsistent with— • Articles 10, 14, 14(d) and 32.1 SCM Agreement • Article VI:3 of GATT 1994 The Appellate Body upheld the major findings of the Panel. Most of Brazil’s claims were rejected. Only on one count the Canadian measure was found inconsistent with Article 3.1(a) of the SCM Agreement.

WTO Ruling

European United States Communities

Canada

United States

DS 212 (2000)

DS 194 (2000)

DS 126 (1998)

Australia

United States

European United States Communities

DS 213 (2000)

The Australian measures are inconsistent with Article 3 of the SCM Agreement.

The US restraint on exports of a product acts as a subsidy to other products and is inconsistent with— • Articles 1.1, 10, 11, 17, 19, 32.1 and 32.5 of the SCM Agreement • Article XVI:4 of the WTO Agreement

The US methodology was inconsistent with Articles 10, 19 and 21 of the SCM Agreement.

The US measures were inconsistent with Articles 10, 11.9 and 21 of the SCM Agreement.

The Panel concluded that the payments under the grant contract are subsidies within the meaning of Article 1 of the SCM Agreement. (Annex 6C Contd.)

The Panel noted that the US actions are not inconsistent with its obligations under SCM Agreement.

The Panel found that both the countervailing duty determinations and Section 1677(5)(F) were inconsistent with the SCM Agreement. Although the Appellate Body reversed the Panel ruling on certain Articles of SCM Agreement, it upheld the major findings of it.

The Panel found that US acted inconsistently with— • Articles 21.3 and 32.5 of the SCM Agreement • Article XVI:4 of the WTO Agreement The Appellate Body upheld the major findings of the Panel.

Canada

The Philippines

DS 46 (1996)

DS 22 (1995)

Source: WTO Documents.

Brazil

DS 70 (1997)

Brazil

Brazil

Canada

European United States Communities

DS 108 (1997)

Respondent

Complainant

Case No.

(Annex 6C Contd.)

The countervailing duty imposed by Brazil on the Philippine’s exports of desiccated coconut was inconsistent with WTO and GATT rules.

The export subsidies granted to foreign purchasers of Brazil’s Embraer aircraft are inconsistent with the Subsidies Agreement Articles 3, 27.4 and 27.5.

Certain subsidies granted by the Canadian Government are inconsistent with Article 3 of the Subsidies Agreement.

The US FSC scheme was inconsistent with— • Articles III:4 and XVI of the GATT 1994 • Articles 3.1(a) and (b) of the SCM • Articles 3 and 8 of the AOA

Alleged Violation

The Panel concluded that the provisions of the agreements relied on by the Philippines were inapplicable to the dispute. The Appellate Body upheld the findings and legal interpretations of the Panel.

The Panel found that Brazil’s measures were inconsistent with Articles 3.1(a) and 27.4 of the Subsidies Agreement. The Appellate Body upheld all major findings of the panel.

The Panel found that Canada’s measures were inconsistent with Articles 3.1(a) and 3.2 of the Subsidies Agreement. The Appellate Body upheld the findings of the panel.

The panel concluded that the US acted inconsistently with— • Article 3.1(a) of the SCM Agreement • Article 3.3 of the AOA

WTO Ruling

Alleged Violation

WTO Ruling

DS 259 Brazil (2002)

United States US measures were inconsistent with— • Articles 2.1, 2.2, 3.1, 4 and 5 of the Agreement on Safeguards • Articles I:1, X:3 and XIX:1 of GATT 1994

The Panel concluded that all the United States’ safeguard measures at issue were inconsistent with at least one of the following WTO pre-requisites for the imposition of a safeguard measure — lack of demonstration of: (i) unforeseen developments; DS 258 New Zealand United States US measures were inconsistent with— (ii) increased imports; (2002) • Articles 2.1, 2.2, 3.1, 3.2, 4.1, 4.2, (iii) causation; and 5.1, 7, 8.1 and 12 of the Agreement on (iv) parallelism. Safeguards The Appellate Body upheld the Panel’s ultimate • Articles I:1, X and XIX:1 of GATT 1994 conclusions that each of the 10 safeguard measures at issue in this dispute was inconsistent with the United DS 254 Norway United States US measures were inconsistent with— (2002) • Articles 3, 4.1, 4.2, 5.1, 7, 8.1, 9.1 and States’ obligations under Article XIX:1(a) of the GATT 1994 and the Agreement on Safeguards. It reversed 12 of the Agreement on Safeguards the Panel’s findings that the US failed to provide a • Articles I:1, II, X:3 and XIX of GATT reasoned and adequate explanation on ‘increased 1994 imports’ and on the existence of a ‘causal link’ between DS 253 Switzerland United States US measures were inconsistent with— increased imports and serious injury for two of the 10 (2002) • Articles 2.1, 2.2, 3, 4.1, 4.2, 5.1, 7.1, 8.1 safeguard measures. Ultimately, however, even these and 12 of the Agreement on Safeguards measures were found to be inconsistent with the WTO • Articles I:1 and XIX:1 of GATT 1994 Agreement on other grounds. (Annex 6D Contd.)

Case No. Complainant Respondent

Annex 6D WTO Cases on Safeguards-related Disputes

United States US measures were inconsistent with— • Articles 2.1, 2.2, 3.1, 3.2, 4.1, 4.2, 5.1, 5.2, 7.1, 8.1, 9.1 and 12 of the Agreement on Safeguards • Articles I:1, II, X:3, XIX:1 and XIX:2 of GATT 1994 United States US measures were inconsistent with— • Articles 2.1, 2.2, 3, 4, 5, 7.1, 7.4, 8.1, 9.1 and 12 of the Agreement on Safeguards • Articles X:3 and XIX:1 of GATT 1994 • Article XVI:4 of the Marrakesh Agreement

Alleged Violation

United States US measures were inconsistent with— • Articles 2.1, 2.2, 3.1, 3.2, 4.1, 4.2, 5.1, 7.1, 7.4. 8.1, 12.1, 12.2, 12.3 of the Agreement on Safeguards • Articles I:1, II, X:3, XIII and XIX:2 of GATT 1994 DS 248 European United States US measures were inconsistent with— (2002) Communities • Articles 2.1, 2.2 ,3.1, 3.2, 4.1, 4.2, 5.1, 5.2, 7.1 and 9.1 of the Agreement on Safeguards • Articles I:1, XIII and XIX:1 of GATT 1994

DS 249 Japan (2002)

DS 251 Korea (2002)

DS 252 China (2002)

Case No. Complainant Respondent

(Annex 6D Contd.) WTO Ruling

Argentina

Argentina’s definitive safeguard measure is inconsistent with— • Articles 2, 4, 5 and 12 of the Agreement on Safeguards • Article XIX:1 of GATT 1994 DS 234 Canada and United States The amendment to the Tariff Act of 1930 (2001) Mexico signed on 28 October 2000 with the title of ‘Continued Dumping and Subsidy DS 217 Australia, United States Offset Act of 2000’ (known as ‘the Byrd (2001) Brazil, Chile, Amendment’) is inconsistent with— European • Article 18.1 of the ADA in conjunction Communities, with Article VI:2 of the GATT and India, Article 1 of the ADA Indonesia, • Article 32.1 of the SCM Agreement, Japan, Korea in conjunction with Article VI:3 of the and Thailand GATT and Articles 4.10, 7.9 and 10 of the SCM Agreement • Article X(3)(a) of the GATT • Articles 5.4, 8 and 18.4 of the ADA • Articles 5, 11.4, 18 and 32.5 of the SCM Agreement

DS 238 Chile (2001)

(Annex 6D Contd.)

The Panel found that Argentina has acted inconsistently with— • Article XIX:1(a) of GATT 1994 • Articles 2.1, 4.2(a) and 4.1(b) of the Agreement on Safeguards The Panel found that the CDSOA was inconsistent with— • Articles 5.4, 18.1 and 18.4 of the ADA • Articles 11.4, 32.1 and 32.5 of the SCM • Articles VI:2 and VI:3 of the GATT 1994 • Article XVI:4 of the WTO Agreement However it rejected the claim that CDSOA was inconsistent with— • Articles 8.3 and 15 of the ADA • Articles 4.10, 5 (b) 7.9 and 18.3 of the SCM • Article X:3(a) of the GATT 1994 The Appellate Body upheld most of the major conclusions of the Panel.

Alleged Violation

The price band system and provisional safeguard measures are inconsistent with— • Articles II and XIX:1(a) of the GATT 1994 • Article 4 of the Agreement on Agriculture • Articles 2, 3, 4, 5, 6 and 12 of the SCM

Case No. Complainant Respondent

Chile

United States The definitive safeguard measure is inconsistent with— • Articles 2, 3, 4, 5, 11 and 12 of the SCM • Articles I, XIII and XIX of the GATT 1994

United States The definitive safeguard measure under Section 203 of the US Trade Act 1974 is inconsistent with— • Articles 2, 3, 4, 5, 8, 11 and 12 of the Agreement on Safeguards • Articles I, II and XIX of GATT 1994

DS 207 Argentina (2000)

DS 202 Korea (2000)

DS 178 Australia (1999)

(Annex 6D Contd.)

The Panel found that the US action was inconsistent with— • Article XIX:1(a) of GATT 1994 • Article 2.1, 4.2(a), 4.1(b), 4.1(c) and 4.2(b) of the Agreement on Safeguards The Appellate Body upheld most of the findings of the Panel.

The Panel found that the measures are inconsistent with— • Article XIII:2, XIX of the GATT 1994 • Articles 3.1, 4.2(b), 4.2(c), 8.1, 9.1 and 12.3 of the SCM Although the Appellate Body reversed certain points in favour of the US, most of the major conclusions of the Panel were upheld.

The Panel found that the measures are inconsistent with— • Article 4.2 of the Agreement on Agriculture and Articles II:1(b) and XIX:1(a) of GATT 1994 • Articles 2, 3.1, 3.2, 4.1(a), 4.1(b) and 4.2(a) and 5.1 of the SCM Although the Appellate Body reversed certain points in Chile’s favour, most of the major conclusions of the Panel were upheld.

WTO Ruling

Source: WTO Documents.

DS 177 New Zealand United States The definitive safeguard measure under (1999) Section 203 of the US Trade Act 1974 is inconsistent with— • Articles 2, 4, 5, 11 and 12 of the Agreement on Safeguards • Articles I and XIX of GATT 1994 DS 166 European United States The definitive Safeguard Measure on (1999) Communities Imports of Wheat Gluten from the European Communities is inconsistent with— • Articles 2, 4, 5 and 12 of the Agreement on Safeguards • Article 4.2 of the AOA • Articles I and XIX of GATT 1994 DS 121 European Argentina The measure is inconsistent with— (1998) Communities • Articles 2, 4, 5, 6 and 12 of the Agreement on Safeguards • Article XIX of GATT 1994 DS 98 European Korea Korean safeguard measures on dairy (1997) Communities products are inconsistent with— • Articles 2, 4, 5 and 12 of the Agreement on Safeguard Measures • Article XIX of GATT 1994 The Panel found that the US action was inconsistent with— • Articles 2.1, 4, 8.1, 12.1(a), 12.1(b), 12.1(c) and 12.3 of the Safeguards Agreement • Article XIX:1(a) of the GATT 1994 Although the Appellate Body reversed the Panel’s conclusion regarding Article 12.1(c), it upheld all other major conclusions. The Panel found that Argentina’s measure is inconsistent with Articles 2 and 4 of the Agreement on Safeguards. The Appellate Body upheld the major findings of the Panel. The Panel found that Korea’s measure is inconsistent with Articles 4.2(a) and 5 of the Agreement on Safeguards. However it rejected the EC claims under Article XIX of GATT 1994, Articles 2.1, 12.1, 12.2 and 12.3 of the Agreement on Safeguards. The Appellate Body concluded that Korea violated Article 12.2 of Agreement on Safeguards.

Complainant

Australia

United States

Brazil

Case No.

DS 290 (2003)

DS 174 (1999)

DS 224 (2001)

US

European Communities

European Communities

Respondent The Panel agreed with the claims of United States and Australia that the EC’s GI Regulation does not provide national treatment to other WTO Members’ right holders and products. In other words, foreign nationals are not assured of guaranteed access to the EC’s system for their GIs, unlike EC nationals. However, the Panel found that the EC system of GI protection, which requires product inspection, is not inconsistent with the WTO obligations of EC.

WTO Ruling

Discriminatory elements in the provisions of No Panel established nor settlement notified. the US Patents Code, in particular in Chapter 18 [38] are inconsistent with its obligations under Articles 27 and 28 of TRIPS Agreement, especially, Article 2 of TRIMs Agreement and Articles III and XI of GATT 1994.

The lack of protection of trademarks and geographical indications (GIs) for agricultural products and foodstuffs in the EC is inconsistent with— • Articles 2, 3, 4, 16, 22, 24, 63 and 65 of the TRIPS Agreement • Articles I and III:4 of the GATT 1994

The lack of protection of trademarks and geographical indications (GIs) for agricultural products and foodstuffs in the EC is inconsistent with— • Articles 1, 2, 3, 4, 16, 20, 22, 24, 41, 42, 63 and 65 of the TRIPS Agreement • Articles I and III of GATT 1994 • Article 2 of the TBT Agreement • Article XVI:4 of the WTO Agreement

Alleged Violation

Annex 7A Completed WTO Cases on TRIPS-related Disputes

European United States Communities

US

DS 176 (1999)

DS 171 (1999)

Argentina

Argentina

US

DS 196 (2000)

Brazil

US

DS 199 (2000)

The Panel rejected most of the claims except that relating to the inconsistency of Section 211(a)(2) of the Omnibus Appropriations Act with Article 42 of the TRIPS Agreement. The Appellate Body reversed some of the Panel’s conclusions, and concluded that Sections 211(a)(2) and (b) are not inconsistent with Article 2.1 of the TRIPS Agreement in conjunction with Article 8 of the Paris Convention (1967).

Mutually satisfactory solution reached.

Mutually satisfactory solution reached.

Mutually satisfactory solution reached. Argentina’s legal regime for patent protection for pharmaceuticals and test data protection for agricultural chemicals are inconsistent with Articles 27, 65 and 70 of the TRIPS Agreement. (Annex 7A Contd.)

Section 211 of the US Omnibus Appropriations Act is inconsistent with Article 2 of TRIPS Agreement in conjunction with the Paris Convention, Article 3, Article 4, Articles 15 to 21, Article 41, Article 42 and Article 62 of the same.

Argentina’s legal regimes governing patents and data protection are inconsistent with its obligations under Articles 27, 28, 31, 34, 39, 50, 62, 65 and 70 of the TRIPS Agreement.

Provisions of Brazil’s 1996 industrial property law inconsistent with its obligations under Articles 27 and 28 of the TRIPS Agreement, and Article III of the GATT 1994.

European United States Communities

DS 160 (1999)

Canada

United States

DS 170 (1999)

Respondent

Complainant

Case No.

(Annex 7A Contd.)

The Panel concluded that several Canadian policies are inconsistent with WTO. The Appellate Body upheld all the findings of the Panel.

WTO Ruling

The panel found that— Section 110(5) of the US Copyright Act • Section 110(5) of the US Copyright Act did is inconsistent with US obligations under Article 9(1) of the TRIPS Agreement, which not meet the requirements of Article 13 of the TRIPS Agreement and was thus inconsistent requires Members to comply with Articles with Articles 11bis(1)(iii) and 11(1)(ii) of the 1–21 of the Berne Convention. Berne Convention (1971) as incorporated into the Article 9.1 of TRIPS Agreement. • Sub-paragraph (A) of Section 110(5) of the US Copyright Act met the requirements of Article 13 of the TRIPS Agreement and was thus consistent with Articles 11bis(1)(iii) and 11(1)(ii) of the Berne Convention (1971) as incorporated into the Article 9.1 of TRIPS Agreement.

Under the Canadian Patent Act, the term granted to patents issued on the basis of applications filed before 1 October 1989 is 17 years from the date on which the patent is issued. The US contended that this situation is inconsistent with Articles 33, 65 and 70 of the TRIPS Agreement.

Alleged Violation

Violations of Articles 33, 65 and 70 of TRIPS Agreement was alleged under its Industrial Property Act.

Violations of Articles 27, 65 and 70 of TRIPS Agreement was alleged.

DS 36 US Pakistan (1996) Source: WTO Documents.

US

DS 37 (1996)

• Mutually satisfactory solution reached.

• Mutually satisfactory solution reached.

• (Section 55.2[1]) of the Canadian Law was Canada’s TRIPS legislation does not not inconsistent with Articles 27.1 and 28.1 provide for the full protection of patented of the TRIPS Agreement. pharmaceutical inventions for the entire duration of the term of protection envisaged • (Section 55.2[2]) of the Law was inconsistent with Article 28.1 of the TRIPS Agreement by Articles 27.1, 28 and 33 of the TRIPS and was not covered by the exception in Agreement. Article 30 of the TRIPS Agreement.

Portugal

European Canada Communities

DS 114 (1998)

• TRIPS

Trade marks

Geographical indications • TRIPS

Copyright Act, 1957 as amended in 1999 • Berne Convention for the Protection of Literary and Artistic Works • Universal Copyright Convention • Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms • Multilateral Convention for the Avoidance of Double Taxation of Copyright Royalties • TRIPS Agreement • Rome Convention • Treaty on the International Registration of Audiovisual Works/Film Register Treaty

Copyrights and related rights

Geographical Indications of Goods (Registration & Protection) Act, 1999

Trade Marks Act, 1999

Patents Act, 1970 as amended in 2005

• Paris Convention for the Protection of Industrial • Patent Cooperation Treaty • TRIPS

Patents

Current Indian Legislations

International Conventions

IPRs

Annex 7B International Norms and Indian Law on IPRs

• TRIPS

• TRIPS

Industrial designs

Plant variety protection

Protection of Plant Varieties and Farmers’ Rights Act, 2001

Designs Act, 2000

Semiconductor Integrated Circuits LayoutDesign Act, 2000

Biodiversity and TK

Biodiversity Act, 2002 • Convention on Biological Diversity • Cartagena Protocol on Biosafety to the United Nations Convention on Biological Diversity • International Undertaking on Plant Genetic Resources, 1989 • International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA) Source: India Development Foundation 2008.

• TRIPS • Treaty on Intellectual Property in Respect of Integrated Circuits

Layout-designs of integrated circuits

244 The WTO Deadlocked Annex 7C Major Amendments in Indian IPR Legislations 1. Patents Act of 1856, amended in 1859 Act of 1883 Act V of 1888 Indian Patents and Designs Act, 1911 Patents Act, 1970 amended in 1999, 2002 and then in 2005 2. Trademarks Acts of 1875, 1883, 1905, 1938, 1940 Trade and Merchandise Marks Act, 1958 Trade Marks Act, 1999 3. Copyrights Copyright Acts of 1911, 1914 Copyright Act, 1957 amended in 1999 4. Geographical Indications Geographical Indications of Goods (Registration & Protection) Act, 1999 5. Designs The Patents and Designs Protection Act, 1872 Indian Patents and Designs Act, 1911 Design Act, 2000 6. Layout-Designs of Integrated Circuits Semiconductor Integrated Circuits Layout-Design Act, 2000 7. Biodiversity and TK Biodiversity Act, 2002 8. Sui-generis Protection Protection of Plant Varieties and Farmers’ Rights Act, 2001 Source: India Development Foundation 2008.

Annexures

245

Annex 7D Membership of India in International IPR Conventions International Convention

India’s Position

WIPO Berne Convention for the Protection of Literary and Artistic Works

In force since 1 April 1928

Treaty on Intellectual Property in Respect of Integrated Circuits

Signed on 25 May 1990

Rome Convention

Signed on 26 October 1961

Convention for the Protection of Producers In force since 12 February 1975 of Phonograms against Unauthorised Duplication of their Phonograms Paris Convention for the Protection of Industrial Property (1883, revised last in 1976)

In force since 7 December 1998

Treaty on the International Registration of Audio-visual Works/Film Register Treaty

Signed on 20 April 1989

Patent Cooperation Treaty

In force since 7 December 1998

WTO Agreement on Trade Related Aspects of Intellectual Property Rights United Nations Convention on Biological Diversity

Signed on 5 June 1992

Cartagena Protocol on Biosafety to the United Nations Convention on Biological Diversity

Signed on 23 January 2004 In force since 11 September 2003

FAO International Undertaking on Plant Genetic Resources, 1989 International Treaty on Plant Genetic Resources for Food and Agriculture (ITPGRFA)

Signed on 10 June 2002

Source: India Development Foundation 2008.

1990

16.7 6.1 6.6 7.9 7.3 5.8 4.6

1.4 3.1 – – – 72.6

Country

US UK Germany Japan France The Netherlands Italy

Korea Hong Kong, China Singapore India China Top 15

3.9 3.7 3.4 – – –

14.5 5.5 5.7 7.4 5.3 4.8 2.7

2000

Export

4.0 4.2 – – – 70.8

13.5 5.2 5.9 7.0 5.3 5.8 2.4

2001

4.5 3.4 2.7 – – 68.4

11.2 5.4 6.6 6.4 5.1 4.7 2.6

2004

1.5 – 1.4 1.3 1.2 64.6

13.6 5.7 6.6 10.2 6.7 4.2 4.2

1990

Transportation Service

2.6 – 3.1 2.1 2.5 –

15.7 5.8 6.1 8.4 4.3 3.1 3.1 2.7 – 1.7 1.8 2.8 64.7

15.4 5.7 6.1 8.1 4.3 3.5 3.0

2001

Import 2000

Annex 8A Leading Exporters and Importers of Global Service Trade

3.0 – 2.8 2.3 4.2 64.7

13.1 5.6 6.8 7.2 4.4 2.9 3.3

2004

1990

19.0 5.9 5.4 – 7.6 – 6.2 2.0 – 0.7 68.6

Country

US UK Germany Japan France The Netherlands Italy Hong Kong, China India China Top 15

20.6 4.6 3.9 1.8 6.5 – 5.8 – – 3.4 66.1

2000

Export 19.1 3.9 3.7 – 6.6 – 5.6 2.2 – 3.8 65.4

2001 15.3 4.4 4.4 1.8 6.5 – 5.7 – – 4.1 64.0

2004 14.7 7.1 13.1 9.6 4.8 2.8 4.0 1.8 – 0.2 72.5

1990

Travel Service

15.3 8.7 12.0 7.3 4.1 2.8 3.6 2.8 – 3.0 –

11.6 9.6 12.3 6.6 4.9 2.8 3.5 2.3 – 3.3 70.5

2004

(Annex 8A Contd.)

14.5 8.9 10.8 6.2 4.3 2.8 3.3 3.2 – 3.3 71.0

2001

Import 2000

15.3 8.4 7.6 6.8 10.1 3.9 7.4

2.6 – 0.7 68.6

US UK Germany Japan France The Netherlands Italy

Canada China India Top 15

3.2 1.5 – –

19.7 11.6 6.2 5.9 4.7 3.7 2.9

2000

Export

2.8 – 2.4 65.4

19.7 11.1 6.5 5.6 4.8 3.9 3.5

2001

Source: Various issues of International Trade Statistics.

1990

Country

(Annex 8A Contd.)

2.5 2.4 3.1 75.3

16.7 11.8 7.3 5.2 4.3 3.9 3.3

2004

3.6 0.1 0.7 72.5

8.2 3.9 9.5 11.1 7.0 3.6 8.6

1990

3.5 2.0 – –

12.4 5.5 9.3 7.9 3.9 4.0 4.2 3.3 2.2 2.2 71.0

10.4 5.0 10.0 7.8 4.2 4.3 4.8

2001

Import 2000

Other Commercial Service

3.0 3.0 2.4 70.4

12.5 5.1 8.8 5.8 4.5 4.2 4.4

2004

Emergence of developing countries as offshore service providers to the industrialised world has created fears into the North and that may translate into protectionism. In several US states, legislation is pending that will introduce an outsourcing ban with respect to government contracts. In Europe legal norms designed to protect workers in outsourced deals, known as Transfer of Undertakings and Protection of Employees (TUPE), as well as privacy directives, could have an inhibiting effect on trade.

A major barrier to ‘consumption abroad’ of medical services is lack of portability of health insurance. For example, US federal or state government reimbursement is limited to licensed certified facilities in the US or a specific US state. In EU countries also, public insurance does not cover elective care received abroad. Canada only makes an exception for cancer treatment in some neighbouring US states. Further, the lack of long-term portability of health coverage for retirees from OECD countries is also one of the major constraints. In the US, for instance, Medicare covers virtually no services delivered abroad. This constraint is significant because it tends to deter some elderly persons from traveling or retiring abroad.

Movement under Mode 4 faces a range of barriers. A major problem is that temporary movement of service providers invariably comes under the purview, not of international trade policy, but of immigration legislation and labour market policy. Visa formalities are a significant obstacle, and the conditions attached are used to implement a range of restrictions. These include prohibitions and quotas either explicitly or through a variety of Economic Needs Tests (ENT). Wage parity conditions tend to erode the cost advantage of hiring foreigners and have the same restrictive impact as quotas. Nonrecognition of professional qualification poses a particular challenge because of the difficulty in distinguishing between legitimate and protectionist denial of recognition. And above all, linking movement of natural persons to commercial presence is proving more problematic for developing countries, which are interested primarily in the movement of independent professionals.

Mode 1

Mode 2

Mode 4

Source: Quoted from CUTS (2005).

Main Problems

Mode of Trade

Annex 8B Main Problems with the Modes of Service Trade

European Canada Communities

DS 142 (1998)

Mexico

United States

DS 204 (2000)

Respondent

Complainant

Case No.

Canadian value-added (CVA) content requirement is— • Articles I:1, III:4 and XXIV of GATT 1994 • Article 2 of the TRIMs Agreement • Article 3 of the SCM Agreement • Articles II, VI and XVII of GATS

The Mexican measures on Telecommunication services is inconsistent with— • Mexico’s GATS commitments and obligations as described under Articles VI, XVI and XVII; • Mexico’s additional commitments under Article XVIII as set forth in the Reference Paper inscribed in Mexico’s Schedule of Specific Commitments, including Sections 1, 2, 3 and 5; • the GATS Annex on Telecommunications, including Sections 4 and 5.

Alleged Violation

The Panel found that the Canadian measures are inconsistent with— • Article I of GATT 1994 and not justified under Article XXIV of GATT 1994. • Article III:4 of GATT 1994. • Article 3.1(a) of the SCM Agreement. • Article II of GATS and could not justified under Article V of GATS. • Article XVII of the GATS.

The Panel found that Mexico failed to— • ensure interconnection at cost-oriented rates for the cross-border supply of facilities-based basic telecom services, contrary to Article 2.2(b) of its Reference Paper; • maintain appropriate measures to prevent anti-competitive practices by firms that are a major telecom supplier, contrary to Article 1.1 of its Reference Paper; and • ensure reasonable and non-discriminatory access to and use of telecommunications networks, contrary to Articles 5(a) and (b) of the GATS Annex on Telecommunications.

WTO Ruling

Annex 8C Completed WTO Cases on Services-related Disputes

Japan

Source: WTO Documents.

DS 139 (1998)

Canada

Canadian value-added (CVA) content requirement is— • Articles I:1 and III:4 of GATT 1994 • Article 2 of the TRIMs Agreement • Article 3 of the SCM Agreement • Articles II, VI and XVII of GATS

Australia, New Zealand, USA, Norway, Japan, Canada, EC, Switzerland, Brazil, Singapore, China, Korea, Taiwan, Hong Kong (China), Turkey, Poland, Panama, Uruguay, Malaysia, Peru, Thailand, Egypt

Argentina, Australia, Bahrain, Brazil, Brunei Darrusalem, Bulgaria, Canada, Chile, China, Columbia, Croatia, Cuba, Cyprus, Czech Republic, Dominican Republic, EC, Egypt, Estonia, Georgia, Honduras, Hong Kong (China), Hungary, Iceland, Indonesia, Israel, Jamaica, Japan, Jordan, Kenya, Korea Republic, Kuwait, Latvia, Liechtenstein, Malaysia, Mauritius, Mexico, Morocco, New Zealand, Nigeria, Norway, Oman, Pakistan, Peru, The Philippines, Poland, Qatar, Romania, Singapore, Slovak Republic, Slovenia, South Africa, Sri Lanka, Switzerland, Taipei, Thailand, Trinidad & Tobago, Tunisia, Turkey, UAE, USA, Venezuela, Zimbabwe

Countries Engaged in Negotiations with India Request Made to India (Major Countries) Request Made by India (Major Countries)

Annex 8D Summary of Key Sectors of Importance to India

• Architectural service • Accountancy service • Hospital service • Architectural service • Computer-related service • Construction and engineering service • Banking service • Legal service • Maritime transport service • Other business service • Computer and related service • Audio-visual service • Distribution service • Education and training service • Environment service • Insurance service • Banking service • Telecom service • Tourism service • Maritime transport service • Air, rail, road transport service • Postal service • Recreational, cultural and sporting service Source: Compiled from Ministry of Commerce Documents.

Request Made to India (Major Sectors)

Sector under Negotiation Request Made by India (Major Sectors)

Limitations on Market Access

None except that the establishment would be only through incorporation as partnership firm constituted by architects and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

None except that the establishment would be only through incorporation and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

None except that the establishment would be only through incorporation as partnership firm constituted by architects and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Only through incorporation with a foreign equity ceiling of 74 per cent subject to the condition that the latest technology for treatment will be brought in and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

None except that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Only through incorporation with a foreign equity ceiling of 74 per cent subject to the condition that the latest technology for treatment will be brought in and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Sector

Architectural services

Integrated engineering services

Urban planning and landscape architectural services

Medical and dental services

Veterinary services

Services provided by midwives, nurses, physiotherapists and para-medical personnel

Annex 8E India’s Sectoral Revised Offer for Trade in Services—Select Sectors

None except that the establishment would be only through incorporation and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Unbound except as in the horizontal section.

Unbound except as in the horizontal section.

None for consultancy services, subject to FIPB approval and also subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required unbound except as in the horizontal section.

None subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

None subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

The service will be permitted to be provided only after the operator gets a licence from the designated authority. In the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required. Number of licenses, may, however, be limited due to scarce resources such as right of way and spectrum availability, subject to a minimum of two licences in each service area. The private operator should be a company registered in India in which total foreign equity must not exceed 49 per cent.

R&D services on the natural sciences only

R&D services in agricultural sciences

R&D services on social sciences and humanities

Real estate services

Rental/leasing services without operators

Other business services

Telecommunication services

(Annex 8E Contd.)

None except that the establishment would be only through incorporation.

Computer and related services

Do

• Only through representative offices which will be allowed to function as branches of companies incorporated outside India. • Import of titles restricted to 100 per year.

None except that the establishment would be only through incorporation and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Radio paging services

Motion picture or video distribution services

General construction work for civil engineering

None, subject to approval of RBI/FIPB and conformity with Foreign Exchange Management Act (FEMA) regulations, as applicable and also subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

• None subject to the condition that service providers would be subject to regulations, as applicable to domestic providers in the country of origin. • None subject to the condition that fees to be charged can be fixed by an appropriate authority and that such fees do not lead to charging capitation fees or to profiteering. Subject further to such regulations, already in place or to be prescribed by the appropriate regulatory authority. In the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Wholesale trade services

Higher education services

Commission agents’ services None, subject to approval of RBI/FIPB and conformity with FEMA regulations, as applicable and also covering sales on a fee or contract subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Do

Limitations on Market Access

Packet switched data transmission services

(Annex 8E Contd.) Sector

None, except establishment would be through incorporation with foreign equity not exceeding 26 per cent and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

• Unbound except in the case of insurance of freight, where there is no requirement that goods in transit to and from India should be insured with Indian insurance companies only. Insurance is taken by the buyer or seller in accordance with the terms of the contract. This position will be maintained. Once under a contract the Indian importer or exporter agrees to assume the responsibility for insurance such as in the case of f.o.b. contracts for imports into India or c.i.f. contracts for exports from India, insurance has to be taken only with an Indian insurance company. • None except establishment would be through incorporation with foreign equity not exceeding 26 per cent and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

None subject to the conditions that foreign companies can be established through incorporation with foreign equity not exceeding 51 per cent and further subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required. In the case of Actuarial and Advisory Services, formal certification by Actuarial Society of India would be required.

Life insurance

Non-life insurance

Services auxiliary to insurance, such as consultancy, actuarial, risk assessment

(Annex 8E Contd.)

None subject to incorporation and the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Refuse disposal services sanitation and similar services

Allowed for foreign financial services companies (including banks) through incorporation and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

None except establishment would be through incorporation with foreign equity not exceeding 26 per cent and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Financial leasing

Asset management, confined to such as cash or portfolio management, all forms of collective investment management, pension fund management, custodial, depository and trust services

Limitations on Market Access

• Through branch operations and as a wholly owned subsidiary of a foreign bank licensed and supervised as a bank in its home country and subject to regulations of the Reserve Bank of India. • A limit of 12–20 licences per year both for new entrants and existing banks. • Banks are allowed to install ATMs at branches and at other places identified by them. Installation of ATM at a place other than in licensed branches is treated as a new place of business and requires a licence. Licences issued for ATMs installed by foreign banks will not be included in the ceiling of twenty licences referred to in the preceding item. • Foreign banks are permitted to invest in private sector banks through the FDI route subject to foreign equity ceiling of 49 per cent and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Banking and other financial services

(Annex 8E Contd.) Sector

Only through incorporation and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Only through incorporation in and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Hotels and other lodging services

Travel agency Tour operator services

(Annex 8E Contd.)

• None for provision of services on provider to provider basis such that the transaction is between two established medical institutions, covering the areas of second opinion to help in diagnosis of cases or in the field of research. • Only through incorporation with a foreign equity ceiling of 74 per cent and subject to the condition that the latest technology for treatment will be brought in and further subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required. Publicly funded services may be available only to Indian citizens or may be supplied at differential prices to persons other than Indian citizens.

Hospital services

• Allowed for foreign financial services companies (including banks) through incorporation, and Financial consultancy services, • Subject to the condition that in the case of foreign investors having prior collaboration in that i.e., financial advisory services specific service sector in India, FIPB approval would be required. provided by financial advisers, etc., to customers on financial matters, investment and portfolio research and advice, advice on acquisitions and on corporate restructuring and strategy

None and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Do

• At least 40 per cent of cargo carried by liner shipping companies must be reserved for Indian flag ships. • Preference will be given to Indian flag vessels for government cargoes; and government owned/controlled cargo. • Government policy on FOB/FAS imports and export will hold good. • Indian flag vessels will have the first right of refusal for carrying such cargo and only thereafter can foreign flag ships be allowed to be in-chartered/taken on international rental basis.

None, except as indicated in Horizontal commitment/Head Note to this Schedule and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Entertainment services (including theatre, live bands and circus services)

Sporting and other recreational services (excluding lottery, gambling and betting services)

Maritime transport services International transport

Maritime cargo handling services

Limitations on Market Access

• Only through incorporation and subject to total ceiling of 500 tourist guides conversant in Chinese, Spanish, Portuguese, French and Japanese and in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required. • None for tourist guides conversant in Chinese, Spanish, Portuguese, French and Japanese languages subject to a total ceiling of 500. For others: Unbound except as in horizontal Commitments.

Tourist guides services

(Annex 8E Contd.) Sector

Do

Do

Do

None except obtaining permission from Director General (Shipping) for chartering a foreign flag vessel in the absence of availability of a suitable Indian vessel.

None, except as indicated in Horizontal commitment/Head Note to this Schedule and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

None, except as indicated in the Head Note and subject to the condition that in the case of foreign investors having prior collaboration in that specific service sector in India, FIPB approval would be required.

Container station and depot services

Maritime agency services

Maritime freight forwarding services

International rental/charter of vessels with crew or on bareboat basis (excluding cabotage and offshore transport)

Maintenance and repairs of sea going vessels

Ship broking service

Maintenance and repair of None and subject to the condition that in the case of foreign investors having prior collaboration in that aircraft specific service sector in India, FIPB approval would be required. Source: Constructed from TN/S/O/IND/Rev.1, dated 24 August 2005.

Do

Storage and warehousing services in ports

262 The WTO Deadlocked Annex 9A Merchandise Exports within Bloc (% of Total Bloc Exports) Blocs

1970

1980

1990

1995

1999

High-income and low- and middle-income countries APEC 57.8 57.9 68.3 71.8 71.8 CEFTA 12.9 14.8 9.9 14.6 12.1 EU 59.5 60.8 65.9 62.4 62.9 NAFTA 36.0 33.6 41.4 46.2 54.6 Latin America and the Caribbean ACS 9.6 8.7 8.4 8.5 5.6 Andean Group 1.8 3.8 4.1 12.0 8.8 CACM 26.1 24.4 15.3 21.8 13.6 CARICOM 4.2 5.3 8.1 12.1 16.9 Central American Group of Four 20.1 18.1 13.7 22.2 14.6 LAIA 9.9 13.7 10.8 17.1 12.7 MERCOSUR 9.4 11.6 8.9 20.3 20.6 Africa Cross-border 9.3 8.8 10.3 11.9 12.1 initiative ECOWAS 2.9 10.1 7.9 9.0 10.4 Indian Ocean 8.4 3.9 4.1 6.0 4.8 Commission SADC 8.0 2.0 4.8 8.7 11.9 UEMOA 6.5 9.6 13.0 10.3 13.1 Middle East and Asia ASEAN 22.9 18.7 19.8 25.4 22.4 Bangkok 2.7 3.7 3.7 5.0 5.1 Agreement EAEG 28.9 35.6 39.7 47.9 43.8 SAARC 3.2 4.8 3.2 4.4 4.0 Source: World Development Indicators (2005).

2000

2002

2003

73.1 12.2 61.6 55.7

73.3 12.2 60.6 56.7

72.5 12.5 61.1 56.1

6.4 7.9 14.8 14.7

7.1 9.5 11.1 12.5

6.7 7.8 13.0 12.4

15.1 12.8 20.8

12.8 11.1 11.6

12.3 11.2 11.9

10.6 9.5

10.2 10.6

12.4 8.4

4.2 11.9 13.1

5.3 9.3 12.3

6.1 9.4 13.0

23.9

23.7

23.0

5.1 46.6 4.1

5.6 48.2 4.2

5.7 49.4 5.6

India, Bangladesh

India, Nepal

Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka

India, Bhutan

India, Sri Lanka

Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka

Indo-Nepal Trade and Transit Treaty

Agreement on SAARC Preferential Trading Arrangement (SAPTA)

Free Trade Agreement on Trade and Commerce

Indo-Sri Lanka Free Trade Agreement

Agreement on South Asian Free Trade Area (SAFTA)

Member Countries

India–Bangladesh Trade Agreement

South Asia

Free Trade Agreements/Preferential Trade Agreements/Regional Trade Agreements/Ongoing Negotiations

(Annex 9B Contd.)

The decision was reached in 2004 and SAFTA came into force in January 2006.

The agreement was signed in 1999 and came into force since January 2000. The discussions on a CECA is currently in progress.

Arrangement since 1947, but the formal agreement was signed in 1972.

Signed on 11 April 1993; later moved towards SAFTA.

Signed in 2002. However preferential arrangement was in force earlier, which was renewed in 1997.

Signed in 1980 and renewed from time to time. Valid up to 30 October 2001, negotiations are on.

Status

Annex 9B India’s Involvement in RTAs—A Summary

India, UAE, Bahrain, Saudi Arabia, Oman, Qatar, Kuwait

India–GCC Framework Agreement on Economic Cooperation

Signed on 29 June 2005.

India, Singapore

India–Singapore Comprehensive Economic Cooperation Agreement

Signed on 9 October 2003 and later amended on 30 August 2004, reform in progress. Signed on 8 October 2003.

India, Thailand

India–Thailand Framework Agreement for Free Trade Area

Signed on September 1996.

Signed on 25 August 2004, will explore the possibility of establishing an FTA.

Signed on May 2003.

Status

Framework Agreement for Comprehensive India, Brunei Darussalam, Cambodia, Economic Cooperation between India and Indonesia, Lao PDR, Malaysia, ASEAN Nations Myanmar, the Philippines, Singapore, Thailand, Vietnam

India, Mongolia

India–Mongolia Agreement on Trade and Economic Cooperation

East and South-East Asia and Australia

India, Afghanistan

Member Countries

India–Afghanistan Preferential Trade Agreement

West Asia

Free Trade Agreements/Preferential Trade Agreements/Regional Trade Agreements/Ongoing Negotiations

(Annex 9B Contd.)

India, Republic of Korea

India, Japan

India, Malaysia

Negotiations with Republic of Korea

Negotiations with Japan

Negotiations with Malaysia

Bangladesh, India, Myanmar, Sri Lanka Signed on 8 February 2004. and Thailand were original members. Later Bhutan and Nepal joined the group.

Framework Agreement on BIMST Economic Cooperation FTA

(Annex 9B Contd.)

Signed on 31 July 1975. Currently the third round of Although a number of countries negotiation is in progress since October 2001. initially participated, the Philippines, Thailand and LAO PDR could not finally participate. Presently operational between five countries: Bangladesh, China, India, Republic of Korea and Sri Lanka.

JSG is working to analyse the feasibility of a bilateral CECA.

JSG started functioning in June 2005 for considering the feasibility of a bilateral Economic Partnership Agreement; the countries are moving closer.

The JSG submitted its report on 15 January 2006 recommending formation of a CECA.

A Joint Study Group (JSG) set up in 2003, has recommended creation of an RTA.

Bangkok Agreement

Cross-Region Negotiations

India, China PR

Negotiations with China PR

Brazil, Argentina, Uruguay, Paraguay and India

Botswana, Lesotho, Namibia, South Africa, Swaziland and India

Member Countries

PTA with Chile Chile and India Source: Compiled by authors from various official documents.

PTA with MERCOSUR

Latin America

South African Customs Union

Africa

Free Trade Agreements/Preferential Trade Agreements/Regional Trade Agreements/Ongoing Negotiations

(Annex 9B Contd.)

The PTA has been signed on 8 March 2006.

A framework agreement has already been signed on 17 June 2003.

In 2002, a Joint Working Group (JWG) was set up to prepare a Draft Framework Agreement with a provision for a PTA. On 28 July 2006, the Indian Cabinet cleared a proposal for a framework agreement aimed at promoting expansion of trade and providing a mechanism to negotiate a Comprehensive Free Trade Agreement (CFTA), within a reasonable time.

Status

West Asia Afghanistan Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates Total South Asia Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka Total

Countries 78 55 37 43 68 16 6

10 81 97 33 36 20

0.0679 0.1875 0.4623 0.3495 0.0953 1.7245 4.4100 7.2970

2.5962 0.0657 0.0310 0.4951 0.4697 1.4264 5.0841

1996–97 Share Rank

1.9947 0.1050 0.528 0.9226 0.6323 1.6827 5.8653

12 78 98 25 34 15

61 62 37 46 54 14 2

2004–05 Share Rank 0.1958 0.1868 0.5056 0.3203 0.2519 1.7124 8.8638 12.0366

Export

0.1590 0.0863 0.0004 0.1637 0.0924 0.1095 0.6113

0.0078 0.3393 2.4253 0.0309 0.3140 4.6500 3.3929 11.1602 50 60 130 49 58 57

100 37 12 79 39 6 8

1996–97 Share Rank

Annex 9C An Analysis of Trade Scenario between India and Proposed Partners

64 62 157 35 56 34 (Annex 9C Contd.)

0.0543 0.0650 0.0005 0.3168 0.0849 0.3338 0.8553

67 52 38 90 27 19 4

2004–05 Share Rank 0.0424 0.1030 0.2721 0.0182 0.5864 1.1580 4.1833 6.3634

Import

East and South-East Asia Australia Brunei Darussalam Cambodia China, PR Indonesia Japan Lao People’s Democratic Republic Malaysia Mongolia Myanmar The Philippines Republic of Korea Singapore Thailand Vietnam Total

Countries

(Annex 9C Contd.)

24 108 141 14 15 3 184 17 168 61 31 18 8 21 42

1.1513 0.0180 0.0047 1.8369 1.7683 5.9933 0.0011

1.5869 0.0021 0.1350 0.5487 1.5491 2.9204 1.3358 0.3528 19.2044

1996–97 Share Rank 0.8570 0.0061 0.0212 6.6363 1.6086 2.5072 0.0031 19 176 69 38 20 4 23 32

26 160 125 3 17 10 166

2004–05 Share Rank

1.2952 0.0017 0.1362 0.4906 1.2367 4.7491 1.0921 0.6604 21.3015

Export

2.8194 0.0001 0.4528 0.0420 2.2580 2.1494 0.5039 0.0043 20.6458

3.3660 0.0001 – 1.9342 1.5257 5.5899 – 11 136 34 72 14 16 32 105

9 142 – 17 19 4 –

1996–97 Share Rank

2.0577 0.0002 0.3651 0.1666 3.1412 2.3675 0.7636 0.0743 23.6202

13 171 30 43 9 11 23 59

8 159 167 2 12 10 183

2004–05 Share Rank 3.2817 0.0005 0.0002 6.2002 2.3234 2.8780 0.0000

Import

Africa Botswana 0.0020 170 0.0091 148 – – Mauritius 0.4820 34 0.3085 47 0.0102 92 Namibia 0.0028 161 0.0085 152 0.0001 140 South Africa 0.9447 26 1.1919 22 0.8204 25 Swaziland 0.0086 130 0.0276 115 0.0182 84 Total 1.4401 1.5456 0.8489 Latin America Argentina 0.1753 57 0.2245 56 0.5144 30 Brazil 0.3959 41 0.8179 28 0.3900 35 Chile 0.1974 53 0.1312 71 0.2495 43 Paraguay 0.0186 107 0.0142 135 0.0004 129 Uruguay 0.0480 93 0.0297 111 0.0038 106 Total 0.8352 1.2175 1.1581 Overall 33.8608 41.9665 34.4243 Source: Calculations on the basis of the data taken from the Ministry of Commerce, Government of India.

163 113 185 15 127

29 25 37 129 122

0.0004 0.0065 – 1.9812 0.0028 1.9909 0.4762 0.7115 0.3149 0.0025 0.0036 1.5087 34.3385

Source: WTO Documents.

European United States Communities

DS 152 (1998)

Respondent

Complainant

Case No.

Chapter 1 (Sections 301–310) of the US Trade Act of 1974 (the Trade Act) is inconsistent with— • Articles 3, 21, 22 and 23 of the DSU • Article XVI:4 of the WTO Agreement • Articles I, II, III, VIII and XI of GATT 1994

Alleged Violation

The Panel found that Sections 304(a)(2)(A), 305(a) and 306(b) of the US Trade Act of 1974 were not inconsistent with Article 23.2(a) or (c) of the DSU or with any of the GATT 1994 provisions cited.

WTO Ruling

Annex 10A Completed WTO Cases Involving DSU-related Disputes

Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu

Bangladesh

DS 318 (2004)

DS 306 (2004)

European The Indian measures are inconsistent with Articles II:1(a) Communities and (b), Article III:2, III:4 and XI of the GATT 1994.

DS 352 (2006)

The Panel agreed to an EC request and suspended its work from 16 July 2007.

The Panel has been composed.

WTO Ruling

(Annex 10B Contd.)

Mutually satisfactory solution reached. The anti-dumping measures are inconsistent with— • Articles I:1 and II:1; Article VI including Articles VI:1, VI:2 and VI:6(a) and Articles XXIII:1(a) and XXIII:1(b) of GATT 1994 • Articles 1, 2.1, 2.2, 2.4, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 5.4, 5.8, 6.2, 6.4, 6.5, 6.8 (including para. 3 of Annex II), 6.9 and 12.2 of the Anti-Dumping Agreement.

No Panel formed. The provisional and definitive anti-dumping measures imposed by India on the seven chemical and related products are inconsistent with— • Articles VI:1 and VI:2 of GATT 1994 • Articles 1, 2, 3.1, 3.2, 3.3, 3.4, 3.5, 3.7, 3.8, 4, 5, 6 (including Annex II), 7.4, 12.1 and 12.2 of the ADA

The Indian measures are inconsistent with Articles II:1(a) and (b), and III:2 and III:4 of the GATT 1994.

United States

DS 360 (2007)

Alleged Violation

Complainant

Case No.

Annex 10B WTO Disputes Involving India as Respondent

United States

European The provisions of the Special Customs Duty, and the Special No Panel formed Communities Additional Duty under Schedule 1 of the 1975 Customs Tariff Act are inconsistent with Articles II:1(b) and III:2 of GATT 1994

DS 175 (1999)

DS 150 (1998)

The Panel expressed that India had acted inconsistently with— • Article III:4 and • Article XI of the GATT 1994 Although India moved to Appellate body, it withdrew from it in the subsequent period.

No Panel formed. European The Export and Import Policy (2002–07) is inconsistent Communities with— • Articles III, X and XI, XX and XXI of GATT 1994; • Article 4.2 of the Agreement on Agriculture; • Articles 1, 2 and 3 of the Agreement on Import Licensing Procedures; • Articles 2, 3, 5, 7 and 8 of the Agreement on Sanitary and Phytosanitary Measures; • Article 2 of the Agreement on Technical Barriers to Trade.

DS 279 (2002)

The measure sunder ‘Export and Import Policy, 1997–2002’ and Public Notice No. 60 (PN/97-02) are inconsistent with— • Articles III and XI of GATT 1994, • Article 2 of the TRIMs Agreement.

No Panel formed. European The anti-dumping measures are inconsistent with— Communities • Article VI:1 of GATT 1994 • Articles 1, 3.1, 3.2, 3.5, 6.6, 6.8 (including Annex II), 6.9 and 12.2 of the Anti-Dumping Agreement.

WTO Ruling

DS 304 (2003)

Alleged Violation

Complainant

Case No.

(Annex 10B Contd.)

Switzerland

New Zealand

DS 94 (1997)

DS 93 (1997)

Same as DS 90

Same as DS 90

European Same as DS 90. In Addition, EC claimed that India’s Communities quantitative restrictions on imports of agricultural, textile and industrial products are inconsistent with Articles 2, 3 and 5 of the SPS Agreement

Amicably settled.

Amicably settled.

Amicably settled.

(Annex 10B Contd.)

European The negative list for the export of several commodities under EC requested establishment of a panel, which Communities India’s EXIM Policy (1997–2002) is inconsistent with Article was deferred in 2000. XI of GATT 1994.

DS 120 (1998)

DS 96 (1997)

European Same as DS 175 Communities

DS 146 (1998)

Same as DS 175.

European The measures under Export and Import Policy (1997–2002) India explained its position to EC. No Panel was formed. Communities are inconsistent with— • Articles III, X, XI, XIII and XVII, XVIII:B, XX or XXI of GATT 1994 • Article 4.2 of the Agreement on Agriculture • Articles 1, 2 and 3 of the Agreement on Import Licensing Procedures

DS 149 (1998)

Australia

United States

DS 91 (1997)

DS 90 (1997)

India’s quantitative restrictions on imports of agricultural, textile and industrial products are inconsistent with— • Articles XI:1 and XVIII:11 of GATT 1994 • Article 4.2 of the Agreement on Agriculture • Article 3 of the Agreement on Import Licensing Procedures.

Same as DS 90

Same as DS 90

Alleged Violation

European EC alleged the absence of following— Communities • patent protection for pharmaceutical and agricultural chemical products • formal systems for filing of patent applications • provision of exclusive marketing rights for such products are inconsistent with with India’s obligations under Article 70, paragraphs 8 and 9, of the TRIPS Agreement. DS 50 United States US claimed that the protection available under Indian system (1996) in insufficient and hence not in line with its commitments made under TRIPS Agreement. Source: WTO Documents.

Canada

DS 92 (1997)

DS 79 (1997)

Complainant

Case No.

(Annex 10B Contd.)

The Panel ruled that the Indian measures are inconsistent with its WTO commitments.

The Panel concluded that India has acted inconsistently with Articles 70.8(a) and 70.9 of the TRIPS Agreement.

The Panel found that India’s policies are inconsistent with— • Articles XI and XVIII11 of GATT 1994 • Article 4.2 of the Agreement on Agriculture. The Appellate Body upheld all the findings of the Panel.

Amicably settled.

Amicably settled.

WTO Ruling

European The EC measure is inconsistent with— Communities • Article 9.2 • Article 3, especially Articles 3.4 and 3.5; and • Article 4.1 Anti-Dumping Agreement

European EC’s GSP scheme and special provisions nullify or impair Communities the benefits accruing to India under the most favoured nation provisions of— • Article I:1 of the GATT 1994 • paragraphs 2(a), 3(a) and 3(c) of the Enabling Clause

DS 313 (2004)

DS 246 (2002)

WTO Ruling

The EC provisions are inconsistent with— • Article I:1 of GATT 1994 • paragraph 2(a) of the Enabling Clause • Article XX(b) of GATT 1994 Although the Appellate Body modified some of the Panel findings, it upheld that EC failed to demonstrate that the challenged measure was justified under paragraph 2(a) of the Enabling Clause. (Annex 10C Contd.)

EC has agreed to terminate the measure at issue, and both parties have notified DSB of the mutual solution.

The Panel has been composed and is currently India considers that the Amended Bond Directive as such functioning. and the enhanced bond requirement are inconsistent with: • Articles 1, 7.1, 7.2, 7.4, 7.5, 9.2, 9.3, 9.3.1, 18.1 and 18.5 of the ADA • Articles I, II, III, VI:2, VI:3, X, XI and XIII of the GATT 1994 and • Articles 10, 17.4, 17.5, 19.3, 19.4, 32.1 and 32.5 of the SCM Agreement.

United States

DS 345 (2006)

Alleged Violation

Respondent

Case No.

Annex 10C WTO Disputes Involving India as Complainant

Respondent

United States

Argentina

Brazil

United States

Case No.

DS 243 (2002)

DS 233 (2001)

DS 229 (2001)

DS 217 (2001)

(Annex 10C Contd.)

The Panel found that India failed to establish that the alleged measures are inconsistent with Articles 2(b), 2(c) or 2(d) of the RO Agreement.

WTO Ruling

See Annex 6D

India in association with several developing countries won the case.

No Panel formed. The measures on Indian jute bags are inconsistent with— • Articles VI and X of GATT 1994 • Articles 1, 2, 3, 5, 6 (especially 6.6, 6.7, 6.8 and Annex II, 6.9, 6.10), 11, 12, 17.6(i), 18.3, 18.4 of the ADA • Article XVI of the WTO Agreement

No Panel formed. Argentina’s Law No. 24.766 and Decree No. 150/92 constitute unnecessary obstacles to Indian medicines, drugs and other pharmaceuticals from entering into the Argentinean market and is inconsistent with— • Articles 2 (especially 2.2), 5 (especially 5.1 and 5.2) and 12 of the TBT Agreement • Articles I and III of the GATT 1994 • Article XVI:4 of the Agreement establishing the WTO

The rules of origin requirement in US on imports of textiles and apparel products as set out in Section 334 of the Uruguay Round Agreements Act, Section 405 of the Trade and Development Act of 2000 and the customs regulations are inconsistent with paragraphs (b), (c), (d) and (e) of Article 2 of the Agreement on Rules of Origin.

Alleged Violation

European The Anti-Dumping Duties on Imports of Cotton-type Communities Bed-Linen are inconsistent with— • Articles 2.2.2, 3.1, 3.2, 3.4, 3.5, 5.2, 5.3, 5.4, 5.8, 6, 12.2.2, and 15 of the ADA • Articles I and VI of the GATT 1994

DS 141 (1998)

Although the panel rejected India’s claims relating to Articles 6.8, 15 and paragraphs 3, 5, and 7 of Annex II of the ADA, it concluded certain US practices to be WTO-incompatible.

(Annex 10C Contd.)

Although the panel rejected India’s claims regarding Articles 2.2, 2.2.2, 3.1, 3.4, 3.5, 5.3, 5.4 and 12.2.2 of the ADA, it ruled that EC acted inconsistently with its obligations under Articles 2.4.2, 3.4 and 15 of the same Agreement. Later India won a case on the failure of the EC to bring its policy in line with its WTO obligation within the reasonable time.

No Panel formed. Anti-Dumping Duties on the Import of Certain Pharmaceutical Products from India are inconsistent with— • Articles 2, 3, 6(a) to (c) individually and in conjunction with 12, 12 and 15 of the ADA • Articles I and VI of GATT 1994

South Africa

DS 168 (1999)

The procedures under US anti-dumping and countervailing duty law were inconsistent with— • Articles VI and X of the GATT 1994 • Articles 1, 2, 3 (especially 3.3), 5 (especially 5.8), 6 (especially 6.8), 12, 15, 18.4 and Annex II of the ADA • Articles 10, 11 (especially 11.9), 15 (especially 15.3), 22 and 27 (especially 27.10) of the SCM Agreement • Article XVI of the WTO Agreement

United States

DS 206 (2000)

European The cumulative recovery system (CRS), for determining Communities certain import duties on rice is inconsistent with— • Articles I, II, III, VII and XI of GATT 1994 • Articles 1–7, 11 and Annex I of the Customs Valuation Agreement • Articles 1 and 3 of the Import Licensing Agreement • Article 2 of the TBT Agreement • Article 2 of the SPS Agreement • Article 4 of the Agreement on Agriculture

United States

DS 134 (1998)

DS 58 (1996)

India, Malaysia, Pakistan and Thailand claimed that ban on importation of shrimp and shrimp products from them is inconsistent with Articles I, XI and XIII of GATT 1994

European Anti-Dumping Investigations Regarding Unbleached Communities Cotton Fabrics are inconsistent with— • Articles 2.2.1, 2.4.1, 2.4.2, 2.6, 3.3, 3.2, 3.4, 3.5, 4.1(I), 5.2, 5.3, 5.4, 5.5, 5.8, 6.10, 7.1(I), 7.4, 9.1, 9.2, 12.1, 12.2 and 15 of the ADA • Articles I and VI of GATT 1994

DS 140 (1998)

Alleged Violation

Respondent

Case No.

(Annex 10C Contd.)

The Panel found that US action is inconsistent with Article XI:1 of GATT 1994, and cannot be justified under Article XX of GATT 1994. However, the Appellate Body reversed some findings of the Panel.

No Panel formed.

No Panel formed.

WTO Ruling

United States

United States

DS 33 (1996)

DS 32 (1996)

Transitional safeguard measures on several textile products are inconsistent with ATC Articles 2, 6 and 8.

The safeguard measure imposed is inconsistent with Articles 2, 6 and 8 of the ATC

Turkey’s imposition of quantitative restrictions on imports of a broad range of textile and clothing products are inconsistent with— • Articles XI and XIII of GATT 1994 • Article 2 of ATC

DS 19 Poland The tariff scheme on automobiles in Poland was (1995) inconsistent with its WTO-obligations. Source: WTO Documents.

Turkey

DS 34 (1996)

Mutual solution agreed.

India later requested termination of action, as US removed the alleged measures.

The Panel found that the safeguard measure imposed by the US violated the provisions of the ATC. The Appellate Body upheld the major decisions of the Panel.

The Panel found that Turkey’s measures are inconsistent with— • Articles XI, XIII and XXIV of GATT 1994 • Article 2.4 of the ATC The Appellate Body upheld the major conclusions of the Panel.

Complainant

United States EC and their member states EC and Japan Japan and EC EC EC Pakistan

EC Canada United States United States United States EC

Case No.

DS 21 DS 114 DS 136 and DS 162 DS 139 and DS 142 DS 152 DS 165 DS 192

DS 193 DS 194 DS199 DS 204 DS 210 DS 212

Chile United States Brazil Mexico Belgium United States

Australia Canada United States Canada United States United States United States

Respondent

Measures affecting the importation of salmonids Patent protection of pharmaceutical products Anti-dumping Act of 1916 Certain measures affecting the automotive industry Sections 301–310 of the Trade Act of 1974 Import measures on certain products Transitional safeguard measure on combed cotton yarn from Pakistan Measures affecting the transit and importation of swordfish Measures treating export restraints as subsidies Measures affecting patent protection Measures affecting telecommunications services Administration of measures establishing customs duties for rice Countervailing measures concerning certain products from the European Communities

Dispute

Annex 10D Select Cases Involving India in DSB as Third Party

Japan

Canada

The Philippines

Australia

DS 244

DS 257

DS 270

DS 290

Source: Compiled from WTO documents.

Canada Brazil Canada and Mexico Canada

DS 221 DS 222 DS 234 DS 236

EC

Australia

United States

United States

United States Canada United States United States

Section 129(c)(1) of the Uruguay Round Agreements Act Export credits and loan guarantees for regional aircraft Continued Dumping and Subsidy Offset Act of 2000 Preliminary determinations with respect to certain softwood lumber from Canada Sunset review of anti-dumping duties on corrosion-resistant carbon steel flat products from Japan Final countervailing duty determination with respect to certain softwood lumber from Canada Certain measures affecting the importation of fresh fruit and vegetables Protection of trademarks and geographical indications for agricultural products and foodstuffs

Third parties shall have an opportunity to be heard by the Appellate Body and to make written submissions to it. These submissions shall be reflected in the Appellate Body report.

Article 17.4 of the DSU

During consultations Members shall give special attention to developing-country Members’ particular problems and interests.

Article 4.10

During consultations Members should give special attention to developing-country Members’ particular problems and interests.

The Appellate Body shall neither seek nor accept information from anyone other than the parties and third parties to a dispute.

Footnote to Article 17.6

Currently only parties to the dispute, not third parties, may appeal a panel report, and need to send a written request to the Appellate Body to be heard by.

Persons should be appointed for six-year term and shall not be eligible for reappointment.

Article 17. 2 of the Persons are appointed to serve on the Appellate Body DSU for a four-year term, and may be reappointed once

Developing Country Proposals A panel shall not accept unsolicited information.

Current/Proposed Positions

Footnote to Article Interpretation of the term ‘Seek’ 13 of the DSU

Clause

Annex 10E India’s Submission on DSU—1

If, after the relevant period has elapsed, the consulting parties cannot agree that the consultations have concluded, the Chairman of the DSB shall decide, after consultation with the parties, whether to extend the relevant period, and if so, for how long. In addition, in examining a complaint against a developing-country Member, the panel shall accord sufficient time for the developing Member to prepare and present its argumentation.

If, after the relevant period has elapsed, the parties fail to agree that the consultations have concluded, the Chairman of the DSB shall, at the request of the developing country Member concerned, decide to extend the relevant period for not less than 15 days, in cases of urgency as envisaged in paragraph 8 of Article 4, and not less than 30 days in all other cases. In addition, in examining a complaint against a developing-country Member, the panel shall allow sufficient time, not less than two additional weeks in normal circumstance, for the developing-country Member to prepare and present its first written submission and one additional week thereafter at each stage of written submission or presentation.

Article 21.2 of the Particular attention should be paid to matters affecting Particular attention shall be paid to matters affecting the DSU the interests of developing-country Members. interests of developing-country Members. Source: Compiled from India’s Submission (Document No. TN/DS/W/47, dated 11 February 2003) with six other countries.

Article 12.10 of the DSU

Cross-retaliation is most effective to tackle a problem in these cases. The complaining developing country should be permitted to seek authorisation for suspending concessions and other obligations in the sectors of their choice, bypassing the lengthy process of proving a loss first. The increasing cost of legal battles is a major barrier and financial responsibility on developing countries. Therefore, the legal cost to the developing countries, if they win the case against their developed counterpart in violation with the WTO-principle, should be reimbursed by it. The word ‘should’ needs to be replaced by ‘shall’ and specific attention has to be given according to the status of the developing country. Then the provisions would be mandatory and effective.

The Article requires, ‘During consultations members should give special attention to developing country Members’ particular problems and interests.’

Suspension of Concessions and other Obligations

Article 4.10 of DSU

Article 12.10 of DSU

The provision relates to the situation when a developing country is the defending party, while the other party is not necessarily a developed one. The provisions deal with consultation phase and panel proceeding. The consideration to developing country interest as a litigant has been described as ‘Particular attention should be paid to …’

The proposal suggested modification in the agreement and seeks to extend the overall, as well as individual, time frame for disputes involving developing countries as defending parties. Article 21.2 of The word ‘should’ needs to be replaced by ‘shall’ and DSU specific attention has to be given according to the status of the developing country. Then the provisions would be mandatory and effective. Source: Compiled from India’s Submission (Document No. TN/DS/W/19, dated 9 October 2002) with eight other countries.

Litigation costs

Developing Country Proposals

Current/Proposed Positions

The developed countries, losing side in a dispute, often do not cooperate with their developing counterparts. However, the only feasible option left with them, i.e., withdrawal of concessions, given the level of dependence is associated with high economic cost. The litigating parties have to finance their case.

Clause

Annex 10F India’s Submission on DSU—2

The practice is not in line with the high dignity of the office. The future appointments of the Appellate Body members should be for a non-renewable fixed term of six years.

Currently the system provides for reappointment of Appellate Body members, for a second-year term.

Terms of appointment of Appellate Body members

Inputs provided by WTO does not have an official negotiating history, and the Secretariat the Secretariat provides notes to Panels as one in certain disputes, which are not passed to the parties even.

No need to make provisions for accepting Amicus Curiae briefs. The purpose could be served by clarifying the meaning of the word ‘seek’ in Article 13 of DSU.

EC and US has proposed modification in Article 13 of DSU, and argued in favour of defining the framework and conditions for allowing Amicus Curiae briefs in potentially all cases.

Amicus Curiae briefs

(Annex 10G Contd.)

It is necessary to ensure that the parties to the dispute promptly receive all the documents, notes, information, etc., available to the Secretariat once a panel is established and appendix 3 of paragraph 10 should be amended accordingly.

The terms of settlement should be notified in sufficient details to DSB and other relevant councils within 60 days of such agreement.

Article 3.6 of DSU requires any mutually agreed solutions among the disputing parties to notify to the WTO. However, no time period has been specified.

Mutually Agreed solutions

Developing Country Proposals

Current/Proposed Positions

Clause

Annex 10G India’s Submission on DSU—3

The parties deserve a right to appeal against adoption of the panel report. The notices of appeal normally identify the nature of appeal, and the issues of law in it. However, in a couple of cases, the issues are unclearly stated and the other party, especially developing ones, loses valuable time in responding.

Sufficiency of notice of appeal

The Appellate Body was requested to lay down guidelines on the nature of Notice of appeals, while revising the working procedures.

Developing Country Proposals

Third party The provisions in Article 17.4 give discretion to the In order to ensure internal transparency and to enhance the rights in appeal Appellate Body to hear or not hear from the third right of the members to participate in the DS process, Article procedures parties. 17.4 should be modified along the lines of Article 10.2. Source: Compiled from India’s Submission (Document No. TN/DS/W/18, dated 7 October 2002) submitted with seven countries. Later Jamaica joined this group through TN/DS/W/18/Add.1 (dated 9 October 2002).

Current/Proposed Positions

Clause

(Annex 10G Contd.)

Annexures

287

Annex 10H Summary of DSB Rulings against Select WTO Members* Year A B C European Communities

D

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total India 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total Japan

– 1 2 1 1 – – – 1 – – – 6

– 3 1 1 – 1 1 4 4 – – – 15

1 – – – – – – 1 – 1 – 2 5

– – – – – – – – 3 1 – – 4

– – – – – – – – – – – – 0

– 1 2 1 1 – – – – – – – 5

– – – – – – – – – – – – 0

1995 1996 1997 1998 1999

– 1 – – –

3 – 1 – –

– – – – –

E

F

G

H

Total

– – – – – – – – – – – – 0

3 – 3 10 3 1 2 1 – 1 1 1 26

3 1 4 3 – 1 – – – – – – 12

1 – – – – – – – – 1 1 – 3

8 5 10 15 4 3 3 6 8 4 2 3 71

– – – – – – – – – – – – 0

– – – – – – – – – – – – 0

– – – 3 – – – 1 1 1 – – 6

– – 5 – – – – – – – – – 5

– – – – – – – – – 1 – – 1

0 1 7 4 1 0 0 1 1 2 0 0 17

– – – – –

– – – – –

– 1 1 1 –

1 2 1 – –

– – – – –

4 4 3 1 0

(Annex 10H Contd.)

288 The WTO Deadlocked (Annex 10H Contd.) Year

A

B

C

D

E

F

G

H

2000 – – – – – – – – 2001 – – – – – – – – 2002 – 1 – – – – – – 2003 – – – – – – – – 2004 – – – – – 1 – 2005 – – – – – – – – 2006 – – 1 – – – – – Total 1 5 1 0 0 3 5 0 United States 1995 – 3 – – – – 1 – 1996 – 2 – – 1 2 1 2 1997 – 2 – – 2 4 1 1 1998 1 2 – – – 2 1 – 1999 – 7 – – – 2 2 – 2000 2 5 1 – – 3 – – 2001 2 1 – – – 3 – – 2002 2 14 – – – 2 1 – 2003 2 2 2 – – – – – 2004 – – 2 – 1 4 – – 2005 – – 1 – – 1 – – 2006 – – – – – 5 – – Total 9 38 6 0 4 28 7 3 Source: Chaisse and Chakraborty (2007). Notes: * A — Win B — Loss C — Continuing/Result expected soon D — Circulated but not approved by DSB/Case currently with Appellate Body E — Request to suspend Panel proceeding F — Panel not formed/Ongoing consultation among parties G — Amicably settled H — Discontinuation of the alleged measure by the respondent

Total 0 0 1 0 1 0 1 15 4 8 10 6 11 11 6 19 6 7 2 5 95

Annexures

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Annex 11 An Analysis of Current Cooperation between India and Select Preferential Trade Partners (Number of Joint Submissions) Countries West Asia Afghanistan Bahrain Kuwait Oman Qatar Saudi Arabia United Arab Emirates South Asia Bangladesh Bhutan Maldives Nepal Pakistan Sri Lanka East and South-East Asia Brunei Darussalam Cambodia China, PR Indonesia Japan Lao PDR Malaysia Mongolia Myanmar The Philippines Republic of Korea Singapore Thailand Vietnam

WTO Disciplines C D E

A

B

F

G

– – – – – – –

– – – – – – –

– – – – – – –

– – – – – – –

– – – – – – –

– – – – – – –

– – – – – – –

– – – – 5 4

– – – – 2 2

8 – 2 – 15 11

– – – – 1 –

– – – – – –

– – – – 14 1

1 – – – 5 7

– – 3 4 1 – 2

– – – 1 – – 3

– – 5 21 – – 15

– – 1 – – – –

– – – 1 – – 1

– – 5 7 2 – 4

– – – 1 – – 1

– 4 3 – 2 –

– – – – – –

– 5 – – 5 2

– – – – – –

– – – – – –

– 9 3 3 11 –

– 1 – – 5 –

(Annex 11 Contd.)

290 The WTO Deadlocked (Annex 11 Contd.) Countries

A

B

WTO Disciplines C D E

F

G

Africa Botswana 2 – 5 – – – 1 Mauritius 2 – 4 – 1 – 4 Namibia 1 – 1 – – – 1 South Africa 2 – 1 – – – 1 Swaziland 1 – 1 – – – 1 Latin America Argentina 3 – – – 1 5 1 Brazil 3 – 2 – 1 5 6 Chile 3 – – – – 10 – Paraguay 3 – 1 – – 1 – Uruguay 1 – – – – 1 – Source: Compiled from India’s Proposals to WTO. Notes: A — Agriculture; B — Dispute Resolution; C — General Council (Special and Differential Treatment, Singapore Issues, Anti-Dumping, Trade in Textiles, Modalities, Preparation for Ministerial Conferences etc.); D — Investment; E — Non-Agricultural Market Access; F — Services; G — TRIPS

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Annex 12 List of Groupings at the GATT/WTO ABI: Argentina, Brazil and India, formed to negotiate on NAMA. African Group: Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Congo, Congo (Democratic Republic), Côte d’Ivoire, Djibouti, Egypt, Gabon, the Gambia, Ghana, Guinea, Guinea Bissau, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zambia, Zimbabwe. African Union/Group, ACP, least-developed countries (also known as ‘G–90’, but with 64 WTO members): Angola, Antigua and Barbuda, Bangladesh, Barbados, Belize, Benin, Botswana, Burkina Faso, Burundi, Cambodia. Cameroon, Central African Republic, Chad, Congo, Côte d’Ivoire, Cuba, Democratic Republic of the Congo, Djibouti, Dominica, Dominican Republic, Egypt, Fiji, Gabon, The Gambia, Ghana, Grenada, Guinea (Conakry), Guinea Bissau, Guyana, Haiti, Jamaica, Kenya, Lesotho, Madagascar, Malawi, Maldives, Mali, Mauritania, Mauritius, Morocco, Mozambique, Myanmar, Namibia, Nepal, Niger, Nigeria, Papua New Guinea, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Senegal, Sierra Leone, Solomon Islands, South Africa, Suriname, Swaziland, Tanzania, Togo, Trinidad and Tobago, Tunisia, Uganda, Zambia, Zimbabwe. Amber Box: The domestic support measures (e.g., support prices, or subsidies directly related to production quantities) with production and trade distorting effects falls under the amber box. Andean Group: Bolivia, Colombia, Ecuador, Peru and Venezuela. Asia-Pacific Economic Cooperation (APEC): Australia, Brunei Darussalam, Canada, Chile, China, Hong Kong (China), Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, the Philippines, the Russian Federation, Singapore, Taiwan (China), Thailand, United States and Vietnam. Association of Caribbean States (ACS): Antigua and Barbuda, the Bahamas, Barbados, Belize, Colombia, Costa Rica, Cuba, Dominica, the Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago and Venezuela. Association of South-East Asian Nations (ASEAN): Brunei Darussalam, Cambodia (from October 2004), Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

292 The WTO Deadlocked Bangkok Agreement: Bangladesh, India, Republic of Korea, Lao People’s Democratic Republic, the Philippines, Sri Lanka and Thailand. BIMST-EC: In the name of the founder members the group was originally known as Bangladesh India Myanmar Sri Lanka Thailand Economic Cooperation. However with the entry of Bhutan and Nepal, its name was changed to Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation. Blended formula: The formula for reducing tariff by dividing the tariff lines into three categories: the tariff reduction commitment in one subject to the Swiss formula, the other to the Uruguay Round formula and the third being duty-free. The number of products in each group is subject to negotiation. Blue Box: All domestic support measures that allow countries to make direct payments to their agricultural producers to limit domestic production. Bound commitment: A commitment made by a WTO member that cannot be revised to a more trade-discouraging level. Cairns Group: Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, Thailand, Uruguay. Caribbean Community and Common Market (CARICOM): Antigua and Barbuda, the Bahamas (part of the Caribbean Community but not of the common market), Barbados, Belize, Dominica, Grenada, Guyana, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname and Trinidad and Tobago. Central American Common Market (CACM): Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. Central American Group of Four: El Salvador, Guatemala, Honduras and Nicaragua. Central European Free Trade Area (CEFTA): Bulgaria, the Czech Republic, Hungary, Poland, Romania, the Slovak Republic and Slovenia. Cross-Border Initiative: Comoros, Kenya, Madagascar, Malwai, Mauritius, Namibia, Rwanda, Sechelles, Swaziland, Tanzania, Uganda, Zambia and Zimbabwe. De minimis: The maximum permissible ceiling on trade-distorting domestic support that is not subject to reduction commitment.

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East Asian Economic Caucus (EAEC): Brunei Darussalam, China, Hong Kong (China), Indonesia, Japan, Republic of Korea, Malaysia, the Philippines, Singapore, Taiwan (China) and Thailand. Economic Community of West African States (ECOWAS): Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, the Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone and Togo. European Free Trade Association (EFTA): The Group was formed in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland and Britain as an alternative to the European Economic Community (EEC). Some members joined the EEC subsequently. Currently the members are Iceland, Liechteinstein, Norway, and Switzerland. During 1990s Iceland, Liechtenstein, and Norway had joined the European Economic Area (EEA), which also include all members of the European Union (EU). European Union (EU): Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom were the original EU (15). In April 2004 ten East European Republics have joined the Union as well to make it EU (25)—Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Romania and Bulgaria joined later to take the membership count to 27. Five Interested Parties (FIPS): Australia, Brazil, the EU, India and the US. Friends of the Development Box: Cuba, Dominican Republic, El Salvador, Haiti, Honduras, Kenya, Nicaragua, Nigeria, Pakistan, Peru, Senegal, Sri Lanka, Uganda and Zimbabwe. Friends of Geographical indications: Dominican Republic, Egypt, Honduras, India, Jamaica, Kenya, Pakistan, Sri Lanka and Thailand. Similar views were expressed also by some of the transition economies like Bulgaria, Czech Republic, Romania, Slovakia and Slovenia. G–6: Australia, Brazil, the EU, India, Japan and the US. G–7: Canada, France, Germany, Italy, Japan, the UK and the US. G–8: Canada, France, Germany, Italy, Japan, Russia, the UK and the US. G–9 (during Uruguay Round): Australia, Austria, Canada, Finland, Iceland, New Zealand, Norway, Sweden, and Switzerland.

294 The WTO Deadlocked G–10 (formed during the Uruguay Round): Argentina, Brazil, Cuba, Egypt, India, Nicaragua, Nigeria, Peru, Tanzania and Yugoslavia. G–10: Bulgaria, Iceland, Israel, Japan, Korea, Republic of, Liechtenstein, Mauritius, Norway, Switzerland, Chinese Taipei (also referred as ‘European-East Asian grouping’). G–15: Although 15 members formed the group initially; there are now 19 members. The current members are Algeria, Argentina, Brazil, Chile, Colombia, Egypt, India, Indonesia, Iran, Jamaica, Kenya, Malaysia, Mexico, Nigeria, Peru, Senegal, Sri Lanka, Venezuela and Zimbabwe. G–20 (formed during the Uruguay Round): Bangladesh, Chile, Colombia, Côte d’Ivoire, Hong Kong, Indonesia, Jamaica, the Republic of Korea, Malaysia, Mexico, Pakistan, the Philippines, Romania, Singapore, Sri Lanka, Thailand, Turkey, Uruguay, Zambia and Zaire. This group does not function anymore. G–20 (formed in 2003): Argentina, Bolivia, Brazil, Chile, China, Cuba, Ecuador, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Peru, the Philippines, South Africa, Tanzania, Thailand, Uruguay, Venezuela and Zimbabwe. G–24 (on services): Argentina, Bolivia, Brazil, Colombia, Cuba, Dominican Republic, Ecuador, El Salvador, Honduras, India, Indonesia, Malaysia, Mexico, Nicaragua, Pakistan, Panama, Paraguay, Peru, the Philippines, Sri Lanka, Thailand, Uruguay and Venezuela. G–33: The G–33 is also known as the SP/SSM Alliance to champion the concepts and provisions of Special Products and Special Safeguard Mechanisms. The Group comprises 42 developing countries of the WTO. They are: Antigua and Barbuda, Barbados, Belize, Benin, Botswana, China, Côte d’Ivoire, Congo, Cuba, Dominican Republic, Grenada, Guyana, Haiti, Honduras, India, Indonesia, Jamaica, Kenya, Korea, Mauritius, Mongolia, Montserrat, Mozambique, Nicaragua, Nigeria, Pakistan, Panama, the Philippines, Peru, Saint Kitts, Saint Lucia, Saint Vincent and the Grenadines, Senegal, Sri Lanka, Suriname, Tanzania, Trinidad and Tobago, Turkey, Uganda, Venezuela, Zambia and Zimbabwe. G–77: Developing country grouping in UNCTAD with Brazil and India as members. G–90: Same as African Union/Group, ACP, least-developed countries. G–110: The developing country coalition formed by G–20 and G–90 coming together.

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Geographical Indications: A provision under the WTO TRIPS agreement, where geographical locations of production and cultivation are associated with products, which have a particular quality, reputation or characteristic because they originate in that location. Green Box: These include all Domestic support subsidies which either do not distort trade or cause minimum distortion. Price support measures are not included in this category. H1B: US H1B visa is a non-immigrant visa, allowing US companies to employ foreign high-tech and specialty workers up to six years. IBSAC: India, Brazil, South Africa and China. Indian Ocean Commission: Comoros, Madagascar, Mauritius, Reunion and Seychelles. Latin American Integration Association (LAIA): Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela. Like Minded Group (LMG): Cuba, Egypt, India, Indonesia, Malaysia, Pakistan, Tanzania and Uganda were the initial members. Later Dominican Republic, Honduras and Zimbabwe joined the group. Market access: Consent to imports to enter domestic market and compete with available domestic products on a non-discriminatory basis. MERCOSUR (South Cone Common Marker): Argentina, Brazil, Paraguay and Uruguay. MFN: Most Favoured Nation treatment implies extension of non-discriminatory treatment to the imports coming from all WTO members. Mode 1 of GATS: Cross-border supply—When the service provider and the service receiver are located in two different countries. Mode 2 of GATS: Consumption abroad—When the consumer receives the service by travelling away from his country of residence to the country of the service provider. Mode 3 of GATS: Commercial presence—When a service supplier establishes business outfits in the foreign market for delivering services at that location.

296 The WTO Deadlocked Mode 4 of GATS: Movement of natural persons—When the service in being delivered by one individual, either acting alone or as an employee of an organization by travelling to a foreign country. Mutual Recognition Agreements: Helps in ensuring free flow of trade through mutual recognition of standards. Through MRAs in GATS the qualifications of professional service suppliers in signatory member countries are mutually recognised. MRAs in SPS measures enable signatory countries to recognize of each others’ food safety policies. National Treatment (NT): Commitment undertaken by a WTO member to apply similar treatment to the foreign products and like domestic products. NAMA-11: Argentina, Venezuela, Brazil, Egypt, India, Indonesia, Namibia, the Philippines, South Africa and Tunisia. North American Free Trade Agreement (NAFTA): Canada, Mexico and the United States. Quad: Canada, the European Union, Japan and the United States. Request-offer approach: Under GATS negotiation, a country requests other countries to undertake reform commitments in service sectors and related modes. Based on the received requests from the partners on the sectors and its development compulsions, the countries offer their reform commitments. Rules of origin: Set of rules that determine the country in which a product is deemed to have originated. This ensures that mere passing through is not used for changing the country of origin. South African Customs Union (SACU): South Africa, Botswana, Lesotho, Namibia and Swaziland. South African Development Community (SADC): Angola, Botswana, the Democratic Republic of the Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe. South Asian Association for Regional Cooperation (SAARC): Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. Now the countries are members of SAFTA (South Asian Free Trade Area).

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Tiered approach: Here the tariff lines are divided into different bands and progressive reduction is applied, i.e., the bands with higher tariff rates are subjected to steeper reductions. Trade creation: When as a result of an RTA formation lower-priced imports from partners displace less efficient local production as a result of which domestic consumption increases, trade creation takes place. Trade diversion: When as a result of an RTA formation regionally lesser efficient imports from partners displace global more efficient partners, trade diversion takes place. West African Economic and Monetary Union (UEMOA): Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo.

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Index ADA provisions, misuse of, 104 Advisory Centre on WTO Law (ACWL), 184 African, Caribbean and Pacific group of states (ACP), 16 African countries and Doha Declaration, 121–22 Aggregate measure/measurement of support (AMS), 21 Agreement on Textiles and Clothing (ATC), 79 Agreement on agriculture (AOA), 4, 36–39 Agriculture disputes on, 37–39 gains, for India, 33 Hong Kong Ministerial (2005), 32–34 and July 2004 Draft, 29–32 liberalisation, 21 negotiations, Indian approach, 35–37 negotiations, phases of, 22 production and growth, in India, 45–46 subsidisation, 14, 22–25 tariff reforms, 25–26, 35–36 Alma Ata Declaration, 1979, 120, 121 Amicus Curiae submissions, 179 Anti-Dumping Agreement modification areas, 101–6 violations of, 103, 104 Anti-dumping disputes, 96–101 imposition trend, 97 anti-dumping duty (ADD), 61, 93–95, 95, 99 anti-dumping investigations, 96

Balance of Payment (BOP), 24 Bilateral Investment Treaties (BITs), 197–98 Blue Angel, 51 British Association of Physicians of Indian Origin (BAPIO), 147 Bureau of Indian Standards (BIS), 52 business process outsourcing (BPO), 132 Cancun Ministerial (2003), 14–15, 26, 27, 63, 65 China in global goods and services trade, 3 in post-MFA period, 83 tariff modalities, formula on, 66–67 Codex, 46 Common Agricultural Policy (CAP), 23 Commonwealth Report, 48 Competitiveness Fund, 75 compulsory licensing (CL), 121, 127 computable general equilibrium (CGE), 60 Convention on Biological Diversity (CBD), 122–23 Copyright Act, 1957, 119–20 Council for Trade in Services (CTS), 139 countervailing investigations, 107 countervailing measure (CVM), 107 customs union (CU), 152, 158 Derbez Draft, 14–15, 28, 65, 66 Designate National Authority (DNA), 143 developed countries, SPS standards in, 46–47 developing countries GDP growth in, 60

322 The WTO Deadlocked and GI protection, 123 GSP allocation in, 59 quota items, 84 SPS–TBT standards effect, 46–49 Swiss formula in, 69 tariff reform, flexibility in, 63–64 and TRIPS, 117–18 Dispute Settlement (DS), 8 Dispute Settlement Body (DSB), 13, 38, 86, 98, 101, 173 developed countries, complaints by, 174 developing countries, complaints by, 174 efficiency analysis, 187 Indian participation, 180–83, 188–90 structure of, 185–86 Dispute Settlement Mechanism (DSM), 173 dissatisfaction issues, 177–80 features of, 174 panel and appellate body procedure, 174–76 special and differential treatment (SDT), 177, 183 Dispute Settlement Panel (DSP), 178 Dispute Settlement Understanding (DSU), 173 Doha Development Agenda (DDA) and, 177 exploitation preventing provisions, 177 India’s submissions to WTO, 183–87, 196–99 Integrated Character, 174 objective of, 173 Doha Development Agenda (DDA), 60, 99 and India, 11–12, 24 Doha Ministerial, 11–12, 72, 121, 137, 156, 161 Drug Price Control Order (DPCO), 118 DSB, anti-dumping cases, analysis on, 102, 228 DSB ruling AD agreement, violations of, 104 subsidy and countervailing measures, violations of, 109, 110

summary of, 287–88 dumping provision, misuse of, 95 environmental measures, economic effects of, 48–49 Environment Project Approach (EPA), 143 Essential Commodities and the Prevention of Food Adulteration Act, 51–52 European Commission (EC), 69 European Union (EU) agricultural subsidy reform, proposal of, 27 bilateral agreements, 85 and GI protection extension, 124 Everything But Arms (EBA), 17, 74 export items, threat of, 110 export subsidies, on agriculture, 21 Five Interested Parties (FIPS), at Geneva, 29 Food and Drug Administration (FDA), 50, 51 food categories, standards for, 51–52 food processing industry, in India, 51–52 Food Products Orders, 51 Food Safety and Standards Bill, 52 Food Safety Inspection System (FSIS), 50 foreign sales corporation (FSC), 23 Free trade agreement (FTA), 152, 153 Friends of Geographical Indications’ group, 122 GATT and Uruguay Round, 4–5 General Agreement on Tariffs and Trade (GATT), 1, 58, 93, 94 General Agreement on Trade in Services (GATS), 131 modes of supply, 132 negotiation system, 133 request-offer approach, 133 Generalised System of Preferences (GSP), 59 Geneva Ministerial, 6–9, 61 geographical indications (GI) marks, 88 GI of Goods and Registration and Protection Act 1999, 88

Index G–110 formations, 193 Girard formula, 65, 69 global anti-dumping initiations, 95 Global E-Commerce Agreement, 6 Global service trade exporters and importers of, 134, 246 modes of supply contribution, 135 Global trade analysis project (GTAP), 82, 159 G–20 Ministerial meet declaration, 16 Golden Quadrilateral project, 88 government, role in textile industry, 88, 90 G–33 proposal, 28 and India, 26 negotiating agenda, 34 Green box, 21, 28, 30, 32, 42, 43, 295 Green label, 47 Harbinson Draft, 27, 30 Hazard Analysis Critical Control Points (HACCP), 50 Hong Kong Declaration, 18, 72, 100–101 ministerial declaration, guidelines, 144 services trade gains, by India, 145 Hong Kong Ministerial, 16–18, 70 agricultural trade reform, 32–34 on DSM, 177 G–110 formation, 193 India’s gain in, 125–26 India aggressive strategy and Doha Ministerial, 11–12 agriculture in AMS and PSE trends of, 24 gains in, 33 growth and export in, 45–46 negotiating approaches, 34–36 bilateral investment treaties (BITs), 197–98 as complainant, in WTO disputes, 275–79 DSM functioning, dissatisfaction issues, 177–80

323

economy of exports and imports, 1–2 and global goods and services trade, 2–3 negotiating strategy, 4 trade and, 2–3 WTO and GATT, 1 export gains in NAMA for, 71 Girard formula, 65 loss of, 23 NTB affect, 61 tariff reduction in, 64 textile, post-MFA growth in, 89 export ratios, by HS sections, 1, 204 export trend, 2, 206 future negotiations, at WTO, 198–201 and GI protection, 123 import ratios, by HS sections, 1, 205 import trend, 2, 207 IPR legislations, amendments in, 244 market-access issues, 194 openness measures, for economy, 1, 203 and preferential trade partners, 289–90 and Regional Trade Agreement (RTA), 151–60, 263–66 sectoral offer for trade in services, 147, 254–56 sectors of importance, 146, 252–53 service exports, structure of, 134 Singapore issues, 197 SPS measures in, 49 SPS–TBT plane, 50–52 submissions at WTO, 196–97 tariff modalities, 65–66 textile and clothing industry export, 13, 84–92 future prospects, 91–92 RCA values, 80 share in, 82 trade facilitation (TF), 197 Trade Policy Reviews, 188–89 trade scenario, with the proposed partners, 164, 198, 267–69 and TRIPS, 118–20

324 The WTO Deadlocked Indian Patents Act of 1970, 118 Industrial Development Bank of India (IDBI), 88 Industrial products, UR negotiation on, 58–59 Information Technology Agreement (ITA), 6 Intellectual Property Rights (IPRs), 117 international norms and Indian law on, 242–43 International Covenant on Economic, Social and Cultural Rights, 1966, 120 Japan, tariff modalities formula, 67 July 2004 Draft, 15–16, 29–31 Kelkar Task Force Report (2000), on Indirect Taxes, 36 less developed countries (LDC), 7, 59, 74, 137, 177 less than full reciprocity (LTFR), 62 Like Minded Group (LMG), 6 Long Term Arrangement (LTA), 79 Marrakesh Agreement and WTO, 7 Medicines and Related Substances Control Amendment Act (1997), 12, 121 merchandise exports, within bloc, 157, 262 MFA reform, 84 milk and milk products export, limitations for India, 50 Millennium Round, 10 Minimum Required Performance Limit (MRPL), 51 Ministerial Decision (1994), on DSM, 177 Ministry of Food Processing Industry (MFP), 52 Mode 1, of GATS, 132 Mode 2, of GATS, 132 Mode 3, of GATS, 132 Mode 4, of GATS, 132 modes of services trade, problem areas, 135, 249

most favoured nation (MFN), 6, 58, 59, 132, 133, 150 Multi-Fibre Arrangement (MFA), 79 NAMA–11, 17, 70, 75, 165, 193, 195 NAMA negotiation, 61–66 background of, 58–61 core group, 70 future of, 75–76 gains in, 71 July 2004 Discussion, implications of, 68 major area in, 72 NASSCOM, 147 National Textile Policy of the Government of India (2000), 82 Negotiating group on market access (NGMA), 63, 72 NGO participation, in DSP, 185 N.K. Singh Committee, 88 non-agricultural market access (NAMA), 14, 27, 61 non-linear tariff cutting formula, 69 non-product specific AMS, calculation, 22 non-tariff barriers (NTBs), 5, 8, 36, 47, 61, 87 Norway, non-linear tariff cutting formula, 69 Occupational Safety and Health Administration (OSHA), 51 overall trade distorting domestic support (OTDDS), 33 Overall Trade Distorting Support (OTDS), of developed countries, 23 Pakistan, in Hong Kong Ministerial, 17 Paragraph 6 problem, 122, 124 Designs Act, 1911, 118, 120 Patents Act, 1970, 118 Patents on drugs, issues of, 119 peanuts export, limitations for India, 50 Pharmaceutical Policy (2002), 119 Post-MFA period, trade in textiles and clothing, 79

Index analysis and facts of, 79–84 export projection in, 82–83 producer support estimates (PSE), 22, 23 product specific AMS, calculation, 22 quantitative restrictions (QR), 21 Regional Trade Agreements (RTAs), 36 Article V of GATS, 154–55 Article XXIV of GATT, 152–54 loopholes in, 155–56 ‘Enabling Clause,’ for developing countries, 154 growth and evolution of, 151–52 India on, 160–69, 263–66 Rules of Origin (ROO), 155–56 in southern and western Africa, 157, 158 trade diversion in, 156–60 types of, 152, 153 World Bank on, 152, 154 Revealed Comparative Advantage (RCA), 80, 135, 159 Revised Ministerial Draft. See Derbez Draft Rules of origin (ROO), 13, 62, 82 safeguard measures, by WTO, 115 at DSB, 113 duration of, 113 in emergencies, 114 form of tariff increase, 112 notification in India, 114 quantitative restrictions, 112 violation of provisions, 113 sanitary and phytosanitary (SPS) agreement, violation of, 53, 54 measures, definition of, 46 provisions misuse, 52–55 sanitary and phytosanitary–technical barriers to trade concern (SPS–TBT), 18 Seattle Ministerial (1999), 9–11, 61 service trade, 134, 135 WTO negotiations on adoption of single consensus list, 143

325

CTS review on, 140 EC, identification of environmental goods, 143 Economic Needs Tests (ENTs) and administrative procedures, 137 EPA and DNA, criteria, 143 freeing trade issues, 142–43 India request and DDA, 137 India’s software service export, 138 informal individual submission, by India, 139 liberalisation, India concern, 142 Maritime Transport Services, liberalisation, 138–39 market access issue, 141 Marrakesh Agreement, 137 Mode 4, liberalisation of, 141–42 non-tariff barriers, 142–43 sector-specific concerns, 140 Singapore Ministerial and Geneva Ministerial, 137 tourism sector, 142 UNCTAD and UN agencies assistance, 137 WPDR, Indian recommendation to, 140 Singapore Ministerial, 5–6, 61 South Korea, tariff rate formula, 67 special and differential treatment (SDT), 9, 11, 100 Special Products (SPs), 16, 26 Special Safeguard Mechanism (SSM), 16, 26, 29 SPS–TBT measures, 46–49 standard international trade classification (SITC), 81 subsidisation schemes, in India, 111 subsidy and countervailing measures, 106–11 supply in global trade, WTO modes, 135 Swiss formula, on tariff rates, 25, 68–71 tariff binding, 72–73 tariff equalizer formula, 63 tariff escalation, 59–60 by 2-digit ISIC industry, 218–19

326 The WTO Deadlocked tariff peak, 59 tariff rate quotas (TRQs), 21 tariff reduction, in developed and developing countries, 64 tariff reforms, cross-country view, 60, 215–17 TBT-Environment concerns, 51 Technical Barriers to Trade (TBT), 47 Technology Upgradation Fund (TUF), 88, 90 textile and clothing, trade in analysis and facts of, 79–84 export, increase in, 84–92 post-MFA period analysis and facts of, 79–84 India’s role in, 84–92 violation on, 86, 87 Textile Monitoring Body (TMB), 86 Tokyo Round, of GATT, 58 Trade and Development Act of 2000, Section 405, 86 trade barriers government procurement policies, 136 licensing or environmental certification, 136 price-based instruments, 136 problem areas in modes, by CUTS, 136, 249 quantitative restrictions, 136 RCA of the service sector, 135 tariff equivalents, 136 trade bloc. See Regional Trade Agreements (RTAs) trade diversion, 156–60 trade related aspects of intellectual property rights (TRIPS), 5, 96 agreement and CBD, 124 and GI, 120 and India’s role in, 122–26 and India, 118–20 IPRs forms in, 117 and public health, debates, 120–22 WTO inclusion of, 117–18 trade related investment measures (TRIMS), 9

United Nations Conference on Trade and Development (UNCTAD), 5, 137 United States Department of Agriculture (USDA), 50 Universal Declaration of Human Rights, 1948, 120 UR Agreements Act, 86 UR formula, 25 Uruguay Round (UR), 5, 21, 79, 131 of GATT, 58 NAMA products, tariff averages, 59 US agricultural trade reform in, 27 bilateral agreements, 85 document and proposed formula, 67 Swiss formula, 69 Working Party on Domestic Regulation (WPDR), 140 WTO agreement, SPS measures of, 46 agricultural negotiations committee, documents, 34 amendment, 193 articles on SPS disputes, 52–55 on textile related dispute, 86 cases agriculture-related issues, 38, 208–10 anti-dumping related issues, 95, 223–27 DSU-related disputes, 270 safeguard measures, 113, 233–37 services-related disputes, 136, 250–51 SPS–TBT-related issues, 211–14 subsidy and countervailing measures, 108, 229–32 tariff related disputes, 60, 220–21 textile and apparel related disputes, 87, 222 TRIPS-related disputes, 118, 238–41 dispute settlement. See Dispute Settlement Body (DSB); Dispute Settlement Understanding (DSU); Dispute Settlement Mechanism (DSM) disputes, on agricultural issues, 37–39

Index inception of, 84 and India’s participation in, 1, 7 Cancun Ministerial, 14–15 Doha Ministerial, 11–12 Doha to Cancun, 12–14 GATT and Uruguay Round, 4–5 Geneva Ministerial, 6–9 Hong Kong Ministerial, 16–18 July 2004 Draft, 15–16 Seattle Ministerial, 9–11 Singapore Ministerial, 5–6

327

industrial tariff reduction, 60 NAMA debate on, 62 negotiation on agriculture, India’s role in, 24, 26 negotiations, tariff reforms, 25 objectives of, 1 regionalism and, 150 SPS agreement, 46–47 tariff reduction issue, 59 UR negotiation, on market access, 58–59

About the Authors Debashis Chakraborty is Assistant Professor at the Indian Institute of Foreign Trade (IIFT), New Delhi Campus. He studied at the University of Calcutta and Centre for International Trade and Development, Jawaharlal Nehru University (JNU), New Delhi. His research focus includes International Trade Policy, WTO negotiations and Indian economic development. He has presented and published his research at various academic and policy forums in India and abroad. He has also co-edited four books on WTO issues. Before joining the IIFT, he had also worked at the Rajiv Gandhi Institute for Contemporary Studies (RGICS), New Delhi, as a researcher, for five years. Amir Ullah Khan is Director of the India Development Foundation. He graduated in Electronics Engineering from Osmania University and then studied at the Institute of Rural Management, Anand (IRMA). He has a Ph.D. from Jamia Millia Islamia, Delhi, for his work on Intellectual Property Protection and the Software Trade. In 1993, he joined the Indian Civil Service after which he worked for four years with Project LARGE (Legal Adjustments and Reforms for Globalising the Economy) of the UNDP and the Ministry of Finance, Government of India. He headed the Academic Unit at the Indian School of Finance and Management. Subsequently, he worked as Executive Director and Editor, Encyclopaedia Britannica, India, and as Deputy Secretary General at the PHD Chambers of Commerce and Industry (PHDCCI). He is also a visiting faculty at the Indian Business School, Bangalore Management Academy, Birla Institute of Management Technology and the Indian Institute of Foreign Trade where he teaches Economics. His recent book for SAGE is titled States of the Indian Economy.