India in the WTO

As mentioned on this blog (see here), Thailand, Australia and Brazil had complained last year that freight subsidies available for Indian sugar exports might violate WTO subsidies disciplines.  The Indian Central Government has responded by declaring that these subsidies will end in October this year. See the Economic Times report, which also speculates on whether the sugar trade will be liberalised in the forthcoming budget.

The sugar trade in India is controlled by the government, which sets a monthly limit on the quantity that millers can sell freely in the market to ensure stable supplies and prices in the nation of more than a billion people.
Every year before the Budget there is talk the government, which has liberalised most parts of the economy, will open up the sugar sector but this has not happened so for.

Update (29 Feb) – Bloomberg reports on how the Indian sugar industry will react to the cutting-short of freight subsidies and on the background to the issue.

India, the world’s second-biggest sugar producer, may export more of the sweetener this year than previously forecast as mills boost sales before the government scraps a subsidy in October, seven months sooner than planned.

Overseas sales may total as much as 5 million metric tons in the year ending Sept. 30, compared with 3.5 million tons forecast previously, said Prakash Naiknavare, managing director of the Maharashtra State Co-operative Sugar Factories Federation Ltd.

A surge in exports from the South Asian nation may slow this year’s 35 percent gain in global sugar prices. Raw sugar, traded in New York, is the sixth-best performer this year among 26 futures in the UBS Bloomberg Constant Maturity Commodity Index.

“I think it’s a golden opportunity to lower supply in India and companies will respond anyway,” Narendra Murkumbi, managing director of Shree Renuka Sugars Ltd., India’s biggest refiner of the commodity, said in a phone interview. “Uncertainty about the subsidy had caused a lull in exports. That’s ended.”

…

India shipped only 1.7 million tons last year because of a ban on exports that was lifted in January 2007.

Mills have shipped 2.5 million tons since Oct. 1, with raw sugar accounting for 60 percent of sales, and can export as much through September, Naiknavare said.

The government will help:

Farm minister Pawar said Feb. 26 he’d be “happy” if the industry sells 5 million tons overseas and promised to ease delay in shipments because of congestion at ports and non-availability of wagons.

…

“The government has promised to help with more railway rakes and priority loading at ports to ensure we ship as much sugar as possible,” he said. “Selling another 2.5 million tons isn’t a tall order.”

Gruère and Rao, Review of International Labeling Policies of Genetically Modified Food to Evaluate India’s Proposed Rule, in AgBioForum, The Journal of Agrobiotechnology Management & Economics, Volume 10 // Number 1 // Article 6 available here

Abstract

This paper provides a comprehensive review of existing international labeling policies of genetically modified (GM) food and associated relevant international agreements in order to evaluate India’s proposed mandatory labeling rule. Existing evidence from developed countries shows that mandatory labeling regulations have resulted in no additional consumer choice or information. Among the few developing countries with labeling policies, most have not effectively implemented their regulations. We show that India’s proposed labeling rules for GM food would be among the most stringent globally and could potentially result in low consumer benefits at a high cost both domestically and internationally. India’s proposed regulation also lacks a number of elements to be implemented. However, these conclusions are based on experiences from other countries and limited available information from India. More studies are needed to evaluate the potential economic effects of GM food labeling in India.

Also see:

Ramaswami, Biofortified Crops and Biotechnology: A Political Economy Landscape for India, in in AgBioForum, The Journal of Agrobiotechnology Management & Economics, Volume 10 // Number 3 // Article 6 available here

Abstract

Micronutrient deficiencies are responsible for major health problems among the poor in India. Biofortification promises to be a cost-effective approach in enhancing the intake of micronutrients. However, it requires government support in terms of resources and regulatory climate. This paper assesses the political receptivity to biofortification especially when it may involve genetic engineering. The paper draws on an understanding of political economy of pro-poor policies as well as the political responses to Bt cotton—the only GM crop that has received regulatory approval. The paper argues that mainstream political parties are unlikely to take strong positions on biofortified crops�whether in favor or in opposition—unless it affords an opportunity to politically mobilize farmers. If it involves genetic modification, biofortified crops will certainly be opposed by NGOs opposed to biotechnology. The extent of support from the scientific community will depend on whether the health and nutrition community is involved.

Wijk and Ramanna, Global convergence meets local divergence: intellectual property in Indian seed markets, in International Journal of Technology Management, Volume 39, Number 3-4 / 2007, 264 – 278

Abstract

International organisations advocate global convergence in intellectual property as a prerequisite for successful innovation strategies. The difficulties of achieving such harmonisation are, however, evident from the attempts of several nations to develop divergent intellectual property systems. This paper explores the causes of institutional divergence and uses intellectual property for seed markets in India as a case study. The Indian seed market case demonstrates that convergence and divergence may go hand in hand. The ‘domestication’ of global protection models for seed and biotechnology may require divergence in order to be accepted by domestic stakeholders.

available here.

Sharma, Gunjan, “Competing or Collaborating Siblings? Industrial and Trade Policies in India” . Available at SSRN: http://ssrn.com/abstract=964740

SSRN Abstract:
This paper investigates the link between economic de-regulation – domestic as well as trade de-regulation – and firm-level productivity using two unique data sets. We use the industrial licensing regime in India (operating from the 1950s onwards) and its gradual relaxation during the 1980s and 1990s to test whether industrial de-regulation that leads to more competition domestically, affects firm-level productivity. To our knowledge, ours is the only detailed, disaggregated data set on Indian industrial policy at the four-digit level. Our firm-level data for the period 1980-94 is a census of firms in India and has been rarely used in literature. We also use the interesting chronology of reforms in India (industrial de-regulation in the 1980s and trade reforms in 1991) to test whether industries that faced more competition domestically tend to perform better when facing foreign competition. Our identification strategy uses an important institutional feature of Indian policy. Firms with assets below a certain defined rupee threshold were exempt from licensing requirements. This institutional feature provides us within-industry variation that allows us to identify the interaction between de-licensing and exemption status. We find that industrial de-regulation during the 1980s led to a significant rise in firm productivity. Further preliminary results suggest that there exists a strategic complementarity relationship between industrial and trade policies – industries and firms that were de-licensed tend to perform better vis productivity after trade liberalization. Our results are robust to the inclusion of a wide variety of firm and industry fixed effects and controls for policies other than de-licensing that may affect productivity. This paper contributes to the literature by being the only detailed empirical analysis of the industrial licensing regime in India, especially the de-licensing that took place during the 1980s and by providing evidence of the crucial link between trade and industrial de-regulation.

There is an interesting passage in the concluding section:

“Our results have interesting policy implications. An important one is that domestic competitive environment can be used to prepare firms in the economy for trade reforms. Under competition from high-productivity foreign firms, domestic firms that are not productive may want to cut their losses and not invest in productivity-enhancing technology. However a rise in the level of domestic competition can spur these firms to make investments in technology prior to facing competition from abroad and hence prepare them for an even more competitive environment.”

The author suggests that the chronology of reforms was important, in that industrial de-licencing preceded liberalization of trade policy.

Kamat, Manasvi Manoj and Kamat, Manoj Subhash, “Implications of the WTO-GATS on Indian Marine Industry, Issues and Policy Perspectives” . Available at SSRN: http://ssrn.com/abstract=1069521

SSRN Abstract:
The outcomes of WTO negotiations under the Doha round, Hong Kong development round and the changing European Union regulations are likely to place new hurdles on the marine exports emerging from developing economies like India. In the light of the above, we attempt to discuss the impact of WTO-GATS on the Indian Marine Trade and Service industry, analyze the challenges faced by the developing countries, and suggest way-outs to respond them. Many other WTO-GATS related aspects have repercussions on the marine exports from the developing countries in Asia and India in particular; namely the outcomes from the Dispute Settlement Mechanism (DSM), the relation between trade rules and Multilateral Environmental Agreements (MEAs), Technical Assistance and Capacity Building (TA & CB) and the provisions for Special and Differential Treatment (SDT). The impact of GATS and the implications on Indian marine trade & services are specifically assessed in context of Tariff barriers, Non-tariff measures, Subsidies and Eco-labeling. Relevant policy implications follow the issues discussed.

The Economic Times reports that the Ministry of Commerce would like to bring services trade under the ambit of the Foreign Trade (Development & Regulation) Act, 1992 by including a definition of “services. Discussions have been going on between the ministeries of commerce and finance on this issue.

The proposal, mooted by the commerce ministry, has been vetted by the finance ministry. The finance ministry is, however, not in complete agreement with the commerce ministry’s proposal and has suggested to keep the new definition in line with the provisions laid down in the tax laws as all services are not taxed in the country, sources said.

…

The finance ministry, in its comments on the proposed move, has made it clear goods and services cannot be treated on par under the Act. This is especially because all cross-border services are not treated as imports or exports like goods. The practice is also followed internationally. Considering the complexities involved in determining the place of supply of service provision and its evolving nature, like classification of goods for Customs purposes, classification and determination of place of supply of services for international trade in services would have to done as per the provisions laid down by revenue department.
Moreover, there are also no uniform practices in deciding whether a cross-border transaction of service is import or export. This is especially in the case of services like telecom, broadcasting and electronic commerce, the ministry has pointed out. Sources said the proposed changes will have to be carried out keeping in mind that the provisions do no have an implication on taxation of services and service tax collections.

More changes to this statute might also be in the pipeline. There were reports last month (see here) that the government was thinking about a new provision that would enable the imposition of quantitative restrictions on imports in cases of threat to domestic industry. These restrictions might intially extend to four years, with extensions of upto ten years. 

An India-Africa forum in early April is all set to follow in the foot-steps of last years Africa summit in Beijing. According to a report

India is likely to announce duty free import of select items from some African countries at its first-ever summit with 14 African countries in April here.
The April 8 summit will come out with an action plan for reinvigorating India-Africa ties and a political declaration that will encapsulate broad directions of this partnership in the 21st century, a top official source said.
The action plan will include a broad spectrum of areas, including trade, investment, education, agriculture, mining, infrastructure, education and culture.
‘We are working on a package of duty concessions that may cover some agricultural items for least developed countries of Africa,’ official source said.
Total trade with Africa for 2006-07 was estimated at around $20 billion with exports to Africa growing by more than 180 percent.
The duty-free and quota-free regime for some African countries will be a big step to energise trade ties between India and Africa.
India is leaving no stone unturned to make the upcoming India-Africa forum summit a big success and expects it to be a precursor to a bigger summit with the 53-nation African continent.
Algeria, Burkina Faso, Democratic Republic of Congo, Egypt, Ethiopia, Ghana, Libya, Nigeria, Senegal, South Africa, Uganda and Zambia are among the countries to attend the summit. The participating countries have been chosen by the African Union.
The summit has been structured as a three-tier interaction between senior officials (April 4), foreign ministers (April 7) and 17 heads of states/government of the two sides…

Indian officials differentiate between China’s approach to Africa and that of India. The same report continues:

Although the move appears to have been inspired by a similar summit China held with African states, Indian officials are keen to distinguish their approach, of capacity building and empowerment towards Africa, as different from the trade-driven Chinese approach.
India sees its partnership with Africa as one of empowerment and meeting genuine African needs. Nearly 15,000 African students study in India every year.
‘The summit will showcase the brand image of India in Africa. Africa has changed and so has India. The forum will be appropriate to give a new direction to the partnership between the two sides,’ said an official.
It will also be attended by heads of sub-regional groupings like the Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA) and the Economic Community for West African States (ECOWAS).
India’s help in setting up the Pan-Africa e-network that will electronically link 53 countries of Africa and bring them benefits of tele-education and tele-medicine highlights the new thrust of Indian diplomacy in Africa.
Besides, India has given generous lines of credit to assist the New Partnership for Africa’s Development (NEPAD) and written off the debt owed by the African countries under the HIPC (Heavily Indebted Poor Countries) Paris Initiative.
India has also spent more than $1 billion on providing training to more than 1,000 officials from sub-Saharan Africa under the Indian Technical and Economic Cooperation Programme (ITEC).

Here is what another source had to say

Recognising the immense opportunities for cooperation with Africa, India is likely to announce duty cuts for certain imports from Africa and assistance in developmental projects. As per the official sources, the core of the discussion will be how India and Africa can develop partnership in the first part of 21st century.

“We don’t want our approach tainted by the West approach. We’ll talk about Africa to Africans; we will talk to Brazil about Africa but not to these countries. We should not be seen as exploiters in Africa. We want to be partners in the genuine sense of the word,” said a senior official of the External Affairs Ministry.

While 48 African nations had participated in Beijing summit, only 14 are going to be a part of the Delhi summit. But these countries will have the mandate of the entire continent as they have been chosen by the African Union itself.

However, the significance does not lie in number; in fact it lays in the opinion that Africans hold themselves and who are eager to balance China’s overwhelming and aggressive moves in their continent with India’s gentle touch.

The Beijing summit produced wave of growing concerns for the western countries that realised grip over Africa has been steadily slipping into Chinese hands.

The Beijing summit had culminated into the commercial deals worth $1.9 billion with the African countries and eventually China offered credit lines worth $5 billion. It also declared that it would double aid to Africa by 2009 and pledged to push trade to the USD 100 billion mark by 2010.

Comparatively, India is a rather nervous investor in Africa in all sectors comprising petroleum. Over the past few years, China has managed to edge India out of many contracts. That must change. Indian companies must overcome its fear and lethargic way of dealing trade with foreign countries. They must go forward and forge aggressive step in their engagement with African nations for mutual advantage.

Very few countries in Africa are moving forward with development. Rest of the African countries has been sluggish in mobilizing private sector participation in infrastructure development.

What is significant here is Africa’s development can be accelerated with investments and technology transfer. It has plenty of natural resources comprising crude oil and minerals and the closer relations with the African continents will be proved beneficial for both the nations-India and Africa.

Africa’s demand for manufactured goods and services is on the elevated scale. The region also has millions of young literate and talented people who can be employed in the manufacturing and services sector.

As per the official sources, an Action Plan for furthering cooperation in areas like environment, health, education, energy and mining will be announced at the Summit, which could form a precursor for broader India-Africa Summit.

India has been having low-profile engagement with Africa for the last six decades mainly in terms of assistance in developmental projects and peacekeeping operations. Now the apt time has arrived for the country to grow financial relations with the African countries and Indian companies need to expand their presence overseas, step up and diversify trade with Africa.

Jairam Ramesh, India’s Minister of State for Commerce will visit Africa in March with a trade delegation. The focus will be on collaboration in diamond production and polishing. He was quoted as saying:

“We will visit diamond producing countries of Namibia, South Africa, Botswana and Angola from March 21 to 28 and explore possibilities for partnership for the Indian diamond industry,” Ramesh said on the sidelines of Gems and Jewellery Export Promotion Council function on Friday.
The four African countries are emerging as the key diamond producing regions, with several global firms planning to set up polishing units in the region.
India has been a traditional cutting and polishing hub for diamonds and in return for the rough diamonds that it would import from the African countries, it would provide training in cutting and polishing as well as technical assistance to set up local units there, he said.

Lower freight rates between India and Africa provide an advantage to Indian agri exporters. The Economic Times reports

The low freight advantage that India enjoys over other Asian countries especially China, has boosted commodity exports to Africa. Also substantial quantities of maize and soybean meal have been contracted for exports to South East Asia and Middle East due to low freight costs.
“In addition to other benefits a big factor for trade with India are the low freight charges,” Samwel E Dyelu, the general manager of a Tanzania based company told ET. Citing an example he said, a 20 ft container from China to Africa attracts a freight charge of $2000 while a container being imported from Mauritius would cost around $1000. The Indian freight cost should be around the Mauritius figure, he said.

…

The commodities that are now been imported by the African countries include meat, eggs, processed food, non basmati rice and milk powder. “Earlier China had the price advantage but now with increase in freight cost it is losing its share to Indian products which are better in quality,” Agricultural and Processed Food Products Export Development Authority (APEDA) director S Dave said.

 

Meanwhile talks are on for a possible free trade pact between India and the five member Southern African Customs Union (SACU). See report.

There haven’t been many detailed studies on comparative gains to India in adopting a multilateral versus a bilaterals focussed trade policy. With the Doha round still stuck, India has been aggressively open to offers for bilateral trade pacts. The Carnegie Endowment for International Peace has published a report (January 2008) titled “India’s Trade Policy Choices: Managing Diverse Challenges” which suggests that the multilateral route would be preferable for India. The key conclusions of the report available here are:

• India’s economy would grow most under a Doha agreement, although the gains would add a very modest 0.25 percent to the economy. Free trade pacts with China or the United States would produce even smaller gains. An agreement with the EU, India’s largest trading partner, would have a slightly negative overall impact on India’s economy.
• Dramatic swings in world agricultural prices—a common occurrence—could have much larger impacts on India if the country lowers its agricultural tariffs. A decrease of even 25 percent in the world price of rice, which has happened repeatedly, would negatively impact all but the top 10 percent of Indian households, with the poorest households losing the most.
• The EU, the United States, and China would each gain more from free trade agreements with India than would India itself, but in all cases, gains would be a modest and would represent a very small percentage of the affected economies. While China would gain more overall than India from a bilateral agreement, India would see a greater increase in exports than China.
• All of the proposed trade agreements would reduce India’s tariff revenue, which accounts for about 11 percent of the government’s total revenue. This would force the Indian government to either reduce spending or increase taxes at the expense of Indian households. An EU-India trade agreement would reduce revenue the most.
• The trade agreements would have a positive but very modest impact for India’s unemployed, currently estimated at 40.4 million. A Doha agreement, which has the most sizeable impact of the simulated agreements, would increase the demand for unskilled labor by 0.9 percent, about 4 million jobs. Job gains would be spread across a number of sectors, including transport, construction, apparel, textiles and a few agricultural commodities. Under free trade agreements with the EU and the United States, job creation would be concentrated in the apparel and textile sectors, with other manufacturing sectors actually shedding some workers.

While this report seems well-timed to “help” the Doha round on its way, an assessment of its findings would be a worthwhile exercise. It would be interesting to read other studies on the same issue.

The Business Standard reports:

A joint economic group comprising commerce ministers of India and China will meet on April 1 and 2 to discuss the India-China free trade agreement (FTA), Dinesh Sharma, joint secretary, ministry of commerce and industry, said today.
“There are certain outstanding issues that may be resolved across the table in April when the joint economic group meets,” Sharma added.
The two countries had set up a joint task force (JTF) to look into the possibility of enhancing trade ties. The JTF had recommended FTA as a mechanism to boost trade dynamics between the countries.
“The recommendations of the JTF will be considered, and some decision can be expected in early April,” Sharma added.
The Indian industry has been opposing an FTA with China until it gets the status of market economy. “The pricing mechanism in China is not very transparent, and we do not understand it. Until then, the market economy status should not be granted to China. CII is working with our Chinese counterparts in this regard,” said T S Vishwanath, head, CII international trade policy division.

According to the Economic Times:

The government is considering sops for exporters who train women in skilled activities for their units. Some incentives could also be in store for women entrepreneurs engaged in foreign trade, commerce secretary G K Pillai has said.
Addressing a conference on gender sensitisation in trade policy organised by United Nations Conference on Trade and Development (Unctad) and the department of commerce, Mr Pillai said there has been no mention of gender sensitisation in the FTPs announced so far.
“This time, we are looking at specific gender issues in the FTP. Specific facilities to increase the capabilities of women engaged in the sector will be encouraged,” he said.
Speaking to the media on the sidelines of the event, Mr Pillai said certain incentives could be given to women engaged in export and import activities. Exporters helping women take on high-skill activities in their units could also be given sops, he said. The FTP is likely to be announced in the first week of April.

This might be a good example of how international ideas affect domestic trade policy. Gender sensitization in trade policy has been long championed in international discourse. And now it is starting to filter into India’s domestic trade regulation.

Mr Pillai also commented on how foreign buyers are affecting labour standards in India:

Mr Pillai pointed out that globalisation, in some ways, was bringing about positive changes in working conditions for women in India. He said foreign buyers laid down minimum standards of working condition, which units they sourced their goods from had to follow.
“The minimum standards prescribed are often higher than the domestic standards,” he said, adding that it led to a more favourable working environment for women.