India in the WTO

An article in the DNA gets it wrong when its writes:

India, under the WTO obligations, is required to open up its legal sector, as this comes under ’services’ category.

Another example of how Indian media reporting on WTO issues can get things completely wrong. The GATS negotiation on services do not “require” India to open up legal services. Here, I am not on the issue of whether liberalisation of trade in legal services would be beneficial as such to the Indian legal industry, Indian businesses or to the Indian economy. But any GATS commitment by India on legal services would be entirely voluntary. 

A follow-up to my earlier post on election manifestos and the WTO:

The 2009 election manifesto of the BJP released yesterday includes a paragraph on international trade agreements. The message is of a tough negotiating stance that will challenge protectionism, safeguard national interest, and renegotiate past commitments if necessary. Food security, health, and interests of workers in technology-based industries are flagged as important issues. Reciprocity and market access is emphasized. All this is of course only election rhetoric, as no positions on substantive issues (except retail trade, see below) are laid out.

International Trade Agreements

The BJP shall fight against the protectionist trend which is emerging in some developed countries. We will safeguard the country’s interests in all bilateral and multilateral trade agreements by avoiding to accept any new unilateral or less than reciprocal commitments. Our Government will renegotiate all such past commitments that are inconsistent with national interests, especially to ensure food security and affordable health care. We will not hesitate to roll back any concessions and facilities not reciprocated by the counterparts. The BJP will safeguard the interests of our vast technical manpower and ensure maximum market access in future agreements depending upon the offers made by the trade partners.

The manifesto has a separate section on retail trade. No foreign investment in retail trade if the BJP comes to power in New Delhi. 

The BJP understands the critical importance of retail trade in the context of employment and services provided by them, and thus favours a dominant role for the unincorporated sector in retail trade. Towards this end, it will not allow foreign investment in the retail sector. After agriculture, the retail sector is the largest employer of nearly four crore people.

We will:

1. Adopt all necessary measures to safeguard the interests of small and tiny retail vendors.

2. Ensure availability of working capital needs for such vendors through credit at not more than four per cent interest.

3. Study the feasibility of a slab-based ‘Compound Tax’ for traders to free them from needless harassment and end corruption.

4. Set up an empowered committee to recommend welfare measures, including a pension scheme, for small traders.

Other items that are interesting from a WTO/ international trade perspective are the promises on labour:

The BJP will holistically address the long-pending issue of labour reforms, bearing in mind the long-term interests of the working class. It will do so through close consultation with representative bodies of labour and employers. We are committed to ensure the following:

1. Making secret ballot compulsory for trade union elections, by suitably amending the Industrial Disputes Act.

2. Launching a training programme for trade unions to play an effective and positive role.

3. Setting up a ‘Workers Bank’ to deal with the banking requirements of labour in the organised and unorganised sectors.

4. Ensuring adequate compensation for any labour that may be retrenched, with the first option being redeployment.

5. Setting up a National Child Labour Commission.

6. For labour in the unorganised sector, revise minimum wages; expand safety net.

And a special mention for the diamond industry that has been hit by the global economic crisis:

Hindustan Diamond Corporation will be provided full support to help the diamond industry tide over the crisis caused by the global economic slump. It will provide raw diamonds to the cutting and polishing units and bank them for future trade.

The BJP manifesto can be downloaded here.

The latest issue of the Journal of World Trade has an India-related article on an unusual topic. It examines the use of poor Indian women as surrogate mothers by rich Americans from a GATS perspective. The abstract is below. Haven’t read the paper yet but do plan to do so, and will comment on it here. My instinctive and non-academic preliminary response was some discomfort with the treatment of this issue from a trade law perspective. Wouldn’t a human rights or health framework be more appropriate for regulation in this area both in the US (the so-called service consumer) as well as in India (the so-called service-provider). Is gestational surrogacy a GATS “service”?

Here is the abstract:

Christina Stephenson, ‘Reproductive Outsourcing to India: WTO Obligations in the Absence of US National Legislation’ (2009) 43 Journal of World Trade pp. 189-208

Summary:

This article examines the World Trade Organization (WTO) obligations that inhere from US persons or couples contracting with Indian women for gestational surrogacy. Surrogacy contracts are considered in the context of the General Agreement on Tariffs and Trade (GATT) and the differing laws on surrogacy of different US states. By exploring WTO Appellate Body (AB), Panel and GATT Panel decisions, this article endeavors to determine what WTO obligations bind the US in circumstance of cross–border surrogacy contract. This article addresses how the varying state laws on surrogacy affect the WTO obligations of the US in market access, national treatment and most–favoured–nation (MFN) treatment. The article concludes that there are a variety of ways in which the different state laws have the capacity to violate US trade commitments in relation to international surrogacy contracts. In addition, the analysis serves to illuminate the process under which US trade obligations can be scrutinized to determine what commitments are relevant to a service not contemplated in the US Schedule.

Update:

Am still to read this article for the WTO angle, but a recent Indian Supreme Court decision seems to throw a child’s rights mantle over surrogacy at least in Indian domestic law.

Last year, a child was born to an Indian surrogate mother from Japanese parents. The Japanese couple separated and when the child was born, neither parent was in India except of course the natural birth mother.

A public interest habeas corpus petition was filed in the Rajasthan High Court. Eventually, the matter reached the Supreme Court when the Japanese grandmother filed a petition. The Supreme Court gave its decision on 29 September 2008. The decision is available at http://judis.nic.in/supremecourt/helddis.aspx

The Court in effect allowed the baby to leave India with the Japanese grandmother. It did this by stating that any concerns relating to the rights of the baby should be raised before the commission constituted under the Commissions for Protection of Child Rights Act, 2005, and noted that no complaint had been made before this Commission. The Supreme Court also went on to state that the surrogacy procedure "is legal in several countries including in India where due to excellent medical infrastructure, high international demand and ready availability of poor surrogates it is reaching industry proportions".

I find this Supreme Court decision very unsatisfactory. The Court was keen to let the baby leave India (which I don’t have an issue with), but it seems to have laid down the law here (that surrogacy is legal) in the absence of legislation and while a bill was pending before Parliament on the same issue. (See the Assisted Reproductive Technology (Regulation) Bill 2008.)

The Court also abdicated its constitutional responsibility to protect fundamental rights of a child by suggesting that the appropriate forum was the Commission under the Commissions for Protection of Child Rights Act, 2005.

Well, this whole surrogacy issue raises questions of citizenship, which mother’s name will go on the birth certificate under Indian law, immigration, reproductive rights, and child rights. Not too sure of the trade angle.

This Economic Times story reflects Indian industry and policymakers sensitivity on the issue of any protectionist clamp-down on outsourcing. Though I think the Economic Times jumped the gun here a bit. Its too early to be talking about WTO contests especially since the whole story seems to be based upon this sentence in President Obama’s speech to Congress:

We will root out the waste, fraud, and abuse in our Medicare program that doesn’t make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas. 

The news report captioned “India may contest Obama’s move against outsourcing in WTO” seems to be based upon Minister Kamal Nath’s response on being asked whether India would respond to the suggestion in Obama’s speech. This is what Nath is reported to have answered:

We have to ensure what they (US) are doing is WTO compatible when we are talking about trade, movement of goods, movement of people and movement of services," Commerce and Industry Minister Kamal Nath said here.
"Yes, of course," he said when asked if India will take up the issue of outsourcing with the US administration.
…

Nath said, "One has to see how the US companies using India as a base for technological development respond to their own government." Outsourcing of technology development by large companies cannot be switched on and off, he added.

It should be interesting to see what shape the US measure on discouraging outsourcing takes. A PTI story has more:

Nearly 1,000 US firms, which have shipped their jobs overseas are anticipated to be affected with the proposed elimination of tax incentives. The plan mainly refers to one of the provisions in the tax code that allows companies to pay lesser taxes for profits earned from foreign shores.

Here’s another interesting aspect linking the outsourcing issue with H-1B visas. A Computerworld story discusses this:

The U.S. government’s H-1B visa usage data for fiscal 2008 shows that offshore outsourcing firms based in India are employing a growing number of H-1B workers — a hiring trend that is affecting the IT workforces in communities such as Oldsmar, Fla.

Oldsmar is the home of a technology center operated by The Nielsen Co., which measures TV audiences, consumer trends and other metrics for its clients. Nielsen last year began laying off workers at the facility after announcing in October 2007 a 10-year global outsourcing agreement valued at $1.2 billion with Tata Consultancy Services Ltd.

And while Nielsen cut employees, Mumbai, India-based Tata was increasing its hiring of H-1B workers. Tata received approval for a total of 1,539 H-1B visas during the federal fiscal year that ended last September, according to government data released this week. That was nearly double the 797 visas that the outsourcing and IT services vendor received in fiscal 2007

 

Doha round negotiations under GATS Article VI:4 are mandated to develop necessary disciplines to ensure that measures relating to licensing requirements and procedures, technical standards, and qualification requirements and procedures do not constitute unnecessary  barriers to trade in services. The fourth and current version of a draft text was circulated in January 2008. With its offensive interests in services, India has been active in these negotiations and has sought to protect its right to regulate services for legitimate reasons while at the same time seeking disciplines on the domestic regulations of its trading partners that act as disguised trade restrictions to committed market access in services.

These negotiations have systemic importance in so far as their outcome could potentially result in a re-balancing of the relationship between market access (Article XVI) and domestic regulation under the GATS. The primary issue under discussion involves the appropriate balance between the right to regulate and the new disciplines that are crafted.  The draft text, though still lacking consensus, contains ambiguous language that might have such systemic impact. Negotiators thus need to proceed with the utmost caution. They must understand the GATS system-wide implications of the negotiations and evaluate the text under discussion from the perspective of how it might be interpreted in future WTO disputes before the Appellate Body. 

The issue acquires greater significance after the Appellate Body decision in the Gambling dispute. In this dispute, the Appellate Body found that US laws prohibiting supply of gambling and betting services by suppliers located outside the United States to consumers within the United States amounted to a WTO inconsistent “quantitative” restriction in violation of US scheduled market access commitments under GATS Article XVI. While the United States seemed to have made a scheduling error in not expressly excluding gambling services from its commitments under the residual head of “other recreational services”, this dispute raised concerns in the literature that the Appellate Body erred in not recognizing the US measure as a “qualitative” regulation under GATS Article VI.

After the Gambling ruling, negotiators must consider whether the new disciplines on domestic regulations might not have the unintended(?) consequence of shifting the present balance in the GATS between domestic regulations and market access. There are provisions in the new draft text which if applicable during the Gambling dispute might well have resulted in a different outcome. Specifically, these include paragraph 3 (in the January 2008 draft) which without qualification recognizes the right of Members to regulate and to introduce new regulations to meet “national policy objectives”. Though the critical right to regulate is already recognized in the GATS preamble, its inclusion in this format in new rules might have far-reaching consequences, if a dispute settlement panel or the Appellate Body were to find in such provision, a need for deference to national policy objectives even when these do not relate to competence to provide the service or to maintaining the quality of the service. The draft text’s unclear treatment of the relationship between the new disciplines and Members GATS schedules is another cause for concern. In the Gambling decision, the Appellate Body left open the question as to where “in the abstract” GATS Article XVI drew the line between qualitative and quantitative measures. Similarly, it did not decide the question of the relationship between the first and second paragraph of Article XVI which is also germane to this issue.  The new disciplines under negotiation would influence the future evolution of GATS jurisprudence on the scope of the right to regulate a service once market access commitments are scheduled. And negotiators must pay attention.

Seema Sapra

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.