India in the WTO

With Dr. Manmohan Singh’s new cabinet due to be sworn in tomorrow, speculation is on about who will get which ministry portfolio. Readers of this blog would be interested in whether Kamal Nath will continue as Commerce minister. The Commerce minister is responsible for India’s WTO and other trade negotiations.

Until yesterday, the buzz was that Mr. Nath might be promoted to external affairs minister, leaving the commerce ministry for someone else. One name being mentioned was that of Mr. Jairam Ramesh who was the junior minister for commerce under Kamal Nath.

Todays papers however seem to indicate that Mr Nath might continue with commerce and that Mr. Ramesh might become power minister.

The Hindu reports:

The Commerce Ministry is to be restructured but could well still be headed by Kamal Nath.

This is interesting news. How will the commerce ministry get restructured?

Meanwhile the Times of India expresses the hope that freed from the demands of the left parties, the new administration might pursue a “more reasonable line” in the Doha negotiations. An extract:

With trade, India adopted the spoiler’s role at World Trade Organisation conferences, playing the victim of rapacious developed countries. The rhetoric employed was from another era, when India played a prominent role in the Group of 77, the commercial foil of the Non-aligned Movement. Without the Left calling the shots, its acolytes in the Congress-led ruling coalition will find themselves adrift. It is likely that India will pursue a more reasonable line. 

This is what Kamal Nath told the Washington Post:

“We now have the mandate for a renewed push for economic reforms,” said Kamal Nath, a senior leader of the Congress party who served as commerce minister in the previous government. “We have to open up more and take some hard steps to spur the economy because of the global recession.”

Meanwhile the Economic Times carries an article on how the Commerce ministry bureaucrats are preparing for the new minister to take charge. This is one very enthusiastic ministry. Here is the report in full:

Commerce babus just can’t wait to revive work
21 May 2009, 0236 hrs IST, Amiti Sen, ET Bureau

NEW DELHI: Though the last word on Kamal Nath retaining his commerce and industry portfolio is still to be heard, it seems that the bureaucracy has got down to business.
Commerce department officials are giving finishing touches to presentations on issues ranging from falling trade to the stimulus packages to the annual foreign trade policy to India’s WTO stand to free trade agreements (FTAs). The aim is to give the new minister a fair idea of the happenings in the department and the road ahead, a senior commerce ministry official said.
“All officials dealing with various issues falling under the purview of the commerce department had been asked to bring out capsules on what has been happening in various sectors and what remains to be done. The work is almost finished,” the official who did not want to be named said.
With exports falling for seven straight months and the situation not expected to improve till September, some quick decisions are called for by the new government.
“The situation is grave. We have ensured that the new minister will be updated on the global economic situation and the effect on domestic business without any loss of time, this will also enable the new minister to come up with an effective foreign trade policy,” the official added.
Issues like extension of the interest rate subvention or discount given to exporters from select labour-intensive sectors beyond September 30 and continuation of the higher reimbursements given to exporters under the DEPB (import duty reimbursement) scheme beyond June 30 need to be decided. The government also needs to take a call on whether more sectors and countries need to be covered under the focus-product and focus-market schemes, where cash incentives are given to exporters.
On the overseas front, there are two bilateral agreements that are waiting to be signed. Signing of the FTA with ten-member ASEAN, which had been pushed by Prime Minister Manmohan Singh, is long overdue. The FTA with South Korea too needs to be signed without delay.
Special economic zones (SEZs) is another area that needs immediate attention. With the slowdown hitting SEZ investments, investors who have asked for more time to execute projects need to be dealt with sympathetically. There is also a need to settle issues such as giving infrastructure status to the zones.

Here is an interesting SSRN paper on the issue of the status of WTO law within the Indian legal system.

Chowdhury, Nupur,The (Absence of) Direct Effect of WTO Law – Current Developments within the Indian Legal System(May 20, 2008). Available at SSRN: http://ssrn.com/abstract=1136585

Abstract:
This chapter gives an overview of the status of international law under the Indian Constitution and its implications for the status of the WTO Agreement and the covered agreements within the Indian legal system. The Indian legal system is dualistic and international legal instruments ratified by the country become part of the national system only when it is transposed into national law. However such a strict interpretation has often been circumvented by the Courts in favor of a direct applicability of international law on the basis of the principle of consistent interpretation as provided for in the Constitution. In that sense it is interesting to note that notwithstanding the dualistic nature of the legal system, the Courts have applied the consistent interpretation, supremacy and the (in)direct effect principles in a varied number of cases to strengthen the conformity of national law with international law. In that sense, the relationship between these principles is dynamic and can be temporally located within the different trends of judicial activism in the Indian courts. Amongst the WTO agreement it is the TRIPS agreement that has been at the center of most legal disputes. Given the considerable economic interests of the Indian biotechnology sector (drugs and pharmaceuticals) and therefore the high stakes, in concomitance with the considerable textual ambiguity, which the TRIPS amendment has created, this is not surprising. It also underlines the currency of such a debate on the application of the principle of direct effect in the present context of the Indian legal system.

See Gupta, Surupa. "The Institutional Basis of India?s Defensive Position on Agricultural Trade Policy" Paper presented at the annual meeting of the International Studies Association 48th Annual Convention, Hilton Chicago, CHICAGO, IL, USA, Feb 28, 2007 <Not Available>. 2009-02-04 http://www.allacademic.com/meta/p181265_index.html

Here is the abstract:

This paper analyzes trade policymaking in India in the context of the ongoing negotiations on trade in agriculture at the WTO. During the past decade, the overall direction of India’s trade policy has become more liberal. However, India’s position on liberalization of trade in agriculture at multilateral trade negotiations is dominated by its defensive/protectionist interests expressed in terms of a focus on livelihood security rather than its aggressive/liberal interests in gaining market access. This presents a puzzle for existing trade theory which would expect India’s farm trade policy to be more liberal, given that about 80% of India’s farm prices are globally competitive. This paper adopts an institutional perspective, and argues that the policy is ultimately a product of the existing domestic agricultural policies and the new consultative trade policy-making apparatus. Reform of existing policies has proved difficult and the Ministry of Agriculture resists liberalization because it sees itself primarily as a protector of farmers’ interests. At the same time, the government has changed the institutions for making trade policy since 1998, giving the protectionist Ministry of Agriculture greater voice in decisions at the expense of the Ministry of Commerce and Industry. The former has often vetoed more liberal positions advocated by the Commerce Ministry. The Parliament, unlike in the west, plays a minor role in setting the tone of the policy since its ratification is not required. Moreover, although in India’s federal system state governments could have used their power to shape policy, they have not organized politically to press for liberalization, instead supporting the protectionist views espoused by the agriculture ministry.This paper also shows that conventional institution-based explanations of trade policy, mainly based on the US and West European experience, need to be modified when being applied to developing countries like India. For example, institutional theories suggest an association between democracies and liberal trade policies, but this case shows that democracies can sometimes be more protectionist. Discussions of the role of bureaucracies focus on the relation between bureaucratic autonomy and trade liberalization. However, some relevant bureaucracies are not autonomous, and some autonomous bureaucracies may not support liberalization. This research suggests that bureaucracies should not be treated as unitary actors.

With Indian national elections due from 16 April, most major political parties have released their election manifestos. I looked at some of these to see if they mentioned the WTO.

The CPI (M) 2009 manifesto does mention the WTO and says this:

WTO and Trade Issues
The CPI (M) stands for:
Protecting Indian interests and that of the developing countries in the ongoing Doha Round of WTO; no further tariff cuts in agriculture and industrial goods.
Restore measures to protect small and marginal peasants, including quantitative restrictions
Keep sectors like health, education, water resources, banking and financial services out of GATS; Press for review of the TRIPS agreement.
Review existing Free Trade Agreements (FTAs); Make public India’s negotiating positions in the FTA negotiations with EU and EFTA.

The Indian National Congress does not mention the WTO in its 2009 election manifesto. The manifesto does talk about its approach to governance and professes a “middle way”:

The Middle Path – the Congress’s way

Balance—or the middle path–has always been the hall-mark of the policies of the Indian National Congress.

As the world experiences a severe recession, it is this balance that is standing India in good stead.

It is a balance between the public sector and the private sector, with an important role assigned to cooperatives and self-help groups.

It is a balance between building a modern economy and imparting a  new thrust to traditional industries.

It is a balance between promoting employment in the organized sector and protecting livelihoods in the unorganized sector.

It is a balance between addressing the needs of urban India and improving the quality of life and standard of living in our villages and towns.

It is a balance between taking advantage of globalization and ensuring that these benefits flow to local communities.

It is a balance between regulation by the government and unleashing the creative spirits of our entrepreneurs and professionals.

It is only the Indian National Congress that cherishes and practices this balance in all spheres of our national life including in the conduct of economic and foreign policy.

This balance is needed now more than ever.

Surprisingly, the BJP is still to release its manifesto.

It would be interesting to look at political party manifestos for all Indian general elections since 1990 and trace how the Indian political debate on the WTO has evolved.

In its 1998 election manifesto, the Congress did mention the WTO. An extract:

The Congress will continue to fight for India’s interests in world forums like the WTO. At the same time, it will honour all international commitments in a responsible manner.

In its 1999 manifesto, the Congress talked extensively about exports, trade and the WTO. This manifesto from 1999 is an interesting document and in its detailing and scope goes way beyond what election manifestos in India usually amount to. Some extracts:

A stable, long-term policy on exports of agricultural products and commodities will be adopted. Apart from increasing incomes for farmers this will also generate new employment.

The Congress will impart a whole new look to the Khadi and Village Industries Commission (KVIC) that has significant potential for generating employment in rural and semi-urban areas. KVIC will be transformed into a modern, research-based, technology-oriented, customer- focussed organisation. New programmes for the development and modernisation of the coir industry, handlooms, powerlooms, handicrafts, food processing, sericulture, wool development, etc. – all of which have a high employment potential – will be launched.

A greater thrust on labour-intensive exports of textiles, handicrafts, gems and jewellery, leather, software, light engineering and consumer goods manufacturing will also significantly boost employment. These industries have considerable export potential, which will be taped.

…

Tourism is yet another major employment generator, apart from being a low-cost way of earning foreign exchange. Considering what we have to offer the world, we must aim at no less than doubling international tourist traffic into India in the next four to five years and facilitating an exponential increase in domestic tourist traffic.

…

The services sector, as a whole is another major employment generator. So is the self-employed sector. Both will be expanded and encouraged with the easy availability of finance and reforms of laws and regulations that stand in the way of their growth.

…

The terms of trade will always be kept in favour of agriculture. While remunerative procurement and support prices constitute a key element of this strategy, it is essential to sustain favourable terms of trade through productivity gains and marketing support.

…

India is one giant common market and must function as one. Unfortunately, there are still many fiscal and other barriers, which are preventing the emergence of a truly national common market. These barriers will be eliminated in consultation with state governments. The objective will be to move towards a system of value-added taxation (VAT) and uniform rules for the treatment of interstate trade.

…

Considering the crucial importance of the textiles industry in India, particularly from the point of view of employment and exports, the Congress will come out with a comprehensive, forward-looking textile policy. This policy will, among other things, deal with issues relating to improving the productivity of cotton cultivation, … substantially increasing the global market share of Indian textiles, etc.

…

International Trade and Investment

Immediate steps will be taken to revive the export momentum in the economy that was so much in evidence in the latter half of the eighties and the mid-1990s. India’s exports must grow by at least 15-20% per year on a sustained basis. All policy and procedural barriers to faster exports must be dismantled. Exports create employment and greatly assist in the diffusion of prosperity but high transaction costs and restrictive policies in areas like the small-scale sector are preventing India from increasing her exports and generating new employment.

Government and industry will work closely together to help prepare a plan of action to cope with the new and emerging challenges in the international trading system. A special effort will be mounted in the areas of agriculture, textiles and pharmaceuticals. The Information Technology sector, specifically software, which has emerged as India’s newest motor of growth for exports, will be given every encouragement.

India will continue to meet all her international treaty and multilateral agreement obligations in a responsible and time-bound manner and will continue to work to use the WTO to gain additional market access for products and services of interest to India. It will proactively participate in all existing and proposed global discussions with a view to influencing the agenda and enhancing its bargaining strength. It will work with other countries to push for faster dismantling of controls on trade in textiles and agriculture. The objective of tariff policy will be to reach levels prevalent in south-east and East Asia in the next two to three years and global levels shortly thereafter.

India will continue to proactively encourage investment from foreign companies and overseas Indians. There is an entirely new generation of entrepreneurial overseas Indians, which is making a mark in countries like the United States. A special effort will be mounted to attract this group of investors and build enduring networks with them. In the last few years, India has received a direct foreign investment inflow of around $ 3 billion per year. This is a very low figure considering India’s requirement for investment and considering the global availability of capital. Our target should be to reach at least 8-10 billion dollars of foreign direct investment inflows early in the next decade.

The role of the Indian parliament in trade policy making has mostly been marginal. While many countries (both developed and developing) struggle with ensuring democratic control over trade policy making through parliamentary supervision, the issue in the Indian context, needs to be considered in the light of the low quality of parliamentary governance in India in policy making overall. While some (perhaps rightly) argue that more parliamentary supervision in India of trade policy making will make any policy reform impossible and create efficiency concerns, the need for democratic control over trade policy making – a component of governance that affects every citizen, is also an issue that cannot be ignored in the long term.

This call from one of India’s leftist political parties for the India-EU FTA to be debated in Parliament is therefore important. According to the Hindu newspaper:

Ahead of the ninth India-European Union Summit in Marseille, the Communist Party of India (Marxist) on Saturday asked the United Progressive Alliance Government not to make any commitment on the Free Trade Agreement without a debate in Parliament.

As Prime Minster Manmohan Singh leads the Indian delegation for the summit on Monday, the Polit Bureau, in a statement, said it was a matter of concern that while the European Parliament had already discussed the issues related to the proposed FTA, the Indiangovernment was yet to share details of the negotiations with Parliament and people.

…

The draft proposals, existing negotiating positions and studies conducted by the Indian government on the India-EU FTA should be placed and debated in Parliament before it initiated any further step, the statement said.

Here’s another interesting paper by Julien Chaisse.

It has several themes. These include – implementation of WTO agreements in India; the “direct effect” of WTO law in India; compliance by India with adverse WTO dispute settlement rulings; overview of how domestic Indian law has been influenced by the WTO; and India’s integration into the WTO system.

See Julien L. Chaisse. Ensuring the Conformity of Domestic Law with World Trade Organisation Law – India as a case study. New Delhi (India): Rajdhani Press/CSH, 2005.
Available at: http://works.bepress.com/julien_chaisse/2

Abstract

The World Trade Organisation (WTO), established in 1995, provides a contractual framework within which Member States undertake to implement regulations and legislation for foreign trade which cover a wide range of sectors. The purpose of this study to examine why and how WTO rules tend to be effectively implemented and how much it has changed Indian laws. WTO-conformity of Indian law is made compulsory for two reasons. First, by saying that, “each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements”, the Agreement establishing WTO affirms the obligation for all the Members to ensure such compliance. The legal consequences of such an obligation are discussed in regards with effective adaptation of Indian domestic law. Secondly, WTO is equipped with a new dispute settlement system which controls the correct compliance of domestic law with WTO-conformity. The contribution of this mechanism in ensuring WTO-conformity is evaluated, in regards with India implication in disputes. On the theoretical aspect this study identifies the particular characteristics proper to the WTO which ensure implementations to its law and obliges India as other Members to comply with the international standard. On the practical aspect, it gives an overview of the recent innovations or changes in Indian laws which are presently applicable and simultaneously to assess India integration in international trade governance.

The Hindu carried a report a few days ago on comments by eminent Indian agricultural scientist Dr. M. S. Swaminathan at a conference. He called for an “Indian Trade Organization” as a “national counterpart to the WTO”. The article does not say more about his ideas and what such an organization would look like or do. India does need trade policy making domestic institutional reform but its structure, functions and organization need to be carefully designed. And the Government has no such revamping plans at the moment. What would be the role of Parliament in such a set-up? Also, would there be a place for a more formalised public-private partnership in trade policy making and in market access enforcement?

For a profile of Dr. M S Swaminathan see here

Also see the M S Swaminathan Research Foundation

Business Standard reports on the trade policy changes introduced in the Union Budget (see here) yesterday.

CUSTOMS: Peak rate remains at 10% to protect the Re-hit industry; a few anomalies removed.

Breaking a three-year trend, Finance Minister P Chidambaram kept the peak Customs duty for non-agricultural products unchanged at 10 per cent, a key demand of the domestic industry, which has been facing the brunt of the rupee appreciation.

“The collection rate is the closest approximation to the level of protection to domestic industry, and that rate for all imports stood at 10 per cent in 2006-07. Since April 2007, the rupee has appreciated against the dollar by 9.8 per cent. Consequently, the case for reducing the peak rate at this stage is very weak,” Chidambaram said in his Budget speech.

The government had set a target to bring down the peak Customs duty on non-agricultural products to around 5 per cent by 2010.

However, Chidambaram reduced the Customs duty on some items to “provide a fillip to that industry or to promote value addition or to remove inversion or any other anomaly”.

Trade policy experts said the move could have a positive impact on the country’s trade relations.

“India will have greater bargaining power in negotiations for various free trade agreements. Thus, on non-tariff issues like trade rules, Indian negotiators can ask for more concessions,” said Ram Upendra Das, fellow, Research and Information System for Developing Countries.

The commerce ministry had asked the finance ministry not to reduce the peak Customs duty on all non-agricultural products, but to reduce it on certain items to address the issue of inverted duties (when raw materials attract more duties than finished products).

“This reduction of Customs duties will have a positive impact on export-oriented industries in gems and jewellery as well as sports goods sectors,” said Ajay Sahai, director general, Federation of Indian Export Organisations.

As imports are expected to remain buoyant, Customs collections for 2008-09 have been fixed at Rs 1,18,930 crore, up 18 per cent from the current fiscal’s revised estimate of Rs 1,00,766 crore.

Moreover, the revised estimate of Customs collections for the current financial year is 2 per cent higher than the Budget estimate of Rs 98,770 crore.

There has been a continuous annual reduction in Customs duties since 2004-05 when they were reduced from 20 per cent to 15 per cent. In 2005-06, Chidambaram cut the peak Customs duty on non-agricultural products from 15 per cent to 12.5 per cent and to the current level of 10 per cent in 2006-07.

Chidambaram proposed to do away with import duties on steel melting and aluminium scrap, some components of set-top boxes, specified raw materials used by the IT/electronic hardware industry and the sports goods sector, bactofuges used by the dairy industry, and helicopter simulators.

The items on which Customs duty has been reduced to 5 per cent include specified life-saving drugs and bulk drugs used to make such drugs, phosphoric acid for use as poultry- and cattle-feed ingredient, IT-convergence products, certain machinery used by the sports goods sector, gems and jewellery inputs like rough cubic zirconia, polished cubic, and rough coral.

Chidambaram did away with the 4 per cent additional Customs duty exemption enjoyed by power generation projects (other than mega power projects), transmission, sub-transmission and distribution projects, as well as goods for high-voltage transmission projects. Customs duty exemption on naptha for manufacture of some polymers has also been withdrawn.

WTO related matters are scrutinized by the Indian parliament’s Standing Committee on Commerce. The present membership constituted on 5 August 2007 comprises the following Indian legislators.

Chairperson:  Dr. Murli Manohar Joshi 

Members from Lok Sabha:

Omar Abdullah 

C.K. Chandrappan

Kunnur Manjunath Channappa

D.V. Sadananda Gowda 

Radhey Shyam Kori 

N.N. Krishnadas

Amitava Nandy 

Virchandra Paswan 

Jivabhai Ambalal Patel 

Shishupal Nathu Patle 

E. Ponnuswamy 

Gingee N. Ramachandran 

Kashi Ram Rana 

Harisingh Nasaru Rathod 

S.P.Y. Reddy 

Nikhilananda Sar 

A. Ravichandran Sippiparai 

Bharatsinh Madhavsinh Solanki 

Sarbananda Sonowal 

Braja Kishore Tripathy 

Balashowry Vallabbhaneni

Members from Rajya Sabha:  

Dr. Murli Manohar Joshi 

Jai Prakash Aggarwal 

Mohammed Amin 

Rajkumar Dhoot 

Arun Jaitley 

Banwari Lal Kanchhal

Robert Kharshing 

Thennala G. Balakrishna Pillai  

K. Keshava Rao  

Dinesh Trivedi

The recent Brazil tyres dispute between the EC and Brazil shows that statements made in domestic discourse by legislators can later be used by other countries as evidence in disputes or as talking points in trade negotiations. The EC in that case referred to statements by Brazilian authorities and legislators in Brazilian domestic proceedings to support its case that the import ban on retreaded tyres was aimed at protecting the Brazilian domestic tyre industry.

Domestic authorities including legislators need to vet their statements more carefully and ensure that no potentially incriminating disclosures are made even in domestic discussion.

I recently came across this question and answer exchange in the Lok Sabha on the issue of import of sensitive items:

Question

“Will the Minister of COMMERCE AND INDUSTRY be pleased to state:-
(a) the details of products listed in sensitive items category; (b) whether import of sensitive items has increased during 2006-07 as compared to previous years; (c) if so, the details thereof; and (d) the remedial measures taken by the Government to check such trend in coming years? “

In his answer on 21 August 2007, the minister replied:

“(a) to (c): As per the information made available by DGCI&S, Kolkata, import of sensitive items has been fluctuating in the last three years as given under. 

Value in Rs. Crores        2004-05    2005-06    2006-07

(Provisional)                   18832        16789       18555

The details of products listed in sensitive items are available on the website http://dgft.delhi.nic.in

(d) : Import restrictions on items are being removed as a part of economic liberalization programme of the Government and also in terms of our international obligations. However, imports are constantly being closely monitored and the government is determined to ensure through appropriate use of tariff and other mechanism, including anti-dumping action and mandatory BIS specifications, that import do not cause any serious detriment or injury to the domestic industry. “

The last sentence of this reply could be read to mean that India might use standards as a trade protectionist device. This would of course be violative of the TBT agreement.