India in the WTO

We still don’t know who will be given charge of India’s commerce ministry, but this announcement can be expected by Tuesday. My sense is that Mr Kamal Nath himself is keen on continuing as Commerce minister and conclude the unfinished Doha round as well as FDI and other industrial  sector reforms.

In an interview to CNN-IBN (see the text here) Mr. Nath spoke about the prospects of the Doha round:

Rajdeep Sardesai: Between 2004-09, Kamal Nath came to be identified with the World Trade Organisation (WTO) talks. Do you believe that with this clear mandate you will have a freer hand in the sense negotiating at the WTO you should be the commerce minister. Do you see a quick completion of the Doha round?

Kamal Nath: I think India needs to have a rule based multilateral system, we have a big stake in that. But today I think the Western countries who are bigger proponents of this are the ones getting cold feet and not India.

Rajdeep Sardesai: Yes, exactly that is why the US democratic administration seems protectionist.

Kamal Nath: That is what I am saying, they are getting cold feet not us.

On FDI:

Rajdeep Sardesai: Just before the elections, you had amended the Foreign Direct Investment (FDI) policy through a press note. Now investments made by a company registered in India in which a foreign company has a less than 50 per cent stake will not be considered as FDI. Some believe this has allowed foreign companies to breach sectoral limits, was this the objective to open up?

Kamal Nath: When we have a global recession, we have to make India a good investment destination. I want to separate ownership and control and this seeks to do that and get more investment.

On FDI in retail:

Rajdeep Sardesai: In your first tenure, between 2004-09 there was this ghost of Left which was always haunting you. This time it doesn’t even exist, will there be FDI in the multi-sector retailing or do you believe that this might affect the kiranewalla (small grocery shop) and that might be a concern that your fellow Cabinet Ministers will against you?

Kamal Nath: It is not FDI, it is big versus small and if it is big you can have a multi-brand Indian company, you have Reliance, ITC etc.

Rajdeep Sardesai: Will you allow FDI?

Kamal Nath: No, I am not talking about retail. As long as FDI doesn’t displace existing employment it is good but talking about the retail sector it is a very grey area.

Rajdeep Sardesai: You see it as a grey area, I thought at one point of time you believed that it would help Indian agriculture.

Kamal Nath: No, we cannot generalise on retail. Retail is not cement and motor, it is technology. If we can have access to retail technology and in fact we must not be looking at man at the moment, we must be looking for the niece and the son and the daughter. And that is the key thing to look at.

On liberalisation (FDI) in education:

Rajdeep Sardesai: The Commerce Ministry had also been wanting to liberalise high education but the HRD Ministry previously under Arjun Singh was not helpful. He is no more there but the fact is that will it happen now?

Kamal Nath: I can’t say that this will happen, I can only say that we have to ensure that our youngsters have the access to the best education in India. Why are we sending thousands of youngsters abroad, why can’t they stay here and study at a fraction of the cost?

On the need for export stimulus measures:

Rajdeep Sardesai: Exports, a critical area again. The export sector has been badly hit by recession. Your (Commerce) ministry had proposed a one year exemption in the payment of the fringe tax to these export oriented companies. Will we see that?

Kamal Nath: Exemption is about competitiveness and cost. Today, if the economy is in recession we can’t plan a package for Europe or the US. We are going to ensure that all levies and taxes are refunded and are not there for export.

Rajdeep Sardesai: But the aam aadmi is the one who is being hit. Do you think the time has come for a comprehensive package for the export sector?

Kamal Nath: There is a need for a comprehensive package to refund taxes, levies on anything that is being exported. Today you go anywhere in the world and you buy something from a shop, you refund immediately. So, you must have all taxes and levies because no taxes and levies are exported.

On differences between the Commerce and the Finance ministeries (in the previous administration the Commerce and Finance ministries had differed over SEZs and over sops for exporters):

Rajdeep Sardesai: Last time there was a feeling that the Commerce Ministry and the Finance Ministry were not on the same track. Will it be different this time with Pranab Mukherjee as the Finance Minister?

Kamal Nath: Well, I think the job of the Finance Ministry is to collect the revenue and see that they do resource management so any Finance Ministry would do that. But you need to weigh it off, you may not export and you may be having an economic impact because of that.

On financial sector liberalisation:

Rajdeep Sardesai: The new Government this time is largely free of the pressures of allies and therefore you will expected to push it with reforms. Last time, every time you were asked about reform you said look my hands are tide. Your hands are no longer tide, will it be different this time?

Kamal Nath: Let’s not say that there were no reforms in the last government. There were reforms in the financial sector which we didn’t do but let us recognise this. We should remember that the reforms that were asked by those financial icons of the Western world, the ones which were wound up.

Rajdeep Sardesai: So, are you among those who think that it is good to be cautious about financial sector liberalisation?

Kamal Nath: No, it depends which reforms we are talking about. We are looking at the reforms which are India specific; we can’t be talking about reforms all over the world. Today the most important reform is the reform in the governance. Reform in our Labour Act, the labour laws must be made employment generating.

On labour law reforms:

Rajdeep Sardesai: So, you would support reforms in labour laws which allow companies to hire and fire easily?

Kamal Nath: We must recognise this that for example if a textile company wants to hire some people to complete an order in four months but they can’t take that order because he can’t hire them for four months. So at that point of time, we are losing on that amount of employment.

Rajdeep Sardesai: But will the politicians allow this kind of labour laws reform? The problem is this is where the politics seem to clash with good economics.

Kamal Nath: No, I am all for the reform in labour laws which generate employment, provide employment security. We have to have this because employment generation is our No 1 priority with the young population.

On Special Economic Zones:

Rajdeep Sardesai: But let’s look at land because there has been controversy over Kamal Nath’s policies as commerce minister when it came to the Economic Zones. You were looked at someone who was liberally granting Special Economic Zones (SEZs), some suggested that it was little more than a land scam. And now you have got Mamata Banerjee who after Nandigram and Singur is going to get tough with any attempts made to liberalise land acquisitions.

Kamal Nath: Let us not talk in the abstract. There are SEZs today on the ground, you can measure easily how much investment is coming to the nearest rupee. We can measure how much employment has been generated, how much export has happened so all that are stories of the past. There are concerns in high density states.

Rajdeep Sardesai: But after Singur and Nandigram, won’t there be pressure to sort of modify your land acquisition policies, your own minister will suggest that.

Kamal Nath: I am all for that and that is what I am suggesting that there was a Cabinet committee, there was a group of ministers selected for that. That has moved the new land acquisition rehabilitation suggestive policy and that parliament had approved that and now this Parliament will take it up.

The videos of this interview (in 5 parts) can be watched here.

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.

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

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. 

According to Mr. Leeladhar, the deputy governor of the Reserve Bank of India, the United States has failed to match Indian generosity in allowing foreign bank entry.  According to a Reuters report, he pointed out

While 19 U.S.-based banks had Indian branches approved between 2003 and October 2007, no Indian banks had received U.S. approval in the period, Leeladhar said.

Indian banks had applied to set up three branches, two subsidiaries and nine representative offices in U.S. territory, with some requests pending for more than five years.

The Indian official also stated that the regulatory regime in India provided a level playing field for foreign and domestic banks, unlike in other jurisdictions.

Prudential rules were the same as for local banks, he said, adding foreign banks even enjoyed a lower priority-sector lending requirement of 32 percent of adjusted bank credit against 40 percent for Indian banks.

Foreign banks had 6.1 percent of deposits and 6.8 percent of advances in the commercial banking system as at end-June, he said.

Foreign banks dominated the off-balance sheet business with a market share of as high as 72.7 percent, and they had 52 percent of total foreign exchange turnover in the first half of 2007/08 (April-March) from 41 percent in 2005/06, he said.

Foreign banks also recorded a higher rate of return than local banks from local operations. Net profit per branch for foreign banks in 2005/06 was 119.9 million rupees ($30.3 million) compared to 3.3 million rupees for local banks.

For the report see http://www.reuters.com/article/governmentFilingsNews/idUSBOM17501920071126?pageNumber=2&virtualBrandChannel=0&sp=true

Even though this article dates from September, it makes for interesting reading on Indian struggles with the Doha negotiations on services.

We will not brook any inequity, India tells US

From D Ravi Kanth,DH News Service,Geneva:

India issued a stern warning, on Friday, to its trading partners, especially the United States, at the World Trade Organization that the take and take approach adopted by them in liberalising global trade in services will not be tolerated.

At a special meeting of the Doha negotiating session on how to liberalise global trade in services, the Indian trade envoy Ambassador Ujal Singh Bhatia said in unmistakable terms that New Dehli has failed to secure any genuine response to its demands in Mode 1 relating to cross-border services and outsourcing and Mode 4 concerning the movement of short-term services providers on non-immigration basis.  “This is a negotiation and it involves ‘give and take’ not ‘take and take’”, he told members pointing that without clear signals in these two areas, India will not be able to join the consensus in other areas.
Ambitious outcome
“For some of us at least, the lack of ambitious outcome in services, would seriously, perhaps fatally, impact the prospects of an early conclusion of the Round,” he told the meeting.  Ambassador Bhatia said India has “defensive” concerns in agriculture while it has liberalised a great deal in opening its market for industrials. The only area where India can secure some concrete gains is in the arena of Doha services, he added, pointing an accusing finger that so far there is no response from the major trading partners.
Clear imbalance
On Wednesday, the United States categorically told India that it will not provide any access on Mode 1 and Mode 4 because it has no mandate from its Congress to negotiate on this issue. The US was not even prepared to talk on some minimal issues in both these modes during the plurilateral meeting, trade diplomats said.

India’s ambassador said “there is a clear imbalance in the responses” adding “by and large, developing countries have been more forthcoming in their responses to plurilateral requests, than developed members.”
“On the issues of most concern to us (India), Mode 4 and cross border supply, the responses have been specially disappointing,” he maintained. India is also unhappy that Washington is not prepared to provide access to Indian banks which want to expand their operations within the United States. When Indian raised the issue of difficulties faced by the Indian banks in the US, an American  services negotiator told the meting  “all banks are not equal,” trade diplomats said.

source: http://www.deccanherald.com/Content/Sep302007/business2007092928009.asp Sunday, September 30, 2007