Direct effect of WTO law in India
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.
China criticizes new Indian mandatory standards for Chinese toys before TBT Committee
The Economic Times reported yesterday that China has raised the issue of the mandatory safety standards imposed by India on imported Chinese toys before the WTO Committee on Technical Barriers to Trade.
In its complaint to the WTO, China has alleged that India’s quality checks violate the condition of “national treatment” laid down under WTO’s trade rules as they did not apply to toys manufactured in India or imported from any other country.
In its submission to the WTO committee on technical barriers to trade, China pointed out that since the restrictions apply only to Chinese toys, it could be viewed as a general ban on and a discriminatory measure against Chinese toys.
This breached a series of fundamental principles embodied in the WTO agreement, including that of most favoured nation treatment (every member country will be treated on a par with other member countries), and national treatment (product from a member country will be given the same treatment as that given to a product made locally), along with provisions of technical barriers to trade (TBT) agreement.
China also pointed out that India did not inform WTO about the restrictions, a procedure necessary under the transparency obligations of TBT agreement.
“China strongly requests that India revoke its discriminatory and WTO-inconsistent restriction on Chinese toys immediately,” the submission stated.
So China is alleging that even the revised Indian notification violates both MFN and national treatment. Further, it violates the notification requirement in the TBT agreement. For more background, see earlier posts on this subject under the category –public health. See http://indiainthewto.wordpress.com/2009/03/02/indian-government-relaxes-ban-on-chinese-toy-imports/
Why did the Indian government not use Clause 2.10 of the TBT agreement permitting the issue of safety standards in urgent cases with post-facto notification to the WTO secretariat and other members? Such a notification requires the statement of objectives and the rational for the standards. India will probably argue that these are international standards not requiring notification, but the application of these standards exclusively to imports from China does raise potential violations of MFN and NT.
The Indian authorities could have avoided a lot of trouble if only they had also followed the letter of WTO rules in this matter. The flexibility to take action against imports for safety reasons is fully available, but the Indians seem to have messed up on procedure. Is this an example of lack of capacity in Indian government institutions to use the WTO rules effectively? Why do they not consult lawyers more?
The Hindu meanwhile has an interesting take on the matter:
China is likely to convey its concern to India over New Delhi trying to restrict import of Chinese goods, even though Beijing has not "yet" dragged its neighbour to the World Trade Organisation on the issue.
Chinese Vice Minister of Commerce Zhong Shan is expected to convey his country’s strong resentment over India resorting to protect its industry against imports from China, when he meets Commerce Secretary G K Pillai here this week, sources said.
"We have nothing on this yet," WTO spokesperson said in an e-mail from Geneva when asked whether China has lodged any formal complaint against India. China was upset over India slapping a ban on import of Chinese toys on January 23, which was partially eased within six weeks, provided the toys conformed to international health and safety standards.
The official Chinese media had reported that the country was mulling to drag India to WTO for contesting the ban. However, Mr. Pillai is expected to confront Mr. Zhong with data showing surge in imports from China.
While the bilateral trade has seen a sharp rise in the fiscal 2008-09, it is highly skewed in favour of China. In 2007-08, India’s exports to China stood at USD 10.83 billion, while imports was USD 27.11 billion.
So why would Indian Commerce Secretary talk to the Chinese about surging imports in a matter to do with safety issues? To be fair, the discussions between the Indian Commerce Secretary and the Chinese Vice Minister of Commerce will likely cover all the recent trade tensions between the two countries. And the discussion of import surges will probably feature in that context.
Options for protection against imports: mandatory import licences versus safeguards
Here is a curiously interesting report from the Economic Times … the Indian Committee of Secretaries has advice for the Ministry of Commerce:
Apply WTO-approved curbs to ban imports, advises CoS
28 Feb 2009, 0102 hrs IST, Amiti Sen, ET BureauNEW DELHI: The commerce department, which restricted the import of a number of items from China this fiscal by allowing only actual users to import them through special licences issued by the government, may no longer be able to take the measure on its own.
The committee of secretaries (CoS), headed by the Cabinet secretary, is of the view that such restrictions could lead to violation of multilateral trading norms established by the World Trade Organization (WTO) and should be used sparingly. It suggested that the decision to impose such restrictions, when absolutely necessary, should be taken by the CoS, a government official said.
The commerce department should, instead, use the WTO-approved special safeguard mechanism (SSM)—where special import duties are imposed to prevent import surges—to help industry against cheap imports, the CoS proposed in a recent meeting.
The commerce department, in November last year, had put a number of items on the restricted list of imports like hot-rolled steel and radial tyres which are being mostly imported from China. Import of all items on restricted list is allowed only by actual users through import licences issued by the government.
The import of restricted products is, thus, totally in control of the government — a situation WTO may not tolerate. “If we are taken to WTO by an exporting country and found guilty of violating WTO rules, retaliatory sanctions can be imposed against our exports,” an official said.
The use of special safeguard mechanism, however, is allowed by WTO as it leads to imposition of additional import duties on products once it is conclusively proved there has been a surge in the import of an identified product leading to domestic market disruption and injury to the industry.
New Delhi has already imposed safeguard duties on four items, all chemicals. The directorate general of safeguards, set up under the department of revenue, carries out investigations following complaints made by the domestic industry against increased imports of a particular commodity.
Once it is satisfied that there has been a sharp increase in the import of a product and has led to losses for the domestic industry, it imposes 200-day temporary import duties on the product. The safeguard duty could be in place for up to three years if the domestic industry continues to be threatened by imports.
With the slowdown leading to contraction in global demand, the government is focusing on protecting the domestic industry against cheap imports.
Thoughts … turf wars?
Also, the Committee of Secretaries view might give ideas to Chinese trade officials about a potential WTO violation here on Indian restrictions on imports of hot-rolled steel and radial tyres.
And with the global economic crisis and the slow-down in India, there seems to be general protectionist sentiment all-around. In an election year, the Indian government has not much option but to protect domestic industry and very little appetite for signing new FTAs and lowering any tariffs. See earlier post
Why India should issue a fresh notification giving reasons for the ban on chinese toy imports
Kamal Nath has clarified that the six-month ban on chinese toy imports into India was for public health and safety reasons. Reuters reports:
India’s trade minister said on Friday the government’s decision to ban imports of Chinese toys was taken on the grounds of public safety and the move was compatible with World Trade Organisation rules.
Last month, India banned imports of several types of toys from China for six months "in the public interest" but without giving further details of why, a move that pleased local manufacturers but shocked importers.
"The question of banning Chinese toys was on the grounds of public health and safety," Trade Minister Kamal Nath told reporters after a conference.
"It is a matter which is of public concern rather than commercial, and public concern has to be given priority over commercial concern," he added.
On Wednesday, the China Daily newspaper reported that China may ask the WTO to investigate the six-month import ban, citing a source close to the matter.
The Chinese government will probably ask the global trade regulator to look into whether the move violates its laws, the state-owned paper said, quoting a source who asked not to be named.
"Of course, it is for China to establish this," Nath said.
"We are fully compliant with WTO … Before we take any action we make it sure it is WTO compatible," he added.
To scotch any potential challenge or complaint from China, it would probably be advisable for the DGFT to issue a fresh notification imposing the ban but this time stating these reasons clearly in the notification. This would overcome any objection to the present notification on the ground that the absence of reasons violates principles of natural justice. Further, stating the public health interest in the notification itself will help counter allegations that the prohibition was issued for protectionist reasons. A fresh notification would pre-empt any challenge of the ban by way of writ petition by an Indian importer before a High Court or the Supreme Court of India. (Though the Foreign Trade Development and Regulation Act provides for appellate and revisionary jurisdiction, these provisions won’t apply here.)
For some background on Indian administrative law and Supreme Court rulings on the obligation to give reasons in support of administrative action when such action affects rights or liabilities see here. The statute under which the notification has been issued [the Foreign Trade (Development and Regulation) Act, 1992] can be found on the DGFT website here under the notifications link.
New developments plus some background on the Indian ban on imports of Chinese toys
Whats new?
The China Daily reports that the Chinese government is considering complaining to the WTO DSB against the recent Indian notification that banned imports of Chinese toys but omitted to specify the reasons for the ban.
The Chinese government is mulling a response to India’s recent ban on Chinese toy imports and will probably ask the World Trade Organization to investigate whether the ban violates WTO laws, said a person close to the issue on condition of anonymity.
This comes after a similar move in which China asked the WTO to investigate anti-subsidy and anti-dumping duties imposed by the US on four categories of imports from China in December.
Experts said it is a sign that China will be leveraging WTO rules to help protect its manufacturers from illegal trade barriers and punitive measures by its trading partners at a time when protectionism is growing amid the global economic recession.
…
"The ban cannot hold water. The Indian side is doomed to lose in the court if the Chinese government appealed to the WTO Dispute Settlement Body," said Fu Donghui, managing director of Allbright Law Firm Beijing, which deals with WTO-related cases.
…
"In the past, the Chinese government always kept silent. But the situation is changing, and resorting to the WTO is a right choice to prevent the trade partners from abusing the WTO regulations," said Fu.
The notification issued by the Directorate General of Foreign Trade should be here but is not. GATT article X calls for prompt publication of such notifications "in such a manner as to enable governments and traders to become acquainted with them" No doubt the notification has been published in the official gazette, but it is not on the DGFT website. How are traders to find the notification?
Correction dated 7 January 2008: The DGFT notification is on their website here. For some reason did not find it before.
This report from a local mumbai news site has some more. Apparently, the notification mentions it is issued in public interest but gives no reasons as my earlier post had noted.
The notification "without reasons" clearly violates Indian administrative law as clarified by numerous Supreme Court decisions and could be challenged in an Indian Court by an importer or consumer of chinese toys. Further, even GATT article X:3(a) requires that WTO member governments administer their laws in a uniform, impartial and reasonable manner. The absence of reasons would seem to make out a case under this provision also.
There seems to be another problem with the notification. Apparently, and this is from news reports only, the notification bans direct imports from China but does not address imports of Chinese toys from third countries. This could also lay open the notification to legal challenge. The argument would be that the notification fails to achieve its objective of "safety" and the ban is being applied in a non-uniform manner.
Meanwhile, the Economic Times had reported earlier that the reason for the six month ban was to enable the government to formulate acceptable safety standards in this period. Why did the government not decide to issue emergency safety standards immediately? I suspect this was because many Indian toys would probably also have failed to comply. An Economic Times report noted that Indian toy manufacturers in the unorganized sector needed time to be able to comply with safety standards.
The background for this whole development seems to be a public interest litigation (PIL) that was filed before the Mumbai High Court by a consumer organization in 2007. The Maharashtra Pollution Control Board had apparently informed the Court in April 2008 that Chinese toys in India were found to contain unacceptable levels of toxins. See here. This PIL deals with both imported and Indian-made toys.
An outlook article has more on the lack of standards issue:
Following a report by Delhi-based NGO Toxics Link in 2006-07, highlighting the presence of toxic materials in a range of toys priced below Rs 150 ($3) found across the country, the Consumer Welfare Association of Mumbai filed the PIL. An added provocation was the government failure to check imports of ‘harmful’ toys. Says Rajiv Chavan, the advocate representing CWA, "There are two issues we have raised: the import of toys and the manufacturing of Indian toys." Indian toys meet around 50 per cent of the Rs 10,000-crore domestic market. According to Toxics Link, high levels of lead, cadmium and phthalates (a chemical used for softening plastics) can be found in most cheap toys—be they Indian or imported—bought by a majority of urban children. "How does the ban on Chinese toys protect consumers’ interest considering half the market is mostly cheap made-in-India toys with no control on quality," asks Ravi Agarwal of Toxics Link. "There is need for a mandatory standard to protect young consumers," he adds.
And spurred on by the judiciary, various ministries—consumer affairs, health, commerce, micro, small and medium enterprises (MSME)—have begun to study ways to enforce quality standards. The bad news: don’t expect safer toys in a hurry. Take, for instance, the norms put out by the Bureau of Indian Standards (BIS), which fall far short of global standards. While the European Commission had 11 safety standards for toys, India had only three—which deal with the mechanical and physical safety and flammability of toys. "The BIS calls these three standards equivalent to European standards…. But for other areas like organic, chemicals, paints and solvents used, we have nothing," complains A.M. Mascarenhas, secretary, Mumbai CWA.
Consumer affairs secretary Yashwant Bhave admits many issues are yet to be looked at. Though BIS has standards, "the issue is of making them compulsory", he says.The ministry is studying the legality of making the standards mandatory and whether it would require "mere notification or bringing in legislation", which would mean seeking Parliament approval. Pillai reveals there’s a proposal to make quality standards mandatory for certain products for young children. Simultaneously, the MSME ministry is studying ways to gradually introduce mandatory requirements to regulate toxicity of chemicals used in toys. "We have been told that in the first stage rules will be set for PVC and metal toys," says Ashok Jain, president, All India Toy Manufacturers Association. To support industry, more toy-testing labs will be set up (there are only four now).
Then, recently, the health ministry constituted a committee headed by Dr Y.K. Gupta of the AIIMS pharmacology department to study the veracity of the Toxics Link report. Says Dr R.S. Dhaliwal of ICMR and coordinator of the seven-member panel, "The health effects of metals are already known. What we are studying is the levels of toxicity in toys and its uptake or migration into the human body." While the domestic toy industry is ready to abide by better quality standards, this will take time: the court has been informed that the process to gauge levels of chemicals in toys can take up to two years.
Why can’t the government issue emergency safety and health standards under Article 2:10 of the agreement on technical barriers to trade?
The relevance of the 1984 Indian Supreme Court decision in Gramophone Co for the present impasse on the EU seizure of generics in transit
There has been some discussion in the blogosphere on whether the Indian Supreme Court ruling from 1984 in Gramophone Company of India Ltd v. Birendra Bahadur Pandey and Others, [(1984) 2 Supreme Court Cases 534] supports the Dutch seizure of Indian generics bound for Brazil. See previous posts on this issue. The decision can be found here.
I do not agree with SpicyIP bloggers that this 1984 decision would help the Netherlands on the generics seizure issue. Before I set out my reasons, let me first quote the arguments made by SpicyIP that I disagree with.
Shamnad Basheer of SpicyIP writes on the International Economic Law and Policy blog:
However, countries may define import more broadly. And this is exactly what the Indian courts did in the Gramophone Company of India case that Brian cites in his post (involving pirated casettes to Nepal). We discuss this case in an article dealing with the infamous Novartis case and whether the Indian court was correct in ducking the TRIPS issue claiming it had no jurisdiction to rule on this. If you’re interested, is is available on SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1329201
In the Gramophone case, the Supreme Court interpreted "import" to mean any inflow into India, whether or not it was meant for the Indian market. Sample this extract from the court:
"36. It was submitted by the learned Counsel for the respondents that where goods are brought into the country not for commerce, but for onward transmission to another country, there can, in law, be no importation.
It was said that the object of the Copyright Act was to prevent unauthorised reproduction of the work or the unauthorised exploitation of the reproduction of a work in India and this object would not be frustrated if infringing copies of a work were allowed transit across the country. If goods are brought in only to go out; there is no import, it was said.
It is difficult to agree with this submission thought it did find favour with the Division Bench of the Calcutta High Court, in the judgment under appeal. In the first place, the language of Section 53 does not justify reading the words ‘imported for commerce’ for the words ‘imported’. Nor is there any reason to assume that such was the object of the legislature."
Since the term "import" has not been defined by the TRIPS agreement, a panel is more likely to defer to the concerned member states’ definition (within reasonable bounds of course). I’m therefore not entirely sure that a panel would necessarily interpret import in the restricted way that you envisage. Therefore, at least on this count, my own view is that the EC may prevail in a TRIPS challenge by India or Brazil.
His co-blogger on SpicyIP Prashant Reddy writes that India has also seized goods in transit in the past for IP issues. He goes on:
“In fact the irony is that India itself has been impounding shipments destined for Nepal whenever those transit shipments infringe Indian intellectual property laws. In the 1984 Supreme Court case of Gramophone Company of India v. Birendra Bahadur Pandey Indian custom authorities had impounded a shipment of pirated cassettes that were being sent through India to Nepal by a Singapore based company. The case eventually reached the Supreme Court and in an excellent judgment by Justice Chinappa Reddy the Court held that the term ‘import’ used in the Copyright Act covered the activity of transit. In para 39 of the judgment the Supreme Court held that
39. We have, therefore, no hesitation in coming to the conclusion that the word ‘import’ in Sections 51 and 53 of the Copyright Act means ‘bringing into India from outside India’, that it is not limited to importation for commerce only but includes importation for transit across the country. Our interpretation, far from being inconsistent with any principle of International law, is entirely in accord with International Conventions and the Treaties between India and Nepal.
…
Given the fact that India itself has defined ‘import’ as covering even those goods which are under ‘transit’ it is rather hypocritical of India to expect the E.U. to follow a different set of rules.”
Why do I think this old decision does not help the Netherlands case?
Well, first the Gramophone decision itself states in para 27 that “import” can mean different things in different places and takes color from the context where it occurs and that the sense of the statute is important. The Supreme Court expressly relied upon international opinion that protects copyright (para 29)as established by both international copyright and transit trade conventions. The Court ruled (para 29) “If this much is borne in mind, it becomes clear that the word “import” … cannot bear the narrow interpretation sought to be placed upon it to limit it to import for commerce. It must be interpreted in a sense which will fit the Copyright Act into the setting of the international conventions.”
This is the context in which the Supreme Court ruled that import would include importation for transit in addition to importation for commerce. The gramophone case dealt with copyright violation on which international opinion was clearly against such violations.
The present case is of patent infringement or alleged counterfeiting of generics. The policy context as well as international opinion as manifested by international law and treaties is completely different here. I think the Supreme Court (if this issue were ever to come before it) would take the different context into account and rule differently.
Both the export of generics by India and their import by Brazil are legal and supported by the flexibility provided under the TRIPS agreement in balancing public health and IP rights.
Second, and I will not discuss this here, the Gramophone decision is not in my opinion well-reasoned at all. It is dated and on many issues might not stand the test of time. Most obviously, it cannot be applied without modification to the TRIPS era and to the new IP regulation in India.
Are there any later Indian Supreme Court decisions after 1984? Prashant writes that “India itself has been impounding shipments destined for Nepal” but then only cites this one case from 1984.
I also have a question: Was the Dutch action based upon alleged patent infringement or on alleged counterfeiting?
Update
I have had an interesting discussion on this issue with Shamnad Basheer of SpicyIP on the International Economic Law and Policy Blog. I had posted the above post as a comment in the thread running there. For sake of continuty, here is the conversation:
Shamnad Basheer said…
Dear Seema,
Thanks for your post. I think you must keep my post/analysis on this issue (on this blog) separate and distinct from Prashant’s analysis on SpicyIP. As you will appreciate, although we’re part of the same blog, we think independently as well.
My short point in pointing to the Gramophone case was this: the term "import" does not have just one meaning. It is not defined in TRIPS. How then is it to be interpreted?
Henning makes some really valid points about how it might be differentially interpreted even within TRIPS keeping the context in mind. And you may perhaps be right (as Henning also argues) that given the context of Article 51, imports cannot include "in transit" consignments that violate patent rights..
ps: The Dutch action had nothing to do with counterfeiting–but was based on patents (to be best of my knowledge)
Reply January 30, 2009 at 04:31 AM
Seema Sapra said…
Dear Shamnad,
Mea culpa! I was responding to both Prashant’s SpicyIP post as well as your initial comment in this thread.
But leaving aside my references to Prashant’s post, my comment on the substantive issue of the relevance of gramophone was also addressed to your initial comment in this thread, when you wrote that:
“However, countries may define import more broadly. And this is exactly what the Indian courts did in the Gramophone Company of India case that Brian cites in his post (involving pirated casettes to Nepal). … Since the term "import" has not been defined by the TRIPS agreement, a panel is more likely to defer to the concerned member states’ definition (within reasonable bounds of course). I’m therefore not entirely sure that a panel would necessarily interpret import in the restricted way that you envisage. Therefore, at least on this count, my own view is that the EC may prevail in a TRIPS challenge by India or Brazil.”
But I agree with you that reference to domestic interpretations would be relevant, and that policy contexts would also determine the meaning of import.
Apparently there is an ECJ decision Montex Holdings Ltd. v. Diesel SpA (Case C-281/05), where the court held that there could be no infringement by virtue of goods merely passing through a member state if the goods are not in free circulation there. I get this reference courtesy a comment posted on SpicyIP. For the link see http://www.jenkins.eu/mym-spring-2007/keep-on-trucking.asp
This brings some more information to mind that I found while googling. Don’t know what to make of this or whether this would influence the issue we are discussing. According to http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=1907716:
“Spanish Court Finds in Favor of Stada in Generic Losartan Case Against Merck, Sharp & Dohme 10/4/2007
A high-level Spanish tribunal (APB) in Barcelona has found in favor of the Stada against Merck, Sharp & Dohme, a part of US drugmaker Merck & Co., in a case that followed the commercialization of Stada’s copycat version of the angiotensin receptor blocker Cozaar/Hyzaar (losartan).” Losartan is the very same product seized by the Dutch.”
Thanks for clarifying about whether the Dutch action was for patent infringement or counterfeiting. I ask because the EC regulation allows action for both and a lot of the news reports talk about the relevance of the WHO’s discussions on how to define counterfeiting. Plus I think I read somewhere quotes from some Indian pharma guys as well as Commerce Secy Pillai which mention the issue of counterfeiting in the context of the Dutch action. Let me see if I can dig up one of these reports again.
Reply January 30, 2009 at 05:27 AM
Shamnad Basheer said…
Dear Seema,
No worries. I think I might have made a mistake as well in assuming that the prospect of a successful TRIPS action by India was really weak. I am now reconsidering my position and have just shot off my initial thoughts to Bryan and Henning on private email. Once I am clearer on this, I will run another post on SpicyIP and I will look forward to your insights and inputs.
Reply January 30, 2009 at 08:22 AM
Shamnad Basheer said…
you’re also right abotu the fact that the WHO anticounterfeiting issue has been conflated with this issue. And I warn against this conflation in my very first interview with Mint on this theme. And yes, some EU cases suggest that the "transhipment" part of the EU council regulations have been read down–which might mean that India could moot a challenge in the EU courts itself. I am still studying these cases.
The whole thread can be accessed here.
India initiates anti-subsidy investigation into imports of sodium nitrite from China
The Hindu Business Line reports that Indian authorities have launched their first anti-subsidy investigation against China.
Following a petition by Deepak Nitrite Ltd, which accounts for more than 50 per cent Indian production, the Designated Authority in the Directorate General of Anti-Dumping & Allied Duties has initiated the countervailing duty probe on imports of sodium nitrite from China. The petitioner has alleged that producers of sodium nitrite from China have benefited from a host of countervailable subsidies. They advanced evidence showing existence of certain schemes/programmes claiming that the same constitute countervailable subsidies to vindicate initiation of a probe.
The actionable Chinese subsidies alleged by the Indian petitioner include "China’s grant programmes, preferential lending, income tax programmes conferred by the Chinese authorities for foreign invested enterprises (FIEs), corporate income tax refund programme for reinvestment of FIE profits in export-oriented enterprises, preferential tax policies for R&D for FIEs, income tax credits on purchases of domestically produced equipment applicable to domestically owned companies, provision of electricity, natural gas, water utilities for less than adequate remuneration and provision of land for less than adequate remuneration."
The period under investiigation is from April 1, 2007 through to March 31, 2008, and China claims that many of its schemes and programmes had been revoked or modified in this period.
India already imposes anti-dumping duty on Chinese sodium nitrite and the news report states that a mid-term review of these has been carried out.
Xinhua reports that the Chinese government has expressed serious concerns over this investigation. It also protested an Indian special safeguards investrigation launched into sodium carbonate imported from China.
I can’t find details online regarding this subsidy investigation by the Indian authorities, but India seems to have taken the unilateral option of an anti-subsidy investigation. I suspect the measures under challenge may overlap with those challenged by the US and others before the WTO dispute settlement mechanism in WT/DS387/1 as prohibited subsidies under Article 3 of the SCM agreement. In this request for consultations made as recently as 7 January 2009, the US has listed as many as 107 Chinese measures and claimed that these constitute prohibited subsidies, violate China’s accession protocol, and appear to violate China’s national treatment oligations under GATT article III. In an earlier request for consultations (WT/DS358/14) the US had made a similar complaint about Chinese subsidies which was mutually settled by an MoU between China and the United States in January 2008.
Well, this should be a long and difficult investigation by India. I suspect that the issue will eventually be mutually settled.
More on the India generics seizure by Dutch authorities
Well, the issue has heated up now …
The background
Dutch authorities seized Indian generic exports of blood pressure drug bound for Brazil. The Dutch action took place under EC regulation 1383/2003.
Indian commerce secretary has described it as an act of piracy by the EU and both India and Brazil are threatening complaints to the WTO. See previous posts.
The Business Standard has a good story that provides some additional background information.
This might seem like a singular attempt by the EU to show extreme zeal in protecting the rights of pharmaceutical patent holders in the EU. But it has to be viewed against the backdrop a of a host of moves initiated by the developed world to ramp up intellectual property (IP) protection, far in excess of what is required under the TRIPS regime of the World Trade Organization (WTO), under the guise of public health concerns. These initiatives to enforce ever higher standards of IP protection have roped in global organisations with completely different mandates, such as the World Health Organisation (WHO), the World Customs Organisation and Interpol among others.
Leading the charge is the EU which apart from Regulation on trans-shipments is also planning to amend another directive (2001/83/EC) that seeks to prevent the entry of “medicinal products which are falsified in relation to their identity, history or source” into the legal supply chain through a change in the definition of such products. Interestingly, the new definition is based on the proposal accepted at a 2007 meeting of the controversial WHO agency IMPACT or International Medical Products Anti-Counterfeiting Taskforce which critics claim is a cover for protecting IP rights of MNCs. The US and other Organisation for Economic Co-operation and Development (OECD) countries are not far behind in ratcheting up IP enforcement through a host of initiatives ranging from a secretive multilateral treaty called ACTA, or the Anti-Counterfeit Trade Agreement, to a purely regional arrangement like The Security and Prosperity Partnership of North America that brings together North American Free Trade Agreement (NAFTA) signatories (the US, Canada and Mexico). But more on these initiatives later.
A new battleground between big pharma and public health activists over generics is emerging. The Business Standard story goes on:
Big Pharma is very clearly setting the agenda for these changes, according to public health activists promoting access to medicines and domestic industry associations. This charge has been affirmed by trade analysts and academics who point out that recommendations made by Pharmaceutical Research and Manufacturers of America (PhRMA), the powerful lobby of the world’s biggest drug corporations, to the US Trade Representative on ACTA are identical to the ‘Principles and elements for national legislation’ endorsed by IMPACT. The latter is supported by the International Federation of Pharmaceutical Associations (IFPMA) and there are reports that suggest 8 per cent of the funding for the WHO agency is provided by industry.
Developments at the WHO on this issue are being reported by ICTSD:
In a particularly contentious exchange at the WHO meeting, the Brazilian ambassador criticised the seizure. She stated that the “Brazilian Government considers that the decision by the Dutch authorities to detain an input which is strategic to public health in a developing country, and exported in conformity with the existing international norms, represents a grave drawback in the treatment of the issue of the universal access to medicines
The Netherlands’ decision represented a “distorted use of the international intellectual property system, supposedly upheld by European Union legislation, and contrary to the spirit and provisions of the Doha Declaration on TRIPs and Public Health,” the ambassador added.
Brazil indicated that “other possible reactions will be taken into consideration according to how this problem evolves, including within the World Trade Organisation (WTO)”.
This ICTSD story has more. Here is the full story:
Intellectual property was one of the contentious issues debated at the recent World Health Organisation Executive Board (EB) meeting, which concluded on Tuesday after just over a week of talks. Discussions centered on the WHO report and draft resolution on counterfeit medicines and on the global strategy and plan of action on public health, innovation and intellectual property.
Controversy over Counterfeit Medicines
The recent seizure of a shipment of generic medicines, headed to Brazil, by the European Union (EU) customs officials energized debate on the issue of counterfeit medical products. Brazil expressed “great concern” over retention of the hypertension medicines by the Dutch Authorities and indicated that it was considering taking further action in response. (see related story, this issue).
This debate also sparked questions regarding the definition of the term ‘counterfeit’, especially as it relates to the WHO mandate. . Some developing countries, as well as an NGO pointed out that as it stands the term ‘counterfeit’ is associated with trademark violations as defined in the WTO’s Trade-related Aspects of Intellectual Property Agreement (TRIPS). The Swiss delegate suggested that perhaps given the mandate for WHO in the protection of public health, the term ‘counterfeit medical products’ is more appropriate.
At the same time, however, some members questioned why the WHO is focusing on the definition of ‘counterfeit’ rather than directly addressing health issues associated with spurious and substandard drugs. Furthermore, a source present at the meeting suggested that the delegates were apprehensive to use the term ‘counterfeit’ as it can be used to facilitate and expedite the IP enforcement agenda under the guise of working to combat the falsification of medical products and other such illegalities that are a risk to public health.
But the US delegation indicated that it was disturbed that the “WHO secretariat originally circulated a document with a draft resolution with language that significantly widened the scope of the ‘patent’ exclusion to an exclusion for “all intellectual property.” The original WHO report stated that “disputes about, or violations of, intellectual property rights are not to be confused with counterfeiting.” However the US representative added that “such a broad exclusion is technically incorrect” and asked the “secretariat to explain how such a mistake occurred, given the importance of this issue to member states.”
In response, Director General Dr. Margaret Chan apologised, stating that use of the term “intellectual property was unintentional.” The WHO consequently issued a correction to the definition, reverting to the term ‘patents’, as set out in the IMPACT version, instead of ‘intellectual property’.
Concerns about IMPACT
Some members, primarily developing countries, expressed some concerns over the role and working methods of the IMPACT, which was launched in 2006 following a WHO conference in Rome. Included in the mandate of IMPACT, as outlined in the Rome Declaration, is the task of raising awareness among national authorities and decision-makers about counterfeit medicines, and calling for effective legislative measures to combat the spread of the spurious drugs. The taskforce is also charged with promoting coordination among different anti-counterfeiting initiatives.
Members’ concerns focused on the fact that the chair of IMPACT’s working group on technology is also the Director General of the International Federation of Pharmaceutical Manufacturers and Associations (IFPMA), an association of multinational companies. Other members of the IMPACT board include the Organisation for Economic Cooperation and Development (OECD), INTERPOL, and the International Federa¬tion of Pharmaceutical Wholesal¬ers.
Developing countries and several NGOs were also uneasy about what appears to be an endorsement of IMPACT’s work by the WHO. The Secretariat’s report and draft resolution for the Executive Board meeting were propelled largely by the work of its partnership with IMPACT.
Such direct private-sector participation in a WHO initiative could raise serious issues of conflict of interest, some members say. One non-governmental source expressed concern that such endorsement could establish a significant precedent of private sector involvement in WHO activities.
Given these issues, many members were not keen to adopt the proposed resolution. Paraguay on behalf of the group of Latin American and Caribbean Countries (GRULAC) stated that its members were not ready to support the draft in its current form. This position was endorsed by other countries, including Barbados and Uruguay. Ultimately, members agreed that the WHO Secretariat should prepare further reports on the impact of counterfeit medicines on public health, as well as a new document, without resolution, on the way forward to the World Health Assembly in May of this year.
Public Health, Innovation and IP
While the issue of counterfeit medicines gave rise to extensive discussions, the agenda item on public health, innovation and intellectual property was dealt with more swiftly.
The WHO revealed the costing estimates for the implementation of the WHO strategy on global public health and intellection property, giving a detailed breakdown of the funding required from 2009 to 2015 to “carry out the activities associated with each specific actions at two levels: national and international.” The activities include building and improving innovative capacity, promoting the transfer of technology, and improving the application and management of IP. The total cost of the estimated needs (excluding research and development) exceeds US $2 billion; national-level activities constitute approximately 60 percent of this total figure.
On research and development the funding is expected to be as much US $147 billion. Those funds will cover R&D, the education of R&D workers, R&D infrastructure, and support units. Taken together, the implementation of the strategy and action plan is budgeted at US $149 billion, or US $20 billion per year.
These estimated funding needs were one of the outstanding components of the plan of action that the member states had requested the Director General to finalise during this meeting of the EB.
The Medecin Sans Frontieres’ Campaign for Access to Essential Medicines contended that “further work is needed” by the WHO Executive Board on this issue. James Arkinstall, an MSF spokesman called for specific actions on this front, and urged the EB to adopt qualitative indicators as part of Global Plan of Action. “It’s not just the number or the process that needs to be measured, it is the effect and the impact,” the spokesman said.
Barbados and Bolivia presented a proposal on ways to use the ‘prize fund model’ to encourage research with respect to diseases that disproportionately affect developing countries. Both countries requested confirmation from the Secretariat that the proposals would be examined by the expert working group the Director General had established. The Secretariat indicated that the proposals would be examined at the second meeting of the working group later this year. The WHO has also encouraged other member states to submit proposals on ways to encourage research into diseases that disproportionately affect developing countries.
Discussions on counterfeit medical products and the global strategy and plan of action are likely to receive significant attention at the next meeting of the World Health Assembly.
ICTSD reporting; “India may drag EU to WTO on Seizure of Drugs,” HINDUSTAN TIMES, 18 January 2009; “Brazil to object to Dutch Seizure of generic drug,” REUTERS, 23 January 2009; “WHO Puts nearly $150 Billion Proce Tag on Global R & D Strategy for Neglected Diseases,” IP-WATCH, 22 January 2009; “Hope for Consensus on WHO and Counterfeits Moves to May assembly,” IP-WATCH, 27 January 2009.
For some animated discussion in the blogosphere, see the exchange at the International Economic Law and Policy Blog.
Update to EU seizures of Indian generics: Brazil threatens WTO complaint
In an earlier post I had written about the Indian government’s protest against the EU seizing certain Indian generic pharma exports in transit to third country importers. Reuters is now reporting that the Brazilian government has issued a statement threatening a WTO complaint against the EU. A new battleground in the fight to the right to public health versus patent protection seems to be emerging here … will keep an eye on this.
Brazil said it would file a complaint at the World Trade Organization over the seizure by Dutch authorities of a shipment of a generic high blood pressure drug made in India.
Local foreign and health ministries said a company claiming to have intellectual property rights to the arterial hypertension drug losartan in the Netherlands requested customs authorities seize a shipment of a generic version of the drug in transit from India to Brazil, two countries where the patent is not protected.
The Brazilian government can withhold intellectual property rights for a drug if it considers it “in the public interest.” Its health-care system provides free drug treatment for certain conditions such as AIDS and high blood pressure.
“The Brazilian government feels that the decision by the Dutch authorities to detain the basic material critical for the public health of a developing country … a serious step backward on the question of universal access to drugs,” said the note released by the Brazilian ministries late Thursday.
The statement also said the government would take its complaint to the executive council of the World Trade Organization in Geneva.
High blood pressure is one of the leading causes of death among Brazilians.
The cargo of generic losartan that was seized in Rotterdam was sent back to India, where it was manufactured by Dr. Reddy’s, the ministries’ note said. The drug was being imported by Brazil’s EMS.
Losartan is the generic name for the drug Cozaar that was co-developed by Merck & Co and DuPont Co.
Brazil’s statement that it can withhold IP rights in public interest is interesting. Is there a compulsory licence issue here?
Looming India WTO complaint against the EU for "illegal"(?) seizures in EU ports of Indian generic drug exports during transit to third countries?
Doesn’t look very likely though…
I came across this report in the Economic Times recently, quoting Indian commerce secretary that India might ask for DSU consultations with the EU on what has elsewhere been described as acts of piracy committed by the EU.
The Economic Times report was not very illuminating as to what the issues were. A Mint story is more enlightening. Also see the post on this story by the blog Spicy IP.
Here is the Mint story in full:
Dr Reddy’s consignment of drugs to Brazil seized
This is the first time a shipment of a large Indian company has been held on charges of patent infringement
Radhieka Pandeya
New Delhi: A consignment of drugs sent by Dr Reddy’s Laboratories Ltd (DRL) from India to Brazil has been seized in transit by Dutch customs on charges of patent infringement.
This is the second such action in the Netherlands in three months. IPA has urged serious action
India’s commerce department has reacted strongly against such seizures in the European Union (EU), this being the second such seizure in the Netherlands in three months.
DRL’s consignment, worth $500,000 (Rs2.4 crore), was of bulk drug losartan used to lower blood pressure. The patent for losartan in the Netherlands is held by US-based DuPont under the Cozaar brand.
Commerce secretary G.K. Pillai said the department has taken up the matter with the European Commission (EC) and has written to them. “This is an act of piracy by the European Union. The consignment was going to Latin America and was seized in Europe… This is a dangerous thing happening, which is totally uncalled for. It is part of the strategy by these countries to target generic drugs from India.”
Mint had reported on 12 December that an increasing number of shipments of Indian small and medium-sized bulk drug makers were being seized at European ports on charges of patent infringement. This is the first time a shipment of a large Indian company has been seized.
To be sure, some Indian patent lawyers argue that the EU is following local laws and India cannot question their implementation.
“If the consignment does infringe a patent, then you cannot question the EU for seizing it under their patent laws,” said Shamnad Bashir, a professor in intellectual property law at the National University of Juridical Sciences, Kolkata.
Rajeshwari Hariharan, a partner at law firm K&S Partners, agreed. “There are cases where a product is in transit and is seized at a transit point. If this DRL product was in transit via the Netherlands, and was seized there due to patent infringement, it is a valid argument for the EU,” she said. “In fact, India takes the same stance.”
Others, however, view this as a public health issue. “The EC regulations that have led to the seizure of Indian generic drugs in transit to Brazil have created barriers to the export of affordable, quality, low-cost generic drugs from India to other developing countries. This is part of the IP (intellectual property) enforcement agenda,” said lawyer Leena Menghaney, who is also India project manager for the Campaign for Access to Essential Medicines, an initiative of Medecins Sans Frontieres, a non-profit organization.
“The fallout will be on patients’ lives in the developing world who will not be able to access affordable life-saving drugs from India,” she said.
Industry lobby group Indian Pharmaceutical Alliance (IPA) has also urged serious action on the matter.
“We are concerned that all our exports of generic medicines to South America and Africa passing through Europe will come to standstill unless the government were to challenge the EU Council Regulation of 22 July 2003 and seek its amendment,” D.G. Shah, secretary general, IPA, has written in a letter to the commerce department.
A medium-sized Indian company, whose consignment worth $100,000 was also seized at a European port while going to Latin America, said it now sends the drug through a different route. It also said it was not big enough to fight an expensive legal battle in the EU.
The commerce department seems to be gearing up to tackle that, too. “We are willing to assist the company through the Pharmaceutical Export Promotion Council (Pharmexcil),” secretary Pillai said.
However, Pharmexcil executive director P.V. Appaji admitted that India should not expect drastic changes in EU regulations since “we cannot dictate our terms on them”. At the same time, Pharmexcil is encouraging smaller drugs makers to get advise the issue. “We will provide the company with our adviser, who will highlight all potential legal issues with regard to patent before they ship a consignment through a particular route. This adviser will be available to these companies at throwaway prices,” Appaji said.
Emails to the European Commission, World Health Organization and World Trade Organization remained unanswered. A DRL spokesperson said the company was unavailable for answer owing to a holiday.
Asit Ranjan Mishra in New Delhi contributed to this story
Article on Madras High Court decision in Novartis v. Union of India
Castro and Arcuri have an interesting article titled “How Innovative is Innovative Enough? Reflections on the Interpretation of Article 27 TRIPS from Novartis v. Union of India’ on SSRN.
Access it here
Here is the abstract:
In 2006 a major lawsuit was initiated by Novartis AG against the Union of India. Novartis petitioned the High Court of Madras to declare Section 3(d) of the Indian Patents Act, as amended in 2005, to be non-compliant with the TRIPS Agreement and/or to be unconstitutional. Section 3 of the Patents Act identifies the cases of inventions which are not patentable and its letter (d), as amended in 2005, lists as such ‘the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant.’ On August 6, 2007 the High Court of Madras reached a verdict rejecting all the petitioner’s requests. In relation to the non-compliance with the TRIPS Agreement, the Court did not enter into the merits of the question as it held to have no jurisdiction on this issue.
The present analysis begins where the verdict of the High Court of Madras ends; while the judgment invites reflection on a number of interesting issues related to the role of WTO law at national level, this paper focuses only on the substantive question (left almost entirely unaddressed by the Indian Court) about the compatibility between Section 3(d) of the Indian Patent Act and the TRIPS Agreement. The core of the question relates to the interpretation of Article 27 TRIPS, and in particular to its paragraph 1 where the criteria for patentability are set (i.e. an invention should be non-obvious, novel and useful); clearly, a narrow or a broad interpretation of these criteria is likely to have a significant impact on patents regimes worldwide. This paper builds an interdisciplinary theoretical framework to answer the compatibility question raised by Novartis AG; it does so by combing a purely legal analysis, based on the general interpretative canons used by the WTO Appellate Body to solve disputes, with an economic analysis that aims at showing the socio-economic impact of different interpretations of the above mentioned criteria. Finally, the paper shows the extent to which this theoretical framework could be applied should such a case ever be brought before the WTO DSB.
Indian tariffs on foreign liqour – the saga continues
The Financial Express reports on the ongoing scrutiny by the EU and the US of Indian taxes on imported alcohol. The US is planning to appeal against the WTO panel decision that went in India’s favour on a technical point of burden of proof. The EU has also stated that it might still challenge the tariff structure for imported alcohol in India before the WTO dispute settlement mechanism.
Alleging that Maharashtra and Goa, in particular, maintained high duties on wine and spirits from Europe, the EU had threatened once again to take India to the WTO. The EU has been pressing for national treatment to its wine and spirits companies in India as per the WTO rules.
…
Recently, the US had also indicated that it would appeal against the setback it suffered at WTO as a WTO panel held that the US had failed to establish that India’s additional duty on alcoholic liquor was inconsistent with WTO rules. The EU and US are expected to take a final stand on the issue by this month-end.
The Indian Government seems keen to resolve this dispute. The report suggests that on the Central government’s urging, two Indian States (Maharahtra and Goa) are reviewing their duty regimes to ensure national treatment to imported alcohol.
In what could be the last lap in resolving the ongoing dispute between the European Union (EU) and India on the latter’s relatively high tariffs on foreign liquor, the Centre has called an important meeting with the representatives of the European wines and spirits industry to find out the details regarding, “discrimination” they are allegedly facing in several states.
…
The Centre now wants to know from the European liquor companies if they are facing discrimination in different states regarding the slab system of duties or in the manner of collection of such levies, or if it is even in norms regarding licensing, vending, labelling warehousing or transportation.
The Indian Government is also considering a proposal for a nation-wide uniform tax structure for liqour to replace the existing differential duty structures in Indian States (as many as 30 different structures).
Meanwhile, the Indian Wine Academy has an interesting post highlighting two issues that wine importers face in Maharashtra,
The first issue concerns Maharashtra’s regulations on labelling:
They insist that the bottle labeling be uniform for both the Indian and foreign wines. This means that the labels must have all such information as MRP or the name of importer etc on the bottle original label itself. Currently the stickers are being pasted mostly by the importers, especially the smaller ones who have to cater to many markets but with different requirements.
The bigger importers may find it at least doable because of the bigger quantities of a label for Maharashtra and the staff at hand. After all, it means getting the bottles without back labels, getting them printed in India and sticking them on before offering to excise department for removal. But small importers who may import 5-10 cases of a particular labels may find it cumbersome to administer.
The second issue concerns pricing for sales of imported wines in Maharashtra:
The issue of MRP itself is far from being resolved. The department wants them to declare the basic manufacturing cost (say x), pay 200% duty (2x) and charge MRP of (4x+ customs duty of 150%), implying that the importer/ distributor must limit all expenses and his profit margins to x. This is not feasible for the imported wines, all importers say in agony. A case in point might be 4% SAD which has to be paid first; it is then refundable but not the easiest task to get refunded-would that be a cost or receivable with limited certainty?
The Indian Wine Academy also writes that the state of Karnataka is all set to increase its duties on imported wines.
Karnataka had been liberal so far as the sale of foreign wines is concerned with the excise duties of up to Rs. 70 a bottle including VAT/Sales Tax. This compares favourably with Rs. 150 +VAT in Delhi and 200%+VAT in Maharashtra. However, it had not been as pro-active as Maharashtra for the state produced wines.
The recently announced policy of Rs. 300 per bulk liter would mean an increase in excise duty of Rs.225 a bottle for the imported as well as out-of-state (read Maharashtra) and the customer will have to pay about Rs.280 extra.
Note that the Karnataka measure targets not only imported but also wines produced in other Indian states.
Well, the saga continues as urban upwardly-mobile Indians turn to wine as their drink of choice and as the wine production industry in India grows.
Paper on the Indian experience with WTO compliance
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.
India on US Priority Watch List for IPR
The Financial Express reports:
… the US government has put India on its ‘Priority Watch List’, along with nine other countries, saying that the country’s failure to protect intellectual property rights (IPR) is putting the health, safety and jobs of its citizens at risk. India has been on this list for a number of years and its continued inclusion does not come as a surprise. Besides India, the US has put countries like China, Russia, Pakistan, Argentina, Chile, Israel, Thailand and Venezuela in the watch list.
Countries on the list will be the subject of close scrutiny during the coming year. In 2007, too, the US administration had put India on its watch list under “section 301” and threatened to impose trade sanctions for violating IPR. Earlier, the Indian government adopted a slew of measures to check violation of IPR, including strong patent laws. The Patent Act, 1970 was amended in 1999, 2002 and then in 2005 to conform to the Trade Related Aspects of Intellectual Property Right (TRIPS) Agreement of the World Trade Organisation (WTO).
Direct tax benefits for India’s special economic zones – are they WTO compliant?
CNBC- TV 18 has a report on differences of opinion between India’s finance and commerce ministeries on direct tax benefits for India’s Special Economic Zones (SEZs). Go to http://sezindia.nic.in/, for official information on India’s SEZs.
SEZs continue to be a bone of contention between the Finance Minister and the Commerce Minister. The Finance Ministry has been wanting almost all direct tax benefits for SEZs to be eliminated. Now, it has found new ammunition to drive home its point.
For long, the Finance Ministry has been driving home the point that SEZs are nothing but a huge revenue linkage tool. It is inventing new tools to ensure that it drives home this point. One contention that it is making right now is that rebating or exempting direct tax benefits to SEZ units and developers is not WTO compliant. Other countries might just impose countervailing duty, or CVD, on Indian exports from SEZs.
The other contention is that this is really not equitable in terms of a tax principle. It is a distortion and might also lead to an erosion of tax base, which could ensure that the government does not actually oblige or meet its FRBM targets.
Of course, the Commerce Minister has rubbished these claims saying that this is not really in the domain of the Finance Ministry anymore. It is an act of Parliament that governs it.
If at all there have to be changes, it has to be routed through the Parliament. It essentially means what the Finance Ministry is claiming-tax benefits to offshore banking units, re-imposition of MAT on developers or SEZs as well as units, as also a re-imposition of dividend distribution tax on developers of SEZs. So, they are trying to finish off the entire gamut of direct tax benefits or the very fiscal edifice on which SEZs are built.
Aradhna Aggarwal of ICRIER has a paper titled “Impact of Special Economic Zones on Employment, Poverty and Human Development”. Its available at http://www.icrier.org/publication/working_papers_194.html. The abstract:
This study aims at examining the impact of Special Economic Zones (SEZs) on human development and poverty reduction in India. It identifies three channels through which SEZs address these issues: employment generation, skill formation (human capital development), and technology and knowledge upgradation. It examines how the impact of SEZs is passed through each of these channels. The analysis reveals that ‘employment generation’ has been the most important channel through which SEZs lend themselves to human development concerns, in India. Employment generated by zones is remunerative. Wage rates are not lower than those prevailing outside the zones. Besides, working conditions, non monetary benefits (such as transport, health and food facilities), incentive packages and social security systems are better than those prevailing outside the zones, in particular, in the small/informal sector. The role of SEZs in human capital formation and technology upgradation is found to be rather limited. The study argues that the zones’ potential could not be exploited fully in India. This could primarily be attributed to the limited success of SEZs in attracting investment and promoting exports. The new SEZ policy gives a major thrust to SEZs. However the creation of SEZs alone does not ensure the realization of their potential. The government will need to play a more proactive role for effective realization of the full range of benefits from SEZs
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