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India's Trade Overview

INDIA & THE WTO

MAJOR WTO AGREEMENTS & IMPLICATIONS FOR INDIA

India is governed by a number of major agreements like Agreement on Subsidies & Countervailing Measures, GATS, SPS, TRIPS, TRIMS, Agreement on Agriculture & Agreement on Textiles, as a member of the WTO.

The SCM Agreement contains a definition of the term “subsidy”: a financial contribution by a government or any public body within the territory of a member which confers a benefit. Only 4 “specific” subsidies are under the purview of SCM Agreement disciplines.

a. Enterprise-specificity: A country’s government targets a specific company or companies for subsidization.

b. Industry-specificity: A government targets certain sector or sectors for subsidization.

c. Regional specificity: A government targets producers in particular areas of its territory for subsidization

d. Prohibited subsidies: A government targets export products or goods using native inputs for subsidization.

There are two types of prohibited subsidies – subsidies dependent upon export performance; and those contingent upon the use of indigenous content over imported goods. Further, there are ‘actionable subsidies’ – these are not barred, but countries could take ‘countervailing measures’ against these subsidies. Alternatively, they could be challenged in the ‘dispute resolution body’ of WTO. However, for a subsidy to be actionable, 3 conditions should be present –

a. Injury to domestic industry due to subsidized imports from another country.

b. There is serious prejudice arising as a result of adverse effects (e.g., export displacement) in the market of the subsidizing member or in a third country market. For instance, if India starts subsidizing its textile sector severely, then China can claim that this subsidy is causing serious prejudice to its textile industry.

c. Nullification or impairment of benefits accruing under the GATT, 1994 by increase in subsidies.Against such subsidies, members can take countervailing measures, such as imposing countervailing duties or anti-dumping duty. These can only be done in a transparent manner and a sunset period should be specified. Sunset clause under the agreement requires that a countervailing measure must be terminated after five years, unless it is determined that continuation of the measure is necessary to avoid the persistence or recurrence of subsidization and injury.

(i) Countervailing Duty – It is levied on imported goods to counterbalance subsidies provided by the exporter country.For example, in March’19, the Ministry of Commerce & Industry, Government of India, recommended the imposition of countervailing duty on imported Chinese pneumatic tires.

(ii) Anti-Dumping Duty – Sometimes countries resort to subsidize production or exports so heavily that exporters are able to sell goods below domestic price or even production cost in international markets. Anti-Dumping Duty is aimed at checking such subsidization and protecting the interests of the domestic industry of the importing country.

For instance, in January’19, India imposed anti-dumping duties on 99 Chinese products, including chemicals & petrochemicals, pharmaceuticals, fibres & yarn, rubber & steel items. Similarly, in April’19, it imposed an anti-dumping duty on solar cell components from China, Malaysia, Saudi Arabia & Thailand.

GATS was inspired by the ideas of creating a credible system of international trade norms; principle of non-discrimination; stimulating economic activity through definite policy bindings and progressive liberalisation of trade.

Services negotiations in the WTO follow the discussions on the so-called positive list approach and the negative list approach. In the former, members list all of the services where they undertake to reduce tariff or non-tariff barriers. It entails the opening of markets and the granting of national treatment to foreign service suppliers vis-à-vis the items in the list. In contrast, the latter approach is related to those services where trade barriers are maintained. The West is ardently advocating to move from positive list approach to negative list approach. India is against this idea as it will throw open almost the entire Indian services sector to the mercy of western multinational giants.

Negotiations in services under GATS are classified into 4 modes –

(i) Cross border supply of services, without the movement of natural persons. For e.g. Business Process Outsourcing (BPO), KPO or LPO services. India can leverage its large pool of human resources and competitive IT sector and push for liberalisation in mode 1.

(ii) Supply of a service of one country to the consumer of another country; e.g. telecommunication.

(iii) Commercial presence, which encompasses services provided by a service supplier of one country in the territory of any other country, creating scope for foreign investment. Accordingly, it is in the West’s interest to push for liberalization here. For example, higher education, insurance, medical, etc.

(iv) Presence of natural persons, which covers facilities provided by a service supplier of one country through the presence of natural persons in the territory of any other country; e.g. a company sending its engineers for onsite work in US/Europe or Australia.

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an intercontinental agreement administered by the WTO that lays down the minimum standards for various types of intellectual property (IP).

(i) Copyright – This refers to the legal right to control the production and selling of a book, play, film, photograph, or piece of music. Copyright protection, however, extends to expressions and not to ideas, procedures, methods of operation or any mathematical concepts.

(ii)  Geographical indications – Geographical indications are defined as indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristics of the good is essentially attributable to its geographical origin (Article 22.1). Article 24 states some of the exceptions to the application of GI. For example, members are not obliged to bring a GI under protection, where it has become a generic term for describing the product in question.

(iii) Industrial designs – Article 25.1 of the agreement obliges members to provide for the protection (for at least 10 years) of independently created industrial designs that are new or original.

(iv)  Integrated circuit layout-designs – WTO defines layout designs as the three-dimensional disposition, however expressed, of the elements, at least one of which is an active element, and of some or all of the interconnections of an integrated circuit, or such a three-dimensional disposition prepared for an integrated circuit intended for manufacture.

(v) Patents – The agreement requires members to make patents available for any inventions, whether products or processes, in all fields of technology without discrimination, subject to the tests of novelty, inventiveness and industrial applicability. There are certain exceptions to this rule. For example, members may exclude from patentability inventions contrary to ordre public or morality; and diagnostic, therapeutic and surgical methods for the treatment of humans or animals.

(vi) Trademarks – The basic rule contained in Article 15 is that any sign, or any combination of signs, capable of distinguishing the goods and services of one undertaking from those of other undertakings, must be eligible for registration as a trademark, provided that it is visually perceptible.

TRIPS agreement was revised in favor of the developing countries in 2003, as part of the Doha development agenda, when all members agreed to compulsory licensing in certain cases. However, now US and Europe remain unhappy about the current stringent terms of patent under TRIPS.

Developing countries, including India, have time and again floated proposals in the WTO for incorporating a new provision in the TRIPS agreement related to prevention of theft of traditional knowledge such as Ayurveda and naturopathy. It has asked for mandatory disclosure of source or origin of the biological resource, evidence of prior informed consent and benefit sharing from patent applicants before granting any patent to a company in order to check bio-piracy.

1. Trade-Related Investment Measures – TRIMS

Negotiated during the Uruguay Round, TRIMS applies to measures that affect trade in goods. This agreement states that no Member shall apply a measure that is prohibited by the provisions of GATT Article III (national treatment) or Article XI (quantitative restrictions). Thus, the members will not apply any measure that discriminates against foreign products or that leads to quantitative restriction.

2. Agreement on Agriculture – AoA

Designed to remove trade barriers and to encourage transparent market access and integration of global markets, AoA stands on 3 pillars:

(i) Domestic Support, i.e., subsidies such as guaranteed minimum price or input subsidies which are direct and specific to a product. This can be divided into:

a) Green Box – Subsidies which are not or least market distorting. It includes measures such as income-support payments, safety-net programs, payments under environmental programs and agricultural research and development subsidies. In the case of developing countries, special treatment is provided in respect of governmental stockholding schemes for food security purposes and subsidised food prices for urban and rural poor.

The US has exploited this opportunity by decoupling subsidies (non-trade distorting subsidies) from outputs and financing research & development of agriculture.

b) Blue Box – These production limiting subsidies cover payments based on acreage, yield or number of livestock in a base year.

The government is given the room to fix ‘targets price’ if the ‘market prices’ are lower than the farm prices. EU has been actively using this method.

c) Amber Box – Those are trade distorting subsidies which need to be curbed. They contain a category of domestic support that is scheduled for reduction based on a formula called the “Aggregate Measure of Support” (AMS). This refers to the money spent by governments on agricultural production, except for those contained in the Blue Box, Green Box and ‘de minimis’.

It required member countries to report their total AMS for the period between 1986 and 1988 & reduce it according to an agreed upon schedule – 20% for developed countries over six years starting in 1995 and 13% over 10 years for developing countries. Least  developed countries do not need to make any cuts.

In addition to these subsidies, there is a ‘de-minimis provision’, which allows member countries to maintain trade distorting subsidies or ‘Amber box’ subsidies. It is 5% of the total value of agricultural output for the developed countries and 10% of total value of agricultural output for the developing countries.

Peace Clause is a product of the Bali Summit. Article 13 of AoA contains a “due restraint” or “peace clause” which controls the application of other WTO agreements to subsidies. According to the provisions, Green Box domestic support measures cannot be the subjected to countervailing duty action or other subsidy actions. Also, they cannot be subjected to actions based on non-violation nullification or impairment of tariff concessions under the GATT.

(ii) Market Access requires that tariffs, which have been fixed (like custom duties) by individual countries should be cut progressively to facilitate free trade. It also encompasses removal of non-tariff barriers (e.g. quotas on import). India is a signatory to this agreement and has substantially reduced its tariffs. It only regulates exempted goods.

(iii) Export subsidies are limited to four situations: (i) product-specific reduction commitments within the limits stated in the schedule of the WTO Member; (ii) any excess of budgetary outlays for export subsidies; (iii) export subsidies consistent with the special and differential treatment provision for developing countries; and (iv) export subsidies other than those subject to reduction commitments provided that they are in conformity with the anti-circumvention disciplines of Article 10 of the Agreement on Agriculture.

A Special Safeguard Mechanism (SSM) was designed as a safety valve, allowing developing countries to impose additional (temporary) safeguard duties in the event of an abnormal surge in imports or the entry of unusually cheap imports. 

In March’18, India raised quite a few concerns pertaining to agricultural trade in the Mini-Ministerial meet of WTO members. India’s concerns stem from the fact that for a large number of developing WTO members, agriculture remains the staple source of livelihood; and they are still grappling with the question of food security. India, along with other developing nations has time and again pointed towards addressing the asymmetrical nature of this multilateral trade. India is also of the opinion that the developed nations must do away with Aggregate Measure of Support. It has expressed the desire to designate a set of special products, which are imperative to their livelihood, food security and rural development. SSM was also seen as a major defence mechanism by them in the face of surging imports. At the same time, there are differences among the developing countries when it comes to the nitty-gritties of these issues.

The Multi-Fibre Agreement governed global textile trade until the Uruguay Round. This framework for bilateral agreements or unilateral actions that established quotas, limiting imports into countries whose domestic industries were facing serious harm from rapidly increasing imports. Since MFA was not in tandem with the principles of GATT, it was replaced by the Agreement on Textiles on 1st January, 1995.The ATC is built on the following crucial elements:

(a) the product coverage, which entails yarns, fabrics, made-up textile products and clothing

(b) a framework for the integration of these textile and clothing products into GATT rules

(c) a liberalisation process to enlarge existing quotas (until they are curbed) by increasing annual growth rates at each stage;

(d) a special safeguard mechanism to deal with new cases of serious damage (or threat) to domestic producers during the transitional period;

(e) establishment of a Textiles Monitoring Body to oversee the implementation of the Agreement and ensure that the rules are followed;

(f) other provisions, including rules on circumvention of the quotas, their administration, treatment of non-MFA restrictions, etc.

The result of Uruguay Round, SPS agreement sets out the basic rules for food safety and animal and plant health standards. It allows countries to set their own standards, based on scientific regulations. But they should be in force only to the extent that is necessary to protect human, animal or plant life or health. Also, they should not capriciously or unjustifiably discriminate between countries with identical or similar conditions. The Technical Barriers to Trade Agreement (TBT) tries to ensure that regulations, standards, testing and certification procedures do not create superfluous obstacles to trade.The most common complaints as far as SPS & TBT measures are concerned are that importing countries are not abiding by the international standards. For example, in the recent times, developed regions like USA & EU have reduced the limits of pesticides in agriculture. This has had an impact on the export of India’s agro-products like tea & basmati rice. Another frequent grievance relates to long delays in completing risk assessments or allowing imports.

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