TABLE OF CONTENTS FOREWORD........................................................................................................ 2 EXECUTIVE SUMMARY...................................................................................... 3 DISCUSSION PAPER.......................................................................................... 6 I. Background and current thinking among different countries: ................... 6 II Responding to the demands of other countries:..................................... 10 III Our own demands on the multilateral trading system: .......................... 15 IV. Summary of options available to us: ................................................... 20 REPORT OF DISCUSSIONS............................................................................ 23
Foreword The third Ministerial Conference of the World Trade Organization (WTO) is scheduled to be held at Seattle, USA, from 30 November to 3 December, 1999. This will be an important Ministerial Conference because it may set the stage for the launching of a new round of trade negotiations (the Millenium Round) under WTO not only to liberalise global trade further but also to bring new issues on the multilateral trade agenda. A workshop titled “The Third Ministerial Conference of WTO: Agenda for India” was organised by ICRIER on August 28, 1999, to generate informed debate on the issues involved in setting India’s agenda for the Seattle meeting. ICRIER requested Mr. A.V. Ganesan, Advisor to ICRIER on WTO related issues and former Commerce Secretary to Government of India, to prepare a Discussion Paper for the workshop. Mr. Ganesan presented his paper, and the presentation was followed by stimulating discussion among the participants. The latter included Commerce Secretary, Mr. P.P. Prabhu, Special Secretary, Ministry of Commerce, Mr. N.N. Khanna and many other distinguished persons from the government and the private sector. The Discussion Paper, the Report of Discussions and the list of participants are being made available here with the hope that a wide dissemination of the proceedings of the workshop will help in providing the information base on which further debate on this very important subject can take place. I also hope that this effort would help the government in its process of preparing for the Seattle Ministerial Conference.
Isher Judge Ahluwalia Director & Chief Executive ICRIER
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Executive Summary
The second Ministerial Conference of the WTO held in Geneva in May 1998 had identified four building blocks for formulating the future work programme of the WTO, namely, (i) implementation of the existing WTO agreements which would include problems arising from the implementation of existing agreements, mandated reviews and mandated negotiations (particularly in agriculture and services sectors) prescribed under the existing agreements. (ii) new issues arising from the first Ministerial Conference of the WTO held in Singapore in December, 1996, namely, trade and investment, trade and competition policy, transparency in government procurement and trade facilitation; in addition, a fifth new issue was added in the second Ministerial Conference, viz, global electronic commerce. (iii) implementation of the decisions taken at the High-level Meeting on Least Developed Countries (LDCs); and (iv) other new issues as may be proposed by members and agreed to by consensus. Some of the new issues proposed under this category are industrial tariffs, trade and environment, trade and labour standards, and transparency in WTO’s work process. The Geneva Ministerial Conference had directed the General Council of the WTO to make its recommendations to the Seattle Ministerial Conference on the basis of the above building blocks. There are currently three distinct strands of thinking among the WTO members on constructing the future work programme of the WTO around these building blocks. The first is the approach of the European Union to launch an ambitious and comprehensive new round of trade negotiations that would encompass all the elements of all the four building blocks. Japan, Canada, Switzerland and many developing countries of the Cairns Group or Latin America are also inclined towards a large or larger agenda that would at least include the new issues of investment rules and industrial tariffs. The second strand of thinking is the approach of the United States focussing on a limited or sectoral agenda and aiming to achieve some “early harvest” or “early deliverables”. This approach suggests the division of the future work programme into three parts: first, the built-in-agenda (i.e., building blocks (i) and (iii)) plus industrial tariffs; the second, achievement of early harvest in certain areas like Information Technology-II agreement, a framework agreement on transparency
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in government procurement, and roll over of no customs duties on electronic commerce; and the third, new and contentious issues such as investment rules, competition policy, environment, etc. The future work programme could concentrate on the first and second parts, leaving the contentious issues under the third part to be further studied by Working Groups. The third strand of thinking is that advocated by India and some other developing countries (e.g., Egypt, Indonesia, Malaysia, Pakistan). This opposes the addition of any new issue to the agenda of the WTO at this juncture and wants the future work programme to be confined only to building blocks (i) and (iii). Considering the pros and cons of the issues involved, there are basically three options for the consideration of India on the future work programme of WTO. The first option is a “limited agenda” that includes only mandated reviews, mandated negotiations, industrial tariffs, roll over of no customs duties on ecommerce, ITA-II agreement, transparency in WTO’s work process, and review and concretisation of the S&D provisions in existing agreements. The second option is a “large or comprehensive” agenda that includes all the above mentioned items plus new issues such as investment rules, competition policy, labour and environmental standards. The third option is a “middle” agenda that includes the limited agenda plus “investment rules” only, provided the negotiating mandate for the investment rules clearly excludes the pre-establishment phase national treatment issue. Our best option would appear to be to pursue the first option primarily for the reason that sufficient trade-offs are not visible for our accepting obligations and commitments under the new issues included in the second and third options. The second option of a large or comprehensive agenda is clearly not in our interests, not only because of lack of sufficient trade offs, but also because we are still grappling with the commitments entailed by the existing Uruguay Round agreements. We need to be prepared for the possibility of the third option in case a consensus builds up to include investment rules in the agenda by confining the scope of the rules to the post establishment phase of an investment. In such a case, we should try to ensure that the negotiating mandate for the investment rules take into account the elements indicated in page 10 of the discussion paper. None of the proposals or options suggested in the discussion paper imply any opposition to the liberalisation of our economic, trade and foreign investment policies. We should continue with vigour our economic reforms for the liberalisation of our policies and for opening up our economy to competitive pressures from abroad. We should do so autonomously and in our own interest. The question at stake is whether we should enter into legally binding multilateral commitments in the WTO (which are extremely difficult to renegotiate should circumstances change) without receiving sufficient quid pro quo in return. The quid pro-quo for us lies primarily in the areas of the TRIPS agreement and
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market access issues, especially, the non-tariff barriers. Our willingness to convert unilateral liberalisation into multilateral commitments or to undertake new obligations and commitments must always be tested against two criteria: first, the degree of consonance or departure from our own present or planned policies; and the quid pro quo we see for taking on new multilateral commitments.
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Discussion Paper Seattle Ministerial Conference of WTO Agenda for India by A.V. Ganesan*
I. Background and current thinking among different countries: The third Ministerial Conference of the World Trade Organization (WTO) is scheduled to be held at Seattle, USA from 30 November to 3 December,1999. This could be an important Ministerial Conference because it may set the stage for the launching of a comprehensive new round of trade negotiations (christened the ‘Millennium Round’) not only to liberalise trade further, but also to include new issues in the multilateral trade agenda. The preparatory process for the General Council of the WTO to make its recommendations to the Seattle Ministerial Conference on WTO’s future work programme is currently in full swing in the WTO and it is expected to be substantially completed by the end of September/beginning of November 1999. The Ministerial Declaration of 20 May 1998 adopted at WTO’s Second Ministerial Conference held in Geneva in May 1998 has identified four building blocks for the future work programme of the WTO. The General Council has been asked to make its recommendations on them, on the basis of consensus, to the Third Ministerial Conference at Seattle. These four building blocks are: i.
Implementation of the existing agreements: (a) Problems, issues and concerns arising from the implementation of the existing agreements. (e.g. implementational issues, expected benefits not accruing to developing countries in textiles and clothing as well as agriculture sectors etc.) (b) Negotiations for further progressive liberalisation mandated under the existing agreements, namely, negotiations for further liberalisation of the agriculture and services sectors. (“mandated negotiations”). (c) Mandated reviews of existing agreements.
The above building block is also known as the “built in agenda”.
*
The views expressed in the paper are those of the author and do not reflect the views of ICRIER or any other organization or person.
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ii.
New issues arising from the first Ministerial Conference held at Singapore in December, 1996:
These new issues are: (a) (b) (c) (d)
Trade and investment Trade and competition policy Transparency in government procurement practices Trade facilitation
To the above must be added a fifth new issue arising from the Second Ministerial Conference held in Geneva in May, 1998, namely, “global electronic commerce”. iii.
Implementation of the decisions taken at the High-Level Meeting on Least Developed Countries (LDCs)
iv
Other new issues as may be proposed and agreed to by Members:
Examples are: -
Industrial tariffs Trade and environment Trade and labour standards Transparency in WTO’s work process
As of now (August 1999), there seems to be three distinct strands of thinking among different countries on constructing of the future work programme of the WTO around these building blocks. The first is the approach of the European Union, which is pushing for an ambitious and comprehensive new round of trade negotiations that would include all the elements of all the four building blocks. In particular, the European Union is keen that the negotiations should include (a) deep and comprehensive reduction of industrial tariffs across all sectors, and (b) binding multilateral rules on investment. Japan, Canada, Switzerland and many of the developing countries in the Cairns Group or Latin America are also in favour of a “large” agenda that includes “industrial tariffs” and “investment”, if not as large and as comprehensive an agenda as that advocated by the European Union. The first strand of thinking thus aims at a very large or a sufficiently large agenda, including new issues, for future negotiations. The second strand of thinking is that advocated by the USA, which focusses on a more limited or a sectoral approach and which aims at achieving an “early harvest” or “early deliverables”. This approach would like the work programme to be divided into three parts: first, the “built-in-agenda”, that is, building block I, plus “industrial tariffs”. Second, the achievement of “early harvest” or “early deliverables” in certain areas such as Information Technology-II Agreement, a framework agreement on transparency in government procurement practices,
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and roll over of no customs duties on electronic commerce. The decisions on “early deliverables” should be announced at the Seattle Ministerial Conference itself. Third, new and contentious issues such as investment rules, trade and environment, and trade and competition policy, etc. The negotiation of these new issues and reaching a consensus on them will require a long period, but they should not be allowed to hold up the achievement of quick and early results in the other two parts. Therefore, studies by the existing Working Groups could continue on these new and controversial issues, and they could be taken up for negotiations at an opportune time in the future. The third distinct strand of thinking is that of India and some other developing countries (e.g. Egypt, Indonesia, Malaysia, Pakistan) which opposes the addition of any new issues to the WTO agenda at this juncture and which wants the future work programme to be confined to only building blocks I and III. In other words, this approach would limit the future work programme to only the “mandated reviews” and “mandated negotiations” under the existing agreements. The rationale behind this approach is that the agenda of the WTO is already over loaded and that developing countries are finding it difficult to fulfill even the obligations and commitments that they have undertaken under the Uruguay Round. At the same time, developing countries are yet to realise the market access gains that they had hoped for under these agreements. It is therefore necessary to focus on the redressal of the imbalances and implementational difficulties in the existing agreements before rushing to the addition of new issues to the trade agenda. Needless to say, the attitudes and approaches of different groups of countries are influenced by different political and economic considerations. For example, further liberalisation of the agriculture sector is an extremely sensitive political issue for the European Community, Japan and a few other industrialised countries. To soften their own domestic pressures, they are keen that it is undertaken as part of a comprehensive new round of negotiations in which it would be balanced by gains in other areas such as a comprehensive reduction of industrial tariffs and binding multilateral rules on foreign investment. On the other hand, for some of the developing countries in the Cairns roup, it seems that no price is too high for ensuring a speedy and substantial liberalisation of the agricultural trade. If reduction of industrial tariffs and new rules on investment are the price to be paid for bringing round the European Union and Japan to agree to a quick and credible liberalisation of the agricultural trade, they feel that the price may be worth paying. To the United States, however, “early harvests” and ”early deliverables”, based on an issue-based approach, seem to be more important to show achievement of quick results within the remaining period of the Clinton administration, with some concrete decisions being announced in the Seattle Ministerial Conference itself. A long and protracted round of negotiations spread over many years, involving contentious new issues has therefore not found its support so far - the more so as it perceives that the likely compromises on the negotiating mandate for new issues may lead to weak agreements, for
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example, on investment. At the other end, there are many small developing countries which feel that it may be better for them to negotiate a multilateral agreement on investment with the support of other developing countries as their own negotiating strength in bilateral agreements is rather weak. Furthermore, the approach of many developing countries is also influenced by the regional or subregional economic arrangements, such as for example, the ASEAN, APEC, NAFTA, MERCOSUR and FTAA to which they are or they plan to be a party. Such regional and subregional arrangements are increasingly moving towards free trade, free investment and greater economic integration. They do not perceive the gap between regionalisation and multilateralisation as large as it used to be before. In the final analysis, therefore, an issue-based or trade-off based approach comes to shape the approach of individual countries towards an acceptable negotiating agenda, and coalitions or attitudes are formed around issues rather than on other considerations. Beyond a point, therefore, it is unrealistic to proceed on the assumption that the issues involved can be neatly divided as those between “developed” and “developing” countries confronting each other and that there can be a common or uniform stand among developing countries on all the issues. Against this overall background, we need to examine our own approach to the future work programme of the WTO to be decided at the Seattle Ministerial Conference. By the time of the Ministerial Conference, there could be many more variations to the afore mentioned strands of thinking among different groups of countries. In particular, opinions will evolve as to what is a “built-in-agenda” issue and what is a “new issue”, as also what is or is not an acceptable “new issue”. Opinions will also evolve on the ‘trade-offs’ involved, including in particular how the ‘development dimension’ can be concretely built into the existing and new agreements. The ultimate consensus may therefore well be an amalgam of the different strands of thinking described above. We need to be prepared for this and try to influence its evolution in the run-up to the Seattle Conference. Our approach to the future work programme of the WTO has naturally to be two dimensional. We should be prepared not only to respond to the demands of the other countries, but also be ready to articulate and garner support for our own specific demands on the multialteral trading system. It is not enough, nor is it in our best interests, if we only keep opposing the demands of others. It is even more important that we put forward our own specific demands and try to ensure that as many of those demands as possible get incorporated in any negotiating mandate. Unless we do so, it will not be possible for us to bargain for the possible trade-offs and to ensure that the mandate for the future work programme of the WTO is balanced addresses our interests and concerns as well.
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II Responding to the demands of other countries: As noted earlier, the major demands of other countries, falling outside of the “built-in-agenda” , are: • • • • • • • • •
industrial tafiffs investment rules transparency in government procurement practices information technology agreement-II roll over of no customs duties on global electronic commerce transparency in WTO’s work process trade and environment trade and labour standards trade and competition policy
In responding to any demand that involves our giving legally binding multilateral commitments (that are enforceable under WTO’s dispute settlement process), whether such demand relates to a new or existing subject matter, the key question to ask is whether and to what extent the demand deviates from the policies, laws and regulations that we are currently following or that we plan to follow on our own. To the extent that the proposed demand is in consonance with our own policies or the gap to be covered is minimal, we need to use our acceptance of the demand as a bargaining chip for our gaining acceptance of our own demands by others. It is only where the gap between our own present or proposed policies and what is being demanded is susbtantial that we should examine closely whether it is in our long term interests to agree to the demand, and if so, how we could close the gap as far as possible and what trade-offs in other areas are available to us to mitigate the new commitments that we are willing to take. In other words, the degree of consonance with our own present or planned policies and the trade-offs available ought to be the two basic ingredients of our response to the demands of other countries.1 Industrial tariffs: Most countries, including developing countries, do not consider progressive reduction of industrial tariffs as a “new issue’ and are therefore willing to enter into negotiations for reduction of industrial tariffs on a mutually beneficial basis. The increasing speed and spread of regional integration arrangements is also a major factor in influencing countries to move towards freer trade, if not free trade. It is estimated that nearly 60 per cent of the world merchandise trade will soon be under existing or planned regional agreements for free trade.
1
Our first and second generation economic reforms, for example, can guide us in determining whether and to what extent a proposed demand deviates from our own policies.
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We cannot therefore realistically hold on to the position that reduction of industrial tariffs is a “new issue” on which negotiations are not called for. We need to be prepared for the likely consensus that the reduction or, as appropriate, elimination of industrial tariffs across all sectors, including the reduction or elimination of high tariffs and tariff escalation ( a la the Punta del Este mandate) is included as a subject for negotiations. We should, however, resist any attempt to introduce concepts such as that the bound rates should not exceed existing applied rates or that all the bound rates should fit into a few predetermined slabs. More importantly, we should work out the quid pro quo that we should seek within the industrial tariffs sector as well as outside of it under the rubric of “market access”. For this purpose, it is most important that there is a close and continuous interaction between the Government and the industry to work out a blue print for the commitments that we can give and the concessions that we must seek from other countries. Investment Rules: This is clearly a “new issue” although it is linked to the Singapore Ministerial Declaration and the TRIMS Agreement. For various reasons, our first and best option would be to question the need for a multilateral agreement on investment (MAI) and oppose its inclusion in the future work programme of the WTO.2 We could, however, support the continuation of the study on trade-investment relationship that has been initiated as a result of the Singapore Ministerial Declaration. In case, however, there is a predominant support for including it as a subject for negotiation, we need to look at the issue from two angles: (a) the trade-offs available and (b) the parameters within which the investment rules are set. The nature and magnitude of the trade-offs involved is an important issue for consideration not only for us but also for developing countries in general. This essentially means an assessment of the extent to which our own demands in other areas (i.e. in areas other than the MAI) have been accommodated in the negotiating mandate. As noted earlier, the developing countries in the Cairns group are looking at the liberalisation of the agricultural trade as the quid pro quo for their agreeing to investment rules. To us, however, this is not the case; for us the quid pro quo would appear to lie largely in the review of the TRIPS Agreement for incorporating the provisions that we seek. The TRIPS Agreement and the ‘market access” demands (which include the non-tariff barrier issues and further liberalisation in the cross border movement of professional and skilled personnel) are the two primary areas where we should look for quid pro quo concessions and commitments in the event of our willingness to join a consensus to include investment rules as a subject for negotiations. In this context, developing countries including us should not lose sight of the fact that once investment rules get inscribed on the agenda of the WTO, albeit in a diluted form 2
For the reasons for questioning the need for an MAI, whose core principle is non-discrimination between foreign and domestic investors in all phases of an investment including the entry and establishment phases, see the author’s discussion paper for the Seminar on “Investment: A Multilateral Framework” organised by ICRIER on 25 June 1999 at New Delhi.
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to begin with, they would be under constant pressure for the progressive liberalisation of the rules in favour of the foreign investors on the core principle of non-discrimination between foreign and domestic investors. It is therefore important that effective bargaining for a quid pro quo in other areas takes place now itself when this subject is sought to be introduced into the WTO agenda. As regards the parameters within which investment rules are set, we should aim at the explicit incorporation of at least the following elements in the negotiating mandate itself: (a) The agreement will apply to foreign direct investment (FDI) only and not to any other form of foreign investment such as short-term investment, portfolio investment, debt capital, intellectual property rights, licences and concessions, etc. For this purpose, the IMF definition of FDI could be suggested. (b) The agreement will apply only to FDI that takes place in accordance with the host country’s policies, laws, regulations and administrative procedures, and that it will not apply to the treatment of FDI in the preestablishment phase.3 (c) The agreement will not cover investments in the services sector, which will continue to be governed by the General Agreement on Trade in Services and its national schedules. (d) The agreement will not address the issue of performance requirements, which will continue to be governed by the TRIMS Agreement.4 (e) The dipute settlement mechanism under the agreement will be limited to State-to-State disputes and will not be extended to Investor-to-State disputes of any kind. (f) The agreement will address equally the obligations of the investors and the home countries so that there is a balance of rights and responsibilities of all parties concerned. In essence, the incorporation of the above elements in the negotiating mandate means that the agreed multilateral framework will not go beyond the
3
This means that the agreement will not address the issue of liberalisation of the foreign investment regimes of host countries. Neither a “negative” nor a “positive” nor a “hybrid” list approach would therefore be needed.
4
It is all the more important to exclude performance requirements if the agreement intends to exclude investment incentives, including tax incentives.
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multilateralisation of the typical existing bilateral investment promotion and protection treaties. In case the trade-off in other areas of the negotiations is regarded as insufficient or in case the negotiating mandate does not restrict the formulation of the investment rules to the post-establishment phase of foreign direct investment, our third best option would be to press for the agreement being negotiated as a stand-alone or plurilateral agreement. Our final decision to join or keep out of such an agreement can be based on its scope and content. But there is no justification for the apprehension that if we remain out of such an agreement, we will be at a competitive disadvantage vis-a-vis other developing countries in attracting foreign investment. As long as we maintain a congenial investment climate through our own autonomous policies, we will continue to attract foreign investment on the basis of the market and investment opportunities we offer. In the final analysis, our problems in attracting foreign investment are more internal than external. Transparency in Government procurement practices: As an issue, as long as the scope of an agreement is confined to “transparency”, and the agreement is not a precursor to an ultimate market access agreement, there is no reason for us to oppose it. But a major practical problem that we may face is that while we may be able to cope with the transparency obligation at the Central Government level, we will run into implementational problems at the level of the State Governments and public sector undertakings, and even more so at the level of the local bodies. We need to examine whether or how it may be possible to exclude the tiers below the Central Government from the purview of the agreement. Perhaps, one way out may be to limit the applicability of the agreement to government procurement above specified minimum values per contract or transaction allowing freedom to each country to prescribe and notify the minimum value(s). The agreement would then apply to high value government procurements only. We could also press for public sector undertakings being excluded on the ground that enterprise level decisions cannot be brought within the ambit of inter-governmental agreements (the same argument that industrialised countries use for not agreeing to bring “obligations of investors, including avoidance of restrictive business practices” within the ambit of an investment agreement). Information technology agreement-II: Subject to the product coverage excluding certain defence related items of concern to us, we should be willing to join the ITA-II Agreement also. The agreement should be seen by us in the larger context of our plans to develop the information technology sector as an area of our competitive strength. Roll over of no customs duties on global electronic commerce: Here also, we should have no objection to roll over the decision taken at the Second Ministerial Conference held in Geneva in May 1998, pending the establishment
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of a frame work agreement on e-commerce. There is a strong view point in our country that we should keep the cyber space tax free given its potential to boost our IT enabled services exports. Trade and environment: Industrialised countries will be under strong pressure from their green lobbies for some substantive decisions to be taken at the Seattle Ministerial. But given the complexities of the issues involved, we should not allow ourselves to be rushed into any substantive commitments in this area. We should push for the Committee on Trade and Environment to continue with its work on the lines of para 16 of the Singapore Ministerial Declaration. Trade and labour standards: Although the Singapore Ministerial Declaration had put a quietus on this issue, it is possible that the industrialised countries will try to revive it to satisfy their trade union lobbies. In this context, it is important to note that the Trade Union Advisory Committee (TUAC) to the OECD has demanded, inter-alia, that (i) there should be a forceful reference in the Preamble of an MAI in which governments affirm their support for core labour standards and that (ii) there should be a binding clause in the MAI, subject to the dispute settlement mechanism, that governments would not seek to attract investment by suppressing domestic labour standards or by violating internationally recognized core workers’ rights. Thus any agreement on investment will not be acceptable to the trade unions of OECD countries unless it addresses the issues of core labour standards and core workers’ rights. We should continue to argue that while we are in favour of labour standards and workers’ rights being promoted, the forum for doing is the ILO and not the WTO. We need to ensure that the declaration contained in para 4 of the Singapore Ministerial Conference Declaration is not diluted or circumvented either directly or through the route of an investment agreement. Trade and competition policy: It would appear that while the European Union is keen to bring both “investment rules” and “competition policy” within the purview of the WTO, the United States (especially their Justice Department) is against competition policy being brought under multilateral rules and disciplines. There is as yet no clarity or consensus on what specific issues are to be brought under multilateral disciplines and in what manner. While it is generally accepted that the enhanced contestability of markets through the liberalisation of trade and investment regimes should not be allowed to be undermined by the anticompetitive and restrictive business practices of firms, especially giant transnational corporations, there are sharply divergent views on what constitutes an anti-competitive environment or anti-competitive behaviour, and what kind of international action or cooperation is needed beyond the reach of national laws and regulations. While the focus of the industrialised countries is on the removal or limitation of governmental power and intervention, including governmental monopolies, the focus of the developing countries is on restricting the anticompetitive behaviour and practices of firms. Given this basic divergence and the complexity of the issues involved, the best option from our point of view is not to
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rush into negotiations for an agreement on this subject, but to press for the Working Group constituted by the Singapore Ministerial Declaration to continue with its studies. Transparency in WTO’s work process: This appears to be an issue to which the United States is attaching some importance, primarily with a view to softening the criticism of the NGOs and civil society that they are not adequately heard or represented in the decision making processes of the WTO. At the other extreme, the smaller developing countries have persistently voiced their grievance that they are kept in the dark about the WTO’s working processes. As a basic issue, we should have no reservation to enhancing transparency in WTO’s work processes, including appropriate participation by NGOs and civil society, but given the disparity in the resources at their command, we need to argue for a balance in representation as between developed and developing countries and for clarity as to where non-governmental representation should end and intergovernmental decision making should begin or prevail. Here again, the issues involved and their implications must be studied in some depth before firm decisions are arrived at. III Our own demands on the multilateral trading system: As noted earlier, we need to formulate our own list of demands that will help enhance our market access opportunities and address our concerns and problems in other areas covered by the WTO agreements. The following is an illustrative list of the demands that we could make: Industrial tariffs: •
substantial reduction of tariffs by industrialised countries on labour intensive and low technology manufactures of developing countries, including the reduction or elimination of tariff peaks and tariff escalation.
At present, the push is for zero MFN tariffs on items of export interest to industrialised countries or on natural resources needed and imported by them. But labour intensive, low technology and other competitive manufactures from developing countries, including processed and semi processed items, continue to carry high tariffs in industrialised countries. A substantial reduction of such tariffs, including low or zero MFN tariffs, by industrialised countries - without insisting upon equivalent reciprocity - should be a negotiating objective for developing countries.
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Agriculture: •
Substantial and credible liberalisation of the agriculture sector by those countries whose current AMS levels are far above the de minimis levels prescribed under the existing Agreement on Agriculture.
At present, liberalisation of the agricultural trade and reduction of the industrial tariffs are regarded as two separate and independent areas. While we are being berated for our high level of industrial tariffs, many industrialised countries continue to maintain very high levels of protection and subsidisation of their agriculture sector. We need to explore ways and means of looking at the liberalisation commitments in the two sectors together. Furthermore, the AMS levels of many industrialised countries are far above the de minimis level of 5 percent, whereas our AMS is substantially negative against the de minimis level of 10 percent. Because of “dirty tariffication”, the resultant bound tariff levels of many industrialised countries are abnormally high. Progressive reduction of the domestic subsidies and the bound tariffs from such high levels still allow them to maintain excessive protection of their agriculture sector. Their export subsidies are also at high levels. We need therefore argue for a linkage between the existing levels of AMS/bound tariffs of countries and the reduction/market access commitments to be undertaken by them. Minimum market access commitment, for example, should not apply to a country if its AMS is below the de minimis level. Services: •
further liberalisation of temporary movement of skilled and professional people for delivery of services.
We should continue to press for tangible liberalisation in this area. In addition, we should also identify and indicate new types of service activities where we have some potential to generate service exports. Anti-dumping and counter-vailing duty agreements: •
special provisions in the agreements to minimise the scope for initiating anti-dumping or countervailing duty investigations against labour intensive and low technology manufactured exports from developing countries (HS tariff lines of such products could be indicated in the agreements)
At present, the anti-dumping agreement does not have any special provisions in favour of developing countries. It needs to be explored whether product specific special provisions, in favour of developing countries, could be included in the
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agreement to minimise the harassment effect of anti-dumping investigations against such exports. In the case of countervailing duty agreement, de-minimis provisions in favour of developing countries exist but they have not proved to be effective. Also, although developing countries with a per capita GDP below US$ 1000 have been allowed to use “prohibited subsidies”, they are countervailable by the importing countries. Whether they could also be treated as non-actionable subsidies requires exploration. TRIPS Agreement: •
specific inclusion of the following elements in the TRIPS Agreement during its review process:
Ø that intellectual property rights, when the claims are based on the biological or genetic resources and traditional knowledge of developing countries, shall be granted only after ensuring that the prior informed consent and the views of the source country or countries of those resources and knowledge have been obtained and taken into consideration. This will mitigate, for example, the possibility of neem, turmeric, brinjal and bitter-gourd type patents being granted in industrialised countries. Ø mechanisms for the recognition and remuneration of the contribution made by rural and indigenous communities of the source countries through their conservation of bio diversity and traditional knowledge. It is recognized that the existing IPR laws do not provide for the grant of “collective community IPRs” or for rewarding rural and indigenous communities for their contribution of materials and knowledge based on which private parties take and exploit IPRs. A two pronged approach is therefore necessary: First, to prevent the possibility of IPRs being granted where the subject matter is already in the public domain of the source countries and it does not really involve an inventive step; second, where an IPR is granted, the source country is remunerated for its contribution of materials and knowledge. Ø specific measures for the operationalisation of Articles 7,8 and 66(2) of the TRIPS Agreement. At the minimum, the kind of measures that would be regarded as compatible with these articles could be illustrated in the TRIPS Agreement.
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It needs to be pointed out that the above mentioned proposals do not seek substantive changes or revisions of existing provisions of the TRIPS Agreement. They only seek to introduce certain new provisions in the TRIPS Agreement that would help safeguard the interests of developing countries in vital areas. These new provisions will also help in bringing about greater compatibility between the TRIPS Agreement and the Convention on Bio-diversity. Special and Differential Treatment: •
a review of the provisions contained in existing WTO agreements granting a more favourable treatment to developing countries.
It is generally recognized that barring exceptions, most of the S&D provisions in the existing WTO agreements are hortatory in nature and are not legally enforceable contractual obligations. The lesson to be drawn is that where there is a need for a differential or a more favourable treatment to developing countries, the substantive requirements themselves must be different or the substantive provisions must allow adequate freedom and flexibility to developing countries to pursue policies best suited to their individual needs and circumstances. India has been urging strongly for building the ‘development dimension’ into the WTO agreements in a concrete and realisable manner. As a result, there appears to be a greater receptivity now among developed countries that more positive steps are indeed needed to address the ‘development dimension’ issue. Para 8 of the Ministerial Declaration of May 1998 of the Second Ministerial Conference has also stated that the evaluation of the implementation of the individual agreements shall be pursued at the Third Ministerial Conference and that “such evaluation would cover, inter-alia, the problems encountered in implementation and the consequent impact on the trade and development prospects of Members”. The concretisation of the S&D provisions in the existing agreements, as well as their incorporation in a substantive and realisable manner in future agreements, should be an important objective for us and other developing countries in the future work programme of the WTO. Unilateral trade measures: •
prohibition or restraint of unilateral trade measures with extraterritorial effects.
The existing Article XVI.4 of the Agreement Establishing the WTO that “each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided” in the WTO agreements is rather weak to restrain unilateral trade measures that are inconsistent with the WTO
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agreements. More concrete provisions are needed for a surveillance of such measures by the WTO and for their prompt elimination or restraint. It is true that none of the above demands can be classified as a “new issue” and that all of them would fall either under “mandated negotiations” (agriculture, services) or under “mandated reviews” of existing agreements (Industrial tariffs may not strictly fall under these two categories, but progressive reduction of tariff and non-tariff barriers to goods trade can be regarded as an inherent function of GATT/WTO). It is also true that member countries of the WTO are not in a “negotiating mode” now, i.e. detailed negotiations on individual subjects or issues, and that what is being negotiated now is the text of the Ministerial Declaration to emanate from the Seattle Ministerial Conference on the future work programme of the WTO. The Seattle Ministerial Declaration cannot obviously go into the details of individual issues in the manner suggested above. It will be said that such proposals, on the part of any member country, can be brought up during the course of the mandated negotations and mandated reviews under existing agreements. This may be the correct procedural position. But the extent to which the text of the Seattle Ministerial Declaration itself should spell out these and similar demands should depend on the nature and content of the future work programme of the WTO that is sought to be settled by consensus at the Seattle Conference. For example, if the future work programme does not extend to new issues, but is limited to mandated reviews and mandated negotiations, plus industrial tariffs, then it may not be necessary (or possible) to incorporate the above demands in the Ministerial Declaration and they can only be pursued during the course of the mandated negotiations and reviews. In respect of industrial tariffs alone, we could try for inclusion of the negotiating objective that the negotiations shall, inter alia, aim at the reduction or elimination of high tariffs and tariff escalation by developed countries on labour intensive, low technology and other products of export interest to developing countries without insisting upon equivalent reciprocity of concessions by such countries. On the other hand, if the future work programme of the WTO is to consist of a large or larger agenda including new issues like the investment rules, then it should be our endeavour to see that the Ministerial Declaration itself (a) spells out the parameters for the negotiation of those issues and (b)includes as many of our own demands as possible with sufficient details. If the Declaration includes (a) only and leaves out (b) on the ground that they should be taken up during the course of the mandated negotiations and reviews, the Ministerial Declaration remain unbalanced. In any case, so far as the ‘S&D’ provisions are concerned, we need to press for a specific paragraph in the Declaration for review and concretisation of those provisions in order to promote the trade and development prospects of developing country Members. In the event of an expanded work programme being adopted, the Declaration should also contain a specific paragraph for the ’evaluation’ of the results of the negotiations to assess how the ‘development
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dimension’ has been incorporated into the whole package (a la the last paragraph of the Punta del Este Ministerial Declaration). IV. Summary of options available to us: There are basically three options before us: (i)
a limited agenda that confines the future work programme of the WTO to -
mandated reviews mandated negotiatons industrial tariffs roll over of no customs duties on e-commerce transparency in government procurement ITA-II agreement transparency in WTO’s work process.
together with a specific mandate for the review and concretisation of the S&D provisions in the existing agreements. (ii)
a large and comprehensive agenda that includes all the items mentioned in (i) above plus new issues, such as -
investment rules competition policy labour standards environmental standards any other new issue that any member country proposes and is acceptable to others.
(iii) a middle agenda that includes the items under (i) above plus investment rules only, with such rules being limited to the post-establishment phase of an investment or such rules being based on the GATS model. The proponents of a large agenda advocate that trade-offs are possible only if there is a large agenda. In case negotiations are confined to sectors or issues, trade-offs will get restricted to them and this will be particularly disadvantageous to developing countries. While there is lot of weight behind this argument, it is equally necessary to see what the proposed large agenda consists of and what trade-offs are offered. In the present instance, the large agenda consists essentially of the demands suited to industrialised countries, while our own demands fall within the purview of negotiations and reviews mandated under the existing agreements for which we have already paid the price under the Uruguay Round. Unless the industrialised countries are willing to incorporate in the Seattle Ministerial Declaration itself that the review of the respective agreements (e.g.
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TRIPS for example) will address the issues raised by us, the possibility of our securing the anticipated trade-offs later is rather bleak. But as of now, the approach of some of the major industrialised countries appears to be that the review of existing agreements should only be for the purpose of removing any “implementational” problems and not for the purpose of introducing new substantive provisions or changes. Even with respect to the liberalisation of the agriculture trade, our interests are not as strong as those of the developing countries of the Cairns Group. In these circumstances, our best option would appear to be to pursue the first option mentioned above, with the Ministerial Declaration including a specific paragraph on the review and operationalisation of the S&D provisions in favour of developing countries. The second option of a large or larger agenda for a comprehensive round of negotiations is clearly not in our interest for the reasons that sufficient trade-offs are not visible and that it is too early for us to accept new obligations and commitments when we are still to fulfill and cope with the commitments we have undertaken in the Uruguay Round. We may have to be prepared for accepting the third option if a consensus builds up among WTO member countries, especially other developing countries, to go beyond the first option and to include investment rules in the agenda. In such a case, we need to press for the negotiating mandate clearly including the elements enumerated earlier in this paper (P. 10), especially the element that the investment rules will apply only to the post-establishment phase of an investment that takes place in accordance with the host country’s laws, regulations and administrative procedures. We must be chary of accepting the GATS model for investment rules, firstly, because it implies acceptance of the principle of national treatment in the entry and establishment phases; secondly because there will be pressure for progressive liberalisation, and thirdly because it will involve, unlike the services sector, the preparation of extensive and cumbersome lists of schedules for the sectors, sub-sectors and activities with the applicable conditions. If the issue of investment rules is sought to be included without clearly proscribing preestablishment phase national treatment, we should press for the agreement being negotiated on a separate track as a stand alone or plurilateral agreement to which a Member may or may not subscribe. In the end, it is made clear that none of the proposals or options suggested in this paper implies that we should not follow open trade, investment and economic policies. We should pursue with vigour our economic reforms which must include as its major component the liberalisation of our trade, tariff and foreign investment policies and the opening up of our economy to competitive pressures from abroad. We need to do this on our own volition and judgment and in our own interest. The question at stake is not why we should hesitate to accept open trade and investment policies, but whether we should enter into legally binding multilateral commitments on them in the WTO without receiving sufficient quid pro quo. The quid pro quo may be in the same or different subject matter of the negotiations, but it must be evident that a quid pro quo is forthcoming and it is
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enforceable. Our willingness to accept a new issue or a new obligation or show flexibility in negotiating it must be based on the quid pro quo we expect to receive. Otherwise, the ‘demandeurs’ will get what they want without paying a price for it, which is against the ethos of GATT/WTO itself.
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Report of Discussions
Welcoming the participants, Dr. Isher Judge Ahluwalia, Director and Chief Executive, ICRIER, observed that the purpose of the seminar was to generate a healthy and informed debate on the issues to be considered by the Indian authorities in preparation for the third Ministerial Conference of the World Trade Organization (WTO) to be held in Seattle later this year. This would be an important conference as it would settle the future agenda of the WTO. Many countries wanted to use it as an occasion to launch a comprehensive new round of trade negotiations to be called the “Millenium Round”. The conference of the G-15 trade ministers, hosted by India at Bangalore on 17-18 August, 1999, had also discussed the question of coordination of the positions of developing countries in the preparatory process for the Seattle Ministerial Conference. Giving his opening remarks, Mr.P.P.Prabhu, Commerce Secretary, stated that India’s stand so far had been that the future work programme of the WTO should be confined to mandated reviews and mandated negotiations prescribed under the existing agreements of the WTO with emphasis on the mitigation of the imbalances experienced in the existing agreements. The agenda of the WTO was already over-loaded and developing countries were finding it difficult to cope with the obligations undertaken by them under the existing Uruguay Round agreements. India therefore felt that it was premature for the WTO to rush into negotiations in new areas such as investment, competition policy, labour and environmental standards. He thanked ICRIER for organising such seminars which he hoped would help promote informed discussion on the issues involved and thereby assist in policy making at the governmental level. In presenting his paper, Mr.A.V.Ganesan maintained that there were three options for the consideration of India with respect to the future work programme of WTO. The first was the pursuit of a “limited agenda” that confined the future work programme of the WTO to mandated reviews, mandated negotiations in agriculture and services sectors, industrial tariffs (as this is a traditional and inherent item of GATT/WTO), rollover of no customs duties on e-commerce, an ITA-II agreement and review and firming up of the Special and Differential Treatment provisions in the existing agreements. The second option was a “large and comprehensive agenda” that included all the items of the limited agenda plus the “new issues” such as investment rules, competition policy, labour and environmental standards. The third option was a “middle agenda” that included the limited agenda plus only the “investment rules”, provided the scope of the investment rules was expressly limited to the post-establishment phase of an investment or at best, it was structured on the General Agreement on Trade in Services (GATS) model so far as the question of national treatment in the pre-establishment phase was concerned.
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Mr.Ganesan suggested that the best option for us would be that of a “limited agenda” primarily because no worthwhile quid pro quo in our favour was visible for our accepting obligations under the new issues. The second option of a large, larger or comprehensive agenda was clearly not in our interest not only for the reason that sufficient trade-offs were not visible, but also because we were still grappling with the commitments and obligations under the Uruguay Round agreements. However, we should be prepared for accepting the third option of a “middle agenda” in case there was a strong consensus among developing countries to include investment rules in the WTO agenda. In such a case, we should press for the scope of the investment rules to be expressly limited to foreign direct investment (FDI) and the rules to be applied only to the post establishment phase of investment. Our first preference should be for the complete exclusion of the issue of “pre-establishment phase national treatment” from the purview of the investment rules so that the rules would have neither a “negative” nor a “positive” nor a “hybrid” list. Alternatively, we could argue for preestablishment phase national treatment to be left to the voluntary decisions of host countries as in the Energy Charter Treaty. There might, however, be pressure on us to adopt the GATS model for pre-establishment phase national treatment. But we must be chary of accepting the GATS model for investment rules for the reasons explained in the discussion paper. Mr. Ganesan concluded by stating that none of the proposals or options suggested in his paper implied any reservation or opposition to our pursuing open and liberal trade, investment and economic policies. It was in our own interest to pursue with vigour our economic reforms and open up our economy to competitive pressures from abroad. But we should do so unilaterally and autonomously according to our own perceptions. It was important to understand that legal commitments given in WTO had a vice-like grip. They cannot easily be renegotiated if circumstances changed, as our own current experience would show in renegotiating the tariff bindings given by us in 1947-48 on certain agricultural products like rice and milk. The dispute settlement and implementation mechanisms in WTO were swift and effective. Therefore, unless there was sufficient quid pro quo in our favour, it was better for us to pursue our liberalisation policies autonomously rather than entering into legally binding multilateral commitments in the WTO. Mr. Ganesan further emphasized that before accepting any new multilateral commitment, we should invariably assess the gap between the proposed commitment in the WTO and our own present or planned autonomous policies. Mr.R.Gopalakrishnan, a discussant on the paper, speaking on behalf of the Confederation of Indian Industry (CII), said that the agriculture and services sectors were not as well organised on WTO matters as manufacturing and that this was further complicated by the fact that agriculture was a state subject. He suggested that the implications of the WTO agreements should be analysed at “firm or enterprise level” and “industry level” and that the demands/difficulties of various industries sectors should be made known to the Government. He stated
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that the three major areas of concern to the industry were market access, antidumping and countervailing duty investigations in other countries against our exports. Giving his initial comments, Mr.S.Narayanan, India’s Ambassador to the WTO, stated that increasingly, the demand in the WTO now was to close the gap between unilateral liberalisation and multilateral commitments, and that, as a result, we would still be under pressure to convert our autonomous liberalisation measures into multilateral commitments. It was therefore necessary for us to find a reasonable answer to this predicament. As regards the issue of “industrial tariffs” , although it may be considered a traditional subject of GATT/WTO, it was technically a “new issue” as per the definition para 9(d) of the Geneva Ministerial Declaration of May 1998. With respect to “investment rules”, Mr.Narayanan stated that India had been voicing its opposition to rush into negotiations on this new issue for various other reasons as it was difficult to visualise a clear-cut quid pro quo being offered specifically for the inclusion of investment rules in the WTO agenda. In the discussions that followed, a wide range of views were expressed on the basic approach of India towards a new round of trade negotiations as well as on the specific issues of importance to us. As regards the basic approach, there was a general view that it would not suffice if we merely stuck to opposing any new issue being brought on the agenda of the WTO or to any new round of negotiations being launched. Such an approach had in the past not paid us any dividends and had also affected our credibility and interests. Many participants expressed the view that in India in the 1990s we had suo moto liberalised our economic, trade, tariff and investment policies and publicised the course of our economic reforms, but at the same time, we had opposed the very same liberalisation in the GATT/ WTO negotiations. As a result of this dichotomy, we had failed to derive full mileage from those negotiations. The reason for this failure was that there was no clear domestic consensus as to where we should be in the GATT/ WTO negotiations. These negotiations were basically a bargaining game, but because we lacked domestic clarity and political consensus on what we should be hoping to achieve from these negotiations, we were perhaps the only country not in the bargaining game. We therefore tended to take the easier route of opposing new issues and negotiations even where they were in consonance with our own policies and interests. A transparent domestic debate on our negotiating objectives was essential in order to build domestic clarity and consensus. As regards specific issues, a view was expressed that the industrialised countries would be willing to settle for a mild form of an investment agreement covering only the post establishment phase of an FDI and that a number of developing countries believed that it was worthwhile getting into a mild form of an MAI in the WTO. We should therefore be prepared for the emergence of a consensus on
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the issue of an MAI and focus on the elements that we would like to get incorporated in the negotiating mandate for investment rules. On the question of industrial tariffs, also, it is most likely that a consensus would build up for taking this on board. The European Community is likely to press for deeper cuts in industrial tariffs than the U.S. From our standpoint, we should look at the “tariff peaks” in industrial countries on products of export interest to us and push for denting them. Interaction between our policy makers and our industry would inter-alia need to focus on this item. The discussions also touched upon the issues of competition policy, transparency in government procurement, role of civil society in WTO’s working process, and the impact of WTO on Indian industry. With respect to our approach to the issue of transparency in government procurement, a larger question was raised as to whether the time had not come for shifting from maximisation of producers’ gains to the maximisation of consumers’ gains. A view was also expressed that our “mindset” should change and that we should not automatically believe that what was advocated in the multilateral setting was good for us irrespective of whether we can exploit these gains through domestic reform. The impact of the MFA abolition on India’s textile industry and the liberalisation of the movement of natural persons are examples of such multilateral measures. We tend to overlook the changes that are necessary in our domestic situation if we are to take advantage of the multilateral agreements. It was also pointed out that the analysis of such issues and our stand on them should not be based on a mere bureaucratic exercise, but there should be interaction with all affected interests, going beyond the main chambers of commerce and inudstry such as CII, ASSOCHAM and FICCI. Giving his concluding remarks, Mr.N.N.Khanna, Special Secretary, Ministry of Commerce said that a shift was now discernible in the thinking of the European Community and some other industrialised countries to “an ambitious but manageable” agenda. As regards our own approach emphasizing mandated reviews and mandated negotiations, several of our proposals in respect of, say, anti-dumping, TRIPS, TRIMS, subsidies, and DSU went beyond mere review of existing provisions and involved elements of negotiations. The US, of course, would like the agenda to include, besides mandated reviews and mandated negotiations, some “add-ons” like labour and environmental standards. The preparatory process in Geneva is still in its early stages, and as the discussions intensify, further shifts are possible in the thinking of various countries. Mr. Khanna highlighted the fact that the Ministry of Commerce is encouraging and assisting in various ways both a transparent debate on WTO matters as well as a close interaction with affected parties and that the Ministry is interested in getting a feedback from them. He pointed out that India had not been a “strong demandeur” in GATT/WTO because India had not been a “strong liberaliser”. The need for liberalisation of our economic policies was not in question, but it was important that we did not allow our domestic liberalisation to be externally driven.
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Dr. Shankar Acharya, Chief Economic Adviser, Government of India, who presided over the Seminar, said in his closing observations that being a relatively weak trading nation, India had a stake in a well functioning rule based multilateral trading system and that we should therefore look at WTO as an institution of importance to us. As the discussion paper pointed out, the liberalisation of our economic policies and the continuation of our economic reforms were essential in our own interest. But in the WTO context, we should constantly examine how we could harmonise our liberalisation policies and our commitments in WTO in order to derive maximum benefits from the bargaining process in WTO. Dr. Acharya also pointed out that due to its buoyant economic growth, the US was now functioning as an “importer of last resort” for the rest of the world, but this situation might not last in the next decade in which event protectionist pressures might rise again there. If multilateral rules of the WTO could restrain the resurgence of protectionist pressures in affluent countries, it could provide a possible safeguard for world trade and economic growth.
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