ARTICLES FROM CUTS

IN a large international organisation like the World Trade Organisation (WTO), in spite of the “one country, one vote” principle, most of the countries do not get what they deserve. But, for sure they get what they negotiate. India did experience the same when it secured major gains in several areas of the hard-fought agenda of the recently concluded Fourth Ministerial Conference of the WTO.

A dispassionate analysis of the Ministerial Declaration from the perspective of India’s basic trade interests reveals that India bargained hard on agriculture, implementation, trade-related intellectual practices (TRIPs) and trade & transfer of technology among other areas and met with a fair amount of success.

However, trade in services is an area, which isn’t probably among the ones highlighted at the Doha meeting, and where perhaps India needs to do a lot of homework to be able to influence future negotiations.
The service sector today has vastly expanded in scope, beyond the traditional activities, to a whole host of professional services including software and information service, engineering and legal services and e-commerce and other internet-based service offerings. The growing importance of the sector is reflected in the fact that it accounts for more than 70 percent of production and employment in industrial societies. India is not behind either. The share of services in India’s GDP, had gone up to 46 per cent by 1999, and the upward trend is continuing.

The Doha Declaration talks about negotiations on services and puts emphasis on growth and development of all trading partners. It recognises the work already initiated under Article XIX of the General Agreement on Trade and Services (GATS) and reaffirms the guidelines and procedures for the negotiations adopted by the Council for Trade in Services as the basis for continuing the negotiation.

Under Article XIX, the GATS Agreement is under review since early 2000 and many countries have placed proposals on a wide range of sectors and several horizontal issues, as well as on movement of natural persons. Participants in the negotiations are supposed to submit initial requests for specific commitments by 30 June 2002 and initial offers by 30 March 2003. This gives a clear signal to India to start working on the issue seriously and chalk out a game plan.

In recent years, this sector has created the maximum number of jobs and is expected to do so in future as well. Our policy-makers have already started taking initiatives, albeit less ebullient; to make service-industries competitive, as compared to those in developed economies and the GATS accord appears to be an important vehicle for this drive.

Among the different modes of service supply, India is most interested in ‘movement of natural persons’ and has also submitted a proposal at the WTO Council for Trade in Services.

However, other modes (viz. commercial presence, cross-border supply and consumption abroad) are also important for making Indian service sector a global player in the emerging international scenario. For example, Indian service providers are increasingly looking for niche markets in other countries through ‘commercial presence’ mode of supply. Many global companies are outsourcing their service products, while setting up operational units. The country is an emerging hub for ‘cross-border supply’ of services. None the less, in terms of action, apart from liberalising the service sectors, the government has to create a regulatory environment for the benefit of consumers and also take them into confidence. GATS has not had a significant impact on consumers so far, but only because of the fact that the treaty is new and the international market for services is still relatively small. But that will change as global trade in services is growing rapidly, as demonstrated by the incursion of French water companies into Britain, German insurance into China, Spanish telecommunication into Latin America, and so on.

India, at another level, has to create an enabling environment for regulation as many foreign companies are investing in India, while establishing their presence as service providers and due to the fact that the GATS also provides avenues for foreign direct investment in a country. Studies by consumer organisations have revealed that in some cases this trend has improved services and lowered costs, but in others, the cost of some basic services, like water, have soared beyond the means of many poor people.

Despite different measures for the liberalisation and promotion of this sector, there are not many efforts by the government to adopt measures for the benefit of Indian service providers in creating a commercial presence in other countries. For instance, there are hardly any efforts to create an information hub for domestic service providers to receive knowledge on market access opportunities in other countries. Such home country measures for promoting trade in services are absolutely essential for India to become a major player in this relatively new area of the multilateral trading system.

On issues of ‘movement of natural persons’ though India has made its proposal, our trade negotiators are not as proactive as they can and should have. The Indian proposal talks about more opening for professional service providers in other countries’ market, with little emphasis on skilled and unskilled workers. Our negotiators should explore possibilities of putting forward a comprehensive proposal to the WTO Council for Trade in Services for the opening up of labour markets in developed countries and seek allies in other (developing and developed) countries to support it.

As I have written before, an agreement on MNP can also act as a counter to the demand for an agreement on investment. The latter is on the cards for negotiations to be launched after the Fifth Ministerial, to be held just 18 months from now. There is not much time left for the more serious preparatory work, involving research and coalition building, so that a strong salvo can be fired.

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Will Doha open window for non-trade issues?

Published on: Financial Express, December 4, 2001,

By Sandeep Singh

INDIA has reasons to celebrate after securing major gains in the hard fought agenda of the fourth Ministerial Conference of the World Trade Organisation. A dispassionate analysis of the Ministerial Declaration from the perspective of Indias basic trade interests reveals that it bargained hard on agriculture, implementation, TRIPs, trade and transfer of technology, and succeeded.

However, there are concerns that these gains might be watered down by the inclusion of environment in the agenda, that also leaves an open window for including labour standards. The final Declaration includes some substantive aspects of trade and environment agenda, including that of Multilateral Environmental Agreements (MEAs). This, in itself, might not be against the interests of developing countries, but the way the trade talks took a swift turn in Doha, signals a bumpy road ahead.

The developing countries were, at the last moment compelled by the European Union and others to agree on environment as a precondition for negotiation on agriculture. One should bear in mind that labour standards might as well follow the same route. The trade and environment agenda included the WTO rules and specific trade obligations set out in the MEAs as well as reduction or elimination of trade barriers in environmental goods and services.

Just before the Doha meeting, the European Union supported by Switzerland and some other countries, pushed hard for their three-point environmental agenda of clarification of the WTO rules on the MEAs, eco-labelling and precautionary principles. Despite vociferous opposition from developing countries on account of potential for protectionism, the EU succeeded in pushing ahead at least one, and the rest are perhaps only a matter of time. There is, on the other hand, the impression that the issue of labour standards clauses in trade regime is out and, even, dead. A closer look at the draft ministerial declaration prepared before the meeting and the final document reveals that there are grey areas.

One has to keep in mind that organisations such as the International Confederation of Free Trade Unions (ICFTU), with direct or indirect support of many western countries, are still vociferous on trade-labour linkages. Just before the Doha meeting, the ICFTU issued a statement insisting that trade agreements contain labour standards and enforced by the threat of sanctions. The final declaration of Doha meeting states, We reaffirm our declaration made at Singapore Ministerial Conference regarding internationally recognised core labour standards. We take note of work under way in the International Labour Organisation (ILO) on the social dimension of globalisation.

A careful analysis of the statement, however, reveals it rules out a possible role for the WTO on social dimensions of globalisation. More important, a significant line recognising the ILO as a more suitable place to discuss labour standards that appeared in the revised draft declaration of October 27, has been removed from the final declaration perhaps on the insistence of those demanding the inclusion of the social clause. The line stating that The ILO provides the appropriate forum for a substantive dialogue on various aspects on the issue would have had a different impact altogether.

Given this, countries such as India should keep their fingers crossed and, at the same time, prepare a game plan, if there are any attempts at strengthening the link between the WTO and non-trade issues. The Western countries, because of domestic compulsions or otherwise, are still interested in bringing in these issues, including environment, labour standards and human rights.

While India has to still create a consensus at the domestic level on its ongoing labour reforms, it should also keep in mind the accession to the WTO of China, and chalk out plans of action accordingly. On the other hand, New Delhi has to raise issues of real concern vis-`-vis the labour standards that is, free labour mobility across countries. In fact, the issue of movement of natural persons might turn out the trump card for us, if used effectively in international trade negotiations.

On environment issues, while India, prima-facie, should not have any problem on the MEAs, it should ask for more market access for environment-friendly products, and strengthen its own labelling schemes. India can still argue in negotiations on the MEAs that as far as predictability and flexibility are concerned, the existing practices and disciplines in the MEAs and the WTO do not seem to be deficient. Article XX of the GATT allows for the MEAs to take measures necessary for the protection of the environment.

Therefore, India should demand a clear definition as to what constitutes an MEA in future negotiations and then push for the setting up of a committee to decide the desirability/necessity of trade measure in any existing MEAs as well as new ones. India should also use every opportunity to push for the case of developing countries.

It should go ahead with a proactive agenda on trade and environment, demanding discussions on issues of trade in domestically prohibited goods (DPGs) and toxic waste, and the relationship between environment and the TRIPs Agreement. The commitment made by rich countries at the Earth Summit held at Rio de Janeiro in June 1992 for additional resources of over $480 billion, out of which only $2 billion has been actually mobilised, is a point worth raising in the debate.

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DOHA ASSESSMENT—III
India has no reason to be afraid of ‘competition’?

Published on: Financial Express, November 28, 2001,

By Pradeep S Mehta

In the context of a multilateral competition policy, the Doha Ministerial Declaration notes: “Recognising the case for a multilateral framework to enhance the contribution of competition policy to international trade and development.. we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that Session on modalities of negotiations”.

The government of India is mistaken if it believes that negotiations will require an explicit consensus, only the modalities will require a common understanding. Besides, we have agreed to the need for a multilateral competition policy (MCP) in any case.

What does “modalities” mean? It would mean what will be the core principles and the methodology of negotiations for a MCP. But why is India opposing an MCP to be incorporated into the multilateral trading system under the WTO? Basically, there are three reasons: a) the URA problems still have to be resolved; b) developing countries cannot take on more burden, and c) we still need to develop our own competition laws, before entering into any multilateral arrangement.

The first argument, although may have some justification, has lost its significance now. Competition is no longer a new issue at the WTO. To start with the EU was a strong proponent of an MCP, supported by Japan and Hong Kong. The US was vehemently opposed to it, but relented for several reasons. Is an MCP so harmful to the developing countries that they have to fight tooth and nail to block it? No, on the contrary, if properly negotiated, an MCP can bring significant gains to the developing countries.

There is a long history of cartels in which multinational companies carve up the world into areas of control. As a consequence of greater global concentration of ownership, there has been a sharp increase in the extent of global cartel activity. A World Bank study has shown that in 1997, developing countries imported $81.1 billion of goods from industries in which price-fixing conspiracies have been discovered during the 1990s. These imports represented 6.7 per cent of imports and 1.2 per cent of GDP in developing countries. They represented an even larger fraction of trade for the poorest developing countries, for whom these products represent 8.8 percent of imports.

There might have been several other price-fixing conspiracies which remained undiscovered. Moreover, all these cartels are made up of producers, mostly from industrialised countries. Recent international enforcement action has resulted in million dollar fines against vitamin companies, food additive makers and steel manufacturers. To date only a handful of countries have taken action to penalise transgressing companies or to recover compensation. Moreover, although many of these cartels have been detected and penalised in developed countries, they are still operating in developing countries.

Developing countries are doubly harmed due to these international cartels. Not only that cartelisation leads to higher prices, reduced supply and reduced choice for consumers, these cartels can maintain their position with high barriers to entry for other producers, which again is a serious cause for concern for developing country producers who are, in general, relatively new to international trading. To detect, control, break and punish international cartels, merely having a jurisdiction in competition law is not enough. Countries have to co-operate with each other.

With increasing interaction between firms and economies at the global level, anti-competitive conduct by firms is also globalising. In fact, such anti-competitive practices have been on the rise as a result of increased concentration in the global market. In 1980, the world food and beverage market was dominated by about 180 companies, but today, about half of these companies retain roughly the same market power. In the early 1980s, the top 20 pharmaceutical companies held about 5 per cent of the world prescription drug market, today, the top 10 companies control 40 per cent of the market.

The argument that the EU is pushing for an MCP only to get market access in ‘developing countries’ seems to be ludicrous. It’s true that one of the objectives of having such agreement is to remove private barriers and ensure better market access. But is it not a fact that the corporations based in the developed countries create market barriers for developing countries? Are the companies of the developing countries powerful enough to raise effective entry barriers for the TNCs?

If market access is in the EU agenda, then their eyes are on the US market, rather than the developing countries market. Precisely that is one of the reasons that the US had been opposing a multilateral competition agreement. In fact, if the private barriers are removed effectively, the developing countries will be in a better position to export their products into the developed markets.

A strong domestic competition regime, although necessary, is not sufficient to deal with globalised competition abuses. Hence the need for an MCP can hardly be overstated, be it within the WTO framework or some other forum. But since it is already under active consideration under the WTO, it does not make any sense to oppose it. Given the present situation there are several reasons for having an agreement on competition within the WTO. First, it will bring some balance in the WTO approach, which is heavily biased in favour of the producers, especially the TNCs and does not address the consumer concerns. The spirit of binding commitment within the WTO will make such agreement more effective than a freestanding one or within some other forum. Considering the past experiences in this regard it will not be easy to have a binding competition agreement in some other forum.

Although, in all likelihood, the developing countries have more to gain from an MCP compared to the developed countries, their poor performance in the Uruguay Round has made them defensive, so much so that they are not even willing to think about any new issue at the WTO. Of course, most of them do not have any experience with competition policy even at domestic level. Hence for them it is probably ‘ignorance is bliss’.

However, the same is not true for India, which has a long history of competition law. It is also on the verge of scrapping its old version and enacting a state-of-the-art competition law for the country. Obviously, there cannot be ‘ignorance is bliss’ situation in India as there is no such ignorance. If at all it is there, it is restricted to only a few who, although powerful, are not willing to see the writing on the wall.

Hence, India has no reason to oppose an MCP under the WTO, and needs to stop using‘’ignorance’ as the weapon to block it. Rather, India should take a proactive approach in this regard. It should engage in research and study to develop a model agreement on competition that will address the concerns of the developing countries. It must also build the capacity of its negotiators on the issue. It should also mobilise support of other developing countries to push forward its agenda which will benefit all of them during the negotiations that will take place on competition. If India continues to remain adamant and immune to reasons in its efforts to block any agreement on competition, it will do so at its own peril!

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DOHA ASSESSMENT–II

The trade-labour linkage is not ‘dead’ as yet

Published on: Financial Express, November 27, 2001,

By Pradeep S Mehta

“Show me one piece of evidence where any government has asked for a social clause in the WTO, except when Bill Clinton asked for such an arrangement at Seattle”, said Pascal Lamy, the European Union’s trade commissioner, speaking to a civil society gathering at Delhi last week. “Like the WTO should speak with all other international bodies: ILO (International Labour Organisation) or IMF or Bank, it should also have a dialogue with the ILO on social issues”. Indeed, that is what the final Doha Ministerial Declaration says. The issue of labour standards in the trade regime is not yet dead.

A close look at the Draft Ministerial Declaration prepared before the meeting and the final Declaration after the meeting, reveals that there are grey areas, and the issue may not be entirely dead. The arguments from developing countries, including India, on the extraneous and protectionist nature of these issues are quite understandable and convincing.

Demanding the inclusion of social issues in WTO implies opening the window for never-ending non-trade issues including gender, human rights and social development, all of which fall into the purview of sustainable development. This contamination of trade with non-trade issues certainly does not promote the trade agenda. Rather, this sort of linkage has immense potential for abuse as a protectionist device of the North. The poor countries, therefore, argue that, it would help only a few rich countries, not global welfare. Most of the developing countries also seem to be quite united against their inclusion in the trade talks. But it would be quite unwise to assume that die-hard advocates of social clause have given up and are likely to sit quietly.

Perhaps in Doha they were less vocal as they had the fear of repetition of Seattle failure in mind. Nonetheless they used every opportunity to push forward their own agenda. Moreover, the window for social concerns has been in a sense already opened by inclusion of environment in the agenda. Though the case of environment is slightly different from that of labour standards, the way trade talks took a swift turn in Doha signals the worse to come.

The developing countries were at last moment compelled by the EU and others to agree on environment as a precondition for negotiation on agriculture. One should bear in mind that labour standards could follow a similar route in near future. The International Confederation of Free Trade Unions (ICFTU), with its hardnosed approach in the trade union movement and, direct and indirect support of many western countries, is still blaring about trade-labour linkages. Just before the Doha meeting it issued a statement insisting that trade agreements must contain labour standards enforced by the threat of sanctions. Importantly, the ICFTU has also distorted its actual position (which emerged in the Durban congress of ICFTU in 2000) that the ILO should be the standard-setting body and the ultimate implementing body on sanctions, if any.

A clear preference for the WTO over the ILO as the ultimate decision- making body to impose sanctions was reflected in this statement, on which there is a discord in the membership. The southern supporters of the social clause, such as the Malaysian Trade Union Congress and the South African Trade Union Confederation, are quite piqued with this change by the north-dominated ICFTU, though they are not so vociferous about their discord.

Be that as it may, the final declaration of Doha meeting on the issue of labour standards states: “We reaffirm our declaration made at Singapore Ministerial Conference regarding internationally recognised core labour standards. We take note of work under way in the International Labour Organisation (ILO) on the social dimension of globalisation”.

A careful analysis of the statement reveals that it in no way rules out a possible role for WTO on the debate on the social dimension of globalisation. More importantly, a significant line recognising ILO as a more suitable place to discuss labour standards that appeared in the revised draft declaration of 27th October, 2001, has been removed from the final declaration under the influence of the social clause protagonists. The deleted line reads as: “The ILO provides the appropriate forum for a substantive dialogue on various aspects on the issue”.

If this was retained, it would have reinforced the role of ILO, and would have had a different impact altogether. Given this, countries like India should keep their fingers crossed and at the same time also prepare a gameplan in advance should there be any attempts to link WTO and the labour standards. The western countries because of domestic compulsions or otherwise are still interested in bringing in the so-called new issues including that of investment, competition and environment. Though they are not very vocal at the moment but demand for labour standards appears to be next in the line.

While India has to still create a consensus at domestic level on its ongoing labour reforms, it should also keep in mind the accession of China into the WTO and chalk out its plan of action accordingly. Looking at the poor labour conditions in China, the demand will gain momentum. Mind you, even our clothing exporters are losing out to the suppressed labour costs of the Chinese.

On the other hand, we have to become a bit proactive and raise the issue of real concern to us in the labour standards game: free labour mobility across countries. In fact, the issue of movement of natural persons could be used a as a trump card by us, if it is used effectively and timely in the international trade negotiations. For this, we need to do huge research and link it to the sustainable development agenda.

If trade is about give and take, we should also push hard for an agreement on movement of natural persons with no strings attached. We should be happy to discuss all other issues including the most contentious one if issues of our interest are also there on the agenda

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DOHA ASSESSMENT-I

What’s in an investment accord?

Published on: Financial Express, November 26, 2001,

By Pradeep S Mehta

“It is the Wall Street’s agenda’, observed the noted trade economist, Jagdish Bhagwati, at an Asia-Pacific regional conference on international investment agreements organised by the UNCTAD at New Delhi a few summers ago. Prof. Bhagwati, who is an ardent free trade advocate, argued strongly against investment issues to be placed within the World Trade Organisation (WTO) framework. Similarly, another economist adviser to Mike Moore, Konrad Von Moltke, while agreeing to the utility of an international agreement, feels that WTO is a minefield for an investment agreement.

In spite of such considered opinions, the push at Doha to include negotiations on investment did succeed, when nations “recognized the case for a multilateral framework to secure transparent, stable and predictable conditions for cross border investment.” In fact, the rich country’s worry is the lack of bound policy commitments in the developing world, which is the main motivation for this demand.

Indeed that was the motive of the OECD countries when they launched negotiations on a multilateral agreement on investment (MAI) in June 1995. The highly developed draft agreement was aborted when France blew the whistle and the matter was shelved. Two other important reasons were first, the intransigence of the US, due to several commitments which would have reduced their sovereignty. Second, a revolt by the civil society in the West against the agreement was another nail in the coffin.

The US still remains a bystander in the WTO context. It has decided to go along with the European Union as part of a larger strategy of accommodation and bargain in arriving at an agreed text of the Doha ministerial declaration. In this piece I write about investment, while other issues of the Doha Round’s ‘work programme’ will be taken up one by one. One on environment has already appeared on these pages (November 20).

Investment is one of the new issues, along with competition policy, trade facilitation and transparency in government procurement. We are overjoyed with the postponement of the negotiations on these issues. I am not so sure whether we can be complacent about the matter. As an experienced commentator put it: we will have our necks on the chopping block after two years, while another felt that we have buried the matter and will be able to postpone it even when it reappears two years hence. I don’t agree with either.

On the relationship between trade and investment, during the next two years, the work programme of the WTO stipulates that the Working Group should carry on its work, focusing on clarifying specified issues. This working group was set up in 1997 following the Singapore Ministerial Decision. Come the Ministerial in 2003, negotiations on investment will take place, “on the basis of a decision to be taken, by explicit consensus, at that Session, on the modalities of the negotiations.”

In the typical opaque language that comes from tortuous international negotiations, it is not at all clear what this means. But looking at the investment issue in its political context, what is clear is that the EU will not tire in using sticks and carrots to make sure that binding negotiations really do start in 2003.

Meanwhile, smarting for the hurt inflicted during the Doha talks, the EU will push for negotiations in the various plurilateral trade arrangements that it has with poor countries. This would include such accords as the Cotonou Agreement with 78 of its former colonies in the Africa, Caribbean and Pacific regions.

Developing countries must, therefore, make the most of the next two years to prepare themselves as much as possible. First, research is necessary. The rich country demandeurs of an investment agreement at the WTO claim that increased confidence and assurances will lead to greater investment flows to developing countries. Considering that over 95 per cent of foreign direct investment now flows into only 30 countries, an agreement that can lead to more of this investment being directed to developing countries would be very beneficial.

However, there is no evidence to show that this will be the case. Few other developing countries have the intellectual and analytical capacity of India. India would really deserve to be a leader of the developing world if it put these capabilities to such constructive use. Second, is to develop a clear picture of the country’s interests in this area. This was a frequent refrain of commentators before the Doha meet, but it applies just as much now as it did before. The danger is that the country will lapse into a false sense of security brought on by the “explicit consensus” phrase stated in the Declaration and not bother to develop its own set of demands.

There are certain points that India should be using all its Doha-style bombast to resist on behalf of developing countries. These include restrictions on domestic development policies, too broad a definition of investment that puts countries at the mercy of fickle portfolio investors and across-the board liberalisation. The declaration recognises several development dimensions for being considered for clarifications during the future study/tentative negotiations. These include further clarification, with issues like a GATS-type positive-list approach for pre-establishment commitments to be made by countries. This is one area where India can derive some comfort, as in its posturing on investment issues since some time it has maintained stoutly that it will not allow unbridled entry of foreign investors.

It also notes the necessity of keeping development provisions, and exceptions and balance of payment safeguards. Furthermore, in a paragraph under the investment clause of the Declaration, it asserts that: “Any framework should reflect in a balanced manner the interests of home and host countries, and take due account of the development policies and objectives of host governments as well as their right to regulate in the public interest”. The right to regulate is welcome, while the words ‘framework should reflect in a balanced manner the interests’ convey the mandatory nature of the recommendation as far as a possible future agreement is concerned.

However, there are also many things in the investment arena that India can, and should be demanding, like standards for enforceable rules governing the behaviour of the mega-corporations that today escape the reach of national laws. Many countries and the whole civil society have been demanding such rules for quite some time, and such a demand will receive widespread support. Problems will come from the US, which believes in national regulation which need not be informed by any international agreement.

It may be that India never has to put these demands on the table. In fact, it is quite likely that the investment negotiations will drag very slowly, or even die a natural death as the rich countries argue between themselves about what should be in and what should be out. If the failed OECD MAI is anything to go by, Europe, Canada and the US will not be able to accommodate each other’s demands, let alone the demands of the developing country majority at the WTO.

A third and final point: India must keep the developing country coalition together in the investment discussions as well as in other areas. This coalition was one of the major achievements of Doha and will be vital in keeping the WTO on the right track. Other countries should be encouraged to articulate fears and grievances, and these should be woven into a common position underlying the basic resistance of these countries to any kind of investment agreement. In conclusion, there will be no harm if as a proactive step we start designing an ideal international agreement on investment for being tabled at the working group as the text for being responded to.

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Moralists do not make great diplomats

Published on: Financial Express, November 21, 2001,
By Pradeep S Mehta

THE GOVERNMENT has finally recognised that the country needs a negotiating strategy at the WTO. At the Cabinet meeting last week, ministers agreed to work on a so-called 'fall-back' position in case India's strong stance in opposition to negotiating a new round in the absence of progress on implementation is undermined.

The US and the EU have been relentless in their efforts to push and cajole developing countries. The events of September 11 have had surprisingly little impact on the pushes and pulls at the WTO in the build up to the ministerial. Perhaps the only effect has been to make countries like Pakistan that little bit more pliable to US demands.

But in general, national governments have been behaving according to their accustomed patterns. Most of all India, which has developed a habit of waiting to the last minute before finally deciding that it doesn't want to be left out.

The damage done by this delay has not been critical -— yet. But the failure to think through the longer term objectives of India's trade diplomacy and devise a realistic path to achieving those ends leaves India always on the receiving end of proposals. Successful negotiators put almost all their time and effort into building coalitions.

In the past, India has found allies in large and influential developing countries like Egypt, Malaysia and Pakistan. Many other, smaller developing countries have looked to India to provide leadership on issues of key importance to them. However, for this ministerial as for previous ones, India's allies have slipped away, tempted by lures from the US and EU, directed at these countries.

Indian negotiators should be devoting much more time to developing strong common positions with other countries where their interests overlap. Moralists do not make great diplomats, and in seeking to identify and woo coalition members, India needs to have a clear idea of where interests do and do not overlap.

Of course, this will vary across issue areas and negotiators should not be afraid to work with different groups with regard to agriculture and implementation, for example. Crucially, India should look to alliances with one or other member of the Quad to put pressure on the more recalcitrant of the major trading powers.

The long delay in coming round to a sensible “nuanced' position at the WTO has created other problems. One is that it has shortened the time for the vital research, consultations and preparation that feeds into the formulation of the Indian position on the issues.

The able officials under minister Maran have been caught in a trap: they could not prepare for negotiations because the government was adamant that it would not negotiate. Now, with only a couple of weeks to go, they are expected to provide effective support to the delegation that will visit Doha. To expect this is to expect the impossible.

Perhaps the most harmful effect of delay is the impression that this gives to the general public. The Indian public tends to be sceptical, to put it mildly, of the benefits of the WTO.

All the government's criticism of the WTO and its avowed refusal to take part in negotiations have deepened their distrust. The government's modified stance comes after an intense period of one-to-one discussions with the US. To the outsider, it certainly seems as if India was pushed into acceptance of US demands.

If this was an intentional tactic of the government, then it's one that will almost certainly backfire. Domestic resistance to any and everything related to the WTO will tie negotiators' hands, making it more difficult for them to achieve what is in the national interest.

The government's duty is to inform and enlighten the public rather than delude them. This should apply as much to the benefits that trade liberalisation under the WTO brings to the country as it does to the problems that this creates for certain economic sectors and groups.

Forming a strategy for India's position and goals in WTO negotiations will mean drawing together these threads: shaping public opinion, building knowledge and expertise on the issue areas and building a coalition with those who are genuinely like-minded. Not an easy task, but such strategic thinking is long overdue.

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Win some, lose some at trade talks

Published on: Financial Express, November 20, 2001,
By Pradeep S Mehta

Whether India won or lost at Doha is the hot topic of discussion these days. India neither won nor lost; it bargained hard — and with fair amount of success — to minimise the losses and maximise the gains.

In the world of international trade, each country pursues its interests. With that in mind, commerce minister Murasoli Maran did play a bold gamble and succeeded. The strong alliance that India had built up with other developing countries had frittered on the eleventh hour, and if Maran had not played the gamble, India would have had to give more than what it would have been ready for.

One important area of perceived gain is that negotiations, if any, on the new issues — investment, competition, trade facilitation and transparency in government procurement — have been postponed by another two years. To me it is but a pyrrhic victory.

During the Uruguay Round (UR), the United States stopped short of demanding a full scale investment agreement under the Agreement on Trade Related Investment Measures (TRIMs) in order to wrap up the talks as well as ensure the closure of the Trade Related Intellectual Property Rights (TRIPs).

In the current drama, it was the EU which was a demandeur for the new issues to offset perceived losses in its agreeing to negotiate (but not ‘reduce’, as some newspapers have mistakenly reported) agriculture subsidies. Meanwhile, horse-trading will continue, and the EU will pursue its non-trade agenda as vigorously as before, if not with greater vengeance.

We have been shouting for quite some time that non-trade issues should be kept out of the WTO. Therefore, investment and competition should be out, but it is during the UR that we have agreed to examine them under the TRIMs agreement for being adopted as a part of the WTO agenda.

It was a built-in agenda, like in agriculture or services. Thus, we could not have said these issues should not be there at all, otherwise we would have run the risk of losing the issues we wanted the trade community to discuss.

TRIMs remains in the WTO agenda. It would have been a significant gain if only we could have gotten the international community to begin examining the validity of the existing non-trade issues already in the WTO such as TRIMs and TRIPs, the root of most problems. We did not pursue this line as we were afraid that we will not be taken seriously.

I have always argued that the so-called Singapore issues are not entirely against our or any developing countries’ interest. Except perhaps the issue of investment, as there is no evidence to show that an international agreement on investment can facilitate investment flows, or vice versa. However, if there is a trade off with whatever else, then we can negotiate an investment agreement subject to getting an agreement on the movement of labour.

As far as a multilateral competition policy is concerned, we have been asking for it ever since 1948 under the Havana charter. It is required to balance the producer bias of the WTO, to be a bulwark against cross-border mergers and acquisitions, and to regulate international cartels.

Two years will whiz by so fast that we will get caught napping again. We need to take an active part in each of the four working groups and guide the agenda. For all this much homework will need to be done from today.

As regards TRIPs and public health, the ET reported on November 16 that the power of a country to import such life-saving drugs from any other country, when it doesn’t have its own manufacturing capacity, is suspect.

This is not exactly correct. Indeed the declaration has asked the TRIPs council to find a solution to this problem before the end of 2002. However, IPR pundits have interpreted the TRIPs flexibilities to include imports where it is not possible to manufacture the same locally. It is quite commonsensical and precedented as well. During the recent crisis in the AIDS drug, AZT, it was Indian pharmaceutical manufacturers who were exporting to South Africa, Kenya, etc.

As regards cashing in on the gains in the WTO talks, we have to attend to a huge domestic agenda before we can reap any of the perceived gains that future negotiations can throw up. Maran said this clearly, and that is his most statesmanlike statement after the Doha ministerial

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Who's going home naked?

Published on: Financial Express, November 14, 2001,

By Pradeep S Mehta

Trade ministers are still trying to find the right words to paper over the wide cracks in different countries views on the Ministerial Declaration. They need to reach some kind of consensus before the day is out or deal with the probably more painful consequence of another failed WTO Ministerial. Meetings were taking place with gathering pace in various forms - one to one, one to many - until midnight of Monday, and the tension rises palpably. One example of unexpected tension is the African group threatening a walk out over the refusal by some Latin American and other countries to accept the Cotonou waiver. These countries are the Philippines, Thailand, Colombia, Honduras etc.

The Cotonou Agreement is an extension of the Lome Convention which offered preferential tariffs to the former European colonies in Africa, Caribbean and the Pacific (ACP). The issue was not to be on the official agenda but after the challenge to the banana regime, the ACP countries do not wish to take chances. Therefore, they pushed the issue to be included in the Doha declaration for a sort of validation.

Officials are still holding out hope for a solution as the prospect of failure pushes them towards compromises against which they have been swearing for months. Seasoned negotiators say that this is a familiar pattern, with achievements in the last few hours greater than in the first four and a half days. However, all the sides are very reluctant to be the first: as long as the EU stands firm on agriculture, the developing countries will not make the concessions that they can easily afford to make in other areas. Still there has been some progress on access to drugs which could be the key to unlocking a series of deals in other areas. More importantly, the US is at least listening to some demands on the textiles front.

However, the real sticking point is agriculture for the EU, as its representative Pascal Lamy is in a very difficult position. The EU already seems to have lost two of their most important issues, investment and competition, that they were hoping would help them to distract the public back home from concessions on agriculture. Without some kind of deal on their third, environment, Lamy is in danger of "going home naked."

EU's allies are slipping away as the crunch point draws in. Japan, Norway and South Korea have now agreed to the language of the draft text on agriculture which calls for the gradual phase-out of export subsidies.

It's not hard to imagine the tension there must have been in the room as EU's trade ministers met together Monday night. The hard bargaining outside is also creating tensions in inside, as the French are increasingly isolated from the rest of the EU delegation who think time has come to show good will in return for progress across the board.

Another contentious issue is anti-dumping. The US is relenting from its tough positions and that can help in reaching some sorts of consensus on rules and negotiations. Another potential danger which can break a deal is EU's softening of its position on environment. Developing countries and the US and Canada are opposing the EU's approach to environment. Of the three major issues, as pushed forward by the EU, eco-labelling will likely go, but the relationship between multilateral environment agreements and the WTO will remain, whereas consensus is still elusive on precautionary principle.

The US insisted on formalising links between secretariats of MEAs and the WTO, not considering any legal language or issues clarifying legal precedence.

Meanwhile, the US and the EU are doing each other no favours. While a united front between the two would be formidable enough to break down the defences of the developing countries, they are badly divided. The Americans would be very happy to see that the EU was forced to reduce its farm subsidies, while the EU would be as happy to see the Americans rein in their anti-dumping regime.

Therefore, at the end of the fourth day of the ministerial, four deal-breakers have appeared: two from the developing world and two from the developed world (two-against-two).

Textiles and access to cheap drugs are pitted against agriculture and environment. On textiles, US and Canada declined to make any concessions beyond their Uruguay Round commitments, but the developing countries, led by Pakistan, are urging to accelerate the pace of liberalisation commitments.

On TRIPs and public health, amendments to the draft Ministerial Declaration went mostly in favour of the Third World. According to the new text, WTO Members may enact intellectual property rights legislation that permit them to import medicines from third countries rather than purchasing them directly from the manufacturer or its local licensee. "India today achieved a major breakthrough", screamed an Indian government release.

On other issues, labour standards are nowhere in the scene. On Sunday, the EU, backed up by Norway, Switzerland and South Africa, was calling for changes in the draft declaration to incorporate stronger language on labour standards. A day after, Mr Lamy was forced to say: "We're nowhere. We will push it, but for the moment there's nothing more than the Harbinson text on the table." Perhaps, the EU's push was to satisfy its domestic constituencies for the time being and its subsequent retreat may broker a deal on other areas, notably agriculture and textiles.

Thus, of this two-against-two deal-breaking situation, its one-all between the developing and developed world. Developing countries got what they wanted in TRIPs and public health, while the EU was successful in pushing forward its agenda on environment (at least partially). The US is mostly playing off-the-ball game and trying to mediate between these two blocks. This leaves two issues (textiles and agriculture) without some sort of an agreement.

However, deals are always multi-faceted and within apparently cohesive blocks there is more interplay. If the Ministers come out with a declaration today, this in itself will be a major achievement, considering that a couple of months ago many people thought the meeting would not go ahead at all. In the end, the September 11 effect seems to have sensitised the rich countries a little more to the plight of the poor, and the developing countries have not lost the spirit of unity that they achieved in Seattle. This is a heartening news for the world trading system. Now all that is required is the courage to give a little ground in the knowledge that giving a little means gaining a lot.

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Arm Twisting and Horse Trading Gain Momentum

Published on: Financial Express, November 12, 2001,

By Pradeep S Mehta

Despite all the howling, countries are engaged in specific talks on the controversial text of the draft ministerial declaration being negotiated here. Arm twisting and horse trading tactics are accelerating as the D-Day approaches. Countries are reexamining their positions as any trader would, when selling or buying.

China, which was formally admitted into WTO on Saturday, has already sounded its support for a new round. Till a few weeks back, it was part of a G-77 statement opposing a new round. That appears to be an example of what countries can do, when carrots (or sticks) are offered. With a 4 percent share of the world trade, China is looking at doubling its share over the next ten years, and that is the main reason behind its progressive rather than a defensive stance. How much of this has sunk into the traditional allies of China, if there are any, will be seen over the next two days.

India, which is otherwise on a sustained offensive, had signaled a change, a very small one, that it was ready to look at issues as a package in spite of its disappointment.

This was stated by commerce minister Murasoli Maran, in his speech at the opening plenary in the context of implementation issues. Whether India will change its hard line position remains a million dollar question. Pundits feel it won’t and in that process may get isolated..

Maran is confident that it is not losing the support that it has been enjoying from the African Group and the Like Minded Group, but he appears to be nave that they will not change their position quietly when offered incentives, lures and threats.

At Singapore ministerial conference, from where a lot of troublesome baggage comes, Malaysia was a strong supporter of India that there was no need to even discuss investment and competition. However, when it came to signing on the dotted line, its stand changed. Malaysia explained to India that it was only a study process and so one need not worry and secondly words: ‘explicit consensus’ were added as a part of the language for the purpose of negotiations.

India continues to harp that there is no explicit consensus on negotiating investment and competition therefore the study process should continue for some more time. With a fresh onslaught by Malaysia the position of the European Union on investment and competition has also softened, and perhaps there may not be any agreement to negotiate them over time.

The USA was in any case not a demandeur for both the issues, but was willing to go along as a trade-off with EU to get its hands onto the agricultural subsidies. That leaves EU with a little room to manouver.

Under the present situation, EU is now harping on getting a better deal on environment so that it can a) carry its members and the civil society along and b) create more rules-based barriers for agricultural imports into its domain.

The USA is not too happy about it, as much as many developing countries, and we will see how things move in this complex game of trade-offs only by Monday.

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Six chairs in search of an agenda

Published on: Financial Express, November 12, 2001,

By Pradeep S Mehta

Unlike Seattle there are no street demonstrations happening here, but some of the southern delegates, including India, are as angry as they were with the process. The 4^th ministerial conference of the WTO maybe a success or a failure. Clearly it is quite early to say what is likely to happen at the end of the day, but there is a desperate desire of many to arrive at a consensus and go home without an encore of Seattle.

The proponents will make all efforts to ensure that there is least resistance in moving forward an agenda even if some countries are not happy. To begin with the process problem arose when the chair set up six working groups with unelected chairs to handle the contentious issues. Mexico would chair the group on TRIPs and public health; Switzerland on implementation; agriculture by Singapore; environment by Canada; new or Singapore issues by Chile, and rule-making by South Africa.

The chairs are all from countries who are in favour of a new round. They did not wish to select India or Malaysia or Pakistan or from any African country, South Africa being an exception. Pakistan too may change its spots, though they continue to be belligerent.

Participants at each of these six groups will include the heads of delegations—in most cases the trade minister--accompanied by only two officials. But this process will not preclude the chairs of conducting informal meetings to steer the working groups, and that is one strong bone of contention.

For the Latin Americans, the text has little technical problems, but certainly political. They feel that this can be improved if there is some more give and talke, and the difficult ones are handled bilaterally.

At Seattle the African unity was a major factor, though not as the most important one. Thus the powerfuls are working to break the unity, and also succeeding at it. Already Kenya has stepped down from the leadership that it had provided at Seattle with a demand on improving the TRIPs text. Now it wants that other countries in Africa should take the lead. Another influential African country, Tanzania, the spokesman for least developed countries, has come out in favour of a work programme which would have a development agenda, as the only way forward for the improvement of the lot of the poor. Indeed there is the refrain of negotiating any of the new issues: investment, competition etc.

Both the USA and the European Union have held press conferences announcing that a deal is necessary otherwise they would go their own ways, which would be more bad for the poor, then for themselves. That is having an effect. It would now depend on how many of the recalcitrant countries fall in. Things will start getting warmer over the next two nights.

Agriculture can be the dealbreaker. Indeed the US has agreed to the new issues being pushed by the EU and Japan, if the EU will agree to cut back its agriculture subsidies. The EU has expressed its dislike for the text on agriculture, but perhaps that may be public posturing. In his press conference, the USTR Robert Zoellick admitted that it may not be easy to push for its demands. The EU’s agriculture commissioner, Franz Fischler rebutted, that the US itself gives huge export credits which will not remain unchallenged if the EU has to come down. The US subsidies are cleverly disguised and WTO-compatible.

Some of the developing countries, grouped under the name of Friends of Development Box have put forward a proposal for a development box to be included in the agreement on agriculture. Their concern is that the Indian proposal for ‘food security’ can cut both ways. After all the contentious European Common Agriculture Policy is based upon the concept of food security for Europe. These Friends include Pakistan, Cuba et al who are all a part of the Like Minded Group of Countries who had been leading the opposition brigade at Geneva, and somewhat at Doha. How will they continue to hold on to their unity and be able to influence the outcome, can only be seen over the weekend.

The outcome could be a sanitised version of the declaration without any mandate, which is what India will be happy with. The second option is a declaration with a mandate to set up a preparatory committee to design the contours of an expanded work programme, as happened at the time of the Tokyo Round. The third option is the current Harbinson draft (with little changes) which has something in it for every one but not everything for everyone.

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Get TRIPs out of the WTO

Published on: Business Line, November 8, 2001,

By Bipul Chatterjee

THE WORLD is reeling under the scare of anthrax. Every day cases are reported mainly from the US but elsewhere too. People are scared, but for some sections of business the anthrax scare is an opportunity to make money. This raises the patents bogeyman. And on the eve of the Doha WTO ministerial meeting too.

The pharmaceutical giant Bayer holds the product patent on Cipro, the anthrax antibiotics, till 2003 and is surely working to maximise production. However, the US authorities are not convinced about its ability to supply enough quantities of the drug on time and is, therefore, considering issuing compulsory licences to generic manufacturers. It is even looking at importing anthrax antibiotics. Canada is also contemplating similar measures.

Drug companies may challenge these moves, as happened with AIDS drugs, when a consortium of pharmaceutical giants brought but later withdrew a lawsuit against a South African law that would have allowed parallel imports and compulsory licensing. This was partly due to pressure from consumer organisations, NGOs and so on. The battle for cheap AIDS drugs has now shifted to Kenya, where the Parliament is debating a Bill that would make it easier for the government to import and manufacture generic versions of patented medicines, particularly anti-retroviral drugs. This could set in motion the domino effect that the pharmaceutical companies fear on patented drugs.

Article 8 of the World Trade Organisation Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) defines compulsory licences on grounds of competition, health and public interest. It gives members the right to adopt measures necessary to protect public health and nutrition, and to promote public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this (TRIPs) Agreement".

For example, in 1991, a German court granted a compulsory licence to a German firm with respect to a patent (relating to interferon) held by a US firm on grounds of public interest. The purpose of the licence was to allow the marketing of a therapeutical application of interferon developed by the German firm.

Parallel imports, on the other hand, are defined as buying of a product with the intellectual property content from a country where the product has been lawfully placed on the market by the owner of the intellectual property right or has been done with the owners consent. For example, in 1999 a Bill was introduced in the US Congress to authorise parallel imports of pharmaceutical drugs, by simply eliminating regulatory barriers.

However, despite US moves, earlier and recent, to allow parallel imports (and compulsory licensing) of drugs, American trade officials have tried to prevent governments in many countries from authorising parallel imports. For example, in 1998, the US threatened New Zealand for removing restrictions on parallel imports sensitive to US pharmaceutical manufacturers. Interestingly, at that time the US Supreme Court ruled that Americas copyright laws do not prohibit parallel imports into the US.

Now, the US wants to introduce compulsory licensing and parallel imports to cope with a possible anthrax outbreak. There is nothing wrong with this move, but it speaks of the US double standards. Before the Seattle Ministerial Conference of the WTO, in 1999, American trade officials wanted intellectual property rights off the agenda of a possible new round of global trade talks. While improvements can be made to the TRIPs Agreement, a senior US trade officials at that time commented that there is a risk that new negotiations could lead to backsliding in the current agreement".

Since the US is calling the shots in providing compulsory licensing and provisions of parallel imports of anthrax antibiotics, it would be interesting to see how pharmaceutical giants react. After all, they had pushed for the TRIPs Agreement at the time of the Uruguay Round of multilateral trade negotiations. At that time, a number of developing countries opposed it, but agreed to it under the assumption that they would benefit from other agreements.

A common fallacy on the inclusion of intellectual property rights issues into the WTO was the claim by pharma, and other, companies that intellectual property has the same status as their tangible property. An essential characteristic of tangible property is the right to exclude other people from its free use. However, the last thing creators and inventors want to do is to keep what they have developed to themselves. They want to promote them and seek recognition, not just money. The interests of companies in businesses related to creation and invention are different from the interests of creators and inventors themselves. Such companies want to build wide-ranging commercial monopolies, and to exploit for that purpose the protection offered by intellectual property.

On the other hand, public interest lies in ensuring that there is as much innovation as possible, that it happens quickly, and that it is disseminated widely. We need to provide incentives to innovate without allowing a previous generation of innovators to intimidate competition, block entry, or restrict the exploitation of new technologies. That means a balance needs to be struck and the solution lies with the companies. In the case of making the benefits of pharmacology available to those affected of whom the majority is poor the pharmaceutical industry must establish systematic mechanisms to make drugs available at low prices in poor countries.

The WTO TRIPs Agreement is the stumbling block to such a mechanism. The time has come for the international community to raise their voices unitedly to get the TRIPs Agreement out of the WTO, and put the issue back in the World Intellectual Property Organisation, where it belongs. There are several reasons why intellectual property should not be a part of trade agreements. Apart from the fact that the creation of a 20-year patent period (as per the TRIPs Agreement) fosters monopoly, the Agreement goes against the very principle of free and fair trade, which is what the WTO is said to be for.

The reasons why TRIPs Agreement should be out of the WTO include:

There are enormous discrepancies in experience with intellectual property law and policy among WTO members;

There is no consensus on the proper role and elements of intellectual property law and policy, particularly as applied to countries in vastly different circumstances and levels of development;

The WTO is a trade forum ill-adapted to handling intellectual property rights issues, which would risk becoming politicised; and

The possibility of applying WTO dispute resolution mechanisms to intellectual property rights rules poses risks to the independence and sovereignty of law enforcement authority.

Recent happenings the breakout of anthrax and the South African AIDS drug case, to name two - have helped educate the international community on the ill-effects of the TRIPs Agreement. It is time to bury the WTO TRIPs Agreement and give back the intellectual property right its original meaning.

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WTO: Why all the fuss over the Doha Ministerial?