ARTICLES FROM CUTS

The proposal to set up a steel regulator is mainly in response to the lobby of the builders who face a double-whammy due to the moves of both the cement and the steel industry. The way forward is not a steel regulator, but to move the agenda for establishing the Competition Commission of India at the earliest.

THE proposal by the Steel Minister, Mr Ram Vilas Paswan, to set up a steel regulator is ludicrous, to say the least. Nowhere in the world, there is a regulator for a commodity or a product, or for that matter in the steel sector.

Independent regulation is usually the form adopted only for the service sector, for several reasons which are not akin to goods sector.

The only exception is perhaps coal, which has to be treated under the rubric of energy.

Market distortions in any goods sector are best pre-empted or regulated by a combination of trade and industrial policy instruments to be used by the government branch administering the sector or through action by a competition authority.

In the case of India, it is the Steel Ministry that is required to pre-empt the anti-competitive situation through policy responses, such as by strategically lowering tariffs or encouraging more production.

Even encouraging substitution can balance the demand, such as the use of plastic or aluminium or concrete structures instead of steel. Second, by ensuring that the industrial policy governing the complex steel sector is managed in such a manner that there is better industrial democracy and distortions checked.

Lastly, as a large amount of production is in the public sector, the Government can intervene directly by policy directions to SAIL, a big player in India.

SAIL has a market share of 30.8 per cent of the total capacity in India. And if prices need to be regulated, the Essential Commodities Act can also be used.

Surprisingly, the public sector steel units are in league with the private sector. The new association: the Indian Steel Alliance, can also behave like a cartel, if not already doing so.

If that has to be looked into then it is the Monopolies and Restrictive Trade Practices Commission, but that is currently facing a sunset. The new competition authority is in a limbo.

Steel is one product which has been addressed in a research project: "Functional Competition Policy for India" being implemented by CUTS under the guidance of renowned economic, legal and business experts in India.

Various other goods and services sectors are also being examined to see how anti-competitive practices harm our economy.

Steel is quite a heterogenous product industry. It comprises thousands of products varying in shape and chemistry with distinctly different applications as also technology of production.

The steel market is fragmented and the demand is highly price inelastic. Integrated steel mills are capital intensive, infrastructure- and basic mineral-dependent. The smaller ones are not so, and are dependent on scrap or intermediate products produced elsewhere, not withstanding the import of war scrap, which has occupied newspaper columns recently.

Intra-industry competition is complex due to merchant operations where a buyer of an intermediate product can compete with the mill producing that in the market for the finished product.

The pricing issues relating to the intermediate product has been the bone of contention where the producers of the same are being accused of adopting unfair means to squeeze the merchant mills.

Producers of hot-rolled coils (HRCs) who also make downstream products like cold rolled coils and galvanised plain and corrugated sheets etc. resort to discriminatory pricing maintaining low differential between HRC and CRC, and even on other downstream products.

If the price differential between these products is lower than the cost of conversion of HRC into downstream products for a merchant mill, its entire economics goes for a six.

This is a common and tactical pricing policy followed normally by integrated mills to prevent excess competition in their downstream products market and also excessive capacity build up in the merchant mill sector.

The intra - industry issues of this kind have attracted greater attention in recent times.

The government has been sensitive to the ultimate consumers of steel by taking proactive action to arrest price jumps. In the past, the government had also taken highly protective measures to protect the interests of the steel makers. For example, the merchant mills producing CRC, GP/GC and even steel tubes have, in fact, been hurt by what they describe as undue protection provided to the HRC manufacturers by high import duty, non-tariff import barriers like floor prices, etc.

The Government was doing so to prevent a financial downturn for the HRC producers in the face of a global crisis in the industry, especially considering the fact that these facilities require huge capital investment and employ large number of workers.

So much for the background. The current demand for a steel regulator has been mainly made by the Builders Association of India (BAI). In the past, it had dealt with the cement cartel in more imaginative ways. First, by boycotting and, second, by lobbying for lower tariffs. In the case of steel, another basic input for construction, the BAI has argued the need for regulation to control runaway inflation in steel prices. In June, they demonstrated that steel prices have nearly doubled, from Rs 14,000 a tonne in January 2003 to Rs 27,000 in May 2004.

The BAI stated that there is no mismatch in demand and supply, nor a steep increase in inputs, and hence this price increase doesn't make any sense. It demanded that the government should prevent steel manufacturers from forming cartels and exploiting the market.

On the other hand, another victim, the Cold Rolled Steel Manufacturers Association, argued against a regulator on the lines of what I have stated above. Their advocacy was to use trade policy measures to curb the price gouging by the steel manufacturers: reduce import duties on intermediate products such as HR coils and billets up to 5 per cent.

On billets, which are a basic re-rollable steel material, the duty reduction will help the local downstream steel industry to be able to produce HR coils, as there is a surplus capacity in both long- and flat-finished steel goods.

Mr Paswan's reaction is mainly in response to the lobby of the builders who face a double-whammy due to the shenanigans of both the cement and the steel industry.

The way forward is not a steel regulator, but to move the agenda for establishing the Competition Commission of India at the earliest. Then, to provide the Commission with human and financial resources to deal with the problem.

Unfortunately, the agenda is in a limbo, on a ridiculous issue of choosing between a retired judge or a retired bureaucrat as its head. Better than either would be a competent person who can cope with the rigours of taming a marketplace.

Local problems need local solutions

Published: Economic Times, 10 December 2004
By Pradeep S. Mehta

Anti-competitive business practices are rampant at the state level and we need state-level competition agencies, backed by appropriate laws, to tackle them.

To achieve progress and the elusive 8% growth, it is important that all policies are coherent with the singular goal of achieving a better market place.

Indeed, many of our central government policies are framed and implemented to promote competition, such as regulatory policies in the utility sector, or using import policy to offer competition.

One incongruent policy is that on small-scale reservations. Closely linked with it are the state government procurement policies, under which both price and purchase preference are awarded to both small-scale and other units in the state.

In the overall, all these restrictive trade practices affect our competitiveness to a large extent, and tragically remain unaddressed in the public discourse.

The CUTS research project, to develop a “functional competition policy for India”, discovered many interesting issues at the state level, which affect our competitiveness.

This is coupled with a huge number of regulatory failures. For instance, in one case in Rajasthan in late 1980s, the forest department tendered for purchase of barbed wire for fencing. A big percentage of this was to be procured only from the small-scale sector.

The local small units, who bid, formed a cartel and shared the supply order. To add insult to injury, the quality was hopeless. But the department was ‘forced’ to use the shoddy goods.

Similar to happenings at the central level, the construction sector is scandalously infested with collusive bidding at the state level too, without any regulation.

In the last piece, I had written about the flyover scam in Tamil Nadu, where contractors pooled up to share the contract at a considerable cost to the taxpayer. The scam had hit the state assembly, but nothing much came out of it.

Angered by the malicious process, the Rajasthan PWD minister announced in the assembly on July 20, 2004, that he will break all cartels, so that smaller contractors can bid for contracts. Nothing happened after, and it is now business as usual.

Such type of regulatory failures are galore in all our states. Hoping to break these cartels is as difficult as you and me travelling to the moon. What with the high levels of corruption among the responsible engineers, who are in cahoots to ensure higher ‘commissions’ from public works. One is reminded of what happened to Satyendra Dubey, after he blew the whistle on the contractor mafia in Bihar.

The mafia appears to dominate in most such businesses in the states, who indulge in all types of anti-competitive practices in collusion with politicians. In the area of goods transport, there is a mafia-led cartel in various places.

In March, 2004, ET reported of a truckers cartel operating in Baddi, Himachal Pradesh. Controlled by the local MLA, the truck union charges 30% higher on the Baddi-Delhi route and 15-20% on the Baddi-Mumbai route.

Trucks coming in with supplies, go back as empties, because they are not allowed to pick up freight, which only adds to the production costs. Further, new units are discouraged to establish factories in the area.

In a similar case in Alwar, Rajasthan, in the 1980s, the MRTP Commission had taken action against the local truck union, but to no avail. The local union was headed by an MLA, who later became a minister in the state.

Yet, on the cries of local industry, the district administration took action with the help of police and broke the cartel.

Another area which the research addressed is the state excise policy. This policy, purely under the state jurisdiction, generates the biggest revenue in the states, is often implemented in a manner that all liquor vends are auctioned annually.

Here too in many states, cartels operate and loot the consumers. The Beverage Manufacturers’ Association has been lobbying for uniformity but that is clearly an uphill task.

Other lobbies and ignorance are their enemies. On a query to a senior official in a state, his response was: “I care two hoots for consumers. My only consideration is to increase revenues”.

What a pity, because he did not realise that by promoting competition, the state would have protected consumer interest as well as increased revenues. One doesn’t need to be an economist to determine that when collusion takes place, bids are always suppressed.

No central law or authority can be used easily to curb the anti-competitive practices which exist in the retail sector. In Mumbai, the Pan Merchants Association decides and circulates a price list, which mandates members to sell at prices, which are higher than those printed.

This is a violation of the packaged commodities rules, but one cannot expect the weights and measures inspector to go around prosecuting every pan shop. Such type of practices need to be dealt with systemically by the state government, but no one bothers!

Tied sales is another menace. I wonder whether people remember the time when LPG suppliers insisted on the consumer buying the hot plate at twice the market price. In spite of an MRTP order and oil companies notices, the dealers hardly ever bothered to comply.

CUTS research showed another ubiquitous problem through out the country, with little effort by the state governments to curb it. Most private schools insist that students buy their uniform and stationery from either their own store or a nominated shop. Prices are usually high, and whenever a complaint is made, it is at the risk of the student being rusticated.

Most doctors and diagnostic centres are in league throughout the country, making that extra buck. While pharmaceutical companies ‘influence’ many doctors to prescribe their brands.

Finally, the very controversial cable TV sector.

At the consumer level, one has to deal with monopolies, which do not guarantee good service and escalate prices frequently. While Trai is dealing with the policy framework, they too have been exasperated with the situation at the ground level.

In a recent statement, the Trai has said that cable TV can best be regulated at the state level. But where is the legal framework, which can enable the states to deal with this and million other anti-competitive and anti-consumer practices? For a big country like India, we need state competition and regulatory institutions to deal with myriad competition abuses. Local problems need local solutions.

Do Telesales Spam Telecom Users?

Published: The Economic Times, 6 December, 2004
By Manish Agarwal

Everyone has the right to privacy. However, telesales in the form of unwanted and uninvited calls and SMS messages on telephones/cell phones are an intrusive nuisance. Imagine a situation when a subscriber is roaming outside the service area, he may have to pay roaming airtime charges on these unwanted calls answered. While consumers can refuse to take a phone call, which is often difficult, but they are also powerless over their text messages.

Tele-solicitation is an advertisement targeted even at non-listed or non-published telephones/cell phones obtained (presumably against some ‘consideration’) from the service providers or are ‘sold’ to advertising companies with whom the subscriber has had or has business dealings. Absence of a telemarketing law has opened up yet another window for corrupt practices.

What is even more alarming is the disclosure that telephone hucksters have caused American consumers loss of more than US$40bn a year due to telemarketing frauds. Telephone hucksters are playing on consumers’ financial vulnerabilities and economic uncertainty. Telephone hucksters offer loans on no-questions-asked-basis on payment of US$250 upfront. The subscribers do not get the promised loan and also loose US$250. The USA clamped telemarketing sales rules to tackle the problem and has also prosecuted offenders. Besides, a national “do-not-call” registry is maintained to stop unwanted calls.

In its consultation paper on “Issues Pertaining to Publishing of Telephone Directory and Directory Enquiry Services”, the Telecom Regulatory Authority of India (TRAI) had acknowledged, there are complaints that marketing companies use mobile numbers for sales promotions and subscribers are disturbed by these invasive, unwarranted calls. However, not publishing a telephone directory is a partial and reactive measure.

Clearly there is a need to put in place a law to regulate, prescribe and implement procedures for not only protecting privacy rights but also to pre-empt fraudulent designs of the telephone hucksters without charging the subscribers.

CUTS has taken up this matter with TRAI and Department of Telecommunications, Government of India to enact a law to regulate such practices.

Competitiveness Via Competition

Published: Economic Times, 23 November 2004
By Pradeep S. Mehta

Competition means that we should have several players in the market, trading fairly. It would also improve their competitiveness. Tragically, many policy makers and even economists do not understand the distinction between competition and competitiveness, thus skewing the debate. Competition does lead to better competitiveness but the reverse is not true.

Competitiveness means promoting a number of strong players churning out goods and services at the best quality and prices. But their behaviour can be anti-competitive through collusive practices and the like, as was illustrated earlier.
Therefore, the country needs an effective competition law to ensure that the market functions, and both consumers and the economy gain.

The government has now established a lean National Manufacturing Competitiveness Council, “to provide a continuing forum for policy interactions to energise and sustain the growth of the manufacturing industry”. It will be good if it can also examine how the lack of an effective competition law and policy affects our competitiveness, and recommend appropriate steps for correction.

Once again, it is important to understand the distinction between competition policy and competition law. Competition policy, which we do not have, needs to be a stated government intent on how it aims to promote competition in our economy.
It will envelop various other policies, viz., investment, trade, labour, consumer etc to ensure that wherever there are conflicts, decisions to promote competition would get priority. A good example of this is the continuous de-reservation in the SSI sector. A competition law is a market instrument to ensure that firms behave and trade in a fair manner. However, the competition law cannot be a panacea to cure all ills of the market place.

The marketplace comprises of enterprises, farmers and households. They are consuming a large number of goods and services. Their efficiency and competitiveness are thus determined by their input costs. When the new Competition Act 2002 was being debated, many business interests lobbied against it, for the valid fear that it might be a new avatar of the control regime’s MRTP Commission, and not a modern market regulator. This was grounded in the fact that once again like all our new regulatory bodies, we will have retirees manning the system, whose knowledge about economics and law is inadequate. Let’s take the telecom regulator as an example.

The CUTS research shows that the telecom sector’s phenomenal growth as a consequence of increasing competition is unfortunately true only to a partial extent.
The incumbent government operator: BSNL, which owns 60% share of the market, reports to the same ministry as Trai does. It gets a more favourable treatment from the government. While Trai, some of whose members and staff are former BSNL employees, too gives it a preferential treatment. One instance of BSNL’s status leading to anti-competitive outcomes: it operates an internet service and offers it to consumers as a package deal at a low cost vis-a-vis the charges on the use of the phone time.

However, consumers of other internet service providers, who obtain the service through BSNL’s landline network, are not able to get the same pulse rate as is being charged to BSNL’s internet consumers. Independent ISPs cannot therefore compete with BSNL. And they are fast losing their consumers.

Let me now turn to the goods sector particularly the raw material and intermediate goods sector, and how lack of competition affects our firms.

In many areas, there is a dominant player or if there are many, then they implicitly and/or explicitly behave in the same fashion. The chances of abuse are high in India due to high levels of concentration in many goods sectors. Let’s take the textile input sector for example. The textile and garment sector has a high growth potential following the demise of the WTO’s textile quota system by the end of this year. Of the two critical inputs: Reliance is the dominant player in the polyester staple fibre with a market share of 54%, while Grasim is the dominant player, almost a monopoly, in the viscose staple fibre with 91% of the market share. Per se they may not be indulging in anti-competitive practices but the possibility is distinct.

Considering the liberalisation of trade, if such dominant firms do indulge in anti-competitive practices, imports can offer an antidote. Of course this too would depend upon how they can get the tariffs ‘fixed’ favourably or ‘use’ the anti-dumping regime to take “engineered” actions.

Contrary to the belief of many economists, trade liberalisation is only a partial solution to competition problems in the market place. In this age of globalisation with pressures on tariff barriers, choice of goods has increased substantially.
However there is a catch in this. Increasingly firms world-wide enter into global cartels to exploit the market. Examining a small number of international cartels, which were discovered and prosecuted in the 1990s, a World Bank study has estimated that developing countries imported goods and services worth $81.1 billion per annum from these sectors, which would have collected monopoly rents in the range of $20-24 billion per annum. Another estimate showed that a cartel in bulk vitamins cost developing countries $3 billion during the 1990s. Of this the Indian industry paid overcharges of $25 million in that period, not a mean figure.

The subject of international cartels featured in the discussions on a multilateral framework on competition at the WTO as part of the Doha Round. Though negotiations on it have been stopped, it will be worthwhile to recall our SSI lobby’s plea for a multilateral agreement, because, “such an accord would result not only in improved market access for Indian products, but also help reduce the prices of raw materials where cartels operate”.

This adequately makes the point that an effective competition law, including international cooperation to deal with cross-border issues, will not only promote consumer welfare, but also business welfare, i.e., better competitiveness.

Unified licensing regime proposals — The wall of TRAI for new entrants

Published: Business Line, 18 November, 2004
By Prabhat Dayal, Manish Agarwal and Bipin Batra

THE Telecom Regulatory Authority of India (TRAI) is to finalise its recommendations on unified licensing regime (ULR) shortly.

The key objective of the ULR seems to be that of unhindered growth of new applications and services, leveraging on technological developments in the information and communication technology (ICT) sector.

However, a closer look at TRAI's recommendations reveals that the main objective is to ensure a level field and a no-worse-off (in fact, better-off) situation for existing NLD (national long distance) and ILD (international long distance) operators.

All other objectives, such as encouraging efficient small operators to cover less-developed areas in term of telecommunication facilities, easy entry for new operators and encouragement of new technology, have taken a back seat in the process.

While the recommendations outline several initiatives, there are certain concerns that need to be addressed.

First, the proposed entry fee of over Rs 107 crore for unified licence would be a huge entry barrier for new operators and also for those intending to upgrade to NLD-ILD services; it would only serve to protect existing NLD-ILD players. Integrated operators, such as Reliance and Bharti, are not required to pay any entry fee for unified licence.

In this context, it is worth noting that while access services (basic and cellular) have witnessed intense competition, the NLD-ILD segments have not; this despite the opening up of the sector.

This is primarily because of the high entry fee and prohibitive bank guarantees, limiting the number of NLD/ILD operators. Going by the recommendations, competition is again going to be limited because of the unfavourable and irrational entry barriers.

Though TRAI has proposed a gradual reduction in the entry fee from the recommended Rs 107-plus crore to Rs 30 lakh after five years, much of the reduction would happen only in the sixth year, when the entry fee would be reduced from the proposed Rs 32 crore to Rs 30 lakh.

The reduction would be asymmetrical, as much of it would happen only in the later years. Existing operators will thus be shielded from competition for five years and consumers denied the benefit of competition. This is unwarranted.

Besides, TRAI has recommended the following concessions for NLD-ILD operators:

Reduction in licence fee from 15 per cent to 6 per cent of revenue share;
Relaxation in rollout obligations; and
Reduction in performance bank guarantee (PBG) from Rs 100 crore to Rs 50 crore for NLD operators. This has already been effected.

The total benefit for NLD and ILD operators from these concessions is estimated at more than Rs 4,400 crore over a five-year period.

Estimated benefit for NLD and ILD operators
Combined market size of NLD & ILD operations (FY 2003-04)	Rs.9487 crore
Accrued benefits by way of reduction in license fees (9% of Rs.9487 crore)	Rs.854 crore per annum / Rs.4269 crore for five years
Relaxation of performance bank guarantee of Rs.50 crore per operator	Rs.150 crore for private operators alone
*Total estimated benefit (excluding relaxation given in rollout obligations)*	*Rs.4419 crore*

The recommendations are clearly loaded in favour of NLD-ILD operators. Compared to the Rs 4,400-crore relief package, the proposed reduction in entry fee to ease entry is a minuscule Rs 15 crore and Rs 3 crore, respectively, for NLD and ILD operators.

In India, there are only four NLD and five ILD operators compared to 621 and 360 respectively in the US, more than 20 in each segment in Australia and more than 10 in France and Chile. And with these recommendations, the NLD-ILD segment in India will continue to remain concentrated.

Given the likely trade-off between the objectives of easy entry and level playing-field, TRAI has focussed on the latter. Instead, suitable concessions to existing operators with lower entry fees would have served the purpose better.

Under no circumstance should concessions be accompanied by entry barriers to protect existing operators. Unfortunately, this is precisely what the regulator has done.

The entry fee should be brought down to Rs 30 lakh in the first year itself, rather than after five years. Delaying competition will not be in the interest of consumers.

While the proposal to allow niche operators to cover less-developed areas in terms of telecommunication facilities is a welcome step, the incentives given to them are wanting; the only worthwhile one being free entry.

They are subject to restrictions on use of technology but are expected to contribute revenues equal to those of other operators who function from lucrative areas and who are free to use any technology. This goes against the objective of encouraging small operators and would make their operations unviable.

There should be no licence fee for niche operators for an initial period of say, five years, after which there can be a review. Moreover, there should be no restriction on use of technology, else the areas from where they operate would continue to remain technologically backward.

Under licensing through authorisation, Internet service providers (ISPs) are allowed to provide restricted Internet telephony. However, the gross cost variation in simple authorisation ISP licence and unified licence may prompt many ISPs to terminate illegal traffic.

Already, there are complaints of a grey market in incoming ILD calls. ISPs may be encouraged to provide Internet telephony subject to payment of Rs 30 lakh as entry fees.

This is an opportunity to address all anomalies in the system and encourage growth of new technologies. However, the regulator has chosen to protect NLD/ILD operators and postpone the use of new technology for another five years. Last November, TRAI had initiated the first step, where access service licences were unified.

And, as a final step towards convergence, it has now come up with these recommendations. However, unless these concerns are taken into account, the proposed regime would not achieve its objectives.

Escape from unholy brotherhood

Published: Economic Times, 15 November, 2004
By Pradeep S. Mehta

One has to view the Naresh Chandra Committee's report on reforming the aviation sector in India through the lens of competition.

Among many, two crucial points which emerge are: first, how to regulate the natural monopolies, which all airports are, through an independent regulator. And second, the issue of allowing private airlines to fly on overseas routes in competition with other airlines.

If Indian airports are privatised or even corporatised, they can become strong competitors to other more attractive airports in the region to serve as a hub for people who catch connecting flights to other parts of the world.

Singapore, Kuala Lumpur and Bangkok are models to be emulated. If our airports in India can come close to any of these, the other issue of allowing private airlines will pale in significance, because the demand will rise hugely to allow several players in the market.

In its editorial (Sense on aviation, November 5), The Economic Times has rightly argued that our two national flag carriers are not incompetent, but have been made so by bureaucratic insouciance or even deliberately (to allow the private sector to consolidate) by not allowing them to acquire new aircraft.

The issue of radically changing our whole transport policy came up at a research meeting recently at Jaipur, in the context of developing a functional competition policy for India, organised by CUTS.

It is not only transport, but several other sectors and policy interface, which the project is engaged in. A transportation expert observed: “Any one sector cannot be viewed in isolation, but the government should formulate an inter-modal transport policy, by looking at the interconnectivity between rail, air, road and water transport systems.” (The logic of developing internationally competitive airports applies to sea ports as well.)

Similar arguments were made for the energy sector, which should again work out a single policy by combining the petroleum, gas, electricity and coal sectors. It does make eminent sense to do so, and such an agenda is doing the rounds in our policy circles. Unfortunately, all these sectors are under different ministries, and thus the turf issue comes up as the biggest hurdle right at the start.

It may not be such a hurdle if the UPA’s National Common Minimum Programme is implemented in letter and spirit. The NCMP states: “Competition, both domestic and external, will be deepened across industry with professionally run regulatory institutions in place to ensure that competition is free and fair.”

The Planning Commission is currently engaged in how to improve the regulatory framework, and the results should set new benchmarks for the government and its various branches to follow. There will, of course, be hiccups, what with the usual “the right hand does not know what the left hand is doing”. The Left will also be breathing down the government’s neck to maintain the status quo. But the point is to go on despite all that.

One such discouraging example is the Left-led hullabaloo on the recent fuel price hike. Even an ordinary reader like me, was aware that prices would go up, in spite of the petroleum minister’s assurance to the contrary a few weeks ago. I knew the international oil cartel, Opec, is increasing international prices of crude. This cartel is not subject to any competition discipline, but that is another story. However, I am quite puzzled on two counts:

If we have moved away from the administered price mechanism, why is the government making noises. It doesn’t do so for cement and many other commodities. Furthermore, there is a choice of petrol pumps belonging to different companies in my city or any other for that matter, but they all charge the same price. What the government needs to do is to, first, reduce the fiscal overburden, and second to ensure that petrol pumps sell at competitive prices.

For that we will need a better competition law than the current MRTP Act. We have one, the Competition Act, 2002, but that is languishing in the Supreme Court because of the issue of who should head it, rather than what should be the head’s qualities.

Talking about cartelisation, the entry of private airlines into the Indian market comes to mind. Indian Airlines colluded with them to charge identical fares.

With private airlines acquiring bigger fleets, the scene has changed drastically. Now, even the national carrier is coming up with innovative ways to beat competition. The story in the telecom sector is quite similar.

Compared with approaches of other reforming economies, we have decided to stick to a mixed-economy approach, i.e., to buttress our public sector units, and bring in competition through private players. That’s good, but will it guarantee fair play.

For instance, it was reported in August 2004, that the public sector Hindustan Latex Ltd (HLL) had colluded with five other private firms to put in a common price bid to the ministry of health for Copper-T, the female contraceptive device.

The price hike itself from the last year’s HLL’s offer price of Rs 13 per piece, to the current offer at Rs 25 a piece, nearly a 100% jump, was plainly confounding. In fact, the contract was won by a private player at the rate of only Rs 8 a piece last year!

Cartelisation occurs in our country in every possible sector, especially when there are a large number of players. The list is endless: cement, tyres and a slew of intermediate goods and services. Wherever there is competition and an oversupply, businesses collude to protect their profits, and end up indulging in profiteering.

Bid rigging in construction contracts is another pandemic in the country. For instance, at the Jaipur meet, one consumer activist shared that in Chennai, the bids for a package of overhead bridges was awarded to one party. In return, the party shared the lucrative over-priced contracts with the other bidders working as their sub-contractors.

All this costs a huge amount to the economy, and affects the competitiveness of our firms adversely. It is also a dampener for foreign investment flows.

Competition, regulation in TV channels distribution

Published: Business Line, 6 November, 2004
By Pradeep S. Mehta and Manish Agarwal

Transmission of TV signals has come a long way with the advancement in information and communication technology.

CABLE television was developed in the late 1940s in the US for communities unable to receive TV signals because of terrain or distance from TV stations. Cable TV operators located antennas in areas with good reception, picked up broadcast station signals and then distributed them by coaxial cable to subscribers.

Since then, transmission of TV signals has come a long way with the advancement in information and communication technology (ICT). Now several alternative delivery platforms for transmitting TV signals have emerged such as Direct-to-Home Services (DTH) and Internet protocol-based TV (IPTV). These distribution technologies are competing with cable TV operators to provide audio-visual services. In several countries the penetration rate of DTH is much higher than cable services and consumers have a fair choice between competing technologies.

Carriage of popular channels by competing distribution networks is essential for competing in the market. As such, the success of competition in the distribution chain largely depends on the non-discriminatory treatment of carriage of TV channels. Broadcasters may also face similar problems when distribution network operators refuse to carry their TV channels/programmes to subscribers' premises.

Sometimes broadcasters and distribution network operators vertically integrate to discriminate against competitors in the carriage or provision of signals. Vertical integration may improve efficiency as it reduces the transaction between upstream and downstream operations. But, at the same time, in certain circumstances it may be used to limit competition, which could take any of following forms:

Vertical price squeeze, which happens when a vertically integrated broadcaster increases the price of a TV channel for competing operators but maintains the same price for operator affiliates;

Exclusivity of content, whereby popular TV channels are denied to a competitor so as to promote broadcaster's own distribution network; and

Denial of carriage by a vertically integrated cable system of TV channel of the rival company.
To what extent can regulation help ensure fair competition and to what extent can the market be expected to ensure that competition is not thwarted?

The concern is that broadcasters may not provide content to rival platforms and this could affect competition in terms of price and quality of service.

Moreover, the issue has to be seen primarily from a consumer's perspective. If all channels are not available on one platform then a consumer may have to acquire more than one platform to view his/her favourite channels. If content, especially popular content, is exclusively available on one platform then there may not be effective competition.

In the US there is a 40 per cent limit on the number of channels that can be occupied by video programmers affiliated with a particular cable system. Moreover, vertically integrated cable companies are prohibited from discriminating against competitors in the distribution of satellite delivered programming. In Canada, a 2001 ruling by the Canadian Radio-Television and Telecommunications Commission (CRTC) reversed a long-standing policy that prevented cable companies from owning pay and specialty TV channels. At the same time, the CRTC laid down certain principles for the cable TV industry, such as:

All specialty and pay services should be supplied and distributed on fair and equitable terms.

Unaffiliated companies should get terms and conditions that are no less favourable than those with affiliates.
In India, the Telecom Regulatory Authority of India (TRAI) recently submitted its recommendations to the Government of India on broadcasting and distribution of TV channels. TRAI has recommended that every broadcaster shall provide signals of its TV channels on a non-discriminatory basis to all distributors of TV channels and no exclusivity would be permitted between broadcasters and distributors of TV channels.

Generally, TV channels are provided to all carriers and platforms to increase viewership for the purpose of earning maximum subscription fee as well as advertisement revenue. However, according to some, if all platforms carry the same content it will reduce competition and there will be no incentive to improve the content. The experience in the US suggests that regulation relating to non-discriminatory access can provide an effective stimulus to competition and improve the content. The FCC, after reviewing the impact of its programme access rules over 10 years, found that exclusivity prohibition has not reduced the incentives to create new or diverse programming. In view of all these, it is necessary that there are regulations in place to check if content is denied in a manner that stifles competition among competing distribution networks.

It is important that all distribution platforms are promoted so that they provide consumers with choice.

Press Note 18: A way out of imbroglio

Published: Business Line, 15 October, 2004,
By Pradeep S. Mehta

The Government is keen to scrap Press Note 18 as it believes that it is restricting fresh FDI flows. Indeed, there is merit in this, and one needs to take a dispassionate view. Tragically, no one is saying anything about the small investor, who could lose out in such a situation. This can be remedied. The government can ask the foreign investor to offer a market price, or shares, at the same value in the new venture to protect the small shareholder.

THE government issues press releases in thousands for disseminating information, but Press Note 18 is perhaps the only one that masquerades as a policy directive. The controversy surrounding Press Note 18 is both puzzling and amusing.

The Government has, through this note, banned foreign investors from setting up new ventures without getting a no-objection from the Indian partner. Even if there is some merit in the arguments of business entities for such rules, they only raise entry barriers, stifling investment, growth and competition.

In the bad old days of shortages, quotas and black-marketing, Bajaj Auto manufactured Vespa scooters in the country, facing little competition from Lambretta scooters. In the early 1980s, when the government liberalised the scooter manufacturing sector, Vespa offered two licences: One to Lohia Machines Ltd (later renamed LML) and the other to the state-owned AP Scooters Ltd, albeit for two different models.

Bajaj did not protest. It had no grounds to do so as its agreement with Vespa had ended and its scooters were being sold under the Bajaj brand name. Granted, Vespa did not have any financial stake in the two ventures, except to collect royalties on sale of scooters. The public sector AP Scooters shut down due to its own problems, while LML continued steadily, building up its market.

Over the next few years, several new two-wheelers came into the market. Consequently, the black-market collapsed and consumers could now walk into a dealer's shop and ride out on a new vehicle.

"Our most important consideration is the customer. An increase in collaborations automatically leads to more units, which means increased production. This suits the customer," said the then 43-year-old Rahul Bajaj in a magazine interview in December 1983.

If one looks at this statement of the phenomenally successful `Hamara Bajaj', no prizes for guessing why he runs such a successful business today, riding on the success of his two-wheeler range.

The Vespa story may not be typical of a foreign company starting a new venture while already having one with an Indian partner. But the lessons from the Vespa saga are fairly analogous. In spite of there being no valid agreement with Bajaj, it could have raised objections to the two new ventures. Or LML could have cornered the licence for itself rather than sharing it with AP Scooters. The other lesson that comes out is that India is a huge market and thus two (or more) licencees can co-exist peacefully.

The current debate does not address the issue of competition and the fact that the policy creates entry barriers, thus stifling investment flows and competition. Second, the debate also does not consider that if the foreign investor is happy with its existing partner, it would hardly need to float another venture with another partner. That is, unless the existing arrangement is unsuitable for several reasons, such as economies of scale, or that the partner is no longer capable.

Let us take another example. British American Tobacco Co owns about 31 per cent equity in ITC. BAT has been trying hard for many years to increase its shareholding but the move has been resisted by ITC'sother shareholders. Does this mean that BAT wishes to start another venture in India? On the contrary, BAT has further licensed more cigarette brands to ITC, thus cementing its relationship.

What is the merit in the arguments of the business world? Dr Amit Mitra, Secretary-General, FICCI, argues, in a signed article in a financial daily, that the "philosophy behind PN18 is to safeguard the interests of shareholders, small and large, and the investments of financial institutions and promoters against predatory investments in India by the parent MNC in the same line of business." It is difficult to see how PN18 will serve the interests of shareholders if the firm is not doing well due to an unrelated set of problems. That could, perhaps, be one of the reasons why a foreign investor may want to set up another venture without the existing partner, though in some cases, the investor may have questionable motives.

Dr Mitra goes on to say, and rightly, that: "Some of the totally one-sided terms that MNCs have imposed on their Indian JVs include restrictions on sourcing, pricing of components and exports; denial of separate brand identity; denial of copyrights and patents, etc."

Unfortunately, such terms are not `imposed' but `negotiated' between the foreign and the Indian partners. And what guarantee is there that similar conditions will not be imposed on the new partner? There is a level playing field, even for unfair terms!

This may not be the case if the foreign investor comes in with 100 per cent equity in a new venture, but tariff- and incentive-shopping can always spin off other variables on strategic grounds.

For regulating such unfair conditions, one needs a better policy response and application of the Competition Act, 2002.

The Government is keen to scrap PN18 as it believes that it is restricting fresh FDI flows. According to the Finance Minister, Mr P. Chidambaram, PN18 has outlived its relevance and there is a strong case for its review.

The Commerce Minister, Mr Kamal Nath, too feels that the government has to be less restrictive while seeking a level playing field for investors. The Planning Commission Deputy Chairman, Dr Montek Singh Ahluwalia, has suggested a sectoral approach for carve-outs, such as food processing, automobiles and pharma.

Indeed there is merit in these arguments, and thus one needs to take a dispassionate view. Tragically, no one is saying anything about the small investor, who could lose out in such a situation. This can be remedied in two ways: The government can ask the foreign investor to offer a market price, or shares, at the same value in the new venture to protect the small shareholder.

Second, Dr Mitra's suggestion can be accepted. Guidelines can be drafted highlighting the flexibilities in the PN18 policy. Accordingly, the government can take a liberal view of such situations through a case-by-case approach. But this can only be successful if there is some form of an independent review, and not a system where discretionary powers may be misused.

Engaging states in trade aspirations
Unless this happens, we’ll not be able to create a national movement

Published: Financial Express, 14 October, 2004,
By Pradeep S. Mehta

This year’s trade policy appears to be most ambitious amongst all previous policies as it aims to double India’s share in world trade to 1.5% by 2009. And accelerate development through an export-led strategy. However, this can succeed only when all stakeholders are involved in it. It is a pity that state governments have not been involved in the formulation of the new trade policy, without which we will not be able create a national movement which is so essential.

This becomes more crucial as nearly every state is also formulating its own industrial and trade policy. Rajasthan adopted a trade policy a few years ago, which set a target of 18% growth rate in exports. The new government will soon be formulating a new trade policy. Various other states too have been adopting trade and industrial policies to boost exports. In the 2003 Industrial Policy Statement of Gujarat, the government introduced special initiatives for 12 agricultural products, in consultation with APEDA.

However, some incentives have been provided in the new trade policy towards increasing state involvement through the Assist-ance to States for Infrastructure Development of Exports (ASIDE) programme. The promotional measures listed in the ASIDE programme include a suitable provision in the department of commerce’s annual budget for fund allocation to the states on the twin criteria of gross exports and the rate of growth of exports.

This amount will be available for a raft of activities: developing roads connecting production centres with ports; setting up of inland container depots and container freight stations; creation of new state-level export promotion industrial parks; equity participation in infrastructure projects; development of minor ports; setting up common effluent treatment facilities; stabilising power supply and so on.

This does reflect the realisation that there is a growing need for incentivising states’ export thrust. However, permeation of all this to the ground is yet to be seen. A substantial part of infrastructure-related policies fall within the jurisprudence of the Union List such as seaports and airports. Further, custom duties, tariffs and other revenue generation mechanisms in trade fall under the exclusive domain of the Centre.

The assessment of states’ comparative advantages has received a thrust in this new trade policy by special initiatives to promote towns of export excellence. However, there is little state-Centre formal cooperation in this domain. States also need to understand the contours of the international trading system operating under the WTO. A very small number of them have forayed in promoting WTO capacity building. For example, one of the objectives of the Industrial Policy Statement 2003 of Gujarat is “To equip the industries ... to meet with the challenges of WTO regime as also exploit the opportunities to their advantages”. Similarly, Karnataka and Rajasthan have stepped beyond rhetoric to set up institutions to work on capacity building on WTO issues.

• There is a growing need to incentivise the states’ export thrust
• Promoting the states as stakeholders calls for out-of-the-box thinking

There have been times when state governments have been wrathful of the WTO, often reflecting the views of their constituencies. In Andhra Pradesh, the WTO has been blamed for the low prices of cotton, the subsequent impoverishment and resultant farmer suicides. In this milieu, confused stakeholders fall prey to misconceptions. The role of state governments in India’s international trade policy thus needs to be rejuvenated. There is clear need for both WTO-related capacity building as well as capacity building for export promotion.

“How do you promote states to be active stakeholders in promoting international trade”, is a question that requires out-of-box thinking on the part of the department of commerce such as establishing a national trade policy council. This body will have representation from the states, various central ministries dealing with WTO issues, research institutions, business chambers, trade unions, parliamentarians, media and NGOs. Such a council will have two broad tracks of work programme: firstly the foreign trade policy and secondly, trade agreements at the multilateral, regional and bilateral levels. If nothing else, the council will be a good forum to allow people to let off their steam and thus aid the process of better understanding. This will not only make the life of the commerce ministry honchos easy, but promote a national movement to enhance our international trade.

How to lift income by 8.9%

Published: The Economic Times, New Delhi, 08 October, 2004
By Pradeep S. Mehta

The government headed by Dr Manmohan Singh speaks about 8% growth as something to aim for and achieve over the next few years, and reforming with Mungeri Lal’s face in mind.

The earlier government was aiming for a double digit growth, though they too swore by Mungeri Lal. However, the rate forecast by rating agencies like Moody’s is not too far from the more sceptical estimates of about 6.5%.

In the context of the mid-term review of the Tenth Plan, deputy chairman Montek Singh Ahluwalia too has been drawn into the debate, sounding the refrain that it will not be possible to achieve 8% growth in the balance period of the Tenth Plan.

Number-crunching will continue to dog the debate. There are various ways to skin a cat. Tragically very little attention is paid to measures which can expand the national income, such as by efficiency, conservation and savings.

On the basis of the estimated 10.4% rate in the third quarter of 2003-04, a jubilant former finance minister Jaswant Singh stated that 10% growth is sustainable; thus India was shining!

But the million dollar question which needs to be addressed is: has the economy done really well when actual figures are considered?

More importantly, could this rate of growth be sustained? The new government has taken a more sanguine approach to throwing about numbers, but it has to face the challenge of growth with equity.

It is a fact that our economy is still stuck at the 6-7% bar, and it is premature to claim that it has broken through this barrier.

Looking at the erratic behaviour of this year’s monsoon, can we expect to achieve a reasonable growth rate? Going by the experience of past years, the answer is a resounding No. This in itself makes an 8% growth rate difficult to achieve. To sustain it is all the more difficult a proposition.

According to more sanguine estimates, the Indian economy is expected to grow at an average rate of 6.5% in the coming years. Moody’s estimate is not far from the truth. But this too depends on how Dr Manmohan Singh manages the left parties.

Experts prescribe fiscal reforms, financial sector reforms, agricultural reforms, labour market reforms, foreign direct investment, investment in human and physical infrastructure, and reforms at the level of state governments to sustain high growth.

However, while productivity-enhancing measures are suggested to achieve a high growth rate, hardly any one talks about taking measures to curb wastages in the economy, which would contribute significantly to GDP.

If the government makes an effort to reduce wastage and usher in an era of good governance, a significant amount of GDP can be saved. A few issues:

Effective competition law: If the new competition law is effectively implemented, it could by itself contribute substantially to growth. A study in Australia has shown a gain of 5.5% of the GDP by effective implementation of competition measures, which included strengthening of the competition rules.

Non-merit subsidies: The subsidies on non-merit goods and services (such as in agriculture, irrigation, power, industries and transport) amounted to 10.7% of GDP (2001-02) or Rs 20,600 crore.

Poor delivery, with the undeserving getting a share, are some of the issues which need to be tackled urgently. Consequent savings are expected to be quite significant.

A system based on performance: Given the job security provided to government servants through Article 311, productivity level in government departments is quite low.

On the other hand the Fifth Pay Commission has raised the expenditure hugely without the concomitant pruning. It is imperative to set productivity norms and a performance-based management system, that rewards the good and punishes the bad.

Accountability: It is estimated that the government loses at least Rs 41,000 crore due to delays in more than 300 projects, which are all above Rs 20 crore.

Imagine the total cost of delays if all the central and state government projects are examined. Ensuring transparency and proper project management will help improve accountability and ensure timely implementation of works and will have a crucial multiplier effect on the whole economy.

Corruption: As per earlier estimates of Transparency International (India), Rs 26,728 crore is wasted every year due to corruption, and it is the poor who suffer the most.

It is argued that growth can be raised if institutions are made strong and decision-making is least arbitrary. It is imperative that systems are created to eliminate any discretionary power by outsourcing several government functions, and providing incentives to the anti-corruption squad, and so on.

Adulteration and counterfeiting: Action on adulteration and counterfeiting is ineffective. One estimate suggests that while the industry loses Rs 4,000 crore annually, the exchequer loses over Rs 2,000 crore. The loss to consumer will far exceed the sum total. The problem is widespread and prevalent in almost every industry.

Road safety: Economic cost to developing countries from road traffic mishaps has been estimated at 2-3% of GDP, and the effect in India will not be far from this mark. And there is no serious effort to reduce the same. Attention needs to be paid to improving road design and visibility of road signs, strictly enforcing laws on drunken driving, etc.

In conclusion, if these and other measures are implemented, the amount saved by the economy would be roughly around Rs 2,00,000 crore and lift the national income by 8.9% in one shot.

Even if the economy continues to grow at an average of 6-7%, one can imagine the additional income that would be generated because of a wider base as well as increase in efficiency that would follow from the above measures. And this will lead to a higher and sustainable growth rate.

True, this estimate is back-of-the-envelope, but it should not be way off the mark. Is anyone listening?

Threat to ozone layer needs serious attention

Published: HT Jaipur Live, 16 September, 2004,
By George Cheriyan

SEPTEMBER 16 is observed as the International Day for the preservation of the Ozone layer. Beginning in 1995, this day is observed, commemorating the date in 1987, on which the Montreal Protocol on 'Substance the deplete the Ozone layer' was signed. The ozone layer absorbs most of the harmful ultra-violet-B radiation from the sun. It also completely screens out lethal UV-C radiation. The ozone shield is essential. Depleting the ozone layer allows more UV-B to reach the earth.

CAUSING DEPLETION

The ozone layer over the Antarctic has steadily weakened since measurements started in the early 1980s. The problem is worst over this part due to the extremely cold atmosphere and the presence of polar stratosphere clouds. In September 2000, the area of the ozone hole reached a record 29 million sq. kilometers. This year, the area of the ozone hole has been about 25 million sq. km. While no hole has appeared elsewhere, the Arctic, spring has seen the ozone layer over the North Pole thin up by to 30%, while the depletion over Europe and other high latitudes varies between 5% and 30%.

GAINING ATTENTION

A meeting of experts on the ozone layer was convened in 1977, after which UNEP and the World Meteorogical Organization (WMO) set up the Coordinating Committee of the Ozone Layer (CCOL) to periodically assess ozone depletion. Inter-governmental negotiations for an international agreement to phase out ozone depleting substances started in 1981 and concluded with the adoption of the Vienna Convention for the Protection of the Ozone Layer in March 1985. The Montreal Protocol on 'Substances that Deplete the Ozone Layer' was adopted in September 1987. Following the discovery of the Antarctic ozone hole in late 1985, governments recognised the need for stronger measures to reduce the production and consumption of a number of CFCs and several Halons. The Montreal Amendment of 1997 finalized the schedules for phasing out methyl bromide. The Beijing Amendment of 1999 included Bromo-chloro methane. It also introduced production controls on HCFCs (Hydro-chloro-flouro-carbons) as well as controls on trade with non-Parties.

INHERENT RISKS

Without the Protocol, by the year 2050 ozone depletion would rise to at least 50% in the northern hemisphere's mid latitudes and 70% in the southern mid latitudes, about 10 times worse than current levels. The implications of this would have been horrendous: 19 million more cases of non-melanoma cancer, 1.5 million cases of melanoma cancer, and 130 million more cases of eye cataracts. Ozone protection has been possible because science and industry have been able to develop alternatives to ozone depleting chemicals. Developed countries have ended the use of CFCs faster as anticipated. Substitutes have proved important in electronics.

ENVIRONMENTAL EFFECTS

Studies continue to confirm the adverse effects of UV-B radiation on the eyes, skin and immune system, including cortical cataract and skin cancer. Recent results continue to confirm the general consensus that solar UV negatively affects aquatic organisms. Global warming and enhanced UV-B radiation interact to affect a range of biogeochemical process including microbial activity, nutrient cycling and greenhouse gas emissions from soils.

REMAINING CHALLENGES

Unfortunately, while most governments have ratified the Protocol, ratification of the amendments and their stronger control measures lag behind. Eleven countries have yet not ratified the ozone treaties, and many more have yet not ratified the London, Copenhagen, Montreal and Beijing Amendments. Some countries with economies in transition are having difficulty in complying with the Montreal Protocol.

In the US, CFCs are heavily taxed and the market price is high. As a result, some traders illegally sell new CFCs in the industrial countries every year in the guise of recycled substances or as exports to developing countries. In some countries CFCs are being replaced by HFCs, which have a large global warming potential.

Securing Gender Justice

Published: www.OneWorld.net, 11 October 2004,
By Deboshri Chatterjee

The MDG on gender equality can be achieved by mainstreaming a gender perspective and promoting women's empowerment.

Deboshri Chatterjee from CUTS Centre for Consumer Action, Research & Training tells us more about how her organisation is doing it in Rajasthan, India….

Rajasthan has almost become synonymous with the low status of women, patriarchal society, feudal customs and values, social polarisation along caste lines, high illiteracy and extreme poverty.

The secondary status of women in Rajasthan coupled with an oppressive caste system and grinding poverty has robbed the women of their rights and a life of dignity, which were envisaged by the framers of the Constitution.

The issue of gender equality has acquired a global character and therefore, there is a need for the Civil Society to actively participate and enable the women to fight for their rights.

The United Nations has included the issue of gender mainstreaming in the Millennium Declaration and 'promoting gender equality and empowerment of women' is one of the Millennium Development Goals (MDGs).

As per the Declaration, progress will be monitored through promotion of gender equality and empowerment of women, reduction of child mortality and improvement of maternal mortality.

Improved gender sensitivity could be achieved by adopting a proactive approach towards achieving gender justice. Therefore achieving gender equality requires two complementary approaches--mainstreaming a gender perspective and promoting women's empowerment.

In addition the MDGs aim to eliminate the gender discrepancy in primary and secondary education by increasing opportunities for girls to attend school preferably by 2005, and at all levels by 2015.

The notion of gender perspective as developed by CUTS
Ever since its inception, Consumer Unity & Trust Society (CUTS) is pursuing people's sovereignty through community based action programmes at the grassroots level.

CUTS has picked up the issue of gender equality as one of the major concern. The development approaches initiated by CUTS seek to empower the weaker sections. The extracts of the success stories from the field is the best critique of the work done by this organisation.

The story of an illiterate, rural and backward caste woman, Ratni Bai, a living legend, who received the prize for women's creativity in rural life by the Women's World Summit Foundation based in Switzerland, explains it all.

Ratni Bai began her journey when she attended a chaupal baithak (meeting at the central place of a village) organised by CUTS. It was here, where she expressed her desire to be associated in the Rural Women's Empowerment Project (RWEP).

Her advocacy efforts with government agencies and Panchayati Raj Institutions(PRI) have resulted in the "construction of a school in her locality, frequent visits by health personnel and regular as well as proper distribution of essential items in fair price shops (under public distribution)."

The organisation over the years has conducted training for the grassroots workers on the issues of gender equity, legal rights, reproductive health, generic community problems, and the process of sustainable development.

Apart from the above, training programmes were also conducted for educating the women about the PRIs, encouragement of girl child education and medical health care system.

Efforts have been made for sensitising the larger community about the prevalence of violence against women and girl child. The organisation has established good network links through Self Help Groups (SHGs) and Community Based Organisations (CBOs) that work directly at the grassroots level.

CUTS has endeavored to create new spaces and support systems to sustain the process of empowerment and transformation of the society as a whole.

Gender perspective must cut across all the operational activities and be integrated into strategies. CUTS presents a good example in strengthening women's voice by approaching all the projects in relation to empowerment with a realistic expectation. Therefore it has been able to create a women's space within the community.

On the basis of past experience on the issue, CUTS aspires to set a powerful agenda of bringing discrimination against women to an end, for global partnership to fight poverty, offering a shared vision of a better world by 2015.

Every community has its own traditions and culture, and maintaining their form and attaining gender equality is a difficult task. Therefore the organisation intends to adopt a proactive approach to reach the millennium development goals and focus its efforts on creating a better society.

Economic empowerment
Women of Rajasthan are viewed as an economic liability in natal home and a burden in the marital home. Invisibility of women's work and lack of negotiating power has contributed to the perpetuation of negative image in the family, society and in politics.

Women will continue to experience the same kind of subjugation and injustice if they are not empowered to fight for their own rights.

CUTS has been working with women SHGs on micro credit for more than 12 years. In the year of 2004, CUTS initiated a project in partnership with NABARD on micro-credit through SHGs. This helped the women to improve their economic status and join the mainstream economic activities.

CUTS intends to incorporate a strategy, which will create employment opportunities, generate financial assistance schemes for encouraging small scale industries, sensitising women to fight for their rights through SHG's activities at times with or without the support of state government machinery.

Political participation
The real position of women in the society is reflected by their low participation rate in the legislative assembly of the state and Panchayat. Women can play a very important role with provision of 33 per cent reservation for them in Panchayati Raj and urban bodies.

But even when the women representatives are selected, by and large it's the men who dominate the proceedings.

CUTS intends to play an effective role by organising training workshops, exposure visits/study tours and mutual learning networks to educate women about their role in understanding their rights.

At the same time, the personal experience of women who have made difference in elected bodies and in public institutions may also be highlighted. Such information could be publicised and success stories of poor women, who have created role models for others, should be brought to the notice of common mass.

Media
Media can play a key role in fostering ideologies that support the vision of attaining gender equality as an essential goal of development. Hence CUTS intends to adopt a proactive stand to establish a balanced approach that acquires a mid way between ideologies of feminism and patriarchy. Therefore the organisation would help stem the tide against the prevalent society and hence equip women themselves to fight for their rights.

Conclusion
Social change is always difficult, particularly when the basic relations between men and women in families and societies are involved. The past several decades have seen greater attention and some progress towards the women empowerment.

There has been a growing recognition of how the rules governing men and women's opportunities, social endowments and behaviour affect the prospects for accelerated development and justice. The government acknowledges that though there are good laws, but their implementation is the biggest problem.

There is also a need for gender specific resources and capacity-building efforts. Improved gender sensitivity could be achieved by adopting a proactive approach towards achieving gender balance within the social system. Societies need their own solutions, grounded in a vision of justice and gender equality and consistent with their cultures and conditions, to provide a better life for both women and men.

Deboshri Chatterjee works with CUTS Centre for Consumer Action, Research & Training (CART) based in Jaipur, India as a Young Professional under the YP scheme of CAPART (Council for Advancement of People's Action and Rural Technology, under the aegis of Ministry of Rural Development, Govt. of India).

This article can also be read at http://southasia.oneworld.net/article/view/94760/1/6726

Pharma prices: Deregulate in tapered doses

Published: The Hindu Business Line, September 28, 2004
By Pradeep S Mehta

WHETHER regulating pharma prices in a market-driven economy is correct or not continues to be a matter of debate around the world, including India. This is, of course, not unique to pharmaceuticals but cuts across various sectors, a process generated by the neo-liberal thought. The root of such thinking lies in the Washington Consensus which, on the other hand, has been diminishing. People around the world have now realised that everything cannot be left to the market.

Even in the US, where the Washington Consensus was conceived and promoted vigorously, the debate is moving towards regulating pharma prices. Ernst and Young, in a report released in July, suggested that drug giants take steps to moderate prices, as otherwise, federal controls could be imposed on the prices of prescription drugs in few years time.

On the contrary, in India, the National Pharmaceutical Pricing Authority has spoken of slowly eliminating controls on prices of medicines. However, the scene has changed with the new Fertiliser and Chemicals Minister, Ram Vilas Paswan, cracking the whip on the pharma trade for profiteering and changing the thinking of the pharma price regulator.

The US is the only developed country without any price regulation in the pharma sector. As a result, the average medicine prices cost about 77 per cent more compared to Canada, the UK, Germany, France, Italy, Sweden, Switzerland, and so on, says the E&Y report.

Pharma companies defend their price `gouging' policy on the ground that regulation of price of drugs would mean end of innovation. However, various studies have found that the proportion of drugs that come from public universities in the US is 40 per cent (AAU, 2002). US pharmaceutical companies receive a 50 per cent tax write-off for their R&D expenses, and they only spend about 6 per cent of annual revenues on R&D.

One alternative is to have a social healthcare system where the government pays for majority of the prescription drugs. However, this may increase the budget deficit. Hence, the alternative is price regulation, which can be done in various ways.

In the UK, drug companies determine their own prices for individual drugs. But the pharmaceutical laws limit the maximum profit that manufacturers can earn in sales. Companies that set prices so high that they exceed maximum allowable profit rates must reimburse the government.

Allowable profits are based on several factors, including the company's investment in the UK and the level of long-term risk. Generally, companies are allowed to earn returns of 17-21 per cent on capital. The pricing system in the UK results in brand name drug prices that are on average 31 per cent lower than prices in the US.

France allows pharma companies to sell their products at any price. However, if these firms want the national healthcare system to reimburse patients for the cost of the drug, they must agree to a lower negotiated price. These prices are reimbursement rates paid by the healthcare system, and are based on the therapeutic value of the drug and the price of the drug in other countries. The French pricing system results in the brand name drugs prices that are on average 45 per cent lower than prices in the US.

Germany has a decentralised national healthcare system. With the exception of innovative drugs that have been patented since 1996, pricing is determined by a reference system, with prices for new drugs based on that of existing ones that provide the same therapeutic benefit.

Prices for innovative drugs that were patented after 1995 are not regulated by the government. However, individual insurance companies can negotiate with pharmaceutical manufacturers on behalf of their covered patients. The German pricing system results in brand name drug prices that are on average 35 per cent lower than prices in the US.

Even Asian and developing countries are adopting price regulation methods in pharmaceutical drugs. Japan has a national healthcare system, and drug prices are generally determined by a reference system. Prices for new drugs are determined comparing them with similar ones already in the market. Prices are based on the safety and effectiveness of the drug. Medicines that are more effective or innovative than existing drugs are priced higher. If there is no comparable drug on the market, the price of the drug is determined by factors such as manufacturing cost and its prices in other countries.

China recently decided to slash the retail prices of more than 400 medicines by an average of 30 per cent after longstanding complaints of overcharging. South Africa too has woken up to the situation and has launched action on the wholesale trade which had been charging an extra over and above the margins provided by the pharma companies.

The above illustrations should be kept in mind by the policy-makers before succumbing to the pressure of removing price regulation. In India, drug prices are under the Drug Price Control Order, an order issued by the government under the Essential Commodities Act, 1955. The DPCO empowers the government to fix and regulate the prices of essential bulk drugs and their formulations. First adopted in 1970, it was revised in 1979, 1987 and 1995, progressively reducing the number of drugs under the order. At present, only 76 drugs are subject to price regulation.

It has been argued that the Indian pharmaceutical industry has benefited heavily from deregulation. It is spending more on R&D, and investments and production in the sector has increased as well.

Now there is talk of eliminating price controls. The argument is that it has resulted in companies opting out of production and sale of controlled drugs, creating the problem of availability of important, and at times, irreplaceable drugs. Representatives of the pharma industry have pointed out that price decline among products that are not under price control is around 0.5 per cent compared to a price hike of 2.1 per cent in the controlled basket. Besides, in the top 300 brands that are not under price control, the price decline is 3.5 per cent compared to 1.5 per cent in drugs under price control.

However, there is another view that medicines are essential commodities which cannot be compared to any other consumer product. Their sale is decided by physicians and retailers and not the consumer. Therefore, the government has to be realistic and extremely careful before finalising any major relaxation in the price control regime.

To tackle the problem of the high price of pharma drugs in the Indian market, especially at the retail level, the government has decided that medicines would be sold at a maximum retail price (MRP), which also includes local levies such as sales tax and octroi.

The regulation comes in response to a phenomenal price escalation in decontrolled drugs at the retail level. The Common Minimum Programme of the UPA Government also mentions the possibility of reviewing the revival of public sector units for the manufacture of critical bulk drugs to bring down and keep a check on prices.

Many suggest that free cross-border trade in pharmaceutical drugs could be one way of curbing excess pricing. However, this may not yield the desired results. A look at the infamous case of a cartel by major manufacturers of bulk vitamins in the world in the 1990s. This cartel raised the price of bulk vitamins considerably around the world.

Even after the cartel was busted in the end of the 1990s, the prices did not come down to the level they should have. India was also affected by this cartel. Even now, the import prices of bulk vitamins in India is quite high.

Therefore, the market alone cannot be trusted to protect consumers from greedy pharmaceutical companies. Government intervention is imperative. One must, however, admit that some studies have shown that in case of generic drugs, regulation is not advisable as it removes the incentive to price the drugs at less than the maximum price prescribed.

Therefore, before succumbing to the pressure of completely deregulating the Indian pharma drug market, the government should carefully study the system in other countries and requirements of the Indian people. The US is more or less an exception having no regulation on the price of pharmaceutical drugs. But the day is not far off, when even the US joins the bandwagon of regulating drug prices.

Time to get our Act together

Published: The Economic Times, August 23, 2004
By Pradeep S Mehta

The government should make use of the opportunity the Supreme Court verdict has provided to address the systemic problems bedevilling the Competition Act.

The newly adopted Competition Act 2002, is facing a serious challenge even before it has come into operation. The Supreme Court has raised objections to some of the provisions of the Act, going to the extent of calling it a “suspect legislation”. This was observed by the apex court during a hearing on a public interest litigation challenging the constitutional validity of the Act. The court had taken strong exception the "the manner in which the government proposed to appoint a bureaucrat to head -the Competition Commission" whose orders would-be implemented by a high court. By saying this, the Supreme Court has indicated that there would be no problem of constitutional validity if the Competition Commission is headed by a sitting or a retired judge of a high court or the Supreme Court.

The question, however, remains: if the arrangement of a high court implementing an order of the competition commission amounts to the subversion of judicial authority, how tan that be taken care of by having a retired or a sitting judge in place of the bureaucrat? If an Institutional arrangement is constitutionally invalid then that will remain so no matter who heads it. Moreover, if putting a retired or sitting judge makes it equivalent to a high court then how would one accept the fact that the competition commission can receive policy guidelines from the central government? The Supreme Court apparently has no problem with this even as the central government would have the authority to decide what constitutes matters of policy!

Many have viewed it to be a turf battle, between the judiciary and the executive, and the debate so far has missed the crucial point as to what qualifications the head of the competition commission should have. Many have argued that administering competition policy issues is a regulatory function rather than a judicial one. It is expected that a modem competition regime would typically devote more resources and attention to Investigation, advocacy and market monitoring rather than adjudication. It has also been cited that several competition regimes around the world, such as in EU, France, Ireland, Denmark, South Africa, Brazil, UK and US are headed by an economist. Not only that, in many competition authorities now. there are more economists than lawyers among their professional staff. In' the US'; of course, the competition authorities need to go to courts for adjudication.

The Supreme Court has, however, cautioned that we do not need to look at the experiences of other countries In deciding what is constitutional and what is not. The government of India also seems to be trying to get out of this controversy by just amending the provision which obliges the high courts to implement the orders of the competition commission. It is quite unfortunate that some systemic problems, which have been highlighted in the debate, are being ignored.

The major problem with the Act is that it has mixed up investigative and adjudicative functions, adopting the MRTP Act approach. Incidentally, this has been a worldwide concern as it is widely believed that combining the functions enables a competition authority to act as judge, jury and executioner. This would give it absolute power, while stripping the system of internal checks and balances, thus leaving enough scope for its misuse. Even the MRTP Act had a better arrangement in this regard. It is surprising that the drafters of the Act ignored this aspect, which may jeopardise the basic principles of justice: equity, fairness, consistency, objectivity and certainty.

TO AVOID such problems, in many jurisdictions including the US, the adjudicative powers are vested with the judiciary. However, considering that the Indian judicial system is overloaded and inefficient, such an arrangement will weaken the law. Delays in settling cases as can be seen In Indian courts will, have serious consequences for the Industry.

Thus, for India, it would be best to look at the South African model where the competition commission performs investigative, advocacy and market monitoring functions while the adjudicative functions are vested with the competition tribunal. Despite having only adjudicatory functions, the position of South African competition tribunal chief is not reserved for a judge and, at present, it is headed by an economist, who is now in his second five year term. In India, however, keeping in view the Supreme Court's observations, the competition tribunal could be headed by a sitting or a retired judge. Such an approach is, of .course, not new to India as can be found in telecom and capital market regulation, for Instance.

Another Interesting aspect of-the South African competition regime is the provision of having part-time members in the tribunal to bring in additional and diverse expertise. We could have both full-time as well as part-time members in the tribunal or even the commission.

On to selection/appointment. Incidentally, in the original Competition Bill it was suggested that a collegium headed by the Chief Justice of India would select the chairman and members of the competition commission. However, the final Act vests all the power in the central government without specifying any procedure. This obviously does not guarantee transparency and fairness in the appointment procedure, which is so important to promote an image of transparency and fairness of the competition authority itself. Thus, it is imperative to have a set procedure for appointments. It can be done by a collegium as was suggested in the original Bill or even by the Union Public Service Commission.

The Supreme Court case has caused delays in implementing the Competition Act, which has been long overdue. Nevertheless, this should be considered as an opportunity to address the systemic problems rather than rushing through with stopgap arrangements. This would help avoid future controversies and problems as well as serious inconvenience and harm to consumers, business and the economy as a whole.

As usual, let's keep talking

Published: The Pioneer, August 21, 2004,
By Bipul Chatterjee

WTO's July Package glosses over many of the vexed issues of Singapore, but nevertheless, says Bipul Chatterjee, it's not bad as a road map for the future

Both the Right and the Left of the Indian polity have criticised WTO's July Package, expressing there is little that India gained. Why is it that people from diametrically opposite political spectra have such a common position? What is the truth? Is the glass half-full or half-empty? If one carefully analyses the July Package, it is not difficult to see that it has too many gaps and it is unlikely that the Doha Round will be concluded even before the extended December 2005 deadline.

Except in "modalities for negotiations on trade facilitation" the negotiated text is full of optional words like "may" and "will". The only places where the mandatory word "shall" has been used are for those for which no explicit commitments are required. In the text on agriculture, some of these gaps are glaring. It is true that the members have agreed to a major demand of the European Commission and the G-10 group of agricultural importing countries on "sensitive" products. But an appropriate number of tariff lines to be treated as sensitive is left open for negotiations.

On the other hand, the G-33 group of developing countries (mostly net food importers, such as Egypt and Mauritius, demands the designation of an appropriate number of "special" products be placed under the "special and differential treatment" (S&DT) category. The text also speaks about "operationally effective" S&DT. "These products will be eligible for more flexible treatment. A Special Safeguard Mechanism will be established for use by developing country members."

It appears that a small number of rich countries like Japan, Norway and Switzerland will succeed in receiving "special and differential" treatment of a different nature as far as their "sensitive" products are concerned, while a significant concern of developing countries on "special" products will be considered as "best endeavour".

A quick analysis of the July 31 decision and India's existing tariff structure on agricultural products reveals that the country could list rice, dairy products (fresh milk and cream), tea, coffee, oilseeds and horticultural products (mushroom, peas, etc.) as special and sensitive products. However, the listing of such products has to be based on the basis of in-depth studies and that should be the Commerce Ministry's agenda in the future. Of these, dairy products and oilseeds are of greater concern to a large number of small farmers in India, in whose name the government was so assertive.

The framework agreement on Non-Agricultural Market Access (NAMA) is more vague than that of agriculture. It has only outlined the initial elements for future work on modalities, thus starting virtually from scratch. However, many industry bodies have welcomed the NAMA text. Both the Federation of Indian Chambers of Commerce and Industry and the Confederation of Indian Industry have commented that their concerns have been "addressed and reflected in the text". The US Council for International Business welcomed the deal as a "good road map", while UNICE (the main European business lobby) urged all WTO members to "contribute in the coming months leading to the 2005 WTO Ministerial, in the negotiating process underway in all areas of negotiations".

Cotton, a livelihood issue for small West African farmers, was another roadblock. In spite of strident demands for stand-alone negotiations, it will be an integral part of agriculture negotiations. However, the US cotton lobby criticised the deal and described it as "unfair and will threaten the round". There was criticism from other quarters as well. According to Oxfam International, the deal was a "serious betrayal of developing countries". While the WTO General Council's decision of July 31 emphasised that the "trade-related" aspects of this issue will be pursued in the agriculture negotiations, it is not clear how the "wishful" thinking to "stress the complementarity between the trade and development aspects" will be put into practice.

On Singapore issues, there was quite a surprise. Of the four contentious issues, "Trade Facilitation", was accepted with some difficulty, while Investment, Competition and Transparency in Government Procurement were dropped from the Doha agenda. On Trade Facilitation, WTO has decided to agree to negotiate by "explicit consensus" to commence negotiations. Thus, in future, any "new" issues which may come before the WTO members for negotiations will have to be decided by explicit consensus. Secondly, Investment, Competition Policy and Transparency in Government Procurement have been dropped out of the Doha Work Programme, but not immersed into Lake Genevè. In all likelihood the study process will continue, thus the three will remain hovering in the corridors.

There is a possibility that protagonists will demand for negotiations on these issues after the Doha Round is over and, in another scenario, these issues may be brought back to the WTO more formally through the Hong Kong Ministerial Declaration (December 2005). Thus, the issues remain as a challenge to future antagonists.

The situation on Singapore Issues can best be described as though they were seemingly unbundled, there will be a "stand alone" negotiations on trade facilitation and the other three issues will remain in the WTO in a "standstill" mode. The EU has been advocating for plurilateral agreements on these issues. These are also being wrought into several other side-deals, and thus the demandeurs will use those agreements as "templates" for multilateral negotiations.

On Trade Facilitation, the scope of negotiations will be of "limited nature". As per the July 31 Decision, negotiations shall be confined to "clarify and improve" relevant aspects of Articles V, VIII and X of GATT 1994 with a view to further expediting the movement, release and clearance of goods, including goods in transit. The negotiated text made several references to Customs and this can be interpreted as that negotiations will be confined to "border" measures only.

The text on services should be a major disappointment for developing countries. It called for further liberalisation of the services sector with a possible change in the basic structure of GATS, i.e., the positive list approach ("with no a priori exclusion of any service sector or mode of supply"). Therefore, developing countries should be extra cautious while negotiating services. The only manner in which they can counter this offensive is by demanding a standalone agreement on movement of natural persons. However, the July 31 Decision only notes the "interest" of developing countries on this mode of service supply. Is it due to over-emphasis on agriculture by the G-20 and the group of "five interested parties" (Australia, Brazil, EU, India and USA)?

In the midst of all this, "development concerns" did not receive much attention. Though the text has several paragraphs on "development", the word "poverty" does not appear even once and the language is too vague. Further, there was an attempt to introduce a de facto new class of developing country WTO members with advanced Latin American and East Asian nations on one side and ACP (Africa, Caribbean and the Pacific) nations on the other. This move could have institutionalised preferential market access as a norm in the multilateral trading system.

On balance, the July Package is a mixed bag for developing countries, like India. A good feature on trade facilitation is the recognition of "cost implications" of proposed measures. During the Uruguay Round there was no such recognition and many poor countries are still to find out the cost implications of WTO obligations, such as the TRIPs Agreement.

Another serious issue is the deadline by which the Doha Round is to be concluded- December 2005. Not only is time running out , it is not clear how the US will approach these negotiations given its Presidential elections and the fact that the US President's trade negotiating mandate will come up for renewal sometime in the middle of next year. It is likely that the negotiations will continue for a few more years taking into consideration the phrase "deadlines are not to be met, but to remind us of the importance of issues".

Nations play games over textiles quotas

Published: Shanghai Daily, August 16, 2004,
By Pradeep Mehta

THE demise of the quota system in the Agreement on Textiles and Clothing (ATC) at the end of this year may not be smooth for several reasons.

First, the clamor by many countries and their businesses to extend the quota system and, second, the European's Union threat of bringing back a social cause may create several obstacles. Thus, the possible gains to textile-competitive countries such as India, Indonesia, the Phillipines, Pakistan and China will be thwarted if any of these moves succeed even partially.

Speaking at the WTO public symposium in Geneva, Switzerland, in May Pascal Lamy, the EU trade commissioner, said "We failed to bring in social issues at Doha and will launch a compaign soon after the end of this year when the quotas under the agreement on textiles and clothing comes to an end." This is just a tip of the iceberg.

A few months ago, the EU launched a major salvo, which, if implemented, could become a nightmare in the international trade arena. A discussion paper on Collective Preferences was released, which goes far beyond the issue of labor standards. Perhaps to pacify possible reactions, Lamy admitted that the paper was still being discussed, but stressed that countries should have a holistic approach towards trade (just like the EU does). The paper envelops a series of of non-trade concerns such as the environment, gender, forests, industrial and agricultural restructuring and cultural amalgamation. It suggests that international trade will need to harmonized with these concerns.

Being a labor-intensive sector, textiles and clothing are an extremely important industry for developing countries. Exports of textiles and clothing account for 50 to 70 percent of developing countries' trade.

The EU is not the only one worried about Asia's bigwigs taking over the textile market. Anxiety over the January 1, 2005, deadlines for the phase-out of textile quotas is strongest among non-Asian producers, who fear the end of quotas will allow major producers, such as China and India, to clutch previously protected markets in the US and the EU.

When China's accession negotiations were taking place, the last country with which it had to bargain with was Mexico - the latter would have lost a substantial share of its NAFTA- protected markets in the US.

In a new development, 70 textile industry associations in about 34 countries including Turkey, Mexico, and a dozen sub-Saharan African countries, are puttting pressure on their governments to act by signing on to a declaration that calls for an extension of quotas until 2008. China is considered to have an advantage in textiles and clothing due to low wages and Hong Kong's established financial and marketing expertise.

China being the 'textile' super power of the world, along with India and Pakistan, will benefit the most from elimination of quotas. But if the EU keeps clamoring for labor standards to be includedunder WTO, the day is not far off when China's export may be restricted due to so-called poor labor standards.

The million-dollar question of whether development will lead to better labor standards or the reverse remains unanswered. After all, developing countries are under-developed and thus labor standards are not low, but different and consonance with their levels of development and socio-economic culture.

Labor standards are just one of several non-tarriff barriers that can be put in place to prevent countries, like India and China, to acheive their full potential. Other issues include the environment, anti-dumping, safe-guards and rules of origin. Countries can refuse or restrict imports from a particular country based on the claim that the dye used in the production of that cloth is hazardous to the environment or humans.

In the case of China, they have a WTO-plus obligation. "We have committed to a mechanism since the acceptance of the Protocol of Entry into the WTO ofn December 10, 2001, i.e. product-specific transitional safeguards that leaves discretion to be used by an importing member when there exists a so-called market disruption caused by importation from China. The threshold is much lower than the usual trade remedies under the WTO," says Li Yueyin, advise on WTO Textile Issues at the Shanghai WTO Affairs Consultation Centre.

Therefore, it is evident that even if quotas are phased out, rich countries will find unfair ways to prevent nations to maximize their capacity. All said and done, quotas under the ATC are the easiest to deal with whereas coping with non-tarriff barriers would require more time and money.

At the same time, an extension on ATC is difficult since it can only be done with the approval of all WTO members - China and India will never agree to an extension.

At this point it is difficult to say whether the road to elimination of textiles quotas will be smooth or full of roadblocks. But, it will be interesting to see if the US and EU will use their armory to stop the Chinese dragon and the Indian tiger.

Why do the rich not take UNCTAD seriously?

Published: The Hindu Business Line, August 03, 2004,
By Pradeep S Mehta

EVER since the World Trade Organisation came into being in 1995, the United Nations Conference on Trade and Development (UNCTAD) has been under attack from the rich countries for doing excellent work for the developing countries in the international trading system.

First, let us take a look at UNCTAD's history. Often people have wondered as to why it is called a "conference". An anomaly, which no one has corrected till now. It is not just a conference but also an UN body like many others, such as the UN Environment Programme. It is a derivative of the first conference which was held in 1962 in Geneva.

At that meeting nearly 4,000 official delegates from 119 countries, along with representatives of numerous international organisations had participated with a view to look at the linkages of trade and development. It was, perhaps, the largest international event ever held on any subject. In the 1990s, many more international meets did take place with a larger audience.

UNCTAD, more than a `conference'

However, the first conference decided to make it into a permanent forum with a review meeting to be held after every three years. But one does not know as to why a proper name was not adopted. UNCTAD has become a standing body, and more than a "conference". While it continues to do good work — of providing policy analyses and capacity building to developing countries, it has become an unwieldy bureaucracy. As a result, some have even interpreted it as "Under No Circumstances Take Any Decisions".

Humour apart, in the run up to the UNCTAD XI (June 13 to 18) there was quite a tussle between the North and the South about the Declaration. The US and the EU felt that UNCTAD should focus on capacity building, rather than on policy analysis. However, the South felt differently. And the Sao Paulo Consensus that emerged carried both the issues as UNCTAD's agenda. But refrain was sounded at the Sao Paulo meeting.

The British Minister for Trade and Investment, Mr Mike O' Brien, clearly hinted that UNCTAD is not an alternative negotiating forum. He said, "UNCTAD should avoid doing what other (WTO) institutions are doing. We need institutions focussed firmly on their core mandate". Further, he reiterated that UNCTAD is not a negotiating forum and should focus on technical assistance, capacity building, policy consulting and provide scope for thoughtful discussion

Even at earlier meetings, refrain had been sounded. At the Xth meeting at Midrand, South Africa, Mr Harriet Babbitt, a Deputy Administrator at USAID said: "An operational role for UNCTAD in trade negotiations would involve a confusion of institutional roles and a diversion of limited resources to activities for which UNCTAD is not the best suited organisation."

The rich countries have not only tried to curb Unctad's role in the international trade arena, but over time have continued to show their increasing indifference. One can see that from their participation at the meetings. While most developing countries send their Cabinet-level ministers to UNCTAD meets, participation of ministers of equal rank from OECD countries has been declining. During the three earlier UNCTAD meetings in 1992, 1996 and 2000 only 12 of the 28 rich countries sent Cabinet ministers. In 2004, the figure dropped to half, that is, only six Cabinet level ministers attended.

Stronger UNCTAD

Why does the South want a stronger UNCTAD? A good answer is available in what a senior government of India official said at the IX Session of UNCTAD: "If there are new issues, they should be subject to very careful examination and analytical work in UNCTAD on all the implications, and the balances of advantages and disadvantages analysed and disseminated to the people interested in it. There should be a complete embargo on new issues in the WTO agenda unless it has been subject to very careful examination in UNCTAD". As usual this reflects the North-South conflict of interest in directing the future work of UNCTAD. The North's attitude towards UNCTAD has evolved due to several reasons.

One, for example, UNCTAD has always been critical of IMF and World Bank policies. In the last few years when both the Bretton Woods twins are trying to be more legitimate UNCTAD issued a report in late 2002 criticising their new approaches to reduce poverty in Africa. Mr Rubens Ricupero, Secretary-General, UNCTAD, also has been quite critical of the role of developed countries in pushing their agenda in the WTO rounds. In 2001, Mr Ricupero criticised the tariff structure of developed countries and their lip service to the Doha Development Agenda. He said: "The average tariffs that were effectively applied by the US, taking into account all imports, was 1.5 per cent. But the average tariff on goods from Bangladesh was above 12 per cent, while that on goods from France was less than 1.1 per cent. Why is that so? The average hides the fact that there are tariff peaks concentrated on exports, such as those exported by Bangladesh, such as garments. Tariffs are not the most important component of protectionist policies."

After the WTO Ministerial Conference in Doha, Mr Ricupero noted: "I myself have refrained from using the description of development round, because I do not see in any sense that it will be conducive to this result — the first condition, of course, is that unequal countries should be treated unequally. The weakest and most vulnerable must receive special and more favourable conditions."

The UNCTAD Research Reports also have often criticised the blatant exaggerations of the merits of liberalisation, freer trade and deregulated capital markets, all of which the West swears by a la the Washington Consensus Hence, most developed countries have identified UNCTAD as being an organisation, which primarily caters to needs of the South, and one that is far from providing a balanced platform for both the North and the South.

Agreement on Generalised System of Preferences

But the role played by UNCTAD in pushing for a more democratic international trading system cannot be undermined.

The agreement on Generalised System of Preferences (GSP) introduced in 1971 was negotiated under UNCTAD and not GATT. This agreement helped developing countries' exports to an extent of $70 billion to receive preferential treatment in most developed markets every year.

Besides the GSP, UNCTAD was also responsible for the successful negotiations on the Global System of Trade Preferences in 1989, a scheme of preferential tariffs among developing countries only.

In 1980, UNCTAD successfully pushed for the adoption of the Set of Multilaterally Agreed Principles for the Control of Restrictive Business Practices.

One of the most important contributions of UNCTAD is in the field of negotiating International Commodity Agreements, including those for cocoa, sugar, natural rubber, jute and jute products, tropical timber, tin, olive oil and wheat; and the negotiation of the Common Fund for Commodities (1989), set up to provide financial backing for the operation of international stocks and for research and development projects in the field of commodities.

Today the North is talking of reducing Unctad's scope to a mere capacity building institution. UNCTAD is probably the only international organisation that is pushing for equity and space for a fair trading system.

However democratic the WTO may seem, it is always the pressures behind the scene that influence the outcomes. This is exactly where UNCTAD comes into picture; trying to make the world a better place to live in!

Rein in Farm Subsidies as a Whole

Published: The Financial Express, July 26, 2004,
By Pradeep S Mehta

Trade negotiators at Geneva are frenetically working out a framework agreement to break the deadlock on agriculture. But when the actual grind starts after the summer break, assuming that the framework is agreed upon this month, the subsidy issue is bound to be contentious. This is evident from the two recent dispute panel reports on sugar and cotton subsidies.

On May 9, the EU trade commissioner Pascal Lamy wrote to all WTO members about their resolve to cut down subsidies and reiterated the same at the WTO public symposium held in Geneva from May 25-27, this year.

On the issue of domestic support, the letter declares piously that the EU would “continue to aim for a very substantial reduction of all forms of trade-distorting subsidisation”. However, the paragraph on domestic support in the letter quietly ends with the observation that “green box” support — the so-called non-trade distorting subsidies — should remain insulated from the purview of any reduction.

Maintaining the distinction between trade and non-trade distorting subsidies is aimed at confusing the developing world. By stating that trade-distorting subsidies should be reduced, Mr Lamy wants to impress the trading community about the EU’s seriousness to reduce subsidies. But by stating that the “green box” subsidies should be kept outside the reduction purview, the EU also wants to retain the right of providing subsidies to its farmers.

The definition of non-trade distorting subsides in the Agreement on Agriculture (AoA) is quite vague and this has been exploited by the developed countries. According to the AoA, a subsidy has to satisfy two conditions to be termed non-trade distorting: That it should be publicly funded and it should not result in providing price support to producers.

The AoA also lays down certain policy-specific conditions to identify whether a particular subsidy is non-trade distorting or not. Most of the subsidies under this category are provided in the form of direct payment to producers which provide income support to the farmers. They are publicly funded; do not have the effect of providing price support and if they satisfy the policy-specific criteria for direct payments given in the AoA, they qualify as non-trade distorting subsidies. For instance, in the US, during 2000-02, direct government payments to farmers increased to $22.7 billion — a jump of 86%.

The non-trade distorting category is also used to provide massive subsidies under various heads like environment, R&D, marketing assistance etc. The sheer magnitude of these subsidies puts a big question mark on their non-trade distorting character. As long as the distinction between trade and non-trade distorting subsidies is maintained, any talk of subsidy re-duction would be a hollow exercise. Under the guise of non-trade distorting subsidies, rich countries would continue to provide huge subsidies to their farmers, which would eventually distort agricultural trade.

On the question of export subsidies, Mr Lamy’s letter mentions that the European Commission is willing to put all its export subsidies on the table, provided other countries exhibit full parallelism on all kinds of export competition. According to some estimates, the total amount of export subsidy being extended by the EC is $3 billion. US trade commissioner Robert Zoellick, in a letter written in January, had mentioned that the US is ready to agree to a date to phase out all export subsidies. Whether countries are able to negotiate an end date for elimination of export subsidies would depend on how countries like Canada, Australia, Japan and the US respond to the EC’s call of “parallelism”.

However, there is a silver lining in the existing situation. The negotiations on agriculture received a shot in the arm when the WTO Dispute Settlement Body recently adopted the preliminary ruling of the panel ruling against US cotton subsidies of more than $3 bn. The significance of this case is that many of the US’ so-called non-trade distorting subsidies, like the direct payment provided under the Farm Security and Rural Investment Act, 2002, have been challenged. Another aspect of the US subsidy programme which was challenged in this case is “export credit”. According to an Oxfam America study, the subsidy component of US export credit programmes amounted to $200 million in 2002. The ruling on the issue of export credit would go a long way in determining the future of tools like export credit to enhance market access of US farm goods. The US’ export credit is one area of export competition on which the EC demands full parallelism so that it can move ahead on reduction of export subsidies. This ruling has contributed to the deficient jurisprudence on farm subsidies in the WTO, though its substantive basis would be known only when the report is made public.

Another important dispute that could have a major impact on the existing agriculture scenario is the Brazil-EC sugar dispute where, once again, the EC’s direct payments to sugar producers and processors is under scrutiny. These two cases lay bare the so-called distinction between trade and non-trade distorting subsidies. Thus, the basic enunciation of these cases is that many subsidies that the EU and US claim to be non-trade distorting actually distort trade.

However, it seems that the developing countries in the ongoing negotiations are missing the point which these cases are illustrating. The proposal made by G-20 on a framework for establishing modalities on agriculture does not talk about farm subsidies. It focuses on market access and Special & Differential treatment.

The developing world should understand that they have a unique opportunity to argue for across-the-board reduction of all kinds of subsidies. This is because of a growing realisation in the EU and US that breaking the deadlock on agriculture is a prerequisite for the success of the ongoing trade negotiations. This is the time for developing countries to collectively demand scrapping any distinctions between trade and non-trade distorting subsidies. Distortions in agricultural trade due to subsidies can be minimised only if subsidies as a whole are reined in.

End of Textile Quotas May Not Be Smooth - II

Published: The Financial Express, June 19, 2004,
By Pradeep S Mehta

Yesterday, I wrote about the importance of the textile sector for developing countries as well as European Union’s (EU) threat to launch a campaign on social issues when the quota system comes to an end. However, the EU is not the only one worried about the Asian bigwigs taking over the textile market.

Anxiety over the January 1, 2005, deadline for phase-out of the textile quotas is strongest among non-Asian producers, who fear that the end of the quotas will allow major producers, such as China and India, to clutch their previously protected markets in the US and the EU.

When China’s accession negotiations were going on, the last country with which it had to bargain hard was Mexico, because the latter would have lost a substantial share of its NAFTA-protected markets in the US. Many other countries have also benefited from preferential treatment over and above the quota arrangements through preferential trade concessions with both the US and the EU.

Less developed countries, like Bangladesh, do stand to lose out as far as their garment industry is concerned as they will find it difficult to compete. In the past they had suffered the brunt of labour standards through consumer boycotts in the US. Over 50,000 children were thrown out of their jobs. Thus, labour standards in the WTO will not exactly help LDCs.

In a new development, 70 textile industry associations in about 34 countries, including Turkey, Mexico, and a dozen sub-Saharan African countries, are putting pressure on their governments to act by signing on to a declaration that calls for an extension of the quotas by three years, i.e. 2008. The industry bodies argue that the extension is needed to counter the unfair trading practices of major producers, China in particular. China is considered to have an undue advantage in the field of textile and clothing due to low wages and Hong Kong’s established financial and marketing expertise. China being the ‘textile’ superpower of the world, along with India and Pakistan, will benefit the most from elimination of quotas. But, of course, the way things are heading, if the EU keeps clamouring for labour standards to be included under the WTO, the day is not far when China’s exports may be restricted on the basis of poor labour standards. The million dollar question of whether development will lead to better labour standards or the reverse remains unanswered. After all, developing countries are under-developed and thus labour standards are not low, but different and in consonance with their levels of development and socio-economic culture.

Labour standards is just one of the several non-tariff barriers that can be put in place to prevent countries, like India and China, to achieve their full potential. Other issues are: environment, anti-dumping, safeguards and rules of origin. Countries can refuse or restrict the imports from a particular country based on the claim that the dye used in the production of that cloth is hazardous to the environment or humans.

In the case of China, they have a WTO-plus obligation. “We have committed to a unique mechanism since the acceptance of the Protocol of Entry into the WTO on 10 December, 2001, i.e. product-specific transitional safeguards that leaves discretion to be used by an importing member when there exists a so-called market disruption caused by importation from China. The threshold is much lower than the usual trade remedies under the WTO”, says Li Yueyin, Advisor on WTO Textile Issues at the Shanghai WTO Affairs Consu-ltation Centre, Shanghai.

Therefore, it is evident that even if the quotas are phased out, the rich countries will find unfair ways and means to prevent nations, including China, with a comparative advantage in textile and clothing to maximise their capacity. All said and done, quotas under the ATC are the easiest to deal with whereas coping with non-tariff barriers would require a lot of time and money.

At the same time, an extension on ATC is difficult to come by because that can be done only with the approval of all WTO members, and China and India will never ever agree to an extension. Second, the transition period for the product patenting system under the TRIPs agreement also ends this year. Any likely extension of the textile quotas would mean a ‘delay’ in the TRIPs implementation. That will be as difficult as milking a tigress.

Hence, at this point it is difficult to say whether the road to elimination of textile quotas will be smooth or full of roadblocks, or the US and EU would use their armoury to stop the Chinese dragon or the Indian tiger. But, for the time being, ATC seems to be nearing its demise.
(Concluded)

End of Textiles Quotas May Not Be Smooth

Published: The Financial Express, June 18, 2004,
By Pradeep S Mehta

The demise of the quota system in the Agreement on Textiles and Clothing at the end of this year may not be smooth on several counts. This may be because of, first, the clamour by many countries and their businesses to extend the quota system and, second, the European Union’s (EU) threat of bringing back the social clause in the context of the end of the textiles quotas. Thus, the possible gains to textile-competitive countries, like India, Indonesia, the Philippines, Pakistan and China will be thwarted if any of these moves succeed even partially.

Speaking at the WTO public symposium at Geneva in May, Pascal Lamy, the EU trade commissioner, said: “We failed to bring in social issues at Doha and will launch a campaign soon after the end of this year when the quotas under the agreement on textiles and clothing comes to an end”. This is just a tip of the iceberg.

A few months ago, the EU launched a major salvo, which, if implemented, can become a nightmare in the international trade scenario. A discussion paper on Collective Preferences was released, which goes far beyond the issue of labour standards alone. Perhaps to pacify possible reactions, Mr Lamy admitted that the paper was still in discussion mode, but stressed that countries should have a holistic approa-ch towards trade (just like the EU does). The paper envelops a bunch of non-trade concerns, such as environment, gender, forests, industrial and agricultural restructuring and cultural amalgamation. It suggests that international trade will need to be harmonised with these concerns.

“Social rights are Anglo-Saxon concepts and at a very premature stage in developing countries. Social rights should be an integrating factor in this globalising world rather than lead to disintegration”, writes Shuaihua Cheng, a Chinese WTO expert with the Shanghai Municipal Government Research Centre in a mail to the writer. “Greater interaction among developing countries must be conducted, while India should also consult China before any major blunder is done resulting from an outdated mindset.” It is on the basis of the Collective Preferences that EU would seek justification for the inclusion of labour standards in the WTO.

Following the publication of the International Labour Office’s report on the social dimensions of globalisation, the international trade union movement, too, is gearing up to launch a fresh offensive on the inclusion of labour standards into the WTO. Most developing countries oppose this because they act as protectionist device and a non-tariff barrier restricting imports in a country.

The WTO deal on textiles and clothing (ATC), as the successor to the Multi-Fibre Arrangement, governs international trade in textiles and clothing. It was brought into the WTO framework as a trade-off to TRIPs during the Uruguay Round negotiations. Being a labour-intensive sector, it is an extremely important sector for the developing countries. They agreed to TRIPs hoping that this liberalisation in textiles will help them to develop as well as create more jobs for their impoverished people. “If there ever was an industry which widely contributed to economic growth in many Asian countries, then it was the textile and clothing industry”, write Samar Verma of Oxfam GB in India and Dean Spinanger of the Kiel Institute of World Economics, Germany, in a paper on the death of the quota system in Bridging the Differences, published under a CUTS-University of Sussex research project: EU-India Network on Trade and Development.

“While there does not seem to be a consensus opinion on what the impact of the elimination of the textile quotas might imply, there seems to be a growing concern that China’s accession to the WTO will have a massive impact on global textile and clothing exports”. In fact, one ploy, which the trade union movement uses to woo other developing countries, is precisely the competitiveness of the Chinese textile industry on the basis of ‘low’ labour standards. Its argument is that a social clause in the WTO will actually help other developing countries, like India. Further, a recent move by the powerful US labour body, AFL-CIO, to check cheap imports from China was rejected by the US administration, but it is not yet dead.

Exports of textiles and clothing account for 50 to 70 per cent of developing countries’ trade. And it is with the help of quotas that many poor countries have developed their textile and clothing exports. With the elimination of the quota system, the rich countries’ markets will be exposed to stiff competition.

“The end of the quota system is bound to sharpen competition and radically change the picture”, said Mr Lamy at a seminar in Brussels on March 25, 2004. “Attention will focus more on the rules governing international competition. I think the question of compliance with the ILO conventions on fundamental social rights-banished from the arena of trade issues at Doha despite my best efforts will be back on the agenda, this time probably at the request of the very developing countries which resisted it at Doha”.
(To be continued)

Assertive Jurisprudence on Non-trade Issues

Published: The Financial Express, June 11, 2004,
By Pradeep S Mehta

A few years ago, the US put a ban on biris manufactured by Ganesh Biris of Mangalore because US customs inspectors found girl children rolling them in their houses. This was an action under the Generalised System of Preferences (GSP) scheme of the US, under which Indian exporters get concessional terms.

Whether importing countries can take such WTO-illegal actions or not was challenged in the India-EC GSP case (Winning The Battle, But Losing The War, May, 1, 2004). However, one significant element of this case, which has perhaps gone unnoticed, is related to non-trade concerns. Non-trade concerns like labour, environment, human rights etc, have often occupied considerable space in trade negotiations. A concerted effort is on by developed countries to bring these issues into the WTO. Developing countries, as a principle, have opposed the linkage between trade and non-trade concerns arguing that the WTO is a trade body and thus not the right forum to discuss non-trade imperatives.

It is in this context that schemes like GSP assume great importance. GSP allows developed countries to grant tariff preferences to developing countries, provided these preferences are beneficial to developing countries and are extended on a generalised, non-reciprocal and non-discriminatory basis.

These conditional preferences can be broken into positive and negative conditionalities. In the EC’s GSP, positive conditionality refers to the possibility of developing countries to apply for additional tariff preferences on all products if they comply with specified labour and environmental measures. In fact, this positive conditionality has been given a special name called “special incentive arrangement”. As the name suggests, under this arrangement, countries are granted additional tariff preferences as an incentive or reward for complying with certain labour and environmental conditions. Negative conditionality refers to the right to withdraw GSP preferences from beneficiary countries for reasons like involvement in slavery, money laundering etc. After having explained the basic landscape of the EC’s GSP, it will be relevant to view this system through the prism of the Appellate Body (AB) ruling. AB, in its ruling issued on April 7, 2004, stated that developed countries are entitled to apply differential treatment to GSP beneficiaries based on their development, trade and financial needs. It also said that this need should be based on an objective and transparent criteria. According to the AB, EC’s drug arrangement, which was challenged in this case, was not based on an objective and transparent criteria and thus was inconsistent with the “enabling clause”. However, the AB took a contrary position on the conditionality for the protection of labour rights and environment, though this issue was not before it. AB stated that these arrangements are prem-ised on detailed substantive and procedural criteria. Hence, there is an objective and transparent basis for them to exist.

Objective and transparent criteria implies that GSP donor countries can base their tariff preferences on those standards or norms, which are, say, part of international agreements. Thus, a GSP donor country can make granting of additional tariff preferences contingent on a country complying with core labour standards or other ILO conventions, or multilateral environment treaties.

AB’s ruling in the GSP case is significant for three reasons. First, it gives a judicial approval to the existing positive conditionality of EC’s GSP. Second, it has amplified the scope of adding more conditions to the existing list of positive conditionalities. For instance, it will not be astounding if tomorrow the EC adds human rights to its list of “special incentive arrangement”. The EC can say that it will extend additional preferences to all those countries who comply with the “International Covenant on Civil and Political Rights” or who comply with the “International Covenant on Economic Social and Cultural Rights”. According to the AB ruling, the EC is well within its right to have such a positive conditionality. Third, and most importantly, it has imparted momentum to the possibility of bringing in non-trade issues into the WTO. But, this is not the first time that the AB has done this. In the Shrimp-Turtle case, the frontiers of the interface between trade and environment were put to test.

The AB had held that as a general principle, unilateral trade measures to protect the global environment are not unjustifiable under the GATT. This is subject to the condition that these measures do not lead to arbitrary or unjustifiable discrimination between countries where same conditions prevail. Hence, a country can restrict or deny market access to another country on the ground that it has not complied with the domestic environmental policies of the importing country, provided other conditions of the GATT are satisfied. Three years later, in 2001, when AB ruled on Malaysia’s challenge to US implementation of its original ruling it substantiated its position further. It stated that the position it took in Shrimp-Turtle, was not just an observation but had a legal significance. The intention was that this ruling should act as a guide for future panels on this issue.

What is interesting to see is that the GSP ruling has moved this issue forward. This ruling is a signal of a greater assertion by the DSB regarding the openness with which it is ready to view non-trade issues. This ruling, along with the other two Shrimp-Turtle cases also exhibit a more significant and visible departure from the jurisprudence that evolved in the Tuna-Dolphin disputes (which had taken place before the WTO came into being). In the Tuna-Dolphin case, the approach was that any dispute between environment and trade should be resolved in favour of the latter. One can argue that the DSB reports or rulings are binding only on the parties to the dispute and do not have a precedent value. But, the fact of the matter is that they do have an impact on existing multilateralism. They influence negotiations and enable countries to take position on different issues. It will not be imprudent to say that the jurisprudence that evolved in the Shrimp-Turtle case had a role in officially bringing environment onto the trade negotiating agenda. The significance of the GSP ruling should be understood in this context.

WTO & International law

Published: The Hindu, June 08, 2004,
By Prabhash Ranjan

ONE DIMENSION of the World Trade Organisation (WTO) that has, perhaps, gone unnoticed is the contribution it has made to the domain of public international law. The character of international law has always been a moot issue. Right from the days of John Austin, who reduced international law to positive morality, to this day, notwithstanding the strides made by public international law, people have often vacillated in calling international law "law" in the true sense of the term.

This hesitation stems from the fact that international law has been found wanting in all three processes that characterise any process of law making. These three processes are: the process of making the law itself, the process of settling disputes on the basis of the law made and the enforcement of decision relating to the disputes. All these three processes have been overwhelmingly dominated by international diplomacy and politics. This has often made the critics question the legitimacy of "international law."

If one contrasts this with the rule-based system established under the aegis of the WTO, which is a part of public international law, one finds considerable difference. As far as the first process in law making is considered, there is not much difference. Rule making in the WTO is also dominated by international diplomacy and politics.

But, there is a perceptible difference in the other two processes of law making. This difference is attributable to the formation of the Dispute Settlement Body (DSB) under the WTO. The purpose behind establishing the DSB was to have a body that would administer the rules and procedures and provide security and predictability to the multilateral trading regime.

According to James Bacchus, former Chairman of the Appellate Body (AB), a body under the DSB to hear the appeals from the panel cases, there are two characteristics that make the DSB a unique judicial settlement body. In fact, it is these characteristics that divorce the second and the third elements in the law making process from international diplomacy and politics.

The two characteristics are: the compulsory jurisdiction of the DSB and the ability to enforce the judgment. The DSB has compulsory jurisdiction because all member nations under the WTO have agreed that any dispute with another member over any treaty matter annexed in the WTO agreements will be settled by the DSB. The DSB has the ability to enforce the judgments by authorising one member to the dispute to impose economic sanctions on the other, if the other party fails to comply with the rulings given by the DSB.

Unparalleled and unprecedented

The presence of these two characteristics in the DSB makes it an unparalleled and unprecedented judicial settlement body in international law. It is unparalleled because it is miles ahead of the only other judicial settlement body that exists at the multilateral level i.e. the International Court of Justice (ICJ) at The Hague. The ICJ has limited compulsory jurisdiction and a very weak enforcement mechanism. It is unprecedented because international law has not witnessed such a comprehensive dispute settlement body before.

These two distinguishing characteristics of the DSB have given the belief to the member countries that the international trading system established under the WTO will not suffer at least on account of the second and third processes in law making. It is this belief that is exhibited in the fact that both developed and developing countries take recourse to the DSB on a regular basis.

There is enough statistical evidence to prove this assertion. According to the AB's Annual Report for 2003, issued by the WTO in May this year; from 1996 to 2003, different member countries appeared before the AB on 386 occasions either as an appellant, appellee or third participant. In this period India appeared before the AB on 18 occasions in different capacities. Since its inception, the DSB has settled hundreds of trade disputes between various WTO members.

My purpose is not to glorify the DSB or the WTO. My intention is just to demonstrate the unique contribution that public international trade law as envisioned in the WTO has made to the larger domain of public international law. The functioning of the DSB has shown for the first time that disputes can not only be settled according to law but also be enforced according to law.

Today, in the form of the WTO we have a model that imparts a relatively stronger legal character in the literal sense of the term to the body of "international law."

Push Hard for Quality FDI

Published: The Hindu Business Line, June 07, 2004,
By Nitya Nanda

Merely receiving more FDI is no panacea for developing countries' problems. The challenge before India is to get quality FDI that fosters development. As it is, getting FDI is quite difficult, but making it development-friendly is even more so.

WITH the new government at the Centre assuming office with the support of the Left parties, foreign direct investment (FDI) has become a topic of debate.

The Left has aired strong views on FDI, but this seems more a rhetoric; what about Left ruled West Bengal's eagerness to attract FDI? Indeed, the country's FDI policy has more or less been driven by ideological rather than practical considerations.

For about a decade since Independence, the country had an open attitude towards FDI. However, the Second Plan made a significant departure, emphasising on self-reliant economic development and a restrictive approach vis-à-vis FDI, to protect the domestic base of created assets.

The underlying philosophy was that transnational corporations (TNCs) which bring in FDI cannot be relied upon to the extent of allowing them to play a major role in the country's development; the East India Company syndrome seemed to haunt the policymakers.

Further, in 1973, the Foreign Exchange Regulation Act (FERA) came into force, which limited the equity of foreign companies in Indian companies to 40 per cent. And in the late 1970s, some foreign companies were asked to leave the country.

However, there was a policy reversal in the 1980s. Industrial and trade policy liberalisation was accompanied by an increasingly receptive attitude to FDI and foreign licensing collaborations.

To modernise industry, a greater role to multinational enterprises was sought to be given. Exceptions from the general ceiling of 40 per cent on foreign equity were allowed on the merits of individual investment proposals.

Riding the wave of reforms, full-scale liberalisation measures were initiated in the 1990s, to integrate the Indian economy with the global one.

The Reserve Bank of India was allowed to give automatic approval for priority industries. Foreign investors were also given assurance of free remittances of profits and dividends, fair compensation in the event of acquisition, and a level-playing field. These changes in FDI policy were complemented by bilateral investment treaties (BITs) and double taxation treaties (DTTs), many of which were signed by India recently.

But can one expect consistency in India's FDI policy? If the earlier policy was one of excessive fear, the new one dreams of seeing FDI make a major contribution to the country's development; barring the Left, the general perception is on these line.

When the economic reforms programme was launched, it was well-recognised that the lack of infrastructure, such as roads and power, was a serious impediment to development.

However, there was confidence that FDI would flow in and address the problem. As a natural corollary, the state, which was more or less the only investor in these sectors, stopped further investment.

Foreign investments did flow in but not to the extent expected. In 2001, FDI as a percentage of GDP was 4.7, one of the lowest in the world.

Moreover, whatever FDI that came in more or less bypassed the preferred sectors — roads and power. After about a decade, it was realised that the state could not withdraw from these crucial sectors.

For example, in the ambitious highway development project, 95 per cent of the funding comes from the state. But a crucial decade was lost, delaying thereby the development process.

But the think-tanks soon thought FDI did not flow in because of bad roads and the poor power situation. But was not FDI basically invited to improve the road and power sectors? A Steering Group at the Planning Commission was constituted to study the FDI regulatory regime and suggest policy measures for increasing FDI flows. The crux of the Group's recommendations was, liberalise further.

TNCs' decision to locate in a country is based on the tax structure, special programmes and schemes, the competition regime, entry and establishment requirements, investment protection, technology transfer, natural resources and skill levels, incentives and institutional mechanism.

However, determining FDI flow is a complex process. For example, while India may seem more attractive than China on most of these counts, it attracts less than one-tenth the FDI into the latter.

Nevertheless, the Steering Group thought that the country needed to liberalise further. It went to the extent of diluting the Prevention of Food Adulteration Act and the Food Product Order, which are already quite weak and not rigorously enforced.

What one forgets is that China receives huge FDI not because it allows unrestricted entry but because its approval process is fast and efficient. Project status, be it a `yes' or `no', is known within a couple of months. In India, on the other hand, even after two years one may still be unaware of the status.

And by the time approval comes through, the situation may have changed, prompting the investor to park the money elsewhere. This is the reason for the huge gap between approved FDI and the actual flow.

This lethargic decision-making process affects not only foreign investors but domestic investors as well. This needs to change for India to realise its actual growth potential.

However, the enthusiasm shown by most developing countries today in attracting FDI is more because of ideological factors rather than ground-level changes.

The propaganda of the World Bank and the IMF, among others, on the importance of FDI has been such that it is now believed that a country cannot develop without FDI. But the fact is, receiving more FDI is no panacea for developing countries.

China has maintained high GDP growth along with huge FDI flows. However, it started receiving FDI only after it got into a high growth path.

Hence, large FDI flow is the effect of high growth and not the other way round. Even today, China's growth is largely driven by domestic capital formation, and FDI as a proportion of total investment is barely 10 per cent.

Very often there is talk about the South-East Asian miracle. Again, these countries have achieved high growth by mainly depending on their domestic capital accumulation rather than FDI.

The experience of Brazil and Argentina, the two Latin American nations that attracted huge FDI throughout the 1990s, is even more telling. Argentina is in a deep crisis and the Brazilian economy has remained stagnant for long. It is, therefore, quite clear that huge FDI flows have not been of any real value to these countries.

The challenge before India is not to attract more FDI but to get quality FDI that fosters development. As it is, getting FDI is quite a challenge, and making it development-friendly is even more difficult. But there is no need to go out of the way to attract FDI. India must gain confidence in itself, that growth can be achieved with or without FDI.

OECD Steel Subsidies Agreement: Wrong Path to Tread

Published: The Financial Express, June 04, 2004,
By Pradeep S Mehta

The international community is engaged in a trade negotiation, not at the WTO, but at the Organisation for Economic Cooperation and Development (OECD). Forty countries are involved in these negotiations. These negotiations are aimed at having an agreement for the reduction or the elimination of trade distorting subsidies in the steel sector. There are various implications to this which can be quite portentous to the developing world, including India.

One cannot but wholeheartedly agree with the supporters of such an endeavour, that state subsidies to the steel sector distort the market. Therefore, there has to be a complete ban on such subsidies. India is very enthusiastically participating in this endeavour. India is in favour of a basic draft which would form the starting point for the hard negotiations. OECD sources say that the first draft agreement would be ready by September. A meeting in the first week of April at Paris renewed the commitment to cut all trade distorting government subsidies on steel. Soon thereafter, OECD officials visited India in the first week of May, to be told by industry representatives that conditions for countries like India would have to be different from those of developed countries. This resistance has been constant right from the beginning, and India has been in the vanguard about the rights and separate status for the developing countries.

While there is no gainsaying of the fact that trade or market-distorting subsidies are bad and need to be combated, the question to be asked is whether the OECD is the right forum for such negotiations. In other words, is the OECD the right place to negotiate and if not then why?

Negotiating an international agreement at the OECD would set a wrong precedent for a number of reasons. This would encourage countries to ask for negotiations at the OECD on many other issues which do not meet with success at the WTO.

It is pertinent to recall that the earlier effort of the OECD members and five observer non-member countries of negotiating a multilateral agreement investment at the OECD was not successful. A successful agreement reducing or banning all steel subsidies will once again open the door for many other issues. For instance, the Singapore issues. Even after the commitment made at Cancun, the EU continues to demand them with ‘flexibility’ as the cornerstone. There is strong opposition at the WTO to restart negotiations on all, though there is greater acceptance on trade facilitation. The wily EU could easily start the process at OECD, though the jury is still out about how the US will react. Already EU has upset the US dream of an America’s block by offering a special trade deal to the Mercosur block (Argentina, Brazil, Paraguay and Uruguay). The two leading countries of this block are both members of G-20 and the Cairns Group. By this clever move, the EU would possibly break the unity of G-20 and also annoy Australia, New Zealand and Chile, the more aggressive Cairns Group members. Further, the special concessions would include investment and competition.

Who knows that a move could be made at the OECD to bring in other non-trade issues like labour standards, animal welfare, human rights, etc through the OECD route. The other important issue is related to market distorting subsidies.

Be that as it may, an agreement reducing or banning all state subsidies on steel does not address the larger issue of how to tackle the trade or market distorting subsidies that affect all sectors. This would be a very blinkered approach to the whole issue of dealing with market or trade distorting subsidies. Forums like the OECD could be used to discuss such issues but certainly not to negotiate an agreement.

At the multilateral trading level there is an Agreement on Subsidies and Countervailing Measures (ASCM). This Agreement governs the law related to subsidies at the WTO. Any negotiation on the question of subsidies must be within the framework of the ASCM. Such a negotiation at the WTO would take care of market distorting subsidies and encompass all the sectors.

All international trade negotiations are based on the principle of give and take. For an international trading negotiation to succeed, the negotiating parties must be happy with what they get as against what they have to give. Thus, a satisfactory level of “trade off” is the bedrock of every trade negotiation. The steel negotiations at the OECD will be without a “trade off”. In other words, what a country will get in lieu of what it is offering is not certain in negotiations in the OECD. For instance, in the present negotiations on steel in the OECD, India is very vocal about asking for a developing country status, an SDT provision. A developing country status would mean that while in principle there is an agreement to ban subsidies, more time and flexibility is sought for its implementation. If India does not get the developing country status now and compromises on the issue, then OECD will not have any thing substantial to offer to India. On the other hand, in the negotiations in the WTO, if a country makes a compromise, then it ensures that it gets its pound of flesh in return from others. Such a “trade off” does not have any scope in forums like the OECD. Thus these type of negotiations at the OECD cannot be in the interest of developing countries. Even if such negotiations were to take place outside the WTO, organisations like the United Nations Conference on Trade and Development (UNCTAD) would be a better place to negotiate than OECD. After all UNCTAD has good experience in negotiating agreements on commodities.

The other important issue that needs to be addressed is that if a treaty on steel subsidies is negotiated at the OECD, then, what will be its legal character. What type of teeth will it have? Otherwise, it will be just another showcase treaty like many others which are often never implemented properly. Some have suggested that once the agreement is ready, it should be taken to the WTO. Fine, but is that a sensible way to do it! Why not do it at the WTO to begin with?

CAS: Switched off, what next?

Published: The Hindu Business Line, May 04, 2004,
By Pradeep S Mehta

The culprit is not CAS per se, but the way the Government went about implementing it.

WHEN the Conditional Access System (CAS) for cable television was deferred in Delhi ahead of the Assembly elections last year, the Government did not offer any reason for doing that. It only said that the CAS was being put off. However, this time, the Government played safe. The Information and Broadcasting Ministry consulted the Law Ministry to ensure there were no loopholes in its order to scrap the controversial CAS.

CAS, which the government had mandated last year in the interest of the consumers, has been withdrawn. The Telecom Regulatory Authority of India (TRAI), the designated regulator for broadcasting and cable services, had recommended that the July 10, 2003 notification on CAS be either de-notified or put on hold for three months. In this period, TRAI would finalise the CAS regulations based on a final consultation paper. The Government accepted the proposal to put CAS on hold. The Government notification does not mention any timeframe by when the system will be back. However, even after such a detailed process one is not sure that a solution will emerge.

CAS, a system that required television viewers to access pay channels compulsorily through decoders or set top boxes (STBs), is on its way out just after six months in only one of the four cities in which it was originally envisaged. Chennai alone, out of the four metros, implemented CAS on D-day. Probably by default as the city did not witness the kind of political uproar as seen in other centres. A part of Delhi introduced the new broadcasting regime late last year. But even there the implementation was not complete. The big question for the industry now is: Will CAS come back?

The Madras High Court, however, has stayed the Centre's decision to roll back CAS in Chennai and South Delhi. The interim order was issued following the filing a batch of petitions by consumers, cable TV operators and multi system operators (MSO's). CAS was implemented only in Chennai and South Delhi following widespread opposition from consumers and political parties. Meanwhile, TRAI has set up a committee to put in place regulations on cable TV services. The panel will look into the problems faced by the four State governments in implementing CAS, its acceptance level among subscribers in these States and competition in cable TV services business.

It will also examine such issues as channel pricing and the introduction of direct-to-home (DTH) and broadband services.

CAS, which was debated at the highest political levels for more than a year, has been ironically disposed through a three-page notification by the Ministry. The cable industry is said to have spent around Rs 300 crore towards CAS, which was made mandatory by the Government in all the four metros. The Government Notification, however, is silent on the subscribers of Chennai, who were happy to view free-to-air channels at Rs 72 plus taxes a month or those who had purchased set top boxes (STBs) in Chennai and Delhi.

The culprit is not CAS per se, but the way the Government went about implementing it. First, it erred in making it mandatory and then getting into pricing of the channels, these were best left to the market.

Instead of offering it as a value-added service to those who wanted high quality picture and sound through an STB, the government opted to use the route of compulsion. The increasing wrath of the consumers generated some delayed reactive action in the government circles by the issue being brought under TRAI's purview. Though CAS failed in its first attempt, the aim of TRAI to have a more mature look at the industry deserves praise, because only proper regulation can prevent chaos.

Further, the Government should only play the role of a facilitator in future. The government has really no role in regulating prices. The pricing of individual channels is best left to market forces by encouraging competition. Channel pricing depend on various issues and no standard pricing formula can be applied. Only if the government wants to protect economically weaker sections, it can regulate the basic tier.

Now the challenge before the broadcasters and the MSOs is to use their investments in the CAS infrastructure and the STBs to provide premium services that will attract new subscribers. In the event that there is a market-led demand for decoders or the STBs in the future, the government should only play the role of a facilitator.

The denotifying of CAS to view pay channels brings to an end a year of confusion surrounding the cable TV industry in the country. The decision, however, raises a host of issues that the broadcast regulator TRAI have to address as it considers a new scheme for television. TRAI is to look at the full spectrum of issues involved in broadcast and cable regulation in the coming months. It must also deliberate on alternative delivery mechanisms, such as DTH, to ensure that market forces too favour a rollout of CAS. That alone will go a long way in ensuring a consumer-friendly CAS regime.

TRAI's analysis of the cable TV sector confirms the view that the subscribers have suffered from a lack of competition. Part of the solution lies in ensuring fair competition in the television sector either through increase in the number of local cable operators or the use of alternative technologies such as DTH and broadband, or both.

This will offer the consumer a choice of technologies and services. Such competition has developed the television markets internationally. Tariffs fixed by operators came under market pressure in such a situation and TRAI as a regulator could concentrate its efforts on ensuring competition rather than trying to manage prices at micro level.

Anti-dumping More a Protectionist Tool Than Remedial Measure

Published: The Financial Express, May 31, 2004,
By Pradeep S Mehta

The use, or rather, abuse of anti-dumping measures has haunted the multilateral trading system for a while. Although its primary aim is to remedy the material injury caused to domestic industry due to dumping, it is being used more as a protectionist tool. Many have argued that there is no economic rationale behind anti-dumping ac-tivity, that it has a net negative impact on the economy of the imposing country. Supporters of this school of thought argue that in a world free of anti-dumping, the benefits to consumers, because of dumped imports, will outweigh the losses to domestic industry and hence result in a net gain to the economy. But anti-dumping is a reality of global trade and a strong weapon that no country will give up. Hence, pragmatism demands that discussions on the issue focus on how to reduce friction caused by its use.

With this as the basic premise, the Doha Declar-ation, in Para 28, mandated the review of the entire anti-dumping agreement (ADA). Besides, at Doha, in their decision on “Implementation-related issues and concerns”, members identified a few im-portant issues in the ADA for negotiations. The Doha declaration fixed the deadline of January 1, 2005, to complete these negotiations and stock-taking was scheduled at the Cancun Ministerial meet.

Anti-dumping is a reality of global trade and a strong weapon that no country will give up. Hence, pragmatism demands that discussions on the issue focus on how to reduce friction caused by its use

However, the journey of negotiations inter alia on anti-dumping from Doha to Cancun and beyond has been quite tardy and bumpy, without resulting in any fruitful reviewing of the accord. One of the important issues that were identified was how to operationalise the Special and Differential (S&D) clause in the ADA. The issue of limiting anti-dumping actions in those cases where previous actions resulted in negative finding was (back to back initiation) also identified. However, no progress has taken place on these important issues.

However, there has been a decline in the number of anti-dumping initiations from July 1 to December 31, 2003 from the corresponding period of 2002. A WTO press release issued on April 20, 2004 says the number of anti-dumping actions have drop-ped from 161 in the second semester of 2002 to 115 in 2003.

This decline, however, does not signify much as countries continue to impose anti-dumping measures. The recent US attempts to impose anti-dumping duties on frozen and canned warm water shrimp imports from India, Vietnam, China, Brazil and Thailand is a case in point. Since the US could not stop the imports from these countries through the environmental route (shrimp turtle case), it chose the dumping course. It is estimated that anti-dumping duties in the range of 100-130% would be imposed.

Another recent instance of misuse of anti-dumping is the EC’s challenge against anti-dumping duties imposed by India on 22 commodities im-ported from the EU. In this case, the entire procedural anti-dumping law of India was challenged as being inconsistent to ADA. What is interesting is that on many of these commodities, anti-dumping duties were imposed by India in 1999-2000, making one wonder whether the EC’s challenge to these duties after al-most 3-4 years was prompted by its loss to India in the second bed linen case decided in April 2003. This signals countries’ readiness to use not just anti-dumping measures but also the dispute settlement mechanism to settle trade scores.

Another problematic area in anti-dumping has been the enactment of ambiguous laws at the national level. These laws are often enacted to instituionalise unfair and regressive trade practices and im- pose an unfair burden. The US Continued Dumping and Subsidy Offset Act of 2000, popularly known as the Byrd amendment, is a classic example. It provides for distribution of anti-dumping and countervailing duties to US industries, the purpose being to subsidise loss-making industries. This legislation is an unfair trade practice as it provides an extra incentive for domestic industry to petition for imposition of anti-dumping duty. This act was successfully challenged at the WTO, which said that the Byrd amendment is contrary to US obligations under the ADA. The US has introduced a legislation to repeal this Act, but a recent development has pla-ced a big question mark on its sincerity. The US, in its submission to the Negotiating Group on Rules on April 26, 2004, wants discussions on WTO Members’ right to distribute monies collected from anti-dumping and countervailing duties. By this, the US hopes to change the rules to make illegal measures like the Byrd amendment WTO-consistent.

It is important to understand that the sustainability of the currently reported decline in anti-dumping cases hinges on bringing about substantive reforms in the ADA. The Negotiating Group on Rules and the committee on anti-dumping practices under the WTO have to move fast, first in identifying and second, in bringing about the required amendments. There are three important substantive reforms that need to be made: First, having separate de minimis dumping margins for developed and developing countries. This will operationalise the S&D clause. Second, making it mandatory for countries to impose only that duty which is sufficient to remedy the injury (lesser duty rule) and not impose duty equivalent to full dumping margin. Third, a complete prohibition on imposition of anti-dumping duty beyond the first five years (sunset clause).

Given the nature and kind of impediment that unfair rules of anti-dumping cause to trade, correcting the same should be a top priority. The faster negotiations move on this, the better it will be for the multilateral trading regime.

Winning The Battle, But Losing The War

Published: The Financial Express, May 01, 2004,
By Pradeep S Mehta

A recent decision of the WTO appellate body in the matter of India’s dispute against the European Union (EU) has two sides, like in a coin. While India is crowing about its victory on the EU’s measure to provide additional concessions to Pakistan for its war against drugs, EU feels that its preferential treatment to Pakistani textiles has not been invalidated per se. India won a battle, but lost the war.

What are the facts? To begin with, the EU, under its scheme of generalised system of preferences (GSP), granted an extra textiles quota in 2002 to Pakistan for managing its drug control system efficiently. Some said this was a reward for its support to the West, post-9/11.

Export of textiles from the poor to rich operate under a quota system, which will hopefully expire this year-end. But the importing countries can use it flexibly for other reasons. India found the additional concessions granted to Pakistan to be discriminatory and complained that her own exports had been affected. EU offered this concession to Pakistan under the WTO’s ‘enabling clause’, which allows grants of extra concessions to developing countries. This provision authorises the GATT contracting parties or WTO members to operate the GSP notwithstanding the Most Favoured Nation (MFN) obligation in the GATT.

India argued that the enabling clause does not permit differentiation among the countries, which can be given GSP privileges. Her position was vindicated by the panel. The panel in its report had said that under the enabling clause and in particular the non-discrimination principle, identical tariff preferences have to be provided to all developing countries with the exception of the least developed countries and the so-called “a priori limitations”.

Following this, the EU filed an appeal before the appellate body (AB) on December 1, 2003. The AB upturned the panel decision, and held that the panel’s interpretation of the principle of ‘non-discrimination’ defined under the enabling clause was incorrect. Both India and the EC, based on their own interpretation of the AB report, are claiming victory.

India’s commerce ministry is claiming that the AB has upheld the finding of the Dispute Sett-lement Panel that the tariff preferences to 12 countries given by the EC under the drug arrangements window of the GSP scheme is inconsistent with the enabling clause. The EC is arguing that the AB has reversed the finding of the panel and rejected India’s claim that the WTO rules, like the enabling clause, do not allow them to be able to discriminate between developing countries.

This case reminds one of the shrimp-turtle case. That case was decided in favour of developing countries, but a closer scrutiny showed that on substantive issues it favoured the US. In the case, the AB did not rule against the mandatory use of turtle-excluder devices. It only stated that the application of these measures by the US was arbitrary and transfer of technology was discriminatory. It created the same kind of ambiguity as is being created now.

Who has won and who has lost? EC, in its appeal to the AB, had challenged the panel’s interpretation regarding the “non discrimination” provision. The panel had held that this term requires that identical tariff preferences under the (GSP) scheme be provided to all developing countries without differentiation.

The AB has reversed this finding. In the words of the AB, “non-discriminatory” in the enabling clause does not prohibit the granting of different tariffs to products originating in different sub-categories of GSP beneficiaries, but that identical tariff treatment must be available to all GSP beneficiaries with the ‘development, financial [or] trade need’ to which the differential treatment is intended to respond”. This reversal by the AB of the panel’s ruling is being interpreted by EC to substantiate its differential tariff preferences under the drug arrangements window of its GSP scheme.

The EC is arguing that by reversing the panel’s finding, the AB has said that its tariff preferences are not inconsistent with its WTO obligations. It is important to note that the AB has not supported EC’s drug arrangements. It found that the EC failed to demonstrate that its drug arrangements are based on transparent and objective criteria and prove that its drug arrangements met the requirement of the enabling clause.

EC’s drug arrangements do not allow all developing countries, which are similarly situated, to qualify for the preferences under the arrangement. Thus, there is discrimination amongst countries that are at a similar footing in terms of development, financial and trade needs. In short, the AB has upheld the ruling of the panel that EC’s drug arrangements or extending tariff preferences are inconsistent with the enabling clause.

It is interesting to note that the EC, in its press release, has admitted that they failed to demonstrate to the AB that its drug arrangements were based on objective and transparent criteria. Trade Commissioner Pascal Lamy also said that tariff preferences to developing countries could be continued provided it was based on an objective and transparent criteria. Closer scrutiny of the AB report shows that the EC could use “non-discrimination” in the enabling clause to provide different tariff preferences, provided these were extended in a non-discriminatory and transparent manner. Like shrimp-turtle, this case has been decided in favour of India on technical grounds, but on substantive law, it favours the EU.

The ruling has a crucial political outcome. In the context of the Special & Differential Treatment debate in the Doha Round, rich countries are arguing that there should be differential approach to developing countries, i.e., India, Brazil et al will need to be treated less favourably than, say, Bangla-desh and Benin. It has been argued that this would only divide the world.

One key issue left undecided by the AB was that whether the EU’s drug arrangements were inconsistent with the MFN clause in Article I.1 of GATT. A ruling on this issue would have gone a long way in giving precision to the other such findings.

Will They Divide The G-20 Too?

Published: The Hindu Business Line, April 30, 2004,
By Pranav Kumar

The EU's latest offer on agriculture is clearly intended to split the powerful Cairns group and the G-20 alliance

WHEN developing countries take a tough stance against the interests of their powerful counterparts, a variety of tactics is deployed against them to toe the line. This has become an integral feature of international trade negotiations for some time, especially after the establishment of World Trade Organisation (WTO) in 1995.

The tactics may include some combination of inducements in the form of sops to the least developed countries (LDCs); threatening to withdraw unilateral trade preferences, such as the Generalised System of Preferences (GSP); and in classic divide-and-rule style, even trying to pit one country against the other.

This "divide-and-rule" policy is not new. History is witness to this fact. In the WTO, developed countries from the very beginning have been engineering consensus by arm-twisting, offering sops to some and ignoring or sidelining those that take a tough stance. This happened at Doha, when the EU bought the support of the ACP (African, Caribbean and Pacific) countries to launch a new round of trade negotiations and "new issues" by giving them a waiver on banana.

After Doha, in case of special and differential treatment (S&DT), instead of abiding by the Doha mandate, developed countries went on to raise issues that were clearly intended to divide developing countries.

While developing countries insisted that there is only one aspect to the Doha mandate — that of reviewing the specific provisions on S&DT — their developed counterparts sang a different tune. They indicated that some kind of criteria for differentiation and graduation should be introduced. The Doha mandate, however, is clear that the current work programme should limit itself to agreement-specific proposals. All this created unnecessary controversy and made the S&DT negotiations more complicated.

Again, at Cancun, when a group of developing countries formed the G-20 to counter the US-EU joint proposal on agriculture, developed countries deployed all kinds of weapons from their armoury to break the association. They tried to bully Argentina which owes $12 million to the IMF and ridiculed the togetherness of India and Brazil on agriculture issues. Some smaller Latin American countries were even openly threatened by the US, which resulted in a few of them deserting the G-20 immediately after the Cancun.

The efforts to split the G-20 alliance did not end at Cancun. After failing to prevail upon the developing countries at Cancun, the US then tried to dictate the agenda of VIII FTAA (Free Trade Area of Americas) Ministerial meeting held in Miami (November 17-21, 2003).

To counter the growing influence of Brazil (leader of G-22) among the FTAA members, the US announced bilateral agreements with some member countries. Brazil has already made the US bite the dust by forcing it to drop demands for stricter patent rights and greater protection for foreign multinationals.

As reported in the Financial Times and other newspapers, the EU's latest offer on agriculture to Mercosur — with which grouping it is negotiating a free trade agreement — is being perceived by many as a fresh attempt to split the Cairns group of 18 agricultural exporters as well as the Group of 20 developing countries led by Brazil which want the rich nations to reform their farm policies.

Mercosur is a trade bloc formed in 1991 by four Latin American countries — Brazil, Argentina, Uruguay and Paraguay. The four countries have been among the fiercest adversaries of Brussels in the global trade talks. Here it is worth mentioning that the EU and Mercosur had previously agreed not to conclude an inter-regional deal before the end of the WTO's Doha Round which is to be completed by this December.

It is well-known that Brazil and India — the two main architects of the G-20 alliance — have conflicting interest in farm trade liberalisation. While Brazil, a big agriculture exporter, stands to gain from a freer world market in agricultural goods, India's interest lies more in maintaining the status quo on tariff cuts and reduction in farm subsidies by the developed countries. India, at present, is maintaining steep tariffs on its own, averaging to almost 37 per cent. It is this weak link between India and Brazil that the EU has been trying to target ever since the formation of G-20 alliance at Cancun.

As reported in The Economist (April 16, 2004), India's entrenched protectionism might provide the EU with an excuse not to open up its market in future Doha negotiations. That will hurt Brazil.

Hence, Brazil may be tempted to take what is on offer from the EU now rather than staying on India's side in its stand-off with Brussels. What makes the EU hopeful is that the Mercosur negotiators have shown interest in the proposal.

The GSP — another important weapon in the arsenal — is a programme under which developed countries can grant reduced or zero tariff to selected imports from developing countries without having to extend the same concessions to other members, and without the beneficiaries having to reciprocate, as WTO rules would otherwise require.

The latest example is of granting the GSP to Pakistan by the EU. It has not only antagonised India but also compelled it to pull EU in the Dispute Settlement Body of the WTO.

Though the reasons of giving the GSP to Pakistan were purely political, it acted as an irritant between India and Pakistan which otherwise go along quite well on most WTO issues. In fact, at Doha it was India and Pakistan that vehemently opposed the inclusion of Singapore issues till the end.

Brazil may publicly announce that it will not do anything to harm the G-20, but the EU's latest offer on agriculture is clearly intended to split the powerful Cairns group and the G-20 alliance. Only time will tell how far the EU will succeed in its mission. It will, however, definitely blunt the edge of G-20 alliance which was getting stronger day by day.

Moving The Doha Round — II

Published: The Financial Express, April 22, 2004,
By Pradeep S Mehta

In the last piece, (April 20) I had travelled down the history lane on how the farm accord came into being at the WTO and why it will continue to hold the Doha Round to ransom. The peace clause, negotiated under the AoA (agreement on agriculture) to protect their subsidies, has now come under attack. The European Union (EU) had hoped to get an extension of the peace clause earlier this year at the WTO’s ministerial meet in Cancun, Mexico. But the talks fell apart when the G-20, an ad hoc coalition of developing countries, proved to be feistier than anticipated. Indeed, as one EU official told a news agency: “In this sort of atmosphere, everyone might start throwing things at each other”. Therefore, the main reason for the failure at Cancun was agriculture.

At Doha, it was agreed that the framework for the modalities of the negotiations would be agreed to in 2000, but that did not happen. What raised the hackles of WTO members was the US move just after Doha, which raised domestic support to farmers. Though the increase was within the ceiling on the aggregate measurement support (AMS), the so-called “amber” box, it queered the atmosphere. Added to this, the steel tariffs and increase in other protectionist measures, sapped the confidence of its trading partners.

There are various degrees of protection provided by countries to their agriculture sector. Japan and EU lead the pack, with Japan having an average protection rate of 93.7 per cent. It is this protection in the form of export subsidies and domestic support that is a bone of contention among the WTO members. While India might be having a high bound tariff, the applied tariff is much lower compared to other countries. To kick-start the stalled Doha Round, the WTO members met in Geneva from March 22-26, 2004. Different viewpoints emerged regarding the outcome of this meeting. While it is easy to say that the talks failed, what we need to keep in mind is that agriculture is an extremely sensitive issue. The Committee on Agriculture (CoA) has decided to meet again in April to make another attempt. In fact, the CoA has decided to meet every month for the next three months and have a final meeting in July 2004 to work out a final deal.

There is immense pressure on the EU to bring down agriculture subsidies, while the EU has been refusing to commit a date. This is is not being taken well by the developing countries, like India, who have refused to cut their farm tariffs till subsidies by the developed countries are cut.

Today, the EU faces numerous and intense challenges. A recent spat between EU trade supremo Pascal Lamy and WTO chief Supachai Panitchpakdi is one such instance. In a letter, Mr Lamy said OECD estimates of $300 billion annual producer estimates in its 30-member countries had been arrived at by putting monetary value on tariff protection and price differences between markets, and that the actual subsidies were much lower. He said the honest figure would be around $100 billion for all OECD countries and less than $45 billion a year in the EU. Responding to the debate, the OECD secretariat said the figure of approximately $300 billion included not just direct support, but general services for the farm sector, which include research and development. More importantly, the amount of transfers to producers include support provided through artificially high prices paid by consumers due to high import tariffs and export subsidies. Thus, the total support to farmers in the EU, through both these mechanisms, was $106 billion. Of this, $61 billion came from consumers and $45 billion from taxpayers.

The EU’s Common Agricultural Policy, characterised by government intervention at all levels, consumes about one-half of the total EU budget annually. It continually stimulates surplus production that must be subsidised into export markets. At home, it sharply boosts consumer prices. The CAP soon could become even more expensive as 10 new member countries slated for admission add to the surplus capacity.

In an interesting move, according to the Financial Times, the EU plans to split the opposition, both the Cairns Group and G-20 by weaning away the Mercosur block: Argentina, Brazil, Paraguay and Uruguay, through preferential trade concessions. These countries have been the most ardent adversaries of the EU in farm trade talks. The offer, that is expected to amount to nearly one-third of the total agricultural trade concessions to these four, will be offered as a quid pro quo if the EU can get better market access through lower industrial trade barriers, investment liberalisation and opening of services and government procurement. As the icing on the cake, the EU has promised to go further, if these four refrain from pressing it to liberalise its agriculture. In the words of Jose Alfredo Graca Lima, Brazilian ambassador to the EU: “The Brussels plan was ‘very innovative’ and could ‘legitimise’ the CAP in international trade negotiations”.

This plan will anger other farm exporting nations, such as Chile and Thailand, which belong both to the Cairns Group and G-20, as well as richer countries, like Australia and New Zealand. For them it will be double jeopardy, as it will out-price their own exports to EU and break their united efforts in pushing the Doha Round. Lima feels that both India and China will not have any objections, as they are not exporters to EU. Second, EU’s deal with the four Mercosur countries do not include export subsidies, which will remain on the Doha agenda.

If the EU’s plan succeeds, then it will certainly affect the solidarity of the G-20 and Cairns Group. However, one wonders it will be such an easy task, as there are other considerations too, and the jury is still out. Be that as it may, a decision needs to be made before August because after that EU will be busy appointing its new Commission and US will have its presidential elections, which would again cause a time lapse.

If the EU and US want to move and wrap up the Doha Round, they will have to respond to the G-20’s justified demands. Also, the EU will have to respect the specific commitments with smaller ACP countries which contain preferential but limited access to its market. But then yet again, it is bound to the compromise recently reached on the reform of CAP.

In an interesting move, the EU is planning to split the Cairns Group and the G-20 in one stroke. The US and EU argue that the developing countries need to reduce their tariffs which act as strong non-trade barriers. Countries like India might have high bound tariffs but the applied tariff rate is quite low. Also, developing countries face market access problems, which includes third countries also, due to the subsidies given by developed countries, like Japan and EU. The countries cannot compete with the low prices prevalent in these developed countries and thus lose out on markets.

Also, sometimes developed nations put prohibitive tariffs on products, somewhat like Japan’s 800 per cent import tariff on rice. Sanitary and Phytosanitary measures (SPS) are another non-tariff trade barrier used by developed countries to restrict market access. For instance, in a study by World Bank, it was proved that the standard of aflatoxins (natural contaminants) implemented by EU were much higher than the agreed international standards and will have a negative impact on African export of cereals, dried fruits and nuts to Europe. As a consequence, Africa (nine African countries) incurred a total negative loss of $1070 million, which translates into 1.5 million mandays of jobs. There are similar instances of NTBs that prevent poor countries from expanding their markets.

Keeping in view this state of affairs, we should not expect radical changes in the stance of countries. But even a small change should be seen as a significant step in the survival of multilateralism and the triumph of developing nations.

— Concluded

Key To Moving the Doha Round - I

Published: The Financial Express, April 20, 2004,
By Pradeep S Mehta

Agriculture continues the dog the debate at the WTO in Geneva. Following the Cancun debacle, negotiators are locked in to move the agenda forward. There is a 20-yard movement, but it is slow. Therefore, one needs to understand why agriculture trade talks drag all the time.

Agriculture came into the international trading system when the WTO was established in 1995. In 1947, when the General Agreement on Tariffs and Trade (Gatt) was established, trade in agriculture was the last thing on the minds of member countries. They were more concerned about promoting their domestic agriculture sector rather than international trading in farm goods. On the insistence of the US, nations were granted exemption from Articles XI and XVI of Gatt, which meant that they could freely support their farmers through subsidies and domestic support. Hence, in the initial years, “big brother” US was also interested in protecting its own domestic market rather than engage in trade.

The 60s saw a change in the attitude of the US and other countries. This was because of two reasons: first, the US had large stock of foodgrain and when these stocks were offloaded in the domestic market it infuriated farmers, because prices crashed. Second, the entry of the Soviet Union as a major food importer even though it had the potential to be a major food producer. Soviet Union became a major buyer of foodgrain, thus creating a panic over fears of both food shortages and price increases. This alarmed farmers in the US and elsewhere. Consequently, they raised barriers to protect themselves. All this turmoil and uncertainty combined with pressure from the big powers renewed the multilateral efforts to improve the trade rules in agriculture.

When the Uruguay Round was launched in 1986, a group of net-food exporting nations (both rich and poor) demanded the inclusion of agriculture in the negotiating agenda. This group was later christened as the Cairns Group after the name of the Australian island where they met to formalise their club rules. If their demand was not acceded, the Round would have moved far slower than it did. They sought to agree to a list of demands being made by the US and EU, such as intellectual property rights etc.

During the initial years of the UR talks, agriculture remained dormant. It was only after almost 6 years that the conflict between the US and EU, on domestic subsidies, came to the fore. Subsequently, a deal was struck on tariffs, including subsidies, and many of the unfinished items were left for future negotiations. One of the major outcomes of the UR was the Agreement on Agriculture (AoA), which along with the agreement on textiles & clothing were new to the Gatt disciplines. Besides these, three new deals were struck: TRIPs, TRIMs and Services. The farm accord reflected the shared agenda of the US and the non-European grain exporting countries, like the Cairns Group, with the EU and others happy that they were able to postpone the Armageddon.

The AoA, which came into effect from January 1, 1995, focused on three areas: export subsidies, market access and domestic support. The fourth pillar was food and safety standards etc. Article 20 of the AoA mandated the continuation of the negotiations. These began in March 2000 and stocktaking of the advances and proposals took place in March 2001 in preparation for the Fourth WTO Ministerial in Doha in November 2001. The Doha Round, including the agriculture talks, are scheduled to end by January 1, 2005 and the implementation of tariffs and subsidy cuts agreed to in the negotiations would be implemented from January 2006.

However, the time period of concluding the Round now stands extended, due to the failure of the Cancun meet. To define the issues under the AoA, a traffic sign analogy was adopted. Red denoted all subsidies banned from day one, while green was adopted for permissible subsidies. Amber was chosen to define subsidies that would be reduced over time. Another colour, which doesn’t exist in the traffic light system, was used: blue, to define subsidies that are tied to programmes that limit production. However, this system is not that simple.

These boxes meant that while some subsidies will be banned, others might be reduced gradually. All domestic support measures considered production- and trade-distorting fall into the ambit of the amber box. While developed countries are allowed to support 5 per cent of agricultural production, it is 10 per cent for developing countries. The members that have larger subsidies than the de minimis level at the beginning of the post UR are committed to reduce these subsidies within 10 years. The blue box has been put in place to check over-supply of a farm good. The green box subsidies were those that are the least trade distorting and include subsidies on R&D, safety net programmes etc.

As per the UR agreement, rich countries had to reduce their tariffs by 36 per cent and the poor by 24 per cent over the six-year period of 1995-2000, subject to a minimum reduction per product by 15 per cent and 10 per cent, respectively. This was done cosmetically, as tariffs were pretty high in the base year of 1998. It had no significant impact.

Much discussion has taken place regarding the merits and demerits of this agreement and its effect on the developing countries. A major part of these discussions have been regarding Article XIII. The so-called “peace clause”, agreed nine years ago, granted immunity to farm subsidies from being attacked under the WTO’s disciplines, which prohibit action against subsidies under the normal procedure of the Agreement on Subsidies. This immunity provision expired at the end of 2003. This has lead to the incidence of the major developed countries being exposed to the risk of their subsidies being attacked by other countries through formal disputes.

Brazil cast the first stone. It challenged America’s cotton subsidies, arguing that they violate a term in the peace clause that caps subsidies at 1992 levels. According to Brazil, the subsidies provided by US are way above the limit set under the clause. There is also a difference of opinion regarding the expiry date of the peace clause, with US stating that the countries whose accounting was based on 1995, the clause will expire after another six months. Along with two other Cairns Group members: Thailand and Australia, Brazil has also dragged the EU on another case involving sugar. The EU has been charged with subsidising surplus sugar for export beyond its WTO-agreed limit. However, EC has refuted these allegations.

Now that the peace clause, which had kept the WTO members from going after each others’ jugular, has expired, trade pundits predict trade disputes turning into battles. Therefore, it is evident that the major developed countries, the US, EU, Japan and Korea will be very keen to continue with the “peace clause”. Do we see the beginning of a war?

UNCTAD's role: Renewed commitment needed

Published: The Hindu Business Line, April 16, 2004,
By Pranav Kumar

IN a few weeks the XI Conference of the United Nations Conference on Trade and Development (Unctad) will be held at Sao Paulo, Brazil, to formulate policy guidelines and set work priorities vis-à-vis global trade and development. The "Conference" is Unctad's highest policy-making body which meets every four years at the ministerial level. The X Conference was held in Bangkok in February 2000.

Founded in 1964 as a permanent inter-governmental body, Unctad is the UN's principal organ in the field of trade and development.

Many profound changes have occurred in global trading over the past four decades. These include the ever-increasing economic interdependence of nations, the emergence of several new regional trading blocs, the further deepening of such existing ones as the EU and, above all, the establishment of the World Trade Organisation (WTO) in 1995. Thus, the rationale that led to the creation of Unctad in 1964 remains as valid today as then.

Many experts, in fact, feel that Unctad's role is more relevant now than ever before. Unctad was created to bring about changes in the world economic to allow developing countries to participate more actively and, thus, benefit from a prospering world economy. In view of the ever-widening gap between the rich and the poor, the need for cooperative effort has increased manifold.

Unctad's early years coincided with economic growth in many developed and a few developing countries. However, a majority of the developing countries faced increasing marginalisation on the global trading landscape. They experienced worsening terms of trade for their exports, especially for commodities, and an increasing income gap between developed and developing countries.

The gap between the "haves" and "have-nots" has further widened. While the richest 20 per cent of the world's population had 30 times the income of the poorest 20 per cent in 1964, the gap has now doubled to 60.

Achievements

Whether Unctad has realised its full potential or not is a matter of debate. Nevertheless, Unctad should be given credit for many achievements. Among the most significant achievements is the agreement on the Generalised System of Preferences (GSP). Introduced in 1971, over $70 billion worth of developing countries' exports receive preferential treatment in most developed country markets every year under the GSP.

The utilisation rate, however, in total GSP preferences given by Quad countries in 2001 was very low at 39 per cent. In fact, in 1994, this average utilisation rate was higher at 51.1 per cent and has shown a constant decline since.

The idea of granting developing countries preferential tariff rates in the markets of industrialised countries was originally presented by Raul Prebisch, the first Secretary-General of Unctad, at its very first Conference in 1964. The GSP was adopted at Unctad II in New Delhi in 1968.

Besides the GSP, the setting up of the Global System of Trade Preferences among developing countries in 1989; the adoption of the set of Multilaterally Agreed Principles for the Control of Restrictive Business Practices in 1980; negotiations of International Commodity Agreements, including those for cocoa, sugar, natural rubber, jute and jute products, tropical timber, tin, olive oil and wheat; and the negotiation of the Common Fund for Commodities (1989) — set up to provide financial backing for the operation of international stocks and for research and development projects in the field of commodities — are some other notable achievements of Unctad.

Role in LDCs' development

Perhaps, the biggest failure of Unctad has been its inability to put the least developed countries (LDCs) on to the self-sustaining growth path. Unctad has been concerned with special problems of the LDCs since its establishment in 1964.

Its work led to the creation of the list of LDCs, and there is now increasing awareness of their special problems, particularly within the WTO. The "Partnership for Growth and Development" adopted by Unctad IX defined LDCs as a cross-cutting issue in its work and stated that the LDCs should be given priority in the assistance provided by Unctad.

Unctad is also the focal point for LDCs of the UN. Unfortunately, the results have not matched expectations.

While the structure of developing country exports, taken as a whole, has changed significantly over the past two decades, the LDCs have remained heavily dependent on a few primary commodities for their export earnings.

The LDCs remain vulnerable to market vagaries and weather conditions. Price volatility, arising mainly from supply shocks and the secular decline in real commodity prices, and the attendant terms-of-trade losses have exacted heavy costs in terms of incomes, indebtedness, investment, poverty and development.

According to the UN LDC report of 2002, prepared by the Unctad Secretariat, the incidence of extreme poverty is rising in the LDCs as a whole.

In the LDCs for which there is data, about 48 per cent of the population were living on less than $1 a day in 1965-69, compared to 50 per cent during 1995-99. This means that the number of people living in extreme poverty in the LDCs has more than doubled over the last 30 years, from 138 million in the second half of the 1960s to 307 million in the second half of the 1990s.

Furthermore, the share of LDCs in world exports of goods and services declined by 47 per cent between 1980 and 1999, and stood at only 0.42 per cent of total world trade in latter year.

As regards FDI, while its flow to developing countries have increased, the LDCs' share in total FDI flows stood at less than 0.5 per cent in 1998.

Challenges ahead

Leave aside the achievements what so ever, the question arises as to whether Unctad has to date fulfilled all the major expectations raised at the time of its creation.

The fact that most developing countries, especially the LDCs, landlocked and island countries still facing huge problems in expanding their trade, such as declining terms of trade and export earnings; persistent tariffs in the forms of tariff escalation and tariff peaks and emergence of new types of non-tariff barriers such as concerns for food safety, health care; poorly functioning international commodity agreements, and so on are certainly indicative of the major limitations confronting the international community, including Unctad in the discharge of its mandate. One of the biggest challenges for Unctad in the coming years will be to reverse the trend of decline and instability of world commodity prices and the resulting terms-of-trade losses that have reduced the export earnings of many developing countries, particularly the LDCs and the African countries.

Most African countries depend on two-three main primary commodity exports for the bulk of their foreign exchange earnings, and as a result they have to contend with the problem of short-term instability of primary commodity prices.

Further, value retention by developing countries producers of commodities is decreasing, and their participation in international and domestic value chains is a major challenge.

Hence, there is need to give renewed impetus to the problems of commodity-exporting countries, which includes improving terms of trade and diversification of their exports. This issue has been very rightly identified as one of the sub-themes for Unctad XI.

In the beginning of the new millennium, some major international conferences were held which came out with comprehensive sets of agenda, identifying not only goals but also outlined the plan of action as well in the field of trade, finance and sustainable development.

To begin with, in 2000, the UN in its Millennium Declaration identified eight Millennium Development Goals (MDGs) that includes, inter alia, halving the proportion of people living in extreme poverty and hunger, and achieving universal primary education by 2015.

In 2001, the Third UN LDC Conference was held at Brussels, which was followed by Fourth Ministerial Conference of the WTO at Doha to launch a new round of trade negotiations. In 2002, first the UN sponsored Financing for Development Conference resulting in Monterrey Consensus and then the Plan of Implementation agreed at the World Summit on Sustainable Development (WSSD) held at Johannesburg in South Africa.

The major challenge, however, is the implementation of the outcomes of these global conferences. Unctad is, therefore, expected to make a substantial contribution towards their implementation.

It has also been reiterated in the Pre-Conference Negotiating Text of Unctad XI that it should specifically aim at contributing to the implementation of the Programme of Action for the LDCs agreed at the Third UN Conference on the LDCs, the Monterrey Consensus, the Plan of Implementation agreed at WSSD as well as the Doha Development Agenda to help achieve the internationally agreed goals contained in the Millennium Declaration.

Why Road Safety is the Casualty?

Published: The Hindu Business Line, April 07, 2004,
By Pradeep S Mehta

TODAY, the World Health Day is being observed it with an extremely relevant theme: "Road Safety is No Accident". In India, it is a continuing series of accidents.

First, the National Road Safety Policy adopted in 1992 cannot even be found in the Ministry of Road Transport and Highways or its Web site. One understands that a new one is being drafted. Second, the 1992 policy had a clear goal to reduce the number of accidents, but they have been going up exponentially. A Planning Commission study estimates the economic cost of accidents to be in the region of 3 per cent of GDP. While the Government is engaged in a worthwhile project of building roads, what of the lives lost on roads? Now consider this:

India has one of the highest per capita accidents in the world — roughly 86,000 people get killed and more than four lakh get injured or crippled every year.
According to the International Road Traffic Federation, India stands fourth in the number of accidents after the US, Japan and Germany.
But it tops the world in road fatalities — its fatality rate is 1.97 per 1,000 vehicles compared to Germany's 0.20.
With just 1 per cent of the global vehicle population (and a road network of just 3.3 million km), India has 6 per cent of the total accidents of the world.
There is an accident every 90 seconds and every seven minutes a fatality.

Now multiply this with all the thousands of km of new roads and highways. Forget the environmental costs, road accidents account for a loss of Rs 6.95 crore to the national exchequer. And that is discounting the social costs — the loss of the breadwinner and long-term injuries or trauma for the victims and their family. Experts estimate road accidents account for an annual social loss of Rs 55,000 crore.

Unless road safety is given the high priority it deserves in the development of the current infrastructure, the statistics will continue to rise. Unless the policy-makers create room for greater investment in more rigorous training of road users and drivers, the death toll will continue to mount. Besides maintenance of roads and enforcement of the law, it is education and training alone that will change the situation. It is well established that the vehicle driver is a very significant factor in a road accident — about 50 per cent of accidents are caused due to the driver's fault. Thus, the quality of drivers has special significance, and correct training and effective licensing are the two vital fundamentals of a quality driver.

It is a fact that the majority of drivers in India have hardly any formal training. In 1992, when the National Road Safety Policy was being drafted, it was found that out of about 350 lakh people engaged in driving different kinds of motorised vehicles, about 20 lakh were deployed on heavy transport vehicles.

That figure has gone up significantly in the past decade. More highways mean more heavy vehicles, which means more ill-trained drivers on the road. And the connection to greater number of accidents is established. Training and regulation of such drivers, therefore, needs special attention. So, though the Government has directed attention on awareness programmes, it needs to pull up state transport departments and traffic police, which are the local licensing and enforcement authorities, into conducting training programmes if some measure of success is to be found in reducing the number of road casualties.

Important aspects of road safety need to be built into the programme. These include: Knowledge of traffic rules, regulations and road signs, punishment to drivers violating traffic rules and speed limits, driving under the influence of liquor or drugs (or while using mobile phones) and the elementary mechanism of vehicle and driver fitness and upgrading the quality and instructions imparted by motor driving schools also. Incidentally, the training should be equally mandatory for the regulators, that is the traffic personnel.

And it is not enough to train drivers technically alone. Social and psychological training also needs to be factored into any module that is designed. It is a known fact that aggressiveness and loss of patience are increasingly leading to a worsening road situation in India. There are too many high-profile cases of road rage reported in the media to dispute the fact.

Licensing also needs to be made more stringent. The licensing process in most cities and towns, particularly the manner of testing driving skill and knowledge of traffic regulation, is a joke. What is more, the control should not end at the issuing of a licence; refresher courses and further tests should be made mandatory at the time of renewal or periodically.

Policy-makers need to take a structured approach to building this component into road safety policies, and fast. Or else, all awareness programmes, such as the ones the Government is currently running, will be consigned to the dust as that grand document, the National Road Safety Policy. In this, the civil society movement also needs to be a more active player than it is.

Until this happens, we will continue to see scooterists overtake other vehicles from the left and swerve into the right lane barely missing another vehicle, or drivers swinging out nonchalantly from by-lanes straight into a collision. Or more tragedies on the road.

Food Security More Crucial Than Health Under TRIPs

Published: The Financial Express, April 01, 2004,
By Pradeep S Mehta

A few weeks ago, FE carried a report about R A Mashelkar joining a new World Health Organisation (WHO) committee to look into the implementation of WTO’s TRIPs and public health deal. Someone commented that WHO’s recommendations need not be accepted by WTO. Indeed, the WTO is about mercantilist relations between member countries and thus it is not required to accept any other organisations’ brief.

The concern for public health under TRIPs has always been in the limelight and a final deal on it was, perhaps, the only good thing to happen at the Cancun ministerial. However, if WHO has desired to follow it up, then it is welcome. Whether or not the WTO heeds it, the talks will maintain a moral pressure on the WTO.

TRIPs is a rent-extracting accord that has been forced on the poor world. However, the issue of public health is but a small one, and eclipses the more vital issue of food security. The public health deal was the result of the AIDS pandemic, especially in the context of the treatment. It had an emotional appeal as well. On the other hand, the links between TRIPs and food are not so sensational. It will not produce pictures of hungry and starving farmers, who have been tricked by US agribusinesses.

Food security is essential for developing countries who have millions of mouths to feed and for whom agriculture is the mainstay. Agriculture is one of the most highly-protected sectors in world trade. It has the maximum tariff and non-tariff barriers. But the bigger issue here, besides subsidies and tariffs, is seed patents.

Powerful organisations in US and Canada have created a monopoly in the area of seed patenting. The same corporations are incestuous when it comes to licensing. They just grant each other the license to produce and will not entertain anybody else. By 2001, just six corporations — Aventis, Dow, Du Pont, Mitsui, Monsanto and Syngenta — controlled 98 per cent of the global market for patented GM crops, 70 per cent of the global pesticide market and 30 per cent of the global seed market. The six corporations owned 60.8 per cent of patents granted on rice, 70.8 per cent of patents granted on wheat, 71 per cent of patents granted on maize, 76 per cent of patents granted on soybean and 46.7 per cent of patents granted on sorghum. These are all staples that supply most of the calories for the poor.

Farmers in developing countries have over time developed many varieties of the world’s staple food crops. However, TRIPS and patents on life are facilitating the corporate ‘take-over’ of agriculture. The impact is far worse in the South, where majority of the people are dependent on agriculture for a livelihood.

TRIPs allows those who develop or innovate a product to get patent protection for up to 20 years and offers no guarantee that the owner will share the benefits. An artificial distinction has also been made between plants and animals, and micro-organisms, for which there is no scientific basis. Furthermore, this indistinctiveness has allowed worldwide patenting of genes and micro-organisms, as well as genetically engineered organisms, including modified plants and animals. This is a distortion of patent law, because it confers monopoly rights over life forms and life itself for commercial exploitation. Genetic engineering has greatly increased the opportunities for patenting of living organisms. Some scientists argue that patents on transgenic processes should not be allowed, as it hardly qualifies as a technology, much less an invention.

An important class of transgenic process patents is on Genetic Use Restriction Technologies (GURTS), the most notorious of which is ‘Terminator Technology’. Terminator technology refers to plants that have been genetically modified to produce sterile seed; it is designed to prevent farmers from saving and re-planting their seed, forcing them to buy new seeds every year. In 1999, due to mounting opposition to Terminator seeds, both Monsanto (now Pharmacia) and AstraZeneca (now Syngenta) vowed not to commercialise genetic seed sterilisation technology.

Big agribusinesses accuse farmers of growing unlicensed GM crop and demand large sums of money or threaten legal action. Even non-GM farmers whose crops become contaminated can be sued. The accusations have far-reaching effect with company inspectors taking crop samples, and then demanding payment. Since the agribusinesses are powerful contributors to both Democrats and Republicans, no regulatory and balanced mechanism has been put in place to deal with malpractices.

Imagine the future scenario in the developing world, which will soon enter into full obligations under the TRIPs agreement. In developing countries, farmers still procure seeds by re-sowing and informal exchange. With the advent of patents and technologies such as Terminator, this will no longer be possible. The issue of food security will pale in comparison. Thus, Dr Mashelkar and others need to develop future scenarios of the impact of TRIPs on food security, and start a solid debate from now itself.

Globalisation and Competition

Published: The Economic Times, March 30, 2004,
By Pradeep S Mehta

While competition policy became a victim of the failure of the WTO ministerial at Cancun, Mexico held in September, 2003, the World Commission on Social Dimension of Globalisation, in its report released in February, 2004, has inter alia supported the need for a multilateral competition policy.

The Commission has disjointedly also lent its weight to a development-friendly investment accord. This is in spite of the fact that the developing world has rejected proposals on both competition and investment at the WTO. However, that doesn’t reduce the need for an international competition policy. Considering the existing producer bias in the WTO and increasing integration of world economies, competition policy can provide the necessary balance.

Why is it necessary to have a competition regime? Apparently the answer lies in the fact that many countries are either enacting a law or modernising the existing one. When the WTO came into being in 1995 about 35 countries had a competition law. Today the number is around 100 with many more in the queue. This is because, the times are changing quite rapidly and business malpractices are crossing borders unabashedly.

Examining a small number of international cartels which were discovered and prosecuted in the 1990s, a World Bank study has estimated that developing countries imported goods and services worth US$80bn per annum from these sectors. These firms would have collected monopoly rents in the range of $20bn-$24bn per annum from the developing world — roughly half of the development aid that the poor countries get.

Why cooperation at international level? Because, many in the developing world who realise the impact of these cartels know about their helplessness to act against them. No wonder, when the tide was against a competition agreement at the WTO, before the Cancun meeting began, the Federation of Indian Micro and Small & Medium Enterprises (FISME) of India had asked the Government of India to agree to negotiate the same from among the four contentious Singapore issues, stating: “Having realised the importance of to curb anti-competitive activities of cartels, we in India have already adopted a new competition law.

The activities of these cartels at the global level are much more damaging, which cannot be controlled by one nation and need to be restrained and penalised through a multilateral agreement.The benefits of such an agreement would result not only in improved market access for Indian products, but also help help reduce the prices of raw materials where cartels operate.”

One of the most notorious cartels which were exposed related to bulk vitamins. Three European companies were fined over a billion dollars for having colluded to rig prices by competition authorities in various countries. This cartel caused harm of no less than US$3bn to developing countries alone. But, other than Brazil, not a single developing country tried to prosecute the perpetrators.

Cartels are not an international phenomenon alone. The cement industry everywhere loves to cartelise because of excess capacities, and they have been hauled up before every possible competition authority in the world. The resultant media coverage has thus increased awareness across countries to curb such anti-competitive activities.

Competition is key to increased FDI flows. FDI comes into countries through two major routes: greenfield investments and through mergers and acquisitions (M&As). It is the latter which too has an international dimension. Furthermore, when large companies in the west merge, they present a fait accompli to their subsidiaries in developing countries to combine.

In the west such merging companies go through a rigourous examination by competition authorities to check if the merged entity becomes a dominant player in the market, prone to anti-competitive behaviour. This has often been a bone of contention between US and European authorities, the two most important global powers. They have now arrived at an understanding to cooperate on merger reviews. What is missing is whether such a cooperative effort would include developing and other countries where the merging firms operate.

Why should developing countries be involved in the merger review process? Empirical evidence shows competition authorities in developing countries often acting in an inconsistent manner: quite effectively at times, and sometimes not at all. Not only mergers, but there are many more areas, such as export and import cartels, abuse of dominance etc. Thus international cooperation is an imperative, rather than a disadvantage to the developing world. Granted that the WTO has an overloaded agenda and other problems of equity and transparency, but that is no ground to negate the dire need of an international competition policy.

Are The Big Two Serious On Moving Doha Round Forward?

Published: The Financial Express, February 14, 2004,
By Pradeep S Mehta

Bob Zoellick will never learn. Following closely on the heels of his EU counterpart, Pascal Lamy. Zoellick is currently on a whist-lestop tour of Asian capitals to push the Doha Round, and adding new words to the trade lexicon, each smelling of arrogance and bullying. At Tokyo, he warned that countries reluctant to push the global talks will be ‘left out’, as the US cuts bilateral deals on their own.

At Cancun, Zoellick spoke in an equally undiplomatic manner about the world being divided into two camps: The ‘Can-do’ and ‘won’t-do’ countries — hardly a reassuring message for countries who are grappling with the stalled agenda with the hope of achieving something this summer, at least a framework for negotiations on the modalities.

Who is Zoellick fooling? Soon after Cancun, the Free Trade Agreement members of the Americas met at Miami to achieve nought. Brazil and Argentina did not go along. A recent meeting at Pueblo, Mexico also saw the two strong sides locking horns. At Miami, the US wished to push investment, stronger IPR rules etc, while Brazil pushed for agriculture. Brazil, the leader of G-20 (southern alliance which emerged at Cancun), didn’t show any appetite for tariff reductions within the proposed FTAA. Other bilaterals which the US are pursuing are generally insignificant, except that with Australia.

Is the US willing to work with the right spirit of trade liberalisation? History shows that it is not. Just after the successful conclusion of the Doha meeting, the US brought about a new farm subsidy bill, which enhanced doles to its farm sector by more than half. The steel tariffs issue too was a sign of increasing protectionism, though now relaxed under the domestic consumer lobby pressures. Similarly, the Byrd Amendment, which distributed the spoils of anti-dumping and anti-subsidy rulings, has been struck down by a WTO panel, but is yet to be scrapped.

Zoellick has sent out a letter to all the 146 members in Jan-uary, urging them to move on the Doha Round, and also made an offer to address export subsidies in farm goods. This letter merely reassures others that in spite of the US presidential polls, it is prepared to move ahead. But sceptics say that it’s one thing to negotiate a deal and another to give it real effect.For example, in spite of a clear mandate to negotiate implementation issues at Doha, nothing was done the whole of 2003.

Lately, the process issue at the WTO was also held to ransom by the US. New chairs were to be elected for the General Council (GC) and all subsidiary bodies, and it was not in favour of Japan taking up the GC chair. However, that bump has now been removed and things will move forward at Geneva. The new appointments have, however, signalled something for the opponents of Singapore iss-ues (investment, competition, transparency in government procurement and trade facilitation), as no chairs have been appointed for these working groups. Except, that on trade facilitation, WTO deputy director general, Rufus Yerxa, will continue to consult members.

Speaking about the process issue, Lamy has been repeatedly speaking about giving more powers to the D-G of the neolithic (sic) WTO so that he can move contentious issues. But what he doesn’t realise is that the WTO is about hard-nosed economic issues, and members will not accede any further powers to the DG. There is too much at stake.

The EU is also not covering itself in glory. True that it has a notorious record of protectionism in agriculture, now it is trying to deflect the same by bringing on board new trade-unrelated issues. Earlier, when farm negotiations were going on, the EU had introduced the issue of animal welfare standards. In a discussion paper released in February, which is yet to be adopted, the EU proposed that countries should be allowed to ban imports from countries that did not share their “national values and standards”. This will be a nightmare, if implemented, as it will be highly subjective and divide the globalising world further.

WTO rules do allow banning imports of goods under Article XX on several grounds, such as health, safety etc, but the WTO jurisprudence also says that it should be tested on the grounds of “necessity” and “least trade restrictive”. Hormone-treated beef and genetically modified food are some examples of trade friction, as being against the consumer interest, have been quoted in this paper.

Be that as it may, both the two trading giants continue to come up with confidence-reducing measures, which vitiate the negotiating atmosphere at Geneva. Another such measure is challenging the role of UNCTAD in the trading system. Ever since the WTO came into being in 1995, UNCTAD’s role as a negotiating forum has diluted. However, it has continued to be engaged in generating excellent analyses and providing advice to poor countries on trade negotiations.

On the eve of the UNCTAD XI, to be held in Sao Paulo in June, 2004, the US and EU have suggested that UNCTAD’s role be limited to providing technical assistance and capacity building. This would mean that the work of analyses will either be stopped or reduced. As it is the developing countries, save a few big ones, have a very limited capacity to analyse, and have thus been dependent upon UNCTAD etc.

Thus, the levels of confidence and trust in the trading system continue to be eroded. That will certainly have an adverse effect on moving on the Doha Round. This is other than the fact that at Geneva, negotiators are often too immersed in the nitty gritty of negotiations, ie, looking at even the commas, semi-colons and full stops very carefully. Given this scenario, the parties will need greater resolve to move the agenda forward. That was the half-empty glass scenario. There is a half-full glass feeling too, as it is in the interest of all to move the Doha Round. If properly negotiated, benefits will also accrue to the developing world. In the words of the former GC chair and the Urug-uayan ambassador, Carlos Perez de Castillo, “We are all blinking, but things can move only if we blink together”.

Everyone Wishes To Break The Logjam At WTO, But...

Published: The Financial Express, January 26, 2004,
By Pradeep S Mehta

On a whistlestop tour of Asia, Pascal Lamy arrived in New Delhi last week to be reminded about what was already said at Cancun. But the European trade supremo is not one to give up so easily. A significant movement on the stalled Doha Round of the WTO is a personal ambition, as he will relinquish his current post by September, 2004. He would like to depart from the European Commission having achieved something. This opportunity slipped out of his hands when the Cancun ministerial meeting of the WTO collapsed this September.

There are other reasons as well, for Lamy to push for getting the Doha Round back on track. Firstly, the push by Robert Zoellick, the US trade representative. Zoellick, trapped between ’can-do’ and ’won’t-do’ countries, has realised that his efforts on the non-multilateral front-especially with bigger trading partners—have been futile. Thus he has called for moving on the Doha agenda. This means, that the August 13th deal on agriculture between him and Lamy will be given the short shrift. In any event, that is what had catalysed the creation of G-20, now a formidable force in moving the farm agenda forward. Pundits have speculated on the impasse to be worsened by the ensuing presidential elections and the EU expansion as being further bumps on the road.

But, that doesn’t matter because for both it will be desirable to get into the negotiations mode sooner than later. One major factor in this calculus is the possibility of countries launching disputes on the ’peace clause’. If negotiations are on, then they would be able to buy peace. For this will be a condition of both that there should be a status quo, until the whole negotation is concluded. Already the ’peace clause’ issue is up for a test in a current dispute between Brazil and the US on cotton subsidies. The panel is yet to deliver a verdict. On the other hand, the issue of cotton subisidies has been a rather emotional one for the poor West African countries. At Cancun, the US response to the Africans’ demand for a sectoral approach to this was rather dismal. This too will be now part of the ongoing negotiations on agriculture. Secondly, Zoellick in a recent letter to all the 148 members of the WTO has attacked the export subisdy structure of the EU, as the ’greatest barrier to progress in trade negotiations’.

Lay has responded to this by agreeing to eliminate all trade-distorting subsidies at a future date, which is to be negotiated. There is no concrete deadline for this, for Lamy is in no position to make a commitment a priori. He also hopes that the US farm bill too would be attacked and thus a level playing field could be achieved. Thus a critical mass could be generated, if things move forward at Geneva. Lamy feels that the derailed talks can be salvaged upto sixty percent in 2004, if serious efforts are launched in April. Getting tariff correction on farm goods will be another major battle among the trading partners. The Cairns group, which includes the two G-20 members: Argentina and Brazil, are not ready to accept the Uruguay Round formula of linear reduction, but would rather adopt the Swiss formula of reducing tariffs on high duty items first. As far as the US is concerned, its amorous advances with ’can-do’ countries in South America have been spurned. On the other hand, US farm groups like the Florida dairy and sugar producers have raised their protests against such a deal. Their objection is also against a bilateral deal with Australia.

Expressing fears over huge job losses, they would rather have a deal in the WTO because they too believe that complex issues of subsidies and distortions can be better addressed at the multilateral forum.

On the other hand India is not prepared to reduce her own high tariffs. In the words of commerce minister: Arun Jaitley, there are 650mn farmers in India who need protection. Undoubtedly, that is a worthy argument. But this argument cannot be analogous to farmers in the rich world. For, often the subsidies in the rich countries end up in the hands of middlemen rather than the supposed beneficiaries. Secondly, it is only through reform in agriculture in the OECD world, that development benefits can reach the poor in the poor countries. But agriculture is not the only bone of contention. On Singapore issues, whereas EU was ready to drop investment and competition at Cancun, they were not prepared to abandon trade facilitation and transparency in government procurement. Now, Lamy would not want to drop investment and competition but put it on the back burner, positioning the other two on the front burner. But that’s is not the end of the story. Perhaps as tactics or fact, Lamy believes that many developing countries are interested in getting an investment agreement at the WTO. It might just be their ego which doesn’t prevent an easy solution to the impasse. However, the EU’s approach of unbundling the Singapore issues and taking forward two of them offer the possibility of a deadlock, again. Not only that, but the EU would like to negotiate them as plurilateral deals. It is still a mystery why the four issues were bundled in the first place.

At a breakfast meeting in Delhi, when this writer questioned Lamy that even the OECD had failed in negotiating a plurilateral (wrongly dubbed as ’multilateral’) how does he expect it to succeed in the WTO even if some members are ready to negotiate one.

Readers may recall that the OECD efforts had failed due France’s objection, while the US intransigence was the major blockade. According to Lamy, if the US doesn’t want one it enables her to unilaterally dictate terms in bilateral agreements. But that is a rather weak wicket.

Clearly, considering the position adopted by the G-20 on agriculture and the G-90 (LDCs and ACP countries) on Singapore issues, unless the US and EU see some sense and do climb down sincerely, the Doha Round will continue to remain on an artifical life support system. That would be bad for both the trading system and the poor in the world.

The Global Anti-Globalisers

Published: The Economic Times, January 24, 2004,
By Pradeep S Mehta

Curtains have come down on the alternate stage, the World Social Forum. There was nothing much which came out, though over a hundred thousand people from all over the world converged at Mumbai to look for an alternative to the existing world order.

Not that everyone who was there had any inkling about what they came there for. It was a jamboree and as was dubbed by some, another Kumbh Mela. At the Kumbh Mela, which happens once in 12 years, people come with the faith that a dip in the holy confluence would wash away their sins. At Mumbai, it was someone else’s sins that people had gathered to wash away. It was organised chaos, to say the least.

The WSF was conceptualised as an alternative to the World Economic Forum. But the differences are too many. Firstly, the organising committee for the social forum is an amorphous lot of activists, who may not necessarily agree with each other on most things. Secondly, the agenda is negative rather than positive. No implementable alternate agenda is put across. A jamboree is held, which puts across ridiculous ideas and ludicrous proposals, and globalisation is condemned as being absolutely bad.

Many debates were held among the converted, yet there was little agreement on each of them. Perhaps, one issue which had a universal appeal was the increasing US hegemony, of which Iraq is but one symbol. Somehow, anything which is associated with Americans gets lumped into the larger globalisation debate. However, the very construct of the meeting on such a large scale is but due to globalisation. The communication infrastructure at the WSF, international transport used by protesters from across the world, use of English as the link language, use of international money for all their spending and the vast coverage for the event by most media channels, sums up the equation as: “Anti globalisation with the help of globalisation”.

Most of the tourist activists came here on international funding, some of which are indirectly linked to funds from international financial institutions and large American companies and philanthropists. Arundhati Roy in her opening address spoke about targeting some of the US companies that have benefited from the Iraq war and of closing their offices world-wide. Though the Iraq war raises a genuine concern against the increasing US hegemony, would it be wise to shut down TNCs who employ millions of people all over the world? If one endorses the idea of hurting a US company, wouldn’t boycott be a better response, if it can be successful? In any case, imposing the same view on others would represent totalitarianism.

Most WSF delegates were not even sure why they were there? Rayban sunglasses, Nokia cell phones, Nike and Reebok shoes were a common sight at the WSF and interestingly worn by the same people who were stridently voicing anti-globalisation slogans. Most organisations are not even expected to maintain any leftist or rightist ideologies. The fight against child labour can be as well fought in today’s globalised world as in a world without TNCs, WTO or World Bank. Similarly protests over rights of the poor and marginalised can be heard in both a neo-liberal and a non-liberal world. Several organisations dealing with the marginalised and the underprivileged were protesting against globalisation. Corporates and international NGOs are the major funders of these NGOs. Probably these NGOs would be the biggest losers if anti-globalisation and anti-TNC fantasies ever came true.

A disturbing trend was the use of WSF as a podium for promoting the ideologies of communist and socialist parties. The same communist parties have more or less become pro-liberal in Kerala and West Bengal , or in Vietnam and China . They have changed after realising that they have failed to live up to the promises of full employment and better living conditions. The emphasis on liberty and economic freedom over security has led to the rejection of communism and socialism all over the world. The so-called torch bearers at the WSF proposed another world, but failed to realise that in a society where the ideal is next to impossible, any other alternative to liberalism would be a disaster.

Joseph Stiglitz used a good expression: “Protest the wrongs! Celebrate the opportunities”. Instead of merely painting the whole of globalisation as imperialist and unfair, one should target the problems, provide alternatives, market those alternatives and instead of making another world possible, create a better world of the present.

A good way of looking at the WSF is in the form of balancing the increasing tilt towards capitalism as an ideal. The WSF brings to the forefront the need for countries to superimpose their development objectives over liberalisation objectives. An organisation from Korea “Globalise from Below” was protesting against the forced liberalisation brought about by the IMF and World Bank. Similarly another NGO organised an event against water privatisation. An Indian NGO launched a movement against the dumping of GM seeds by US companies. These are the voices of change that question the method of globalisation as against the phenomenon of globalisation and this is the right approach. If you ask for a yard you get an inch. Similarly if the WSF challenges the existence of globalisation, of international financial institutions and of capitalism, the least they can achieve is that policy makers would review their decisions from the view of a marginalised farmer who is contemplating suicide after his Monsanto-supplied seeds failed.

For all those messiahs who preach that the world should be more socially concerned than economically, I can but rely on what Adam Smith said many moons ago: “It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self-interest”.

CONTACT US
Consumer Unity & Trust Society
D–217, Bhaskar Marg, Bani Park,
Jaipur 302 016, India,
Ph: +91(0)141-228 2482
Fx: 91(0)141-228 2485
Email: cuts@cuts.org

Top

Estimated benefit for NLD and ILD operators