SACSNITI

RESEARCH AGENDA: 2001-02

Competitiveness of Services Sector in South Asia

Negotiating the TRIPs Agreement: India's Experience and Some Domestic Policy Issues

Market Access Implications of SPS and TBT Agreements

Audit of Foreign Direct Investment Policies of South Asian Countries

Approaches to Competition Policy in South Asian Countries

TRIPs Agreement and Implications on South Asia

Competitiveness of Services Sector in South Asia

The study will outline the role and significance of trade in services in Bangladesh, India, Pakistan and Sri Lanka. The analysis will be based on the data taken from Balance of Payments Statistics Year Book of the International Monetary Fund. The major services considered here are transport, travel and other services. It is observed that the share of trade in services (of total trade) of all these four countries have been increasing over time. The category of ‘other business services’ has become very important.

Bangladesh, India, Pakistan and Sri Lanka have submitted Schedules of Specific Commitments under the General Agreement on Trade in Services (GATS) under four heads: a) cross-border supply, b) consumption abroad, c) commercial presence, and d) movement of natural persons. These Schedules contain ‘horizontal’ commitments running through all the sectors as well as sector-specific commitments. All these commitments deal with two types of limitations, viz. market access and national treatment. Major differences among the commitments given by the four countries will be analysed.

A detailed analysis of specific measures that have been undertaken by these four countries, as follow-up commitments, under the GATS will be done. Such reforms deal with one or more issues relating to market access and national treatment being offered under four modes of trade in services.

There is very limited existing data on trade in various types of services except for the heads available under the IMF database. Other means of information will be used to assess the sectors in which these countries may have comparative advantage. Some such sectors appear to include services provided in health, software, construction, engineering, legal and accounting.

Health services is an area which needs immediate attention. There is a problem of absence of data since world class ISO 9000 type of hospitals are nascent to the South Asian region. This chapter will make an attempt to compare costs of major surgical treatments in ‘good’ hospitals of this region with the corresponding costs of similar treatment in the US. This would provide some idea of cost-competitiveness of health services in South Asia.

The study will also identify barriers being faced by these countries while making successful entry in the developed countries in services in which they have comparative advantage. This would be important from the point of view of the on-going review and negotiations of the GATS.

Researcher: Rajesh Chadha,

National Council of Applied Economic Research,

Parisila Bhavan, 11 Indrapastha Estate, New Delhi 110 002, India.

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Negotiating the TRIPs Agreement: India's experience and Some Domestic Policy Issues

This study will look at the negotiations of the TRIPs (Trade Related Aspects of Intellectual Property Rights) Agreement from three perspectives to try and see what lessons can be learnt from India’s experience:

Political management of the process
Procedural and organisational issues
Events in the negotiating forum.

Looking at the domestic implications of India’s negotiating experience of the TRIPs Agreement, the following questions will be addressed :

How did a highly organised system like that of the Government of India, with strong internal domestic political consensus on intellectual property rights issues, prove so inadequate to the task of handling the TRIPs negotiations?
Why were they unable to learn from the examples of other countries that were in much the same position?
What happened to their friends and allies, of which there were so many at one time?
Why could they not press for and obtain benefits to compensate for the negotiating disaster of the TRIPs accord?
Why did they not open serious negotiations in the World Intellectual Property Organisation to take the pressure of negotiating within the framework of the multilateral process?
Why did they not read and heed the messages from Washington that made it clear that a TRIPs agreement was considered to US strategic interests?

Researcher: Julius Sen,

Department of International Relations,

London School of Economics & Political Science,

Houghton Street, London WC2A 2AE, UK.

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Market Access Implications of SPS and TBT Agreements

There is a growing recognition that WTO (the World Trade Organisation) rules pertaining to sanitary and phyto-sanitary measures (SPS) and technical barriers to trade (TBT) are negatively impacting on the market access capacity of the developing countries. Although these provisions, in the first place, were intended to service the genuine need of stimulating free trade amongst countries, in practice, the results on the ground have often defied the original objectives creating a new form of trade barrier.

As is well known, the Agreement on Sanitary and Phyto-sanitary Measures, negotiated during the Uruguay Round, is intended to enable member countries to ensure safety of their human, animal and plant life. The spirit of the Agreement is to ensure this without making any discriminatory trade-restrictions. On the face of it, SPS measures provide WTO member countries an opportunity to safeguard their interest in crucial areas of health and hygiene. However, there is a growing apprehension in the developing countries that certain provisions in the Agreement on the application of SPS measures act as border protection instruments. There are concerns that the incremental benefits of liberalisation of trade under the Agreement on Agriculture (AoA) could, in effect, be undermined by protectionist use of sanitary and phytosanitary measures.

On the other hand, the Agreement on Technical Barriers to Trade stipulates that technical regulations must not create "unnecessary obstacles to international trade", and the regulations must not be "more trade-restrictive than necessary to fulfil a legitimate objective", taking into account the "risks of non-fulfilment would create". A number of cases have occurred recently where trade restrictions have been introduced on environmental ground. The Agreement on Technical Barriers to Trade permits the formulation and implementation of regulations to protect the health of human beings, animals and plants. These regulations stipulated measures that should be based on scientific evidence and information.

In many disputes regarding the SPS and TBT measures, the issue as to what would amount to adequacy of evidence or information has been the subject of considerable discussion.

There is a growing concern that the evolving interpretations of concepts such as SPS and TBT serve the interest of the developed countries, to the detriment of the interest of the developing countries. This concern is not just a theoretical assumption. Many LDCs have, in the past, faced market access barriers in terms of exporting their products to developed countries on account of these provisions.

South Asian countries have not been an exception to the market constraining impacts of SPS and TBT. Indeed in the recent past exports have suffered due to non-compliance with SPS and TBT provisions of the WTO and also due to interpretations of such provisions which countries have contested and with which they have not been always in agreement. Thus, from the perspective of South Asian countries the relevant issues involve both changing the rules of the game and also capacity building to ensure compliance.

In the above context, the objective of the study is to (a) identify the problems related to WTO provisions on SPS and TBT and (b) articulate specific measures to address the emerging concerns of the South Asian countries in these areas.

The study will essentially address five areas and focus on the related issues:

present a review of agreement on SPS and TBT as negotiated during the Uruguay Round;
analyse the South Asian experience during post-Uruguay Round in the area of SPS and TBT and articulate the impact of these rules on performance of specific export-oriented sectors of these countries;
present an assessment as to whether these provisions are being used as protectionist barrier;
suggest changes in the existing rules to address growing concerns in order to mitigate adverse impact of these rules;
come up with suggestions as regards domestic, regional and global initiatives to (a) change the rules and (b) ensure compliance.

The study will draw upon published sources and unpublished source materials from relevant ministries and trade bodies. Debriefing of key informants will be undertaken to evince necessary information on sector specific impact of SPS and TBT.

The structure of the study will be as follows:

Section I: Introduction which will focus on the relevance of the study theme.

Section II: A Review of the WTO Provisions on SPS and TBT which will deal with the important articles of the provisions to set the context of subsequent discussion.

Section III: Sector Specific Implications of SPS and TBT in Terms of Market Access which will identify products and sectors which have been negatively impacted by these provisions.

Section IV: Measures to Address the Attendant Issues which will focus on measures, both domestic and global, to ensure compliance and initiatives to change the existing rules in global fora.

The concluding section will summarise the findings of the study.

Researcher: Mustafizur Rahman,

Research Director, Centre for Policy Dialogue,

6/A Eskaton Garden, Ramna, Dhaka, Bangladesh.

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Audit of Foreign Direct Investment Policies of South Asian Countries

There is tremendous theoretical and empirical literature on FDI. Proponents of FDI argue that it can make a valuable contribution to growth and development in national economies, particularly in the rapidly globalising economy. Trade and investment flows are complementary phenomena that together help developing countries to integrate into the world economy. However, opponents of FDI point out numerous problems associated with it for the host economy. These include: impact on domestic investment, impact on domestic competition, impact on the balance of payments etc.

The above highlights both costs and benefits of FDI at the theoretical level. But whether these benefits actually accrue to host countries is an empirical question.

South Asian countries are severely constrained in their access to finance for investment, investment that is vital to generate growth. In these circumstances, attracting investment from the private sector has understandably become a policy priority in these countries.

At present, South Asia attracts a marginal proportion of global FDI flows. The limited volumes of these flows and their perceived value have ignited fierce competition between countries, even regions of the same country to attract FDI flows. In the race to tempt investors, countries have not only abandoned screening and regulatory procedures, but have also provided a number of fiscal and financial incentives to attract FDI.

The study will identify similarities and differences in FDI policy measures in Bangladesh, India, Nepal, Pakistan and Sri Lanka (in a matrix format).

A brief review of multilateral agreements affecting FDI policies of South Asian countries will be done to analyse the relationship/interface between FDI policies and Trade Related Investment Measures (TRIMs) and General Agreement on Trade in Services (GATS). It will be an identification of FDI policy measures of South Asian countries which are inconsistent with TRIMs and GATS; for example, Local content requirements, Import balancing, Import limitation, Foreign exchange limits, Export limitation etc.

FDI can and does make an important contribution to development in number of ways, provided certain conditions are met with respect to, nature of the projects which are undertaken, timings of these projects controlling the volume of capital inflows.

The analysis of approved FDI vis-a-vis policy measures and actual FDI inflows vis-a-vis developmental concerns of each country in the South Asian region with provide the evidence whether policies to attract FDI has been successful or not and the contribution of FDI in the development of these countries. A sectoral analysis of FDI in some selected industries of importance to each country and specific case studies like Enron will also be analysed. The tentative areas for study are readymade garments, Automobiles, Pharmaceuticals, infrastructure etc.

The concluding section will outline strategies to deal with a possible multilateral framework for investment within the context of South Asian countries.

Researcher: Md. Saqib,

Fellow, Rajiv Gandhi Institute for Contemporary Studies,

Rajiv Gandhi Foundation, Jawahar Bhavan, Dr. Rajendra Prasad Road, New Delhi 110 001, India.

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Approaches to Competition Policy in South Asian Countries

The themes to be covered are:

Comparing various facets of competition regimes in South Asian countries;
Examining the outcome of the above in the light of good practices followed in countries such as UK, Australia, and other selected countries;
How can consumer law and competition law of South Asian countries can be integrated to optimise consumer welfare?; and
How South Asian countries deal with cross border competition abuses, what needs to be done to deal with this?

This report will be based on the fact that competition policy has gained a worldwide importance during the last couple of decades to take care of both businesses and the consumers at large.

There are two obvious reasons to conduct an analysis based on above mentioned themes, firstly, the structural adjustment policies, deregulation of markets and privatisation of public enterprises currently characterize economic policy in many countries-South Asia is no exception. In view of these experiences, interest in the functional mechanisms of the market economy has increased, especially with reference to its core element - competition.

Secondly, it is generally felt that decisions and actions of the developing countries for implementing their competition policies to ensure that markets are contestable are supported at international level. Nevertheless, some kind of multilateral scrutiny of domestic competition policies may support domestic ‘transparency’ activists that focus attention on the competitive conditions from a consumer’s point of view.

Experience has indicated that, in the era of rapidly evolving world economy, countries that adjust, adapt and strengthen their institutions -- are more successful. While following this line of thought, this report will provide a comprehensive and integrated overview of the policy and institutional arrangements in the South Asian countries and selected developed countries to workout the policy adjustments that are essential for market development and protecting the interest of consumers. One of the expected results would be to underscore the importance of institutional capacity building in the development of efficient competition regimes. Needless to say that the analysis will help all stakeholders to better understand and assess the institutional capacities available to deal with competition, consumer and cross-border issues.

Comparing various facets of competition regimes in South Asian countries

The comparison will cover the competition laws and practices as prevalent in South Asian countries. An attempt would be made to look into the institutional mechanisms involved in the application of competition law/policy, the provisions of the law, investigatory powers, procedures, detection modes, effectiveness indicators with respect to remedies available such as fines and sanctions, etc.

In South Asia, Bangladesh, Maldives, Bhutan and Nepal do not have competition laws to date. Each of these countries have their own reasons-primarily, large nationalized economic sectors, small and import-based economies, existence of different scattered pieces of legislation protecting the interests of consumers, etc. However, it is desirable to see as to how economic liberalization and international linkages could bring market failure/distortions or else cross border issues and what remedies are available in their present systems.

How can consumer law and competition law of South Asian countries can be integrated to optimise consumer welfare?

At a theoretical level, consumer and competition issues seems quite inter-linked, for instance the competition law should ensure that the benefits of improved efficiency are passed on to the consumers in the shape of improved quality of the product or reduced price or both. On the other hand, consumer welfare goes beyond the ability to access better quality goods at better prices, etc. This is due to the fact that consumers are also producers, and distorted competition will ultimately result in closure of businesses, hence consumers would lose purchasing power.

In the market economy, consumers generally face following threats

Restrictive trade practices i.e., the practices among producers restricting production, distribution or sale of goods that is detrimental to the interest of the consumers.
Monopolies leading to inefficiency, extra cost to the consumers, etc.
Unfair trade practices e.g., hoarding, black-marketing, etc.
Situations when consumers suffer on account of false/misleading, inadequate information for the products, etc. and directly suffer as a consequence.

Following measures protect the interests of the consumers in different situations

Firstly, the restrictive trade practices and monopolies affect consumers indirectly, monopolies and restrictive trade practices/anti-trust legislation covers both of these to promote competition in the market. However, consumers are not provided with any compensation or redressal. Secondly, there are other legislation taking care of consumers’ interest indirectly e.g., regarding weights, standards, hoarding, etc. In fact these are to regulate business activity and to ensure standards. Thirdly, the consumer protection legislation prohibits misleading and deceptive (and in some cases, unfair) conduct. This is more concerned with the individual consumer. It provides consumers the information, redressal, etc.

At the same time, it is noticed that companies always seek to diminish competition between them in order to make life more comfortable and profitable and it can be done at the detriment of consumers. This in-built tendency of self-destruction in a market economy necessitates a strict competitive regime with a vigilant cartel authority, equipped with effective legal instruments as well as effective consumer protection mechanisms. In this background, The report intends to examine the possibility if the legislation dealing with competition and the one related to consumer protection could be combined under one umbrella, for instance the Australian competition law encompasses competition law as well as consumer protection. It does not only deal with the classic elements of competition law, such as the usual ban on hardcore cartels and abuse of market dominant positions topped by merger control, it also deals with the recall of unsafe products, misleading advertising and fraudulent claims for payment. Furthermore, the Trade Practices Act encompasses special rules for several sectors, especially telecommunications.

A similar broad concept of competition law can be found in several European countries such as France and Italy. In Germany however, most of the consumer protection issues are either dealt with by other administrative bodies (this goes for product safety) or protection is based on other than competition law and can be enforced by consumers and their organisations via the civil courts.

How South Asian countries deal with cross border competition abuses, what needs to be done to deal with this?

Global economy makes new demands on competition policy. The key challenge stems from the realization that law is national but markets can extend beyond national boundaries. The globalisation of economy has vastly increased in the last years and will probably go on at high speed. Economic liberalisation and dynamic technological change are not only a result of economic integration but also a driving force. As a result there is a need to counter the growing discrepancy between national law and an internationally working economy. This is especially true for competition policy. There are a number of potential rationales to examine this issues for instance where multi-jurisdictional mergers take place and where welfare-reducing export cartel can not be disciplined because the jurisdictions most able to collect evidence have no incentives to do so, etc.

A century ago, only the United States had comprehensive anti-trust laws in place. Today, more than 80 countries have adopted antitrust laws, most of which were introduced in the 1990’s. Yet there is no uniform approach to competition policy around the world. International restraints of competition and cross border mergers have to cope with different national systems, regulations, and all the inefficiencies resulting from these.

The world trading system and its promise of open markets has to be supplemented by effective and converging national competition policies. Nations may promise open markets as far as the state is concerned and undertake substantial liberalisation commitments with respect to governmental practices, but at the same time allow, by action or inaction, blockage of their markets by firms’ anti-competitive restraints. Private restraints of competition with international effects, which are not tackled by national competition law could be a new source of tensions in the world trading system. They equally lead to a loss in overall economic welfare.

Again another type of cross-border restrictions on the intersection of trade and competition policy are private restraints on competition emanating from one country and affecting foreign markets such as export cartels and special cases of abuse of dominant market positions. This leads to a loss of welfare in foreign countries. Because the competitive disadvantages have an effect mostly outside the domestic market, competition authorities there may feel no need to act. At the same time the foreign authorities usually have no legal means of prohibiting anti-competitive behaviour resulting from private actions outside their jurisdiction.

Keeping in view the above mentioned points, the report will attempt to assess the situation of South Asian countries i.e., what have been the national policy responses for addressing cross border issues.

Examining the outcome of the above in the light of good practices followed in countries such as UK, Australia, and other selected countries

There is no universal role model to be followed in competition and consumer legislation. Nevertheless, it is imperative to benefit from the experiences of developed countries having established norms in this field. It is particularly useful as some of the countries in the South Asia (say Pakistan, Sri Lanka) are in the process of revising their respective legislation, others say Bangladesh is planning to introduce the competition legislation. Comparing the provisions and enforcement mechanisms available in developed countries will provide solid guidelines for developing countries of the South

Researcher: Kishwar Khan,

Deputy Chief-II, WTO Wing, Ministry of Commerce

Old Experts Advisory Building, Constitution Avenue, Islamabad, Pakistan

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TRIPs Agreement and Implications on South Asia

Two areas that the South Asian countries have been particularly concerned about are the access to drugs at affordable prices and the effect on farmers. The former would be the direct consequence of the strengthening of the patent laws in keeping with the provisions of the TRIPs Agreement. The latter, on the other hand, would be caused by the enactment of the legislation on plant varieties’ protection.

In keeping with the implementation requirements, the South Asian countries have initiated the process of amending their existing patent laws and also to introduce plant varieties’ protection. It is important to study the process of implementation of the TRIPs Agreement for two reasons.

The first is from the point of view of analysing whether or not the laws that are being adopted by the countries in the region take care of the public interest to the fullest extent. This would entail an analysis of some of the key provisions in the two legislation, as for instance those relating to protection of the interests of farmers in the plant varieties protection legislation and the compulsory licensing provisions in the patent laws. The latter is the critical provision for ensuring that the countries retain the flexibility of developing local production facilities which in turn hold the key towards ensuring that the prices of essential drugs, for instance, can be kept within affordable limits.

The second rationale for examining implementation of the TRIPs Agreement in South Asia is that this would help understand the extent to which a coordinated strategy can be adopted by the countries of the region when the review of the Agreement gains momentum in the WTO. The review of the Agreement began in 1999 when one article, viz. Article 27.3(b) was under the hammer. Since then, developing countries have expressed the need to have a more comprehensive review under Article 71 of the Agreement.

The above mentioned issues arising out of the implementation of the TRIPs Agreement would be examined in the context of the South Asian region. The study would include Bangladesh, India, Nepal, Pakistan and Sri Lanka. Nepal would be included in the study even thought the country is not even a member of the WTO. However, Nepal’s case assumes importance since the country is in the midst of consultations prior to its accession to the WTO.

Researcher: Joseph Savirimuthu,

Senior Lecturer in Law, Lancashire Law School,

Corporation Street, University of Central Lancashire, Preston, Lancashire PR1 2HE, UK

CONTACT US

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D–217, Bhaskar Marg, Bani Park,

Jaipur 302 016, India,

Ph: +91(0)141-228 2821-3

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Email: citee@cuts.org