ASSIGNMENT

IMPACT OF GLOBLIZATION ON INDIAN FEDRALISM

PREPARED BY

MISS. JYOTI .V. TIWARI

NOTES FOR

PRE PH.D COURSE

OF

THE UNIVERSITY OF MUMBAI

Date of submission: 14.04.2020

IMPACT OF GLOBLIZATION ON INDIAN FEDRALISM

CHAPTER: 1: INTORDUCTION

Globalization involves making deals with the rest of the world. The power to make such deals is

usually vested solely with the central or federal government. However, it is mainly the sub-units

or states which feel the effects of globalization. Multilateral trade regimes like the WTO can often

pit the Centre against the states1

The federal design of Independent India was a result of its colonial heritage which is an answer to

the requests of nation-building. It is anticipated by the founding fathers that their institutional

structure must observe at the same time the abstract diversity of the country and the formation of

a new nation. The State formation was to be followed by the evolution of nation. A rigid role would

be played by the State in the creation of a political association, a particular complex task given the

multitudinous fixed adherence of individuals to regions, religions, castes, and languages.

Accordingly, there is coexistence of bias towards diversity and decentralization with centralizing

features which in result will lead to entitled Indian federalism as quasi-federalism. The debates

relating to federalism in India would be better dealt if they were not limited to the traditional

structure of center-state relations. The Indian structure’s recognition as quasi-federalism is rational

with the Western rhetoric on federalism that considers federalism in largely territorial terms2

Indian system has been described, as a “federation without federalism”, and variously referred to

as executive competitive or quasi-federal. These interpretations are due to the several provisions

that permit the Centre to infringe on the states’ rights. These provisions encompass political,

financial and administrative fields. Some of the important provisions are the power of the

Parliament to make laws with respect to any matter enumerated in the state list Under Article 249;

power of the central government to impose emergency under article 352; the power of the

1 Article Globalization in Federal systems, by Dr. Kripa Sriharan, Department of Political science, National University of Singapure, dated 02.01.2003. 2 Reeta C. Tremblay, “Globalization and Indian Federalism” in B. D. Dua & M.P. Singh (eds.), Indian Federalism in the New Millennium, Manohar, New Delhi, 2003, pp. 335-349, p. 335.

President, to assume the normal powers of a state, remove a state ministry, dissolve the legislature

and empower the union legislature to exercise the respective states’ power for a temporary period

due to constitutional failure or political breakdown under article 356. The amendment to the

constitution under article 263, can be initiated only by the introduction of a bill in parliament which

must be passed by 2/3rd majority in both the houses, along with ratification by the legislatures of

not less than one half of the states3

Chanchal Kumar in his Article “Federalism in India: A Critical Appraisal” has observed that the

framers of Indian Constitution were eager to have federalism as a functional device for the

formation of an Indian nation along with a strong and united State. In the post-independence era,

the politicians were surrounded by the threats related to the security of India both from internal

and external side. They faced the challenge of development of the country through having

anticipated and chosen centralized economic planning as an excellent method for the purpose of

reaching that objective. Thus, due to constitutional and political reasons, the institutionalization of

a strong federalism in the Indian system appears to have been seriously compromised from the

outset. No doubt, the changes have taken place in the political process in accordance with the

design so for safeguarding the interests at regional level, modification have been made in many

cases4

Murray Forsyth writes,

“In a typical federal system the status of the member units may be defined in terms of three

constitutionally sanctioned rights: the rights of existence, including in particular the right of the

unit not to have its territorial boundaries changed or abolished unilaterally by the Centre; the right

of autonomy with regard to both legislation and administration, which may include not only the

right to administer the unit’s own laws but also, as the German example remind us, the

constitutionally entrenched right to administer the laws of the Central Government; and finally the

right to participate (formally and informally) in the formation of the political will of the Centre.

This last right reminds us that the constitutionally guaranteed rights and autonomy of the units of

3 Democracy, Federalism and Globalization by Maj Dalbir Singh, National Secretary, All India Congress Committee, Published by the Forum of Federations. 4 Chanchal Kumar, “Federalism in India: A Critical Appraisal”, retrieved from http://www. borjournals. com, last visited on 4 June 2015 at 5:00 pm.

a federal system do not mean that the units are completely separate and detached from the Centre

but are engaged in a continuous dialogue with it.”5

Ajay Kumar Singh in his Article “Understanding Indian Federalism A Reading into the content,

Intent and Working of the Distribution of the Responsibilities” has remarked that the above

observation stresses upon indestructibility of the regional States along with the Union,

participatory control over the formation of national policies, and assured autonomy of legislation

and execution on the subjects given to the States. The role of the Centre in this area is restricted to

three functions i.e. regulatory, distributive and standardization and harmonization. Regulatory

functions include those subjects which have interregional and national impacts e.g. environment,

pollution, major health hazards, besides exclusive or minimally shared competence over subjects

like defence, foreign affairs, currency, communication, and national economic development.

Distributive functions include the economic issues like resource distribution and maintenance of

interregional economic balance. Harmonization functions cover the setting of norms and standards

in those specific areas where growth of a national outlook and policy uniformity on such items like

education-higher and scientific, industrial norms, health etc. is required. On the other hand, States

are provided exclusive jurisdictions over those subjects which are of local importance like primary

health and education, local resource development, law and order and identity specific issues like

customary law6

5 Ajay Kumar Singh “Understanding Indian Federalism A Reading into the content, Intent and Working of the Distribution of the Responsibilities” in Akhtar Majeed, Federalism within the Union Distribution of Responsibilities in the Indian Union, Manak Publication Pvt. Ltd., New Delhi, 2004, pp. 108-170, p. 109 6 P. Jegadish Gandhi, Globalised Indian Economy Contemporary Issues and Perspectives, Deep & Deep Publications (P) Ltd., 2003, pp. 178-179

CHAPTER: 2: GLOBLIZATION AND INDIAN FEDRALISM

Globalization is a process through which events, decisions and activities in one part of the world

have important effects on the other parts of the globe. It represents closer association of the world

economy which is the result of increase in trade, investment, finance and multi-country production

networks of MNCs. It extends beyond economic interdependence for including infusion of time

and space ambit as a result of spread of information technology. Thus, Globalization is a supra-

national aspect which transforms national boundaries. It has compressed the world through the

implicate bonds of new technology in the context of “global neighborhood” “global village” or the

“world without borders”7

Reeta C. Tremblay in her Article “Globalization and Indian Federalism” has stated that there has

been a significant increase in the international movement of the people, capital, goods and ideas

in the past two decades. It has been often suggested that globalization on the one hand has resulted

in the downfall of the sovereignty of the nation state and on the other hand has resulted in a

downward movement of political power while giving rise to the connected forces of

„Globalization‟. Therefore, it is maintained that transnational regulatory reign and international

civic institutions at the international level and local governments and non-governmental

organizations at the domestic level have to come to occupy the field of governance. This dual

movement towards international and local governance weakens not only the concept of the national

government maintaining the sovereign power but it also questions the importance of structures of

the government such as federalism which is usually designed to acknowledge the needs of diverse

regional and cultural pluralities. There are various impacts of Globalization on the Indian polity

and the Indian federalism is answering to these challenges in following three different senses8

i. It is suggested that there would be distorted impact on the economic development of the

country by the liberalism of the economy; while the developed western and southern

regions would promptly take off; the underdeveloped and backward would fail behind. If

the Indian state, under such circumstances wants to seek its goals of equity and balanced

development and at the same time remarked the issue of inbuilt poverty in the backward

7 P. Jegadish Gandhi, Globalized Indian Economy Contemporary Issues and Perspectives, Deep & Deep Publications (P) Ltd., 2003, pp. 178-179 8 Reeta C. Tremblay, 2003, pp. 337-339

regions; it is essential that the powers of the national government be increased.

Deregulation in response to the Globalization implies a further economic centralization of

Indian federalism.

ii. Globalization creates legitimacy exhaustion. The nation state does not disregard its control

on internal sovereignty while controlling over its own dismantling of economic

sovereignty. But it is forced to create local domestic structures for increasing its domestic

sovereignty resulting in enhancing the authority of the state. It is suggested that the

constitutional recognition of the third layer of Indian federalism, the Panchayats system, is

exactly an idea of this. This reply to the globalization’s dangers to legitimacy acts is for

the purpose of increasing the decentralization of Indian federalism.

iii. A third challenge faced by Indian federalism is the speedily rise of civic society

organizations. It is expected that while some of these associations produce parallel and

horizontal structures of democratic governance, internally and internationally whereas

others i.e. the inscriptive associations endangered the operation of democracy. Civil society

associations have gained a lot through digital revolution, especially through the Internet,

for mobilizing and educating their constituencies. It is only now that scholars of Indian

politics have started to study these aspects of the new associational life in India. It is not

clear that what impact this will have on Indian federalism, but it is sure that the federal

structures will have to react to these parallel and horizontal structures of governance and

will contain them either constitutionally or politically.

The New Economic Policies (NEP) of the 1990s have a great impact on the Indian federal

constitutional arrangements due to which a drastic change has taken place in that. The pillar

of the NEP is the „rolling back of the state‟ and has played a pivotal role for market

mechanisms in the national economy. India’s centralized political system was important to

the system of economic planning in which the state governments were led by the Central

government. In the new economic regime of the 1990s the State governments have played

a very important role in the process of economic reforms. Many new issues and ideas about

Indian Federalism have come up with such demands like taking apart of the control

mechanisms of the planning phase where the Central government was the sole distributor

of resources and the executor of the policies and programs of the development. So many

new challenges are faced by public policy makers at the level of the Centre and the States,

which have introduced at the large scale various changes in the structure if the purpose of

the governance was to fulfill the needs and requirements of centralized planning system9

O.P. Goel in his book “India and SAARC Engagements” has asserted that these kinds of

vital effects, typical of multilevel administration advise us that the national policies are not

exhausted at the central level but are combined results of incentives constituted by Central

and regional institutions. Both globalization and reaction to globalization have, at times,

taken important places within state and local political fields. The new social movements

which are active at the bottom of Indian politics for over three decades are now also

fastened in clashes with the institutions and organizations representing the global economic

and political power. The global structures have begun to enter into local spaces without

agreements either by way of protection or control from the State’s centralized institutions

of planning and bureaucracy. The result of which is that local politics has become an

assorted scene of collision and cooperation with global economic structures10

Federalism can affect a country’s obligations with global processes as much as global

institutions and commitments can influence the shape of federal institutions or central

provincial relations. Nothing quite so extreme or direct has taken place in the case of Indian

federalism. It is true that international organizations like the World Bank are increasingly

orienting their programs towards the activities, policy processes and reform programs of

State-level governments, as they have in a number of other federal countries. But there is

no sense in which IFIs have intervened directly in the redesign of federal structure or

resource settlements. This does not mean that the links between globalization and the

federal system are not seen by the commentators on Indian politics and economics. The

various aspects of Indian federalism have aided to facilitate India’s unification into the

global economy. Some of them are as follow11 :-

9 Sarita, Federalism in India A quest for New Identity, Regal publications, New Delhi, 2009, p. 184 10 O.P. Goel, India and SAARC Engagements, Vol-2, Isha Books, Delhi, 2004, pp. 376-377 11 O.P. Goel, 2004, p. 374

a) Economically, competition for investment between States, in theory, drives down

regulatory burdens to near-global levels.

b) Administratively, best practice in governance reform can be diffused through

demonstration effects.

c) Politically, divisions between State-level political aristocrats served to lessen the

impact of anti-liberalization constituencies, within and outside the state,

interrupting the capability for collective action from key groups, which could

prevent reforms.

Thus, the impact of globalization on Indian federalism can be concluded in the following points12

:-

a) It led to decentralization of powers to the States with the Centre providing more powers to

the States in the administrative, financial and legislative spheres.

b) Success of Globalization depends on implementation of policies at the local level. So focus

has shifted from planning to execution. Since execution can only be done at the local level,

Centre has ceded the space to the states and local self-governments.

c) Attracting foreign investment is a key to success of globalization and it solely depends on

the initiation and implementation of uniform policies by the center and states. The phase

of confrontational federalism had resulted in divergent policies between the center and the

states, whereas Globalization has resulted in convergence of policies.

d) Economic development is heavily dependent on political stability and peace and harmony.

As part of globalization, both the center and states have become active partners in ensuring

the above. Since the beginning of the 1990’s, the number of times for which Article 356

was used had come down drastically as compared to the period previously.

12

e) Globalization has also resulted in emphasis on development at the cutting edge i.e. at the

local level. It has resulted in the emergence of concepts like New Localism, Peoples‟

Empowerment and so on.

f) During the initial years of globalization, there was unhealthy competition between the

states to attract foreign investment. It has resulted in states adopting short term policies like

lowering tax rates to attract foreign investment. But over a period of time, they have

realized the fact that those short term measures can only result in deterioration in finances

without bringing the desired results. Now they have started emphasizing on development

of infrastructure as it can only ensure overall development in the long run.

g) Institutions like planning commission played a key role during the pre-liberalization days

and in some instances states ruled by opposition political parties have accused the Central

Government of misusing Planning Commission to further its own ends. But the situation

has changed with the advent of globalization with states as well as the center realizing the

fact that both are equal and active partners in the development process.

CHAPTER: 3: IMPACT OF WORLD TRADE ORGANISATION (WTO) ON INDIAN

FEDRALISM

The World Trade Organization has become a powerful symbol of at-least one aspect of

globalization: the multilaterlization of national policymaking, a process by which issues that were

once purely of domestic concern have become subject to intergovernmental methods. India’s

commitments with the system of multilateral trade governance mediated and managed through the

WTO are influenced by many factors, including the sectorial structure of the Indian economy and

the prevailing international distribution of negotiating power.15 India’s commitments with the

WTO consist of both its agreement to multilateral rules and its ongoing activity within the

institution. Its diplomatic activity comprises both the agenda it has sought to advance through

negotiating strategies, and its role within other WTO processes such as trade policy reviews, the

use of WTO procedures to resolve trade disputes with other member-states, and participation in

deliberations on how to improve the fairness of the WTO‟s structures and operating procedures.

Engagements results in specific legal commitments that narrow government policy options on

many tariff and non-tariff issues as well as a domestic political reaction to the government’s

diplomatic activity. Domestic political activity in India has addressed such questions as whether

India should have agreed to existing rules; whether its objectives on issues currently under

negotiation are sincere, likely to be effective, or biased towards the interests of certain social

groups. Many factors shape the way in which, WTO engagement is „received‟ politically in India.

The framework of ideas, interests and institutions is useful here. The interplay of ideas about

markets, trade, sovereignty, democracy and a host of other relevant subjects are important

determinants of political reception. So is the configuration of interests groups, however defined.

A third factor, institutions, operates in at-least two ways. First, domestic political institutions play

an important role by shaping the configuration and influence of interest groups. And, second,

international institution can shape the ideological environment in which political and economic

ideas can be aired, debated, reformulated and codified13

Since the beginning of the globalization era, there is tremendous change in the federal functioning

of the system. The role of the States in the reforms and development process was not much

13 Rob Jenkins, “How Federalism Influences India‟s Domestic policy of WTO Engagement (And Is Itself Affected in the Process)”, Asian Survey, Vol. 43, No.4, July/August 2003, pp. 598-621.

satisfactory up to the mid of 1990s14 According to Guhan, “the Centre was both unwilling and

unable to involve the States in the process for a number of reasons:

a) External agencies‟ preference for policy dialogue only with the national government;

b) Centre’s sole competence in macro-economic stabilization;

c) The multi-cultural-political nature of state governments15

At the regional levels, the relationship between globalization and federalism has far reaching

indications for sovereignty. In India, the federal government decides the scope of the economic

liberalization of the sub-national states and the outcome of liberalization can differ from one State

to other because the final impact is on the sector or on a specific commodity e.g. the case of raw

silk producers of the State of Karnataka which is greatly affected by the competition followed by

reduction in barriers to imports16

The role of the State in the globalization process can be analyzed in the following three ways17:

i. Basically, as the most important economic and political processes, globalization is to be

implemented in the States.

ii. The States are constitutionally responsible for the performance of number of

developmental works. And moreover, due to certain reasons, the Union government for the

implementation of the laws has to depend on the States.

iii. The democratically authorized State governments are more politically liable as they are

more close to the people and moreover, it is only the State governments who suffer or

entitle to benefit from the results of the policies of globalization. charter and its

accompanying agreements to ensure compliance. The federal governments on behalf of the

sub-national states negotiate and administer the multilateral trade agreements. This accords

the federal state an intermediary status between supranational and its sub-national states.

14 G. Gopa Kumar, Foreign Policy, Federalism and International Treaties, New Century Publications, New Delhi, 2011, p. 23 15 Id., p. 23 16 Sangeeta Khorana, “New Trends in Federalism Federal State and Globalization in Multilateral Trade Governance”, Working Paper #4, Institute of Federalism, 2004, retrieved from www. researchgate. net/....lication237118725 _ Federal 17

Thus, the institution of federalism plays a crucial mediating role between at-least one

aspect of globalization (the WTO) and the realm of domestic politics. The recent trade led

growth agenda has provided an impetus to the countries to negotiate multilateral trade

agreements. These agreements are negotiated by the Central government of member

countries of the WTO and ratified by their Parliaments. These are contracts, guaranteeing

member countries important trade rights but at the same time also binding them to keep

their trade policies within the agreed commitments. In the federal structure of the

governance the areas of competence between the federal government and the sub-national

states are demarcated. In multilateral trade governance, the federal governments undertake

commitments on behalf of their sub-national states. The commitments undertaken may

have different developmental implications for the sub-national states. At the same time

they may increase pressures for harmonization of economic policies and regulatory regimes

in the federal states. The sub-national states may not always support an upward

harmonization of regulations and policies for their own economic and political reasons. All

these developments together have the potential to impact the relationship between the

federal and its sub-national states.18

India has entered into various agreements with World Trade Organization (WTO) in the

Uruguay Round. It has signed various treaties related to the subjects like Agriculture, IPRs

and many others which are specifically covered under the domain of State governments as

per the provisions of the Indian Constitution. This has led to have its impact on the

relationship between the Centre and States as all these treaties are signed by the Central

government without taking into confidence the State Governments. The impact of all these

agreements on the Centre and States are discussed as follow.

18 Sangeeta Khorana, “New Trends in Federalism Federal State and Globalization in Multilateral Trade Governance”, Working Paper #4, Institute of Federalism, 2004, retrieved from http://www. Research gate . net /....lication237118725 _Federal

A. Impact of Agreement on Agriculture :

Due to the world economic trends and situations, India is in favor of the world trade. Being

an original member of the World Trade Organization (WTO), it has adjusted its trade and

polices in accordance with its agreements which covers agriculture sector also. The

Agreement on Agriculture provides a scheme for the long terms reforms of agriculture

trade and domestic policies.23 Agriculture is a state subject. The State governments made

investments in agriculture, allied sectors, irrigation and flood control. No doubt, the Central

government also made investment in these areas. Thus, it is on the capacity and eagerness

of the State governments to make investments in agriculture sector, the development of

this sector depends. The Central government plays a very important role not only in the

transfer of resources to the States but also in the constitution of macroeconomic policies

that directly or indirectly affect agriculture. It is worth mentioning here that that the policies

adopted by the Central government for structural adjustment and liberalization have

destroyed financial resources of the State governments. In the post WTO period, the Indian

agriculture faced number of policy changes19

19 S.P. Singh, “Agriculture under Globalization” in Subhendu Ranjan Raj & Mahendra Prasad Singh (eds.), India in the Globalizing Era A Multidisciplinary Perspective, Manak Publications Pvt. Ltd., New Delhi, 2009, pp. 108-109.

CHAPTER: 4: WTO AND FOOD SECURITY IN INDIA

S. Mahendra Dev & Alakh N. Sharma in their Article “Food Security in India: Performance,

Challenges and Policies” have asserted that ensuring food security ought to be an issue of great

importance for a country like India where more than one-third of the population is estimated to be

absolutely poor and one-half of all children malnourished in one way or another. There are many

emerging issues in the context of food security in India in the last two decades which are mentioned

below20

i. Economic liberalization in the 1990s and its impact on agriculture and food security;

ii. Establishment of WTO particularly the Agreement on Agriculture (AoA) under it;

iii. Challenges of climate change; crisis of the three Fs, viz., food prices, fuel prices, and

financial crisis;

iv. The phenomenon of hunger amidst plenty, i.e., accumulation of stocks in the early years of

this decade along with high levels of poverty;

v. Introduction of targeting in the Public Distribution System (PDS) for the first time in the

1990s;

vi. Right to Food‟ campaign for improving food security in the country and the Supreme Court

Orders on mid-day meal schemes; and

vii. Monitorable targets under the Tenth and Eleventh Five Year Plans similar to the

Millennium Development Goals (MDGs) on poverty and women and child nutrition.

In the last two decades, these developments have provided both opportunities and challenges for

food and nutrition security of the country. According to Food and Agriculture Organization (FAO),

“food security exists when all people, at all times, have physical and economic access to sufficient,

safe, and nutritious food to meet their dietary needs and food preferences for an active and healthy

life. Food security has three components, viz., availability, access, and absorption (nutrition) which

are interconnected”. Various studies have shown that even for increase in productivity of workers

improvement in nutrition is important. Thus, food security has „intrinsic‟ (for its own sake) as well

as „instrumental‟ (for increasing productivity) value.21

20 S. Mahendra Dev & Alakh N. Sharma, “Food Security in India: Performance, Challenges and Policies” 21 S. Mahendra Dev & Alakh N. Sharma, “Food Security in India: Performance, Challenges and Policies”

The present crisis of food insecurity is due to continues exploitation and negligence of agriculture

and the rural sector. Even in this age of rapid urbanization, two-thirds of our population depend on

agriculture whereas its total contribution to India’s GDP is 13.9% during 2013-14 at 2004-05

prices. India’s Food Security Act having a binding impact on the government by law provides that

the government will provide very cheap food to the most susceptible part of the population at very

low prices. It also provides subsidies to the producers of food grains apart from providing subsidies

to the consumers through the public distribution system. So it purchases food grains from farmers

at a minimum support price, and subsidizes inputs like electricity and fertilizer. The developing

countries are having a problem with the solutions offered by the developed countries like India.

The recent G-33 “non-paper” on food security by India and other countries seeking special

measures to protect policies supporting food security has invited a very big criticism from

developed countries and grain exporters22

Unfortunately, as protocol of ratifying the Trade Facilitation Agreement began in July 2014, India

refused to support it unless the WTO member countries agreed to grant permanent waiver against

legal challenges to developing countries‟ food stockholding program by the end of 2014 year. It

agreed to the Trade Facilitation Agreement (TFA) in Bali only under the condition that temporary

relief would be provided to the developing nations. The TFA aims to fast track any movement of

goods among countries by cutting down bureaucratic obligations. The problem with TFA runs in

a clause that says, “Farm subsidies cannot be more than 10 percent of the value of agricultural

production. If the cap is breached, other members can challenge it and also go on to impose trade

sanctions on the country”. Once again, the WTO negotiations were held hostage to India’s

expanding social safety net and food security policy. As the world’s largest producer of milk and

second largest producer of rice and wheat, it is truly ridicule that nearly 200 million of the over

800 million undernourished people in the world are living in India. Therefore, India has every right

to widen its public food distribution system to respond this large domestic need23

22 Retrieved from http:// www.dnaindia.com › Money 23 Islam A. Siddiqui, The Politics of Food Security and the World Trade Organization”

I. IMPACT OF SANITARY AND PHYTO-SANITARY MEASURES (SPS)

AGREEMENT :-

Kajli Bakhshi in her Article “Food Safety Issues under the WTO challenges for the Indian Food

Processing Industry” has directed that agricultural products required more care as compared to the

other manufactured products. There are some necessary precautions which are required to be taken

not only at the time of productivity and quality considerations at the production level but even

when the agricultural goods are stored and transported otherwise it would have adverse effect on

the quality of the product. There is tremendous increase in the level of health safety awareness

among the consumers of both developed and developing countries now-a-days because of which

producers, suppliers and exporters have to ensure that certain standards relating to the hygienic

and safety conditions are to be met. While recognizing the significance of this matter, each country

has fixed certain standards of processing, packaging, testing and quality of the product. At the

international level WTO has fixed some Sanitary and Phyto-Sanitary measures (SPS) and

Technical Barriers to Trade (TBT) measures which are required to be followed for the international

trade of food products. The SPS agreement specified certain minimum standards which imply that

the countries are free to set a higher standard if they can justify it but it should not be trade

distortionary and should be scientifically achievable. It also specified the process of imposition

and the factors that must be taken into account before imposing any standard24 However, what has

been experienced is quite contrary. The developing country like India has to face various problems

while implementing the SPS measures like25

a. Insufficient technical, legal and scientific infrastructures;

b. Lack of sound information database on the standards prevailing in the importing countries;

c. High cost of compliance;

d. Inadequate awareness of SPS measures among producers and government officials;

e. Incompatibility of international standards with existing domestic production and marketing

methods;

f. Inadequate capability to comply with stringent measures in risk assessment;

g. Insufficient facility of testing, certification and accreditation and

24 Kajli Bakhshi, “Food Safety Issues under the WTO challenges for the Indian Food Processing Industry” 25 S.P. Singh, 2009, pp. 102-107

h. Multiplicity of agencies dealing in standards and lack of coordination among them.

II. IMPACT OF TRADE RELATED INTELLECTUAL PROPERTY RIGHTS

(TRIPS) :-

TRIPS set enforceable global rules on patents, copyrights and trademarks. It has gone beyond

the scope of protecting original inventions on cultural products and allows the practice of

patenting plants and animal forms as well as seeds. It promotes private rights of corporations

over local communities and their genetic heritage. The impact of TRIPS can be studied under

the following heads.

i. TRIPS AND INDIAN AGRICULTURE :-

The TRIPS Agreement covered eight types of intellectual property rights i.e., patent,

trademark, copyrights, industrial designs, geographical indication integrated circuits,

protection of undisclosed information and anti-competitive practices in contractual

business. The most controversy among these eight rights is regarding the area of patents.

Agriculture like other living organisms was out of the purview of patentability in most of

the countries of the world. But in the Uruguay Round negotiations emphasis was laid down

by the developed countries on the rights to protect the intellectual property rights in the

agricultural sector also. The impact of TRIPS on Agricultural can be further studied under

the following sub-heads:

a. Protection of Plant Varieties and Farmer’s Rights Act 2001 :-

Anindya Bhukta has affirmed in her Article “Indian Agriculture under WTO Regime” that

Article 27.5.3. (b) of the Uruguay Round Agreement (URA) provides that “….parties shall

provide for the protection of plant varieties by patents or by an effective sui generis system

or by a combination thereof.” The milestone in the development of plant protection was

the adoption of the International Union for the Protection of the New Varieties of Plants

(UPOV) in 1960. It has developed laws relating to the plant variety in accordance with the

socio-economic context of only the industrialized countries where farmers are no more a

large part of the population and do not have any control over plant breeding or seed supply.

These circumstances are very different from the circumstances prevailing in India where

majority of the population even after 68 years of independence are engaged in farming and

where farmers‟ seed production and supply systems are still the main source of seed. After

the Uruguay Round was completed, demands were made from many members for sui-

generis system instead of joining UPOV26

The Indian legislation succeeds in harmonizing the Rights of Breeders and Farmers and

uses the adaptability granted in TRIPS, in a very brilliant way. There are clauses to protect

the rights of researchers and provisions to protect the public interest. The Indian legislation

is the first in the world to grant formal rights to farmers in a way that their sovereignty is

not threatened. It has made a big effort to develop and execute a new Protection of Plant

Varieties and Farmer’s Rights Act 2001 (PPVFR 2001) which not only provides provisions

for the protection of new plant varieties but also having such distinguished features to

protect farmers rights which provides an administrative scheme for benefit sharing between

the beneficiaries, etc. which in combination with the Indian Patents Act, Trademarks Act,

Geographical Indications Act, Biodiversity Act will considerably impact the IPR status in

activities related to agriculture and agricultural bio-technology in India. The PPVFR 2001

in many ways may be regarded to be an ideal Act for Developing and the Least Developed

Nations27

b. Geographical Indication and Indian farmers :-

Geographical Indication denotes to some important features of a product which are

obtained when that product is grown in a specific geographical area. A special trade-mark

protection is given to the product grown in that area indicating the place of origin of the

product e.g. Basmati Rice. In pursuance to the Agreement on Trade Related Aspects of

Intellectual Property Rights, a product cannot be protected at international level unless it

is given protection at the national level i.e. in its country of origin. It is imperative to

preserve the rich wealth of traditional arts, crafts and food products that are integral part of

Indian culture. The Uttar Pradesh government had used the granted geographical indication

26 Anindya Bhukta, 2001, p. 198 27 Harindra Kishore Mishra, “Impact of WTO on Indian Economy” in G.K. Chadda (ed.), WTO and Indian Economy, Deep & Deep Publication, 2001

status as a branding and marketing device to ensure that no one outside the Lucknow can

produce chikankari. Similarly, Pokkali rice, which gets its name from the cultivation

system that alternates paddy and prawns, is grown in the wetlands of the Alappuzha,

Thrissur and Ernakulum districts of Kerala. The domestic variety of rice cultivated through

this method develops on salinity and water as it is close to the sea. The geographical

indication registration had increased the market value of Pokkali rice and permitted farmers

to forbid others from using the geographical name Pokkali if the rice does not emerge from

defined areas.

LITIGATIONS

India had to face several cases of litigation in the area of Intellectual Property Rights. The

liquor manufacturers in India were restricted from advertising their products as close

substitutes to Scotch whisky because of the strong protection which was granted to the

spirits and wines. Basmati exporters suffered the danger of losing the special trademark

protection to Basmati Rice, when the Ricetech Company in US claimed patent protection

for the varieties cultivated by them. They made 20 claims for patent protection, which

covered the whole range of the properties exclusive to Basmati Rice. The Basmati Rice

Exporters Association and Indian Council of Agricultural Research (ICAR) opposed those

claims in the US courts. The Ricetech Company withdrew 15 claims for protection when

it was challenged. The Basmati exporters felt sigh of relieved that the general name

„Basmati‟ will no longer be used by that company. But the Ricetech Company obtained

patents for three varieties and claimed that their varieties are not geographical indication

as in the case of Basmati Rice and that they can perform similarly at several locations under

different climates. Similarly when two non-residents Indian acquired patent claims on

turmeric for healing surgical wounds, the National Chemical Laboratories (NCL), Pune

opposed them and got the patents removed by establishing that it is well documented that

turmeric can heal wounds when the umbilical cord is cut at the time of child birth. But the

Canadian Company, which recognized and confined the chemical compound from the

Neem Oil which has the feature of fighting the tooth decay, could possess the patent on the

absolute use of that compound, even when, NCL opposed to it. These IPRs related cases

enhanced the requirement for detailed documentation in case of native herbs, land races

and processes, which are in use, but for which no IPR’s were acquired28

c. Impact of Genetically Modified Technology :-

The author Suman Sahai has considered that the term „sui generis‟ in all global

negotiations related to IPRs and bio-diversity is a result of US efforts to globalize their own

IPR regimes which permits patenting of all life including plants and animals. It also reflects

US interest in Ag-biotechnology. The standards are set by US agencies and it had also sent

its teams to train developing countries regulators. The result of which is that the most of

the developing countries has adopted the US standards. But due to the lack of advanced

technical skills in the developing countries, the situation becomes the worst. Moreover, this

approach is not suitable to these countries because of the agriculturally sensitive regions

with small farmers and centers of origins and diversity of crop plants. Because of the

development of these technologies and low standard of the agricultural research,

developing countries are becoming the consumers of the Genetically Modified (GM)

technologies that were not developed for them. The predictions regarding the practical

impact of using the agricultural genomics are very difficult because of which the people

becomes very nervous. Ag-biotech is moving very speedily and the development of

understanding of the gene function and the methods through which the genetic

modification is likely to affect the functions at the various levels from the genome to

organism and the ecosystem is much lower than the scope of shifting the genes across the

species barriers. In the developed countries farmers can take such risk as compared to the

farmers of developing countries because of the capacity of taking risks by small farmers is

very low. Moreover, being an expensive technology, it will lead to inequalities in

agriculture, both between small and marginal farmers as also between small and large

farmers. Because of this technology, there is a great threat of marginalization of the small

farmers and it further establishes the supremacy of the corporations in the seed and food

sector. This has serious imputations for the self-reliance in agriculture and food production

28 K.P.C Rao, 2009, p. 300

that is the great desire for the developing countries. By actively marketing it few varieties,

the entry of GM crops is going to increase genetic erosion further29

d. Domestic fall in the prices of farm produce :-

Because of the free trade policies of WTO, there is fall in the domestic prices of the farm

produce. As a result of which, the farmers are facing various challenges. Actually, the WTO

rules for trade in agriculture are the rules for dumping which allowed developed countries

to increase their agribusiness subsidies while preventing developing countries from

protecting their farmers from artificially cheap imported produce. Four hundred billion

dollars in subsidies combined with the forced removal of import restriction is a very big

reason for suicide of farmers. Global wheat prices have dropped from $216 a ton in 1995

to $133 a ton in 2001; cotton prices from $98.2 a ton in 1995 to $49.1 a ton in 2001; Soya

bean prices from $273 a ton in 1995 to $178 a ton. This reduction was due not to a change

in productivity, but due to an increase in subsidies and an increase in market monopolies

controlled by a handful of agribusiness corporations. A study carried out by the Research

Foundation for Science, Technology and Ecology (RFSTE) shows that due to falling in the

prices of farm product, Indian farmers are losing $26 billion annually. This is a burden

which their poverty does not allow them to bear. „Seed saving gives farmers life. Seed

monopolies rob farmers of life”30

e. Suicide rate committed by the farmers in India :-

Since from the advent of Agreement on Agriculture of the World Trade Organization,

agricultural productivity and improving food quality are considered as the only solution for

the survival of the farmers. The debates over productivity have drawn the attention of not

only agricultural scientists but also the policy-makers, planners and of course, the

politicians. As the global trade parameters are flexible and weed out, increasing

productivity is considered as the only way of survival. The high productivity for the further

development of the biotechnology industry required an expensive and risk technologies

29 Suman Sahai, “Social And Economic Aspects of Agricultural Biotechnology” in Paramita Dasgupta (ed.), The WTO at the Crossroads, Concept Publishing Company, New Delhi, 2009, pp. 117-286, pp. 117-121. 30 Vandana Shiva, “Why Are Indian Farmers Committing Suicide and How Can We Stop This Tragedy?”

which further increase the tensions of the farmers. It is not only the crop failures but even

the bumper harvests have become the reason for the indebtedness of the farmers. Thus,

whether it is Andhra Pradesh, Karnataka, Tamil Nadu, Maharashtra or the Punjab, farmers

are increasingly becoming the victim of the new emerging facts of “produce and perish”31

India which is known as the home of the cotton has lost its cotton seed diversity and cotton

seed sovereignty. Monsanto has now controlled some 95 percent of the cotton seed and the

debt trap created by being forced to buy the seeds every year while paying royalty has

pushed thousands of farmers to suicides, of the 2,50,000 farmers suicides, most of them

are in the cotton belt32

A study conducted in 2014 found that there are three specific characteristics associated

with high risk farmers: “those that grow cash crops such as coffee and cotton; those with

„marginal‟ farms of less than one hectare; and those with debts of 300 Rupees or more”.

The study also found that the Indian states in which these three characteristics are most

common had the highest suicide rates and also accounted for “almost 75% of the variability

in state-level suicides”. A Lancet study conducted by researchers from the London School

of Hygiene and Tropical Medicine (LSHTM) had showed that “Indian suicide rates is

highest in the world”. The study also revealed suicide rates in rural areas to be almost

double those of urban areas, and the most common method of suicide to be deliberately

ingesting pesticide. The LSHTM authors did not believe they had enough evidence to show

suicide rates are higher in farmers. The results of their statistical analysis support many

case studies and suggest that there is a suicide epidemic in marginalized areas of Indian

agriculture that are at the mercy of global economics. The study is recently published online

in the journal Globalization and Health. One of the lead author Jonathan Kennedy had said

that “Many believe that the opening of markets and scaling back of state support following

the liberalization of the Indian economy led to an „agrarian crisis‟ in rural India-which has

resulted in these shocking numbers of suicide among Indian agricultural workers”. The

study also revealed that “a large proportion of these rural inhabitants have not benefited

31 P K Vasudeva, World Trade Organization Implications for Indian Economy, Pearson Education Pte. Ltd., New Delhi, 2005, pp. 358-360 32 Vandana Shiva, “The Seed Emergency: The Threat to Food and Democracy”

from the economic growth of the past twenty years. In fact, liberalization has brought about

a crisis in the agricultural sector that has pushed many small-scale cash crops farmers into

debt and in some cases to suicide”33

The Maharashtra government has reported 257 suicides by farmers in the State between

January and March this year resulting from the agrarian crisis. “The government of

Maharashtra has reported that 257 farmers have committed suicide in the State due to

agrarian reasons during the period January to March 2015”. As many as 114 cases of

suicides were reported from the Aurangabad region, followed by Amravati (102), Nagpur

(30) and Nasik (nine) the data showed34 The suicide economy of industrialized, globalized

agriculture is suicidal at 3 levels-it is suicidal for farmers, it is suicidal for the poor who

derived food, and it is suicidal at the level of the human species as we destroy the natural

capital of seed, biodiversity, soil and water on which our biological survival depends35

33 “Suicide epidemic among India’s, marginalized ‟farmers” 34 Gargi Parsai, “257 farmers committed suicide in Maharashtra this year”, 35 Vandana Shiva, “Why Are Indian Farmers Committing Suicide and How Can We Stop This Tragedy?”

CHAPTER: 5: TRIPS AND PHARMACEUTICAL COMPANY

Since the signing of WTO agreements, whereas the Indian government is doing effort to prepare

the legal framework to meet the international obligations, the industries have been reshaping its

business model to fully harmonize into the global pharma. Indian pharmaceutical industries started

adding highly regulated markets to its traditional lists of export destination of developing

countries. The industry has started realizing the large capacity and changed its target from

manufacturing reverse-engineered copies of patented drugs to producing generics for off-patent

drugs for exports to profitable markets such as the US. The famous Indian companies have

obtained a considerable number of foreign firms, including in the UK, US, France, Germany, Italy

and Brazil. Ranbaxy, for example, has now manufacturing plant in eight countries, with ground

operations in 50. The cheap Indian prices and quality in the wealthy markets have drawn the

attention of the large MNCs in recent years. While the Indian firms have been active in securing

foreign markets, MNCs have been changing some of their operations to low-cost India. As a

favored place for outsourcing, contract research and manufacturing has become a common phrase

in the Indian media. India provides large English-speaking skilled workforce at a share of the costs

of the West. The implementation of TRIPS has increased investor’s faith in India’s obligations to

intellectual property. In recent days, there is emergence of new research firms, and research

agreements between natives firms and MNCs, as well as between two or more domestic firms.36

Gopakumar G Nair has asserted in his Article that in order to comply with the obligations relating

to the provisions of the TRIPS agreement, the importance of the new Intellectual Property regime

on pharmaceutical industry in India is the amendment to the Patents Act, 1970. The Indian

pharmaceutical industry, which had little technological capabilities to manufacture modern drugs

locally in the 1950s, has arisen technologically as the most advanced manufacturing sector in the

Indian economy in the 1990s. It got a significant scale and level of technological capability for

manufacturing newly modern drugs and cost efficiently to emerge as a major developing country

competitor in the world market. Only after entering into the agreement with the TRIPS, Indian

pharmaceutical industry faced challenges of new intellectual property regime. The Indian

pharmaceutical industry became part of the knowledge industry consequent to TRIPS. India has

36 Prabodh Malhotra, “The Impact of TRIPS on innovation and exports: a case study of the pharmaceutical industry in India”, Indian Journal of Medical Ethics, 2008, Vol. 5, No.2

had a special position among the countries in the developing world for it has a strong general

pharmaceutical industry, which has been able to provide medicines at the most cheapest rates in

the world. The Indian Patents Act, 1970 got the credit for this development37

I. IMPACT OF TRIPS ON INDIA PHARMACEUTICAL INDUSTRY :-

a. Rise in the Prices of the Drugs :-

D.P. Dubey has observed that drugs like consumer goods are not purchased by the

preference of the person, but on the prescription of the doctor. There is no choice of the

consumers in this matter. There is tremendous increase in the prices of the drugs as like

other commodities. A recent study shows that there are increases in the prices of many life-

saving drugs. In our country the policies related to the drugs are decided not by the need

of the people, the pattern of diseases or by the purchasing capacity of the people, but by

the profit motive of the industry and the Central government is just playing the role of the

mere spectator38 The prices of all new drugs without any effective control of the domestic

law have shoot up. In a developing country like India, it is very difficult for the poor people

to pay high prices for the medicines. Moreover, it is also very difficult for the domestic

industries to survive in such situations. It is commonly said that under the new patent

regime, the availability and prices of generic drugs will largely be unaffected. However,

the situation is different with respect to new on-patent drugs. There is no doubt that these

drugs will be available in the Indian market either through production or under license. But

the effect on prices is doubtful39

b. Impact on Public Sector :-

Due to globalization there is a lack of the effective role on the part of the State because of

which the public sector drug companies have faced very serious problems including

imminent closures. Public sector drug companies like Indian Drugs and Pharmaceuticals

37 Gopakumar G Nair, “Impact of TRIPS on Indian Pharmaceutical Industry”, Journal of Intellectual Property Rights, Vol. 13, September 2008, pp. 432-441 38 D.P Dubey, “Globalization and its Impact on the Indian Pharmaceutical Industry” 39 Ibid

Ltd. (IDPL), Hindustan Antibiotics Ltd. (HAL), Bengal Chemicals and Pharmaceuticals

Ltd. (BCPL), Bengal Immunity (BI) and Smith Stan Street Pharmaceuticals Ltd. (SSPL)

played an important role in the production of essential drugs at minimum prices. Under the

Globalization process the role of the public sector has been diminished due to which they

have been declared sick. Efforts have been made to either privatize or close them. The

Penicillin Plant in HAL, the biggest in the country, has been transferred to private hands.

Its Streptomycin plant also has been leased to a private company for manufacture of other

drugs. IDPL which is having the biggest pharmaceutical plant in Asia is closed from 1996

due to the requirement of proper financial aid from the government. The public sector drug

companies used to supply raw materials to the small scale sector companies. Now, these

companies are facing difficulties in obtaining raw materials. Similar is the fate of BCPL,

BI and SSPL. These three units were acquired by the government after they were declared

sick by the private owners. Proper exercise of their capacity could not be made due to lack

of will on the part of the government, mismanagement at the administrative level and high

level corruption. It is not because of any basic weakness but due to the lack of political

will, intentional efforts to destroy them, corruption and mismanagement that these public

sector units have been rendered commercially not workable. Moreover, the numbers of

workers engaged in these units have been reduced intensely. With the pharmaceutical

industry taking a jump towards biotechnology development world-wide, only the public

sector drug companies, with the backing of the Central Government, could have faced the

challenge effectively from the MNCs in the new situation40

c. Impact on Innovation :-

Prabodh Malhotra in his Article has asserted that previously, the drug industry in India

primarily focus on developing new manufacturing processes for drugs already existing in

the market. Yet 13 new chemical entities were discovered in India between 1956 and 1987.

With the discovery of Sintamil in 1976 and Cibemid in 1986, Ciba-Geigy, now a part of

Novartis, remains the only foreign entity to discover drugs in India. Since the introduction

of economic reforms in 1991 to the change of patent regime in 2005, seven new drugs were

introduced by Indian institutes in which most of the new drugs were developed at the

40 D.P Dubey, “Globalization and its Impact on the Indian Pharmaceutical Industry”,

Central Drug Research Institute (CDRI), Luck now. The domestic firms focused on

developing new manufacturing processes, and did not engage in discovering and

developing new drugs. However, the new IP regime seems to have changed the emphasis

of pharmaceutical innovation in India. From less than 2 per cent of industry sales spent on

research and development (R&D) a few years ago, leading Indian firms have now increased

their R&D expenditure to around 10 per cent of their annual sales revenue41

d. Mergers and Acquisitions :-

International and national level mergers, acquisitions and takeovers have now become a

common activity in the pharmaceutical industry. Internationally American Home Product

merged with Cyanamid, SKB with Sterling, Rhone Poulenc took over Fashions, BSF with

Boots, Glaxo with Burroughs Welcome, Ciba Geigy with Sandoz, Warner Hindustan with

Parke Davis, Hoechst with Rhone Poulenc etc. are some of the examples of big take over.

By mergers and acquisitions these companies became even larger with more financial

power at their disposal over their competitors. MNCs with the aid of the international

financial companies will seize and take control of Indian companies to control the Indian

market. Indian companies are adopting the same path for equalizing the situation created

by international mergers and takeovers e.g. Wockhardt took over Merind and Tata Pharma,

Ranbaxy took over Croslands, and Nicholas Piramal took over Roche, Boehringer, and

Sumitra Pharma. The certain results are job loss of workers. Because of overlapping of jobs

large numbers of workers are declared surplus. After merger Glaxo-Welcome and Ciba-

Sandoz announced a reduction of 15 thousand and 10 thousand of their work force

respectively world-wide. Upjohn and Pharmacia decided to close 24 of their 57 plants in

different countries after their merger. Some countries are adopting the „buy and grow‟

method. They are acquiring some popular brands and increasing their business. SKB took

over Crocin from Duphar, Ranbaxy took over 7 leading brands from Gufic, and Dr.

Reddy‟s Lab purchased 6 products of Dolphin and two each from Pfimex and Solvay

(SOL) Pharma. Sun pharma purchased all leading brands of Natco, after selling the popular

brands the companies are becoming sick and closing their shutters while throwing the

41 Prabodh Malhotra, “The Impact of TRIPS on innovation and exports: a case study of the pharmaceutical industry in India”, Indian Journal of Medical Ethics, 2008, Vol. 5, No.2,

workers on the street. Through the process of mergers, acquisitions and takeovers MNCs

will slowly increase their hold on the Indian industry by the creation of a limited number

of huge companies having monopoly control and domination worldwide. In the absence of

competition people will have to pay any price as it happens in the seller’s market42

e. Increase in Unemployment :-

With the reduction of the customs duties on foreign imports many drugs manufactured in

India have become not workable compared to the foreign goods in the Indian market. As a

result, the owner of these factories are closing down their units and throwing the workers

out of employment. Messrs. Boehringer Mannheim and Parks Davis who were the only

producers of Chloramphenicol in India stopped their production as its prices in the

international market were cheaper than the cost of production in India. M/s. Sarabhai

Chemicals closed their Vitamin „C‟ plant for a similar reason. Like Chloramphenicol and

vitamin “C” many other drugs like paracetamol, metronidazole, ampicillin, amoxicillin etc.

are available at a cheaper price in our country from abroad because of the lowering of the

customs duties so that Indian factories have closed and workers are on the streets. For the

above drugs our country has become dependent on foreign supply. In their attempt to shift

the production to the third party manufacturing already, Hindustan, Ciba, Geigy, Roche,

Abbot, Boehringer Mannheim, Boots, Park Davis, Unichem etc. have closed their factories

and offered a voluntary retiring scheme to workers and they have sold the land of their

factory premises at a premium price. Apart from these closures, Pfizer, Rhone Poulenc,

Hoechst, Glaxo etc. have reduced their work force. Crores of rupees have been spent to

give Voluntary Retirement Scheme (VRS). These companies are manufacturing their

products with the help of loan licenses. Some of the companies have opened new smaller

factories in new places and appointed workers with lower wages and more workload. More

casual workers are being appointed. Apart from the factory workers the distribution

workers are gradually being replaced by Cost & Freight agency system. In this system, the

original company does not have any responsibility for the workers. They are employed by

agents with more workload and lower wages. In marketing also the field workers or the

sales promotion employees are facing tremendous attacks in the name of franchise, co-

42 D.P Dubey, “Globalization and its Impact on the Indian Pharmaceutical Industry”

marketing, appointment of communicators etc. many permanent sales promotion

employees are losing their jobs. Many others are appointed in the name of so-called

executives to remove them from the fold of the union. More casual and contractual workers

are being recruited43

Thus, it is very difficult to predict the future of Indian pharmaceutical Industry under

TRIPs. Moreover, this issue is of the Indian Government concern as it is of both political

economic natures so it is to be decided from both the angles i.e. economic and political.

II. IMPACT OF TRADE RELATED INVESTMENT MEASURES (TRIMS) ON

INDIA :-

Rasmus Alex Wendt in his Article “TRIPs in India” has stated that the aim of Trade

Related Investment Measure (TRIMs) is to “facilitate investment across

international frontiers so as to increase the economic growth of all trading partners,

particularly developing country Members (Agreement on TRIMs), but especially

the developing countries have been reluctant to embrace this new agreement. Even

though the agreement only covers the trade in goods, the extent of the TRIM

agreement as it stands has far-reaching consequences for many developing

countries.” The agreement restricts member countries44

a. to set up the rules and regulations which require companies to buy products of domestic

origin;

b. to set restrictions on the imports by an enterprise, which is related to export;

c. to require a certain share of products locally manufactured to be exported by an enterprise.

TRIMs have long been a feature of the regulatory framework governing FDI in most host

countries. Most of the measures were shaped to transfer benefits from the operations of

foreign firms to the local economy and promote development objectives. Actually, the most

important objective of these measures is for host countries to obtain the maximum possible

43 D.P Dubey, “Globalization and its Impact on the Indian Pharmaceutical Industry” 44 Rasmus Alex Wendt, “TRIPs in India”, retrieved from rucforsk. ruc. dk/ site/ services/ download Register //TRIPS - in - India .pdf

share of the gains from FDI. However, such regulations distort trade and investment and

impose welfare losses. The various regulations used may in fact have lowered, rather than

enhanced, the contribution of FDI to national development objectives. In terms of benefits,

there is some evidence that benefits play a relatively little role in decisions about where to

locate for MNCs relative to other locations-based considerations. It is further provided that

domestic content requirements and joint venture requirements are counterproductive and

damaging for the host country. Thus, it can be well said that TRIMs may be costly and

inefficient. This is the reason that both developed and developing countries have

abandoned their use and the number of the government that have such policies on this issue

is less than the number of the governments that have abandoned them. The most important

features of the use of policies such as the local content schemes and export performance

requirements are that they are becoming less popular and structural adjustments involved

in removing these types of policies will result in the increase of the unemployment and loss

of technology transfer and opportunities to move into high technology industries45

No doubt, TRIMs agreement treated foreign investment at par with domestic investment,

but it has imposed certain restrictions on the foreign investment which have been

withdrawn by the developing countries. Moreover, it also favors developed nations. MNCs

from developed countries with their huge financial and technological resources can

displace Indian industry and play a proactive role. Besides it, foreign firms will be free to

remit profits, dividends etc. to parent company which will cause foreign exchange drain on

developing nations. The privileges granted to foreign investors have tended to thwart the

development of local entrepreneurship due to which small scale industrialists are over-

looked46

TRIMs also have its negative impact on the economic efficiency of a foreign operation in

India. It is because Local Content Requirements (LCRs), foreign investors are pressurized

to use the local resources, which do not have comparative advantages, as their inputs. These

45 Douglas H. Brooks, Emma Xiaqqin Fan and Lea R. Sumulong, “Foreign direct Investment: Trends, TRIMs and WTO Negotiations” 46 Retrieved from http://study-material4u.blogspot.com/.../chapter-16-world-trade-organisation.h...

restrictions indeed raise foreign companies‟ production costs and ultimately discourage

foreign investors from investing in the host countries. Moreover, the consumers will also

suffer if multinational enterprises transfer the extra costs to them. The foreign investors

besides missing the opportunity of enjoying comparative advantages, are unlikely to enjoy

the lower average costs and capture the benefits of full economies of the scale. The foreign

investors under the LCRs in the host countries cannot import resources in bulk amount

because of which they have to pay higher prices of the resources.47

III. IMPACT OF AGREEMENT ON TEXTILE AND CLOTHING :-

Textile and clothing is the only industry besides the agriculture which has a separate

and independent agreement which is multilaterally negotiated under the aegis of the

WTO. Textile and clothing have significant share in the international trade basket

of several developing countries. It contributes almost 4% of national GDP and 20%

of manufacturing value added. It also earns one-third of India’s foreign exchange

and employs over 6.5 million persons directly as well as indirectly. It is the most

important industry in India after agriculture. In 2005, under the Agreement on

Textiles and Clothing, the removal of quotas on textiles and clothing is expected to

have a great impact on the major exporting countries. India has been constrained

by quotas as well as a challenge as there will be increased competition and no

guaranteed markets, thus, a quota free regime represents an opportunity for India.

The textile and clothing exports in India have to face so many problems like

i. Unilateral changes introduced by certain trading partners in their rules of origin, which

have adversely affected exports of textiles;

ii. Repeated anti-dumping investigations on the textile products like cotton fabrics and cotton

bed-linen, in which India enjoys a measure of comparative advantage;

iii. Adverse effect on export of textile because of ban on use of Azo dyes and,

47 “What are TRIMs?”, retrieved from http://intl.econ.cuhk.edu.hk/topic/index.php?did=23

iv. Growing regionalization of textile trade on account of formation of Free Trade Areas and

Preferential Trading Arrangements, and such localization of world textile trade adversely

affecting India’s textile trade48

Countries like the US contend that India‟s “textiles and clothing” (T&C) exports first

breached the threshold in 2005 and remained above the level in 2006 also and it should,

therefore, end its export subsidies for these items by January 2015 as shown in table. India,

however, cites the WTO rule book to counter this and insists that it has time until January

2018 as the multilateral trade body asked the country to consider phasing out his subsidies

for T&C only in 2010. The WTO rule book says: “Export competitiveness shall exist either

a. on the basis of notification by the developing country member having reached

export competitiveness, or

b. on the basis of a computation undertaken by the (WTO) Secretariat at the request

of any member.”

IV. IMPACT OF ANTI-DUMPING MEASURES:-

The General Agreement on Tariffs and Trade lays down the principles to be

followed by the member countries for imposition of anti-dumping duties,

countervailing duties and safeguard measures. Pursuant to the GATT, 1994,

detailed guidelines have been prescribed under the specific agreements which have

also been incorporated in the national legislation of the member countries of the

WTO. Dumping is said to have taken place when an exporter sells a product to

India at a price less than the price prevailing in its domestic market. However, the

activity of dumping is per se not condemnable as it is recognized that producers sell

their goods at different prices to different market. It is also not unusual for prices

to vary from time to time in the light of supply and demand conditions. It is also

recognized that price discrimination in the form of dumping is a common

48 Bishwanath Goldar, “Impact on India of Tariff And Quantitative Restrictions under WTO”, retrieved from http:// www.icrier.org/pdf/WP172.pdf

international commercial practice. It is also not uncommon that the export prices

are lower than the domestic prices. Therefore, from the point of view of

antidumping practices, there is nothing inherently illegal or immoral about the

practice of dumping. However, where dumping causes or threatens to cause

material injury to the domestic industry of India, the Designated Authority has

taken necessary action for investigations and subsequent imposition of anti-

dumping duties49

Anti-dumping is generally understood as a measure of protection for domestic

industry. However, anti-dumping measures do not provide protection per se to the

domestic industry because it only serves the purpose of providing remedy to the

domestic industry against the injury caused by the unfair trade practice of dumping.

Often, dumping is mistaken and interpreted to mean cheap or low priced imports.

However, it is a misunderstanding of the term. Dumping implies low priced imports

only in the relative sense (relative to the normal value), and not in absolute sense.

Import of cheap products through illegal trade channels like smuggling does not

fall within the purview of anti-dumping measures. Sarcastically, the use and

importance of anti-dumping law is contrary related to the predominance and

efficacy of free trade agreements. As free trade agreements have reduced tariffs and

prohibited most import quotas, anti-dumping cases have increased greatly50

The economists and scholars, despite the growing popularity of anti-dumping

actions, have universally criticized the theoretical base for anti-dumping actions.

This theory holds that price discrimination is an offensive practice whereby selfish

exporters attack markets by shipping at unfairly low prices, driving local

competitors out of business, and acquiring monopoly or oligopoly power. Anti-

dumping duties, under this theory, are necessary to rectify predatory price

discrimination by exporters.51

49 Retrieved from http:// commerce.nic.in/trade remedies/Anti_Dum.pdf 50 Retrieved from http:// cci.gov.in/images/media/Research Reports/NaveenChugh.pdf, 51 Retrieved from http:// www.ebc-india.com/lawyer/articles/854.htm

V. IMPACT OF GOVERNMENT PROCUREMENT AGREEMENT :-

The Government Procurement Agreement (GPA) is a plurilateral agreement within

the framework of the WTO while implying that not all WTO members are parties

to the Agreement. At present, the Agreement has 15 parties comprising 43 WTO

members. Another 31 WTO members participate in the GPA Committee as

observers. Out of these, 12 members are in the process of accepting to the

Agreement. The basic aim of the GPA is to mutually open government procurement

markets among its parties. As a result of several rounds of negotiations, the GPA

parties have opened procurement activities worth an estimated US$ 1.7 trillion

annually to international competition (i.e. to suppliers from GPA parties offering

goods, services or construction services)52

In 2010, India had attained the status of „Observer‟ of the Plurilateral Agreement

on Government Procurement of the World Trade Organization. It includes almost

all major trading partners of India as all members of the WTO are not part of it. In

India, public procurement is a system-wide activity across the Central and State

governments along with their autonomous and statutory bodies and public sector

undertakings, with a wide variety of sector or institution specific requirements. So

far as government procurement markets are concerned, the totality of foreign

participation is in the services sector. Though, India is not a member of the WTO

GPA, still it faces problems in movement of natural persons, including its skilled

professionals, under the WTO rule which has become the reason for India‟s low

participation in the services market . The increasing irregularity in the legal text of

the WTO GPA is another obstacle for India. The revised GPA text of 2012 weakens

the Special and Differential Treatment (S&DT) clauses originally available in the

1994 form of the WTO GPA to such an extent that basically no concession is

available to a developing country like India. The benefits of S&DT provisions,

allowing compensation for domestic content requirement, etc., are available subject

to agreements and that, too, only as a transitional measure for just three years. The

52 Retrieved from http:// www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm

hidden dangers for India also arise from supply side restraints that include low

productivity and disintegrated industrial sector. Besides goods exports are

increasingly dominated by China, India might be able to gain any significant

foreseeable future market access in this sector even if it were to sign up to the GPA.

Both developed and developing country participants are considering accession into

the WTO GPA. The factors impacting decision-making for these players include

the following:53

a. Transparency and good governance;

b. market access: new opportunities and perceived warranted entry (through insulation from

burgeoning “Buy Local” laws) to the markets of member countries;

c. Political influence and being able to influence the development of modalities of the WTO

GPA and terms of accession for new entrants.

The costs of accession into the WTO GPA include the following:

a. losses to domestic suppliers;

b. aligning the domestic legislation to international legislations;

c. costs of aligning the procurement system;

d. costs of creating institutional mechanisms to satisfy the requirements posed by the WTO

GPA (statistical reporting, judicial mechanisms);

e. costs of conducting feasibility studies, dealing with stakeholders, etc.

India’s participation as a GPA observer complemented by ongoing reforms and recent

discussions regarding national procurement policy evidences political interests and

commitment to liberalization. The Indian government has made institutional and

procedural changes to the procurement framework, explicitly recognized the need for

central regulations, and proposed a central advisory body to oversee contracting activity in

the country. Nevertheless, obvious shortcomings, weaknesses and challenges exist to

India’s future GPA accession. The main challenge comprises of a lack of a single and

comprehensive legal procurement framework, decentralized procedures as well as

53 Retrieved from http:// www.cuts-citee.org/…ting_Government_Procurement.pdf

transparency and corruption failures. The opportunities from being allowed access to

foreign markets and the potential benefits from the low cost international suppliers are

obvious but the competitive disadvantage of smaller firms is an important constraint to

procurement market liberalization.54

CONCLUSION

Sub-national actors are slowly but surely making their presence felt in areas that were not

traditionally regarded as their legitimate concerns. This is because economic globalization

and transnational decisions which affect their interests forces them to assert their claims.

Globalization, thus is both restrictive and expansive. It does curious things to sovereignty

as it propels the states to accommodate both supranational and sub-national forces. This

does not mean that sub-national units have grown to a stage where they are supplanting the

key foreign policy actor namely, the national government.

The practices within federations differ a great deal when it comes to assigning a role for

sub-national units. Some federations have decidedly been more generous in sharing the

foreign policy space with other levels of government.

Others like India have been a little less forthcoming but have not been able to stem the tide

of activities that thrust the sub-national units into this sphere. Accommodative strategies

are constantly being evolved by reinterpreting and even amending formal provisions to

bring them in line with changes at the ground level. This is both an acknowledgement of

the legitimate interest of these units beyond their national frontiers as well as a recognition

of their entitlement in this globalized world.

54 Sangeeta Khorana and Sujitha Subramanian, “Potential Accession to the WTO Government Procurement Agreement: A Case-Study On India”, retrieved from www.academia.edu/ …POTENTIAL _ ACCESSION _TO _THE _WTO

SUGGESTIONS

When members of the Constituent Assembly have embodied the treaty making power

in the Indian Constitution, they could not make an idea that international treaties will

gain such importance and treaty making power could be used to nibble the economic

independence of the country.

The WTO has opened a new horizon of opportunities for increased access for which

domestic production system has to gear itself for deriving maximum benefits. Since

our commitments of domestic support are well within the limits, there is ample scope

for increasing the support for enhancing our comparative advantage. Sometimes a

situation occurs where the World Trade Organization Appellate Body gives a certain

interpretation on obligation under a WTO text and the Apex Court in our country

gives different interpretation on the same obligation. Generally, in such cases, the

interpretation of the World Trade Organization Appellate Body would prevail.

Thus, in such conditions, it implies that the judicial functioning of our Supreme Court

gets undermined in favor of an international body. The Centre-State relations have

been interpreted by many scholars and practitioners and examined by many

Commissions like Sarkaria Commission, National Commission to Review the

Working of the Constitution and Punchhi Commission. Repeatedly many

recommendations have been made by these Commissions in support of the need to

prevent the misuse of the constitutional provisions for further strengthening the

positions of the Centre at the cost of State capacity for administration and

development.

Thus, on the basis of the interpretations and recommendations given by various

Scholars and Commissions, the researcher has given the following suggestions to

improve the strains of federalism while focusing on the treaty making power of

Central government and State governments with special reference to WTO.

1. Need to make amendments in the constitutional provisions

2. Need to safeguard Parliamentary Democracy

3. Need to increase the autonomy of Indian States in the area of foreign Policy.

4. Need to Strengthen Co-ordination of Policies.

5. Need to be extremely defensive and inward looking.

6. Need to fight for reduction of domestic subsides and support and export subsidies

in developed countries.

7. Need to make large investment in Agriculture Research & Development.

8. Need to increase organic farming.

9. Need to provide strong Intellectual Property Rights (IPRs) Protection.

10. Need to adopt proper Safeguards against surge in imports.

11. Need to provide awareness regarding Geographical Indication.

12. Need to adopt proper Anti-Dumping Measures.

13. Need to increase the flow of Foreign Direct Investment.

14. Need to encourage Small Scale Industries Sector (SSIs).

15. Need to ensure sustainability of Food Security.

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