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CUTS Institute for Regulation & Competition
Strengthening Skills in Commercial and Economic Diplomacy
Training Programme for civil servants and Executives (CDS.06)
18-21 August 2008, JaipurSession 4:
India and the Multilateral Trading System – From Uruguay Round to Doha Round
August 19, 2008
B.K.Zutshi
Outline of the Presentation
o Introduction:
o MTS-Brief history
o Conditions that led to the Round
o Position of MTS at the timeo India’s Domestic Political Economy Context of the time
o Preparatory Process for the URo Punta del Este Mandate
o India’s Preparations for and Participation in the
Preparatory and negotiating phases
o UR Negotiations : A Brief Account
o An assessment of the UR Results
o Built-in UR Agenda for Future Negotiations
o Concluding Remarks
2
B K Zutshi
Introduction: MTS: Brief History
THE ORIGIN - GATT 1947 THE ORIGIN - GATT 1947
• Established through negotiation under the UN Conference on Trade and Employment (Havana) as the “third” of the Bretton Woods “institutions” for conduct of international relations
• General Agreement on Tariffs and Trade, 1947– Entered into force: 1 January 1948– Terminated: 31 December 1995, but substance
incorporated in GATT 1994
• “Provisional” set of rules, since Havana Charter for the International Trade Organization never entered into force, as the Charter was rejected by the US Congress
• “Original” 23 contracting parties, including India, agreed on tariff reductions
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B K Zutshi
Year Place/ name Subjects covered Countries
1947 Geneva Tariffs 231949 Annecy Tariffs 131951 Torquay Tariffs 381956 Geneva Tariffs 261960–1961
Geneva (Dillon Round)
Tariffs 26
1964–1967
Geneva (Kennedy Round)
Tariffs and anti-dumping measures
62
1973–1979
Geneva (Tokyo Round)
Tariffs, non-tariff measures, “framework” agreements
102
1986–1994
Geneva (Uruguay Round)
Tariffs, non-tariff measures, rules, services, intellectual
property, dispute settlement, textiles, agriculture, creation
of WTO, etc
123
2001--- Geneva (Doha
Development Round)
Tariffs, non-tariff measures in agriculture & Manufactures, rules, services, TRIPS etc.
153
Introduction: MTS: Brief History …Contd.
4
B K Zutshi
Conditions that led to the UR
o Shift in competitive advantage in favour of some developing countries in manufacturers
o Technological developments in telecommunications and computing, resulting in much greater tradability of services
o Dominance of and competitive advantage of developed countries in services
o Increasing importance of IPRs for developed countries as dominant innovators and creators of intellectual property necessary for retaining the competitive advantage
o Perceived limited scope of liberalization through tariff cuts on account of relatively low tariffs among OECD countries
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B K Zutshi
o Fragmentation of the multilateral trading system
Near total exclusion of agriculture from the system
through “waivers” since the 1950s
Reverse discrimination through the Multi-Fibre
Arrangement, solely against developing countries
export
Non-binding nature of Tokyo Round Codes on
subsidies and dumping in their application to
developing countries
The so called Free Rider problem
Conditions that led to the UR … Contd.6
B K Zutshi
o Fragmentation of the multilateral trading system …Contd.
Tariff peaks and tariff escalation against goods of
export interest to developing countries (Footwear,
leather goods, textile and clothing)
Arbitrary application of antidumping and
countervailing duties
A vast arsenal of grey-area measure like the so called
voluntary export restraints, orderly marketing
arrangements.
Increasing resort to unilateral measures by the US
under its prolific family of section 301 legislation (Super
301, Special 301 etc.)
Conditions that led to the UR … Contd.7
B K Zutshi
Position of the MTS at the time
oThe GATT at the time was languishing and divorced from the real-world issues of the global market place
o Some commentators believed that the GATT had become largely irrelevant and was in danger of a total collapse
o Members had different sets of rights and obligations
o There was urgent need for rejuvenating and reinventing the system to bring it closer to the ground realities
o However perceptions differed among contracting parties about the issues that needed to be addressed
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B K Zutshi
o India’s Economic and Trade policy Framework during the Preparatory and Negotiating phases of the UR
Import substitution model of development
A high cost, centrally planned economy, in which state decided who would produce what, where and in what quantity
“Commanding Heights” of the economy under state control
Structural rigidities, low rates of growth
QRs under the balance of payments provisions of the GATT and High tariff walls
India’s Domestic Political Economy Context 9
B K Zutshi
India’s Domestic Political Economy Context … Contd.
o India’s Economic and Trade policy Framework
during the Preparatory and Negotiating phases of
the UR …Contd.
Export Production was treated as separate from
domestic production
After the first spurt of industrialization (1950s
and early 1960s), technological obsolescence
had set in by the end of 1960s
A conservative management of the external
trade and financial sectors
10
B K Zutshi
o India’s Economic and Trade policy Framework during the Preparatory and Negotiating phases of the UR …Contd.
Reforms
India embarked on an economic reforms programme in 1991.
Between 1980 and 1991 there were tentative and sporadic attempts at reform.
By and large the policy framework had remained unchanged since it was laid down in Pandit Nehru’s time
In spite of some internal debate on reforms during Rajeev Gandhi’s Government, nothing much could be done because of vested interests and ideological predilections
India’s Domestic Political Economy Context … Contd. 11
B K Zutshi
o India’s Economic and Trade policy Framework during the Preparatory and Negotiating phases of the UR …Contd.Reforms …Contd.
That policy frame had a conservative approach to external commercial borrowings
Rajeev Gandhi’s Government liberalized external commercial borrowings for investment through the public sector.
This resulted in the deterioration of the already fragile foreign exchange position to the point of imminent default by India in 1991
India had to physically pledge its gold reserves abroad to avoid a default
India’s Domestic Political Economy Context … Contd. 12
B K Zutshi
o India’s Economic and Trade policy Framework during the
Preparatory and Negotiating phases of the UR …Contd.
Reforms …Contd.
This directly resulted in India undertaking economic
and trade reforms under the stewardship of the
present Prime Minister who was then Finance
Minister in Mr. Narasimha Rao’s government
Being reluctant participants in the negotiations and
given the prevailing policy framework, Indian
negotiators had little flexibility.
India’s Domestic Political Economy Context … Contd. 13
B K Zutshi
o India’s Economic and Trade policy Framework during the Preparatory and Negotiating phases of the UR …Contd..
Reforms…Contd.
By the time the round concluded in December 1993, the reform process was still at initial stages, coping with the FE crisis through import contraction by a more rigorous regime of QRs
Some flexibility was available in tariff reductions as India had embarked on this reform by then
India’s Domestic Political Economy Context … Contd. 14
B K Zutshi
o India’s Interests and Concerns following from the Policy Frame…Contd.
Broadly speaking, India’s interests lay in improving market access in its areas of export interest, by seeking reduction of tariff and non-tariff barriers in the relevant sectors
India’s principal objective in this regard was the abrogation of the MFA and the integration of the textile and clothing sector into the GATT.
Defensive stance in agriculture because of food security, livelihood and employment concerns of largely subsistence farming
India’s Domestic Political Economy Context … Contd. 15
B K Zutshi
o India’s Interests and Concerns following from the Policy Frame ..Contd.
Protection of a weak and inefficient service sector, particularly in infrastructure services like banking, insurance, telecommunications and other utilities
Defensive posture in IPR’s for a variety of reasons, including the then domestic legislation on the subject.
India’s Domestic Political Economy Context … Contd. 16
B K Zutshi
o India’s Interests and Concerns following from the
Policy Frame…Contd.
Strengthening S&D Provisions
Interest in systemic Issues
Preserving policy space for domestic decision-
making to craft its own path of development
Ideological opposition to liberalization in general
and trade liberalization in particular for historical
reasons
India’s Domestic Political Economy Context … Contd. 17
B K Zutshi
Preparatory process for the UR
o US took the initiative, with the support of other OECD
countries, to seek to include services in the MTS
o The 1982 Ministerial Conference considered the issue,
but there was no consensus on the proposal to carry
out a study on services’ trade, even without any
commitment on its inclusion in the MTS
o However the US and other OECD countries persisted
with the proposal to have another round of negotiations
with a broad agenda. The persistence finally resulted in
the establishment of a preparatory process for a new
round
18
B K Zutshi
o Developing countries, in particular efficient
agricultural producers wanted agriculture to be
integrated into the MTS; so did the US; EU not in
favour
o India, Pakistan and a few other developing countries
were interested in the integration of the textile and
clothing trade into the MTS
o Developing countries were also interested in
improving market access in other goods of export
interest to them like tropical products
Preparatory process for the UR…Contd. 19
B K Zutshi
Preparatory process for the UR …Contd.
o Developed countries priority, besides opening markets in
other countries, was for inclusion of international trade in
services in the MTS and for discplines on international trade
in counterfeit goods.
o The prep process was dominated by a long controversial
debate on tradability of services
o One of the issues in this debate was the application of trade
rules to investment in services, because regulation and the
market place required establishment in the host country as a
condition for doing business.
o Investment had never been recognized as “trade” under the
GATT
20
B K Zutshi
o Issues in Contention
The most contentious issue was the inclusion of services in the negotiating mandate
TRIPS was not contentious during the prep process but became so during the negotiations when the mandate was interpreted by the developed countries to include norms and standards of IPRs
Developing countries took the view that GATT was not the appropriate forum for setting standards in IPRs
Reform and liberalization of the agriculture sector for eventual integration into the MTS
Preparatory process for the UR …Contd. 21
B K Zutshi
Punta del Este Mandate
o The ministerial declaration of 20 September 1986 from Punta del Este launched the round oTwo part mandate
Part I covered negotiations on trade in goods subjects
Tariffs Non-tariff measures Tropical Products Natural Resource based products Textile and Clothing Agriculture GATT article
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B K Zutshi
Punta del Este Mandate … Contd.
o Two part mandate… Contd. Part I covered negotiations on trade in goods, subjects …Contd.
Tokyo round codes Anti-dumping Subsidies Dispute settlement TRIPS, including trade in counterfeit goods TRIMS and Functioning of the GATT system
Part I was a single undertaking, meant to ensure that all the above negotiating subjects would be covered. Single undertaking assumed a somewhat expanded meaning in the final outcome
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B K Zutshi
o Part II of the mandate was negotiations on trade in
services. The separation was meant to put the negotiations
on the services on a separate legal track, but would
receive the same administrative support from the GATT
secretariat,
oThis was the constitutional charter of the round and was
the result of a difficult compromise that protected the
positions and dominant interests of the developed and
developing countries
o North-South Dimension pervaded all the negotiations,
although the term itself was rarely used
Punta del Este Mandate … Contd.24
B K Zutshi
o The overall mandate in Part I and the mandate for each subject of negotiations was balanced in the sense that each mandate preserved the essential interests of the two major groups
o This was true also of the mandate for services negotiations, which also left open the issue of the international implementation of the results of the services negotiations.
o Developing countries’ had reservations about GATT being entrusted with this responsibility. (The issue lost its relevance in the last phase of the negotiations once it was decided to set up the WTO).
Punta del Este Mandate … Contd.25
B K Zutshi
o The mandate was seen as a grand bargain between North and South, under which developed countries were to:
start the process of reform and liberalization in agriculture and its eventual integration into the MTS
phase out the MFA and bring the textile and clothing sector under the main framework of GATT
provide enhanced market access to developing countries in areas of export interest to them, through reduction in tariffs and removal of non-tariff barriers
clean up the system by removing grey area measures like voluntary export restraints etc.
Punta del Este Mandate … Contd.26
B K Zutshi
o In return developing countries would agree to
disciplines:
in the new area of services
to avoid adverse trade effects of trade related
investment measures, like performance requirements
of local content and export obligations
in trade related aspects of intellectual property
rights including trade in counterfeit goods.
Punta del Este Mandate … Contd.27
B K Zutshi
Punta del Este Mandate … Contd.
o In return Contd.
The TRIPS mandate became controversial during the
negotiations about norms and standards of IPRs
being an issue within the remit of GATT
The issue was resolved in the April 1989 meeting,
along with three other issues - agriculture, textiles
and general safegaurds - which had remained
unresolved at the Montréal mid-term review meeting
of December 1988
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B K Zutshi
India’s Preparations for and Participation in the Preparatory and negotiating phases
o National Preparation and consultation processes in India in the Preparatory Phase
India a reluctant participant in international engagement on trade issues?
No tradition of stakeholder consultations, not even with the state governments, who had substantial stakes in subjects like agriculture
Hardly any informed public debate on issues under negotiations.
Singular absence of any inputs from academic circles and think tanks.
29
B K Zutshi
India’s Preparations for and Participation in the Preparatory and negotiating phases…Contd.
o National Preparation and consultation processes in India in the Preparatory Phase…Contd.
Inter-departmental and inter-agency Consultation through normal consultative processes of the GOI
Inter-departmental and Inter-agency turf battles
For stakeholders outside the central government, including state governments, the processes were non-transparent
30
B K Zutshi
India’s Preparations for and Participation in the Preparatory and negotiating phases…Contd.
o National Preparation and consultation processes in India in the Preparatory Phase…Contd.
Given India’s economic and trade policy framework at the time, discussed earlier, authorities were not at all keen for any such consultation for fear of further politicizing the issues
National preparation and consultation process in India during the Negotiating Phase
Hardly any change from the position in this regard during the preparatory phase
In fact there was minimal participation at the political level in the negotiations
31
B K Zutshi
o Multilateral Consultations, Coordination and Coalition Building in the Prep Phase
India played a leading role
Chaired the “Informal Group of Developing Countries” until after the mid-term review
Set up the coalition known as the Group of Ten, comprising Brazil, Cuba, Egypt, India, Nicaragua, Nigeria, Tanzania and Yugoslavia
Perceptions about the functioning and effectiveness of
The Informal Group of the Developing Countries
The Group of Ten
India’s Preparations for and Participation in the Preparatory and Negotiating phases
32
B K Zutshi
o National preparation and consultation process in
India during the Negotiating Phase
Hardly any change from the position in this
regard during the preparatory phase
In fact there was minimal participation at the
political level in the negotiations
India’s Preparations for and Participation in the Preparatory and Negotiating phases…Contd.
33
B K Zutshi
o Multilateral Consultations, Coordination and Coalition Building in the UR negotiations
India played an important role
Informal Group of developing countries
Played an effective and a critical role in preventing consensus in
The Montréal mid-term meeting of Dec.1988; and
Brussels Dec.1990 meeting, which was to conclude the Round
India’s Preparations for and Participation in the Preparatory and Negotiating phases…Contd.
34
B K Zutshi
India’s Preparations for and Participation in the Preparatory and Negotiating phases…Contd.
o Multilateral Consultations, Coordination and Coalition Building in the UR negotiations…Contd.
Cairns Group on agriculture, comprising of members from both developed and developing countries
Other issue-based coalitions like the one on TRIMS
35
B K Zutshi
UR Negotiations: A Brief Account
o Negotiating structureFor Part I of the mandate, a Negotiating Group for
each of the 14 subjects, chaired by serving and former ambassadors
The subject matter groups to report to the Negotiating Group on Goods, Chairperson: DG in his official capacity
For Part II, the Negotiating Group on Services, under the chairmanship of an ambassador
Both Groups to report to the Trade Negotiating Committee under the chairmanship of the DG in his personal capacity
36
B K Zutshi
UR negotiations: A Brief Account …Contd.
Milestones
Sep 86 - Punta del Este: launch
Dec 88 - Montreal: ministerial mid-term review
Apr 89 - Geneva: mid-term review completed
Dec 90 - Brussels: “closing” ministerial meeting
ends in deadlock
Dec 91 - Geneva: first draft of Final Act completed
37
B K Zutshi
Milestones …Contd.
Nov 92 - Washington: US and EC achieve “Blair House” breakthrough on agriculture
Jul 93 - Tokyo: Quad achieve market access breakthrough at G7 summit
Dec 93 - Geneva: Most negotiations end (some market access talks remained)
Apr 94 - Marrakech: Agreements signed
Jan 95 - Geneva: WTO created, agreements take effect
UR negotiations: A Brief Account …Contd.38
B K Zutshi
UR negotiations: A Brief Account …Contd.
Marrakech Agreement: Its Distinguishing Features from the GATT
Unlike GATT, WTO an Institution.
Third Leg of the International Economic Order Conceived at Bretton Woods.
Much Larger Coverage by Inclusion of Services and TRIPS.
A Forum for Continuous Negotiations.
Trade Policy Review Mechanism (TPRM).
39
B K Zutshi
Marrakech Agreement: Its Distinguishing Features from the GATT…Contd.
Single Undertaking:
Intended for Part I of the mandate to ensure an outcome in each negotiating subject, restore integrity to the MTS and prevent its fragmentation in future
The notion assumed much greater importance and a deeper meaning in the context of setting up of the WTO
A common Dispute Settlement and Enforcement Mechanism - With Possibilities for Cross-retaliations, Subject to some Disciplines.
UR negotiations: A Brief Account …Contd.40
B K Zutshi
o General
No ex ante indicators for judging the outcome
Post facto assessment by individual
participants.
Econometric assessment under partial
equilibrium modeling showing great gains
somewhat suspect.. Conclusions depend on
initial assumptions
An assessment of the UR Results41
B K Zutshi
o General …Contd.
Nevertheless the following can be said
The outcome significantly strengthened the
MTS in a variety of ways like addressing areas
and sectors where the absence of international
consensus and workable rules had resulted in
mounting trade tensions undermining
confidence in the system e.g. safeguards,
subsidies, antidumping duties, agriculture and
textile & clothing, IPRs, use of unilateral
measures by big trading entities like the S.301
measures under the US trade legislation
An assessment of the UR Results…Contd.42
B K Zutshi
o General …Contd.
Nevertheless the following can be said …Contd.
Significant tariff cuts and marked increase in tariff bindings
Both elements above enhanced market access and made it secure, transparent and predictable
Extension of Multilateral discipline to services, TRIPS
Multilateral rights and obligations of all countries increased to broadly comparable levels
Institutional underpinning of MTS greatly enhanced by the setting up of the WTO
An improved dispute settlement mechanism
An assessment of the UR Results…Contd.43
B K Zutshi
o General
On the downside
High costs of implementation for Developing countries
Flawed implementation of market access commitments in agriculture and Textiles
Continuation of tariff peaks and tariff escalation in products of export interest to developing countries
Intrusive nature of obligations impinging on Members domestic policy making domain
An assessment of the UR Results…Contd.44
B K Zutshi
o From India’s Perspective In Agriculture
No reduction commitments on domestic support Domestic support way below de minimus levels for
developing countries No tariffication obligation, only ceiling bindings at
high safe levels, precluding any possibility of imports of subsidized agricultural products.
No minimum import commitments All support schemes in the sector both of the Central
Government and State Governments covered by the Green Box
No export subsidy reduction commitments but possibility of providing internal transport subsidy and marketing support
An assessment of the UR Results…Contd.45
B K Zutshi
o From India’s Perspective….Contd. In Textiles
complete phase out of MFA in ten yearsPhase out back loaded
TRIPSThe most controversial part of the outcome for IndiaObligation to grant product patents in pharmaceuticals
and agro chemicalsA ten-year Phase in period for grant of product patents
in parallel with the phase out of the MFAGrant of exclusive marketing rights for five years or
until patents rights become available in respect of patents filed after January 1, 1995
Non-authorized use (compulsory licensing) provisions on certain conditions without providing for grounds or reasons for such use
An assessment of the UR Results…Contd.46
B K Zutshi
o From India’s Perspective….Cont
Services
GATS the most development friendly agreement to have come out of the UR
Bottom up approach to scheduling commitments
Market Access and National Treatment commitments negotiated obligations unlike in the case of GATT
The notion of progressivity of commitments
Parity between factor movements of capital and labour - modes 3 and 4
An assessment of the UR Results…Contd.47
B K Zutshi
o From India’s Perspective….Contd.
Services
Actual commitments by all members under all four modes rather modest, (except in telecoms and to a lesser extent in financial services) but particularly so under mode 4,i.e. movement of natural persons as service providers
Since then considerable autonomous liberalization by developing countries, including India
India has emerged a major exporter in software and other IT-enabled and knowledge-based services
India’s has been the fastest growing services exports in the last decade
An assessment of the UR Results…Contd.48
B K Zutshi
o Scattered throughout the various WTO agreements there were commitments for future negotiations, some time bound in the matter of their initiation Two such areas were services and agriculture. In
services the next round of liberalization negotiations was to start from Jan 2000 and for agriculture from Jan 2001
There was also a commitment to study the trade and environment interface
Negotiations in these areas were initiated according to the committed time schedules, but got subsumed in the wider Doha Round negotiations and are now a part of that ongoing Round. This will be taken up in the next part of this session
Built-in Agenda for Future Negotiations from the UR
49
B K Zutshi
Built-in Agenda for Future Negotiations from the UR…Contd.
o Scattered throughout ….bound Contd.
Flawed Implementation of the UR Agreements on Agriculture and Textiles
Agriculture Agreement
Expectations and the Reality
Textile Agreement
The phase out scheme
Back loading of the phase out programme
Other Implementation issues
50
B K Zutshi
Participation of and contribution to the preparatory and Negotiating phases of the UR by developing countries
India’s Role in the same
Concluding Remarks
51
B K Zutshi
Thank You
