(All the above issues emanate from the work programme initiative at the First Ministerial Conference of the WTO at Singapore held in December 1996)

(Future work for this was already provided for under existing decisions taken at the Marrakesh Ministerial Meeting in 1994 following conclusion of the Uruguay Round of multilateral trade negotiations)

Others

The existing GATT/WTO rules do not directly create any multilateral disciplines for the flow of investments. The existing Agreement on Trade Related Investment Measures (TRIMs) states that certain investment measures can restrict and distort trade and seeks the elimination of TRIMs inconsistent with GATT. The Agreement contains an illustrative list of TRIMs inconsistent with GATT. The list includes measures which require particular levels of local procurement by an enterprise ("local content requirements") or which restrict value or volume of imports such an enterprise can make or use to an amount related to the level of its exports ("trade balancing requirements"). The Agreement requires notification of all non-conforming TRIMs and their elimination within two years for developed countries and within 5 years for developing countries from the date of signing of the Uruguay Round Agreement. This Agreement also calls for a review of the operation of the Agreement by 1 January 2000, when it will also be considered whether it should be complemented by provisions on investment policy and competition policy.

Meanwhile, Ministers at the first Ministerial Conference of the WTO held in Singapore in December 1996 (the "Singapore Ministerial Declaration") decided to set up a Working Group on Trade and Investment to initiate a discussion on the subject in the WTO in order to study the relationship between trade and investment. While this work is continuing in the WTO, a number of countries led by the European Union (EU) have been pressing for a Multilateral Agreement on Investment (MAI). Discussions in the OECD (Organisation for Economic Cooperation and Development) on the proposed MAI having failed to make much headway, pressure has been mounting to bring this issue on the negotiating agenda of the WTO. The framework of the Agreement on Investment proposed by the EU envisages national treatment at the post-establishment stage for foreign investment along with voluntary commitments in chosen sectors at the pre-establishment stage. The definition of foreign investment being proposed for coverage includes not only greenfield foreign direct investment (FDI) but also mergers, acquisitions etc. Grant of national treatment at pre-establishment stage, which would mean the right of entry and establishment on par with domestic investors, could pose serious problems to developing countries in the active pursuit of their developmental objectives and in directing investment to desired economic activities. The approach for national treatment suggested by EU is also beset with the apprehension of subsequent enlargement, which could curtail the country’s sovereign right to screen investments.

Several questions would arise regarding the ongoing debate on the issue: (a) the most fundamental issue relates to the need for a multilateral agreement on investment in the context of development. There is no convincing evidence to show that there will be an increase in flows of foreign direct investment on account of a multilateral agreement on investment. Investment flows are dependent more on the health of economies than on multilateral agreement; (b) a second issue relates to whether there are perceived inadequacies in the existing instruments that point to the need for an MAI; (c) the more general issue is whether an overloaded system can take on a major additional area of work and whether developing countries have the resources to effectively handle such expansion in the area of global agreements; (d) another issue relates to the possibility of cross retaliation through the dispute settlement mechanism; (e) such an agreement could negate the rights of member countries to direct investment in such manner that it promotes growth without endangering the balance of payment position; (f) there is also the issue relating to restrictive business practices of transnationals, their enormous financial clout which can threaten small and medium industry in developing countries and investor obligations; (g) another issue relates to the preservation of the State’s sovereign rights over its natural and biological resources; and (h) it is also asked whether, if at all discussion on investment is to take place, is it not necessary to examine the movement of all factors of production, including labour, without restricting discussions to just one factor, namely, capital. There are many other issues relating to investment which need to be carefully examined through open ended continuation of the educative process already initiated.

A Working Group was established to study the relationship between trade and competition policy as mandated by the Singapore Ministerial Declaration. EU is the main proponent for a multilateral agreement on Competition Policy. The major elements of the framework agreement being mooted by EU include enactment, by all members, of a national competition law based on the principles of non-discrimination and transparency; effective enforcement of such a law; harmonisation of competition principles of the member countries; and cooperation among member countries in dealing with anti-competitive practices extending to more than one member. While the EU proposal targets restrictive business practices of multinational corporations, it also targets government policies that limit competition or encourage state monopolies or dominant market position to state undertakings. The proposal, therefore, seeks to open these areas to competition from foreign and domestic private entities. While competition policy relating to government policies and practices with a competition angle and having cross border effects are being targetted by developed countries, the interests of developing countries lie in targetting such measures undertaken by enterprises in member countries, with cross border effects.

The net benefits accruing to the developing countries due to the adoption of multilateral rules in the area of competition policy depend on the details of the elements that may be identified during the discussions.

There is at present no multilateral agreement on Government Procurement.

Government departments, agencies and public utilities all over the world spend large amounts on procurement of goods, services and construction services to meet their needs. Governments are generally the largest single spenders in any country. Estimates by the WTO indicate that procurement by government entities constitute 10-15% of the GDP of the countries.

Government Procurement is an important instrument available at the disposal of governments to direct investment to desirable sectors, social/economic groups and underdeveloped regions. Purchase and/or price preferences can be used by government entities to encourage production by small scale or other preferred sectors serving social objectives. Besides, development of backward regions can also be encouraged by giving purchase/price preferences to items manufactured in such regions. In view of this social objective dimension, procurement by government entities has been exempted from the core WTO obligation of national treatment. National treatment obligation (requiring non-discrimination as between domestic products and those imported into the country) does not apply to the "laws, regulations, or requirements governing procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in production of goods for commercial resale" [GATT Art.III.8(a)]. However, a limited membership Agreement on Government Procurement (GPA) was signed in 1979 as a result of Tokyo Round Trade negotiations, but separately, the parties to this limited Membership Agreement negotiated to extend its coverage. This resulted in the Government Procurement Agreement (GPA). As GPA is only a plurilateral agreement, covering only specified entities in member countries party to the Agreement, there have been concerted efforts to multilateralise GPA. India is not a member of GPA.

The Singapore Ministerial Conference established a Working Group on ‘Transparency in Government Procurement’ with a view ‘to conduct a study on transparency in government procurement practices, taking into account national policies, and, based on this study, to develop elements for inclusion in an appropriate agreement’.

During the more than two years of the Working Group process various elements of transparency in public procurement have been discusses. However, there has been no consensus even on the definition of Government procurement or on the scope of government procurement for coverage in a multilateral agreement on transparency. The position that India has been taking in the Working Group has been that while transparency in the public procurement process is important and India is already having a transparent public procurement system, discussions in the Working Group have not progressed to the stage where an agreement on transparency can be negotiated. Besides, the elements being proposed to be included in the agreement by some Members and their ‘building block’ approach go beyond ‘transparency’ and is not acceptable. The right of WTO Members to make and modify public procurement rules and to maintain price/purchase and other preferences to small scale and other specified sectors or groups cannot be compromised in a transparency arrangement.

The advocates of trade facilitation in the WTO believe that inefficient and unnecessary import, export and customs procedures impede trade. They further argue that the WTO, as the main organisation for international trade, has a natural role in setting rules and in promoting existing international standards with a view to simplify, harmonise and automate procedures, reduce red tape and documentation, and increase transparency. In view of the above, it is being argued by developed countries that developing a set of WTO commitments in this field is vital.

The majority of these issues are a part of the revised Kyoto Convention, the final report of which has already been ratified by the World Customs Organisation (WCO) in June 1999. In view of the fact that many international organisations and the WCO in particular, are considering the issues relating to Trade Facilitation under their auspices, there is no real need for the WTO to duplicate the work.

The EU, who are strong supporters of an initiative in the WTO in this field, consider that it is a win-win situation for all concerned and that simplifying customs procedures would lead to increase in trade and investment. In the event that a multilateral set of rules on trade facilitation is made part of the agenda, it may be restricted to simplification of customs procedures and electronic data interchange in trade transactions. However, developing countries need to be provided assistance for capacity building to implement these procedures and also transition period for completing the same, since for time bound commitments for speedy clearance of consignments countries may lack the infrastructure to discharge contractual obligations. While facilitation of trade is an issue that should legitimately be tackled within the WTO, the proposal being pushed by certain developed countries will bring customs procedures within the WTO system, including its retaliatory provisions.

A Ministerial Declaration on Trade and Environment was adopted in Marrakesh on April 14, 1994, just before the signing of the Uruguay Round Agreement. It established a Committee on Trade and Environment (CTE) to identify the relationship between trade measures and environmental measures and to make appropriate recommendations on whether any modifications of the provisions of the multilateral trading system are required for the promotion of sustainable development. The Decision also required the CTE to give its recommendation to the WTO’s first Ministerial Conference.

The CTE had intensive discussions on a ten-point agenda for two years where some developed countries wanted widening of the scope of Article XX to GATT 1994 to exclude trade measures taken for environmental purposes from applicability of GATT disciplines. India and most other developing countries resisted this. Finally, the CTE sent a factual report to the Ministers at Singapore. The Singapore Ministerial Conference directed the CTE to continue its work and to report to the General Council of the WTO. This work has been continuing in the Committee.

India has been active in the CTE deliberations and was instrumental in developing a balance on the issues being discussed and conclusions and recommendations formulated in that body. This was possible because India developed its own positive agenda to counter the agenda of the developed countries. India has made several proposals in the CTE. The most important among them relate to transfer of environmentally sound technologies and products on affordable terms, rewarding indigenous knowledge and bio-diversity utilised in creating IPRs, and safeguarding and enhancing market access of developing countries in the face of increasing environment related barriers.

A number of concerns have been expressed by developing countries on the issue of environment. While work already accomplished in the CTE must provide the starting point, measures taken for environmental purposes should not be allowed to be used as protectionist devices. Further, there should be clear recognition that environmental standards differ from country to country and that the solution lies in mutual recognition of product-related standards rather than harmonisation of standards. It is also imperative that while developing environmental requirements, members should take into account the need to safeguard existing market access of developing countries and the need to increase their market access further in order to facilitate sustainable development.

Meanwhile, pressures are mounting from developed countries, especially EU and the US, for substantive decisions to be taken at the Third Ministerial Conference on this issue. They propose to address the environmental concerns through the respective negotiating groups on sectors and issues mandated by the Third Ministerial Conference, thereby bypassing the balance existing in the CTE. There are also attempts to widen the scope of Article XX of GATT 1994 and of bringing non-product related Process and Product Methods under WTO disciplines. Developing countries, including India, have been taking the stand that environmental issues should be addressed through Multilateral Environmental Agreements and relevant bodies and that the present WTO disciplines adequately address environmental concerns.

The issue is about the linkage between Trade and Labour Standards. A number of developed countries have been strongly advocating a link up between these issues and the need for WTO to engage in efforts to ensure respect for such core labour standards. According to them, labour rights and trade liberalisation are mutually reinforcing.

India’s position along with that of many developing countries has been that it is fully committed to the observance of labour rights and promotion of labour welfare through its domestic policies. However, the issue of labour standards at the international level can be appropriately addressed only in the ILO and not in the WTO. The use of trade measures to enforce labour standards is a protectionist device and has to be rejected.

The Singapore Ministerial Declaration of December 1996 had vindicated the above stand taken by the developing countries and had rejected the use of labour standards for protectionist purposes. Further, it had reaffirmed that ILO is the competent body to deal with these standards. However, both US and EC have submitted formal proposals in the General Council recently. The US proposal is more ambitious and envisages setting up of a Working Group in Trade and Labour in the WTO which would produce a report for consideration by Minister by the 4th Ministerial Conference. The EC proposal advocates the creation of a Joint ILO/WTO Standing Working Forum on Trade, Globalisation and Labour Issues. Both these proposals are unacceptable as they include items specifically rejected by the Singapore Ministerial Declaration (SMD).

Under the Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994 following the Uruguay Round, member countries had submitted schedules indicating the rates of duties which may be charged by the conditions of qualifications set forth in the schedule. The schedule is divided into two sections, one for agricultural products and another for other products (industrial products including textile items).

The tariff reduction programme commenced from March 1,1995. The duties are required to be brought down in six equated instalments to the committed bound levels by March 1, 2000 for industrial products other than textile items. As regards textile items, the phase out period extends up to March 1, 2005. This effectively means that for industrial tariffs other than textile items, the schedule comes to an end in the year 2000. Pressure has, therefore, started for a fresh round of negotiations of industrial tariffs, including textile tariffs. Though the GATT 1994 has not specifically mandated any specific time frame for any further negotiations for reduction of tariffs, Article XXVIII provides that the contracting party may sponsor such negotiations from time to time.

From the developing countries’ point of view, the issue of renegotiation of industrial tariffs has to be dealt with essentially from the perspective of the domestic industry and the exporters although there are revenue implications as well. Lowering of industrial tariffs further may mean increased competition for the Indian industry. On the other hand, lowering of tariffs by the major markets of our interests may mean greater market access to our exporters. A brief analysis of the tariff peaks in the developed countries indicates that the average level of

3.8 per cent tariff in the post Uruguay Round period for developed countries does not provide a correct picture about the market access allowed to the exports of developing countries like India. This is because of the existence of ‘tariff peaks’ and the phenomenon of ‘tariff escalation’ particularly for the products of export interest to India and other developing countries. There is evidence to suggest that both, the level and frequency of tariff peaks are high for products of export interest to the developing countries. For instance, the trade weighted average tariff of the developed countries for textiles and clothing and leather is as high as 12.1 per cent. As examples of tariff peaks on individual products, Japan has 160 per cent tariff on footwear with leather uppers, USA has 79 per cent on raw cotton, 58 per cent on sports footwear with textiles uppers and 33 per cent on watch movements, and EU has 22 per cent on certain women’s dresses. Therefore, there seems to be a possibility of higher market access by seeking reduction of tariff peaks for products of export interest to India, notwithstanding the fact that such reduction or elimination of tariff peaks to be meaningful has to be accompanied by removal of non-tariff barriers.

Another area of concern for the exporters is the emergence of large regional trading blocks, customs unions and free trade areas which have either a preferential internal duty structure or a duty free regime within the Regional Trading Arrangement. Some of these blocks have, as its members, both developed as well as developing countries. This trend suggests that the long term solution for recitfying the resultant discrimination faced by products from countries like India lies in global reduction of tariffs which will make such regional arrangements increasingly irrelevant from a tariff perspective.

A fresh round of negotiations may, however, mean some additional competition from outside to the domestic industry in India and also less flexibility to raise tariffs. India has, however, as a part of the reform process, kept its tariffs significantly lower than the bound levels. However, any fresh round of tariff negotiation will take time to conclude and implementation will commence only thereafter, in phases.

The Second Ministerial conference of the WTO at Geneva adopted a Declaration to commence a work programme to examine all trade related issues on this subject in the General Council of the WTO, for making any recommendations for action at the Third Ministerial Conference. Without prejudice to the outcome of the work programme, it was also decided to continue with the current practice of not imposing customs duties on electronic transmissions.

A process is now under way in the General Council of the WTO to discuss and deliberate upon this work programme. These include issues relating to characterisation of electronic commerce, dutiability of electronic transmissions, protection and enforcement of trademarks and issue of control on access to new technology and on its transfer and dissemination. Thus, the development dimension of liberalisation of electronic commerce needs to be fully integrated into the process.

On the issue of rollover of the standstill on customs duties on electronic transmission, the majority of members would like to continue with the standstill. The EU has, however, indicated that they would not agree to such extension of the standstill unless there is an agreement on a satisfactory outcome of the work programme, by the time of the Third Ministerial Conference at Seattle.

India perceives information technology as an area of comparative advantage for itself, and has, therefore, not opposed the current initiatives on electronic commerce. However, along with a decision to rollover the standstill on customs duties for a period of 2-3 years, a suitable way will need to be found to address the important issues raised in the work programme. We also need to see that our options to levy domestic taxes on services, in the nature of ‘service tax’ do not get circumscribed when services are electronically traded, as this is an important potential area for augmenting our revenue resources.

The Marrakesh Ministerial Declaration of 1994 mandated cooperation between WTO, the IMF and the World Bank with a view to achieving ‘greater coherence in the decision making’. It was specified that ‘the confidentiality requirements and the necessary autonomy in the decision making procedures of each institution, and avoiding the imposition on government of cross-conditionalities or additional conditions’ should be respected. Accordingly, agreements have been signed by the WTO with IMF and Word Bank. Cooperation between these organisations is in the form of regular consultations and reciprocal participation in meetings. The EU, which is the main protagonist of this issue, is seeking to expand the ‘coherence mandate’, by trying to further cement the existing linkage between IMF and World Bank and WTO and developing similar linkages with other international organisations like UNCTAD, UNEP, UNDP, WCO, ILO, FAO and WHO. However, it is necessary to ensure that greater policy coherence between WTO, IMF, World Bank and other such international organisations are not used for imposing cross conditionalities which could further narrow down the policy options for developing countries. It should also not result in dilution in the responsibility for addressing the development dimensions of WTO issues by developed country members of WTO.