World Trade Organization: Indian Perspectives

Amendment in the definition of "Domestic Industry" under Indian anti-dumping law

2010-03-06T03:26:00.000-08:00

Customs Notification No. 18/2010 brings about an amendment to the definition of the "Domestic Industry" under Indian anti-dumping law.

The Customs Tariff (Identification , Assessment and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995 which hitherto stated in rule 2, in clause (b) that

"domestic industry” means the domestic producers as a whole engaged in the manufacture of the like article and any activity connected therewith or those whose collective output of the said article constitutes a major proportion of the total domestic production of that article except when such producers are related to the exporters or importers of the alleged dumped article or are themselves importers thereof in which case such producers may be deemed not to form part of domestic industry."

shall, post the Customs Notification No 18/2010, Rule 2(b) read thus

"domestic industry” means the domestic producers as a whole engaged in the manufacture of the like article and any activity connected therewith or those whose collective output of the said article constitutes a major proportion of the total domestic production of that article except when such producers are related to the exporters or importers of the alleged dumped article or are themselves importers thereof in which case the term 'domestic industry' may be construed as referring to the rest of the producers only".

The amendment brings rule 2(b) in alignment with Article 4.1(i) of the WTO ADA. I am still unaware as to what triggered an amendment to the Rules. On the face of it, there seems to be no difference in intent reflected in the new text and the old text replaced by the Notification.

"Public Interest" in Indian anti-dumping law: Learning from our Canadian counterparts

2010-03-03T07:37:00.000-08:00

The Economic Times report on the impact of anti-dumping duties on the import of Pen G from China & Mexico and 6APA from China PR on the prices of common antibiotics like MOX, Augmentin and Sporidex got me thinking on the necessity of a “public interest” clause in Indian anti-dumping law. ( Recommendation of the Designated Authority , Ministry of Commerce in the aforementioned investigation may be accessed here ) The Ministry of Commerce at this point of time has issued a Preliminary Finding recommending the imposition of a provisional duty on the import of the subject goods from the aforementioned countries. The recommendations are given effect by the Customs Notification issued by the Department of Revenue, Ministry of Finance which has not yet been published.

It is important to bear in mind that the investigating authority is not required under Indian anti-dumping law or even the WTO Anti-dumping Agreement to take public interest into consideration in determining whether anti-dumping duties ought to be levied and if yes, in what quantum. This is quite unlike, the WTO Safeguard Agreement which requires that interested parties be given “the opportunity to respond to the presentations of other parties and to submit their views, inter alia, as to whether or not the application of a safeguard measure would be in the public interest”.

At present the United States and the European Community which are primary international markets do not provide for a “public interest” clause in their domestic law. Canada incorporates a “public interest” clause in its Special Import Measures Act (SIMA). In fact, Canada has been pressing for the incorporation of a “public interest” clause in the WTO Anti-dumping Agreement as early as in 2005 (See Canada’s Submission to the Negotiating Group on Rules, TN/RL/GEN/85).

So, I thought why not examine the Canadian anti-dumping law to understand the Canadian perspective on "public interest".

Section 45(1) of the Canadian Import Measures Act, in fact , authorizes the Canada International Trade Tribunal (the investigating agency) to initiate a public interest inquiry on its own initiative or on the request of an interested person, if it is of the opinion that there are reasonable grounds to consider that the imposition of anti-dumping and countervailing duties, or the imposition of such duties in the full amount, would not or might not be in the public interest. The Special Import Measures Regulation [sub section 40.1(3)] lays down the factors that are to be considered in determining public interest. In relevant part it states

(3) For the purposes of subsection 45(3) of the Act, the following factors are prescribed:

(a) whether goods of the same description are readily available from countries or exporters to which the order or finding does not apply;
(b) whether imposition of an anti-dumping or countervailing duty in the full amount

(i) has eliminated or substantially lessened or is likely to eliminate or substantially lessen competition in the domestic market in respect of goods,
(ii) has caused or is likely to cause significant damage to producers in Canada that use the goods as inputs in the production of other goods and in the provision of services,
(iii) has significantly impaired or is likely to significantly impair competitiveness by
(A) limiting access to goods that are used as inputs in the production of other goods and in the provision of services, or
(B) limiting access to technology, or
(iv) has significantly restricted or is likely to significantly restrict the choice or availability of goods at competitive prices for consumers or has otherwise caused or is otherwise likely to cause them significant harm;
(c) whether non-imposition of an anti-dumping or countervailing duty or the non-imposition of such a duty in the full amount provided for in sections 3 to 6 of the Act is likely to cause significant damage to domestic producers of inputs, including primary commodities, used in the domestic manufacture or production of like goods; and
(d) any other factors that are relevant in the circumstances.

Factors which in particular caught my eye were the requirements to examine “whether goods of the same description are readily available from countries or exporters to which the order or finding does not apply” and whether the imposition of duty “caused or is likely to cause significant damage to producers in Canada that use the goods as inputs in the production of other goods and in the provision of services”.

The Indian anti-dumping authorities have cared little about submissions made by importers and user industries in anti-dumping investigations that the Domestic Industry remained completely incapable of meeting the domestic demand for the subject goods. The standard position of the Indian anti-dumping authority has been that anti-dumping duty does not prevent imports but only ensures that imports take place at non dumped prices. Therefore, there is definitely a lesson or two to borrow from Canadian anti-dumping jurisprudence.

However, I retain a bit of a concern with respect to the remedy available to the importers/user industry in Canada when it is determined that that the imposition of anti-dumping duty in full may not be in public interest. Section 45.5 of SIMA provides

(5) If the Tribunal is of the opinion that the imposition of an anti-dumping or countervailing duty in the full amount would not or might not be in the public interest, the Tribunal shall, in the report referred to in paragraph (4)(a), specify either
(a) a level of reduction in the anti-dumping or countervailing duty provided for in any of sections 3 to 6; or
(b) a price or prices that are adequate to eliminate injury, retardation or the threat of injury to the domestic industry.

In the event the imposition of anti-dumping duty to the full extent is found not to be in public interest, the tribunal may recommend a reduction in the anti-dumping duty or recommendation a price that is enough to remove the injury, material retardation or the threat of injury. India, like the European Union follows a lesser duty rule which requires that in the event it is determined that a duty which is lower than the anti-dumping duty that should have been otherwise levied is enough to remove the retardation, injury or threat thereof to the domestic industry, such lower duty should be imposed. Since the European Union and India already have a lesser duty rule, the end result pursuant to a public interest inquiry may actually be no different than that available to importers/end users in India. My knowledge about Canadian anti-dumping law, of course is quite rudimentary but it seems with some amount of clever drafting the benefits of a “public interest” have been diminished if not completely taken away.

Quantitative Restrictions proposed to be introduced in Indian Safeguard Law: Issue and Perspectives

2010-02-22T07:18:00.000-08:00

The Foreign Trade (Development and Regulation) Amendment Bill, 2009 brings forth an interesting development in international trade, namely the introduction of the much abused “Quantitative Restriction” provision into the Indian legal system. The relevant extract of the Bill is reproduced below for the reference of the reader wherein it is stated

9A. (1) If the Central Government, after conducting such enquiry as it deems fit, is satisfied that any article is imported into India in such increased quantities and under such conditions as to cause or threaten to cause serious injury to domestic industry, it may, by notification in the Official Gazette, impose such quantitative restrictions on the import of such articles as it may deem fit:

Provided that no such quantitative restrictions shall be imposed on an article originating from a developing country so long as the share of imports of that article from that country does not exceed three per cent. or where that article originates from more than one developing countries, then, so long as the aggregate of the imports from all such countries taken together does not exceed nine per cent. of the total imports of that article into India.

(2) The quantitative restrictions imposed under this section shall, unless revoked earlier, cease to have effect on the expiry of four years from the date of such imposition:

Provided that if the Central Government is of the opinion that the domestic industry has taken measures to adjust to such injury or threat thereof and it is necessary that the quantitative restrictions should continue to be imposed to prevent such injury or threat and to facilitate the adjustments, it may extend the said period beyond four years:

Provided further that in no case the quantitative restrictions shall continue to be imposed beyond a period of ten years from the date on which such restrictions were first imposed.

(3) The Central Government may, by rules provide for the manner in which articles, the import of which shall be subject to quantitative restrictions under this section, may be identified and the manner in which the causes of serious injury or causes of threat of serious injury in relation to such articles may be determined.

(4) For the purposes of this section—

(a) “developing country” means a country notified by the Central Government in the Official Gazette, in this regard;

(b) “domestic industry” means the producers –

(i) as a whole of the like article or a directly competitive article in India; or

(ii) whose collective output of the like articles or a directly competitive article in India constitutes a major share of the total production of the said article in India;

(d) “threat of serious injury” means a clear and imminent danger of serious injury;’.

It is perhaps quite relevant to note in this regard that as many as 16 cases were initiated by the Indian safeguard authority (Directorate General of Safeguards) in the year 2008 and 2009. Therefore, an assumption that the “Quantitative Restriction” provision would remain a mere enabling provision without being put in use may be quite misplaced. Of course, with recession saying its final good bye, the use of safeguards as a weapon to protect the Domestic Industry is also witnessing a corresponding decline.

Section 8B of the Indian Customs Tariff Act, 1975 and the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997 (except in exports from China which is subject to a China specific Safeguard law) provide for the imposition of a safeguard duty in the event increased imports cause or threaten to cause serious injury to the Domestic Industry. While the WTO Safeguards Agreement recognizes the use of quantitative measures to pursue safeguard measures (See Article 5.1), Indian law has hitherto focused on safeguard remedy through the provision of remedial safeguard duty.

Quantitative Restrictions are forbidden by Article XI of GATT, 1994 except in certain limited situations covered by Article XI.2(c). None of these situations apply to safeguard measures taken to protect the Domestic Industry from surged imports. Therefore it is safe to assume that the measures fall foul of Article XI.

Such a measure which is in contravention of GATT, 1994, could be nevertheless WTO consistent, if it is consistent with the WTO Safeguards Agreement, by virtue of the General Interpretative Note to Annexure IA of the Agreement establishing the WTO. The consistency should be understood with due regard to the position of the WTO as stated in Indonesia – Autos that there is a presumption against conflict. The WTO Safeguards Agreement in Article 5 states

A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment. If a quantitative restriction is used, such a measure shall not reduce the quantity of imports below the level of a recent period which shall be the average of imports in the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury. Members should choose measures most suitable for the achievement of these objectives.

The underlined part of the provision represents the precondition for the imposition of a quantitative restriction. The underlined condition seems conspicuously absent from the Foreign Trade Amendment bill. It is my understanding that since the provisions of the Safeguard Agreement are not satisfied to this extent there is actually no question of a conflict with the provisions of GATT, 1994.

Put in a nutshell, the new Chapter IIIA seems to be a measure in violation of GATT, 1994 and not a permissible measure within the meaning of the WTO Safeguards Agreement.

I shall reserve my position on the policy implications of a measure which would probably in many quarters be classified as highly regressive.

If I missed out something or there is something you would like to take the discussion further please feel free to post your comments or send me an email at sagnik.sinha@gmail.com.

Anti circumvention provisions in Indian antidumping law.

2009-10-27T20:40:00.000-07:00

Dear All,

I have been trying to get back to the books after quite a long time, and the first thing that my attention draws to is a a question that an international trade lawyer practicing in India would have asked quite a few times.

The question is whether the Indian anti dumping law ( Section 9 A -C of the Customs Tariff Act, 1975 & the Customs Tariff (Anti dumping) Rules, 1995 regulates circumvention of anti dumping duty by shipment of dumped goods through countries not covered by the anti dumping Order.

The plain and simple answer of course is, that no it does not. Unlike, the detailed anti circumvention provisions of the European Community and US law, there is not mention of anti circumvention in Indian law. However my attention is drawn to the proviso to Section 9A(b) and I was wondering if there is a scope for an extended interpretation of the proviso to bring within its scope anti -circumvention provisions.

I shall quote the provision to take the discussion forward.

Section 9 A(b)

the cost of production of the said article in the country of origin along with reasonable addition for administrative, selling and general cost, and for profits, as determined in accordance with the rules made under sub- section (6)

Provided that in the case of import of the article from a country other than the country of origin and where the article has been merely transhipment through the country of export or such article is not produced in the country of export or there is no comparable price in the country of export, the normal value shall be determined with reference to its price in the country of origin.

The only thing I was wondering is whether an extended interpretation of transhipment could enable minimal value addition to be covered within the scope of the proviso. In case it does, the normal value shall be determined with reference the price in the country of origin. The country of origin shall be the country on whom an anti duty order presently stands. Would a fresh investigation be initiated to determine the normal value of the original exporter from this country? There are of course quite a few steps and of course many more questions which shall be coming up once we accept this overtly liberal interpretation of transhipment (if such an interpretation is permissible).

Some views here, would be really beneficial.

WTO inconsistent antidumping practise amended by Union Budget, 2009

2009-10-05T02:45:00.000-07:00

The post itself is long overdue. But as the age old saying goes, "Better late that never".

In February last year I wrote on the WTO inconsistency of the methodology adopted by the Indian authorities in anti-dumping investigations in India (For the note click here).

The authorities (Designated Authority, Ministry of Commerce to be precise) cited the Supreme Court decision in Reliance Industries Vs Designated Authority, 2006 as a basis for its decision to adopt an exporting country specific normal value for all exports from an exporting nation. In simple terms, what it meant was that if Tom and Harry were exporters based in Israel and the normal value for goods exported by them was 25 USD per Metric Tonne and 20 USD per Metric Tonne respectively, the authority would arrive at a weighted average country specific normal value, say 20 for both of them.

The amendment to the Section 9 A of the Indian Customs Tariff Act introduced in the Union Budget, 2009 however changes this. The amendment makes two additions to the text of Section 9 A. The amended section reads thus with the amended text highlighted in red.

Section 9A: Anti -dumping duty on dumped articles. - (1) Where an article is exported by an exporter or producer from any country or territory to India at less than its normal value, then, upon the importation of such article into India, the Central Government may, by notification in the Official Gazette, impose an anti-dumping not exceeding the margin of dumping in relation to such article.

A new sub section 6A has been introduced to Section 9 which states

"The margin of dumping in relation to an article , exported by an exporter or producer under inquiry under sub - section (6) shall be determined on the basis of records concerning normal value and export price maintained, and information provided, by such exporter or producer"

In light of this new provision the authorities have to determine the normal value on the basis of exporter specific data. A country specific normal value shall be inconsistent with the new Section 9 (6A) of the Act.

While this development seems forgotten in the entire debate on the Union Budget, the amendment has ensured that WTO member states have one less reason to drag India to the WTO.

GNLU Moot Court on International Trade Law

2008-11-23T22:42:00.000-08:00

Dear All,

The Gujarat National Law University is organizing a moot court competition which deals with the hitherto unexplored area of business process outsourcing under international trade in services.

The moot problem addressing the need to understand international trade concerns in services in the broader canvass of privacy protection and international relations encompasses the above.

It revolves around a contemporary issue of leak of sensitive data from business process outsourcing units. The fundamental debate borders on one question. How much protection should a country exporting such information to the recipient state exercise without the same becoming a technical barrier to trade in services?

The International Court of Justice is the forum for this fictional dispute involving a developing and developed nation.

For the Compromis click here

Why international trade lawyers love recession?

2008-11-23T22:15:00.000-08:00

Recession brings mixed fortunes for lawyers.

While some lawyers specially ones working on areas like capital markets are having a hard time, it is boom time for international trade lawyers.

An economic low is always good news for an international trade lawyer. Industries which would normally be happy competing with foreign exports when the economy is on an upward curve, seek protection to ensure they are able to survive with profitable margins in their home market. With the emergence of anti dumping as an instrument of protectionism, this often translates into a higher number of applications by the domestic industry for initiation of anti dumping duty investigations. Of course the international trade lawyers are the necessary link in this chain, which translates into more income for the lawyers.

No matter how bad any economic situation is, it seems some lawyer in some part of the world is inevitably laughing all the way to the bank.

US wins alcohol dispute against India on appeal: Legal Perspective

2008-10-31T01:08:00.000-07:00

The United States won its appeal in the case concerning Additional and Extra Additional Duties on alcoholic beverages. Economic Times describes it as more of a moral victory as a lot of the duties so challenged had already been subjected to review and reduction. The dispute itself revolved round the question whether the additional duties and extra additional duties imposed by India, on alcoholic beverages was consistent with the General Agreement of Tariff and Trade. In particular the provisions on schedule of concessions in Article II were claimed to be violated by India’s tax regime on imports.

The stakes are enormous. As cited in the Economic Times, it has been reported by the Distilled Spirits Council of the United States that the spirits market in India as on 2006 was worth 16.2 billion $ with imports comprising about one percent of it. With the nature of the dispute understood, understanding the legal reasoning of the decision may be in order.

The legal provisions which underwent legal scrutiny in the dispute are as below.

GATT, 1994
Article II (Schedule of Concession)
(1)
(a) Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.
(b) The products described in Part I of the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date.

(2) Nothing in this Article shall prevent any contracting party from imposing at any time on the importation of any product:
(a) a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part;
(b) any anti-dumping or countervailing duty applied consistently with the provisions of Article VI;
(c) fees or other charges commensurate with the cost of services rendered.

Article III (National Treatment on Internal Taxation and Regulation)
(2)
The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph

Indian Law
The Constitution of India makes the imposition of excise duty within the purview of the individual states rather than the centre. This would essentially mean that different states will impose a differential rate of duty. So, to give an example an alcohol manufactured in Maharashtra may be 30% and in Punjab 25%. Additional duties are imposed by India on imports to offset local excise duties and extra additional duties imposed to offset local sales tax. This in principle is not inconsistent with WTO GATT. What is prohibited however is charging an importer a duty in excess of those applied, directly or indirectly, to like domestic products. As long as the duties charged are in excess and it was alleged that it was, the measures would be WTO inconsistent. The proviso to Section 3(1) of the Indian Customs Tariff Act, explanation clause enables the Central Government to specify the rate of Additional Duty applicable to imports of alcoholic beverages "having regard" to excise duties leviable on like alcoholic products manufactured or produced in different Indian state. A common rate would have to be arrived to be applicable to all imports. By special notification Customs Notification 32/2003 of 1 March 2003, relevant to the dispute such common additional duty rate was notified.
The Appellate Body acknowledged that a provision legitimate under Article II (2) would not be subject to the schedule of concession requirement under Article II (1) (b). This means that if India has specified a bound rate of 150% on spirits it could impose taxes above and beyond it, as long as they were taxes imposed to offset local excise or sales tax. It proceeded to interpret Article II (1) (b) and Article II (2) together.

Three points of dispute were crucial to the findings of the Appellate Body and in determining the WTO consistency of India's indirect tax regime.

1. Whether Article II: 1(b) cited above covers only duties or charges that "inherently discriminate against imports", while Article II: 2 covers only charges that do not "inherently discriminate against imports"?

The Panel tried to distinguish between duties subject to the schedule of concessions as provided in Article II (1) (b) and between charges which are equivalent to internal tax charged to importers to bring them at par with local producers subject to such taxes as provided in Article II(2). The basis of such discrimination was that the former would inherently discriminate against imports as they had no domestic equivalent while the former was not inherently discriminating but applicable in specified situations. By this interpretation the provision on schedule of concessions in Article II (1) (b) was sought to be restricted to duties which inherently discriminated. The Appellate Body disagreed with the Panel that taxes under Article II (1) (b) always had to be inherently discriminatory relying on contextual support from the provisions of Article II (2) (b) and (c). It argued that the logic of the Panel was defeated as even anti dumping duty or anti subsidy duty did not have a domestic equivalent. The legal implication is that taxes on imports would always be subject to the schedule of concessions subject to the established legitimacy of the system under Article II (2).

2. Whether the term "equivalent" in Article II: 2(a) relates to the "function" of a border charge and an internal tax, and does not relate to "effect" or "amount"?

The Panel was of the opinion that equivalent did not mean a numerical equivalent but the determination was whether they had the same function. This would not impose a requirement that taxes imposed on importers were equal to that of local manufacturers. The panel also tried to read out the significance of the provision which required consistency with Article III(2) which prohibited excess charges on imports stating that the provisions on equivalence and consistency with Article III(2) were separate and distinct provisions. The Appellate Body reversing the Panel report stated that equivalence required consideration of qualitative as well as quantitative information including effect and amount.

3. Whether in order to satisfy the conditions of Article II(2)(a), it is not necessary to determine whether a charge equivalent to an internal tax is "imposed consistently with the provisions of paragraph 2 of Article III"?

Reversing the Panel position the Appellate Body states that the provisions of Paragraph 2 of Article III are necessary to be met to be in consistence with Article II(2)(a).
The Appellate Body in relevant part held that additional and extra additional duties would be inconsistent with Article II( 2) (1) to the extent it resulted in imposition of charges on alcoholic beverages above the local excise or sales tax. This would render the additional duty inconsistent to the extent it results in the imposition of duties on alcoholic beverages in excess of those set forth in India's Schedule of Concession. It may be noted that India had not contested the United States' assertion that the Additional Duty and the Extra-Additional Duty, when applied in conjunction with the Basic Customs Duty, may subject certain imports to an aggregate amount of duties that is in excess of the rates specified in India's Schedule of Concessions. Instead it relied on the legality of the measure regardless of the above on grounds of justification under GATT.

For full report of the Appellate Body; Click here
For more background details on the DISPUTE DS360 India — Additional and Extra-Additional Duties on Imports from the United States Click here

Carbon Tax measures by the European Community: World Trade Issues.

2008-06-23T06:16:00.000-07:00

The Economic Times reports

Indian goods being exported to the European Union may face higher barriers if the 27-member grouping goes ahead with a proposal to place a carbon tax on goods imported from advanced developing countries. While the EU justifies the proposed tax as a measure to create a level-playing field between polluting developing countries and countries that have agreed to cut emissions under the Kyoto protocol, India feels that the move may be yet another step to render exports from certain countries non-competitive.

The role of climate change policy in international trade can hardly be understated. It is also perhaps one of those areas where the thin line between legitimate and protectionist measures lose their distinction.

The news is obviously bad news for countries like India , China and even Brazil in which industries are primarily run by environment unfriendly fuels. The point of the whole debate is whether a remedy exists at the World Trade Organization for such a measure.

NATIONAL TREATMENT

The legal provision in question is the national treatment clause of GATT, 1994. The provision essentially requires that goods imported into the country be treated in the same way as good originating in the home country. Now the requirement is that like products be treated in the same way. So the next question is whether two product identical in all aspects except the process through which it is manufactured could be considered not like, which would legitimize the measure as far as provisions of national treatment are concerned. This remains a grey area of WTO law. While there does exist a precedent for such distinction if reliance is to be put on a pre WTO , GATT panel decision in US- Superfund case , the likeness test in WTO law is still without a definite answer. The Japan Alcohol jurisprudence also put forth a likeness test which does not seem to encompass a likeness test based on process.

ARTICLE XX EXCEPTIONS

The Economic Times also draws attention to Article 20 of the GATT, citing Shrimp Turtle jurisprudence as a basis for a contention that a measure of the nature that could be initiated by the EC, could find justification under the General Exceptions under GATT.

Article XX (g)
It makes sense to remember that the WTO Appellate Body found the US consistent with Article XX (g) of the GATT, which is an exception with regard to conservation of exhaustible natural resources. Interpretation of climate as an exhaustible natural resource seems a permissible interpretation. And the measure indeed could find justification under this exception. However the question is as far as the UNFCCC or the Kyoto protocol itself recognize differential responsibilities for developing countries and developed and underdeveloped countries could the WTO General Exception authorize such measure. It is important to note that both the Community as also India for instance is a party to UNFCCC and Kyoto and interpretation of a treat like GATT should be in adherence to principles of public international law. The requirement imposed by international law is that treaties be interpreted in their context which would include the climate change treaty and the subsequent protocol. It may make sense to remember that the Shrimp Turtle jurisprudence imposed on the US a requirement to negotiate or at least try to, to be clear of the arbitrary discrimination clause in the chapeau of Article XX. As long as a negotiated agreement on climate remains, its importance has to be given due bearance.

Article XX(b)
Article XX(b) is an exception when a measure is necessary to protect human, animal or plant life or health. Necessary would entail a search for less WTO inconsistent alternatives comparable in effectiveness though the measure need not be the least inconsistent measure. The measure may find itself under a lot of scrutiny when nations have come together and arrived at a multilaterally agreed mode of combating climate change (to which the EC is a party) through an international protocol. This the EC acknowledges is an effective mode of combating climate change by becoming a party to Kyoto. While the post Kyoto scenario is interesting its unlikely it would lead to a substantial change in the present responsibilities.

The developments may finally set the stage for a much anticipated dispute on climate change and its role in international trade.

Did Stare Decisis in WTO Dispute Settlement get introduced in United States– Final Anti-Dumping Measures?

2008-06-02T04:27:00.000-07:00

WTO Dispute Settlement process does not recognize the role of "precedence" in the dispute settlement process. The question is, has this position changed post the Appellate Body Report in United States – Final anti-dumping Measures on Stainless Steel from Mexico on April 30, 2008?

The case itself concerned "zeroing" which is becoming without doubt the most controversial area of anti dumping law. My present post however does not concern zeroing. What it focuses on is whether the Appellate Body in reversing the Panel decision which itself had disregarded prior WTO Appellate Body Reports has in a way incorporated stare decisis into the dispute settlement process. While the Appellate Body itself might disagree that its purpose was to introduce precedence into the system by noting that "Appellate Body reports are not binding, except with respect to resolving the particular dispute between the parties" a close reading of the report reveals something else.

Legal Basis of the challenge remained Article 11 of the DSU reproduced below.

Article 11
The function of panels is to assist the DSB in discharging its responsibilities under this Understanding and the covered agreements. Accordingly, a panel should make an objective assessment of the matter before it, including an objective assessment of the facts of the case and the applicability of and conformity with the relevant covered agreements, and make such other findings as will assist the DSB in making the recommendations or in giving the rulings provided for in the covered agreements. Panels should consult regularly with the parties to the dispute and give them adequate opportunity to develop a mutually satisfactory solution.

Basis of Mexico's claim was that in disregarding established WTO Appellate Body jurisprudence the WTO Dispute Settlement Panel had violated Article 11 of the DSU.

Excerpts from the Appellate Body report are reproduced below.

Para 156
We observe that the second sentence of Article 11 begins with the term "Accordingly". This term creates a link between the first and the second sentence of Article 11; it ties the second sentence to the general description contained in the first sentence. The second sentence enunciates two specific "functions" of panels, namely, the duty "to make an objective assessment of the matter before it" and "to make such other findings as will assist the DSB in making the recommendations or in giving the rulings" under the covered agreements.

It goes on to add that

The function of panels in the first sentence of Article 11 is informed by the general provisions contained in Article 3 of the DSU, which sets out the basic principles of the WTO dispute settlement system

In particular attention is drawn to Article 3.2 which in relevant part states

The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law

Most pertinent is the observation of the Appellate Body that

"security and predictability" in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case

The above paragraph lays down in more or less explicit term in the absence of any cogent reason which would in practical terms mean distinction on the basis of facts, a dispute settlement would not only have to consider but also follow a prior Appellate Body Report laid down in a different case.

While the Appellate Body is correct in reiterating the Japan - Alcoholic Beverages II jurisprudence which opined that adopted Panel decisions create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute, it may have gone overboard in requiring that an adjudicatory body will resolve the same legal question in the same way in a subsequent case.

What is more interesting that at the end of it all the Appellate Body refrained from making a finding with regard to Article 11 stating
Since we have corrected the Panel's erroneous legal interpretation and have reversed all of the Panel's findings and conclusions that have been appealed, we do not, in this case, make an additional finding that the Panel also failed to discharge its duties under Article 11 of the DSU.

The question is if a finding with regard to Article 11 was not necessary for determination of the dispute why would the Appellate Body get into an analysis of Article 11 in this regard and not exercise judicial economy.

In the interesting world of dispute settlement the precedential value of the Appellate Body Report laying down that precedence is required remains to be seen.

The Shrimp EBR saga continues : Parties appeal Panel decision.

2008-05-20T22:06:00.000-07:00

The Shrimp – Anti dumping saga continues. Readers would have read on wtoindia, a previous post which highlighted the victory of India at the WTO Dispute Settlement Panel.

With both the parties, the United States and India going on appeal it remains to be seen what would be the settled position of WTO law on the subject, once the Appellate Body gives its report.
The Economic Times reports
The US position centres around its belief that the Panel decision holding the quantum of EBR to be unreasonable was incorrect. India on the other hand is on appeal arguing that the Panel decision should be made tighter to prevent additional duties to be imposed in the future.

An important point needs to be mentioned here.
The Panel has at no point of time decided that the EBR scheme per se is violative of WTO law, concentrating instead on the unreasonability of the scheme. In exercise of judicial economy the Appellate Body may still decline to examine the consistency of the EBR scheme in the event it upholds the panel position on “unreasonability” of the scheme. It remains to be seen whether like zeroing the very concept of enhanced bond requirement will be declared contrary to WTO law.

There has been a strong reaction from the domestic lobby in the United States to the Panel decision (Read the Southern Shrimp Alliance request letter to the USTR urging the US Government to go on appeal) which no doubt has been pivotal in influencing the US decision to approach the Appellate Body.

International Trade in Biofuels: Defining the Indian negotiating strategy.

2008-05-08T14:33:00.000-07:00

Basically an essay I wrote as a requirement for the application for the Model WTO. It tries to give a perspective to the Indian position on trade in biofuels. Do add in your views.

INDIA’S NEGOTIATING STRATEGY IN INTERNATIONAL TRADE IN BIOFUELS.

Essential basis of a successful negotiation without doubt remains the determination of grounds of common interest between negotiators who try to look for signs of commonality in a myriad range of varied interest. Primary mode of successfully forwarding India’s interest at the WTO Negotiations would be the identification of certain core interests which needs to be defended at all costs. Beyond the core interest would lay areas in which there is enough room for negotiations. As international trade in biofuels becomes a definite possibility, the role of the WTO should be in accordance with its mandate to ensure conditions of free and fair trade. An Indian negotiator’s role as argued would be to properly identify the scope of India’s comparative advantage in biofuels.

Ethanol and biodiesel while by no means the only represent the primary subject of discord in international trade of biofuels. While India enjoys the position of the fourth largest manufacturer of ethanol, the statistics do not necessarily reveal that the annual quantum remains far below the first three, i.e. United States, Brazil and China. India’s national interest in trade in ethanol compared to the above three is limited. If India is to secure a stake in the biofuels trade its primary area of concentration should be biodiesels. India has an acknowledged comparative advantage in biodiesels for reason discussed below with a potential to become a major player in this market. So a negotiator defending India’s interest in the WTO negotiations should aggressively forward India’s interest in biodiesels. Such strategy should be used in conjunction with using her limited interest in ethanol as a scope for possible alliance with other developing countries such as Brazil and China. These countries stand much more to benefit from removal of protective measures in developed countries than India. This would essentially mean that India could barter her support for their cause in ethanol in exchange for their support in India’s position on biodiesels. Of course India may do well to secure some basic interest in ethanol to at the very least ensure that foreign producers do not completely replace the infant domestic ethanol industry.

India has certain distinct advantages in manufacture of biodiesel. Unlike, biodiesel manufactured in other principle jurisdictions which use edible oil and seeds, India has concentrated on non edible oil seeds as a source of biodiesel. Jatropha represents the most popular of such kind of non edible seed. The distinct advantage of jatropha is that it could be grown in areas where availability of water is low. This would mean that vast areas of waste land could be successfully diverted to the cultivation of jatropha. Advantage for India, as well as the world community is at two levels. First, biodiesel manufactured from jatropha ensures that valuable food crop is not diverted to the manufacture of fuels. Second, since the crop may be grown on wasteland, there is no need to use fertile land for such purpose. In addition with specific regard to India, farmers based in lands not suited for mainstream cultivation have a source of income from jatropha.

A negotiation strategy towards the developed countries would be directed towards bridging the differences of interest between the European Community and the United States. Such a strategy with particular reference to the European Community may be explained with a simple model. Presently the Community extends a high amount of subsidies to its biofuels manufacturers as also the input providers of this industry. The financial cost of this subsidy is borne by the European Community taxpayer. As discussed India has a comparative advantage in biodiesel. If industries based in the Community were to invest their funds in the Indian biodiesel programme, a profit generated from it would obviously be repatriated back to the Community. It would make sense for the European Community to ensure that through taxation mode or otherwise that some of the repatriated amount is used to support the agricultural farms and industry contributing towards biofuels in some way. This would ensure that support is extended to these sections not out of the Community’s own pocket but from a steady source of income. It may be noted that the European Community itself has been in favour of developing a coherent biofuels package for developing countries with a potential for biofuels as suggested in a Communication from the European Community Commission (Brussels 8.2.06, COM(2006) 34 final). While the position of biofuels in the Clean Development Mechanism of the Kyoto Protocol is still at its preliminary stage, the future may witness the Kyoto Protocol bound Community benefitting from its investment in India. The strategy discussed above would in most parts hold true for the United States as well except that unlike the Community, USA is not bound by the Kyoto Protocol.

India may well do to address a legitimate concern, i.e. spiraling prices of food crops in the event that food crops are actually used for biofuels manufacture. An artificially protected biofuels industry would be that much more willing to pay a higher amount for input usually food crop than an industry which competes with imports in the local market. Now food crop with end use in biofuels industry would fetch a better price for the input provider meaning he would allocate his produce more towards the biofuels industry. This would adversely affect the food supply, which may lead to increase in domestic prices. Subsidies if given to offset the same would also have to undergo a very strict WTO scrutiny. For this reason such nations may do well to reduce the tariffs to enable the biofuels industries to respect market standards.

A clear competing interest is represented by the present manufacturers of fossil fuel who may see a surge in international trade of biofuels as directly affecting their exports in fossil fuel. It may be well said that negotiation in this aspect may be tougher than the one witnessed in the North South divide. Saudi Arabia as one of the largest producers of fossil fuel may not find it in its national interest to promote international trade in biofuels. The key point here is to emphasize that it is an acknowledged reality that fossil fuel is an exhaustible resource and is not going to last forever. Countries which are generating a significant amount of revenue from fossil fuel today may do well to secure their future by diverting an amount of their funds towards biofuels. A proposal for cooperation in research to gauge the possibility for Saudi Arabia to emerge as a cultivator of jatropha which requires minimum water and fertility to grow may also be put on the agenda subject to scientific evidence to the contrary.
Like India, countries such as Bangladesh would also benefit from increased flow of foreign investment with regard to biofuels projects and the lowering of tariffs in the same. Geographical neighbors the two countries could be natural allies at the WTO.

The classification of biofuels as agricultural/industrial or environmental goods is an exercise already undertaken by the Committee on Trade & Environment, and therefore the Committee on Trade & Agriculture should refrain from addressing the same. It may however move towards a separate agreement on biofuels like the Information Technology Agreement to negotiate a reduction regardless of classification of the biofuels. India should push towards including separate rules on investment in the agreement. This is not without precedence with rules regarding investment on services being covered by GATS instead of TRIMS. Unreasonable distinction in the process of manufacture as a basis for differential treatment should be discouraged for as has been witnessed they often become a mode of protection. Tax credits and subsidies should also be subject to a phased reduction to restore the parity. Such reduction commitments may be enshrined in the schedule itself of individual countries.

Harmonization of interest between the developed, developing and the LDCs may ensure a successful outcome for the negotiations.

The SEZ Question: Is the Indian Exchequer transferring resources to the developed countries? Part II

2008-05-01T06:05:00.000-07:00

I am about ten hours away from my paper on International Taxation and come across this really interesting concept on "Tax Sparing" .
Readers would have read a previous post which discussed certain limitations of the liberal benefits extended to units at the SEZ. My present post explores how relevant something like a tax holiday is for drawing foreign investment.
Lets take an example straight out of my text book (Arnold & McIntyre, International Tax Primer( 2nd Ed, 2002), 50

Country A , a developing country , whose normal tax rate is 30 percent offers foreign corporations a ten year tax holiday if they establish a manufacturing enterprise in A. Company B, establishes such enterprise in A. Country B, the country of residence of such investor imposes corporate tax at the rate of forty percent and uses a foreign tax credit system.
B earns income of 1000 in his first year. In the absence of a tax holiday , Country A would impose a tax of 300 on B Company. Country B would impose a tax of 100 (Country B Tax is 400 - Tax credit of 300 for income tax paid in A). The waiver means that 300 tax credit is no longer applicable. So, now tax would be imposed by Country B at 400 (400 is Country B Tax - 0 Tax Credit).

So while no benefit accrues to the investor , the Country B treasury which would be most likely a developed country would benefit from the contribution.

This position would be inapplicable in two situations.
1. Country B and Country A have a DTA which incorporates a tax sparing provision which helps the investor retain the benefits of the tax holiday.
2. Country B uses the "exemption method" as distinguished from a deduction or credit method for relief from double taxation which incidentally very few countries do.

This generates the need for a debate to discuss the benefits of a tax holiday for an SEZ or even an EOU. Of course the position is without prejudice to the benefits which may accrue to the indigenous manufacturer.

NEW EXIM POLICY 2008 -09: WTO CONSISTENCY ISSUES AND OTHER ASPECTS

2008-04-11T10:00:00.000-07:00

As India slowly movies towards election year, the Ministry of Commerce released what would be the final annual supplement to the Indian Foreign Trade Policy 2004 -09.
Along expected lines the Duty Entitlement Pass Book Scheme has been extended till May 2009. Service tax on all services related to exports shall be exempted. Income Tax exemption on Export Oriented Units has also seen a similar extension. Import of capital goods for export purposes will now attract a lower customs duty under the Export Promotion Capital Goods Scheme. Focus Market/Product Scheme (FMS/FPS) has also seen similar extension in scope with ten additional countries being added within the mandate of the FMS scheme.
See Details at Info Drive India

WHICH schemes and FOR WHAT REASON would constitute a foreign trade problem?

The export incentive schemes being doled out by the Ministry of Commerce would broadly be covered in the realm of subsidies. So the point of concern is whether the schemes are permitted. In a previous post I had drawn attention to the labeling of the DEPB scheme as a countervailable subsidy by among others the European Community and USA, primary importers of Indian goods. My earlier posts have also highlighted the problematic aspects of schemes like the SEZ. The present post shall focus on the Export Promotion Capital Goods scheme and the Focus Market/ Product Scheme.

Export Promotion Capital Goods Scheme
A valid duty drawback scheme is in principal extended to goods actually consumed in the production process. Since capital goods are not consumed in the production process, unlike offset of taxes or drawback on inputs , such benefits extended on import of capital goods are considered to be non permissible under the WTO regime. Importing states have imposed countervailing duties on Indian goods deemed to be benefitting from this scheme on this simple basis. With the lowering of the customs duty still further in the Annual Supplement 2008, the margin of duty would see a likely increase.

Focus Product/Market Scheme
The Focus Product scheme extends a duty credit facility at 2.5% of the Free on Board value of exports up to fifty percent of the exports of notified products such as value added fish and leather products.
Problematic feature of the scheme is that the duty credit so obtained is freely transferable and may be used to import not just inputs but even capital goods. Transferability of the scrip means that the seller of such scrip may enhance his liquidity. It may be noted that transferability provisions in the DEPB scheme have formed the basis for their challenge in quite a few cases. The argument is that when the scrip is transferable it may used by someone other than the supposed beneficiary which disqualifies it as a valid duty drawback. The FPS scheme while not yet questioned in importing states may have to undergo some serious scrutiny for its WTO consistency.

The Focus Market Scheme while ostensibly a measure which seeks to promote Indian exports in the scheduled countries has an underlying aspect which needs to be addressed. A simple illustration explains the difficulty.

Exporter A exports to Albania a covered country under the FMS scheme as also to the United States. It gets a duty credit on the export to Albania which it uses to import capital goods used in manufacturing goods exported to the United States. The question is whether in such a case the United States may deem the beneficiaries of such scheme as benefitting from an illegal subsidy and subject such goods to countervailing duties.
While the tribunals may decide either way, I would be of the opinion that they would qualify as an illegal subsidy. Simply out the extra cash in the exporters pocket could enable him to suppress world prices.
The GOI has laid down the benefits. Now it remains to be seen how our trading partners will react.

Question which every Indian exporter must be asking: How long will the DEPB scheme survive?

2008-03-30T22:22:00.000-07:00

The fate of the controversial Duty Entitlement Pass Book Scheme hangs in the balance. Scheduled to end by March 31, 2008 the Hindu Business Line reports that no decision could be taken with regard to the scheme in the Cabinet Meet on March, 27 , 2008 and it may continue to exist till merged with the duty drawback scheme.

Problem of merger

As the Hindu reports
there are as many as 2,200 items which need to be subsumed in the drawback schedule, while the latter has only 1,300 DEPB items that fit into its schedule. Replacement scheme
They say the revenue department is working out ways to match the leftover 900 DEPB items into the drawback schedule and this exercise would take at least another three months.
This means that till then exporters can continue to benefit from the scheme.

The DEPB scheme has been one of the most controversial schemes extended to exporters by India. Repeatedly deemed a prohibited subsidy by the European Community and USA in light of the inability of the scheme to meet the requirements of a valid duty drawback laid down in the WTO Subsidies Agreement and the enabling domestic law of the importing states, the exporters benefitting from the scheme have often found their goods subject to anti subsidy duty.

With the Annual Supplement to the Foreign Trade Policy 2004 - 2009 scheduled to be presented on April ,7 wtoindia would be coming out with an analysis of the WTO consistency of the existing and new schemes which find mention in the Annual Supplement.

India's sugar subsidies under the WTO scanner: Issues and Perspectives

2008-03-26T06:27:00.000-07:00

As India's sugar output records huge growth, exports have become an economic necessity for the country. Primary among the opponents have been Thailand and Australia which have brought the subsidies to the attention of the WTO.

WHAT ARE THE SUBSIDIES IN DISPUTE

The Economic Times reports

The government approved a Rs 850-crore relief package for sugar exports last year for exports under the open general licence between April 19, 2007 and April 18, 2008. It recently extended the sops for another six months. The subsidy has been fixed at Rs 1,350 per tonne for coastal states and Rs 1,450 per tonne for the other states. The subsidy, according to the government, is provided for internal transport and freight charges, including ocean freight disadvantage, handling and marketing charges, and the payments will be made out of the sugar development fund.

Point of concern is whether these subsidies are WTO legal or not.

BASIS FOR A CLAIM AT THE WTO

Essentially for a claim to be successful against India with regard to subsidies, it would have to be proved that the incentives are export subsidies under Article 9 of the Agreement on Agriculture (AOA) or designed to circumvent export subsidy committments under Article 10 of the AOA. Now post US - FSC jurisprudence the position is clear that with respect to an unscheduled product listed export subsidies cannot be given. Since India does not maintain a schedule of committments which would authorize it to grant export subsidies c0vered by the AOA subject to reduction committments, India's export subsidies would be prima facie WTO illegal.

Internal transport subsidies applying to exports only, such as those designed to bring exportable produce to one central point for shipping is deemed WTO illegal by the AOA. Of course the key word is exports only. As the scheme is essentially export oriented it runs dangerously close to meeting the definition put forth in the AOA and hence finds its legality in question.

However to be noted is the fact that the short term nature of the scheme may be a major disincentive for the initiation of a case at the WTO Dispute Settlement Body.

A Friday Editorial on Kingsman.com provides a good analysis of the WTO consistency of the sugar subsidy scheme of India.

Trade representatives in India have reacted however to international pressure to remove subsidies by drawing attention to the enormous subsidies which countries like Thailand itself give to their industry. See Interview

SUGAR SUBSIDIES EXTENDED BEYOND APRIL, 2008: TROUBLE AT THE WTO?

2008-03-23T21:12:00.000-07:00

The Economic Times reports that sugar subsidies which were scheduled to be withdrawn by April, 2008 are now going to be extended beyond April.

India's principal argument has always been that subsidies were designed to protect India exporters in light of the appreciating ruppee, with no money yet being paid, and that the government had not asked to extend the April deadline.

Now that it has , the repurcussions at the multilateral level remains to be seen.

The Ministry of Commerce remains, as the Business Standard reported some time back, of the view that the sugar export subsidies are WTO consistent.
With India set to emerge as one of the biggest producer of sugar cane, replacing even Brazil, measures which are percieved as unfair trade practise by other WTO members may well put India in uncomfortable situations at the WTO.

In response to a concern of initiation of a WTO Panel, to look into the matter, India has responded that since the measure remains a temporary one , India would withdraw the measure by the time the entire formalities precedent to the Panel starting the actual work commences.

The next post shall contain an analysis of the Indian export incentive scheme for sugar, and the consistency of it, with the Agreement on Subsidies and Countervailing Measures, the principal WTO document on subsidies & the Agreement on Agriculture with regard to agricultural goods such as sugarcane to determine what a possible outcome could be if the matter actually went to Dispute Settlement Body regardless of the temporary nature of the scheme.

THE SEZ QUESTION: IS THE INDIAN EXCHEQUER TRANSFERRING RESOURCES TO THE DEVELOPED COUNTRIES?

2008-03-18T03:18:00.000-07:00

Imagine a situation where your hard earned money subject to taxation is finally used to enhance the revenue of developed countries like the United States and the European Community. As the finance ministry recently pointed out while raising objections to the direct tax exemptions given to SEZ, these exemptions would ensure that the nations importing Indian good subject the same to anti subsidy or countervailing duties.
The reason is this, direct tax exemptions are considered to be subsidies under the WTO Subsidies Agreement in the event they confer a benefit on the recipient. Since SEZs are export oriented, the subsidies are considered to be contingent on exports, hence export subsidies, subsidy which the WTO classifies as illegal. While India is exempted from the general prohibition on grant of export subsidies by virtue of being an Annex I member of the SCM, they are subject to countervailing duties in the event they cause material injury to the domestic industry of the importing state, which the European Community and United States to illustrate do.
There are two more grounds on which also the SEZ could be subject to countervailing duties. Exemption of duty given on import/production of capital goods destined for exports as also on inputs when not properly accounted for.
Exemption of duty is considered WTO consistent on good actually consumed in the production process such as iron ore in case of steel manufacture. However since capital goods are not consumed in the production process any exemption on them is WTO illegal. In recent times the duty exemption on inputs under schemes like Duty Entitlement Pass Book Scheme and the EOU scheme have been deemed illegal subsidies as proper accountal was not maintained of how much input was actually used and on how much exemption was given. Such exemption on inputs under SEZ scheme may also draw similar scrutiny.
If SEZ scheme so often the subject of scrutiny in countervailing duty investigations initiated by the Community and US is actually subject to countervailing duty there would hardly be anything more ironic with the middle class Indian citizen giving a gift to the treasury of such investigating governments.

RESERVE BANK OF INDIA RAISES VOICE AGAINST BILATERAL TRADE AGREEMENTS

2008-03-17T08:52:00.000-07:00

The Business Standard, 11 March, 2008 reports that RBI has raised objection to bilateral trade agreements. I am posting the writeup as appeared in the BRIDGES Weekly Trade News Digest - Vol. 12, Number 9 12 March 2008.

Experts at India's central bank are worried that the country's expanding number of bilateral trade agreements could harm the domestic finance sector and undermine multilateral liberalisation, an Indian newspaper reported this week.
According to the Business Standard, the Reserve Bank of India (RBI) has been meeting with the Indian finance ministry about trade talks, arguing that more bilateral free trade agreements risk compromising the goal of a liberal banking and finance sector.
For instance, under FTAs, partner countries will be treated more favourably for the purposes of receiving banking licenses, thus nullifying the purpose of the multilateral system, under which all countries would be treated equally.
The RBI has voiced objections to two FTAs: the already-signed 'Comprehensive Economic Cooperation Agreement' (CECA) with Singapore, and the proposed accord currently under negotiation with Japan.
The RBI feels that some banking and financial regulations in the agreement with Singapore still need to be clarified. For instance, India had agreed to treat two sovereign funds owned by the Singaporean government, Temasek Holdings and the Government of Singapore Investment Corporation, as separate entities for the purposes of investment in ICICI, India's largest privately-held bank. Now, each fund holds a 10 percent stake, and is pressuring the Indian government into making the same concession on future investments, which would essentially allow for double the access envisioned by the original agreement.
India has stepped up its pursuit of bilateral trade deals in recent years, in part due to frustration over the slow pace of the Doha Round negotiations at the WTO. Although politicians have questioned the wisdom of the strategy - generally due to fears of liberalisation-related job losses - this marks the first criticism from the country's central bank, for a very different set of concerns.

COST OF STERILIZATION ON MARKET STABILIZATION SCHEME: INCENTIVE FOR EXPORTERS? Written by Dibyojyoti Sarkar

2008-03-15T11:04:00.000-07:00

In order to manage currency from too much appreciation (which can hit exporters), RBI sucks the flow of dollars into the country by a process called sterilization. Under this process, RBI buys dollars and issues rupees. But the rupees infused into the system can cause inflation or weaken rupee. In order to prevent such events, the RBI issues bonds and sucks the rupees back into it. Effectively, on RBI's balance sheet liability (rupees) goes up and assets (dollars) go up.
The bonds belong to the government and RBI has to pay interest to government on such bonds (nominally 4-5%). This cost is called the cost of sterilization.
Effectively, what Mr. Chidambaram meant n Union Budget, 2008 is that the interest cost on the bonds issued under the MSS scheme is nothing but incentive given to exporters. Otherwise, the rupee would appreciate and exporters would have incurred losses.

VICTORY FOR INDIAN SHRIMP EXPORTERS AT THE WTO:LEGAL PERSPECTIVES

2008-03-13T15:30:00.000-07:00

Indian shrimp exporters have definite reason to rejoice. In the case concerning United States – Customs bond directive for merchandise subject to anti-dumping/countervailing duties India achieved a definite victory for its shrimp exporters. The WTO Dispute Settlement Panel held that the US System of collecting an enhanced bond requirement (EBR) from shrimp exporters with relation to anti dumping investigation was violative of the Anti dumping Agreement. Ostensible purpose of the EBR scheme was the continued vigilance ... to ensure collection of all appropriate anti-dumping and countervailing duties.

The retrospective investigation system in place in the United States essentially works in this fashion.
First, a preliminary determination is made as to the existence of dumping or subsidization. On an affirmative determination in this regard a preliminary determination is made permitting the imposition of provisional measures. Such measures may take the shape of cash deposit, bond or other security requirement to ensure payment if anti dumping or countervailing duty is finally imposed. The third step involves the final determination as to whether dumping or countervailable subsidization is actually occurring. On this being established along with material injury to the domestic industry an anti dumping duty or countervailing duty order is brought out by the US Department of Commerce (USDOC). The importers are required to post a cash deposit of estimated anti dumping or countervailing duties for each import transaction based on the overall margin of dumping or subsidization found for the exporter or producer during the manufacturing phase. The anniversary month is the period when following a final determination in the investigation phase importers, exporters, producers, and domestic interested parties may request that USDOC to conduct an assessment review, referred to as an "administrative review" of the import transactions that occurred in the prior year. This leads to the determination of final anti dumping duty or countervailing duty payable on imports from each producer or exporter for which USDOC received a request for review. The process after this is simple. In the event the cash deposit is more than final duty USDOC refunds the excess with interest, similarly the producer /exporter is supposed to do likewise when the cash deposit is lower than the final duty so determined.

Principal contentions on which succeeded was India’s position that the measures were violative of Article 1 and 18.1 of the ADA.

Principle rule of anti dumping as enshrined in the ADA is that anti dumping measures would be in accordance with the rules enshrined in Article VI of GATT as further interpreted by the ADA. Article 18.1 in specific prohibited specific action against dumping of exports not in accordance with GATT or the ADA. Rejecting US contentions that the EBR was neither specific not directed against dumping of exports but was a mere mode of ensuring collection of AD duty was rejected by the Panel. To the extent that the panel held that the Ad note in Annex I of GATT constituted an integral part of GATT , question arose as to the requirement of reasonability of security as envisaged by the ad note was met by the EBR scheme. The relevant point to note is that cash deposit is by now means a deviation but in fact explicitly permissible, the sole grey area is the ground of reasonability. Since the bond demanded along with cash deposits represented a huge burden on the exporter point remained whether such security was justified. If for instance X had a provisionally determined anti dumping duty which created an obligation of 100 $ on him, to charge him 500$ in cash deposit and bond would be manifestly unreasonable unless USDOC could establish that the anti dumping duty would increase by such extent. US failure to do so meant that the scheme remained inconsistent with Ad note and hence GATT, 1994. This would by implication mean a violation of Article 18.1.

India’s second claim with regard to Article 7 of the ADA was also upheld by the Panel. Article 7 authorized the imposition of provisional measures. Article 7.2 more specifically authorizes provincial measures which take the form of cash deposit or security. The catch is that they should be equal to the amount of the anti-dumping duty provisionally estimated, being not greater than the provisionally estimated margin of dumping. Panel held the US action of application of the EBR prior to imposition of the anti‑dumping order in addition to the initial provisional measures necessarily resulted in the imposition of provisional measures in excess of this categorical requirement. Such was inconsistent with Article 7.2.

Failure to notify the custom bond directive to the ADA and SCM committees meant a further violation of Article 18.5 of the Anti-Dumping Agreement and Article 32.6 of the SCM Agreement.

The shrimp industry reeling under anti dumping duty in what is one of the primary destinations for its goods would at least have something finally to rejoice about.

UNION BUDGET 2008: WHAT IT MEANS FOR FOREIGN TRADE?

2008-03-01T05:16:00.000-08:00

Union Budget 2008, the last before the General Elections lived up to the hoopla preceding it. While the Budget represents a dream budget for a large section of Indian society wtoindia’s primary focus remains the export sector. In the post I try to examine the issues related to foreign trade which Mr. Chidambaram throws up.
Readers may draw reference to my previous post where I discussed that why direct tax exemption to EOU was a ground for imposition of countervailing duties by importing countries of Indian goods benefitting from the scheme. Budget 2008 does not speak of an extension of tax holiday for EOUs beyond the scheduled March 31, 2009 deadline. This would mean that a primary basis for anti subsidy duties shall be eliminated beyond March 31, 2009. With regard to the export driven IT industry, Economic Times, March 1, 2008 reports with the conspicuous silence of the Budget 2008 with regard to Software Technology Parks of India, lack of an extension means IT companies prepare for a tax knock. Negotiations are however still underway with a possibility that IT India may finally get its way.
The stars seem to be shining for foreign exporters, consumers and manufacturers procuring their inputs from outside. If the appreciation of the rupee was not good enough CVD duties have been reduced to 14 % from 16%.
Indian Companies have got a shot in the arm with various reductions in customs levy being extended to them.
Exporters as the finance minister pointed out in his budget speech have been granted relief to the tune of Rs 8000 crores. Mr. Chidambaram characterized the interest cost of sterilization through the market stabilization bonds as subsidies to the export sector.

TAX SOPS FOR EOUs : ARE WE WTO CONSISTENT?

2008-02-19T00:23:00.000-08:00

The Economic Times(February 19, 2008) reports that the government is considering extending the income tax sops enjoyed by EOU companies beyond March 2009, probably up to March, 31, 2010. An announcement to this effect it further adds is expected in the Budget.
This is perhaps the right time to draw attention to the possible consequences of such a measure at the world trade level.
The EOU finds its legal basis in Chapter 6 of the Indian Foreign Trade Policy 2004 -09. An unit in the EOU is supposed to as the terminology itself suggests, export its entire production of goods or services except permissible sales to the Domestic Tariff Area (DTA).
The European Community and the United States to give two examples have repeatedly in countervailing duty investigations deemed the EOU scheme to be an export subsidy. While exempted from the general prohibition on export subsidies enshrined in the WTO Agreement on Subsidies and Countervailing (SCM) by virtue of being an Annex VII state of the SCM, Indian goods are still liable to be subject to countervailing duties in the event they cause material injury to the domestic industry of the importing state. And subject they have been, to countervailing duties. The scheme is deemed a challengeable subsidy on three principle grounds.
1. Exemption of duty on capital goods used for manufacture of goods bound for exports.
2. Remission of duty on inputs used in the manufacturing process (duty drawback) has to be in accordance with Annex II and III of the SCM and the domestic legislation of the EC and USA which are pari materia with these provisions. EOU fails to meet this test.
3. Income Tax exemptions.
The focus of my post today shall be on the third point.
With respect to the SCM for instance item (f) of the Illustrative list of export subsidies categorically brings within its ambit allowance of special deducations directly related to exports or export performance over and above those granted for domestic consumption, in the calculation of the base on which direct taxes are charged. Since exports are a prerequsite for the establishment of an unit in an EOU such export orientation already exists.
Moreover a subsidy as defined by the SCM broadly covers two aspect.
a financial contribution including by way of revenue foregone
conferral of a benefit
The Government of India(GOI) is foregoing revenue by virtue of the income tax exemptions given to the EOU units which would be payable in usual circumstances. A benefit is conferred as the recipient gets something which he would not otherwise have got in the market place. Since both these conditions are met the tax exemptions become challengeable. The European Commisson in a good number of investigations have done precisely that and subjected the goods from EOUs to countervailing duties. Post US- Foreign Sales Corporation decision of the WTO Appellate Body income tax measures which are essentially exemptions given to the manufacturer as distinguished from the manufactured good itself, have been explictly brought within the ambit of subsidies.
Both the USA and EC comprise huge markets for Indian goods with the latter accounting as a destination for almost one fifth of India's exports. An extension of the tax holiday by one more year would mean countervailing duties on Indian goods from the importing states would continue.

WTO MODEL NEGOTIATIONS

2008-02-16T06:57:00.000-08:00

A Model WTO negotiations organized by Oikos, an international students organization is going to be held between April 4 -9, 2008 in St Gallen/Geneva, Switzerland. The model seeks to bring together 60 international students from the world over for a simulation of the WTO Ministerial Conference meetings.
Plenty of things to negotiate on, with issues ranging on WTO and subsidies, tariff issues with regard to biofuels, border tax adjustment for carbon taxes on grey energy among others topics. Do check out www.modelwto.org for details.

India wins spirit dispute initiated against it by the US

2008-02-15T09:17:00.000-08:00

This just out.
India , as is being widely reported in the media has won the case initiated against it at the WTO with regard to tariffs imposed on spirits imported to India. Do check out http://www.indianwineacademy.com/dm_193_item_4.aspx. It reports

The USA has lost its case against India in the complaint filed with the WTO for unfair and indiscriminate import taxes on wines and other imported liquors, according to Indian officials yesterday.
A WTO investigative panel has apparently ruled this week that India had not acted inconsistently with its WTO obligations, trade officials said. A report in Economic Times claims they spoke on condition of anonymity because the decision has not been made public yet.
But the decision may not mean any loss to the US as the government had already removed ACD (Additional Customs Duty) last July due the pressure from the US and the 27-nation EU, although during the process the customs duty was increased to 150% from 100%.
EU had withdrawn its case a few days after this announcement, after keeping it under suspension for a few days. USA had continued on with the case.
Maharashtra had increased the excise duty from the existing Rs.150 a bottle to a massive 150% which was increased to 200% a couple of months ago. Ironically, this duty was decreased from 150% to 75% keeping most people gaping with surprise.
The US had not taken this factor into consideration while continuing with the case. The government had continued to charge additional 4% import duty but allowed the refund after payment first, presumably to stay within the limits of WTO.
The central government has expressed its inability to interfere in the State excise duties and their sales policies. Under the Indian Constitution, states are encouraged to prohibit consumption of alcohol and are allowed freedom to set their own policies and excise duties.
The increase in duties in Maharashtra has practically dried up the consumption of premium wines even in the 5-star restaurants where the import duty is nil but the excise duties of 200% have made them unaffordable for most of their clients.
Other states have not deviated much from their earlier excise duties, by and large.

The WTO Dispute Settlement finding is yet to be made public. Could not find details on WTO website except the status of consultation, check out WT/DS360

Anti dumping misadventures in India.

2008-02-15T02:14:00.000-08:00

India has emerged the biggest user of the anti dumping instrument. While this is of course not a violation of the law of the World Trade Organization, a particular concern arises with regard to a judgment of the Indian Supreme Court in Reliance Industries Ltd Vs Designated Authority in 2006. The division bench has come out with a decision that determination of normal value of goods imported into India should be determined on a country specific rather than an exporter specific basis. This means that if Tom, Dick and Harry all based in the United States and exporting into India have exports which have normal value of 10, 15, and 20 respectively they are going to be clubbed together and a common weighted average say 15 is going to be arrived at. Now if Tom's export price is 12, then he shall deemed to have a dumping margin of 15-12 = 3 even though his actually dumping margin 10 -12 = -2 is in the negative.

The point of concern is that the Designated Authority in India has implemented this ratio in practise creating problems for foreign exporters. What is even more shocking is that there is very little awareness about this except among legal circles. We may well find ourselves before a WTO Dispute Settlement Panel if we do not take care of this problem.
I have had an opportunity to discuss the new model which has emerged in the anti dumping investigations in India, and the legal options of the exporters to India in an article to be published in issue II of the journal International Trade Law & Regulation.
This is definitely an area I think we should all ponder over, before the WTO forces us to think about it.

World trade law journals which accept student manuscripts

2008-02-14T02:49:00.000-08:00

This is one of those things which often take days to figure out. The problem is not all journals explicitly state that they do not accept student manuscripts with the notable exception of University of Pennsylvania Journal of International Economic Law. A few journals which do accept student manuscripts may be noted. The list is however by no means exhaustive.
Journals which accept student manuscripts

Aussenwirtschaft: The Swiss Review of International Economic Relations
International Trade Law and Regulations (Sweet & Maxwell)
Currents: International Trade Law Journal
North Carolina Journal of International Law & Commercial Regulation (currently not accepting)

The best deal is to specifically ask the journal whether they accept student manuscripts. If they do not reply they are not worth the risk.

Law firms in India with a committed international trade division

2008-02-14T02:47:00.000-08:00

Trust me when I say you shall have to literally hunt for firms with a committed international trade division in India.
Indian law firms which practice international trade law (I refuse to call it WTO law for reasons you shall find below) are few and far between. Three firms which have an almost complete domination in the Indian market are
Lakshmikumaran & Sridharan, New Delhi;
Economic Law Practice, Mumbai & New Delhi; and
Strategic Law Group, New Delhi.
A trade lawyer in India shall find him/herself defending foreign exporters in Indian anti dumping/countervailing duty investigations before the Designated Authority, CESTAT, High Court and even the Supreme Court or shall be championing the cause of the domestic industry in their claims against foreign exporters. Lawyers may even be representing the government in similar forums. The legal basis of such investigations is the Indian Custom Tariff Act and Rules with findings of WTO Dispute Settlement panels often counting for nothing before these forums. Once in a while you shall be getting some work related to examination of consistency of certain measures, to give an example, the Indian export incentive schemes like the SEZ with WTO norms but that is about it. If you have illusions of representing sovereign governments before the WTO Dispute Settlement panel well that is not happening yet in India. Maybe/hopefully soon but not yet.
Of the above mentioned law firms I am yet to hear of Strategic Law Group taking interns though I am not sure.
Lakshmikumaran & Sridharan, New Delhi is without doubt one of the best places to be around if you have set you eyes on international trade. Economic Law Practice is also considered to be one of the leaders in this area of law.