Tag: Trade

GS-3, Uncategorized

Project Development Fund

Shiksha IAS Academy

The Union Cabinet has given its approval to create a Project Development Fund (PDF) for catalysing Indian economic presence in the Cambodia, Laos Myanmar and Vietnam.

 

Details:

  • The fund will be established with a corpus of Rs 500 Crore.
  • It shall be housed in Department of Commerce and operated through the EXIM Bank.
  • It shall be governed by an Inter-Ministerial Committee under the chairpersonship of the Commerce Secretary.

clmv

Significance of this fund:

CLMV countries namely Cambodia, Laos, Myanmar and Vietnam have a unique position in the regional value chains and offer a gateway for market access to China/EU and other markets due to various trade agreements.

  • The key advantage of positioning India on the regional value chains is securing on a long term basis, a dedicated market for Indian raw materials and intermediate goods besides a dedicated source for inputs and raw materials for Indian industry.
  • While opportunities are a plenty in CLMV region, Indian entrepreneurs’ endeavors in these countries have, thus far, been limited due to limited information, infrastructure and other contingent risks. The PDF shall benefit India’s industrial community for business expansion, and to maintain cost competitive supply chains, besides integrating with global production networks.
GS-3, Uncategorized

Gulf remittances fall 2.2%, offset by slide in oil imports

Shiksha IAS Academy

The Hindu

News:

  • Remittances from the Gulf nations to India declined for the first time in six years due to sliding oil prices, according to a Crisil report.
  • It fell by 2.2 per cent in 2015-16 but the slide had also resulted in a contraction of oil imports, which offset the drop.
  • “Falling oil prices have had a sweeping impact on the oil producing economies of GCC (Gulf Cooperation Council), severely denting their oil revenues and spending by both governments and households,” according to the report.
  • “This has had a negative impact on remittances from the region, which declined for the first time in six years, falling 2.2 per cent.”
  • More than half of India’s remittance income comes from the GCC.
  • Remittances to India from the GCC amounted to $35.9 billion in 2015-16 down from the $36.7 billion seen in the previous year.
  • However, the report points out that India’s imports from the GCC have fallen sharply, down 34.5 per cent in financial year 2015-16.
  • “This has helped alleviate some stress from lower remittance and export income,” according to Crisil.

Trade deficit

  • Trade deficit is an economic measure of a negative balance of trade in which a country’s imports exceeds its exports. A trade deficit represents an outflow of domestic currency to foreign markets.
  • “In fact, India’s trade deficit with the GCC has fallen a whopping $46 billion, or 77 per cent, in three years, to $14 billion because of rapidly declining imports.”
  • “So while the big news is that remittance incomes from GCC have dropped, what is less known is that, even at the current level (around $36 billion), remittances have been stickier and more than funded the goods trade deficit—leaving a surplus of $22 billion,” according to the report.
  • The fact that GCC remittances to India contracted only 2.2 per cent despite a 47 per cent slump in oil prices shows that these economies, especially Saudi Arabia and the United Arab Emirates (the two largest remitters in the GCC), are less dependent on oil income.

Vulnerability

  • “India’s dependence on remittances and the resultant vulnerability is much lower than some of its Asian peers who receive similar proportions of remittances from GCC countries.”
  • Remittances make up 3.7 per cent of India’s GDP, compared with 28 per cent in Nepal, 9.7 per cent in Sri Lanka, and 6.5 per cent in Pakistan.
  • “If oil prices remain weak for an extended period, economic activity in GCC will come down sharply as the fiscal stress mounts,” according to the report.
  • “This can certainly impact GCC remittances to India.” While oil prices are expected to remain low for some time to come, they have likely bottomed out for now, according to Crisil.
GS-2, International Relations, Uncategorized

Oil-for-drugs deal likely with crisis-hit Venezuela

Shiksha IAS Academy

The Hindu

  • Some time back India came up with new system of payment to venezuela.
  • Now India is trying to make the trade smooth by using the system of barter.

News:

  • India has proposed an oil-for-drugs barter plan with cash-strapped Venezuela to recoup millions of dollars in payments owed to some of India’s largest pharmaceutical companies.

Reason:

  • Venezuela’s socialist economy amid a fall in oil prices has triggered triple-digit inflation and a full-blown political and financial crisis.
  • Unable to pay its bills, the country is facing severe shortages of even basic supplies such as food, water and medicines.

Current situation:

  • The situation in Venezuela is very precarious.
  • The government knows it needs to do something about the medicine shortage.
  • That’s why it is willing to discuss such a deal.
  • The officials said Venezuela had been receptive to the plan “in principle,” but not made any concrete commitments yet.
  • But it will take time

Big blow

  • Like pharmaceutical companies globally — which used to enjoy a preferential exchange rate in Venezuela — Indian producers have been left badly stung by the collapse of the bolivar currency.
  • Officials, on condition of anonymity, said the Trade Ministry had proposed a payment mechanism that would allow Venezuela to repay some of the amount owed with oil.
  • The proposal would use the State Bank of India to mediate the transfer. The plan is now awaiting approval on the Indian side from the Finance Ministry and the RBI.

Other Examples of barter:

  • India, one of the world’s biggest oil importers along with the U.S. and China, had similarly elaborate barter deals with Iran, swapping rice and wheat for oil.

Key oil supplier

  • India’s exports to Venezuela between April 2015 and February 2016 almost halved year-on-year to $125.5 million, compared with a year earlier.
  • Most of that were pharmaceutical products.
  • The amount owed to Indian companies is modest on a global scale.
  • But Venezuela is India’s largest trade partner in Latin America and one of its key suppliers of oil.
  • A deal could also revive sales, albeit at a reduced level, at a time when Venezuela is desperately short of medical supplies, lacking as much as 80 per cent of what it needs to treat its population, according to a Venezuelan industry body.

Vicious cycle:

  • Many other providers in the oil, food and trade sector are pressuring Venezuela to pay its debts, at a time when the cash-strapped government is facing growing social unrest.
  • The OPEC country’s oil production is also expected to fall this year due to a lack of resources, a power crunch and maintenance problems, likely leaving it with less crude for export.
GS-2, Indian Economy, Uncategorized

All you need to know about the new IPR Policy

Shiksha IAS Academy

Article Link

Finance Minister Arun Jaitley recently released India’s new National Intellectual Property Rights (IPR) Policy.

  • The Policy which is in compliance with WTO’s (World Trade Organisation) agreement on TRIPS (Trade Related aspects of IPRs), aims to sustain entrepreneurship and boost ‘Make in India’ scheme.
  • It also aims to create awareness about economic, social and cultural benefits of IPRs among all sections of society.

What are IPRs?

Intellectual Property Rights (IPRs) are legal rights, which result from intellectual invention, innovation and discovery in the industrial, scientific, literary and artistic fields. These rights entitle an individual or group to the moral and economic rights of creators in their creation.

Why have an IPR?

IPR is required to safeguard creators and other producers of their intellectual commodity, goods and services by granting them certain time-limited rights to control the use made of the manufactured goods. It gives protection to original ideas and avoids the commercial exploitation of the same.

What is the National IPR Policy?

According to the government, the National IPR Policy is a vision document that aims to create and exploit synergies between all forms of intellectual property (IP), concerned statutes and agencies.

  • It sets in place an institutional mechanism for implementation, monitoring and review.
  • It aims to incorporate and adapt global best practices to the Indian scenario.

Seven objectives of IPR Policy:

  1. IPR Awareness: To create public awareness about the economic, social and cultural benefits of IPRs among all sections of society.
  2. Generation of IPRs: To stimulate the generation of IPRs.
  3. Legal and Legislative Framework: To have strong and effective IPR laws, which balance the interests of rights owners with larger public interest.
  4. Administration and Management: To modernize and strengthen service-oriented IPR administration.
  5. Commercialization of IPRs: Get value for IPRs through commercialization.
  6. Enforcement and Adjudication: To strengthen the enforcement and adjudicatory mechanisms for combating IPR infringements.
  7. Human Capital Development: To strengthen and expand human resources, institutions and capacities for teaching, training, research and skill building in IPRs.

Highlights of the policy:

  • The new policy calls for providing financial support to the less empowered groups of IP owners or creators such as farmers, weavers and artisans through financial institutions like rural banks or co-operative banks offering IP-friendly loans.
  • The work done by various ministries and departments will be monitored by the Department of Industrial Policy & Promotion (DIPP), which will be the nodal department to coordinate, guide and oversee implementation and future development of IPRs in India.
  • The policy, with a tagline of Creative India: Innovative India, also calls for updating various intellectual property laws, including the Indian Cinematography Act, to remove anomalies and inconsistencies in consultation with stakeholders.
  • For supporting financial aspects of IPR commercialisation, it asks for financial support to develop IP assets through links with financial institutions, including banks, VC funds, angel funds and crowd-funding mechanisms.
  • To achieve the objective of strengthening enforcement and adjudicatory mechanisms to combat IPR infringements, it called for taking actions against attempts to treat generic drugs as spurious or counterfeit and undertake stringent measures to curb manufacture and sale of misbranded, adulterated and spurious drugs.
  • The policy will be reviewed after every five years to keep pace with further developments in the sector.

Why this policy was need of the hour?

  • Global drug brands led by US companies have been pushing for changes to India’s intellectual property rules for quite some time now. They have often complained about India’s price controls and marketing restrictions.
  • Also, an IPR policy is important for the government to formulate incentives in the form of tax concessions to encourage research and development (R&D). It is also critical to strengthen the Make In India, Startup and Digital India schemes.
  • The IPR policy comes at a time when India and other emerging countries faces fresh challenges from the developed world and mega regional trade agreements such as the Trans-Pacific Partnership (TPP).

Issues associated with this policy:

  • According to the policy, India will retain the right to issue so-called compulsory licenses to its drug firms, under “emergency” conditions. Also, the government has indicated that there is no urgent need to change patent laws that are already fully World Trade Organization-compliant. So India has resisted pressure from the US and other Western countries to amend its patent laws.
  • The policy also specifically does not open up Section 3(d) of the Patents Act, which sets the standard for what is considered an invention in India, for reinterpretation.

Benefits of this policy:

  • The new policy will try to safeguard the interests of rights owners with the wider public interest, while combating infringements of intellectual property rights.
  • By 2017, the window for trademark registration will be brought down to one month. This will help in clearing over 237,000 pending applications in India’s four patent offices.
  • It also seeks to promote R&D through tax benefits available under various laws and simplification of procedures for availing of direct and indirect tax benefits.
  • Unlike earlier where copyright was accorded to only books and publications, the recast regime will cover films, music and industrial drawings. A host of laws will also be streamlined — on semi-conductors, designs, geographical indications, trademarks and patents.
  • The policy also puts a premium on enhancing access to healthcare, food security and environmental protection.
  • Policy will provide both domestic and foreign investors a stable IPR framework in the country. This will promote a holistic and conducive ecosystem to catalyse the full potential of intellectual property for India’s growth and socio-cultural development while protecting public interest.
  • It is expected to lay the future roadmap for intellectual property in India, besides putting in place an institutional mechanism for implementation, monitoring and review. The idea is to incorporate global best practices in the Indian context and adapt to the same.

Why the US would not be happy with this policy?

Last month, the US Trade Representative kept India, China and Russia on its “Priority Watch List” for inadequate improvement in IPR protection. However, brushing aside concerns of the US on India’s IPR regime, the government said its intellectual property rights laws are legal-equitable and WTO-compliant. Thus, the government has not yielded to pressure from the United States to amend India’s patent laws.

TRIPS:

TRIPS is an international agreement administered by the World Trade Organization (WTO), which sets down minimum standards for many forms of intellectual property (IP) regulations as applied to the nationals of other WTO Members.

  • It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in 1994.
  • TRIPS requires WTO members to provide copyright rights, covering content producers including performers, producers of sound recordings and broadcasting organizations; geographical indications, including appellations of origin; industrial designs; integrated circuit layout-designs; patents; new plant varieties; trademarks; trade dress; and undisclosed or confidential information.
  • The agreement also specifies enforcement procedures, remedies, and dispute resolution procedures.
Editorials, GS-3, Indian Economy, Uncategorized

‘Make in India’ not at cost of IPR: US

Shiksha IAS Academy

The US Trade Representative’s annual Special 301 report, that identifies trade barriers to U.S. companies and products due to a foreign government’s intellectual property regime, has placed India on the Priority Watch List, the same as last year.

What is special 301 report?

Under Section 301 of US Trade Act, the office of US Trade representative (USTR) prepares a list of countries whose Intellectual property right regime (IPR) has negative impact on American products. Among such countries, special attention given to two groups:

Priority watch list countries Priority foreign countries
USA uses “carrot” policy to incentivize IPR reforms e.g. funding, training, capacity building, bilateral exchanges and conferences. “sticks” policy to force IPR reforms e.g. putting trade sanctions, approaching WTO dispute resolution.

Why is India kept in the Priority Watch list, in this report?

India is kept in Priority watchlist because

  • Report has raised multiple concerns, particularly related to the potential erosion in IP standards due to its push for promoting domestic manufacturing.
  • It  is concerned about actions and policies in India that appear to favour local manufacturing or Indian IPR owners.
  • According to the report,  India has not taken the opportunity to address long-standing and systemic deficiencies in its IPR regime and has endorsed problematic policies.
  • It said India was the source of a lot of pirated and counterfeit goods reaching the U.S shores.
  • It has asked for clarity from the Government of India regarding the compulsory license decision-making process, as it affects U.S. stakeholders.
  • India doesn’t have separate Anti-Camcording law to combat video piracy.
  • India doesn’t have special takedown procedures against piracy websites.
  • India is the top supplier of counterfeit pharmaceuticals to USA. Patent holder lose billions of dollar each year due to counterfeit / pirated products.
  • Thus, India’s IPR regime is not conductive for innovation by foreigners- at least in USTR’s interpretation, hence put under “Priority watch list” of Special 301 report

Compulsory Licencing

  • Compulsory licensing is when a government allows someone else to produce the patented product or process without the consent of the patent owner.
  • It is one of the flexibilities on patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement.
  • The compulsory licensing provision arms the government with the power to ensure that medicines are available to patients at affordable rates and has so far been used in Brazil, Thailand and South Africa.
  • It gives the government the right to allow a generic drugmaker to sell copycat versions of patented drugs under certain conditions, without the consent of the patent owner.
  • The TRIPS Agreement does not specifically list the reasons that might be used to justify compulsory licensing.
  • However, the Doha Declaration on TRIPS and Public Health confirms that countries are free to determine the grounds for granting compulsory licences.

Stand of the Indian Government

  • The government of India does not engage with the process as it considers it an infringement on the country’s sovereignty.
  • Indian official sources pointed out that the categorisation is arbitrary and mostly a political decision, in order to reward or punish a target country.

How does India fare with respect to its competitors?

China too is in Priority Watch List  whereas Pakistan is in Watch List,  as according to the report Pakistan  has shown sufficient improvement in IP protection and enforcement.

Editorials, GS-3, Indian Economy, Uncategorized

Sensitise States, don’t intimidate them

Shiksha IAS Academy

Article Link

The finance ministry is preparing a model Centre-State Investment Agreement (CSIA), for effective implementation of the Bilateral Investment Treaty it is set to sign with other countries. The draft will shortly be presented to the Cabinet for approval.

What are BITs?

BITs protect investments made by an investor of one country into another by regulating the host nation’s treatment of the investment. BIT replaces the Bilateral Investment Promotion and Protection Agreements (BIPPA) that India had signed with 83 countries since 1994.

Background:

In his budget speech, Union Finance Minister Arun Jaitley had proposed the CSIA, to be signed between the central and state governments. This will ensure fulfilment of the obligations of state governments under BITs. States which opt to sign these will be seen as more attractive destinations by foreign investors.

Main features of CSIA:

Some of the features include an enterprise-based definition of investment, non-discriminatory treatment, protection against expropriation, an Investor State Dispute Settlement (ISDS) provision requiring investors to exhaust local remedies before commencing international arbitration, and limiting the power of tribunals to awarding of monetary compensation.

The Centre will also not make it mandatory for states to sign these agreements but if any don’t, counter-parties (other nations) will be informed.

Issues associated with CSIA:

  1. Obligations under international law.

According to some experts the Centre-State Investment Agreement (CSIA) does not make any sense from the perspective of international law. It is because whether a central government enters into any such agreement with states or not, the actions of state governments will continue to bind the Indian state. Irrespective of a foreign company running into trouble with any state, the liability will be on the Centre.

Also, the Centre’s proposal to warn their counter parties about non-compliant States before they make their investment in the State does not carry much legal significance.

  1. Cooperative federalism.

There are also practical considerations in this proposal. India is a quasi-federal structure with a multiparty system. The Centre and State governments are often politically non-aligned. In this context, a proposal by the Centre to enter into investment agreements with States as an optional arrangement may further sour fragile Centre-State relations for two reasons. First, the State governments will not like the shifting of the blame for violation of a BIT from New Delhi to State capitals. Second, the State governments will also not like the Centre informing India’s BIT partner country that a particular State government has not signed the agreement and thus, by implication, is not a safe destination for foreign investment.

Conclusion:

One of the objectives of the proposal could be to sensitise State governments about India’s BIT obligations given the fact that many regulations of State governments directly impact foreign investors. However, this objective would be better served by institutionalising the involvement of State governments in the process of treaty-making. A forum such as the NITI Aayog, which has all the Chief Ministers as members of the governing council, could be used to create a Centre-State consultative process on treaty-making. Also, this sensitisation should not be restricted to BITs but also extend to other international agreements like the World Trade Organisation treaty, numerous Free Trade Agreements, and Double Taxation Avoidance Agreements. Cooperative federalism requires that Centre and States work together, which in turn would ensure better implementation of international treaties.

GS-3, Uncategorized

The importance of IP rights for innovation

Shiksha IAS Academy

Context

Piracy is a problem all over the world, original content created by the innovators is being distributed in this digital age where data is distributed all over the internet and is rampant

Why India and US have a relationship in IP rights

Indian movie production companies and software development companies have made a mark around the world, US also has done the same, to protect the rights of creators from both countries and to grow our economies, we must try and curb this illegal distribution.

World Intellectual Property Day

  • World Intellectual Property Day is observed annually on 26 April.
  • 2016 theme “Digital Creativity: Culture Reimagined”
  • 2015 theme was “Get Up, Stand Up. For Music”
  • The event was established by the World Intellectual Property Organization (WIPO) in 2000 to “raise awareness of how patents, copyright, trademarks and designs impact on daily life” and “to celebrate creativity, and the contribution made by creators and innovators to the development of societies across the globe”
  • 26 April was chosen as the date for World Intellectual Property Day because it coincides with the date on which the Convention Establishing the WIPO entered into force in 1970.

World Intellectual Property Organization

  • The World Intellectual Property Organization (WIPO) is one of the 17 specialized agencies of the United Nations.
  • WIPO was created in 1967 “to encourage creative activity, to promote the protection of intellectual property throughout the world
  • WIPO currently has 188 member states,administers 26 international treaties, and is headquartered in Geneva, Switzerland

What is the idea behind protecting intellectual property

  • That the original content creators are rewarded for their creations whether it be movies, art work, music, computer software and other so that future generations appreciate the rich, diverse and creative cultures as to the ones we enjoy today.
  • Also people make their living by selling their content and if their creations are not protected, they will go out of work, and producers will no more be encouraged to produce new things

How is it becoming impossible to protect the content

Growth in broadband connectivity also means an increase in the proliferation of piracy, which reduces the incentive of content innovators to create and erodes the desire of companies to invest. Illegal downloads, recording in movie theatres and other forms of intellectual property theft cost the creative industry dearly

GS-3, Indian Economy, Uncategorized

Trading charges

Shiksha IAS Academy

Article Link

In February, 2016, U.S. President Barack Obama signed the Trade Facilitation and Trade Enforcement Act of 2015.

  • The focus of the law is to enhance enforcement of IPR over the U.S.’s trading partners. It introduces important measures relating to intellectual property rights (IPR) issues.
  • This law is expected to impact India’s ability to develop an IP policy suited to its own developmental needs.

Present scenario:

The Special 301 list, brought out by the United States Trade Representative (USTR), has consistently featured India, most often as a Priority Watch List (PWL) country, since its institution in 1989.

  • This has caused some disquiet within India, which has been disappointed that its proactive steps to improve domestic IP protection and engage with the U.S. have been unsuccessful in placating the U.S.

Why be concerned about this?

  • Countries featured on Special 301 list are those that the USTR believes have either national laws or regulations that detrimentally affect U.S. trade or the rights of IP holders.
  • If a trading partner is on this list, the U.S. believes that the country is providing inadequate IPR protection, enforcement, or market access for persons relying on intellectual property.
  • Also, any country classified as PWL is subject to USTR scrutiny in the form of investigations and possible sanctions under the procedures set out under the Trade Act, 1974.

How the new law further aggravates the existing problem?

Trade Facilitation Act will increase the level of pressure to comply with the USTR’s requirement for countries like India that feature on the PWL for more than a year.

  • The Act specifically requires the USTR to develop action plans with benchmarks for PWL countries. The USTR has traditionally developed action plans in consultation with the country in question. However, under Trade Facilitation Act, the USTR is not required to consult with the listed country.
  • Also, Benchmarks refers to legislative or other institutional action that a sovereign country like India will need to establish to facilitate U.S. trade. And instituting benchmarked changes remains the only way to remove a country from the Special 301 list no matter how harsh they are. Since the role of USTR is focussed on U.S. trade, it is not obliged to take developmental or public health needs of the trading partner into account when developing action plans or listing benchmarks.
  • A country that refuses to comply with the benchmarks within a year can face appropriate action, resulting in further unilateral investigations followed by punitive trade sanctions. Such trade sanctions can include denial of preferential duty for exports, which developing countries rely on to export goods to the U.S.
  • The Act creates a new position within the office of the USTR titled ‘Chief Innovation and Intellectual Property Negotiator’ (IP negotiator). The IP negotiator is required to “take appropriate actions to address acts, policies, and practices of foreign governments that have a significant adverse impact on the value of U.S. innovation.”
  • Also, with a view to facilitating unilateral actions, the Act creates a Trade Enforcement Trust Fund for legal actions against foreign countries to ensure “fair and equitable market access for U.S. persons.”

Is it not possible to seek any help from the WTO?

Under World Trade Organisation jurisprudence, legality of unilateral actions over sovereign countries remains questionable. Hence, the U.S. may stay away from imposing unilateral sanctions, but tries to bring about change in a country’s domestic IP law through mechanisms like the Special 301 list.

Thus, under U.S. laws, compliance with WTO obligations is immaterial. A country that is compliant with WTO rules can be the subject of investigations if the USTR believes that U.S. trade is detrimentally affected by that country’s IP laws. Thus, India’s traditional defence that it is in compliance with WTO obligations has limited reach.

Conclusion:

India should be concerned about the heightened pressure that is bound to follow with the passage of the Trade Facilitation Act, especially on issues where its compliance with its TRIPS obligations is not disputed. As India continues to strategically engage with the U.S., it is time to develop a coalition of like-minded countries to monitor demands for legislative actions that result in WTO-plus standards.

Editorials, Environment, GS-3, Uncategorized

Why the WTO is right in the solar panel dispute

Shiksha IAS Academy

Article Link

A World Trade Organization (WTO) panel has ruled against India in a dispute raised by the US over the country’s solar power programme, requiring the government to offer a level playing field to both foreign and domestic manufacturers of solar panels.

  • The panel found that the domestic content requirement imposed under India’s national solar programme is inconsistent with its treaty obligations under the global trading regime.
  • This is the second case that India has lost to the US at the WTO. In June 2015, the WTO’s appellate body upheld an earlier ruling against an Indian ban on poultry meat and eggs supplied by American producers. The ban had been imposed to prevent an outbreak of avian influenza.

What’s the issue?

It all started with the announcement of India’s national solar programme, which was launched in 2010. This programme aims to “establish India as a global leader in solar energy, by creating the policy conditions for its diffusion across the country as quickly as possible”.

  • To incentivise the production of solar energy within the country, the government under the programme agrees to enter into long-term power purchase agreements with solar power producers, effectively “guaranteeing” the sale of the energy produced and the price that such a solar power producer could obtain.
  • Thereafter, it would sell such energy through distribution utilities to the ultimate consumer. However, a solar power producer, to be eligible to participate under the programme, is required compulsorily to use certain domestically sourced inputs, namely solar cells and modules for certain types of solar projects.
  • In other words, unless a solar power producer satisfies this domestic content requirement, the government will not ‘guarantee’ the purchase of the energy produced.
  • In 2013, the U.S. brought a complaint before the WTO arguing that this domestic content requirement clause imposed under India’s national solar programme is in violation of the global trading rules.
  • Specifically, it said, India has violated its “national treatment” obligation by unfavourably discriminating against imported solar cells and modules. Thus, indicating a clear violation trade commitment.

How India defends its move?

India principally relied on the ‘government procurement’ justification, which permits countries to deviate from their national treatment obligation provided that the measure was related to “the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or use in production of goods for commercial sale”.

  • India also argued that the measure was justified under the general exceptions since it was necessary to secure compliance with its domestic and international law obligations relating to ecologically sustainable development and climate change.

What the WTO Panel says?

However, after a detailed examination, the panel concluded that India, by imposing a mandatory domestic content requirement, had violated its national treatment obligation.

  • In so far as the government procurement derogation was concerned, the panel found that the product being subject to the domestic content requirement was solar cells and modules, but the product that was ultimately procured or purchased by the government was electricity.
  • The domestic content requirement was therefore not an instance of “government procurement”.
  • Besides, the panel also found that since India failed to point out any specific obligation having direct effect in India or forming part of its domestic legal system, which obligated India to impose the particular domestic content requirement, the general exception was not available to the Indian government in the instant case.

Was India really wrong?

The ruling has been described as yet another instance of archaic trade rules trumping important climate imperatives. It is being seen as undermining India’s efforts towards promoting the use of clean energy. However, this criticism is not entirely justified.

  • There appears to be no rational basis for how mandatory local content requirements contribute towards promoting the use of clean energy.
  • Besides, by mandatorily requiring solar power producers to buy locally, the government is imposing an additional cost, usually passed on to the ultimate consumer, for the production of clean energy. The decision may therefore stand to benefit the interest of the ultimate consumer.

How should the policy be?

If the objective is to produce more clean energy, then solar power producers should be free to choose energy-generation equipment on the basis of price and quality, irrespective of whether they are manufactured locally or not.

  • It is entirely possible to give preferential treatment to clean energies (in the form of tax rebates for solar power producers and so on) without requiring mandatory local content.

Way ahead:

The panel ruling, however, is not final and reports indicate that India will prefer an appeal to the appellate body. Simultaneously, India may be exploring the option of filing a counter complaint against the U.S., with several states in the U.S. such as Michigan, Texas and California having also reportedly been accused of employing mandatory local content requirements in the renewable energies sector.

Conclusion:

In a bid to support its ‘Make in India’ campaign India is coming out with such policies. However, India must resist the temptation of adopting protectionist measures such as domestic content requirements which are inconsistent with its international obligations. Domestic content measures, despite their immediate political gains, have a tendency to skew competition. Manufacturers must remain free to select inputs based solely on quality and price, irrespective of the origin. The government must continue working towards building a business and regulatory environment which is conducive to manufacturing. This would require systemic changes in the form of simpler, transparent and consistent laws and effective dispute resolution mechanisms.

GS-3, Indian Economy, Uncategorized

Economic integration and different types of trade agreements

Shiksha IAS Academy

What is economic integration & why go for it?

Economic integration refers to trade unification between different states by the partial or full abolishing of customs tariffs on trade taking place within the borders of each state.

  1. The objective of this integration is to increase the combined economic productivity of the countries – easier access of goods and services
  2. Other by-product of integration is competitiveness. If 4-5 countries come together to form a closely knit family (of sorts), they would create barriers to entry of an external (possibly much larger player) to disrupt the region with cheaper goods

What is a trade agreement?

A trade agreement is a contract/agreement/pact between two or more nations that outlines how they will work together to ensure mutual benefit in the field of trade and investment.

This can be bilateral (2 countries) or multilateral (2+ countries). 

Once a trade agreement is finalised, we get to read about these Trade Blocs – a type of intergovernmental agreement, where regional barriers to trade, (tariffs and non-tariff barriers) are reduced or eliminated among the participating states.

img26

trade-agreements-hierarchy

 

#1. PTA – Preferential trade agreement

A preferential trade agreement, is a trading bloc that gives preferential access to certain products from the participating countries.

This is done by reducing tariffs but not by abolishing them completely. A PTA can be established through a trade pact. It is the first stage of economic integration. 

Some examples:

  • Asia-Pacific Trade Agreement (APTA): formerly known as the Bangkok Agreement, was signed on 31st of July 1975 as an initiative of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP). ESCAP is the regional development arm of the United Nations for the Asia-Pacific region.
  • India-Mercosur Preferential Trade Agreement (PTA): Mercosur is a sub-regional blogs with its member countries – full members are Argentina, Brazil, Paraguay, Uruguay and Venezuela.

#2. FTA – Free trade agreement

A free-trade area is a trade bloc whose member countries have signed a free-trade agreement (FTA), which eliminates tariffs, import quotas, and preferences on most (if not all) goods and services traded between them.

Please note that you cannot distinct PTA and FTA by just saying that the former has fewer barriers and later has no barriers at all. FTA does not mean everything is free! PTA closely follows FTA.

  • Evolution of SAPTA to SAFTA (South Asian PTA to FTA)
  • ASEAN FTA (Trade agreement within the Southeast asian nations)

What would happen if countries want to move more closer (beyond material trade)?

When the countries go beyond FTA and agree for a greater degree of economic integration which includes improving the attractiveness to capital and human resources, and to expand trade and investment, it would result in CECA or CEPA.

  • CEPA = Comprehensive Economic partnership Agreement
  • CECA = Comprehensive Economic Cooperation Agreement

CECA and CEPA have very minor differences, if you will. While CECA comes first with elimination of tariffs, CEPA comes later including trade in services and investments. CEPA has a bit wider scope than CECA.

#3. Customs Union

An agreement among countries to have free trade among themselves and to adopt common external barriers against any other country interested in exporting to these countries.

Some examples:

  • Southern Common Market – Mercosur (Argentina; Bolivia; Brazil; Paraguay; Uruguay; and Venezuela)
  • Gulf Cooperation Council (GCC) – Its member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates
  • East African Community (EAC) – composed of 5 countries in the African Great Lakes region in eastern Africa: Burundi, Kenya, Rwanda, Tanzania, and Uganda

#4. Common Market

A type of custom union where there are common policies on product regulation, and free movement of goods and services, capital and labour.

 

#5. Economic Union

An economic union is a type of trade bloc which is composed of a common market with a customs union. The participant countries have both common policies on product regulation, freedom of movement of goods, services and the factors of production (capital and labour) and a common external trade policy.

#6. Economic and monetary union

When an economic union involves unifying currency it becomes a economic and monetary union. Eg – Euro!