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GATT, WTO AND
THE DEVELOPING
COUNTRIES
ANIL RAJIMWALE
Published in Public Interest
by
Voluntary Action Network India
H-17/1,MalviyaNagar
New Delhi
© The booklet is published free of copyright, for educational
and non-profit purposes, and for such purposes only. You are
free to reproduce it, in whole or in part provided only that the
source is acknowledged. Please send VAN I a copy of what you
produce.
The views expressed in this booklet are that of the author's and
not necessarily those of VANI.
Price: Rs. 15.00 or US $ 5. Available also at a subsidised
price of Rs. 10.00 for students, individual activists and non
funded organisations.
VANI - Voluntary Action Network India
H-17/1, Malviya Nagar
New Delhi 110 017
Phone: 011 -6428369,6220674, Fax: 011-6220674
Gr\-I * 0
C?U3 »y-0
Foreword
Since 1992 VANI is working and responding to questions
related to the Structural Adjustment Programme (SAP) com
monly known as the New Economic Policy. As part of a wider
initiative to inform, educate and sensitise those who are
involved in voluntary action and through them the common
people of the country about issues and process of economic
and social policy and its impact on them. VANI since its
inception is collecting, analysing and disseminating informa
tion related with macro-issues.
Till now, VANI has published a number of such booklets. This
booklet is a part of this on-going process.
VANI was inspired to publish this booklet during a meeting
organised Jointly by VANI and VAN-Bihar (a network of
voluntary organisations of Bihar) on "New Economic Policy
and Pole of Voluntary Organisations" held in Madhupur, Bihar
during November 19-20, 1994 wherein a large number of
questions were raised by participants related with Dunkel,
GATT and WTO.
Inspite of the brain-storming sessions, itwasgenerally felt that
there is still confusion about these issues as various views of
activists, media, politicians were cited - some of them contra
dictory to each other. The participants felt that there is a need
for critical analysis of the issue which should be published in
the form of a booklet. Shri Anil Rajimwale who participated in
this meeting as a resource person volunteered to prepare a
critical analysis of GATT and its impact on the developing
countries.
In this booklet he has analysed the Dunkel Proposal in detail
and its impact on India and the third world countries. This
booklet also contains changes in the Patent Act and the World
Trade Organisations (WTO). VANI has published this booklet
to provide better understanding for voluntary activists. The
views expressed in this booklet are those of the author and not
necessarily of the organisation.
VANI is thankful to Shri Anil Pajimwale for preparing this
booklet in a short span of time and helping VANI in its initiative
of informing, educating and sensitising voluntary activists.
VANI is also grateful to VAN-Bihar and its members on whose
initiative this booklet is published.
New Delhi
March 1995
Anil K. Singh
Executive Secretary
List of Abbreviation
AMS
Agregate Measurement of Support.
BOP
Balance of Payments.
EC
European Community.
EMS
Equivalent Measurement of Support.
EU
European Union.
FAO
Food & Agriculture Organisation.'
FTAs
Free Trade Areas.
GATT
General Agreement on Tariff and Trade.
IC
Integrated Circuits.
IMF
International Monetary Fund.
IPRs
Intellectual Property Rights.
ITO
International Trade Organisation
LDC
Least Developed Countries.
MFA
Multi-Fibre Agreement.
MFN
Most Favoured Nations.
MNCs
Multi-National Companies.
MTO
Multilateral Trade Organisation.
NAFTA
North American Free Trade Area.
OGL
Open General License.
PBMs
Price Based Measures.
SOM
Subsidies & Countervailing Measures.
TMB
Textile Monitoring Body.
TRIMs
Trade Related Investment Measures.
TRIRPs
Trade Related Intellectual Property Rights.
US
United States.
WB
World Bank.
WP
Working Party.
WIPO
World Intellectual Property Organisation.
WTO
World Trade Organisation.
GATT, WTO AND
THE DEVELOPING
COUNTRIES
GATT (General Agreement on Tariffs and Trade) was
established in 1947 with the aim to reconstruct the postwar
world economy. To settle disputes and keep peace, the United
Nations was set up, IMF was established to remove exchange
controls, World Bank (Originally International Bank for
Reconstruction and Development) was formed to help
investment needs of the poor and devastated countries and to
dismantle trade restrictions International Trade Organisation
(ITO) was planned. In fact, originally, the ITO was proposed
by the USA, but the U.S. Congress refused to ratify it. The
Congress felt that ITO would restrict its ability to adjust its tariffs
in accordance with the needs of its own economy. Therefore,
a provisional organisation to adjust world tariffs and trade
came into being, known popularly as the GATT.
Thus, we find that attempts to create a more harmonious
world trade and economic relations was favoured by most of
the nations and opposed by the US when things came to be
more concretised. It should be noted that China was the
founding memberof the GATT but withdrew in 1953 when its
conflicts with the U.S. sharpened and when rigid positions
were adopted by the USA on the one hand and Chinese
government on the other. It is symptomatic of a changing
world that today China is desperately trying to re-join the
GATT/WTO while the USA, according to Chinese
government’s versions, is putting hurdles.
1
The GATT is the main forum for laying down rules and
standards of world trade. These are set through periodic
multilateral negotiations. The latest rounds of negotiations are
called Uruguay Round because they were launched in a place
called Punta del Este in Uruguay, a Latin American country, in
1986. It was attended by 105 countries. The rounds culmi
nated in Marrakesh (Morocco) in April 1994 attended by the
representatives of 125 countries. Marrakesh declarations or
documents signed by the 125 are known as the Final Act of
GATT which decided to establish World Trade Organisations
(WTO) on 1 January 1995.
The inter-governmental consultations became more impor
tant when the industrial countries began taking protectionist
measures in the 1970s. It thus came to be known as the “era
of protectionism”. The developing countries were particularly
hard hit. Therefore, they demanded greater share and partici
pation in world trade and simultaneously reductions in tariffs
and duties. This was how the crisis in the international trading
system was solved. The collapse of the socialist system and
the end of cold-war has enabled a large number of east
European countries to apply for GATT membership and to
press for its further democratisation. Thus they form an
important pressure group.
The seven previous rounds of GATT mainly discussed sub
stantial reduction in tariffs and other barriers to trade.
But the latest Uruguay Round is a considerable improvement.
Earlier, sectors like agriculture and taxtiles were excluded from
the GATT. These and other sectors were considered exclu
sive domains of national legislation and at the same time
mainly manipulated by the developed industrialised nations.
Now, the situation has changed. The Uruguay Round,
including the Marrakesh one, has decided to cover the follow
ing: Trade in services, intellectual property rights (IPRs),
international investment flows, agriculture, health, environ
ment, etc. Textiles and clothings were governed since 1974 by
what is known as Multi-Fibre Arrangement (MFA). There
2
followed long struggles and hassles in the MFA. The positive
result was that, under The pressure of the developing coun
tries, the MFA was included in the GATT.
This has helped regularise trade to the benefit of developing
countries in several areas.
The Draft Final Act adopted at Marrakesh, is also known as the
Dunkel Draft after chief GATT negotiator, Arthur Dunkel.
Expanding World Market and its Integration
The abovementioned points have not been the only factors for
the emergence of the GATT. As recognised in the preambles
to the various GATT documents, the world trade and the world
market has been expanding very rapidly in the post-second
world war period. Processes of integration and globalisation
have set in. Greater numbers and quantities of goods are
being produced. Far greater items are being used by the
society. Technological revolution hascontributedtofarhigher
levels of production and wealth. Production and information
technologies are changing fast contributing to an unparalleled
expansion of services. Information revolution has intercon
nected various sectors of world economy as never before. The
movements of money, capital and commodities have reached
unprecedented scales. Communications of electronics age
have created unified share, capital and goods market.
In this situation, increasing numberof countries realise thatthe
different kinds of barriers hindering the movement of money,
capital and goods must be removed. These barriers interfere
with production and sale as also with communication. They
realise that some kind of general guidelines must be evolved,
which facilitate, and not hinder, the movements in the world
economy. One should adopt integral or global approach rather
than protectionist one. The present scenario of economy and
technology opens up new possibilities of growth and expan
sion for the developing countries. Hence the realisation for
lowering of tariffs and other barriers.
3
GATT, USA and third World
It has been propagated that the GATT is against the interests of
the third world countries, and therefore they are opposed to it.
But this is not a fact. It is interesting to note that of all countries,
it is the USA which found it hard to ratify the GATT. There were
acrimonious debates within the American Senate on whetherto
join it.
The protectionists and opponents of GATT in the big business
and political circles in that country argued that the previous
seven rounds of negotiations had done nothing to lower the US
trade deficit, and that the US manufacturers would lose heavily
if American and NAFTA (Noth American Free Trade Area)
were opened to the countries of Asia, Africa and Latin America.
Their arguments are not baseless. It is to be noted that the
USA is the single biggest debtor country in the world. There
fore, there is always a fear of this debt increasing further if its
markets are opened. And this is precisely what India, China,
other developing countries and the European Union are de
manding.
Clinton administration has managed to convince the American
law makers of the perils of economic isolation. It has worked
on the premise that the GATT would create half-a-million new
jobs and mean an annual increase of $ 150 million in US
economic growth over the next decade when the deal is fully
implemented. The US administration also promises opening
up of Asian markets for the American manufacturers.
By ratifying the GATT and joining World Trade Organisation
(WTO), the USA has managed to come out of isolation.
On the other hand, most of the third world countires have been
demanding their inclusion in the GATT. They are pressing for
its expansion, strengthening and demosratisation. They re
main within it because it would give them lot of access to world
market, want to they would like to bargain within the GATT, not
outside it. The number of signatories is a testimony to this fact.
4
World Trade Organisation (WTO)
It is the successor to the GATT by latter’s decision. In
GATT documents it was named as MTO: Multilateral
Trade Organisation. The WTO came into being on 1
January 1995 with 85 countries joining even before it
came into being. Other countries are joining after
making necessary arrangements.
We have already mentioned that but for the opposition by the
USA,theWTOwouldhaveemergedin 1947itselfaslTO. The
WTO is different in several senses from the GATT, eg in the
following aspects:
WTO has far wider scope by bringing in areas like trade in
services and other ones mentioned already.
WTO has a prospective membership of around 150 countries,
which is likely to reach in near future.
WTO is a full-fledged regular organisation. It has a unified
package of agreements to which all members are committed.
In the old GATT there were many side rules and commitments
limited to a few countries. Export restraints on textiles and
clothings would be gradually phased out.
The WTO and its secretariat numbering 450 will function
through various committees. It general direction will be
significant tarff cuts, generally upto 40%. It will act as watch
dog of world trade.
The new trade body will have power to settle trade disputes
among its members. All the GATT members will automatically
become WTO members upon acceptance in full of Uruguay
Round agreements including GATT 1994.
Another distinguishing feature ofthe WTO is its higher status.
It has been upgraded to the ministerial level with a directorgeneral. So, it will not only be an economic body but also a
political one, in certain sense, as far as economic problems are
concerned.
5
Expections from GATT/WTO
The biggest fall-out of the reduction of the world wide trade
barriers is estimated to be an increase in world incomes by $
510 billions per year through trade in goods alone. Market
access is expected to reach full proportions by the year 2005
resulting in greater generation of wealth.
In addition to trade in goods, other economic processes are
expected to gather speed, eg. movement of money and
capital, information, growth of share markets, better trade
rules, greater mobility of new technologies, trade in services,
greater market access, etc. In short, implementation of GATT/
WTO provisions is expected to stimulate international trade,
investment and production.
The annual income gains for different countries or group of
countries are expected to be as follows:
Developing and Transition Economies
$116 billion
European Community
:
$164 billion
USA
:
$122 billion
Japan
:
$ 27 billion.
Developed countries have agreed to reduce tariffs on industrial
goods entering their markets by 40%. They will cut tariffs by
60% on following categories : wood, pulp, paper, furniture,
metals and non-electric machinery. The goods from the
“most-favoured nations” (MFN) entering developed economies
will have zero duties; their proportion will increase from 20% to
44%.
Among the developed economies, the largest cuts in tariffs on
industrial products have been made by Japan (56%) and New
Zealand (53%).
The total rise in merchandise export volume in the year 2005
will be 23.5% for the whole world.
The MFA had applied lot of restraints on textiles and clothing:
They will be eliminated in four steps starting with the establish
6
ment of WTO on 1 January 1995 and ending on 1 January
2005. In fact, they were already being phased out during GATT
1994.
Agriculture: There will be a 36% reduction in export subsidies,
half of which will have to be borne by the countriesof European
Union. There will be a total decline in domestic support for
agriculture from $ 197 billion to $ 162 billion, a 18% cut.
Consequently, market opportunities will be created for 1.8
million tons of warse grains, 1.1 million tons of rice, 8,07,000
tons of wheat and 7,29,000 tons of dairy products.
The trade in agriculture will expand faster than the industrial
products because the binding of tariff lines in agriculture will be
100% while that in industrial products will only be 83%.
What does ‘binding’ mean? If a country agrees to bind a tariff
on a product at a certain level, it promises not to raise it. If the
country concerned raises the tariff again, its previous conces
sion will be meaning less. Therefore, generally the countries
will not try to raise the barrier.
Binding in very important; those agreeing to it are given
“negotiating credit” even if it is at a higher level. This provides
security of market access.
The proportion of industrial bindings has been raised from 78%
to 99% for the developed countries, 21% to 73% for the
developing ones, and 73% to 98% for the transitional ones. In
other words, nearly all the imports of industrial products into
the developed countries, to the tune of $ 737 billion, will be tariff
bound, while 3/4th of those into the developing ones, to the
tune of $ 352 billion will be tariff bound.
Importance of world market can be gauged from the single
fact that cross-border trade in services alone accounts for
around $ one trillion a year. GATT is the first agreement
covering trade in all service sectors. The institution of WTO
will be overseeing almost whole of this rapidly expanding
market, and will provide a forum for rule - based conduct of
trade relations.
7
Gains for India
The opening of textile market all overthe world, and particularly
in the U.S. and the E.U has been the immediate gain from the
WTO for I ndia. There was a long-standing dispute with both on
the issue. The dispute was hindering easy exports of Indian
garments and textiles.
But as a result of the agreements, India gets additional access
to the markets for its textile products. According to the
compromise reached separately in Washington and Brussels
on the eve of the establishment of the WTO, the MFA would be
dismantled in phases. India secured a 20% rise in textile
exports to the U .S. Many of the benefits relate to the handloom
and powerloom sectors. The USA agreed to remove restrictions
under category 369(0) ie on several items coming from these
two sectors, and this amounts to removal of restrictions on
20% of the total quota. India also got additional 5% on certain
readymade garments of handloom industry. The EC has
concededaflexibility of 7000 tons/year in Indian textile including
from the handloom sector.
By 2002 all textile goods will be out of banned or negative lists
of imports and will be put under open general license.
Certain Implications for Indian Textile Industry
Among the falloutsoftheagreements with the US and the EC
(EU) is the fact that the polyester staple fibre has been put on
the open general license. It means that no license will be
required for its import.
The government has fixed import duty on all fibres and yarns
at 65%. The countervailing duty is the same as before. The
import duty will be gradually reduced to 35% by 1998 and 20%
by 2000. All other fibres and yarns are already under the OGL.
There is an apprehension that the imported material will be
cheaper than the local. But this is not true. Even after the
reduction, upto a certain point, in import duty, the fibre
manufactured here will continue to be cheaper. But, no doubt,
there will be greater competition.
8
One result of these measures is that the spinners are asking
for a rapid reduction in import duty so that they could get
cheaperfibre to manufacture yarn. They suggest a reduction
to 45% on import duties. This will bring down the prices of fibre
in the domestic market. With the increase in the production of
raw materials forfibres in India and all over the world, the prices
are going to decline. Their import duties are going to be
reduced.
Therefore, on the whole, the measureswill cause an increase
in the productivity of the textile industry.
Changes in the Patents Act
The trade-related intellectual property rights (TRIPs) of the
GATT prescribe certain minimum standards in respect of
patents. A transition period of 5 years is available for effecting
the changes. If patents are not available for certain products,
a further period of 5 years is provided.
The countries entering WTO are expected to provide for filing
of patent applications in pharmaceuticals and agricultural
chemicals. In the meantime exclusive marketing rights for 5
years or a patent is to be granted.
In India, the Patents Act (1970) and rules (1972) do not grant
product patent in these two fields. India government has decided
to avail of full 10 years of transition period, after which the Act will
stand fully amended. Amendment has been made to provide for
patents in the two fields. Italsogrants exclusive marketing rights
for the applicants. The application must be filed in India, and it
should obtain patent for an identical invention in any convention
country, marketing approval from that country, and obtain
marketing approvals in India. Amendments have also been
made to ensure government intervention in the matter.
Restrictions on inventions made in India have been removed
through following measures:
1)
For inventions made in India, the applicant does not
have to obtain a product patent and marketing approv9
als in some other country. The applicant has the option
of obtaining process patent for identical invention in
India.
2)
Section 39 of the Patents Act has been deleted. Thus,
the restrictions on the applications outside India have
been removed.
3)
Government reserves the right to direct the sale or
transfer of any marketing right if it is against public
interest.
4)
The amendments will not affect the laws relating to the
monopolies and consumer protection.
5)
The provisions of compulsory licensing would be ex
tended to exclusive marketing rights also.
6)
Facility should not be used to extend the life of the
existing patents in other countries or for the non
patentables.
Tariff reductions by India
Among the developing countries, India, South Korea and
Singapore will reduce average tariffs on industrial products as
follows:
India
71.4% to 32.4%
South Korea
18% to 8.8%
Singapore
12.4% to 5.1%
In the passing, we may note in the above that both Korea and
Singapore have already had low tariffs on industrial goods.
This may be one of the important reasons for their fast growth
in the recent years.
Anti-dumping laws: India has also taken these measures in
order to counteract dumping of goods in this country, particu
larly by the industrialised nations. Such measures are part of
the implementation of the GATT agreement. Dumping is a
destructive practice indulged in by those countries which are
10
stronger or better placed in the matter of certain products. The
products are sold at less than the actual price or even value and
cost in order to undermine other’s economy. Anti-dumping
guarantees are among important gains of the GATT/WTO for
the developing countries as also for the developed ones.
Shedding the “Third-World Syndrome”
Initially, there were several misgivings on the Indian side,
particularly on the question of including the services in the
GATT. Thus, India, at first, followed a two-TRACK policy
insisting that services be kept out of the agreements covered
by GATT.
But later on, it was increasingly realised that India’s low-level
trade performance was less due to its trade partners, much
less to GATT, and largely due to its own policies. As a result,
it agreed to the inclusion of services in the GATTA/VTO.
The government has adopted an inarticulate and apathetic
approach to the questions related with GATT or “Dunkel
Proposals”. It has failed to explain them and clarify the
widespread doubts and natural apprehensions. It has not
taken them to the people. Same is the case with the ruling
party.
Other parties have generally adopted positions of almost total
opposition to the GATT. They have not cared to study its
documentsandtheirimplications in detail. They, too, have not
brought the truth to the people. These positions on both sides,
to say the least, are not realistic and responsible.
It appears that people and parties in our country and in
most of the other developing countries suffer from a
psychology of inferiority. We think that in today fast
changing world, we can’t do anything, and that we can’t
progress, and the developed countries and the multina
tional companies (MNCs) are bound to us. GATT too is
seen as an extension of the “neocionial” policies of the
developed industrialised nationals.
11
As we shall see later, this impression of the GATT’s is far from
truth. Besides, the developing world can achieve a lot within
the GATT. To remain outside will be suicidal. It would be
beneficial to remain within and struggle and bargain. In fact,
several developing countries are already achieving a lot by
way doing so.
A larger proportion of the developing world demand strength
ening of GATT. China is one of them, besides India. An
increasing number of newly industrialising countries are con
fident that they will be able to build new levels of productivity,
social welfare systems and technology at par with the rest of
the world.
Changes in the Copyright Act: Changes in the Copyright Act
envisage safeguards to copyrights which so far have received
very little attention in India. It will, for example, affect Rs. 2000
crore computer software industry, video libraries, music, dance
etc. divided into various categories of rights. It for the first time
defines what is software, and prohibits piracy. Indian dance
and music was never protected but now the act protects
improvements and confers rights on the performers.
12
SOME SALIENT FEATURES OF THE GATT
1994 (THE FINAL ACT)
The parties to the agreement recognised that the relations in the
field of trade and economy should be conducted with a view to
raise living standards, employment and income and demand,
and expand the production and trade in goods and services.
They stated that the customs unions and free trade areas had
greatly increased in number and importance and that there was
the need for closer integration between the economies of the
parties. They emphasised that it was necessary to establish
multilateral trading system. The developing, in particular the
least developed, countries needed special measures to raise
them to the world standards and to secure greater share in world
trade.
The participants agreed to substantial reductions in tariffs and
other barriers to trade and to eliminate dissemination in
international trade.
The GATT agreements “establishing the Multilateral Trade
Organisation shall be open for acceptance as a whole, by
signature or otherwise”. At the same time the MTO agreement
made it clear that “The plurilateral trade agreements do not
create either obligations <y rights for members that have not
accepted them.”
The Final Act also makes it clear in the Article XI (2) on MTO
that “the least developed countries recognised as such by the
U.N. will only be required to undertake commitments and
concessions to the extent consistent with their individual
development, financial and trade needs or theiradministration
and institutional capabilities.” (p.8 of MTN/FA II)
Agreement on the interpretation of Art XVII on the
government agencies
This article provides for the activities of the government
agencies. The members agreed to ensure transparency of the
13
activities of state trading enterprises which through their
purchases or sales influence the level or direction of imports or
exports.
It is notable that “This notification requirement does not apply
to imports of products for immediate or ultimate consumption
in governmental use or in use by an enterprise as specified
above and not otherwise for resale or use in the production of
goods for sale.” (p.1 of MTN/FA ll-A 1A (b), emphasis
added).
It is provided that a council for trade in goods be set up and
also a working party W.P within it. The W.P. would also
develop kinds of relationships between government and
enterprises and the kinds of activities engaged in by these
enterprises.
Understanding on the Balance of Payments (BOP)
Provisions of the GATT 1994
Certain crucial understandings were reached on the BOP. It
was agreed that the members would publicly announce time
schedules for the removal of restrictive import measures taken
for BOP purposes. Such schedules may be modified to accord
with the changes in the BOP situation.
In the measure No. (2) the members agreed to give preference
to those measures that have the least disruptive effect on
trade. Such measures were named ‘price-based-measures’
(PBMs). They include: import surcharges, import deposit
requirements, other equivalent trade measures influencing
prices of imported goods.
New quantitative restrictions would be avoided unless BOP
situation became critical. Thus, PBMs are not absolutely
obligatory and can be waived if they fail to arrest a sharp
deterioration in the external payments position. Restrictive
measures for BOP may only be applied to control the general
level of imports and may not exceed what is necessary to
address the BOP situation.
14
A committee on BOP would review restrictive import measures.
They would be simplified in case of LDCs and developing
countries already pursuing liberalisation.
A member shall notify the General Council for any changes in
the restrictive import measures re. BOP. A consolidated
notification re. changes in laws, regulations, policy statements,
public notices, etc shall be made available to the MTO (now
WTO) secretariaton yearly basis. Notifications shall include
information on tariff time, administration, product coverage,
trade flows, etc. (Provision No. 9).
Provision 11 states that the basic document of a members
shall include:
a)
An overview of BOP situation and prospects.
b)
Full description of restrictions.
c)
Measures taken since the last consultation to liberalise
imports.
d)
Plan for relaxation and elimination of restrictions.
I n a significant provision (No. 13) the GATT 1994 states that in
those cases in which a time schedule has been presented for
the removal of restrictive measures re. BOP, a member shall
be deemed to comply with GATT 1994 obligations.
Understanding on Interpretation of Article XXIV of
GATT 1994
It is significant in many respects. It states that the customs
unions and free trade areas had greatly increased in number
and importance since 1947 and covered a significant proportion
of world trade. The integration between economies would
contribute to the expansion of world trade. For this purpose,
duties and restrictions on commerce and trade needed
relaxation and elimination. Consequently, they agreed on
formation of such unions and FTAs (Free Trade Areas).
Duties and other regulations before and after the formation of
a customs union shall be based on weighted average tariff
15
rates and customs duties. The MTO Secretariat would com
pute the same. 10 years should be the reasonable length of
time.
It was agreed that negotiations would be entered into in good
faith to mutual satisfaction. Due account shall be taken of
reduction of duties on the same tariff line made by other
constituents of the customs union upon its formation. The
Union may even offer compensation in case of inadequacy (Art
XXIV: 6 (5). If Union is not satisfactory to certain members,
they are free to withdraw (Do).
Art XXIV: 6 (6) states: “The GATT 1994 imposes no obligation
on members benefiting from a reduction of duties consequent
upon the formation of a customs union or an interim agreement
leading to the formation of a customs union, to provide com
pensatory adjustment to its counstituents.” Obviously, the
benefits go either way.
The abovementioned provisions are a realistic and reasonable
method of coordinating national economies and makes them
act in tandom.
There is an understanding on waivers of these provisions, and
these find no mention in the press and propaganda.
Understanding on the interpretation of Article
XXVIII of GATT 1994
In (1) it provides that the member having highest ratio of
exports affected by the concession (i.e. exports of the product
to the market of the member modifying or withdrawing the
concessions) to its total exports shall be deemed to have a
principal supplying interest.
Therefore, countries like India will be the beneficiary in several
sectors like textiles.
The principal supplying interest will concern only the affected
product. Clause 4 is one more favouring the developing
countries, it states that when a tariff concession is modified or
16
withdrawn on a new product (i.e a product on which statistics
for 3 years are not available), the member possessing initial
negotiating rights on the tariff line where the product was
classified, shall be deemed to have an initial negotiating right
in the concession.
In this way, India and several other countries can have lot of
initial bargaining or negotiating powers in the course of diver
sification, modification and modernisation.
In a further article, provision is made for compensation in case
of replacement of tariff concessions by tariff rate quota.
Uruguay Round Protocol to the GATT 1994
It contains the applied part of some aspects of agreements and
protocol, and a schedule annexed.
It provides in para 2 for tariff reductions in 5 equal rate
reductions “except as may be otherwise specified in a member’s
schedule. The first reduction would be on the date of establish
ment of the MTO, and the subsequent ones on 1st January of
each of the following years.
The provisions reflect an attempt to create uniform market or
one tending towards uniformity.
Any member is free to withdraw concessions for a product not
part of GATT schedule.
Agreement on Agriculture (MTN/FA II-A-1-A-3)
It initiates a process of reform of trade in agriculture in tune with
the Punta del Este declaration. The purpose is to establish a
market-oriented agricultural system through necessary re
forms.
For the purpose, progressive reductions in agricultural support
and protection sustained over an agreed period are provided
for leading to correction and prevention in restrictions and
distortions in world agricultural markets.
17
These measures are of immense value to the developing
countries as they provide them an opportunity to enter world
market as producers, sellers and consumers on equal footing.
Bindng commitments in each of the areas have been made:
Market access;
domestic support;
export competition;
sanitary and phytosanitary issues.
The members agreed on the fullest liberalisation of trade in
tropical agricultural products.
The agreement on agriculture has been subject to various
speculations generally based on imagination rather than on
concrete documentary proof. Therefore, one should carefully
go through the relevant facts before reaching conclusions.
The agreement presents two key concepts in the context of
subsidies and support: “aggregate measurement of support”
(AMS) and “equivalent measurement of support (EMS). They
are annual level of support expressed in monetary terms
provided for an agricultural product in favour of the producers
of basic agricultural product or non-product specific support
provided in favour of agricultural producers in general. The
implementation period is 6 to 9 years. According to article 6 of
the agreement the members shall not provide support in favour
of domestic producers in excess of commitment levels agreed
upon.
Market access concessions relate to bindings and reductions
of tariffs and to other market access commitments. The
members are required not to resort to any measures which
have to be converted into ordinary customs duties. These
measures include quantitative import restrictions, variable
import levies, minimum import levies, discretionary import
licensing, non-tariff measures maintained through state trad
ing enterprises, voluntary export restraints and similar border
measures otherthan ordinary customs duties. Butthe would
not include those under BOP provisions or under other
18
general non-agricultural provisions or of other MTAs of the
MTO.
Any additional duty shall only be maintained until the end of the
year in which it has been imposed, and may only be levied at
a level not exceeding 1/3 of the level of the ordinary customs
duty in effect in the concerned year. Additional duties are
allowed on certain base trigger levels. Besides, para 5 of Art
5 enumerates calculations under which additional duties are
allowed.
Article 6 of Part IV describes domestic support commitments.
It clearly states in (2) that government measures of assis
tance, direct and indirect, to encourage agricultural and rural
development are an integral part of the development
programmes of developing countries,’“investment subsidies
which are generally available to agriculture in developing
country members and agricultural input subsidies generally
available to low income or resource - poor producers in
developing country members shall be exempt from domestic
support reduction commitments..." (MTN/FA il-AIA-PP 6-7,
emph added).
In paras 3,4 and 5 of article 6 of Part IV, a number of situations
have been described in which exemption from domestic sup
port reduction have been described.
Para 5 goes strongly against the developed countries. It
clearly states that direct payments under production - limiting
programsehall not be subject to the commitment to reduce
domestic support if such payments are based on fixed area
and yields, or such payments are made on 85% or less of the
base level of production, or livestock payments are made on a
fixed number of head.
It is well-known that the United States and several other
developed countries periodically carryout measures to reduce
or destroy agricultural production and yield areas, as also the
livestock. Therefore, this provision is clearly in favour of the
developing countries.
19
Export subsidy commitments
Article 9 of Part V lists export subsidies for reduction commit
ments:
Direct subsidies to a firm, industry, producers of agricultural
products, coops of such producers, marketing board, etc;
sale or disposal for exports by government of noncommercial
stocks of agricultural products at a price lower than the compa
rable price charged for the like product to buyers in the domestic
market;
payments on the export of an agricultural product financed by
government including an agricultural product from which the
exported product is derived; subsidies to reduce the costs of
marketing exports of agricultural products other than widely
available export promotion and advisory services including
handling, transport, freight, etc.;
internal transport and freight charges on export shipments,
provided or mandated by government on terms more favourable
than for domestic shipments;
subsidies on agricultural products contingent on their incorpo
ration in exported products.
In 2(b) it is provided that in any of the second through fifth years
of implementation period a member may provide export sub
sidies listed above subject to certain conditions.
In (4) the developing countries are not required to undertake
commitments in respect of the fourth and fifth export subsidies
provided they are not applied in a manner circumventing
reduction commitments.
In art. 10 (4) member donors of international food aid
ensure that the provision of international food aid is not
tied directly of indirectly to commerical exports of agri
cultural products to recipient countries, and the food aid
transactions shall be carried out in accordance with the
FAO principles.
20
Disciplines on export prohibitions and restrictions on food
stuffs are supposed to give due considerations to the effects of
such steps on importing members’ food security.
Due restraint will be shown during the implementation period,
despite the provisions of GATT 1994 on subsidies and
countervailing measures, through domestic support mea
sures on non -actionable subsidies for purposes of
countervailing duties, exemption of certain provisions of sub
sidies Agreement, and exemption from actions based on non
violation , nullification or impairment of benefits of tariff conces
sions. Certain domestic support measures have been exempt
in (2) from the imposition of countervailing duties unless due
injury is shown. Such measures have also been exempted
provided they do not grant support to a specific commodity in
excess of that decided during the 1992 marketing year.
Least developed and net-food importing developing countries
have got further exemptions and relaxations.
Annex 1 presents a list of products covered.
Annex 2 of the Agreement on Agriculture is very important as
it deals with the basis for exemption from the reduction
commitments in domestic support. The exemption should
claim the following basic criteria: the support provided through
publicity-funded government programme not involving trans
fers from consumers, and the measures not having the effect
of providing price support to producers. These, it is thought,
would have minimal trade destortion effect on production.
Government service programs for exemption include general
services involving expenditures related with the programs of
benefits to agriculture or the rural community. They shall not
involve direct payments to producers or processors. Such
programs will include:
research including that on environment and particular prod
ucts; pest and disease control; training services; extension and
advisory services; inspection services; marketing and promo
tion services; infrastructural services. In all cases, the expen21
cjiture shall be directed to capital works only, and shall exclude
subsidised provision of on-farm facilities. It shall not include
subsidies to inputs, etc.
The exemptions also include public stocks for food security,
domestic food aid and certain kinds of direct payments to
producers. It is worth-noting that supply of food at subsidised
prices to meet the food requirements of urban and rural poor
shall be allowed subsidy. The amount of decoupled income
support in any given yearshall not be related to or based on the
type or volume of production (including livestock units) under
taken by the producer in any year after the base period.
Besides, no production shall be required in order to receive
such payments.
Structural adjustment assistance shall be provided to those
who retire or move from marketable agricultural production, or
in the course of programs to remove land, livestock, etc. from
marketable agricultural production. A restructuring of a
producer’s operations in response to structural disadvantage
shall also be added. Such payments shall not depend on
domestic or international prices.
Annex 3 calculates aggregate measurement of domestic
support. Fixed reference prices are based on years 1986 to
1988.
Annex 5 is very important as it deals with special treatment on
market access in article 4.2 under agreement on agriculture.
Section A of the Annex provides that custom duties shall be
imposed on any primary agricultural productand its worked or
prepared products only if imports comprised less than 3% of
corresponding domestic consumption in 1986-88; no export
subsidies have been provided since the beginning of the base
period; and effective production restricting measures are applied
to the primary agricultural product. These and other measures
have been termed as special treatment. Other border measures
shall be similarly applied.
Section B exempts application of 4.2 to any primary agricultural
product that is the predominant staple in the traditional diet of
22
a developing country. In the event that the special treatment
is not to be continued beyound the tenth year, the products
shall be subject to ordinary customs duties.
Agreement on textiles and clothing
The agreement seeks during a transition period to integrate
this sector with GATT 1994. Small suppliersand commercially
significant new entrants are likely to get new access. For this
purpose, continuous autonomous industrial adjustment and
increased competition is to be facilitated. The MFA will
henceforth be replaced by this agreement.
On the date of entry into force of this agreement, such products
will be integrated into GATT 1994, which account for not less
than 16% of the total volume of imports in 1990. They will
belong to four groups: tops and yarns, fabrics, made-up textile
products and clothing.
Products not integrated shall be included in three stages: 37th
month, 85th and 121 st month of the MTO. Thereafter, all the
restrictions shall be eliminated.
Nothing in this agreement shall prevent a member from
eliminating any restriction maintained, provided an advance
notice is given.
With respect to wool products from wool producing developing
members whose economy and textile and clothing trade are
dependent on wool sector, special consideration shall be given
to them when considering quota levels, etc.
For the sake of integration, members shall achieve greater
access to markets through tariff reductions and bindings,
reduction or elimination of non-tariff barriers, facilitation of
customs licensing and other formalities;
ensure fair and equitable trade conditions by taking measures
regarding dumping and anti-dumping, subsidies, countervailing
measures, intellectual property rights, etc.;
avoid discrimination in imports in textiles and clothing.
23
A textiles monitoring body (TMB) has been established for the
above purpose by the council for trade in goods.
The agreement would be terminated on the first day of the
121st month when the textiles and clothing would be fully
integrated with GATT 1994. There would be no extension of
the agreement.
The Annex to the agreement gives a list of products covered
by the agreement.
Agreement on Technical Barriers to Trade
It deals with technical regulations and standards including
packaging, marking, labelling, proceduresfortechnical regu
lations, so as not to create unnecessary obstacles to interna
tional trade. It recognises that no country should be prevented
from taking measures necessary to ensure the quality of its
exports or for the protection of human, animal or plant life or
health, of environment. Itfavours international standardisation
to facilitate transfer of technology from developed to develop
ing countries. Meanings and definitions adopted are those
within the United Nations system. All products including
industrial and agricultural products shall be subject to the
provisions of the agreement.
The agreement ensures that in respect of technical regula
tions, products imported from the territory of any member shall
be accorded the same treatment as accorded to those of the
national origin (Article 2). So as not to create unnecessary
obstacles, technical regulations shall not be more traderestrictive than necessary. Members agreed to give positive
consideration to equivalent technical regulations of other
members even if these regulations differ from their own. They
also agreed not to take measures requiring local government
bodies or non-government bodies within their territories to act
in a manner inconsistent with the agreement. Nothing will
prevent members from carrying out reasonable spot checks
within their own territory.
24
In cases where a positive assurance is required that the
product conforms with technical regulation standards, mem
bers ensure in Article 5 that central government bodies use
them or their relevant pacts as a basis for their conformity
assessment procedures, except where they are inappropriate
for the member/s.
In article 12, members agree to provide differential and more
favourable treatment to developing country members. In 12.4
it is recognised that besides the international standards, the
developing countries may adopt indigenous technology and
production methods and processes due to their particular
technological and socio-economic conditions,. Therefore, they
should not be expected to use international standards as a
basis fortheirtechnical regulations orstandards which are not
appropriate to theirdevelopment.
The agreement regularises technical definitions related with
processes, production, technology symbols, packaging, mark
ing, labelling, etc.
Where international standards exist or their competition is
imminent, they shall be used as basis except where they or
theirparts are inappropriate because of insufficient protection
or fundamental technological problemsor such other reasons.
(Annex 3, emph added) Duplication shall be avoided and
national consensus on standards shall be sought.
Agreement on Trade-Related Investment Measures
(TRIMs)
The agreement is of the opinion that trade restrictive
and distorting effects.of investment measures should be
avoided. In the course of expansion and progressive
liberalisation of world trade and to facilitate investments
across international frontiers to enable the growth of all
trading partners, certain measures will have to be taken.
For this purpose, investment measures related with
trade in goods were decided upon.
25
According to Article 2 no number shall apply any TRIM
inconsistent with GATT 1994. At the same time, "A develop
ing country member shall be free to deviate temporarily from
the provisions of’ the article 2 on national treatment and
quantitative restrictions to the extent that the BOP provisions
permit them to deviate (Article 4, emph added).
The agreement provides that all the TRIMs shall be eliminated-
within 2 years in case of a developed member;
within 5 years in case of a developing member;
Within 7 years in case of the LDCs. (Article 5)
There are extensions for transition period for developing
countries in case of difficulties.
Despite the contrary provisions, a member in order not to
disadvantage established enterprises which are subject to a
TRIM, may apply during the transition period the same TRIM
to a new investment -
i)
where the products of such investment are like prod
ucts to those of the established enterprises, and
ii)
where necessary to avoid distorting the conditions of
competition between the new investment and estab
lished enterprises. (Article 5.5)
Agreements on Dumping
It is an important agreement dealing with Article VI of GATT
1994. According to Article 2 a product is considered as being
dumped ie, introduced into the commerce of another country
at less than its normal value, if the export price of the product
exported from one country to another is less than the compa
rable price for the like product when destined for consumption
in the exporting country.
When there are no sales of the like product in the ordinary
course of trade in the domestic market of the exporting country
or when, because of the particular market situation or the low
26
volume of sales in the domestic market of the exporting
country, such sales donot permit a proper comparison, the
margin of dumping shall be determined by comparison with a
comparable price. (Article 2.2). It has to be demonstrated that
the dumped imports are causing injury, and its effects shall be
assessed in relation to the domestic production of the like
product. A whole procedure of investigations has been worked
out by the Agreement.
The anti-dumping duty shall remain in force as long as and only
to the extent necessary to counteract dumping. Anti-dumping
duty shall be terminated on a date not later than 5 years.
Agreement on Import Licensing Procedures
The agreement was reached with a view to facilitate trade by
relaxing licensing procedures. It recognised that in order to
help development needs of the developing countries, auto
matic import licensing for certain purposes was useful. The
flow of international trade could be impeded by the in-appropriate use of import licensing procedures. Non-automatic licens
ing should not be burdensome. There should be transparency
of procedures.
Automatic import licensing meant approval of the application
in all cases. The members recognised that it may be neces
sary whenever other appropriate procedures were not avail
able. In allocating licenses the member should consider the
import performance of the applicant. In case of quotas
administered through licenses which are not allocated among
supplying countries, license or quota holders are free to
choose the sources of imports.
Agreement on Subsidies and Countervailing
Measures (SCM)
A subsidy shall be deemed to exist if there is a financial
contribution by a government or a public body within the
country, involving direct transfer of funds, grants, loans, etc.,
27
government revenue due or foregone, provides goods or
services other than general infrastructure, makes payments to
a funding mechanism. The exemption of an exported product
from duties or taxes borne by the like product when destined
for domestic consumption shall not be deemed to be a subsidy.
(Part I, Article 1).
Part 11 deals with prohibited subsidies. The following subsidies
have been prohibited except as in Agreement on Agriculture:
Subsidies contingent, in law orin fact, upon export performance
and upon the use of domestic over imported good. In an
important stipulation, it is said that when the facts demonstrate
the granting of a subsidy, without having been made legally
contingent upon export performance, is in fact tied to actual or
anticipated exportation or export earnings, this already makes
it factual subsidy. The mere fact that a subsidy is accorded to
enterprises which export does not make it an export subsidy
within the meaning of this provision, (emph added)
Here a clear-cut differentiation is made between subsidies to
an exporting enterprise andsubsidy upon export performance.
The former is allowed; the latter has several restrictions or
prohibitions.
Part IV deals with non-actionable subsidies i.e those which
need not be prohibited. They include assistance for research
activities conducted by firms or by higher education or research
establishments on a contract basis with firms if the assistance
covers not more than 75% of the cost of industrial research or
50% of the costs of pre-competitive development activity.
such assistance should be limited to personnel costs, cost of
instruments, land, building, etc., cost of consultancy and
equivalent services including technical knowledge, patents,
etc, additional overhead costs, other running costs. It also
includes assistance to disadvantaged regions of the country,
a measurement of economic development, and to promote
adaptation of existing facilities. (Article 8).
Part V deals with countervailing measures. Countervailing
duty is understood to mean a special duty levied to off-set any
28
direct or indirect subsidy upon manufacture, production or
export. Calculation for this purpose of the amount of a subsidy
is to be made by the national legislation. Article 14 describes
guidelines which make it clear that the government provision
of equity capital shall not be considered a benefit unless the
investment decision can be regarded as inconsistent with the
usual investment practice. Besides, the following are also not
regarded as benefits:
o
a loan by the government unless there is a difference
between it and the comparable commercial loan from
the market;
o
a loan guarantee by the government;
o
provision of goods or services or purchase of goods by
government.
The countervailing duties would remain inforce only as long as
and to the extent necessary to counteract subsidisation. A
committee on subsidies and countervailing measures and
other subsidiary bodies have been proposed by the agree
ment. Part VIII - Developing Countries
It contains very important provisions which have either been
overlooked or deliberately suppressed. It provides tremen
dous leverage to the developing countries and considerable
rights too. Article 27 on special and differential treatment for
the developing countries clarifies their position on subsidies.
!n27.1 it is recognised that subsidies play an important role in
the economyofthe development countries. Art 27.2 prevents
prohibition of para 1 .a of Art 3. Part II in its Art 3 deals with
prohibited subsidies. In 3.1 it prohibits subidies upon export
performance. But even here, two exceptions are provided for
—One, in agreement on agriculture, which is very detailed and
significant. Two, footnote no. 4 to this provision states that the
mere fact of subsidy being provided to enterprises which
export shall not be considered a subsidy because it will have
to be shown to be tied to exportation or export earnings, (p 3
of SCM)
29
Art 27.2.(a) prevents subsidy prohibition in the developing
Countries referred to in Annex VII which includes a) LDCs b)
20 developing countires including India, which are yet to reach
the GNP of 1000 dollars per capita per annum. (SCM p 45,
AnnexVIl).
27.2.(b) gives other developing countries 8 years to apply
subsidy prohibition. Also, the prohibition of para 1 .(b) of Art 3
shall not apply for a period of 5 years, and for 8 years to the
LDCs (SCM, P 30).
27.3 prohibits increase of export subsidies. 27.4 states that a
developing country that has reached export competitiveness
in any given product shall phase out its export subsidies.
27.5 defines export competitiveness as a country’s export in
that product having reached a share of least 3.25% in the world
trade of that product for two consecutive years. (SCM p 30).
27.8 and 27.9 prohibit disciplinary action simply on the
presumpt/onofinjuryduetosubsidy. (ibid p 31). 27.12 provides
that Part III shall not be applicable to direct forgiveness of
debts, subsidies to cover social costs including relinquishment
of government revenue, etc. when such subsidies are linked to
a privatisation programme, (ibid).
Article 29 is interesting in that it provides for transition from a
centrally-planned to a market economy and relaxes or suspends
some provisions.
Annex I to the agreement on SCM contains an illustrative list
of subsidies to be prohibited:
a)
provision by the government of direct subsidies to a
firm or an industry contingent upon export perfor
mance;
b)
currency retention schemes involving bonus on ex
ports;
c)
internal transport and freight charges on export ship
ments, provided or mandated by government, on terms
more favourable than for domestic shipments;
30
d)
the government provision of imported or domestic
products or services for use in production of exported
goods on terms more favourable than in domestic
area;
e)
full or partial exemption, etc. related to exports, of
direct taxes or social welfare charges on industrial or
commercial enterprises;
f)
allowance of special deductions directly related to
exports or export performance over and above those
granted in respect to production for domestic con
sumption, in the calculation of the base on which direct
taxes are charged;
g)
remissions re. indirect taxes related with production
and distribution of exported products;
h)
remissions on cumulative indirect taxes on products
and services in export production and like products for
domestic consumption;
i)
remissions in import charges in excess of those levied
on imported inputs for exportable product;
j)
provision by government of export credit guarantee or
insurance programs;
k)
government grants of export credits;
I)
any other charge on public account constituting an
export subsidy in the sense of article XVI,
The agreement envisages a situation where the choice be
tween domestic and imported products is unrestricted de
pending solely on commercial considerations.
Direct taxes mean taxes on wage, profit, interest, rent, royalty,
other forms of incomes, and taxes on real property ownership,
while indirect taxes mean those on sales, excise, turnover,
value added, transfer, border taxes, and all taxes other than
direct ones and import charges. The GATT laid down the
principle “that prices for goods in transactions between export
ing enterprises and foreign buyers under their or under the
same control should for tax purposes be the prices which
would be charged between independent enterprises acting at
arm’s length.” (Annex I, Agreement on SCM, P. 35). Annex
II, among others, examines as part of countervailing duty
investigation, whether inputs are consumed in the production
of the exported product.
It is significant that if the subsidy receipient firm is located in an
inflationary economy, the value of the product will be calcu
lated as the receipient firms total sales in the preceding
calendar year. This is an important concession as well as an
incentive to the particular category of firms of the developing
country.
Agreement on Safeguards
It is among crucial agreements as it provides several safe
guards against negative effects of globalisation and integra
tion of markets on the economies of the developing countries.
It works on the principle of structural adjustment and the need
to enhance rather than limit competition in international
market. Safeguards are to be applied only if a product is being
imported into the country concered in such increased quantity
as to harm domestic industry. For the purpose of the agree
ment, a customs union is taken as a single unit and it may
apply measures for the whole union or on behalf of a single
member.
Safeguards are to be applied irrespective of its source. A
significant overall impairment in the position of a domestic
industry would be considered a serious injury. It will be
understood on the basis of facts and not allegations. In
particular, the share of the domestic market taken by the
increased imports will be considered. If a restriction is to be
applied, it shall not go below the level of a recent period, which
shall be the average of imports in the last three representative
years. The total period of safeguard measure is not to exceed
8 years.
32
An added factor favouring the developing countries is the
provision in section IV that safeguard measures shall not be
applied against a product originating in a developing country
as long as its share of imports of the product does not exceed
3% provided that the developing countries with this figure of
imports collectively do not account for more than 9% of total
import of the product concerned. The section also gives the
right to extend period of safeguard by 2 years. Besides,
despite a restriction in para 14, the developing countries have
been given the right in para 20 to apply safeguards, again,
even after entry in MTO, after a period of non-application for 2
years.
Any member shall not take or seek any emergency action on
imports of particular products, nor maintain any voluntary
export restraints, take measures on export or import side
except in conformity with the agreement.
The European Community and Japan have been granted one
exception to the above stipulation. The Annex mentions
passenger cars, off road vehicles, light commercial vehicles,
light trucks, and the same vehicles in wholly knocked-down
form: the phasing out measures for them for these countries
extend upto 31 December 1999(P.9). Otherwise, the phase
out measures are to be carried out within 180 days. This is an
important concession to of the developed countries.
General Agreement on Trade in Services
The agreement seeks to establish a multilateral framework
for trade in services for liberalisation and economic growth of
all trading partners and the development of developing coun
tries.
In this context it is important to note that the defintion of
services given in Part I, Article I (b) exc/ucfes“services supplied
in the exercise of government authority" (p.4). Article l(C)
further clarifies that services in government authority means
any service which is supplied neither on a commercial basis,
nor in competition with other services.
33
Article IV deals exclusively with the “increasing participation of
developing countries”. It visualises that such a participation
shall be facilitated by implementing Parts III and IV of the
agreement. The agreements relate to the strengthening of
their domestic service capacity, improvement of information
networks and liberalisation of market access.
This article clearly delineates the role of the developed countries.
They, and other members, shall establish contact points within
two years to facilitate the access of developing countries’
service suppliers to information on markets concerning
commercial and technical aspects of supply of services;
registration, recognition and obtaining of professional
qualifications and availability of services technology (Article
IV, (2). If one relates this with the definition of the services
mentioned earlier, it will be clear that government will have to
enter the market as a competitor in order to improve its
services or take the help of private competitors.
Article V deals with economic integration but it does not
prevent any memberfrom entering into agreement liberalising
trade in services with any other member, provided:
•
it has substantial sectoral coverage. It means number
of sectors, volume of trade affected, modes of supply.
In orderto meet this condition, agreements should not
a priori exclude any mode of supply (p.7).
•
it eliminates all discriminations substantially. Article V
bis provides for full integration of the labour markets
between or among the parties. But such an agreement
should exempt citizens from requirements concerning
residency and work permits. The agreement on inte
gration of labour markets confers right of free entry to
mutual employment markets and includes measures
concerning pay, conditions of employment and social
benefits, (p.8, emph added).
Article VIII on monopolies warns against allowing them to
misuse their position. The Council for Trade in Services would
look after the concerned complaints.
34
Article XI prevents members from applying restrictions on
international transfers and payments for current transactions.
The agreement should also not affect the rights and obligations
of the members of the IMF.
Restrictions have been enumerated to safeguard the balance
of payments and to solve external financial difficulties. “It is
recognised that particular pressures or the balance of payments
of a member in the process of economic development on
economic transition may necessitate the use of restrictions to
ensure, inter alia, the maintainance of a level of financial
reserves adequate forthe implementation of its programme of
economic development or economic transition.” (Article XII).
Consultations on restrictions shall be held under committee on
balance of payments restrictions. In such consultations, it is
stipulated, statistical and otherfacts presented by the IMF on
foreign exchange, monetary reserves and BOP shall be
accepted and conclusions be based upon them. These
provisions may cause lot of controversy, particularly in the
sense of restricting individual member's rights.
Part 111 deals with specific commitments on market access and
certain other matters, and is therefore among the important
parts of the GATT, particularly in trade in services. It limits
regional or territorial measures where market access commit
ments are undertaken. The measures that the members are
not expected to take are limitations on total number of service
operations, total number of natural persons employed in a
particular service sector, limitations on the. participation of
foreign capital in terms of maximum percentage limit on
foreign shareholding or the total value of individual or aggre
gate foreign investment, etc. (p.17).
These stipulations, again may prove controversial. It is
further classified that if a member agrees upon market
access in a service and if the cross border movement of
capital is an essential part of the service itself, the member
thereby commits to allow such movement of capital. A
member, similarly, is committed to transfers of capital into its
35
territory depending on agreement on concerned mode of
supply (Article XVI).
In order to achieve progressively higher levels of liberalisation,
successive rounds of negotiations will be held, beginning not
later than 5 years from the date of MTO (WTO). They will aim
at elimination of the adverse effects on trade in services of
measures providing effective market access (Part IV, Article
XIX). Liberalisation would take place keeping in view the
national policy objectives and individual levels of development.
Appropriate flexibility has been provided for with respect to
individual developing countries for liberalising fewer sectors.
A very important Article XXI provides that a member “may
modify or withdraw any commitment in its schedule, at any
time after three years have elapsed” after the date of
commitment. (Article 1-a, emph added).
Annex on financial services clarifies that a member shall not
be prevented from taking measures to protect investors,
depositors, policy holders, etc, to ensure the integrity and
stability of the financial system. It also clarifies that nothing in
the agreement shall require a member to disclose information
regarding affairs and accounts of individual customers or any
confidential or proprietory information in the possession of
public entities.
Annex on telecommunications is another important part of the
Agreement as it helps clarify a lot of confusion and misconcep
tions. It applies to measures that affect access to the use of
public telecommunications transport networks and services,
meaning also their suppliers.
At the same time “this Annex shall not apply to measures
affecting the cable or broadcast distribution of radio or televi
sion programming” (P.33). The Annex will not require a
member to authorise a service supplier of any other member
to establish, construct, acquire, lease or supply telecommuni
cations transport networks or services, other than as provided
for in its schedule, or those not offered to the public generally.
(paras 2.3.1. and 2.3.2.).
36
Public telecommunications transport service includes tele
graph, telephone, telex, data transmission involving real-time
transmission of customer - supplied information between two
or more points without any end to end change in the form or
content of the customers information (Para 3.2).
Agreement on trade-related aspects of intellectual
property rights including trade in counterfeit
goods
This is among the most controversial and widely publicised
and discussed agreements of the GATT. Despite wide public
ity, the real contents, favourable or unfavourable, have hardly
been brought to light. Controversies have been raging more
on assumptions and on measures taken without reference to
the actual provisions in the TRIPs. In the process, its real
meaning has more or less been lost sight of.
The Agreement aims to reduce distortions and impediments to
international trade, to protect intellectual property rights, and to
ensure that the IPRs do not themselves become barriers to
legitimate trade (MTN/FAII-A1 C,P.2). It reiterates resolve to
apply decisions of previous conventions and agreementsand
the basic principles of the GATT 1994. It would not be out of
context to mention that IPRs and patents have long been
subjects of negotiations within and outside GATT in interna
tional conferences and fora. The general understanding of
such debates have been incorporated in the GATT and WTO
documents.
The Agreement on IPRs recognises its multilateral framework
and the need to deal with the problem of international trade in
counterfeit goods. It recognises that “intellectual property
rights are private rights”. The objectives of national policy
should be protection of intellectual property including develop
mental and technological objectives. Flexibility is needed in
case of LDCs to enable them to develop sound and viable
technological base.
37
The Agreement proposes mutual relationship between MTO
(WTO) and World Intellectual Property Organisations (WIPO)
and other international organisations.
Which ones exactly are the intellectual property rights (I PRs)?
Sections 1 to 7 of Part II describe them in detail. They include
copyrightand related rights, rental rights, computer programmes
and data, sound recordings, trademarks, geographical industrial
designs, patents, layout designsof integrated circuits, protection
of undisclosed information, etc.
The members are expected to provide treatmentto the nationals
of other countries no less favourable than that accorded to
their own nationals. In the context of the I PR, the nationals of
other countries are those who are natural or legal persons who
meet criteria of Paris convention (1967), Berne Convention
(1971), Rome Convention (1961) and Treaty on Intellectual
Property in respect of Integrated Circuits (1989).
These conventions relate to protection of rights in industrial
property, literacy and artistic works, performances,
broadcastings, etc.
The IPR is expected to promote technological innovation and
transfer and dissemination of technology. “The copyright
protection shall extend to expressions and not ideas, proce
dures, methods of operation or mathematical concepts as
such.” (Part II, Article 9.2, emph added). This clear statement
dispels many doubts regarding the nature of copyright and its
protection.
Computer programs shall be protected as literary works.
Compilations of data or other material which due to selection
or arrangement of contexts constitute intellectual creation are
to be protected. Such protection does not cover data or
material itself, but shall not violate copyright subsisting in
them. The members shall provide authors and their succes
sors the right to authorise or to prohibit the commercial rental.
Performers shall have the right to prevent performances and
their reproduction, wireless broadcasting and communication
38
of live performances. Direct or indirect reproduction of
phonograms shall be prevented.
Trademarks constitute signs, names, letters, numerals, colours,
etc. Actual use of a trademark shall not be a condition for
application of registration. An application will not be refused
on the ground that the intended use has not taken place before
the expiry of 3 years from the date of application (Section 2,
Atricle 15.3).
Section 5 deals with patents. What are patentable subjects?
Patents are available for any invention, whether products or
processes in all the fields of technology, provided they are
new, involve an inventive step and are capable of industrial
application (Article 27.1). It is to be noted that both products
and processes are patentable. This is in contrast to the
commonly held view that only one of these categories is
patentable. Besides, according to the same para, patents are
available irrespective of place of invention, the field of technol
ogy and whether products are imported or locally produced.
This goes considerable way in clarifying the problem of domi
nation by large foreign firms and by developed countries.
Article 27.2 is another important clause as it allows the mem
bercountries to exclude such inventions from patentability, the
commercial exploitation of which within their territory is neces
sary to protect morality, human, animal or plant life or health,
and to prevent environmental hazards.
In a significant provision members have been allowed exclu
sion of the following fields from patentability:
diagnostic, therapeutic and surgical methods of treatment of
humans and animals; "plants and animals other than micro
organisms, and essentially biological processes for the pro
duction of plants or animals other than non-biological and
microbiological processes. However, members shall provide
for the protection of plant varieties either by patents or by an
effective sui generis system or by any combination thereof.”
(Article 27.3 (a) & (b)).
39
This provision should go considerable way to clarify the
several confusions regarding application of patents to plants,
plant varieties, animals, and several of the processes related
with them.
The question of patent is presented in absolutely unambigu
ous terms by the Agreement on TRIPs when it confers follow
ing rights on the patent-holder:
a)
prevent the third parties to use the patented product for
making, using, selling, importing, etc. withoutthe con
sent of the holder.
b)
If a process is patented, the third party has no right to
use it without the holder’s consent, and to use, sell,
import, etc. at least the product obtained directly by that
process. (Article 28).
The applicant for a patent is required to disclose the invention
in a manner sufficiently clear and complete for the invention
to be carried out by a person skilled in the art and may be
required to indicate the best mode for carrying out the inven
tion (P.13).
There are some provisions of other use of a patent without the
authorisation of the rights holder including the use by th&
government. This can be in the following cases:
•
on individual merits;
•
in cases where authorisation has not been received in
time;
•
scope and duration are limited;
•
in case of semi-conductor technology, it is only for
public non-commercial use;
•
the right holder receives adequate remuneration;
•
legal validity shall be subject to judicial review;
some other cases.
40
Second Patent
Where such use is authorised to permit the exploitation of a
patent which cannot be exploited without infringing on another
patent (the “second" and the “first” patents respectively),
certain conditions have been stipulated as follows:
a)
the invention in the second patent is an important
technical advance of considerable economic signifi
cance over the first;
b)
the first-patent holder will have cross-license to use the
second;
c)
the use of first patent will be non-assignable except
with the assignment of the second. (Article 31).
Judicial proceedings
For the purposes of civil proceedings in case of infringement
of the right of the owner, regarding a process patent, the
defendent will have to prove that the process to obtain an
indentical product is different from the patented process.
Layout designs of integrated circuits
Agreement related with this part agrees to protect IC layout
designs and intellectual property in respect of the IC. Protected
ICs cannot be imported, sold or otherwise distributed for
commercial purposes. An unlawfully reproduced layout design
is prohibited.
Acts not requiring the authorisation of the right holder:
At the same time, the agreement protects genuine reproduction
by stating that “no member shall consider unlawful the
performance ofany of the acts referred to in that article (above
mentioned) in respect of an integrated circuit incorporating an
unlawfully reproduced layout design orany article incorporating
such an integrated circuit where the persons performing or
ordering such acts didnotknowandhadno reasonable ground
to know, when acquiring the integrated circuit or article
incorporating such an integrated circuit, that it incorporated an
unlawfully reproduced layout design. Members shall provide
41
that, after the time that such person has received sufficient
notice that the layout design was unlawfully reproduced, he
may perform any of the acts with respect to the stock on hand
or ordered before such time, but shall be liable to pay to the
right holder a sum...” (Art 37.1, emph added).
Section 7, protects the undisclosed information if it is secret as
a body or in precise configuration and assembly of its
components. Besides, in case of pharmaceutical and
agricultural chemical products utilising new chemical entities
the submission of undisclosed test and other data will involve
protection against unfair commercial use. In addition, members
shall protect such data against disclosure.
For the control of anti-competitive practices in contractual
licenses, it was agreed that some licenses or conditions in the
IPRs may have adverse effects on trade and dissemination of
technology by restraining competition. Members will specify
such conditions in their national legislation and conditions.
They are free to take appropriate measures.
Enforcement of IPRs
Member countries shall ensure that enforcement procedures
are available in their national laws. They should be simple and
not unncessarily costly and time-consuming. It is made amply
clear(Part ill,, Section 1, Article 41.5) that there is no obligation
of a judicial system for IPRs distinct from the general laws. It
also does not affect the capacity of the members to enforce
their own laws. There is no distribution of resources between
enforcement of IPRs and laws in general.
Transitional arrangements
Transitional arrangements in Part VI are meant mainly for the
centrally planned economies, such as those of east Europe,
and of other regions. No member is obliged to apply the
provisions of this agreement before the expiry of a general
period of one year after the establishment of MTO. Any
developing member is entitled to delay for a further four years
the date of application of this agreement. Countries making
42
transition from centrally planned to market, free enterprise
economies and undertaking structural reforms of IPRs and
other aspects can take the benefit of the delay.
In another important stipulation, to the extentthat a developing
country is obliged by the Agreement to extend product patent
protection to the technologies which are not so protectable on
its territory, it may delay the application of product patents for
an additional 5 years (Article 65).
Decision on Possible Negative Effects of Reforms
on LDCs and Net Food - Importing Countries
This is one of the crucial decisions of the GATT 1994,
which endeavours to protect the least developed coun
tries against the negative impacts of global structural
changes GATT document recognises that greater
liberalisation of trade in agriculture may cause such
countries to experience negative effects '^ availability of
adequate supplies of basic foodstuffs from outside on
reasonable terms. There may also occur short-term
difficulties in financing normal levels of commercial
imports of basic foodstuffs. (Para 2).
In order to meet this eventuality, the members agreed to
take appropriate measures, and to'continue food aid at
the sufficient level to meet the needs of the LDCs. For
this purpose, committee on Food Aid under Food Aid
Convention, and negotiations would establish appropri
ate levels of aid. Basic foodstuffs would be provided in
fully grant form and/or concessional terms. Full consid
eration to requests for technical and financial assis
tance to improve agricultural productivity and infrastruc
ture would be given. Similar provisions have been made
for certain developing countries.
They would be able to draw upon the resources of international
financial institutions, and consultations with IMF and WB.
(Para 5)
43
Understanding on commitments in financial
services
This is part of general agreement on trade in services, and
among the series of decisions and declarations of the ministers,
some of which have been mentioned earlier. This understanding
is the basis of an alternative approach to that of the Part III of
the abovementioned agreement. The understanding is that
the alternative approach should not:
•
conflict with provisions of the Agreement;
•
prejudice members applying Part III;
•
would facilitate applicationon a most favoured nation
basis;
•
would not presume the degree of liberalisation com
mitted by a member under the agreement.
On market access, in addition to article VIII of the Agreement,
the member shall list in its schedule on financial services the
existing monopoly rights and shall endeavour to eliminate or
reduce them. This applies not only to the government but also
to the “public entity” with the guarantee of “using the financial
resources of the government”
A country is expected to ensure thatfinancial service suppliers
of any other country established in its territory are accorded
most favoured nation treatment and national treatment in
connexion with purchase or acquisition of financial services by
public entities of the member in its territory.
On cross-border trade, each member shall accord the non
resident suppliers of financial services the national treatment.
Their rights shall include insurance of risks in maritime shipping,
commercial aviation, space launching, freight including
satellites, goods in international transit, reinsurance, provision
and transfer of financial information and financial dataprocessing, etc.
Each member is expected to permit its residents to purchase
44
in the territory of others the financial services described in the
commitments.
The participants agreed to grant financial service suppliers
from other countries the right to establish and expand com
mercial presence including through the acquisition of existing
enterprises (para 5). Besides, “a member shall permit
financial service suppliers of any other member established
in its territory to offer in its territory any new financial service
(Para 7).
In an important para 8 on the transfers of information and
processing of informaton, the members are required not to
take measures that prevent transfer and processing of finan
cial information including by electronic means. They should
also not prevent transfer of related equipments if needed in the
course of ordinary financial business.
“Nothing in this paragraph restricts the rights of a member to
protect personal data, personal privacy and the confidentiality
of individual records and accounts so long as such right is not
used to circumvent the provisions of the agreement”.
The member - countries are also required to allow temporary
entry of senior managerial personnel, specialists and legal
experts in the fields of financial services. They promised to
remove or limit any measures affecting finance service activi
ties of other members. They also agreed to provide access
to payment and clearing systems operated by public entities
and to official funding and refinancing facilities for normal
business.
In one of the significant decisions on financial services, the
meeting decided that the members were free to improve,
modify or withdraw all or part of their commitments in this
sector without offering compensation. This could be done at
the conclusion of a period ending not later than six months
after the entry into force of the MTO (para 1, empha sis
added).
45
Conclusions
A study of GATT documents indicate certain important
conclusions. There is no evidence in them to suggest that the
GATT and the WTO arrangements are generally against the
interests of the developing countries. The various agreements
and their different provisions mostly, if not fully, seek to protect
the interests of the newly industrialising nations in the context
of growing integration of world market. One cannot point out
any substantial numberof arrangements or articles that increase
or seek to increase the hold of the multinationals over world
economy, particularly over the Third World. The agreements
also do not increase the hold of the government and economies
of the developed countries over the Third World. Of course, it
is not to suggest that the developed countries have gained
nothing. But an agreement would not be justified if all the
parties do not gain. All the participants in the GATT, and in its
continuation the WTO, would find them advantageous. At
least the documents are of this nature.
The very aims, at least the declared ones, are to protect the
interests of the developing countries. With growth in world
market, trends towards liberalisation, and the rapid spread of
new technology, it has become imperative to take measures to
enable the developing nations to take full advantage of them.
They should not be cut off or isolated from new developments
and should be able to use new mechanisms to develop their own
economies. They should be effective participants in the world
economy. The documents discussed clearly suggest that they
would be helpful in this endeavour.
It is clearly for those reasons that most of the developing
countries want to participate in and activate GATT. Both India
and China, too, want to participate in the GATT and have
announced their full endorsement of the GATT (or Dunkel
Proposals). The complaint of the developing countries is
something else: they say that it is some of developed coun
tries, notably the USA, which do not want the developing
countries tojoin the GATT on various pretexts, the third world
46
nations feel that not joining GATT would deprive them world of
the many advantages of the agreements.
It is clear from the study of the GATT agreements that most of
the opinions are not based on their concrete study. Article,
pamphlets and books have mostly been written on the basis of
secondary sources and simple general impressions.
If checked up with GATT documents, most of the newspaper
articles and utterances of statesmen and leaders are pure
figment of imagination. Even the journals considered authori
tative have attributed provisions to GATT, which simply do not
exist in its agreements. They have given one sided, both real
and imaginary, pictures of it valuable and historic documents.
One gets the impression that only a handful have really
studied GATTA/VTO agreements. This attitude is not condu
cive to engage in realistic dialogue and draw proper conclu
sions.
To remain within the WTO and to negotiate and struggle for
over rights appears to be a better and realistic option. Keeping
out would harm the growth of economy in the new world
context. It goes without saying that, in practice, many counties
and firms, particularly the stronger ones would harm the
interests of the weaker/disadvantaged ones in their attempts
to get better bargains. They too distort GATT documents for
their own ends. It is also possible that some of measures in
practice, though favourable to some, would be unfavourable to
others. These problems can be faced within the GATTA/VTO
in the day to day course.
It would, at the same time, be wrong to place all the blame for
our failure on the developed countries and the multinationals.
We suffer from a “third world” or “backward" syndrome. We
should come out of it. We can achieve lot of things. We can
compete at world levels. The third world can also learn and get
a lot of things including technology, and market and production
management methods, and aid from the developed nations.
Multinationals can also be helpful in this regard.
47
It all depends on how flexibly and pragunatically we move
about in the world economy, and decide our own priorities
correctly.
A few words about China
There are certain misconceptions about China, as far as GATT
and liberalisation is concerned. It’s put forward as an example
for us in this regard. Some people hold that China is not
interested in the Dunkel Proposals. Some others say, it is in
a better position to accept them. An opinion looks upon China
as the leader of those struggling against GATT/WTO, against
liberalisation and against integration/globalisation of markets
and economics.
But all this is not true. The relevant Chinese documents and
statements of their ministers and leaders do not support these
misconceptions. On the contrary, they set an example, in
many senses, as to how to goabout liberalising and globalising
one’s economies.
The authoritative English language journals from China e.g
China Daily, China Today, Beijing Review, etc. provide us lot
of insight into Chinese economic thinking. These journals are
full of praise for liberlisation and market economy. They
advocate full acceptance of Dunkel (GATT) proposals. They
clearly say that China is making transition from a planned to
a market economy and from a closed to an open economy
(BeijingReview, Nov. 7,1994, p. 7). The same article says that
there was hidden inflation in the planned economy. Now there
is high inflation rate in China, higher than in India. China’s
inflation rate stood at 21.7% in December 1994, (Beijing
Review, January 16, 1995, P.5) and it continues to increase
rather than decrease.
According to the spokesman of China’s State Statistical Bu
reau, “this is the price we must pay for the country’s reforms on
taxation and grain prices as well as for the increased wages of
state employees and rising bank interest" (ibid).
48
Chinese Press widely reports largeceale privatisation,
liberalisation and the globalisation of the country’s economy
including industry and agriculture. It emphasises the tremen
dous advantages of such policy and are all praise for the G ATT
proposals. One feels that the Chinese economy is under going a massive structural shift in order to integrate with world
economy and to achieve fast economic growth. Their press
keeps referring to the “lost years” of the 60s and 70s.
In 1993 overseas computer manufacturers had captured more
than 80% of Chinas computer market {China Today, October
1994, p.59). Expansion of foreign companies is reported in
several other important fields.
China welcomes this trend and hopes to use it to catalyse its
own industrial development.
China has officially announced the acceptance of the Dunkel
proposals and declares that it wanted to join the GATT/WTO.
China Daily (3 March 1995 P.1) reported that “the longterm
economic and trade interests shared by China and US are the
primary basisforthe countries reaching last minute agreement
on protection of intellectual property fights (I PR)". China says
that it is to build market economy, and not to bow to outside
pressures that the country took steps to protect IPRs (China
Daily, 1 March 1995, p.4) It is to be noted that China has made
large scale changes in its IPRs in order to join the world
economy. “Modern scientificand technological advancement
and commodity development are bound to create a need for
establishing" IPRs to protect the producers, according to
minister for science and technology commission, Song Jian
(Beijing Review, 16 January 1994, p 8). China has promul
gated various laws including trademark law, patent law, copy
right law, unfair competition law, etc, and has cracked down
upon large numbers of illegal infrigers of copyrights.
The absence of such laws was being used as pretext by the
U.S. to prevent China from joining the WTO. With these and
other measures path is being cleared for the latter to join the
World Trade Organisation.
49
In brief, China has realised the advantages of GATT/WTO,
and has criticised the U .S. for preventing it from joining them,
and has announced largescale changes in all the fields of its
economy in keeping with the demands of GATT/WTO and of
globalisation, while developing its own economic potentials.
50
VANI-Voluntary Action Network India
STATEMENT OF PURPOSE
Voluntary Action Network India (VANI) is the outcome of the shared need of concerned
individuals and voluntary organisations to have a platform for safeguarding and highlighting
voluntarism and voluntary action in our country.
VANI is an effort to given collective voice to the experience, achievements, sufferings,
hardships, hurdles and togetherness of individuals in voluntary action in India today.
VANI was formed in April 1988, by some concerned and like-minded workers of the voluntary
sector in the country. The need for setting up VANI was seen as:
1.
To strengthen voluntarism, and to work towards creating an authentic, positive and
supportive climate for voluntary action, as well as to protect and promote the political and
cultural space for voluntary action in the country.
2.
To be a common platform for these concerned about various issues of development
affecting the poor in the country.
3.
To facilitate the formation of platforms and federations for the promotion of voluntary
action in relation to issues affecting the poor.
4 To be a forum for sharing perspectives and analysis of local, national and international
forces, laws, policies, programmes and structures, and their implications for people and
voluntary action in India and for taking appropriate action.
5.
To promote the following values in voluntary action in society.
-
Decentralisation
Democracy
Freedom from discrimination
Freedom of information, independent of thought
Gender equality
Secularism
Simple sustainable lifestyle
6.
To identify, address and challenge contradictory tendencies and counter-forces within
the voluntary sector.
7.
To provide fraternal support and strength to voluntary workers and organisations,
particularly at times of hardship.
8.
To undertake advocacy on issues of concern to voluntary action with the government,
national and international agencies, elected representatives, political parties, trade
unions, business and industry, and other structures of power.
9.
To facilitate and if necessary coordinate campaigns on emerging issues which affect
people and voluntary action in the country.
VAN I aims to be not only a voice of those who want to create an atmosphere for value oriented
voluntary action, but also a common platform for highlighting the causes, concerns and
issues which affect the freedom and space for voluntary action in the country.
VANI-Voluntary Action Network India
H-17/1, Malviya Nagar, New Delhi 110 017, India
Ph. 011/642 8369, 622 0674
Fax 0091-11-622 0674
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