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The result of the Hong Kong Ministerial is not as important as the message it sends for the developing countries. After having flexed their muscles in the multilateral trade arena, they need to develop an alternative to the markets of the North. This is possible only through greater South-South cooperation on trade and economic issues, say Pradeep S. Mehta and Pranav Kumar.

UNDOUBTEDLY the outcome of the Sixth Ministerial Conference of the World Trade Organisation (WTO), that concluded in Hong Kong on December 25, was modest. The biggest achievement is that the Ministerial did not flop. A second collapse after Cancun would have been really disastrous for the multilateral trading system. While a failed Ministerial puts the agenda in a reverse gear, a successful one at least sends a positive signal. The second important result is, for the second time in a row, countries of the South not only remained united, but reinforced their unity, telling the North that enough is enough.

If one recalls, the Cancun Ministerial had ended on a bitter note. Soon after, the WTO members indulged in a blame game. The then US Trade Representative, Mr Robert Zoellick, in his post-Ministerial press conference said, "Whether developed or developing, there were `can do' and `won't do' countries here. The rhetoric of the `won't do' overwhelmed the concerted efforts of the `can do'. `Won't do' led to impasse." The WTO Director-General, Mr Pascal Lamy, who was the chief negotiator of the EU at Cancun, termed the WTO a `medieval' organisation. The then Commerce Minister, Mr Arun Jaitley, had summed up the outcome of Cancun in a one liner: "No deal is better than a bad deal".

Cancun to Hong Kong
After the Cancun fiasco, it took three-four months for the negotiators to come to the negotiating table and resume the dialogue. This resulted in the "July Package", which once again raised the expectations of the developing countries. Alas, the euphoria created by the July Framework Agreement proved short-lived. Back home, WTO members succumbed to the realpolitik and started singing in different tunes. Theresult: The Doha Round once again plunged into serious crisis. This is evident from the fact that in the run up to the Hong Kong Ministerial, the draft declaration was supposed to be released after the General Council (GC) meeting of July 2005, in what was called "July Approximations". But the GC meeting failed to evolve a consensus. The next GC meeting, in October, ended similarly. Finally, when the November 2005 GC meeting also could not break ice, Mr Lamy came out with his own draft declaration, which was modest in terms of substance. He put the Chair's reports in the annexure, urging members to build upon that.

What happened at Hong Kong?
The Hong Kong Ministerial Meeting began on a pessimistic note. A day before the inaugural, the attendance was poor. Delegates of some of the WTO member-countries were not present, giving the general impression that nothing much was going to happen. However, soon it turned into a four-corner contest, with the G-20 and the G-33 on one side, and the EU, the US and the least developed countries (LDCs) on the other.

As usual, developed countries started shedding crocodile tears for LDCs. A plethora of hollow promises in the form "aid for trade", duty- and quota-free market access and many more were served to the LDCs. The main objective was to shift the focus from the core agenda of trade liberalisation, as was evident from the EU Trade Commissioner,

Mr Peter Mandelson's statement that he was at the outer limit of his mandate and had nothing much to offer. At the same time, Mr Mandelson repeatedly skirted the negotiations citing reasons that there was nothing much to negotiate about. On the other hand, the US too was non-committal on the LDCs' demand of duty- and quota-free market access for all their products and, particularly, on the issue of eliminating domestic cotton subsidies.

The G-20 and the G-33, on their part, tried to be practical. They realised that it would be foolish to expect any ambitious result from Hong Kong, given the prevailing divergence of opinions on agriculture. They demanded that on export subsidies, as per the "July Framework" Agreement, the WTO members had to agree only on the end date of their elimination, which would have been the easiest thing to implement.

Unfortunately, instead of discussing this, the two major trading giants — the EU and the US — got entangled in a dog and cat fight over giving food aid to poor countries. The EU argued that cash was the best way to provide food aid, alleging that the US' food-aid-programme was causing commercial displacement. Finally, on December 16, the first-ever joint G-20 and G-90 Ministerial-level meeting took place. The Commerce Minister, Mr Kamal Nath, and his Brazilian counterpart, Mr Celso Amorin, were both instrumental in building this grand alliance of 110 countries covering four-fifth of the humanity. This thwarted and called the bluff of the rich countries to lure the LDCs and divide the unity of the South.

The G-110 meeting also proved that their unity at Cancun was not a fluke and would sustain. Only after this was the focus of the negotiations brought back to the main agenda, resulting in the release of a revised text on December 17 and the adoption of the final Declaration on December 18.

End result of Hong Kong
The outcome of Hong Kong was modest, which was not unexpected. The main demand of the G-20 to eliminate export subsidies by 2010 was not accepted by the EU; instead, a compromise date of 2013 was agreed with some frontloading. This also culminates with the EU Common Agricultural Policy' reform. What is most unfortunate is that the language on export subsidies has been made more complex. The G-20 can no more say that this will be easy to implement.

On providing duty and quota-free market access to LDCs, the demand of including all products has not been accepted unequivocally. In fact, some of the LDCs might be completely denied this preferential market access. The language of the text on cotton is disappointing in contrast to the pressure mounted by the cotton-producing LDCs in West Africa. There is no clear and firm commitment from the US on reduction of domestic subsidies on cotton. The EU is a very minor cotton producer. Also, with regard to the demand of creating a "special development fund" for the transition period, the US remained non-committal.

However, the text on non-agricultural market access (NAMA) gives a sense of comfort to some extent as tariff peaks and escalation would be reduced or appropriately eliminated by using the Swiss Formula with multiple coefficients. Preference erosion, which is one of the major fears of LDCs, has been recognised in the text.

Lessons from Hong Kong
The result of the Hong Kong Ministerial is not as important as the message it sends for the developing countries. The latter's major demand was to seek greater market access in the North, particularly in the products of export interest to them. The Hong Kong Declaration does not promise much on this front as the ticklish issues of modalities are yet to be sorted out.

After flexing their muscles in the multilateral trade arena, developing countries need to develop an alternative to Northern markets. This is only possible through greater South-South cooperation on trade and economic issues. This should also cover the larger issues of technical assistance and capacity-building. Greater South-South trade will further strengthen different South alliances in the WTO which, at present, are more political in nature.

Over the last decade (1990-2001), developing economies have grown much faster than developed ones and transition countries and are expected to continue to do so in the coming years. This positive growth performance in the 1990s did result in increased share of South-South trade in world trade. The South-South trade almost doubled, reaching 10.7 per cent in 2001 from 6.5 per cent of world trade in 1990. But this is definitely not enough to reduce their dependence on North and to diversify exports of many LDCs beyond primary products.

What is required is greater facilitation of South-South trade, which is facing hurdles from its own barriers and from the distortions caused by the protectionist trade policy of the North. Despite significant reductions in the obstacles to trade, the developing countries among themselves still maintain higher tariff and non-tariff barriers. The cost of doing trade is also high among Southern countries. It is, therefore, important for them to not only reduce these barriers but also undertake the exercise of trade facilitation measures at the regional level.

This article can also be viewed at:
URL: http://www.thehindubusinessline.com/2005/12/29/stories/2005122900611000.htm

The Cancun Ministerial Conference had ended on a bitter note. Soon afterwards, the members of the World Trade Organization (WTO) indulged in a blame game. The then US Trade Representative Robert Zoellick in his post-ministerial press conference said, "Whether developed or developing, there were 'can do' and 'won't do' countries here. The rhetoric of the 'won't do' overwhelmed the concerted efforts of the 'can do'. 'Won't do' led to impasse."

Pascal Lamy, WTO's Director General, who was the chief European negotiator at Cancun, termed WTO as a 'medieval' organisation. Arun Jaitley, former Indian commerce minister, summed up the outcome of Cancun in a one liner now taken up by the civil society rejectionists. "No deal is better than a bad deal," said Jaitley.

From Cancun to Hong Kong
After the Cancun fiasco, it took almost three to four months for the negotiators to sit across the negotiating table again and resume the dialogue. This resulted in the 'July Package', a set of broad principles agreed to in August 2004 to keep the negotiations going, which once again raised the expectations of the developing countries. Alas, the euphoria created by the July Package proved to be short-lived. When back home, WTO members succumbed to realpolitik and started singing in different tunes.

As a result, Doha round of global trade talks once again plunged into a serious crisis. This is evident from the fact that in the run up to the Hong Kong Ministerial Conference, the draft declaration was supposed to be released after the General Council (GC) meeting in July 2005, in what was called 'July Approximations' but the GC meeting failed to evolve a consensus. The next GC meeting in October met with a similar fate. Finally, when the GC meeting for the third time in November could not break ice, the WTO Director General Pascal Lamy came out with his own draft declaration for the upcoming ministerial conference. This draft was very modest in terms of substance.

What happened at Hong Kong?
The ministerial meeting in Hong Kong began on a very pessimistic note. A day before the inaugural, the attendance was very poor. Delegates of some of the WTO member countries had not even reached Hong Kong. The general impression was that nothing much was going to happen at Hong Kong. It was in this backdrop that the various stakeholders started getting ready for the battles ahead. Soon the Hong Kong meeting turned into a four-sided contest -- with G-20 and G-33 on one side, and the European Union, the United States and the least developed countries (LDCs) making up the other three actors.

As usual, the developed countries started shedding crocodile tears for the LDCs. A plethora of hollow promises in the form 'aid for trade' and duty free and quota free market access was offered to the LDCs. The main objective was to shift the focus away from the core agenda of trade liberalisation. This was evident from the EU Trade Commissioner Peter Mandelson's statement that he was at the outer limit of his mandate and has nothing much to offer. At the same time, Mandelson repeatedly skirted the negotiations citing that there was nothing much on the table to negotiate. The US too was non-committal on the LDCs' demand for duty free and quota free market access for all their products and particularly on the issue of eliminating domestic subsidies on cotton production.

The G-20 and G-33 on their part tried to be practical. They realised that it would be foolish to expect any ambitious result from Hong Kong meeting given the prevailing divergence of opinions on agriculture. They demanded that, as per the 'July Package', the WTO members have to agree only on the end date for their elimination of export subsidies, the easiest thing to implement. Unfortunately, instead of discussing the end date of elimination, the two major trading giants -- the EU and the US -- got entangled into a dog and cat fight over the form of giving food aid to poor countries. The EU argued that cash is the best way to provide food aid alleging that the US's food aid programme was causing commercial displacement of the people in the recipient countries.

Finally, on December 16, the first ever G-20 and G-90 ministerial level meeting took place. Both the Indian Commerce Minister Kamal Nath and his Brazilian counterpart Celso Amorim were instrumental in building this grand alliance of 110 countries, covering 4/5th of the humanity. This alliance called the bluff of the rich countries to lure the LDCs and divide the Southern unity. The meeting also proved that the Southern unity at Cancun was not a fluke and it will sustain. Only after this meeting, the focus of the negotiations was brought back to the main agenda.

End result at Hong Kong
As already mentioned, the outcome of the Hong Kong meeting is modest, though it was not unexpected. The main demand by G-20 to eliminate the export subsidies by 2010 was not accepted by the EU. Instead a compromise date of 2013 was agreed with some frontloading. What is most unfortunate in this European infatuation with a distant date is that the language on export subsidies has been made more complex. The G-20 can no more say that this will be easy to implement.

Lessons from Hong Kong
The result of the Hong Kong ministerial meeting is not important but the message it sends is of immense significance for the developing countries. Developing countries' major demand was to seek greater market access in the Northern markets, particularly in the products of export interest to them. The Hong Kong declaration does not promise much on this front as the ticklish issues of modalities and formulas are yet to be sorted out.

So, after having flexed their muscles in the multilateral trade arena and failing, the developing countries need to develop an alternative to the Northern markets. This is only possible through greater South-South cooperation on trade and economic issues. This should also cover the larger issues of technical assistance and capacity building. Greater South-South trade will further strengthen different Southern alliances in the WTO, which at present are more political in nature.

Over the last decade (1990-2001), developing country economies have grown much faster than those of the developed and transition countries and are expected to continue to do so in the coming years. This positive growth performance in the 1990s did result in increased share of South-South trade in world trade. The South-South trade almost doubled, reaching 10.7 per cent in 2001 from 6.5 percent of world trade in 1990. But this is definitely not enough to reduce their dependence on the North and also to diversify exports of many LDCs beyond primary products.

What is required is greater facilitation of the South-South trade. At present the South-South trade is facing impediments from barriers within the South and also from the distortions caused by the protectionist trade policy of the North. Despite significant reductions in the obstacles to trade, the developing countries among themselves still maintain higher tariff and non-tariff barriers. The cost of doing trade is also very high among the Southern countries. It is, therefore, important for the Southern countries to not only reduce tariffs and non-tariff barriers but also seriously undertake the exercise of trade facilitation measures at the regional level.

This article can also be viewed at:
URL: http://www.jang.com.pk/thenews/dec2005-weekly/nos-25-12-2005/pol1.htm#4

Laddoos and jalebis for Kamal Nath

Published:The Economic Times, December 22, 2005
By Pradeep S. Mehta

Developing countries have extracted the maximum they could at Hong Kong, and India played a key role in the coalition-building and negotiations that accomplished this.

In spite of what Prakash Karat and A B Bardhan have to say, commerce minister Kamal Nath does deserve laddoos, and also jalebis and barfis, for what he achieved at Hong Kong. The deal at the sixth ministerial conference of the WTO was the best under the circumstances. Before the ministerial commenced, there was general scpeticism as to whether we could have achieved anything at all.

On December 20, Karat’s comrade and state secretary of the West Bengal unit of CPI(M) Anil Biswas was quoted by the Ananda Bazar Patrika, “At Hong Kong, India’s role was positive. It is true that all our demands were not met. But, given the present situation (of the trade talks), it would not have been possible for the government of India to do much better than what it did at Hong Kong...Kamal Nath’s performance was good....”.

Biswas was echoing what many in the media in Hong Kong had to say about Kamal Nath’s negotiating skills. The media, described him as the ‘star negotiator’ who managed to clinch the deal in favour of developing countries. I can heartily endorse this. Having been at all the WTO ministerials since Marrakesh, I can assert that Kamal Nath’s performance was one of the best.

The 1994 Marrakesh was the meeting to sign in the new WTO, where Pranab Mukherji was our leader. There was some murmur on trade and labour standards, which Mukherji retorted against, suggesting that we should also speak about a multilateral competition agreement.

That sealed the matter, but only temporarily. Following this, we had an incompetent commerce minister, Dr B B Ramiah at Singapore in 1996. That ministerial created a new work programme, including the much opposed Singapore issues (investment, competition, government procurement and trade facilitation). There was a hint on labour standards as well.

The ghost of labour standards reappeared at the next ministerial at Seattle in 1999, when then commerce minister Murasoli Maran opposed it tooth and nail. It was not the demonstrating crowds outside the ministerial conference which led to the breakdown, but labour standards and the rift between the US and European Union over farm goods. And the inept handling by Charlene Barshefsky, the US Trade Representative, in her role as the chair of the conference.

Maran as the Indian commerce minister, in his second innings, had to battle with the Singapore issues at Doha in 2001. There was a deal at Doha, when ‘development’ was used as the label to bring in the poor countries on board. The west was pretty alarmed at the 9/11 disaster and did not wish to walk away from the ministerial without any deal.

Maran had dug in his heels on Singapore issues, got the conference extended by a day, and came away as the hero. However, he had to literally fight the battle single handed, because many of the developing countries deserted us after getting an assurance on the ACP waiver. This is a system of preferences for developing countries of Africa, Caribbean and Pacific, all former colonies of European powers.

However, the Doha meeting was successful in getting concessions on TRIPs and public health and another declaration on addressing implementation problems. Importantly, it is at Doha where the rich agreed to eliminate farm export subsidies, with the end dates to be negotiated in the future.

The Singapore issues once again played the spoilsport at the fifth ministerial at Cancun in 2003, when Arun Jaitley led the Indian delegation. The ACP and other African countries walked out of the meeting on this contentious matter. This was the fig leaf behind other bigger issues such as in agriculture and particularly the US reaction on cotton subsidies and its deleterious effects on poor west African countries.

Most importantly Cancun did not fail, but did collapse, due to the adroit coalition building on farm subsidies, lead by Brazil and India. It saw the birth of the G-20 alliance of developing countries. In spite of doomsayers, the alliance went on to play a splendid role at Hong Kong.

Farm issues continued to dominate the talks in Geneva following the Cancun debacle. These could not be resolved right until the first day of the Hong Kong meeting (see Neglecting the costs of failure: ET, Dec 8).

Cancun was a big turning point in the history of multilateral trade negotiations. For the first time developing countries could flex their muscles in trade negotiations. Unlike Doha where India was left all alone in the end, at Cancun developing members showed exemplary unity and countered the pressure of the North. While Jaitley deserves accolades for being one of the main architects of G-20 alliance, at Hong Kong a wider poor country alliance was cemented by convening the first ever ministerial-level meeting of G-20 and G-90 (G-110).

It is only after this joint meeting of G-110, the EU and the US realised that LDCs will not cave in or be lured by ‘bribes’.

Formation of this grand alliance was a masterstroke and helped in bringing back focus of the negotiations on the core agenda of trade liberalisation and development. Otherwise during the first three days, developed countries spent their time in discussing peripheral issues of aid for trade, and duty and quota-free market access for LDCs. Since none could have afforded a failure, good sense prevailed over key players.

The EU softened its stance on at least agreeing to an end date for elimination of export subsidies. At the start, this was opposed vehemently by Mandelson who stated that he has no mandate to do so. G-20 too inched closer, by agreeing to an end date of 2013 instead of 2010.

This too was done grudgingly, because Brazil was in no mood, but later realised the cost of failure and agreed on the extended date, with some frontloading.

Export subsidies are but the beginning of the end of the whole bundle of farm subsidies; domestic support too is on the anvil — to be negotiated by April, 2006.

It is an arduous path, but we need to encourage Kamal Nath and his team of bureaucrats, rather than run them down. They are fully conscious of the bigger goal of protecting our farmers and achieving the goal of development not only for India, but the whole South.

This article can also be viewed at:
URL: http://economictimes.indiatimes.com/articleshow/1341119.cms

IN the run-up to the World Trade Organisation (WTO) Ministerial meeting in Hong Kong next week, hectic parleys have continued among key ministers to try and get a deal on the Hong Kong declaration, which will be better than what has been put out on Nov 26.

The efforts being made by governments to do this are unprecedented in WTO's history, with ministers flying in and out of capitals in western countries almost on a weekly basis, while negotiators in Geneva meet day-in and day-out.

These efforts are to mainly push the Doha Development Agenda forward, but there are too many differences. Hence the Nov 26 declaration is a draft with the hope that the ministers will address the gaps and possibly arrive at some better text at Hong Kong. Alas, what is not being discussed upfront are the costs of failure - and these can be huge, particularly for the developing world because the Doha Round has an overwhelming mandate to deliver on development. Therefore, the G-20 alliance of developing countries has a huge burden.

One clear direction which is emerging is that it will not be possible for ministers to sort out their differences at Hong Kong, thus they may agree to call for another special ministerial session within three to six months so that a consensus can finally emerge and the round is wrapped up by end-2006, or at the latest early 2007. The reason for this is the expiry of the US President's fast-track authority in July, 2007. There is a diminishing appetite in the US for trade liberalisation, thus the end date is certainly a big incentive for WTO members to make a deal.

Negotiations at the WTO are mainly guided by trade-offs, and are quite complex as well. It is fairly easy for armchair commentators to suggest what should be done and what should not be done. But, when it comes to the crunch, negotiators have to look at what they would gain against what they will lose. As most negotiations take the final shape at the eleventh hour, the wits of negotiators are tested. And they need to look behind their backs for promises made to their polity and people before they go out to sign up these deals.

The Doha declarations were themselves full of trade-offs, and the language on Singapore issues (investment, competition, transparency in government procurement and trade facilitation) was changed to agree to discuss modalities rather than actually launch negotiations. The EU also agreed to end all export subsidies but the end date was left for further negotiations. The Singapore issues were the pound of flesh for the European Union (EU) to agree to reduce its farm subsidies. Due to latent realisation and strenuous opposition from developing countries, particularly the Africa group, on Singapore issues, the Cancun meeting collapsed. Nevertheless, the meeting succeeded in launching the G-20, a powerful coalition of developing countries, which decided to tackle the dodgy offers of liberalisation in farm goods by both the US and the EU.

Now that the Singapore issues are no longer on the table, the EU is insisting on a fresh pound of flesh to surrender for farm goods. It has linked further commitments to getting better deals on industrial goods and services. That is certainly the main cause of dissent on the draft ministerial text. But that is not all. The US wants better market access on farm goods in the EU and other countries. On the other hand, the poor countries feel that by making such demands, the rich countries want a 'round for free'.

One problem which clearly emerges in current demands is on reducing tariffs of industrial goods, as that will accelerate de-industrialisation in many developing countries. Thus, there is a demand for exemptions on account of 'policy space' which will enable them to be selective rather than offer concessions on a broad basis. The term 'policy space' is a controversial one. Even at the UNCTAD XI meeting in Sao Paulo in June 2004, the draft declaration was held up due to strong opposition to inclusion of these words; but in the end the developing world succeeded.

This is what is required at Hong Kong also. The Round must fulfil its development promises, which is a bigger issue than just salvaging the Doha Round at any cost. It is because of developmental elements of the Doha Agenda, the expectations of the developing countries have increased manifold. They also know that justice was not done to them in the Uruguay Round. Hence, it would not be fair on the part of developed countries if they ask for greater market access from their poor counterparts in the ongoing trade talks.

Looking back, the Uruguay Round too plunged into a similar crisis in the early 1990s, after two consecutive failures of ministerial meetings: Montreal and Brussels. What did the then director-general of GATT, Arthur Dunkel, do? He stepped in and proposed his own text, popularly called the 'Dunkel Draft'. In spite of all the hue and cry, it ultimately broke the deadlock. WTO director-general Pascal Lamy needs to replicate this. Given his past background, Mr Lamy is in a difficult position, but he will have to do it if he wants to deliver. After all, he was one of the chief architects of the Doha Development Agenda. Therefore, it is his moral duty to make all possible efforts to bring it to its logical conclusion - without losing sight of the bigger goal.

Neglecting the costs of failure

Published:The Economic Times, December 08, 2005
By Pradeep S. Mehta

Justice was not done to the developing countries in the Uruguay Round. Hence, it would be unfair for the developed countries to ask for greater market access from their poor counterparts at Hong Kong

Hectic parleys among key ministers to try and get a deal on the Hong Kong declaration of the WTO have ended, and the rest will be seen at Hong Kong. The movement is about 20 yards on the text which has been put out on November 26.

The efforts being made by governments to do this were unprecedented in WTO’s history, with ministers flying in and out of capitals in western countries almost on a weekly basis, while negotiators in Geneva meeting day in and day out.

These efforts are to mainly push the Doha development agenda forward, but there are too many differences. Therefore let’s pray that the ministers will address the gaps and possibly arrive at some better text at Hong Kong.

Alas, what has never been discussed upfront are the costs of failure? And these can be huge, particularly for the developing world because the Doha Round has an overwhelming mandate to deliver on development. It is therefore that India, as a fast-growing economy and a leader of the developing world, has to bear a huge burden.

One clear direction which is emerging, is that it will not be possible for ministers to sort out the differences at Hong Kong, thus they may agree to call for another special ministerial session within three to six months, so that a consensus can finally emerge and the round is wrapped up by end-2006 or at the latest early 2007.

The reasons to do so is the expiry of the US President’s fast track authority in July, 2007. There is a diminishing appetite in the US for trade liberalisation, thus the end date is certainly a big incentive for WTO members to do a deal.

Negotiations at the WTO are mainly guided by trade-offs, and are quite complex as well. It is fairly easy for armchair commentators to suggest what should be done and what should not be done. But, when it comes to the crunch, negotiators have to look for what they would gain as against what they will lose.

As most negotiations take the final shape at the eleventh hour, the wits of negotiators are tested. And they need to look behind their backs for promises made to their polity and people before they went out to sign up these deals. For example, the Doha meeting was extended by one day due to India’s rightful insistence, and finally a compromise text was arrived at. At that meeting the ghost of 9/11 was looming behind the international community, which spurred the effort of restoring confidence of people in the international economy.

The Doha declarations were themselves full of trade-offs, and the language on Singapore issues (investment, competition, transparency in government procurement and trade facilitation) was changed to agree to discuss modalities rather than actually launch negotiations. The EU also agreed to end all export subsidies but the end date was left for further negotiations, which is currently under debate. The Singapore issues were the pound of flesh for EU to agree to reduce its farm subsidies.

Due to latent realisation and strenuous opposition of developing countries, particularly the Africa group, on Singapore issues, the Cancun meeting collapsed. Nevertheless, the meeting succeeded in launching the G-20 a powerful coalition of developing countries which decided to tackle the dodgy offers of liberalisation in farm goods by both the US and the EU.

Now that the Singapore issues are no longer on the table, the EU is insisting on a fresh pound of flesh to surrender on farm goods (Making the Doha deal work, Peter Mandelson, ET Dec 5). It has linked further commitments to getting better deals on industrial goods and services. That is certainly the main cause of dissent on the draft ministerial text being. But that is not all, the US wants better market access on farm goods in the EU and other countries.On the other hand, the poor countries feel that by such demands, the rich countries want a ‘round for free’.

India and many others have also reminded the rich countries that this is a development round and not a market access round. One problem which clearly emerges in current demands on reducing tariffs of industrial goods, as that it will accelerate de-industrialisation in many developing countries.

Thus, there is a demand for exemptions on account of ‘policy space’ which will enable them to be selective rather than offer concessions on a broad basis. The term ‘policy space’ is a controversial one in international trade lexicon. Even at the Unctad XI meeting in Sao Paulo, June, 2004 the draft declaration was held up due to strong opposition to inclusion of these words, but in the end the developing world succeeded.

This is what is required at Hong Kong also. The Round must fulfill its development promises, which is a bigger issue than just salvaging the Doha Round at any cost. It is because of the developmental elements of the Doha agenda, the expectations of the developing countries have increased manifold. They also know that justice was not done to them in the Uruguay Round. Hence, it would not be fair on the part of developed countries if they ask for greater market access from their poor counterparts in the ongoing trade talks.

Looking back, the Uruguay Round too plunged into a similar crisis in early 1990s, after the two consecutive failures of ministerial meetings: Montreal and Brussels. What did the then director-general of GATT, Arthur Dunkel do? He stepped in and proposed his own text, popularly called ‘Dunkel draft’, which in spite of the hue and cry, ultimately broke the deadlock. Lamy needs to replicate him. Given his past background, Lamy is in a difficult position but he will have to do it if he wants to deliver.

After all Lamy was one of the chief architects of Doha development agenda. Therefore, it is his moral duty to make all possible efforts for its logical conclusion — without losing the sight of the bigger goal.

This article can also be viewed at:
URL: http://economictimes.indiatimes.com/articleshow/msid-1323422,curpg-1.cms

THE much-awaited Draft Ministerial Text (DMT) has been released. It was expected to be out after the General Council meeting of the World Trade Organisation (WTO) in July, but due to serious differences between developed and developing countries over liberalisation of agriculture, that did not happen.

However, the release of the text does not mean that the deadlock over agriculture and other issues has been resolved. Members are still at loggerheads over several issues pertaining to market access, and special and differential treatments to developing countries.

Only a fortnight ago the WTO Chief, Mr Pascal Lamy, in his report to the heads of delegations indicated that members have to settle for a less ambitious outcome from the Hong Kong Ministerial. He, however, warned, in his report, that by recalibrating there was a possibility that the immediate pressure on members to move forward might be lessened.

But he probably was left with no option, as he waited, perhaps too long for forward movement and convergence on contentious issues. Since a DMT is required for deliberations by members, the WTO Director-General and the Chairman of the General Council released the text for consideration by members.

Going by the elements of the text, there is hardly any substantial movement since July 2004 and expectations from the Hong Kong Ministerial are few. Two things are to be resolved: Dates for establishing modalities and based on them submission of a comprehensive draft schedule.

One wonders why Mr Lamy did not propose something on his own by considering the concerns of different groups/alliances? Not very long ago, when he was chief trade negotiator of the European Union, he had strongly defended the current regime of high support-based EU agriculture, which the Southern countries, led by G-20, are hoping to dismantle.

If he chose to do a balancing act between the South and the North, he might have been accused of takingsides with the developed countries. He, therefore, preferred to include the report by the Chairman of the Special Session of the Committee on Agriculture as an annexure, urging members to take further action. In this, Mr Lamy played the role of an honest umpire, thus belying speculation that he would be partisan.

The Chair's report on agriculture makes it clear that full modalities will not be achieved at Hong Kong, as members did not want even the suggestion of any implicit or explicit agreement where it did not exist. Nevertheless, the report has listed areas in which some degree of convergence has been achieved and has urged members to build upon them.

However, the bigger issue is who will make the first move, as most of the commitments by members are conditional. What is most disappointing about the Chair's report is the persisting disagreement between members on designating special products and access to the Special Safeguard Mechanism. These two issues are known to have major gains for developing countries, following the July Framework Agreement.

As regards non-agricultural market access (NAMA), the situation is no different and the language is similar to the one proposed by the WTO Director-General on agriculture: Members are to decide dates for establishing modalities and, based on them, submission of a comprehensive draft schedule. According to the report by the Chairman of the Negotiating Group on Market Access to the Trade Negotiating Committee (TNC), members, on the issue of the tariff reduction formula, have broadly agreed on a non-linear Swiss-type formula. This is the only forward movement since the adoption of the NAMA framework in July 2004.

The NAMA text of the Doha Development agenda very clearly states that for developing countries it would be "less than full reciprocity in reduction commitments". Unfortunately, developed countries have their own interpretation of measuring it.

While, some developing country members believe that this means less than average percentage cuts (as translated through a higher coefficient in the formula, than those undertaken by developed country members), thedeveloped country members have indicated that there are other measurements of less than full reciprocity in reduction commitments, including the final rates after the formula cut which, in their markets, would be less than in developing country markets. In addition, developed country members are also trying to include least developed countries' (LDCs) exemption from tariff cuts in measuring "less than full reciprocity in reduction commitments". All these make the simple arithmetic unnecessarily more complex and dilute the very purpose of this clause.

The services text also does not give any clear direction. The situation of services negotiation is different from the other two subjects of trade liberalisation, namely, agriculture and non-agricultural products. In services, there are no negotiations for any formula to dismantle existing barriers in trade. The DMT on services suggested some additional approaches to realise the goal set out in the Doha Development Agenda vis-à-vis services trade liberalisation.

Besides, the request-offer approach members have been urged to pursue negotiations on a plurilateral basis in accordance with the principles of the General Agreement on Trade in Services (GATS) and the Guidelines and Procedures for the Negotiations on Trade in Services. But it is doubtful that this new additional approach will speed up negotiations or improve members' commitments in their offers.

What is lacking in the post-Doha negotiations is that no concrete measures have been taken to operationalise the clause: "Particular attention will be given to sectors and modes of supply of export interest to developing countries", which is the Mode 4 and labour-intensive services.

Some of the developing countries have asked for temporary "GATS Visa" in view of the concerns of both developed and developing country members, but that has found no mention. The issue of "GATS Visa" is more relevant today in the context of rising security concerns of developed country members.

The DMT delves into other issues such as trade facilitation, special and differential treatment, implementation, trade and environment, trade related aspects of intellectual property rights (TRIPS) and public health, LDCs, technical cooperation, and so on. However, the progress on all these issues is highly dependent upon substantial movement on the core issues of trade liberalisation, particularly agriculture, an issue that took the Doha round hostage.

Interestingly, Mr Lamy has included four new issues, which are not in the main Doha Development Agenda. They are commodities, coherence, aid for trade and accession.

These are welcome, provided they come in addition to development promises of Doha Agenda. Aid for trade, in particular, could be helpful for LDCs in building their supply-side capacity and also to overcome some of the potential negative impacts as a result of future tariff reductions under NAMA and reduction in farm subsidies by the North. The tariff reduction under NAMA negotiation may erode their margin of preferences and reduction in farm subsidies may result in a rise in their farm import bill.

This article can also be viewed at:
URL: http://www.thehindubusinessline.com/2005/12/07/stories/2005120701321000.htm

Hectic parleys continue among key ministers to try and get a deal on the Hong Kong declaration of the WTO, which will be better than what has been put out on 26th November. The efforts being made by governments to do this are unprecedented in WTO's history, with ministers flying in and out of capitals in western countries almost on a weekly basis, while negotiators in Geneva meeting day in and day out. These efforts are to mainly push the Doha Development Agenda forward, but there are too many differences. Hence the 26th November declaration is a draft with the hope that the ministers will address the gaps and possibly arrive at some better text at Hong Kong.

Alas, what is not being discussed upfront are the costs of failure. And these can be huge, particularly for the developing world because the Doha Round has an overwhelming mandate to deliver on development. Therefore the G-20 alliance of developing countries has a huge burden.

One clear direction which is emerging, is that it will not be possible for ministers to sort out the differences at Hong Kong, thus they may agree to call for another special ministerial session within three to six months, so that a consensus can finally emerge and the round is wrapped up by the end 2006 or at the latest early 2007. The reason to do so is the expiry of the US President's fast track authority in July, 2007. There is a diminishing appetite in the US for trade liberalization, thus the end date is certainly a big incentive for WTO members to do a deal.

Negotiations at the WTO are mainly guided by trade-offs, and are quite complex as well. It is fairly easy for armchair commentators to suggest what should be done and what should not be done. But, when it comes to the crunch, negotiators have to look for what they would gain as against what they will lose. As most negotiations take the final shape at the eleventh hour, the wits of negotiators are tested. And they need to look behind their backs for promises made to their polity and people before they went out to sign up these deals. For example, the Doha meeting was extended by one day due to India's rightful insistence, and finally a compromise text was arrived at. At that meeting the ghost of 9/11 was looming behind the international community, which spurred the effort of restoring confidence of people in the international economy.

The Doha declarations were themselves full of trade-offs, and the language on Singapore issues (investment, competition, transparency in government procurement and trade facilitation) was changed to agree to discuss modalities rather than actually launch negotiations. The EU also agreed to end all export subsidies but the end date was left for further negotiations. The Singapore issues were the pound of flesh for EU to agree to reduce its farm subsidies. Due to latent realization and strenuous opposition of developing countries, particularly the Africa group, on Singapore issues, the Cancun meeting collapsed. Nevertheless, the meeting succeeded in launching the G-20 a powerful coalition of developing countries which decided to tackle the dodgy offers of liberalization in farm goods by both the US and the EU.

Now that the Singapore issues are no longer on the table, the EU is insisting on a fresh pound of flesh to surrender on farm goods. It has linked further commitments to getting better deals on industrial goods and services. That is certainly the main cause of dissent on the draft ministerial text being. But that is not all, the US wants better market access on farm goods in the EU and other countries.

On the other hand, the poor countries feel that by such demands, the rich countries want a 'round for free'. India and many others have also reminded the rich countries that this is a development round and not a market access round.

One problem which clearly emerges in current demands on reducing tariffs of industrial goods, as that it will accelerate de-industrialisation in many developing countries. Thus there is a demand for exemptions on account of 'policy space' which will enable them to be selective rather than offer concessions on a broad basis. The term 'policy space' is a controversial one. Even at the UNCTAD XI meeting in Sao Paulo, June, 2004 the draft declaration was held up due to strong opposition to inclusion of these words, but in the end the developing world succeeded.

This is what is required at Hong Kong also. The Round must fulfill its development promises, which is a bigger issue than just salvaging the Doha Round at any cost. It is because of developmental elements of the Doha Agenda, the expectations of the developing countries have increased manifold. They also know that justice was not done to them in the Uruguay Round. Hence, it would not be fair on the part of developed countries if they ask for greater market access from their poor counterparts in the ongoing trade talks.

Looking back, the Uruguay Round too plunged into a similar crisis in early 1990s, after the two consecutive failures of Ministerial meetings: Montreal and Brussels. What did the then Director General of GATT, Arthur Dunkel do? He stepped in and proposed his own text, popularly called "Dunkel Draft". In spite of all the hue and cry, it ultimately broke the deadlock. Lamy needs to replicate him. Given his past background, Lamy is in a difficult position but he will have to do it if he wants to deliver. After all, he was one of the chief architects of Doha Development Agenda. Therefore, it is his moral duty to make all possible efforts for its logical conclusion-without losing the sight of the bigger goal.

This article can also be viewed at:
URL: http://www.kantipuronline.com/kolnews.php?&nid=59285

WTO Hong Kong Ministerial
Ministers not addressing the costs of failure

Published:The Financial Express, Bangladesh, December 04, 2005
By Pradeep S. Mehta

Key Ministers are continuing their parleys in a bid to try and getting a deal on the Hong Kong declaration of the World Trade Organisation (WTO), which will be better than what has been put out on November 26 last. The efforts being made by governments to do this are unprecedented in WTO's history. Ministers are flying in and out of capitals in western countries almost on a weekly basis, while negotiators in Geneva holding meetings day in and day out.

These efforts are to mainly push the Doha Development Agenda forward, but there are too many differences. Hence the 26th November declaration is a draft prepared with the hope that the ministers will address the gaps and come out with a better text at Hong Kong.

Unfortunately, what is not being discussed upfront is the cost of failure? And this can be huge, particularly for the developing world because the Doha Round has an overwhelming mandate to deliver on development. Therefore, the G-20 alliance of developing countries in particular has a huge burden.

One clear direction which is emerging, is that it will not be possible for ministers to sort out the differences at Hong Kong. Thus they may agree to call for another special ministerial session within three to six months, so that a consensus can finally emerge and the round is wrapped up by the end of 2006 or early 2007 at the latest. The reason to do so is the expiry of the US President's fast track authority in July, 2007. There is a diminishing appetite in the US for trade liberalisation; thus, the end date is certainly a big incentive for the WTO members to strike a deal.

Negotiations at the WTO are quite complex in nature and are mainly guided by trade-offs. It is fairly easy for armchair commentators to suggest what should be done and what should not be done. But, when it comes to the crunch, negotiators have to look for what they would gain as against what they will lose. As most negotiations take the final shape at the eleventh hour, the wits of negotiators are tested. And they need to look behind their backs for promises made to their peoples before they decide to sign up these deals. For example, the Doha meeting was extended by one day due to India's rightful insistence, and finally a compromise text was arrived at. At that meeting the ghost of 9/11 was looming over the international community, which spurred the effort for restoring confidence of the people in the international economy.

The Doha declarations were themselves full of trade-offs, and the language on Singapore issues (investment, competition, transparency in government procurement and trade facilitation) was changed to agree to discuss modalities rather than actually launch negotiations. The European Union (EU) also agreed to end all export subsidies but the end date was left for further negotiations. The Singapore issues were the pound of flesh for the EU to agree to reduce its farm subsidies. Due to the latent realisation and strenuous opposition of developing countries, particularly the Africa group, on Singapore issues, the Cancun meeting collapsed. Nevertheless, the meeting succeeded in launching the G-20 -- a powerful coalition of developing countries which decided to tackle the dodgy offers of liberalisation in farm goods by both the US and the EU.

Now that the Singapore issues are no longer on the table, the EU is insisting on a fresh pound of flesh to surrender on farm goods. It has linked further commitments to getting better deals on industrial goods and services. That is certainly the main cause of dissent on the draft ministerial text. But that is not all. The US wants better market access on farm goods to the EU and other countries.

On the other hand, the poor countries feel that by such demands, the rich countries want a 'round for free'. India and many others have also reminded the rich countries that this is a development round and not a market access round. One problem which clearly emerges in current demands on reducing tariffs of industrial goods, as that it will accelerate de-industrialisation in many developing countries. Thus, there is a demand for exemptions on account of 'policy space' which will enable them to be selective rather than offer concessions on a broad basis. The term 'policy space' is a controversial one. Even at the UNCTAD XI meeting in Sao Paulo, June, 2004 the draft declaration was held up due to strong opposition to the inclusion of these words, but in the end the developing world succeeded

This is what is required at Hong Kong, also. The Round must fulfill its development promises, which is a bigger issue than just salvaging the Doha Round at any cost.

This article can also be viewed at:
URL: http://www.financialexpress-bd.com/index3.asp?cnd=12/4/2005&section_id=1&newsid=8888&spcl=no

Published:The NEWS, Pakistan, November 20, 2005
By Bipul Chatterjee

At the 13th Summit of South Asian Association for Regional Cooperation (Saarc), held in Bangladesh's capital Dhaka in the second week of November 2005, the participants came up with a usual statement of enhancing regional cooperation, etc. That sums up the progress that this regional (South Asian) entity has made over two decades.

The debatable question is when Saarc was formed in mid-1980s, was there any demand for such a body? Indeed it was a brainchild of the then Indian Prime Minister Indira Gandhi, who unfortunately could not live to see its formation. After her tragic assassination, her son Rajiv Gandhi took this initiative forward and Saarc was formed in 1985. The basis for its formation was regional cooperation and it was decided that only regional/multilateral (not bilateral) issues were to be raised/discussed at this forum.

If one analyses successive ministerial summits since its formation, one can see how little progress has been made so far. Except a secretariat at Kathmandu and Saarc Chambers of Commerce & Industry in Islamabad, no institutional development has taken place. There are various reasons for this.

First, there is little political will among the leaders of South Asian countries to take concrete steps to make this forum effectively operational. This may have something to with the fact that the nature of political environment and functioning of political governance are different in different countries.

Secondly, successful examples of regional cooperation from various parts of the world show that economic cooperation is the basis on which broader cooperation is achieved. For this to happen, many such forums started in a limited manner (such as European Union started with cooperation, that is, cross-border trade, in two commodities: coal and steel). South Asian countries have so far made no such attempts.

Thirdly, civil society (that is, entities dealing with public at large and non-state actors) plays a major role for successful cooperation among the nations in a regional bloc. There are examples (such as South African Development Community) which show the role that the civil society plays for successful political buy-in of such initiatives, especially at the local level. It has also been found how cross-border projects aimed at improving people's livelihood can help in bringing people together and thus, reduce tensions. There are no such initiatives in pan-South Asian sense.

Fourthly, South Asian countries often take conflicting positions at international forums. There is little or no attempt to politically sell 'South Asia' at the international level. For example, we hardly see a common Saarc position on WTO (World Trade Organization) issues, whereas examples galore from other parts of the world.

Fifthly, of late political leaders and many others appear to believe that enhanced trade can bring necessary push for taking the Saarc forward. There are merits in this argument and Safta (South Asian Free Trade Agreement) is expected to be operational from January 1, 2006. However, there is no policy paper, collectively and/or from individual countries outlining the benefits and costs of such an agreement. The result is suspicion on the part of those who are expected to lose if and when Safta is implemented.

What could be the way out of the quagmire in which Saarc finds itself today? The region comprises of over one billion people, about one-fifth of the world population. In next five years, the region's population will surpass that of China. But around 40 per cent of those living in South Asia live in poverty. The resource base is equally poor, as the region has only about three per cent of the world's land surface and accounts for two per cent of the global output. Agriculture still accounts for 25 to 50 per cent of the national economic output of the region. Naturally, poverty is endemic and structural. The real challenge, therefore, is how to increase people's income through productive employment. Saarc has to be seen in the light of this challenge. If something is successfully done on this issue, all the above-stated shortcomings can be overcome by transforming resolve into action.

The region can progress as a whole if there is well-functioning democracy in all the countries. In this context, democracy cannot be judged in terms of popular participation in elections alone. It is a much bigger issue. More efforts are required to show to the people the positive linkages between democracy and development.

Similarly, economic cooperation can be achieved by exploring specific sectors. Approximately 60 per cent people in the region are dependent on agriculture for their livelihoods. This sector is facing several challenges, including increasing industrialisation. Land for agricultural production, therefore, is being used for industrial purpose. At the same time, food security is becoming another major issue. The vulnerability of the region may increase if enough food is not produced. The challenges are many-fold and the key to overcome them is to increase agricultural productivity. There are successful examples of increasing agricultural productivity (including in difficult terrains such as flood-prone area, mountainous regions) in South Asian countries themselves. These examples can easily be replicated, provided concerted efforts are made with a clear vision and direction.

The development of the civil society is a mixed bag in South Asia. In some countries, it is well developed and entrenched and in some other it is at a nascent stage. Besides gathering popular opinion on diverse issues and enhancing accountability of the system of governance, in some South Asian countries (such as Bangladesh) the civil society is playing an effective role in empowering people to overcome challenges with respect to non-income aspects of poverty, such as low education level, health standards etc. Yet there are hardly any regional initiatives to overcome social barriers to poverty reduction.

It is true that there is diversity within South Asia and countries are at different levels of development. Four out of seven Saarc members are categorised as least developed by the United Nations, that is, they are economically most vulnerable. But at the same time, there are issues at the international level on which South Asian countries can take common positions. For example in WTO negotiations, there is no harm in taking a common position on agricultural subsidies being provided in the West, which are harming the poor countries (their consumers as well as farmers). Trade facilitation (with respect to simplification of customs procedures in particular) is another issue on which South Asian countries have largely common interest. But we are yet to see the emergence of ministerial forum of South Asian trade ministers, meeting before and after important events such as WTO ministerial conferences.

Safta is a step in the positive direction. Amit Mitra, Secretary-General of the Federation of Indian Chambers of Commerce and Industry says why: "If South Asia becomes an integrated market, it can draw much larger foreign direct investment (FDI). This will be another issue to be discussed. India has five billion dollars of FDI, the other countries have another billion, and some of the others have even less. If this region is integrated, it will have better economies of scale in the region."

This statement points to several issues, which are to be considered for successful economic integration in South Asia. One needs to understand why trade takes place between countries. Trade theory tells us that countries with different factors of productions (land, labour, capital) endowments will produce different commodities at differential prices and will trade them. Secondly, there has to be a minimum market in order for countries to trade. Do these conditions hold true for South Asian countries?

First, most South Asian countries have similar factor endowments. Secondly, given the high level of poverty and the nature of economic activities, the South Asian market is not only small but fragmented as well. Thus, there may not be much scope to enhance trade in goods within the region. However, there are enough opportunities to explore complementarities in production chain. Some countries are good in producing a particular part of a final commodity, whereas others are good in producing other parts. Production of readymade garments is an example: while India and Pakistan are good in textiles, Bangladesh and Sri Lanka are good in clothing. There should be South Asian products in international markets.

On the other hand, there is huge scope to enhance regional economic cooperation through trade in services. Sectors such as transport, telecommunications and power are developing in the region and their demands are far away from reaching a point of saturation. Huge resources will be required to develop these service-oriented sectors so that consumers can have better access to them. Herein lies the importance of foreign direct investment. Many of these sectors are employment-intensive and with right policies in place they can absorb people from agriculture (with resultant increase in agricultural productivity), that is, into productive employment in manufacturing and service sectors (provided there is right human development policy for skills formation). Thus, there could be a multi-prong attack on poverty.

Unfortunately, there is no discussion to open up trade in services in the region. Foreign (as well as regional) investors would like to see South Asia as a market, so that economies of scale can be better achieved. Similarly, steps are required for trade in goods outside the region, so that consumers can taste South Asian products.

In short, concrete and time-bound actions are required in order to make Saarc a reality. The Saarc secretariat should be empowered to implement these actions in association with relevant stakeholders, including the civil society actors. Necessary political will for these actions can be generated only if civil society creates an enabling environment for effective implementation.

This article can also be viewed at:
URL: http://www.jang.com.pk/thenews/nov2005-weekly/nos-20-11-2005/pol1.htm#4

Whither regulatory autonomy?

Published: The Hindu Business Line, November 11, 2005
By Pradeep S. Mehta & Vinayak R. Pandey

THOSE who complain about lack of uniformity in the approaches of various regulatory bodies no longer need to do so. For, in recent weeks, it has been realised that regulatory agencies in India do have one thing in common — all of them are equally vulnerable to their ministry concerned.

No matter how strong (or weak) a regulatory legislation is, when it comes to the regulator exercising its legitimate mandate independent of the ministry concerned, the provisions made in the law have proved to be of little significance.

The Electricity Regulatory Commissions have been considered fairly autonomous and empowered bodies, thanks to the provisions in the Electricity Act, 2003. But , the Ministry of Power appears to have been ensuring that the ERCs `act in conformity with' the tariff policy and the electricity policy to be prescribed by the Ministry, instead of just being `guided', as the Act provides. The Ministry had suggested an amendment to the Act. Finally, it fell to the PMO to ask the Ministry to refrain from curtailing the legitimate powers of the regulator.

This is not an isolated incident. In the brief history of independent regulation in India, on several occasions, the ministries concerned have tried to `clip the wings' of that little-known and least-understood creature — the `independent regulator'.

In 2000, the government repealed the TRAI Act. This Act was against the spirit of the recommendations that the Parliamentary Standing Committee on Telecom had made to confer independent status to the Telecom Regulatory Authority of India, through statutory provisions.

Subsequently, the TRAI (Amended) Act was introduced to convert the regulatory body to an advisory panel to the Department of Telecommunications. Yet, tariff determination has been one the few functions to remain with TRAI and the recent controversy stems from announcements made by the Minister on issues that fall in TRAI's domain — the `one-India' call rate and the Access Deficit Charge (ADC) payments to BSNL.

On the ADC — a major bone of contention since it was introduced — the Minister has gone on record assuring Rs 5,000 crore to the state-owned operator. On the other hand, TRAI has been contemplating reducing the ADC payouts to BSNL and adopting a revenue-share arrangement, so that it can ultimately be merged with the USO Fund. However, this is not acceptable to the DoT, which is considering issuing a policy directive to TRAI under Clause 25 of the TRAI Act that the government is supposed to exercise in exceptional situations, such as to protect the sovereignty of the state and/or in the larger interest of the people.

Even as the controversy brewed and both the Ministries were busy twisting arms of the respective regulatory bodies, at a three-session policy roundtable on `Regulatory Autonomy and Accountability' (organised by CUTS), most participants, who represented the policy community and stakeholders, were of the opinion that in India regulatory bodies have neither been accorded adequate autonomy to perform nor have they been made sufficiently accountable for their acts.

At the conceptual level, the regulatory agencies were created to achieve certain policy objectives consistent with those of the government, be it attracting private investment, enhancing consumer protection or ensuring orderly growth of the sector.

Once the policy framework and objectives are determined, a regulator should be allowed to take charge without interference either from the government or other stakeholders. Further, regulators need to be empowered to become financially self-sufficient and appoint staff with appropriate skills. These agencies should be provided with powers commensurate with their mandate and the objectives they are set. Autonomy goes hand-in-hand with accountability and the current provision of submitting an annual report to the legislature is not sufficient to hold regulatory agencies accountable. Notably, several of the regulatory bodies have been failing in this aspect. The Committee on Paper Laid on the Table of the Lok Sabha observed thus: "TRAI has been a habitual defaulter in the matter of timely laying of their Annual Reports and Audited Accounts." The issue can be addressed effectively by employing multiple approaches to ensure regulatory accountability on a continued basis. This can include empowering civil society organisations to work with the regulators or constituting a Committee of Eminent Persons to select regulators and to consult them on various issues.

Meanwhile, till the time the Planning Commission comes out with the much-talked-about regulatory framework for infrastructure sectors, the government needs to take two steps immediately.

First, order the Ministries concerned not to tinker with the existing regulatory structures until a consensus is achieved. Second, and more important, start a process to educate bureaucrats and judges about the concept, purpose, and philosophy of independent regulation so that better working relations can be achieved between regulatory agencies and the ministries concerned, in years to come.

This article can also be viewed at:
URL: http://www.thehindubusinessline.com/2005/11/11/stories/2005111101281100.htm

Does competition law help the poor?

Published: The Economic Times, October 28, 2005
By Pradeep S. Mehta

Many think that competition policy and law are tools for the rich and urban society, while some believe that one doesn’t need any competition rules at all. They are naïve. Another question which is often raised is how competition law will help a society which is illiterate and poor. For example, our agricultural marketing system itself is so anti-competitive that farmers, even small, do not gain the full value of their produce, which is usually cornered by middle-men.

This is aided by archaic laws, which our state governments are unenthusiastic to modify, probably to satisfy some vested interests. In this article, let me recount the tale of a poor peasant widow, who used the law to get redressal against another scourge of our society, the moneylender, and the collusion which prevails in our society.

Rukmini Devi, a poor elderly illiterate widow, lives in a village near Chittorgarh in Rajasthan. She had to sow her unirrigated 5-bigha farm in time, but did not have the resources to buy the seeds, fertiliser, etc. Fortunately, soft loans were available at the local cooperative bank situated at Rashmi, the sub-divisional headquarters under the government’s integrated rural development scheme.

In view of the frauds which are ubiquitous, illiterates are required to affix two passport-size photographs to the loan documentation. Rukmini approached one of the two studios to get her photo taken. When she went to collect the pictures, she was given one reason or the other for non-delivery.

The other studio did not help, when approached. This meant that she could not obtain the soft loan. As a result she was forced to go back to the usurious money lender to get the money, because rain gods would not have waited for her loan. Both the studios acted in cahoots with the moneylender.

Through a local consumer activist she complained to the local district forum under the Consumer Protection Act against the restrictive trade practice and the cartelised activity that the two studios were engaged in. She won the case and collected damages from the studio and the cartel was broken.

This real life example shows how cartels can operate at all levels in the country and sap the people and the economy. It also shows that the poor do benefit from action against competition abuses, if they can access justice.

The same situation can be projected onto the larger national canvas. But new laws such as the new Competition Act, 2002, alone cannot break cartels; we need policies to be amended to ensure that competition prevails, and the people benefit. Policies include trade policy, regulatory policy, etc.

On another occasion, a poor villager complained that he can now get a good drycell for Rs 2 each, which he had been purchasing for Rs 6, and felt very indignant. These cells were of Chinese make, and these are now available in India because we have had to free imports of consumer goods.

That was due to a trade policy measure that enabled prices to come down. A counter argument often heard is that the small units making such consumer goods are closing down as they cannot compete against cheaper imports, thus workers are getting thrown out of jobs. If one looks at government data, in fact, the number of small scale units, and resultant employment and exports, has actually been on the rise.

Indeed, some units will shut down due to attrition, while many new ones will continue to be set up, perhaps in newer areas. If we just take a look at the ball-point pen industry, then we can see the change which has been brought about. True, many small and tiny units making shoddy and leaky ball-point pens have shut down, while big brands have now occupy the scene. But aren’t ball point pens purchased by the poor also?

Examples of tied sales have also been seen. For instance, some bright bureaucrat thought of expanding the line of goods sold by ration shop dealers by adding razor blades, tea, etc. The intent was good, but the prices of these non-short supply goods were higher than the market prices.

When the poor consumers did not buy them, the shops started tied-sales, i.e., one had to purchase a quantity of tea and razor blades if one had to pick up the required quota of wheat and/or kerosene. The practice was stopped when the consumer movement raised cain.

So much about the goods sector. Let us look at the services sector. Independent regulatory policies in the utility sector is a good example of a competition policy measure meant to protect the interest of poor consumers. It does several things for the benefit of the poor, such as universal supply obligation enabling firms to supply its services to the poor, even in far flung areas. Alternatively it provides for budgetary support for the poor.

It is required to oversee consistent supply at benchmarked quality and quantity and provide a window for public participation in policy formulation and tariff-setting. In turn it will reduce corruption and make available an easy redressal system for the poor to resolve their grievances.

In sum, it is required to increase overall efficiency, thus furthering welfare gains. Indeed much more needs to be done as far as the regulatory and supply situation of our utilities, but one cannot argue against the utility of the framework.

This article can also be viewed at:
URL: http://economictimes.indiatimes.com/articleshow/msid-1277758,curpg-1.cms

Competition vs regulation — The best way forward

Published:The Hindu Business Line, September 16, 2005
By Pradeep S. Mehta

In the current draft amendment Bill on the Competition Act, the government has proposed mandatory consultation for regulators with the competition authority, as against the earlier provision of `may' consult. A welcome move, but better would have been an unambiguous coverage of behavioural problems in the domain of the competition authority.

A DEBATE is on in the country over the conflict between the to-be-set-up competition agency and the sectoral regulators. India still does not have an active competition authority, other than the inadequate MRTP (Monopolies and Restrictive Trade Practices) Commission, but speculation abounds on the likely overlaps between the two types of agencies — the competition authority and the sectoral regulators.

The problem in India arises due to various factors.

First, the competition agency will be under the Ministry of Company Affairs, while the sectoral regulators are under different ministries, such as the electricity regulator is under the Ministry of Power and so on. This can lead to turf battles between the ministries and come in the way of applying competition principles.

For instance, if the Competition Commission of India (CCI) takes an action against BSNL for any anti-competitive practice, the Communications Minister will surely want TRAI, as the sector regulator, to sort it out.

Second, sectoral laws, in their objects clause, provide for promoting competition. In fact, both sectoral regulatory laws and that on competition law are part of the competition policy rubric, which seeks to promote orderly markets.

Third, the CCI is yet to be set up properly, so there is little clarity about how it will function. Often there is a difference between the legal mandate and the operating culture, which is also moulded by court pronouncements. There is further confusion when a law does not contain the non obstante clause, or the non-derogatory principle that allows the operation of the law in pursuance of its own objectives even if there is conflict with another law. Usually all laws contain a non obstante clause, as otherwise there will be chaos. On the other hand, such a clause can promote forum shopping, and thus clarity can only be achieved through conventions and praxis.

There is overlap between the two regulatory institutions in other countries as well. But some have found good solutions, and embedded them in the law. Others have developed maturity and adopted good practices as conventions.

For example, in the UK, there is a concurrence party, where all regulators and the two competition authorities sit and decide on the best agency to deal with a case. It has worked fairly well. In India, this approach may not be the best, because of rampant egotism and rigid hierarchical structures. Furthermore, we follow a pernicious system of sinecures, where retirees are appointed to regulatory institutions. In the event of any consultation, etc., each will first look at the seniority of a person rather than the propriety.

Additionally, the Competition Appellate Tribunal in the UK is the common appeals body for the competition authorities as well as all sectoral regulators. It thus conveys the political will of the government to have smooth operations in the market regulatory structure.

This also ensures convergence in application of competition and regulatory laws on issues where there is overlap, setting healthy conventions. The Union Law Ministry and the Planning Commission favour of such a common appellate tribunal.

Unfortunately, each of the sector regulators (including appellate tribunals) is governed by the sectoral ministry, and none will give up turf for not being able to maintain any influence over the appellate body. This includes appointing retired secretaries to the government, who have been rather `close' to the powers, to these bodies, usually as heads of the regulatory body and members of the appellate tribunal. Many of these tribunals do not have sufficient workload to justify their huge expense and the associated trappings of power.

Second, is to have a common appellate tribunal to ensure harmonious application of both the laws.

There is a thin line between promoting and protecting competition. Indeed, the regulator is required to promote competition, as walso the development and health of the sector it regulates.

On the other hand the competition authority is required to protect competition in the market place so as to contribute to the economic development of the whole country. Further, the competition authority needs to maintain a firm stance on anti-competitive practices of the sector, or for that matter any firm in the marketplace, whether they are engaged in manufacturing or trading of goods and services.

A sectoral regulator is prone to be influenced by the sector, because of the frequent interaction between the two parties.

Furthermore, many of our sectoral regulators are manned by staff from the relevant ministry, thus defeating competitive neutrality because they have their biases and also a soft corner for the public sector player. On the other hand, a competition authority is an economy-wide market regulator and has much less chance of being influenced by any particular sector.

For India, France offers the best role model. First, France has divided the role of the regulators and the competition agency. Regulators are empowered to examine structural issues, while the competition authority looks at behavioural issues. Whenever there is an overlap, then it is mandatory for both parties to consult each other. This has been defined in both the competition law and the sectoral regulatory laws.

Brazil also offers a similar solution, where the competition law applies to all regulated sectors, and is administered by the competition authority. Of course, here too, the structural issues of a sector are dealt by the sectoral regulator. But they do consult the competition agencies.

In India, one problem in the structural area is of mergers and acquisitions (M&A) provisions in the Competition Act, 2002 which deals with them on the basis of some capital and turnover benchmarks. On the other hand, many of the regulators have their own guidelines on M&As, which may follow other requirements.

Such as the government guidelines on intra-circle M&As, which seek to ensure that there are at least three operators in a circle, and decisions are not based on capital employed or turnover. This could be an area of conflict, as to which law will apply to M&As in the regulated sector.

One issue that often comes into the discourse is the availability of subject matter experts with the specialist tribunal/regulator. It is absurd that none of our courts has anyone other than law professionals manning them. Whenever concerns were raised about the lack of technical/subject specialists, courts relied on technical advice and not necessarily on the arguments of lawyers.

The way ahead is quite clear. In the current draft amendment Bill on the Competition Act, the government has proposed mandatory consultation for regulators with the competition authority, as against the earlier provision of `may' consult.

It is a welcome step forward, but better would have been an unambiguous coverage of behavioural problems in the exclusive domain of the competition authority. Only then can we hope to have an orderly market place.

This article can also be viewed at:
URL: http://www.thehindubusinessline.com/2005/09/16/stories/2005091600401000.htm

Poverty must be eliminated soon

Published: HT Jaipur Live, September 12, 2005
By George Cheriyan

In 2005, poverty reduction is dominating the global policymaking agenda as never before. From September 14-16, world leaders will meet in New York at a UN World Summit to assess the five-year progress made in achieving the Millennium Development Goals (MDGs), which was declared in September 2000, at the dawn of the new millennium. Review of the efforts, to free the poor people from the abject and dehumanizing conditions of extreme poverty, is high on the agenda of the summit. The MDGs include pledges to halve extreme poverty, reduce child deaths by two-thirds, and achieve universal primary education by 2015.

Status of World Poverty
Various reports on the world poverty shows that over 1 billion people still live on less than $1 a day with nearly half the world's population (2.8 billion) living on less than $2 a day. 800 million people go to bed hungry every day. One third of deaths, some 18 million people a year or 50,000 per day, are due to poverty-related causes. Every year more than 10 million children die of hunger and preventable diseases - that's over 30,000 per day and one every 3 seconds.

About 621 million people in Asia and the Pacific lived on less than $1 a day in 2003, according to new estimates from the Asian Development Bank (ADB). Out of that about 327 million people lived in India. Hence reducing poverty remains a central challenge facing the country, and certainly its most important development challenge. The ADB report also presents poverty projections for Asia, based on different scenarios of economic growth and distribution. In a least favorable scenario, the number of people living in extreme poverty would be 347 million in Asia in 2015. Again the concentration would be in South Asia with 274 million.

Poverty in Rajasthan
Out of the 56 million (2001) population in Rajasthan, about 15 million, which comes to about 27 percent, are below the UN Poverty Level, though the controversial official BPL data shows much lesser (14%). Rajasthan's health indicators, especially of women and children, are amongst the lowest in the country, reflecting poverty. The reports of starvation deaths and low nutritional status of Saharia tribes is alarming as the whole region, is reeling under extreme poverty.

However Rajasthan Human Development Report (2002) says that the rate of decline of poverty in the state has been faster than that of the country as a whole. Thus, the report argues that the state is well placed to meet the challenge of reducing income poverty by 50 percent by 2015. We have to wait and see whether this challenge will be met.

Compact to end Poverty
Human Development Report (HDR-2005) entitled ‘Millennium Development Goals: A Compact among Nations to end Human Poverty’ focuses on MDGs. Released one week prior to the crucial UN summit, the report shows that while there has been substantial overall progress globally, many individual countries are actually falling further behind.

The Report calls for swift and dramatic changes in global aid, trade and security policies to fulfill the promises made by the international community through the millennium declaration.

Changes in economic performance influence poverty estimates. Tens of millions of people are living on the edge of poverty and remain vulnerable to the vagaries of natural calamities and other factors over which they have little or no control. Rapid poverty reduction requires not only high rates of economic growth, but also that the benefits of this growth be distributed more equitably.

Let us take all serious efforts and join camapigns to remind our own leaders and the world leaders, meeting at the UN Summit in New York, that the world is still watching and waiting for them to take tough decisions needed to stop the deaths of the 30,000 children a day killed by extreme poverty and to make poverty really history.

"WTO's new Director General Pascal Lamy had a stormy relationship with G-20
while he was working as European Union's trade commissioner. Will this change now?"

Published:The News, September 11, 2005
By Pradeep S Mehta and Pranav Kumar

By the time this piece is published, G-20's Bhurban ministerial meeting will be over. The meeting was held in the backdrop of two major developments -- one negative and the other positive. First, the General Council (GC) meeting in July 2004 ended without World Trade Organization members agreeing to the 'July Approximations' that would have prepared them for the Hong Kong Ministerial Conference. Secondly, a new director-general, Pascal Lamy, assumed office at WTO on September 1, 2005. Unlike in the past, people had eagerly awaited Lamy's arrival as new DG. This is due to the fact Lamy in his capacity as the European Union's trade commissioner was deeply involved in WTO negotiations ever since the launch of the Doha round of international trade talks in November 2001. In fact, he was one of the main campaigners for the launch of a new round of trade negotiations at Doha.

It would be interesting to see how G-20 goes along with the new WTO chief. Lamy, in his earlier incarnation as the EU Trade Commissioner, had to face some tough time because of G-20 and its member countries. At Doha, though at that time G-20 had not come into being, he had to fight a tough battle with India (one of the leaders of G-20) over the launch of a new round. The end result went in his favour. Two years later at the Cancun Ministerial Conference in 2003, it was again Lamy versus G-20. This time, however, Lamy couldn't sustain the G-20 pressure, which resulted in the failure of the ministerial meeting. Lastly, two of his three contenders for the post of WTO's director general came from G-20 member nations -- Brazil and Uruguay.

Lamy on his part left no stone unturned to break this formidable alliance of developing member nations. At Cancun, he never missed an opportunity to make India and Brazil realise their diverse interests on agriculture. Unlike India, Brazil being a member of the Cairns group wants ambitious trade liberalisation in agriculture. In addition, both the US and the EU tried to bully Argentina out of G-20. Argentina was facing serious economic crisis at that time and as a result relying heavily on IMF support. The EU even tried to divide G-20 ranks by taking up the route of a bilateral free trade agreement with Mercosur -- a Latin American group which combines Brazil, Argentina, Paraguay and Uruguay. It's no coincidence that all the members of Mercosur are also the members of G-20.

Now, the situation has changed. It is significantly different from what it was at Cancun. Lamy is no more the chief trade negotiator of the EU. Rather his main role as the WTO chief is to broker a deal through consultations. This is exactly what he said in his statement to the media upon taking office. "Members have the decision-making power. We can catalyze, we can broker. Sometimes, we can lead, but at the end of the day they take the decision, and that's why I have to start this series of contacts," Lamy said.

G-20 has also gained strength in the meanwhile. The group has got stronger by the day and is fast taking the shape of an institution instead of merely being an alliance.

The G-20 ministerial meeting at Bhurban, followed by similar sessions on other WTO-related agreements, is likely to prepare the groundwork for next month's General Council meeting. After the failure of the July General Council meeting to produce 'July Approximations' WTO members as well as the secretariat of the organisation are under immense pressure to release a draft ministerial declaration at the next GC meeting in October.

Tim Groser, the outgoing chair of committee on agriculture special session, in his last status report on agriculture negotiations did not hesitate from admitting that the agriculture negotiations were stalled and this was a reality. Given this fact, the Burbhan G-20 meeting and agriculture negotiations special session taking place thereafter are of extreme importance not only for agriculture but for other issues as well.

Agriculture negotiations are facing problems in all their three pillars, but more so on market access and domestic support. On market access pillar, the chairman of the session used a G-20 proposal for a tariff reduction formula, submitted at the mini-ministerial in Dalian, China, as a starting point for the most recent consultations. The ministers too agreed to consider the G-20 proposal as a basis for future negotiations. But later G-10 (led by Switzerland, Norway and Japan) rejected the G-20 proposal and the EU proposed a substantially different structure. The end result on market access by July end was that the negotiations were back to the square one.

The G-20 proposal is really being seen as the middle ground between the two polarised camps in the market access negotiations. The EU and G-10 favour a more flexible Uruguay Round formula while the US, Australia and New Zealand favour the more difficult Swiss formula. The G-20 proposes to use a linear formula, which would involve cutting each tariff line, on each product, by an agreed percentage within each given band. The G-20 proposes five bands for developed countries and four bands for developing countries. Tariffs will be grouped according to their levels and put into the bands, accordingly (for instance, one band may consist of tariffs less than 20 per cent and another of those between 20 per cent and 40 per cent, etc).

Domestic support is another issue on which there has been no progress since the July agreement last year. The US and the EU rotate between stalling and playing a game of tit-for-tat. The EU sometime ago categorically said that since it had agreed to phase-out export subsidies, the world should not expect much from it on domestic support.

Chairman Groser in his status report released last month underlined the need for two decisions. First, in the amber box, where most trade-distorting support is classified, the questions remain where to place the three largest contributors -- the US, the EU and Japan -- in relation to each other before agreeing to the percentage cut to their subsidies. Secondly, decisions need to be taken on the disciplines to apply on Blue Box payments that will reinforce the reform objective. However, the US has resisted negotiating additional disciplines which will determine just how broad the new blue box will be.

In the green box, it is unlikely that any tighter disciplines will be put on developed country spending, although a number of programmes eligible for green box status have been shown to encourage production (and thereby distort trade). The chairman in his report only urged the countries already using heavy green box payments to examine some proposals sympathetically for clarifying the criteria that will not undermine their reforms. This is like asking them to make their best endeavour, which has not yielded results in the past.

Unlike the other two pillars, the picture is relatively clear on export competition. The commitment by the EU to agree to a credible end date for the elimination of export subsidies remains an important step. However, the EU rejected the G-20 call for elimination of direct export subsidies within a five year time period. Parallel commitments in area of export credits are likely to follow but outstanding issues remain in relation to State Trading Enterprises (STEs) and food aid. On food aid, the US is proving the major stumbling block to reform and in particular to discipline the commercial displacement that results from some food aid imports. The US is joined in this position by some of the recipients of US food aid, such as Mongolia, which fear that without food aid they will lack access to food on concessional terms, something on which they are now dependent to meet their food security needs.

Agriculture negotiations are really in a mess. With time these negotiations are getting further complex as more formulas and proposals are popping up every time. This was one reason why people were so eagerly waiting for the arrival of Lamy as the WTO head. Other than him, who else would know the intricacies of agriculture trade negotiations? Now, it remains a challenge for Lamy as to how he unties the Gordian knot of agriculture trade negotiations. He can use his influence to win over the US the EU and G-10 countries so that the imperiled Doha round is brought back on track. At the same time he will have to team up with the G-20 to win over other developing countries.

The Indian telecom sector is booming, with the number of subscribers having crossed the 100-million mark, with mobile services leading the growth. Tariffs have tumbled, said to be the lowest in the world. Despite low tariffs, 30% of mobile subscribers are willing to shift to an operator offering better service, according to a recent study conducted by the International Data Corporation.

This is not surprising, as with growth, quality of service has taken a beating too. Trai’s data shows a significant increase in consumer complaints. Network congestion, call drops, etc., are common complaints. Interconnectivity between GSM providers and non-GSM or DoT systems appears to be intentionally sabotaged, and it takes many attempts to connect. Billing is another big problem. Trai’s Quality of Service (QoS) survey reports that the billing parameters of all operators are below established norms.

Lowest tariff in the world is nothing to cheer about, because you and I know that monthly charges have actually increased. Providers have found ways of fattening their coffers by charging for unwanted services.

Examples abound: SMS undelivered or sent to invalid numbers gets charged! Several times due to congestion or a shortcoming in the network, the call drops, even when it is connected. Adding insult to injury, we are charged for these short duration calls for no fault on our part!

Similar practices lead to huge bills, in contrast to what is expected on the basis of simply, low tariff rates. Early this year, through a common charter of telecom services, operators agreed to achieve the minimum prescribed QoS benchmarks. Faced with high standards, they are now lobbying for lowering them. This clearly highlights the gap between intent and practice. Trai should be enabled to impose penalty for non-compliance.

Number portability is also desirable as it would put pressure on service providers to offer quality service or run the risk of losing customers.

Competition and the UPA regime

Published: The Economic Times, August 19, 2005
By Pradeep S. Mehta

The UPA government has been in office for over a year and it is time to assess its performance on the touchstone of competition as laid out in the National Common Minimum Programme (NCMP), which inter alia, states: “The UPA government believes that privatisation should increase competition, not decrease it. It will not support the emergence of any monopoly that only restricts competition. All regulatory institutions will be strengthened to ensure that competition is free and fair. These institutions will be run professionally”.

The most significant achievement over the past one year has been the implementation of the value-added tax (VAT). This is a big step forward in moving towards a single market for the country as a whole, and promises to remove several distortions in the market place.

True to the spirit of the NCMP, certain measures have been taken to end the monopoly of incumbents. For instance, monopoly of GAIL in gas pipeline infrastructure is set to end. Private operators have been allowed in the movement of container trains, thus bringing an end to the monopoly enjoyed by Concor.

Measures were taken to ensure level-playing field in certain areas. For instance, guidelines have been issued that puts major port trusts and private terminal operators at par on tariff determination. The new petrochem policy seeks to address the inverted import duty structure that disallows competition and cripples units producing finished products.

Civil aviation has been one of the active sectors on the policy radar. The restructuring of Delhi and Mumbai airports is under way. Private airlines have been allowed to fly to foreign destinations, providing a platter of choices, and competitive prices, to consumers. However, the lucrative Gulf sector continues to be reserved for the public sector. Furthermore, domestic airlines with less than five years of experience have been kept out. Despite all the efforts, the long awaited civil aviation policy has still not been finalised. Even the proposal to establish a civil aviation regulator has not seen the light of the day.

Oil was another sector that generated a lot of news due to the spurt in international crude prices. There is absolutely no transparency in the pricing of petroleum products, and both the government and oil companies continue to reap benefits from distortionary policies and practices, at the cost of consumers. Hence the government’s proposal to set up a Petroleum & Natural Gas Regulatory Board is welcome.

The government seems to be continuing with discriminatory policy to meet its commitment of a strong and effective public sector. The recent announcement to extend the purchase preference policy for central PSEs for another three years is one example. The continuation of Access Deficit Charge (ADC) payments to BSNL is yet another instance. There are several such examples which distort the competitive neutrality principle!

As promised in the NCMP, the National Manufacturing Competitiveness Council (NMCC) is preparing a draft strategy paper to suggest measures for enhancing competitiveness in certain sectors. However, there are several competition concerns, which affect the competitiveness of manufacturing sector. For instance, Reliance is a dominant player in polyester staple fibre (PSF) with a market share of 85per cent while IndoRama produces the rest. Together, they are following an ‘exploitative pricing policy’, which affects the competitiveness of textiles, a huge growth area.

In several commodities the government continues to follow an inverted duty structure that hampers the competitiveness of domestic goods. For instance, while import duty on natural rubber is 20per cent, the duty on imported finished tyres is only 10per cent. While crude palm oil attracts customs duty of 65per cent, import of vanaspati attracts much lower rate of duty at 30per cent. These anomalies cause distortions in the market.

It would therefore be good if the NMCC also examines how government’s policy and lack of an effective competition law affects the competitiveness of Indian manufacturing industry. This also requires active involvement of the Competition Commission of India. However, despite being mentioned in the thrust areas for policy implementation in six months identified by the PMO for 2005, the fate of the Competition Commission is still vague.

In the absence of a working competition law, the economy continues to suffer from myriad abuses. Thus, deals such as the recent one between Videocon and Electrolux that is likely to reduce competition in the lower end of the consumer durables market, go unchecked.

The brouhaha over trade margins on medicines is still to be resolved. The country has moved to the product patent regime, which provides for an enabling provision for compulsory licensing. However, the role of Competition Commission to examine matters relating to abuse of IPRs does not find any mention.

The government needs to make a competition assessment of all its policies and practices. This calls for the adoption of a national competition policy to provide guidelines in maintaining the appropriate competition dimension.

On balance, the government has shown the right intent and there have been some major policy announcements, but the action on the ground is still to come. Moreover, most of the efforts have been half-hearted, which need to be reinforced by taking a holistic view so that their full benefits can be realised. Given the huge agenda that lies ahead, the real test of government’s performance has now begun.

Children deprived of their childhood

Published: Hindustan Times, Jaipur Live, August 8, 2005
By George Cheriyan

IN INDIA, ‘child domestic work’ is commonly practiced. Domestic work is conventionally regarded as a 'safe' form of employment. Child Domestic Workers (CDWs), as the term implies, are children working within the homes. That means children working for wage in cash or kind, outside their families in domestic chores and not for commercial purposes. This refers to situations where children are engaged to perform domestic tasks in the home of a third party or employer. They are within the households of employers and thus are invisible to public scrutiny. In addition, they do not exist as a group and are difficult to reach and to count.

Domestic work belongs to informal labour market, is un-registered and does not show up in the employment statistics. The ‘invisibility’ of child domestic workers also derives from the fact that the majority are girls. In many value systems, girls’ and women’s work is still economically disregarded. In some societies, where using children as domestic workers is not recognised as ‘child labour’ but as a normal feature of society.

National Situation and Legal Framework
India employs the largest number of working children in the world. A survey states that every third household in India has a working child. About 17 percent of domestic workers in India are under 15 years of age and majority of them are girls. Though the problem is so serious, in many cities in India, there is no official data.

The United Nations has recognised domestic work as a contemporary form of slavery. As defined in the International Labour Organization (ILO) Worst Forms of Child Labour Convention (No. 182), 1999, the child domestic work constitutes a worst form of child labour. Government of India (GoI) has not ratified this convention yet. The Child Labour (Prohibition & Regulation) Act 1986 prohibits employment of children below the age of 14 years in factories, mines and hazardous employments and regulate the working conditions of children in other employments. But unfortunately, child domestic workers are not covered under this Act.

Situation in Rajasthan
Large number of children is employed in the Gem and Carpet Industry in Rajasthan. In Gem industry, the children are generally put to work for cutting, polishing and shaping the stones. The grinding work is best done by children. About 30 percent of the workers are less than 14 years of age and amongst them girls are in a majority. Female children are treated even worse than the male children. Children work up to 10 to 14 hours a day, but the practice is not checked. Large number of children works in the wooden loom manufacturing rugs, too. In this trade in Rajasthan the percentage of girls are about 90. But no concern for the welfare of the children working in these industries is shown.

But with regard to the CDW, no official survey is conducted or data is available in Rajasthan.

Conclusion
The exploitation of child domestic workers remains hidden from wider society and there is both a lack of legal safeguards to protect them and reluctance on the part of the authorities to intervene in an area that is regarded as private because it occurs in the home. Considering the seriousness, GoI need to take urgent action to add child domestic labour to the list of prohibited (hazardous) activities under the Child Labour (Prohibition & Regulation) Act, 1986.

A government regulation already exists that bans government employees from employing child domestic labourers. This implies that the Government already recognises child domestic labour as a hazardous occupation

Government should also take steps to ensure that children who are affected by such a change in the law are not harmed by it. India need to immediately ratify ILO Convention 182.

Food subsidy: How to reduce the bill

Published: The Hindu Business Line, August 05, 2005
By Pradeep S. Mehta &
Manish Agarwal

The food subsidy bill, consisting largely of farmer and consumer subsidies and support to the Food Corporation of India, has spiralled in the last ten years. A combination of measures, including new marketing avenues through co-operatives, price insurance and competitive bidding, may ensure equal benefits to producers and consumers.

THE Finance Ministry is preparing a roadmap for a new focused subsidy regime targeted at the poor in accordance with the objectives set out in the National Common Minimum Programme.

This article proposes to analyse food subsidy — the single largest component of the government's subsidy bill. Over the past decade, there has been an almost ten-fold increase in the food subsidy bill.

The bill comprises subsidies to farmers through minimum support prices (MSPs), support to the Food Corporation of India (FCI), and consumer subsidies through the public distribution system (PDS).

Distortions and inefficiencies in the way these subsidies are delivered have led to mounting bills without commensurate benefits to the beneficiaries.

According to estimates, the cost of transferring a rupee to the poor through the PDS is Rs 6.68. The food subsidy policy through the MSP-PDS operations seems to be serving `conflicting' objectives of ensuring remunerative prices to farmers on the one hand, and providing the procured foodgrainsto the poor at affordable prices, on the other. This results in a huge gap between the purchase and the issue prices, and consequently a large subsidy bill.

The situation is aggravated by the nature of purchases by the FCI; that of buying all kinds the grain at the declared price. This inflates the bill and results in a build-up of stock compounded by poor offtake. Thus to run the excessive stocks down, foodgrains are often exported at near PDS prices.

As for the support to farmers, purchase operations are confined to Punjab, Haryana, Western Uttar Pradesh, Andhra Pradesh, and Chhattisgarh, where the majority of farmers are anyway quite well off.

Distortions also exist in the marketing of agriculture products. A recent NGO study, "Towards a functional competition policy for India, 2005" revealed a huge gap between the price consumers pay and what farmers receive. This is because of the chain of intermediaries that do not always work in a competitive manner.

There are leakages and diversions in the PDS system. The study "Food stamps: A model for India" by the Centre for Civil Society, suggests that only 25 per cent of the grain actually reach the poor. A recent study by the Planning Commission, "Performance evaluation of the TPDS", shows that leakages from the targeted PDS (TPDS) are higher than those under the PDS, which it was meant to replace. The TPDS introduced a dual price system. A shopkeeper sells the same grain to different classes of consumers at different prices. The system is thus open to distortion.

The procurement of foodgrains through MSP mechanism needs to be separated from the PDS operations. MSP operations should be confined to providing support to small and marginal farmers and to using the food grains so procured to create a buffer-stock.

The buffer-stock requirement should be determined well in advance. The FCI's role should be limited to this aspect of procurement. Decentralisation of procurement will ensure that benefits are spread out evenly.

A system of price insurance could benefit small and marginal farmers who miss out on the opportunity of selling their surplus at the support price because of the close-ended purchase operations. Furthermore, alternative avenues for sale and purchase through cooperative marketing agencies should be developed to dilute the market power of private traders.

Innovative marketing mechanisms such as apni mandi and producer's sales counters in consumer centres should be promoted to ensure benefits to producers and consumers.

Second, procurement of foodgrains for distribution through the PDS should be done through competitive bidding. Procurement for PDS operations should be entrusted to a State-level agency, say, the State Civil Supplies Corporation. The idea is to ensure that an agency is not entrusted with meeting conflicting objectives.

Alternatively, food coupons could be introduced. The system can be introduced in areas that are not adequately covered by the PDS on a pilot basis and gradually scaled up. This would allow beneficiaries to purchase approved food items from a regular approved shop in the market.

Panchayats and NGOs should be mobilised to participate in identifying target beneficiaries and be involved in design, implementation and monitoring of food distribution systems. They should be resourced to create awareness among consumers about what they are entitled to under the programme.

A grievance redress system should be established and NGOs should conduct social audits of the schemes. The list of beneficiaries should be made public.

The proposed system would ensure that subsidies are transparent, targeted, and designed for effective implementation without any leakages.

For peace to reign, prepare for trade

Published: The Business Recorder, Pakistan, June 25, 2005
By Pradeep S. Mehta & Huma Fakhar

A foundry equipment manufacturer in India procured an order of Rs 7crores for supplies to a new foundry in Pakistan in 2004. The equipment was routed through Dubai with all signs of India removed from the machinery. The Pakistani importer had to pay at least 17 percent more than what he would have paid if he could have imported the equipment directly from India.

In any case the cost of similar equipment from other countries would have been higher by at least 35 percent, so the Pakistani businessman soundly bought the equipment from India. When he will need to buy spare parts, he would follow the same circuitous route. Similar experiences obtain in many such situations, where goods worth hundred of crores from India and Pakistan are bought through either a circuitous route or clandestine channels.

However, times seem to be changing and the greater social impacts seem to have made everyone alive to the fact that every action does have its rather, grave, economic implications which cannot but be taken into account. Regional and bilateral trade, more often than not, have been the first casualty in cross-border conflicts. It's a double whammy and therefore, costs tend to be multiplicative rather than additive in their emergence and effect.

A simple back of the envelope calculation of such costs indicates that costs of conflict in addition to the costs of lost trading opportunities more often than not constitute a not so significant proportion of GDP. Had it not been for these costs the impact on social development could have pushed most countries engaged in cross-border conflict a few notches up the HDI. Conflict deterrence, therefore, seems appropriate and a Rupee saved, is therefore a Rupee earned. In times of fiscal stringency with ever widening costs of running a country, such cost cutting efforts are most welcome.

More significant are the costs to the consumer and the producer - the most significant segments of the social dynamo. A look at Indo-Pak trade is rather instructive about the need to make economics central to all our efforts.

Admittedly, Indo-Pakistan trade is competitive rather than complimentary, and according to some trade pundits, there is little scope for expansion. However, a large informal, illegal, border, call it what-you-like trade indicates the contrary.

Though official bilateral trade figures are pegged at slightly less than $400mn, illegal trade is $1.5-2bn. Informal trade, through third country like the foundry equipment purchase, is another $1bn. Some talk of a range of $2-8bn! Official trade figures apart, informal and illegal trade are mere guesstimates. Nevertheless, they indicate the huge potential for trade.

The size of market demand, therefore, cannot be dismissed as piffle. Business on either side hunts for market access, market penetration, market share in all regions except in countries with contiguous borders. Does it make sense or is it force of circumstance? Obviously the latter. Going by the unofficial figures, who wouldn't want to trade with there neighbours.

In all this number crunching, the plight of the consumer and the producer, be it in India or Pakistan is rather unenviable. The Pakistani consumer pays higher costs virtually for every commodity coming from India, primarily because of a round-about the consignment takes to reach from India to Pakistan. Also, something available in the neighbourhood, is not permitted becomes more costly at the point-of-purchase, being sourced from a costlier supplier. India should consider a preferential tariff and reduced non-tariff barriers formula for Pakistan.

A Bilateral Investment Treaty can readily neutralise the supply side constraints in Pakistan and the fear of being swallowed by the giant Indian economy. At the end of the day despite huge trade deficits countries have not stopped trading with China. Even Nepal, Bangladesh and Sri Lanka have FTA's with India. If it's only politics pulling Indo-Pak back, then the new norm needs to be reiterated, which is, economics will drive politics for all future and practical purposes.

India should not be looked as a competitor alone, for sure India will win the numbers game in the short run due to its huge market size, however, Indian market should be eyed as the hub of investments and transfer of technology not alone for Pakistan but for the whole region.

At present, Pakistan, which has one of highest per capita consumption of tea, imports 150mn kgs mainly from Kenya, even though Pakistanis prefer Indian tea. India didn't buy from Pakistan directly. If it did, as is experienced today, the Chana (chickpea) in our dal in Delhi would be much cheaper being sourced through Wagah than from Maharashtra!!. Zinetac, a patent medicine for acidity, sells in India at Rs 7.20 for 10 tablets; it retails in Pakistan for between Rs 80 and Rs 150.

For decades, Pakistan imports iron ore, rice and sugar from Australia, Indonesia and Brazil respectively. If we take just another example of Suzuki motor cars, Pakistanis pay more than twice as much than what an Indian would do in India. The spare parts of the car are believed to cost nearly seven times as high. Instead, it could have been imported these from India, and enjoyed lower transport costs. Do we see an opportunity here?

Significantly, in times of crisis we knock on our neighbour's door. In 1990, India helped Pakistan tide over a potato and onion crisis, and during a sugar shortage in 1997, it imported 50,000 tons of Indian sugar. Recently, too, Pakistan sourced meat, tomatoes, onions, garlic and potatoes from India, duty free, to rein in prices and meet domestic demand.

Similarly, in 2003 India sourced enormous consignments of grains from Pakistan due to an emergency. Where else could both have acquired food supplies on an emergency basis but from its neighbour? It is expected that if importers decide to pass through the price differentials domestic prices would drop by 15-20%.

On the other hand, Pakistani industries and engineering sector can benefit from the import of machinery and basic and intermediary raw materials to reduce the costs of capital goods and machinery as well as the finished goods. Pakistani textile industry can be the single biggest beneficiary because Pakistan leads India in coarse counts 20s and below and India leads Pakistan in fine counts 40s and above.

In addition, India needs to source woven fabric from Pakistan; one of the heaviest and more recent investments made by Pakistan textiles sector is in the woven sector, what could be a better market? Allowing the import of capital goods and machinery from each other will offer substantial savings in freight costs and time due to the geographical proximity.

Economics has assumed a pivotal role in the foreign policy exercise among nations since the end of the Second World War. History bears testimony to the fact that even countries of the war-ravaged Europe displayed a vision by deciding to set aside their mutual political and security problems for widening their bilateral and multi-lateral economic interactions.

Let's learn from the humble housewife, who seems to have more economic wisdom than the political masters of our countries. Buy from the cheapest source, in commercial language called "forum shopping" shopping from the most cost effective forum/source. After all we just happen to be neighbours. What if our politics makes a little noise!

Fitter referees for a competitive economy
We appear to be inching towards consensus on a more effective regulatory framework

Published: The Financial Express, June 25, 2005
By Pradeep S. Mehta & Vinayak R. Pandey

The Planning Commission is burning midnight oil to finalise its recommendations to the government for setting up an ideal enabling framework for infrastructure regulation across all sectors. It is engaged with several stakeholders to get their views on board, and a general consensus appears to be emerging on several counts.

Whether we need independent regulatory bodies, or should carry on with business-as-usual, of government continuing to handle this function, is now fairly settled. The thinking is on to how to empower the existing regulatory agencies and make these more effective, by learning from past mistakes. Such wider acceptance of independent regulation is evident from the fact that the demand for setting up regulatory agencies in those sectors where we still do not have one is gaining momentum every day. After having regulatory bodies for telecom, ports and electricity sectors, more are likely to be established for aviation, petroleum and gas, and transport sectors soon. The queue is getting longer with time.

Curiously, it is not only businesses who see a better future; it is consumers as well. This echoes the demand for separating the day-to-day regulation from policy formulation and on handing over the former to specialised and autonomous bodies. A consensus appears to have emerged on imparting regulators with required functional autonomy, which would mean imparting necessary decision-making powers to perform. The little experience that India has had so far with independent regulation suggests that regulatory bodies cannot be effective without having functional autonomy.

In the Indian context, the line ministry is viewed as the most potential source of likely threat to regulatory autonomy. Of course, there might be several other possible sources that can undermine the regulator’s autonomy. For instance, regulatory capture by business interests. Another issue on which an agreement seems to have largely emer-ged is about having an omnibus appellant tribunal for all sectoral regulators, with subject experts in corresponding benches. Further, one pioneering thought is to have an omni-bus law which will lay out the regulatory framework, for adoption by the relevant ministries. This need is being felt due to various variances in the sectoral laws, which are being drafted by various line ministries without adhering to the evolved best practices.

• Regulatory bodies need functional autonomy to be effective

• The trick is to find an agreed way of combining this with accountability

• An imaginative approach, such as get-ting Parliament to monitor, is one way

Yet, there are many issues which remain unresolved. The opinions are diverse and, quite often, contradictory. However, interestingly, even mutually contradictory arguments have equally valid concerns and substance at times! This explains why the matter is so complex. For instance, we still have to hammer out a workable solution to hold regulators effectively accountable on a sustained basis, without compromising on the autonomy. There are several other tricky issues, which do not have easy answers. Despite having a near-consensus on providing the regulators with financial autonomy, opinions are divided about the manner in which it should be done. While there are strong arguments in favour of allowing regulators to raise funds through the imposing of a cess, there are genuine concerns as well. Perhaps, we need a combination of both approaches, i.e. stable state funding, and allo-wing the regulator to impose a small cess. As in some other cases, the debate on this issue still remains inconclusive.

A possible overlap of functions between the sectoral regulators and the competition authority is another area on which views are entirely divided. Either the sectoral regulator and the competition authority can be empowered on an exclusive basis. The other option is to provide for joint jurisdiction, with clear functional demarcation. Presently, the Telecom Regulatory Authority of India Act does not prevent the competition authority from looking into competition dimensions. However, the Electricity Act, 2003, empowers the regulator to solely decide about competition dimensions, without recognising any possible role of the competition authority.

Therefore, prior to taking a firm decision, we must explore the arrangements in other parts of the world in this regard and the relative effectiveness. In this context, recently, a roundtable was organised by our organisation, that attracted a heterogenous group, including practitioners, politicians, academicians and opinion makers. The con- sensus which emerged was that since the regulator does not report to the line ministry concerned, the latter should not be expected to defend the decisions made by the former in Parliament. However, the line ministry cannot get away with possible systemic and process-related deficiencies.

It was suggested, given that the count of sectoral regulators in the country is set to grow, it would be appropriate to constitute a Parliamentary Standing Committee on Regulation. In such a scenario, regulators should be held accountable to the Standing Committee and the latter should be empowered to summon a regulator as and when required, to explain the possible systemic flaws, such as repeated setting aside of regulator’s orders by appellant authority. Though the effectiveness of this arrangement can be contested, the message is that of using imaginative approaches and moving towards a consensus at the earliest possible opportunity. The Planning Commission is seized of this fact, that the issues are fairly complex and challenging. Therefore, it plans to launch a discussion paper, with the expectation that it will be able to bridge the gaps, sooner than later.

Petro subsidies: Flawed basis

Published: The Hindu Business Line, June 21, 2005
By Pradeep S. Mehta & Manish Agarwal

THE Government has raised the prices of petrol and diesel, while kerosene and LPG have been spared. Prices of petrol and diesel had remained frozen since November 2004, despite international crude oil prices going up to $55 per barrel on several occasions. The oil companies have been clamouring for an equitable share of the burden, citing their shrinking bottomlines.

The Minister for Petroleum and Natural Gas, Mr Mani Shankar Aiyar, had suggested that all stakeholders — oil companies, consumers and the government — share the burden.

The Government's share of the burden is estimated at Rs 3,553 crore , which comprise subsidies on domestic LPG and PDS kerosene. Besides, the oil industry's share is estimated at Rs 20,310 crore, on account of the under-recoveries on petrol, diesel, LPG and kerosene. The total burden shared by these two stakeholders is about Rs 24,000 crore.

Considering this figure as the benchmark, a part of it is going to be transferred to consumers. But is this the real extent of the burden?

The method of calculating subsides on domestic LPG and PDS kerosene is based on import parity pricing of petroleum products and not unrecovered costs (which is more appropriate). Therefore, the subsidy amount being based on a flawed methodology results in misleading figures.

While the burden of subsidy is itself inflated, the Government mops up a large amount from the oil sector as indirect taxes, most of which is passed on to the public.

Compared to other Asian economies, India's levies on oil are high. The total tax revenue from the oil sector stood at Rs 1,10,000 crore in 2003-04 (Rs 69,000 crore went to the Centre, and the rest to the States).

Additionally, the Government imposes a `cess' on indigenously produced crude and collects about Rs 6,000 crore annually from the public. The cess was introduced in the mid-1970s to provide financial assistance to state-owned companies. Over the past three decades, the government has collected about Rs 50,000 crore as cess, and almost all of it has gone into the Consolidated Fund of India.

The rate of cess was doubled in March 2002 on grounds of providing subsidies on LPG and kerosene (but it was never intended to cover subsidies). This cess has become an arrangement to meet the petroleum subsidy burden. Considering the amount of petroleum subsidy vis-à-vis the cess amount collected, there is no net burden of petroleum subsidy on the Government. In fact, the Government is collecting much more than the burden it claims to be sharing.

Even oil companies are reaping profits from the current pricing system. The import parity allows oil companies to factor in the Customs duty to arrive at the import parity prices. Since the country does not import petrol or diesel, the amount collected as notional Customs duty from the public, estimated at Rs 10,000 crore, goes to bolster the financials of oil companies.

There is absolutely no transparency in the pricing of petroleum products. The government and the public-sector companies would seem to be making money from distortionary policies and practices. The claims of a huge subsidy burden and bleeding oil companies are exaggerated, as most of the burden is borne by the consumers.

Additionally, consumer interest is harmed by the government stifling competition in the sector. According to a paper by the Oil Ministry, state-run PSUs make considerable profits due to monopolistic practices.

A significant step towards introducing competition was to allow private parties to import, and market kerosene and LPG at market-determined prices. However, since only state-owned oil companies are permitted to market subsidised petroleum products, the non-targeted subsidies offered to the PSU oil companies (in terms of concessional pricing) distort the market, and restrict the ability of private retailers to compete effectively.

Further , the LPG Control Order specifies that cylinders, regulators and valves to be used by the parallel marketers have to be distinctly different from that used by the public sector oil companies. This reduces the freedom of LPG users in switching from one supplier to the other, restricting competition.

One of the most significant threats to sustained economic growth of the country is the global oil scenario. This requires an effective conservation strategy, which can be feasible only if prices of petroleum products are determined transparently and allowed to reflect in their economic cost.

The Government's intervention in the sector needs to be rationalised to facilitate the market process with subsidies targeted at the poor and the really needy. The petroleum sector requires a comprehensive competition framework and not stringent regulations.

The prevailing tax structure needs an overhaul. The import-parity pricing regime should be dismantled and oil companies allowed to charge market-determined prices. A price stabilisation fund must be created to take care of spikes in international crude prices. A petroleum and natural gas regulatory board should be established to foster competition and ensure transparency in the determination of prices of petroleum products.

These measures will ensure that prices of petroleum products are determined by market forces — free from distortions. They will also help in determining the real extent of the subsidy burden, which is expected to be much lower.

The subsidy on LPG can be removed as it largely benefits the high-income group in the urban areas. All these measures will ensure lower burden on consumers.

A cautious approach is required in providing kerosene subsidies as nearly half the rural households use this fuel for light and heat. For better targeting, coupons may be issued with entitlement to purchase kerosene from a retailer at the subsidised price. This would discourage diversion of subsidised kerosene to other sectors.

A list of beneficiaries and local level agencies involved in monitoring kerosene distribution could be made public.

Competition policy for 10% growth

Published: The Economic Times, June 16, 2005
By Pradeep S. Mehta

Your recent pronouncement, dear prime minister, that the country will not be able to cross 7% growth rate is perhaps right, and catharsis must begin from this confession. Much more needs to be done than just pursuing growth strategies. The NCMP has recognised widely that competition needs to be promoted to achieve higher growth.

But declarations are not enough. If we adopt a competition policy and promote competition in the marketplace, we can achieve at least 10% growth rate, let alone 8%! A well-designed and implemented competition policy promotes economic growth by ensuring better allocation of resources and proper functioning of markets.

A study carried out for the Australian economy in the ’90s estimated the expected benefits from a package of competition-promoting and regulatory reforms (including improvements in the competition rules) to be an annual gain in real GDP of about 5.5%. Of course, the Australian and Indian economy are not alike. Unlike in Australia, corruption distorts competition in India, causing huge delays in implementing projects and starting businesses. It is estimated that the GDP is affected by nearly 2% due to this. And yet, a double-digit growth is quite attainable.

Recently, CUTS has published a research report: Towards a Functional Competition Policy for India, which has thrown up interesting data. It was seen that it is government policies in many cases, both at the Centre and at the state level, that distort competition. Coupled with regulatory failures, the cost of these anti-competitive policies and practices to the economy is huge. On the issue of adopting a competition policy, some of the policy makers and opinion leaders that we lobbied, asked why do we need a competition policy now that we have a new competition law. You too may ask the same question. My response is quite simple. Competition policy and competition law are two distinct concepts.

Unfortunately, most of the policy community considers both terms synonymous and interchangeable, which is not the case. Though we have liberalised trade, some elements of the policy regime have severe anti-competitive dimensions, such as the use of anti-dumping measures. Competition law is but a subset of competition policy. Besides encompassing the law, competition policy tries to bring harmony in all government policies that affect competition and consumer welfare, such as trade policy, industrial policy.

The country, as you rightly said, has a competition law, but not a policy. And we require one. It is another story that the competition law is itself in a quandary.

The corollary to the above query is, why competition policy? Won’t the competition law suffice? Distortionary elements also exist in industrial policy, labour policy, etc. Then, there are several policies/practices at the level of state governments that lead to anti-competitive outcomes. These cannot be checked under a competition law, but need policy responses.

For example, many of our states implement their excise policies in such a way that liquor lobbies collude and fleece the consumers through exploitative pricing. The collusion also leads to revenue losses. The proposed competition authority cannot act against a policy-induced cartel.

Secondly, other forms of pernicious cartels exist in the construction sector and the trucking industry. The other day, farmers were up in arms against the truck unions in Sikar, Rajasthan, because of exploitative pricing, while threat of violence against competing trucks leave farmers at the mercy of the local truck union leaders.
In the public works construction sector, in nearly all activities contractors not only corner the market but also fleece the treasury by executing poor quality work. Most of the supervising engineers are happy with their standard ‘commissions’, and hardly ever bother to check either the collusion or the quality. Therefore, there is an urgent need to do strong policy advocacy to rationalise the role of the government, so that its intervention promotes the functioning of markets, rather than impeding it. A ‘competition audit’ of all new and old policies will help the government to promote competition.

What is the role of competition law and policy in a country where there is significant illiteracy, unemployment and poverty? Incidence of poverty, etc is a stark reality of our country. Distortions in markets hurt the poor the most. Let’s take the agriculture sector, for example. The market for agricultural products is often considered to be an example of a perfectly competitive market. However, there is a huge gap between the prices consumers pay and the prices received by farmers, due to a chain of intermediaries that do not always work in a competitive manner. For example, paddy millers in some areas often collude and pay low prices to farmers, but charge a high price for rice to consumers.

In the same context, the freedom of moving farm goods to the market which can deliver best prices is throttled by the myriad regulations which operate at the local level. The central government is trying to push states to adopt the new Agricultural Produce and Marketing Act, which can liberalise the movement of agriculture produce. But, you know how responsive the states are. Granted it is a state subject, but surely there can be a public debate about this, and our farmers’ organisations be made aware of the facts, so that they can campaign for freer markets.

In a country where two-thirds of the people draw their livelihood directly from agriculture, the linkage between market imperfections in agriculture goods and poverty is manifest. This is where competition law and policy can play a key role. It also needs to be understood that competition law is not a luxury of the developed world, but one of the necessary tools for developing countries, in their fight against poverty.

In January, 2005, through the front page of this newspaper, you had asked people to adopt this year as the ‘can-do’ year. We can do it, so can you.

Bandung II: New hope for the poor?

Published:Daily Mirror, Colombo, May 23, 2005
By Pradeep S. Mehta

Leaders of 106 countries from Africa and Asia representing about three-fourths of humanity met in Indonesia in April to reinvigorate the spirit of 1995. The Bandung Conference led to the emergence of the Non-Aligned Movement and was the first step towards promoting South-South Cooperation. Bandung I was more political in nature as most of the participating countries had got their political freedom very recently, much of Africa was still under colonial rule and a significant part of South-East Asia was still living under the shadow of US imperialism.

The world is a much different place now and the political objectives of Bandung I have been more or less achieved. The same, however, cannot be said in terms of economic aspirations of the countries. Though much of Asia has made significant progress, Africa remains far behind. Notwithstanding the much-talked about South-South Cooperation, a large part of Asia became closer to Americas particularly through the APEC while Africa has moved closer to Europe through the Lome Convention (and Cotonou Agreement).

Meanwhile, the importance of South-South cooperation was recognised by the global community as a whole and the UN General Assembly established a UN Day for South-South cooperation (December 20). However, South-South cooperation received a new meaning in 1999, as the High-level Committee on the Review of Technical Cooperation among Developing Countries (TCDC), in its eleventh session resolved that South-South cooperation should be viewed as a complement and not a substitute for North-South co-operation. This effectively meant that the committee was of the view that a North-South-South cooperation was needed. Thus, came the recognition for the importance of trilateral development cooperation.

As recently as on 1-2 February 2005, the Development Assistance Committee (DAC) of the OECD and the UNDP jointly organised the Forum on Partnership for More Effective Development Co-operation at Paris to promote greater dialogue and mutual understanding among the world's principal providers of development co-operation. The Forum brought together for the first time the members of the OCED with a wide range of non-OECD governments and institutions involved in development co-operation and South-South initiatives. The Forum agreed that South-South and triangular co-operation could improve the aid efficiency and effectiveness in emphasising ownership and inclusive partnership.

Trilateral cooperation does not necessarily mean involvement of three partners only. It is a kind of partnership where three or three groups of actors are involved: donors, technical assistance providers and the recipients. This form of cooperation got extended when some developed country donors started involving agencies and experts from other developing countries. This was done through both involvement of other developing country government or that of private or non-governmental organisations. CUTS International, an India-based NGO is engaged in capacity building on trade, competition, consumer protection and investment issues in several developing countries under the trilateral cooperation framework. A recent example of such a cooperation is the CUTS project in Africa involving capacity building on competition and regulatory issues in seven countries of the region. The project is being supported by the Norwegian and British governments.

Bilateral assistance programmes have very often been criticised for its tied nature by which aid is tied to the donor country's provision of goods and services. Another issue related to tied aid is that when the donors tie up with local (donor's home country) technical assistance providers, there is a possibility that monitoring by the donors may get relaxed as they are likely to develop alliance. A third country provider of technical assistance is far less likely to develop such a relationship with a donor and hence monitoring is likely to be more rigorous. Hence, trilateralisation may bring more accountability in the implementation of development programmes.

It is well recognised now that importing technologies or policies or legal practices from developed countries may not be appropriate for most developing countries. It may be better for them to draw these from countries that are developing but yet at an advanced stage than they are at. In fact ignoring this has cost many developing countries, especially in Sub-Saharan Africa dearly as they implemented the Washington Consensus agenda. Trilateral cooperation can be an effective way of bringing "appropriate intermediate technology" and "appropriate policy" to developing countries while taking the help of developed countries in meeting the financial resource need.

However, the issue of trilateralisation of development cooperation has not received adequate attention in Bandung II. This may be due to the fact that the leaders were too overwhelmed by the spirit of Bandung I when the global reality was quite different. Despite the fact that big Asian countries like China and India taking significant stride in providing aid to other developing countries, the need for assistance from the developed countries cannot be ignored as they themselves are struggling with poverty. Moreover, under the Millennium Development Goals, the international community including the developed countries has accepted that the removal poverty is a global responsibility. One important departure in Bandung II was, however, the fact that the role of all stakeholders in South-South cooperation has been explicitly recognised as against Bandung I when only government level cooperation was envisaged.

ACCESS DEFICIT charge (ADC) is once again in the news. The Telecom Regulatory Authority of India (TRAI) recently changed the definition of roaming for calculating the ADC.

At the same time, it came out with a consultation paper, which suggests that telecom service providers other than Bharat Sanchar Nigam Ltd (BSNL) — the state-owned operator — do not deserve the compensation for ADC.

ADC is an issue that has hogged the limelight ever since it was first introduced in 2003. Several stakeholders, including consumer organisations, have questioned its logic.

The concept of ADC was first enunciated by TRAI in its Interconnection User Charge (IUC) Regulation of January 2003.

At that time, TRAI had recognised that basic telecom service providers had historically run a cross-subsidised system in which surpluses from long-distance calls were used to offset losses that resulted by offering services such as local calls, monthly rentals, services to rural exchanges, at below cost.

With competition eroding the margins available in the long-distance segment, this system clearly could not continue to work.

According to the regulator, either the prices, which were hitherto subsidised, would have to increase or an "access deficit charge" would have to be provided to basic service operators to cover the gap between tariff and costs.

Since the number of fixed-line subscribers far exceeded mobile subscribers at that time, any hike in their rental/tariff would have made basic telecom services unaffordable to many.

Moreover, the teledensity was low (4.2 in December 2002) and the objectives of affordability and universal access were of great importance. TRAI thus settled on increasing tariffs somewhat (by reducing the pulse rate) and providing an ADC to basic service operators to cover the rest.

To recall, the relevant objectives of the New Telecom Policy 1999:

• Make available affordable and effective communications for the citizens;

• Strive to provide a balance between the provision of universal service to all uncovered areas, including the rural areas, and the provision of high-level services capable of meeting the needs of the country's economy;

• Encourage development of telecommunication facilities in remote, hilly and tribal areas of the country.
  

It is observed that these objectives do not specify the type of service (read, basic) that has to be promoted. However, TRAI has been maintaining that ADC is required to make the basic telecom services affordable to the common man to achieve the objectives of NTP 1999.

But the circumstances have changed, in just two years. The number of mobile subscribers now exceeds fixed-line subscribers and the gap continues to grow (see Table). Thus, the circumstantial reason for placing an emphasis on basic telecom services for the purpose of ADC does not stand the test of time.

Moreover, as per TRAI's own assessment, India now offers the cheapest mobile tariffs in the world. This calls for an equal emphasis on mobile services for the purpose of universal service and access.

TRAI seems to have taken the view that only fixed services can improve accessibility. This presumption is also reflected in its recommendations on unified licensing regime, where it has recommended the creation of niche operators to provide (only) fixed telecom services in telecom-facility-wise backward areas.

Surprisingly, the regulator's stand is in contrast to the current thinking in the government. Recently, the Minister for IT and Communications had announced that the Government would facilitate mobile operators roll out networks in rural areas by sharing infrastructure.

The idea is to put towers in the rural areas so that cellular and Code Division Multiple Access (CDMA) lines can reach villages. The statement clearly acknowledges the potential of mobile services in meeting the objectives of NTP '99.

TRAI should, thus, focus on achieving the objectives of universal service and access by giving equal emphasis to all telecom services, rather than being obsessed with just basic telecom services. The larger question here is to facilitate access to affordable telecom services, and any support to meet this objective should be available to both fixed as well as mobile services.

As of now, BSNL receives ADC payments though it refuses to undertake tariff revision that current TRAI regulations allow it to carry out.

The perverse incentive to BSNL to adopt this approach is easy to see since the losses so incurred can be directly recovered from payments through ADC. BSNL, thus, does not face the risk of customer displeasure or of losing customers to competition in such an environment. Furthermore, whenever there is a talk of removal/reduction of ADC, BSNL threatens to increase local call charges, rentals, etc. TRAI has so far been succumbing to this pressure. What is not realised is that by giving this threat, BSNL is trying to block the substitution that would otherwise take place, as subscribers would move from fixed to mobile services. ADC is, thus, a big distortion in the working of market process in the telecom sector.

ADC was initiated at a time when fixed subscribers were much more than mobile subscribers. However, now, the number of mobile subscribers exceeds that of fixed-line subscribers. Hence, the rationale for continuing to ensure affordable fixed services does not stand the test of time.

The more important objective is to promote universal service and access by giving equal emphasis to all telecom services, which can be done through the Universal Service Fund. It is time to wind up the ADC regime rather than debate on who should be eligible to receive or collect it.

The IT-driven revolution has not come about due to Gats, the General Agreement on Trade in Services. However, Gats can help in the movement of persons, where India has a comparative advantage, but faces barriers in developed countries’ markets.

The IT-revolution en-abled India to achieve a dramatic growth in software exports, particularly BPO services. In 1997-98, BPO services accounted for only 4% of total software exports. By 2002-03, this had grown to 24%, having registered an average annual growth rate of more than 100% in five years. Another factor that has played a significant role in advancing the IT-led revolution are the policy changes at the domestic level. Liberalisation of FDI rules in telecom has allowed faster growth, created jobs and galvanised other sectors.

As for external challenges, we will have to bargain for better market access, in both Mode-1 (cross-border supply) and Mode-4 (movement of natural persons), where India has a comparative advantage. While independent service providers face a range of barriers, including tough visa formalities, discrimination through fiscal and regulatory means, non-recognition of professional qualifications, etc, cross-border trade in services faces few explicit restrictions. Though labour lobbies in importing countries, such as USA, are demanding legislation to check the outsourcing of domestic jobs.

• The proposed Services Export Promot-ion Council will face many challenges
• Institutional and regulatory reforms needed to help services exporters

India has to gear itself for some hard negotiations at the WTO, as progress on services trade liberalisation has been unsatisfactory so far. In international trade negotiations, it’s very difficult to push any agenda, unless endorsed by a formidable alliance. In Cancun, the G-20 put the big trading powers like EU, USA and Japan in the dock over agriculture subsidies. India needs to construct a similar alliance, or maybe a Cairns group type of alliance, comprising both developing and developed countries.

In the case of Mode-4, a major problem is that the temporary movement of service providers comes under the purview of immigration legislation and labour market policy and not international trade policy. Greater security concerns in the wake of 9/11 have further complicated the liberalisation of services trade through Mode-4. In such a scenario, things really go out of the remit of trade negotiators. An easier way forward is to negotiate through bilateral routes with countries such as the US.

The proposed Services Export Promotion Council (SEPC) has been brought in rather late. It will have many challenging tasks ahead in terms of giving proper direction and encouragement. These will increase in the light of the inter-ministerial task force’s report, which recommends bringing those service sectors that require hand-holding or policy support from the government under SEPC’s purview.

It means services such as health, accountancy and education would get priority. But there are many other services, like nursing, hotel trade, construction, etc., which can be exploited. For this, we will need to think seriously about promotion of skills. Here, the role of the other ministries, particularly labour and employment, and the state governments is very crucial.

Steps are also needed to ensure that the benefits of the liberalisation of the services sector accrue to the poor and weaker sections of society. For this, it it necessary to undertake strategic programmes for their skills upgradation.

Finally, institutional and regulatory reforms, which help service exporters deal effectively with regulatory impediments in foreign markets, are required. A strong and effective regulatory regime will help Indian services exporters make a credible case for recognition of their qualifications and licenses by foreign governments and regulators, so vital for securing effective access to foreign markets.

Earth Day 2005

‘Protect Children and their Future’

Published: HT Jaipur Live, April 23, 2005
By George Cheriyan

Despite the extraordinary efforts to protect our natural resources and the biodiversity, more than 1 billion children globally are denied a healthy and protected environment, and sound upbringing. Keeping this in focus, the Earth Day is observed on the theme "Protect Our Children and Our Future", which fall on the 22nd of April. This year, being the 35th anniversary of the Earth Day movement, worldwide efforts are made to protect our planet, our children, and our future. Observation of this day emphasizes the necessity for the conservation of the world's natural resources.

Environmentalists use it as an occasion to sum up current environmental problems of the planet: the pollution of air, water, and soils; the destruction of habitats; the decimation of hundreds of thousands of plant and animal species; and the depletion of non-renewable resources. The emphasis is on solutions that will slow and possibly reverse the negative effects of human activities. Such solutions include recycling of manufactured materials, fuel and energy conservation, banning the use of harmful chemicals, halting the destruction of major habitats such as rain forests, and protecting endangered species.

Status of our children
Children in developing countries are the worst victims of environmental hazards. India's high population density puts massive pressure on the country’s environment. Millions of Indian children are deprived of their right to survival, healthy environment and safe drinking water. The most serious environmental health problems in the country are related to water. Rivers and water reservoirs are polluted, and groundwater levels are falling several meters every year.

About 77 million children do not use save drinking water. Around 25 to 30 million children in India spend their lives on the streets in a poisonous environment. Being child labourers, they work in a polluted environment and are exposed to environmental hazards. About 20 million children are in such hazardous condition. They suffer from ill health and become victims of infectious diseases.

Girl child is the worst victim as she is often neglected and is discriminated against because of the preference for a boy child. The Supreme Court had earlier held that children’s right to dignified existence must be protected. The court also said that the government should work out a welfare scheme for the children working in pathetic conditions in hazardous industries.

Some of the figures related to the status of the children in the state of Rajasthan is alarming. Children work in hazardous conditions.

Though 88% of the total habitants in the State are having access to drinking water, more than 25% are exposed to high levels of fluoride, nitrates and salinity in drinking water. The major victims being children.

Sanitation coverage in the State is 30.6%, but in rural areas it is only 10.6%. Only 5% of primary schools in Rajasthan are having drinking water and sanitation facilities.

Drought is a frequent phenomenon in the State with adverse implications for children’s survival and growth.

Time to Act
The efforts to protect the environment or to conserve natural resources looks simple, but changing attitudes of one billion of people is not going to happen overnight. The best way to bring about a change in the environmental attitude of the society is through children. They have no vested interest. They are our future. Besides, they hold the single most important influence in any family. This will eventually bring about changes on a larger scale, creating a more socially just and ecologically sustainable society.

Earth Day has become an annual event in many communities around the world. It is a great opportunity to bring people together for the common good and future. Often it launches projects that bring ongoing benefits to the community, and it helps expand and strengthen networks of environmental groups.

Earth Day is a time to celebrate, to unite and to anticipate. To anticipate a future where we can protect the environment and affirm our nation’s economic competitiveness. It is a time to act. And by working together, we can find the solutions and effect the changes needed to protect our planet.

Why should trade await a final settlement?

Published: Financial Express, April 23, 2005
By Pradeep S Mehta

India and Pakistan have been at loggerheads over Kashmir, among other things, since independence. However, times seem to be changing. The change gathered momentum when the Pakistan PM, Shaukat Aziz, at the World Economic Forum meeting at Davos in January, proposed to his Indian counterpart to evolve a series of confidence-building measures that need not be held hostage to the resolution of the Kashmir dispute.

This issue has been singularly responsible for blocking cooperation between the two countries, except where it is imperative and unavoidable. At international fora, at times, both share similar views. Both are members of the G-20, which seeks to ensure that the Doha Development Agenda would protect the poor country interests. Both have been founder members of the WTO and Gatt, its predecessor. They are members of the South Asia Association of Regional Cooperation (Saarc) and its instruments, including the South Asia Preferential Trade Arrangement (Sapta), to be succeeded by the South Asia Free Trade Arrangement (Safta). Yet, progress on these protocols has been mortgaged to the Indo-Pak detente. Consequently, the entire region has suffered.

Indo-Pak relations have been facing the bugbear of myths that define the debate on whether the two should or shouldn’t resolve all disputes prior to forging trade and economic relations. Thus, progress on economic cooperation has taken a backseat. We identify the key myths below, and proceed to demolish them.

One, countries at war can play cricket but cannot trade. If commonality of purpose can exist on the sports field, it can also be a part of trade processes. If one can play cricket, one can also undertake trade.

Two, all disputes need to be resolved before economic cooperation. Policy-makers in Pakistan have, so far, insisted that unless all disputes are resolved, trade and economic cooperation will proceed on a case-by-case basis. While there is some change in this line of argument, the jury is still out. We need to proceed with gradual opening on both sides; India should look into serious tariff reduction and Pakistan should give up on ‘sensitive’ lists. A good way to begin could be a bilateral investment treaty.

Disputes have never prevented economic cooperation around the world. France and Germany had been at loggerheads for over a millennium; both are now major players in the European Union, which continues to deepen economic and political cooperation. Mala-ysia and Thailand, too, have border disputes, but this has not prevented them from cooperating through the Asean Free Trade Agreement.

Deepening India-China economic ties have also set a precedent. India and China have a border dispute, but have decided to keep it on the backburner. Bilateral trade between the two grew from $3 billion in 2000 to over $10 billion by 2003. Estimates show India and Pakistan can also trade at similar levels, if they open up their borders.

Three, reciprocity should be followed in dispute settlement. Reciprocity may not be useful in the current environs. The times are testimony to the adverse impact on economic growth in both these countries. What cannot be undertaken officially has been substantiated un- officially. The market apparently knows what is right. Unofficial trade is estimated to have touched a staggering $2 billion. Imagine, if trade becomes official, reducing costs and has a trickle- down effect. India has already granted Pakistan the MFN status, in spite of pending disputes. Curtail-ing trade due to unsettled issues is reciprocity at its worst. One should therefore, attempt a non-reciprocal approach to foster more trade.

Four, India will dominate Pakistan’s economy if trade is liberalised. Undoubtedly, India will have a trade surplus here, as with its other neighbours. Yet, no one complains. On the contrary, the India-Sri Lanka FTA has led to talks on furthering custom union integration. Simple economic rationale indicates India’s surpluses arise due to the size of its economy and its comparative advantages. But this does not translate into a domination of Pakistan’s economy by India.

If strong economies were to dominate bilateral trade, China and the US would dominate all economies with which they have trade. On the contrary, the US runs a deficit with most trading partners, which do not dominate its economy either. China has a trade surplus against the US, which crossed $68 billion in 2000. China had a trade surplus of $0.8 billion in 2003 against Pakistan. This doesn’t indicate economic subjugation. Instead, it indicates vibrancy and leashed domestic demand waiting to be tapped. Bilateral trade would help both countries. Take the case of the India-Pakistan-Iran pipeline. It will fetch Pakistan an annual income of $500 million.

Five, trade will lead to disputes, which will promote more conflict. Trade disputes take place between all trading partners, as seen in the history of the WTO and other dispute settlement machinery. These are resolved through legal processes. Countries do not, and should not, resort to violence to resolve commercial disputes. This is not something to worry about. Disputes indicate a dynamic relationship.

There will be a huge peace dividend if trade relations are strengthened. When two countries trade with each other, people develop an interest in maintaining peace, so that the flow of goods and services is not disrupted.

When countries are trading with each other, they avoid conflicts. If there are any disputes, as is likely to happen, they use dialogue to resolve them. In many similar situations, it has been seen that countries decide to maintain the status quo (somewhat like the LoC) and move on.

They always say one should learn from the lessons of history. We should also not repeat the mistakes that were made while history was being written.

Pradeep S Mehta heads CUTS International in India. Huma Fakhar heads Fakhar Law International and M@P in Geneva and Pakistan

Emerging trilateral development co-operation

Published: The DAWN, April 18, 2005
By Pradeep S Mehta & Nitya Nanda

AS we approach the golden jubilee of the Bandung Conference this month, it will be useful to visit the progress made in terms of South-South cooperation, since then. The event was held in 1955 at Bandung, Indonesia, when leaders of 29 developing countries met to promote collective self-reliance as a political imperative.

This was followed by the establishment of a Working Group on Technical Cooperation among Developing Countries (TCDC) by the UN General Assembly in 1972. In 1978, many more such leaders gathered at Buenos Aires to formulate a Plan of Action (BAPA), conceptual framework and programmatic goals, all endorsed by the UN General Assembly a few months later.

In 1999, the High-level Committee on the Review of Technical Cooperation among Developing Countries (TCDC), in its eleventh session resolved that South-South cooperation should be viewed as a complement and not a substitute for North-South cooperation. This effectively means that the committee was of the view that a North-South-South cooperation was needed. Thus, came the recognition for the importance of trilateral development cooperation.

The Millennium Development Goals, the Monterrey Consensus among other international covenants have reinforced the need for enhanced and targeted delivery of overseas aid to developing countries. Most of the aid goes through the bilateral route with a large amount being channelled through inter-governmental organisations. Another route that is becoming popular is through ‘trilateral cooperation’ where aid is channelled through institutions in third countries for being applied to development projects in poor countries.

However, at the practical level, trilateral cooperation received a major boost in 1993 at the Tokyo International Conference on African Development (TICAD). It has since become known as TICAD process in which Japanese resources are used to promote exchanges between Asian and African countries.

Trilateral cooperation takes a broad-based approach that promotes partnerships with various actors, which include traditional donors, multilateral agencies, private sector, academic institutions and civil society organisations. Hence, trilateral cooperation does not necessarily mean involvement of three partners only. Nevertheless, it is a kind of partnership where three or three groups of actors are involved: donors, technical assistance providers and the recipients.

Development cooperation has traditionally been bilateral in nature even though the donors very often used services of private agencies or non-governmental organisations in their home countries. This has led to the emergence of several large NGOs mainly based in developed countries. CARE, Oxfam and Actionaid, to name a few. Some of them do attract support from other donor governments. Thus, a form of trilateral cooperation started involving developed country donor, developed country technical assistance providers and developing country recipients.

This form of cooperation got extended when some developed country donors started involving agencies and experts from other developing countries. This was done through both involvement of other developing country governments or that of private or non-governmental organisations. CUTS International, an India-based NGO is engaged in capacity building on trade, competition, consumer protection and investment issues in several developing countries under the trilateral cooperation framework.

A recent example of such a cooperation is the CUTS project involving capacity building on competition and regulatory issues in seven countries of Africa. The project is being supported by Norwegian Agency for Development Cooperation (NORAD) and the UK Department for International Development (DFID). Apart from CUTS, Third World Network is another developing country based NGO engaged in such activities.

Another form of trilateral cooperation takes place when developed country donors engage inter-governmental organisations (IGOs) for technical assistance. This need not be confused with the arrangement when developed country donors channel their funds through IGOs. An example in this regard could be the UNCTAD project on capacity building on trade policy issues in India supported by DFID.

Capacity building requirement is by no means an issue in developing countries only. There are requirements for sensitisation and capacity building in developed countries to give the developing country perspectives to the stakeholders there. CUTS is engaged in such activities in the developed world through trilateral cooperation. For example, Sweden has been assisting CUTS to conduct sensitisation seminars in the rich countries on the issue of mixing non-trade concerns, such as labour standards, with the trade agenda.

Bilateral assistance programmes have very often been criticised for their tied nature by which aid is tied to the donor country’s provision of goods and services. For example, it has been reported that in 1999,” 71.6 per cent of its bilateral aid commitments were tied to the purchase of goods and services from the US.” Tied purchases of goods and services usually led to recipient countries paying higher prices. On an average, a developing country expert costs one-third of experts at prevalent international rates. Trilateral cooperation can thus be a cost-effective way of promoting development cooperation.

The problem can be more complex in the provisioning of technical assistance and consulting services as concerns have often been raised that the type of technical assistance or services offered may not be appropriate to recipient country’s needs. Moreover, with a number of donor countries coming to a country with their own type of technical expertise, it can create problems for the recipient country as there can be much confusion and duplicity. Trilateral cooperation can be a way out of such problems.

Another issue related to tied aid is that when the donors tie up with local (donor’s home country) technical assistance providers, there is a possibility that monitoring by the donors may get relaxed as they are likely to develop alliances.

A third country provider of technical assistance is far less likely to develop such a relationship with a donor and hence monitoring is likely to be more rigorous. Hence, trilateral cooperation may bring more accountability in the implementation of development programmes.

Many successful development models and tools have been developed in the developing world. Bangladesh is a glaring example which has significant expertise and experience in areas such as micro credit, population and rural development. Such expertise and experience is being utilised in other developing countries through trilateral cooperation. For example, Bangladesh Centre for Advanced Studies is doing poverty related projects in India and Afghanistan among others with the financial support of western donors.

It is well recognised now that importing technologies or policies or legal practices from developed countries may not be appropriate for most developing countries. It may be better for them to draw these from countries that are developing but yet at a more advanced stage than they. In fact ignoring this has cost many developing countries, especially in Sub-Saharan Africa dearly as they implemented the Washington Consensus agenda.

Trilateral cooperation can be an effective way of bringing “appropriate intermediate technology” and “appropriate policy” to developing countries while taking the help of developed countries in meeting the financial resource need.

Partnering with greater accountability

Published: The Hindu Business Line, April 15, 2005
By Pradeep S Mehta & Nitya Nanda

Trilateral cooperation can be an effective way of bringing "appropriate intermediate technology" and "appropriate policy" to developing countries.

AS THE golden jubilee of the Bandung Conference approaches this month, it would be useful to review the progress made in terms of South-South cooperation, since then. The event was held in 1955 at Bandung, Indonesia, when leaders of 29 developing countries met to promote collective self-reliance as a political imperative.

This was followed by the establishment of a Working Group on Technical Cooperation among Developing Countries (TCDC) by the UN General Assembly in 1972. In 1978, many more such leaders gathered at Buenos Aires to formulate a Plan of Action (BAPA), conceptual framework and programmatic goals, all endorsed by the UN General Assembly a few months later.

In 1999, the High-level Committee on the Review of Technical Cooperation among Developing Countries (TCDC), in its eleventh session, resolved that South-South cooperation should be viewed as a complement and not a substitute for North-South cooperation. This meant the committee felt that a North-South-South cooperation was needed. Thus came the recognition for the importance of trilateral development cooperation.

The Millennium Development Goals and the Monterrey Consensus, among other international covenants, have reinforced the need for enhanced and targeted delivery of overseas aid to developing countries. Most of the aid goes through the bilateral route with a large amount being channelled through inter-governmental organisations.

Another route that is becoming popular is through `trilateral cooperation' where the aid is channelled through institutions in Third Countries for being applied to development projects in poor countries.

However, at the practical level, trilateral cooperation received a major boost in 1993 at the Tokyo International Conference on African Development (TICAD). It has since become known as TICAD process in which Japanese resources are used to promote exchanges between Asian and African countries.

Trilateral cooperation takes a broad-based approach that promotes partnerships with various actors, which include traditional donors, multilateral agencies, private sector, academic institutions and civil society organisations.

Development cooperation has traditionally been bilateral, though the donors often used the services of private agencies or non-governmental organisations in their home countries. This has led to the emergence of several large NGOs mainly based in the developed countries — CARE, Oxfam and Actionaid, to name a few. Some of them attract support from other donor governments. Thus, a form of trilateral cooperation started involving the developed country donor, developed country technical assistance providers and developing country recipients.

This form of cooperation was extended when some developed country donors started involving agencies and experts from other developing countries. This was done through both involvement of other developing country governments or that of private or non-governmental organisations. Another form of trilateral cooperation takes place when developed country donors engage inter-governmental organisations (IGOs) for technical assistance. This need not be confused with the arrangement when developed country donors channel their funds through IGOs. An example in this regard could be the UNCTAD project on capacity building on trade policy issues in India supported by DFID.

Capacity building requirement is not an issue in the developing countries only. There are requirements for sensitisation and capacity building in developed countries to give the developing country perspectives to the stakeholders there. Bilateral assistance programmes have often been criticised for their tied nature, that is, aid tied to the donor country's provision of goods and services. For example, it has been reported that in 1999, "71.6 per cent of its bilateral aid commitments were tied to the purchase of goods and services from the US". Tied purchases of goods and services usually led to recipient countries paying higher prices. Trilateral cooperation can be a cost-effective way of promoting development cooperation.

The problem can be more complex in the provisioning of technical assistance and consulting services as concerns have often been raised that the type of technical assistance or services offered may not be appropriate to recipient country's needs. Moreover, a number of donor countries coming up with their own type of technical expertise can create problems for the recipient nation as there can be much confusion and duplicity. Trilateral cooperation can be a way out of such problems.

Another issue related to tied aid is that when the donors tie up with local (donor's home country) technical assistance providers, there is a possibility of monitoring by the donors going lax as they are likely to develop alliances. A third country provider of technical assistance is far less likely to develop such a relationship with a donor and, hence, monitoring is likely to be more rigorous. Hence, trilateral cooperation may bring more accountability in the implementation of development programmes. Many successful development models and tools have been created in the developing world. A glaring example is Bangladesh which has significant expertise and experience in areas such as microcredit, population and rural development. This is being utilised in other developing countries through trilateral cooperation.

For example, the Bangladesh Centre for Advanced Studies is doing poverty-related projects in India, Afghanistan, and elsewhere, with the financial support of Western donors.

It is well-recognised now that importing technologies or policies or legal practices from the developed countries may not be appropriate for most developing countries. It may be better for them to draw these from countries that are developing but yet at a more advanced stage than they. In fact, ignoring this has cost many developing countries, especially in Sub-Saharan Africa, dearly, as they implemented the Washington Consensus agenda. Trilateral cooperation can be an effective way of bringing "appropriate intermediate technology" and "appropriate policy" to developing countries while taking the help of developed countries in meeting the financial resource need.

Time to streamline regulatory law-making

Published: The Hindu Business Line, April 09, 2005
By Pradeep S Mehta

Over the years, governments have failed to foresee the need for consistent and coherent approach towards independent regulation. Doing that would require putting an overarching framework in place to guide the formulation of any sectoral regulatory body.

EACH of the regulatory regimes that we have in the infrastructure services is of its own kind. No coherent approach has been followed while scripting the regulatory laws for electricity, telecom, and port sectors.

Regulators are expected to facilitate investment, growth, and competition in the sector and to advise the government on policy matters. They are even empowered to adjudicate. The Electricity Act 2003 empowers the regulator rather well.

They are required to deal with sectoral competition concerns such as abuse of market dominance, formation of combinations, etc. However, the law does not oust the jurisdiction of either the Consumer Protection Act or the MRTP Act.

In contrast, the amended Telecom Regulatory Authority of India (TRAI) Act has effectively reduced the telecom regulator to an advisory role.

The regulator publishes consultation papers, organises stakeholder consultations and submits recommendations to the Department of Telecommunication (DoT). Implementation of such recommendations is entirely subject to the latter's discretion.

Moreover, the provisions on the appointment and removal of regulators are so weak, that it is practically difficult for a regulator to maintain a viewpoint which is different from that of the DoT.

The Tariff Authority on Major Ports (TAMP) is another example. The extremely narrow mandate given to TAMP allows it only to determine tariffs for major ports, without any power to oversee other important aspects of port management such as safety, conservancy and so on.

The government is to establish a Petroleum Regulatory Board and there are reports about setting up similar bodies to regulate the aviation and transport sectors as well. Since no holistic framework exists to ensure consistency and coherence across the board, it is most likely that these bodies will also end up merely adding to the diversity in regulatory legislation.

All these examples demonstrate that the government is yet to determine what is expected of the sectoral regulatory agencies, the degree of independence they should have, their accountability and so on. Therefore, as and when the need arises, the Ministry concerned drafts a Bill, and sets up yet another regulatory body.

Strangely, good provisions made in one regulatory legislation do not find aplace in another. That demonstrates the degree of isolation in which government departments have been functioning. For instance, the Electricity Act does not leave space for government, not even the judiciary, to modify the regulator's decision on technical grounds.

On the contrary, TRAI's sole job is to advise the government. While in the case of TAMP, the government can modify the regulator's order on pricing. The tribunals constituted as appellate authority to TRAI and the Electricity Act provide for similar arrangements. However, the TAMP's orders can be challenged only in a High Court.

Such a diverse approach has led to a situation where there are as many regulatory models as regulatory bodies. This is hardly desirable. The lack of adequate empowerment has created unnecessary confusion that is affecting the credibility of independent regulation per se.

What is seen today is the result of the policy-makers' inability to anticipate. Over the years, governments failed to foresee the need for having a consistent and coherent approach towards independent regulation.

Doing that would require putting an overarching framework in place to guide formulation of any sectoral regulatory body. Some of the crucial aspects of regulation includes, degree of regulatory independence, their mandate, regulatory objectives, interface with other agencies including the government, functional overlaps, accountability, and so on.

While designing the regulatory structures, there must be a set of identified baseline criterion given to a regulatory agency.

This would require two things. First, proper identification of those essential attributes that any regulatory agency must possesses.

Second, establishing an empowered nodal agency to examine various draft regulatory legislation, which originate from various ministries. Such a nodal agency would regulate the regulatory law making and ensure the desired degree of uniformity across the board.

Recently, the Prime Minster directed the Planning Commission to evolve a regulatory framework for infrastructure services. Initially, the Commission thought of completing the task within three moths.

However, realising the complexities involved, it expects to take more time to come out with the report. Rightly, the Commission is consulting various stakeholders, including consumer groups and investors to get their views.

One can, therefore, expect an inclusive and pragmatic set of recommendations to emerge. Hopefully, the report will provide the needed baseline criterions to frame a regulatory framework for infrastructure services.The next step should be to direct the Law Ministry to perform the job of the stated nodal agency to regulate the law drafting.

In any case, each Bill has to be referred to the Law Ministry before being tabled before Parliament. Therefore, the Law Ministry is best placed to take up the job.

The Ministry should opt for a consultative approach while discussing a draft regulatory Bill. If required, an inter-ministerial group can also be set up. Further, expert opinions can always be sought. But it is the Law Ministry that must take a proactive stand and submit other similar concerns to the Planning Commission, so that the issues can addressed appropriately when the Commission brings out its report.

Plastic rules: Light at the end of tunnel?

Published: The Hindu Business Line, April 08, 2005
By Rajeev D. Mathur

THE Reserve Bank of India (RBI) asking the Indian Banks Association (IBA) to evolve a code of conduct for issuing credit cards and the setting up of a working group for evolving a regulatory mechanism for credit cards is welcome.

It will certainly bring cheer to the likes of Rajendra Mansinghka of Kolkata, who has been fighting for justice against what he calls harassment by the credit card division of a bank. It is also a shot-in-the-arm for consumers and organisations across the country that have repeatedly knocked on the doors of the RBI and IBA to bring in regulation in this area.

Trends around the globe indicate that a strong regulatory mechanism is the only way to control the growing credit card menace. Therefore, the RBI's reference to IBA to evolve a code of conduct to be adopted voluntarily by banks may fall short of not only the need but also the expectations of consumers. On the contrary, the setting up of a working group in order to encourage growth in a secure and efficient manner is more likely to have the desired impact.

However, it is necessary that the working group consist of professionals who are thorough in the subject and that it is transparent enough to accommodate the views of the stakeholders. Their terms of reference should relate to consumer credit, as a whole.

The issue of consumer credit begins with the current economic environment — supply side pressure of credit card issuers facing stiff competition and resorting to desperate and unfair practices on the one hand, and consumers facing financial stringency in difficult times on the other.

In recent times, attitudes to credit and economic conditions have changed with the result that credit transactions — and levels of personal debt — have risen markedly. In this environment, there is an essential need for a robust regulatory framework to govern lending transactions. Sound credit card regulation has proved very difficult to design, but fortunately, there are many lessons that we can learn from efforts of other countries.

The US's Truth In Lending Act (TILA), which was conceived in 1960 includes credit card billing and its basic features are:

• applying to virtually all forms of borrowing for consumer purposes;

• placing detailed disclosure obligations upon lenders;

• standardising method of calculating and disclosing charges; and

• prescribing specific penalties against lenders, recoverable by consumers for breaches of the legislation.

The working group would need to look at some major concerns and recommend suitable regulatory measures from such precedents and tailor them to suit Indian needs.

Usurious interest rates and charges
The interest rate on outstanding credit is a startling 2-2.5 per cent per month, which works out to a whopping 30-36 per cent annually (compounded) and is amongst the highest in the world. Add to this other charges such as transaction fees, membership fees, annual charges and late payment fee and you have a delinquency rate around 10-11 per cent per annum on hand.

Regulators in Thailand have put a cap of 18 per cent and laid down minimum salary requirements for issuing of credit cards. In Hong Kong, a court ruling has specified that charges must be reasonable and steps are afoot to force banks to use a common formula to disclose the `true' cost of credit card borrowing.

All banks are governed by prudential norms for asset classification and income recognition. `Income' (interest income) can be `recognised' (carried to the revenue) only when it has been `earned' (paid for by the borrower). However, credit card issuers, through their annual percentage rate (APR), appear to be violating this. Australia and Malaysia have found that APR has not translated into something useful for consumers and have taken it out of their consumer credit laws.

Unconscionable conduct
Some credit card issuers feel that they are not obliged to share detailed terms and conditions to applicants upfront, as they are not at that point considered as `customers.' Even if they do provide, it is in fineprint and not comprehensible to a layman.

Hong Kong and China have made it mandatory that all charges must be reasonable and the card issuers have to draw customers' attention to the terms and conditions especially those that impose significant liabilities on them.

These countries have also come out with a regulation of debt collection practices holding recovery abuses as a criminal offence. Some other similar measures include greater consumer access to legal remedies by providing financial and legal support, etc.

The working group would do well to recognise that pressure groups are a part of the political and institutional environment — banks have more influence than consumers. The regulations should therefore basically build around:

• Efficient functioning consumer credit markets. Consumer credit regulation is necessary to deal with failures in credit market, in particular information failures.

• Improved information, about cost and terms of credit, which should be available to consumers to facilitate informed choices.

• Prevention of oppressive conduct by lenders and of over-indebtedness.

• Simplification of civil remedies — providing for public third party enforcement.

India needs to go a long way
An effective competition regime is still a distant dream

Published: The Financial Express, April 05, 2005
By Pradeep S Mehta

The Competition Act, 2002, of India, was adopted as another piece of the jigsaw puzzle, in our economic reforms, by replacing the extant Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, which had become obsolete. The MRTPA’s focus was on curbing monopolies and concentration of economic power. That was the usual approach of a command and control economy.

Things have changed now, with the government being very serious about promoting competition. Like some of the laws in the more advanced economies, the Act has adopted a structural (size) approach to defining monopolies rather than tackle conduct. Under the MRTPA, a firm only had to be of a particular size to qualify to be a monopoly and this was good enough reason to curb its expansion, notwithstanding the potential for scale economies or its market power.

Most typically, a competition law has three main operational concerns: (i) curbing restrictive trade practices (RTPs), (ii) keeping in check abuse of dominant position, and (iii) regulating mergers and acquisitions (M&As). The effectiveness or otherwise of a competition law ought to be examined against the backdrop of its record of effectively performing these major functions. Under the MRTPA, RTPs per se are not considered bad, but deemed objectionable only when they are injurious to public interest. Getting sufficient evidence for a RTP, like cartelisation, itself is a big task.

Under the new law, the burden of proof has been shifted to the party indulging in that practice. The new law covers mergers, which were diluted in the 1991 amendment to MRTPA, but the financial thresholds have been kept rather high. A significant lacuna in the MRTPA is that the Commission could only ask the offending party to stop its restrictive practice, which never acted as a sufficient deterrent. Under the new law, the CA would be able to impose heavy penalties on the erring companies. Besides, there are also provisions for a leniency programme, which has been instrumental in busting cartels elsewhere. This means that one of conspirators can spill the beans, and get protected from prosecution.

The MRTPA, as interpreted by the Supreme Court of India, does not have extra-territorial jurisdiction, thus rendering it incapable of tackling anti-competitive practices that originate abroad. The new law has explicit provisions for extra-territorial jurisdiction.

An important factor that determines effectiveness of a competition regime is the level of public awareness. The new law provides for competition advocacy. It thus, becomes an important instrument, which did not exist in the MRTPA. This is a significant improvement. On the issue of policy advice, the new authority can only render advice when it is asked. That is not very wise.

Despite the improvements, the Competition Act, 2002, did not have a smooth takeoff and needs to be amended even before it became effective due to Supreme Court’s objections to some of its provisions. The major ones being that the role of the CA involves adjudicatory functions as well and hence it should not be headed by a non-judicial person; and that the CA cannot ask the high courts to implement its decisions.

The government now proposes to create a competition tribunal, headed by a judge, which will hear appeals against the Competition Commission. The latter body should be headed by experts, persons with a good understanding of law and economics. That is what the government averred before the apex court, but the trend is to appoint retirees. This opportunity should also be used to resolve other problems, which are retrogressive.

The sweeping power of the central government to: decide on policy issues; make appointments in the CA; and supersede or even dismiss the CA are not good things and need to be reversed. Another weakness is the provisions to deal with IPR-related anti-competitive practices, which need to be strengthened. Obviously, India needs to go a long way in effecting a healthy competition and regulatory regime that promotes growth with equity.

VIEW: Why should trade await a final settlement?

Published: Daily Times, March 27, 2005
By Pradeep S Mehta & Huma Fakhar

Cricket seems to be a far greater force uniting nations and sentiments than war. If commonality of purpose can exist on the sports field it can also be a part of trade processes. If one can play cricket, one can also undertake trade

India and Pakistan have been at loggerheads over Kashmir, among other things, since independence. However, times seem to be changing. This change gathered momentum when Pakistani Prime Minister Shaukat Aziz, at the World Economic Forum meeting in Davos, Switzerland, at the end of January, proposed to his Indian counterpart to evolve a series of confidence building measures that need not be held hostage to the resolution of Kashmir, the central dispute.

The Kashmir issue has been singularly responsible for blocking cooperation between the two countries, except where it is imperative and unavoidable. At international fora, at times, both share similar views and stands. For example at the World Trade Organisation (WTO), both are members of the developing countries’ alliance — G-20 — which is trying to ensure that the Doha Development Agenda will protect the interests of poor countries. Both countries have been founder members of the WTO and its predecessor, the General Agreement on Tariffs and Trade (GATT).

The two countries are also members of the South Asia Association of Regional Cooperation (SAARC) and its various instruments: this includes the South Asia Preferential Trade Arrangement (SAPTA), to be succeeded by the South Asia Free Trade Arrangement (SAFTA). However, any progress on either of these protocols has been mortgaged to the Indo-Pak détente. Consequently, the entire region has suffered.

India-Pakistan economic relations have been facing the bugbear of some myths that continue to define the debate on whether the countries should or shouldn’t resolve all disputes prior to forging trade and economic relations. Thus, progress on economic cooperation between India and Pakistan has taken a backseat. In this article, we have identified the major myths and proceed to demolish them.

Countries at war can play cricket but cannot trade!

Cricket seems to be a far greater force than war. If commonality of purpose can exist on the sports field it can also be a part of trade processes. If one can play cricket, one can also undertake trade!

All disputes need to be resolved before economic cooperation?

Policymakers in Pakistan have so far been insisting that unless all disputes between the two countries are resolved, trade and economic cooperation will proceed on a case-by-case basis. While some change is taking place in this line of argument, the jury is still out. We need to proceed with gradual opening up on both sides: India should look into serious tariff reduction and Pakistan should give up on ‘sensitive’ lists. A good way to begin could be a Bilateral Investment Treaty (BIT).

Disputes have never prevented economic cooperation around the world. France and Germany had been at loggerheads for over a millennium, but now both are major players in the European Union, which is continuously deepening economic and political cooperation. Malaysia and Thailand too have border disputes but this has not prevented them from cooperating economically through the ASEAN Free Trade Agreement.

The deepening India and China economic ties also set a precedent. India and China have a border dispute but have decided to keep it on the backburner. In 2000, bilateral trade between both countries was around three billion dollars. Within three years, it crossed $10 billion. Several estimates show that India and Pakistan can also achieve similar levels of trade if they decide to open up their borders.

Reciprocity should be followed in dispute settlement

Reciprocity may not be useful in the current environs. Times are testimony to the adverse impacts economic growth has faced in both these countries. What cannot be undertaken officially has somehow been substantiated unofficially. The market apparently knows what is right. Unofficial trade has already reached an estimated staggering two billion dollars. Imagine if this trade is carried out officially, reducing costs and having a trickle down effect. India has already granted Pakistan the MFN status, in spite of pending disputes. Curtailing trade due to unsettled issues is reciprocity at its worst. One should therefore, attempt a non-reciprocal approach to foster more trade.

India will dominate the economy of Pakistan if trade is liberated

There is concern that if Pakistan liberalises trade relations with India, the latter will dominate Pakistan’s economy. Undoubtedly India will have a trade surplus against Pakistan as it has with other neighbours, Bangladesh, Nepal and Sri Lanka. Yet no one complains. To the contrary, the Free Trade Agreement between Sri Lanka and India has led the two to initiate talks on further custom union integration. Simple economic rationale indicates that India enjoys these surpluses because of the size of its economy and the comparative advantages it enjoys. But this does not translate into a domination of Pakistan’s economy by India.

If strong economies always dominated bilateral trade then China and the US would dominate all economies with which they have a trade surplus.

On the contrary, USA runs a deficit with most trading partners, which do not dominate the American economy. China has a trade surplus against US, which exceeded $68 billion in 2000. China had a trade surplus of $ 0.8 billion in 2003 against Pakistan. This doesn’t indicate economic subjugation. On the contrary it indicates vibrancy and a leashed domestic demand waiting to be harnessed and catered to. Bilateral trade will help both countries. Take the case of the India-Pakistan-Iran pipeline. It will fetch Pakistan an annual income of $500 million.

Trade will lead to disputes which will promote more conflict

Trade disputes take place between all trading partners, as can be seen from the history of the WTO and other dispute settlement machinery. These are resolved through legal processes. Countries do not and should not resort to violence to resolve commercial disputes. This is not something to worry about. Disputes indicate a dynamic relationship.

Will there be a peace dividend if the cooperation is concretised?

There will be a huge peace dividend if trade relations are strengthened. When two countries trade with each other, people develop an interest in maintaining peace, so that the flow of goods and services is not disrupted.

Will it lead to the dissolution of other issues?

When countries are trading with each other, they avoid conflicts. If there are any disputes, as is likely to happen, they use dialogue to resolve them. What has been seen in many similar situations is that countries decide to maintain the status quo (somewhat like the LoC) and move on.

They always say one should learn from the lessons of history. We should also not repeat the mistakes that were made while history was being written.

Pradeep Mehta heads a leading consumer protection NGO in India. Huma Fakhar heads Fakhar Law International and M@P in Geneva and Pakistan

Sustaining Life on Earth

Published: Hindustan Times, Jaipur Live, March 21, 2005
By George Cheriyan

The international observance of World Water Day on 22 March is an initiative to galvanize global action. This year, water day will mark the beginning of the International Decade for Action “Water for Life 2005 – 2015”. The goals of the ‘Water for Life’ decade are aimed at having “a greater focus on water-related issues, while striving to ensure the participation of women in water-related development efforts, and further cooperation at all levels to achieve water-related goals of the Millennium Declaration”

According to the World Health Organization (WHO), about 1.1 billion people lack access to improved water sources, 2.6 billion to basic sanitation, and approximately 1.8 million people die every year from diarrhoeal disease, 90 percent of them are small children. Safe drinking water and basic sanitation help prevent water-related diseases.

In Asia today, there are still almost 700 million people who have inadequate access to safe drinking water and 2 billion without adequate sanitation. This means that half of the population living in the Asia-Pacific region does not have adequate sanitation, and one in five lacks access to safe drinking water. In almost all South Asian countries, the ground water tables have been rapidly declining. India, which has 16 percent of the world’s population but only 4 percent of the world’s water resources, has a grave drinking water crisis. An estimated 200 million Indians lack access to safe and clean water. In 15 states with major metropolitan centres, under ground water levels have been falling almost 5 percent per year.

In Rajasthan, unsustainable extraction of ground water, as reported by the state irrigation and ground water department, is leading to serious deterioration of water quality, particularly with greater concentrations of fluoride and salinity, and causing irreparable damage to the ground water aquifers in the State. As water table recede, tapping of ground water from deeper rock formations, is likely to increase fluoride contamination. In addition, many of the defunct water supply structures, like bore wells and hand pumps, which are large in numbers, are not capped/closed, leading to direct seepage of drains and contaminants into ground water.

According to WHO, 80 percent of all sickness and disease in the world is attributable to non-potable water and inadequate sanitation. A study in Bikaner found that about 70% of the sample population were suffering from atleast one type of water borne disease. High levels of various types of water contamination - dissolved solids, bacteriological and chemical - are found all over Rajasthan. Fluorosis is emerging as a major public health crisis for Rajasthan. The major manifestations of the disease are skeletal and dental fluorosis.

An integrated approach to water resources management is critical to the survival of the State of Rajasthan, says a background paper prepared by the consultants of the EC (European Commission) Technical Support and Facilitation Mission - Rajasthan. Due to the lack of integrated management of water resources and policy coordination, various priorities seem to be at war with each other. Since 90% of drinking water, and 60% of irrigation water, come from ground water sources, sustainable management of the ground water therefore is a key priority for the state. At a recently held national consultation, experts recommended for speedy enactment of an effective ground water act in Rajasthan.

Doha round: work out new alliances
It’s in the services sector that India will emerge as a major global player

Published: Financial Express, March 15, 2005
By Pradeep S Mehta

India has made services a pivot of its stand on negotiations under the Doha round of the WTO. At Geneva, before it went into the winter break, India’s new ambassador, Ujal Singh Bhatia, said India might have a problem in accepting the whole Doha package if the deal on services was not at par with agriculture and non-agricultural market access. This caused a furore among the trade negotiators community in Geneva. It was not received well by Brazil, one of India’s closest pals in the WTO and leader of the G-20 alliance.

The dramatic turnaround by India has resulted in developing countries showing signs of fragmentation for the first time since the Cancun Ministerial of the WTO. The sudden aggressive posture of India may have surprised many, but it was definitely not unexpected. India has been a known protagonist of services trade liberalisation, largely because of its strong competitive advantage in services trade. India expects greater commitments, especially in mode-1 (cross-border supply of services, such as offshoring) and mode-4 (temporary movement of natural persons, such as skilled professionals) from developed countries.

Many experts were puzzled by India’s over-emphasis on agriculture in the recent past, more particularly since the Cancun Ministerial. Undoubt-edly, the sector is the most important source of livelihood for millions of poor in India. However, if we look at India’s trade interest, it is not agriculture, but services, where it will emerge as one of the bigger players in the global market. During the 1990s, the Indian service sector grew at an average annual rate of 9%, contributing to nearly 60% of the economy’s overall growth rate. At the same time, India’s exports of services displayed one of the fastest growth rates in the world—over 17% per annum in the 1990s.

So far, agriculture has hogged the limelight in the current Doha round. This despite the fact that, of the three major components of world production— agriculture, industry and services—agriculture has the smallest share. Yet, it generates the greatest political heat and is the toughest to deal with at the WTO. However, services are no less important. In recent years, growth in world exports of services has outpaced merchandise. According to the 2004 international trade statistics, between 2000 and 2003, the annual growth rate of services trade has been 7% in comparison to 5% of merchandise trade.

At the WTO, the nature of the services negotiations is different from the other two market access negotiations, viz., agriculture and non-agricultural market access. The services negotiations proceed through a rather laborious process of requests and offers. The alternative is the use of negotiating formulae or model schedules that would lead to all WTO members making comprehensive commitments.

• The services sector is a huge source of employment for poor Indians
• A big challenge before India is to push forward its agenda on services

However, in the past, many members, including India supported the request-and-offer approach over the formula approach, as it allows considerable freedom to decide on how much to liberalise. India, which has a comparative advantage in two key modes of service supply, viz., mode-1 and mode-4 can, and is, easily taking a far more aggressive position.

In the case of cross-border trade, India must seek to pre-empt potential protectionism, by locking in the current open international trade regime. As for movement of natural persons, the task is to seek carve outs in the highly restrictive immigration regimes, thus generating greater scope for service delivery per se.

Given the emerging situation in Geneva, the biggest challenge for India is how to push forward its agenda on services in the Doha round of trade negotiations. The chances of using the G-20 alliance to further its interest look remote, as India is facing opposition from Brazil, the leader of the G-20 alliance. Other members are also not very keen to go along with India on this issue.

This leaves India with little option but to try and work out new alliances on services—maybe this time with some of the other rich and not-so-rich countries, such as Canada, Switzerland, South Korea, Singapore, etc.

Education is the key

Published: Hindustan Times, 14 February 2005
By George Cheriyan

‘WE ACCEPT our responsibility and we urge all people to join with us in doing all we can to pursue the principles of the Decade with humility, inclusivity, and a strong sense of humanity. As we gather in the city, where Mahatma Gandhi lived and worked, we remember his words: “Education for life; education through life; education throughout life,” says the one page crisp and brief Ahmedabad Declaration made on January 20, 2005 by more than 800 learners, thinkers, practitioners and activists from over 40 countries at the Education for a Sustainable Future Conference held in Ahmedabad, marking the beginning of UN Decade of Education for Sustainable Development (UN-DESD). The first event in the world of the Decade was held in India, while the formal launch of the decade is still awaited to be held in New York. 

Why a decade on ESD?

The 1992 Rio Earth Summit marked the beginning of an unprecedented effort to understand and work towards achieving 'sustainable development', addressing human needs holistically by integrating environmental, economic and social goals. The 2002 World Summit on Sustainable Development in Johannesburg re-emphasized the vital role of education, not only in building awareness about the sustainable development, but also in fostering the necessary changes to bring it at all levels. As a continuation of these efforts the UN decided to launch the Decade of Education for Sustainable Development (2005-2014). Many reports have defined sustainable development, but progress has been slow, and the global environment continues to deteriorate. This failure has largely been due to a lack of political will and motivation to make the necessary changes in individual lifestyles and social action. Hence the planned UN Decade. The biggest challenge now is to take an idea that sounds abstract, sustainable development, and turn it into a reality.  

Role of Education
More than the dissemination of information and knowledge, the key role of education in enabling and enhancing sustainable development is now recognised. Education for Sustainable Development (ESD) is a dynamic concept that utilizes all aspects of public awareness, education and training. Education can equip individuals and societies with the required skills, perspectives, knowledge and values to work and live in a sustainable manner.

Life Style of Bishnois
The Indian culture have placed great emphasis on people to nature relationships, as a means to sustainable development, preserving the environment, wise use of resources in the interest of coming generations. For example, the Bishnois in Rajasthan have evolved their life-style into a religion that fiercely protects the environment. The Bishnois, are a practical, wise people who hold lessons for everyone. The Bishnois manage sacred groves called orans in the arid and desert regions of Rajasthan. Despite sparse vegetation and limited water resources, the area reportedly supports a higher density of human and animal populations than any other desert region in the world because of the conservation practices of its people. The basic philosophy of the Bishnoi faith is that all living things have a right to live and share resources, and the group has a set of abiding laws including a ban on killing animals and on felling trees, especially their most sacred khejadi tree, which has numerous life-sustaining properties. Through ESD, we need to spread the message of such sustainable life styles. Unfortunately, Govt. or CSOs, either in Rajasthan or in other parts of the county, promote no such education.

The writer was a delegate to the ESF meet.

Big agenda ahead for a fair regime — 
The law needs to take care of many issues to meet international standards

Published: Financial Express, 28 January 2005
By Pradeep S. Mehta

We can breathe a sigh of relief, now that the Supreme Court has disposed of the writ petitions challenging the validity of the appointments to the new Competition Commission. Earlier, the court was so angered that it even expressed a disdain for the law. The government will now need to amend the Competition Act, 2002 to provide substance to its pleadings before the apex court. It may take another year or so, but it will be worthwhile to see what should be done, so that the law doesn’t face another challenge, and we do get a modern and first class competition authority in the country.

First, the government has offered to split the competition authority into two: a commission and an appellate authority, somewhat like Trai and Sebi. It is welcome. However, the commission will need to have adjudicatory powers, otherwise it will lack teeth. It is not a recommendatory body like Trai but a regulator like Sebi. Besides, the appointments to the new commission and the appellate body also have to undergo a transparent selection procedure, as the government has averred.

It will need to establish two selection committees, while the hunt for the personnel should not be restricted to sinecures: retired bureaucrats and/or judges. Such bodies need to be headed by persons, who have a good understanding of ‘law and economics’, and particularly their nexus. These can be specialist economists or lawyers, as the trend all over the world is. The job will require great vigour and rigour, and that should be the attributes one will have to look for.

A CUTS research report, Towards a Functional Competition Policy for India (to be released on January 31) has shown how a huge amount of anti-competitive practices which exist in our market place is sapping the economy, thus harming both consumer and business welfare. The UPA government is very serious about both promoting competition and ensuring that we have the best international practices in regulation. Therefore, both the government and the new competition authority have a huge agenda. The authority cannot handle such problems if it is not given the comfort and wherewithal of being able to function without fear or favour.

The existing law contains a Damocles sword, in terms of the ability of the government to remove any member, including superceding the entire body. Such medieval provisions will have to go. Other than that, the government’s power to issue policy directives will also have to be defined, rather than kept in such a manner, that even a section officer can create problems. The staff of the two bodies also need to be experts and professionals, rather than only deputationists from civil services. Services also offer good talent, but such appointments should be done through a proper selection procedure.

Another issue which requires serious consideration is the weak coverage of the competition law on intellectual property rights. The new Act has to provide for active coverage of abuse of IPRs (patents, copyright, trade marks etc), which we can do as per the provisions of the WTO-TRIPs agreement. The patent amendment Bill provides for an enabling provision for compulsory licencing for medicines etc., which engage in an exploitative pricing strategy. However, the role of the competition authority to examine such matters, needs better coordination between it and the patent office.

Coordination with other agencies and the competition authority is another grey area that needs to be re-examined. After all, it is the competition authority’s mandate to ensure that competition prevails in the market, while most of other agencies are mandated to protect competitors. For example, if a telecom operator is engaged in predatory pricing, Trai may not act on it, but the competition agency will. Similarly, it is the Reserve Bank of India, which regulates mergers between two banks, but it may not examine the competition angle. It is, therefore, necessary that the competition authority has the prime or at least the concurrent responsibility of acting on sectors, even if there is a sectoral regulator.

In conclusion, awareness about competition in India is very low. Many anti-competitive practices are taken for granted. The Competition Commission’s predecessor, MRTP Commission, did little on this due to its own legal and resource limitations. The new authority has thus a mandate and a big agenda for research and advocacy, which it can carry out methodically and effectively. That could be a good exercise for it until such time the law is amended and operationalised.

Crossed connections in open markets

Published: Business Standard, 24 January 2005
By Pradeep S. Mehta

The first WTO dispute on trade and competition in the telecom sector points to some dangers for smaller economic powers.

The first WTO dispute on a matter related to trade and competition has been reported rather scantily in the Indian media. This case is about a dispute between US telecom operators and Mexico’s Telmex.

But it will have great repercussions and assumes importance since it has close bearings to a similar case that may arise between American telcos and India’s dominant international long distance (ILD) services operator, VSNL.

The US Telecommunication Industry Association (TIA) has accused VSNL of anti-competitive practices and has asked the US government to monitor them.

It alleges that VSNL is undertaking anti-competitive practices by keeping the bandwidth price high and preventing upgradation of undersea cables landing in India.

India has denied these charges in spite of the fact that the Telecom Regulatory Authority of India (Trai), too, raised the same issue in a discussion paper.

Somewhat similar charges were made by the US against Mexico in the Telmex case a few months ago. The US had charged Mexico for nurturing a monopoly in the telecom sector by allowing Telmex to provide discriminatory access to only one US operator, Sprint.

The dispute that was raised mainly by two other US telecom giants, AT&T and MCI, was won by the US, who alleged that Mexico had failed to prevent anti-competitive practices in its telecom market.

It had relied on the WTO Reference Paper on pro-competitive regulatory principles under the agreement on telecommunications, a part of the General Agreement on Trade in Services (GATS) framework.

This contains broad directions obligating signatories to enact “appropriate measures” to prevent “major suppliers” from engaging in “anti-competitive practices”, and to provide interconnection on terms, conditions and cost-oriented rates that are reasonable.

In the mid-1990s, Sprint had partnered with Mexico’s largest supplier of telecoms services, Telmex (with a market share of 74 per cent in international traffic and 75 per cent of international gateway capacity), to provide long distance services between the two countries. AT&T and MCI had to settle for lesser Mexican players and could not benefit from Telmex’s large network.

Therefore, they called on the US Trade Representative to help them get the same type of access that Sprint enjoyed. This finally led to the dispute requiring Mexico to provide these US firms with non-discriminatory access as provided in the WTO Reference Paper.

The Telecom Reference Paper is a separate accord signed by around half of WTO’s members (including Mexico) setting out self-regulatory principles.

The Reference Paper establishes disciplines on telecom competition safeguards, interconnection guarantees, transparent licensing, independence of regulators from telecom operators, and fair allocation of resources such as frequencies, numbers, and rights of way. India has also committed itself to the reference paper, albeit with qualifications.

What were the main allegations? First, Mexico’s ILD rules require Telmex to negotiate a settlement rate for incoming calls from abroad and apply that rate to interconnection for incoming traffic from the US.

Telmex must also give up or accept traffic from other suppliers, regardless of whether the proportion of traffic is less or more than the proportion of its outgoing traffic through that supplier’s network. To this end, Telmex may enter into “financial compensation agreements” with other operators, which are then approved by the Mexican authorities.

The US alleged that this was a state-authorised cartel, benefiting Telmex and Sprint at the cost of other US rivals. Mexico countered that its ILD rules set up a pricing mechanism that allocated revenues with responsibilities, and to prevent predatory pricing by foreign companies with deep pockets. Mexico added that by having a competition law in place, it did maintain “appropriate measures” to prevent anti-competitive practices.

As an intervener, the European Union argued that even if Telmex’s acts were “anti-competitive”, they could not be “practices” in the true sense of the word, as they were not freely undertaken.

“If Mexico does not allow competition between telecom operators on a certain matter, there is no scope for anti-competitive practices. It is not possible to restrict competition where competition is not allowed.”

The point here was that Mexico’s telecom policy decided to regulate its telecom networks in a manner so as to promote growth in an orderly way. Following North American Free Trade Agreement (NAFTA), public sentiments in Mexico may want the government to ensure the primacy of national champions in most fields of the economy, especially when it is faced with the powerful US, which is its free-trade partner.

In fact, the Telmex case is the first of its kind in the telecommunications services in the history of the WTO. Experts argue that the Reference Paper is only a broad enunciation of principles that straddle both the competition and the regulatory aspects of telecom.

Writes Philip Marsden, a noted trade and competition lawyer, in Competition Law Insight, (May, 2004): “Competition lawyers in any jurisdiction should be surprised at the decision, and dismayed by the reasoning behind it.... It seems that when trade negotiators fail to reach agreement, dispute settlement panels will create new commitments to open markets. This is troubling in itself but even more so when panel decisions affect terms of competition in the markets without applying disciplined competition analysis.”

What is more surprising is that Mexico has decided not to appeal against the panel report. Says former ambassador to the WTO and former Deputy Chairman of Trai B K Zutshi: “Mexico did not wish to appeal because it suited the government. This was a good way to reduce Telmex’s dominance. Second, Mexico has an agreement with the US on Mode-1 of the GATS, which relates to cross-border supply of telecom services.”

An appeal would have certainly explored the manner in which the panel went about the interpretation of competition issues. While any panel decision is not a precedent in WTO jurisprudence, unchallenged decisions create an adverse situation for developing countries when faced with such disputes.

To apply the same analogy in the VSNL case, if recourse in taken to the WTO dispute settlement panel, the management of the telecom market will get influenced by the greater economic powers.

The anti-competitive behaviour of VSNL has already been brought to the notice of Trai by users, and which were found to be true to an extent. Trai officials had, in fact, acknowledged the absence of effective regulations designed to prevent and remedy VSNL’s behaviour and the fact that VSNL is taking advantage of such regulatory loopholes.

A recent research project of CUTS, “Towards a Functional Competition Policy for India”, has thrown up several issues in better regulation in the telecom sector that need to be resolved.

Given the current scenario, unlike Mexico, we cannot even argue that we have a competition law. The extant MRTP Act is toothless, while the Competition Act, 2002, will only begin to take effect now — after the Supreme Court dismissed a writ petition over whether a judge or a bureaucrat should head the Competition Commission last week.

Competition breaks cartels

Published: Business Line, 12 January 2005
By Pradeep S. Mehta

Cartels operate across the economy, particularly in the intermediate goods and services sector. They hike production costs, thus making finished goods less competitive. The Finance Minister could launch a `competition audit' across all sectors to weed out such unhealthy practices.

THE Minister for Steel, and Fertiliser and Chemicals, Mr Ram Vilas Paswan, should push for the installation of the new Competition Commission at the earliest, agitated as he is with the lack of competition in two of the sectors he handles — steel and drugs. In "Why a steel regulator makes little sense," (Business Line December 17), I had argued why a competition authority would be the antidote to the cartelising behaviour of the steel industry, or for that matter any sector. Take the case of pharma retail trade that has agitated the Minister, and the consumer community. For years, the trade has squeezing out huge commissions.

A CUTS (Consumer Unity and Trust Society) study on developing a "Functional Competition Policy for India" found that cartels exist everywhere and not just in the pharmaceutical sector. But in this sector it is not so much the manufacturers as the trade which calls the shots. Conventional economics says that a large number of players and a large number of buyers assure perfect competition. But the pharma sector beats this logic. Why?

In India, though there are 20,000 pharma manufacturers, there are nearly eight lakh retailers. These retailers are said to dictate to the pharma companies what number of stockists a company should appoint; how many brands or its combinations should be available in the market; what should be the free samples policy and so on. Liberal margins are demanded and offered by the pharma companies on generic drugs, even up to 2000 per cent.

In 1984, the Retail and Dispensing Chemists Association, Bombay, was brought before the MRTP Commission after it directed all wholesalers and retailers to boycott a company's product till the Association's demands were met by the company. The Commission observed that the impact of the chemists' boycott could by no stretch of imagination be considered negligible. The boycott represented an attempt to deny the consumers certain products to which they are accustomed and, therefore, the hardship to such consumers was patent. The Commission passed a `cease and desist' order (RTP Enquiry No. 10/1984).

Even before that, in 1982, the All India Organisation of Chemists and Druggists (AIOCD) had to face a similar fate (RTP Enquiry No. 14/1982, order dated September 25, 1984). The AICOD was hauled up before the Commission once again in 1983 when it issued a circular to various pharmaceutical companies threatening that if they dealt with the State cooperative organisations and appointed them as stockists granting them sale rights, it would expose the companies to a boycott by its members. The case was decided in 1993 and the Commission struck it down as a restrictive trade practice of `refusal to deal' (RTP Enquiry No. 37/1983, decided on June 25, 1993).

Now the government has decided to set margins under the Drug Price Control Order, 1998 to cap trade margins: For generic drugs, 35 per cent for retailers and 15 per cent to wholesalers, and for drugs sold under brand/trade names, 20 per cent and 10 per cent respectively. The trade is protesting loudly, but hopefully the government will remain firm.

Usually cartelising is indulged in by producers rather than buyers.

What could be of potential concern for India is a case study from Hong Kong, when two large department stores boycotted some consumer goods, for them to stop supplies to smaller stores.

Cement is a sector that has a tendency to cartelise, all over the world. In Europe, action was taken against the cement manufacturers association too, because it had coordinated the concerted collusion. Cement involves heavy freight costs, and hence the cartelisation is done regionally.

In 2001, the Builders' Association of India, Mumbai, resorted to the boycott of cement companies, faced with a recalcitrant producers' cartel. Two enquiries before the MRTPC still remain unresolved.

In 2004, regional imbalance in the matter of a cartel in the supply of pre-stressed cement sleepers came under the scrutiny of the Standing Committee on Railways. "The Committee note that the procurement of concrete sleepers have become a very sensitive matter because a lot of unscrupulous existing manufacturers have formed a cartel to secure orders by unfair means or tempering (sic) with procedure and simultaneously keeping the new competitors out of the race. The Committee are constrained to notice that there exists a regional imbalance in the setting up of concrete sleeper manufacturing units. They also express their unhappiness that new entrants are not encouraged which ultimately strengthen the cartel of old/existing manufacturers." In procuring 160 lakh broad-gauge sleepers for 2003-05, the Railways awarded contracts to the existing 71 firms, and ignored the new 24 firms.

A similar anti-competitive decision was taken recently when domestic private airlines were allowed to fly overseas routes, hitherto the preserve of the national carriers. But an entry barrier was created: To qualify to fly abroad an airline had to have five years experience. This would keep two new low-cost airlines which plan to acquire a major fleet out of lucrative routes.

Did a cartel manoeuvre this? For, the two national carriers have not been able to use the bilateral rights because they do not enough aircraft, or most of what they have are too old. In this, perhaps, the airline cartel saw an opportunity to consolidate its presence.

Cartels operate across the economy, particularly in the intermediate goods and the services sectors. Whether it is transmission line towers, electric cables, or construction and transportation... they hike up production costs, thus making the finished goods less competitive. The new Competition Commission of India, if it comes into being soon, has a huge agenda. The National Manufacturing Competitiveness Council too needs to flex its muscles, if it has to deliver results. Also, the Finance Minister, in his forthcoming Budget, could launch a `competition audit' across all sectors to weed out unhealthy practices. The Comptroller and Auditor General should be roped into this project. The new Government has taken competition very seriously. It now has to deliver.

CONTACT US
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