Right to Protest: At What Cost?

Published:  The Hindu Business Line, December 29, 2003

 By Pradeep S Mehta &
Nitya Nanda

TWO recent court judgments that relate to the right to protest have resulted in a raging public debate in the country. On September 29, the Calcutta High Court banned rallies and processions in the city during weekdays between 8 a.m. and 8 p.m.

In another judgment in August, the Supreme Court ruled that government employees had no fundamental, legal, moral or equitable rights to go on strikes. Both judgments are under review. On an appeal filed by the West Bengal Government, the Calcutta High Court stayed its earlier order on ban on rallies and processions until further direction, while the Supreme Court decided to reconsider its judgment of banning strikes by government employees.

Predictably, while the average citizen has welcomed the judgments, politicians and political parties, by and large, are not comfortable with them. On the issue of banning strikes by government employees, the Bharatiya Janata Party (BJP), which leads the ruling NDA at the Centre, has supported the apex court verdict.

Admittedly, in a democracy, a total ban on rallies and processions may not be a solution. After all, it is a form of protest that is practised even in many developed countries such as the US and the UK. Moreover, it is not only the political outfits that organise rallies and processions, but non-political groups as well. Indeed, many religious as well as marriage processions, and such other events organised by private individuals also cause inconvenience to the public. Many such rallies and processions are part of India's cultural traditions. But in cities they cause much disturbance. Indians must change their attitude towards such processions, as they may not be in consonance with the standards of city living.

Kolkata has received the dubious distinction of being termed "city of processions." The Right to Protest or the Right to Freedom of Expression has become a public interest issue. There are instances when victims of violence could not reach the hospital in time. Undoubtedly, we have gone too far with our sense of rights but ignored responsibilities, thus forcing the High Court to be so restrictive.

The question is should such processions be banned? The people of Kolkata are fed up with rallies and processions and, hence, may be happy with the court order. However, they may also not want it. After all, rallies, processions and road-blockades are sometimes organised spontaneously in response to some outrageous event.

Thus, an outright ban may not be the best solution. People may even ignore such bans. One may recall that such rallies were banned in China and the enforcement of the ban led to the infamous Tiananmen Square massacre in 1989. Ironically, some of the political groups that oppose the Calcutta High Court order failed to condemn the Tiananmen Square incident. Instead of imposing a total ban, a proper regulatory mechanism should be evolved so that such rallies and processions do not disrupt public life.

The ban on strike by government employees is another complex issue. Nevertheless, the issue has not been understood many in its proper perspective. Many trade union leaders, unsurprisingly, observed that this would lead to a totalitarian regime. However, it must be noted that the Supreme Court judgment pertains to government employees only. It does not relate to workers in general who are covered by the Industrial Disputes Act and have a right to strike.

Government employees, compared to the average working standards in the country, are actually a pampered lot. Their record of accountability and responsibility, in people's perception, are also not very high. One does not hear of action against government employees on the ground of non-performance. Moreover, they are employed not by profit-seeking and exploitative businessmen but by democratically elected governments. If governments are not able to do justice to their own employees, then one may very well argue that they cannot do justice to the people. Moreover, they have a number of channels for redressing their grievances.

However, sometimes they go on a strike even for petty reasons, putting public interest at stake. They forget that a strike should be resorted to only as the last option when all other available channels are exhausted.

The Supreme Court observation is, however, not tantamount to imposing a total ban on strike. It has just interpreted the existing legal provisions. Denial of the right to strike as a fundamental right does not necessarily mean that they cannot go on strike. However, it allows the governments to take penal action against the striking employees. One may, of course, argue that the government should not take harsh actions, such as dismissal, for going on strike. The government decision will, however, be challenged in a court.

Both the issues need to be debated widely before coming to any conclusion, as they are not simply legal or judicial issues. It is also important to raise awareness among all the stakeholders on these issues. Government employees must recognise that their job is to serve the people who pay for their salaries. People at large also must keep in mind that their right to protest or celebrate through rallies and processions should not disrupt public life.

---

We Owe It To Maran For Success At Cancun

Published:  The Financial Express, November 25, 2003
By Pradeep S Mehta 

“WTO is a necessary evil,” said Murasoli Maran as the commerce minister, who had acquired considerable skills on the complexity of the World Trade Organisation (WTO). Certainly, he was one politician, who had begun to understand the ins and outs of the WTO system, though not all would agree with his approach to this ‘evil’ body. “It is ironic that Maran, among the most well-read, competent and reforms-friendly of politicians should be talking like this,” said Jairam Ramesh, economic commentator, “If the WTO is an evil, how has India managed to win some trade disputes against the US and Europe even as it has lost some others?”.  

Maran certainly held strong opinions. The attitude was displayed best in the run-up to and at the Doha ministerial meeting of the WTO. He did not surprise any of us by playing in the typical Indian style of opposing everything, and when the going got tough, surrender to the larger body of world opinion. Apparently, he was guided by what he had to play before a home audience. Besides, according to him, he bought time on the controversial Singapore issues. Indeed that turned out to be true if one looks at what happened at Cancun, earning encomiums from our current commerce minister Arun Jaitley.

Maran wetted his beak when attending the third ill-fated meeting of the WTO at Seattle in November/December, 2000. Initially, he was being treated by the bureaucrats as a green minister, for he had taken over as commerce minister just a few weeks before the meet, in October. At the stormy Seattle meet, after the first two days, he seized charge of the process by putting the de facto head of the Indian delegation to his station. From that day, as the commerce minister, he has been in charge of whatever positions that we have developed at the WTO. He was one minister, who had his own mind and unless convinced, did not get swayed by advice.

He was well informed as our commerce minister, and would have taken on an increasingly one-sided agenda being pushed by some rich countries. He was surely missed at the ill-fated 5th ministerial conference held at Cancun in September, 2003. The whole multilateral trading system is so complex that it takes some time to study and develop skills to be able to comprehend even the ABC. But Maran was deft, because he worked hard and studied thoroughly. He often sought our reports and papers regularly, and even debated some of their contents. After the Doha ministerial meeting, when the US went tangent on a protectionist agenda: steel tariffs and increasing farm subsidies, he asked me to write about it.

The Doha meeting saw him in full bloom. He single handedly blocked the adoption of the agenda, and forced the meeting to extend by one day. US trade negotiator Robert Zoellick was hoping to tire the sick minister, but Maran disappointed him by staying awake the whole night of the penultimate day. In hindsight, his action was right, though many, including the Financial Times criticised him.

Before the Doha meeting, what surprised many of his detractors was his single minded pursuit of opposing the launch of a new round. And linking it to resolution of the existing implementation problems. He did not succeed in stopping the launch, but returned as a hero. Because, there was a text on resolving the implementation issues, diluting the TRIPs etc.

In fact, even during the meetings of the advisory committee, of which I am a member, he heard varying views on the issue of the new round. But stood his ground.

So much about trade. If one looks at his performance as the industries minister, it is quite different. He has been gung-ho on foreign direct investment in spite of the Swadeshi lobby. He has done extremely well, in spite of all odds. Though there has been a downturn in the world economy and FDI flows plunging even in the USA, flows into India went up a whopping 68 per cent in 2001-02. “On the ratio of FDI to GDP, we have come quite close to China,” said a beaming Maran to me when I queried him about the improving situation. “This is without considering the round tripping which inflates the Chinese inflows.” Alas, that smiling face is no more.

---

Doha Round: Moving A Mountain  

Published:  The Financial Express, November 24, 2003
By Pradeep S Mehta

We will miss your delicious lunches”, said K M Chandrasekhar, the Indian ambassador to the World Trade Organisation, to the Japanese trade ministry’s director general, Nobuo Tanaka. He was not referring to a ‘free lunch’ but to the fact that Tanaka had threatened that Japan would resign from the WTO and leave Geneva. The reason: Japan’s insistence on negotiations on investment policy at the WTO under the impasse-ridden Doha Round. 

This conversation took place on the sidelines of a high-level seminar organised at Geneva in the first week of November on how to move the Doha agenda. The sentiment reflected the net outcome of the seminar — and the bleak scenario at Geneva — that countries are not very serious about moving the Doha Round forward.

Chandrasekhar was being humorous, but Tanaka sounded serious. His colleagues and the Korean ambassador to the WTO, Eui-yong Chung, were also equally determined. One can understand Japan’s demand — they want a handle on China where a large amount of Japanese foreign direct investment is flowing. They also do not have any bilateral treaty to govern investments.

Investment was one of the causes of the failure of the September Cancun ministerial. It was one of the four Singapore issues, along with competition policy, trade facilitation and transparency in government procurement. Many countries were opposed to investment, in particular, and all Singapore issues, in general. The Africans walked out of the green room in opposition to all Singapore issues. On the other hand, the European Union was ready to withdraw investment and competition, but wanted negotiations on transparency and trade facilitation. It was, however, not clear whether both or just one issue could have been agreed to by all parties. It is another story that the meeting actually collapsed due to agriculture, as neither the United States nor the European Union were prepared to do more than what they offered on agriculture just before the Cancun meet.

That was not enough, which led to the creation of a formidable developing country alliance with Brazil, China, India and South Africa in the lead. However, the Mexican chair, Derbez, called off the meeting after the failure of the green room on Singapore issues. He did not go that extra mile in calling for the green room on agriculture. That’s an issue which will continue to haunt historians.

Be that as it may, it is surprising that European business has not been a demandeur for all Singapore issues. Even at the Geneva seminar, European business representatives said that they would be happy if negotiations were launched only on trade facilitation. That can certainly help move the agenda forward if, simultaneously, some steam can be obtained on agriculture. However, EU officials at the seminar did not wish to reveal their cards as clearly as their business did. They stated that they would be flexible only if other countries showed greater flexibility. In India’s context, this means that she has to reduce her agriculture tariffs more than what she would care to.

On the whole, the EU does not show any hurry to move the Doha agenda, as its trade supremo, Pascal Lamy, is very upset at the collapse of the Cancun meeting. The November 7 meeting of member states’ trade officials within the EU also could not arrive at any conclusions. On the other hand, the US has shown some willingness to move on the Doha agenda after such a call was made at a recent APEC summit. The problem with that is that the summit has called for ‘building’ upon the Derbez text of September 13. That draft was not acceptable to many, and thus they feel that it cannot be a ‘starting’ point.

Clearly, the situation is in a flux. The European Union continues to be quiet. One hopes that they will give some indication after an informal meeting of their trade ministers on December 2. As it stands today, they are testing the waters to see whether plurilateral approaches to competition and investment could fly, or whether negotiations can be launched on trade facilitation and perhaps transparency in procurement. Many are opposed to either the plurilateral approach or even the two less onerous Singapore issues. Renato Ruggiero, the former WTO director general, in fact, made a few good suggestions at the meeting to get out of the logjam on a long-term basis: First, that the ministerial process should be de-dramatised, ie, a ministerial should be held every six months with a narrow agenda, without engaging in any major institutional changes. Second, to expand the role of the director general, with powers to move on the agenda rather than leave everything to members, especially when there is an impasse. Third, to establish a group of eminent persons who can meet outside the rigid boundaries of the WTO system and build consensus on contentious issues.

Criticising the approach of the US and EU in pursuing regionals, Ruggiero made a smart suggestion that there should be a standstill on new bilateral and regional trade treaties till the Doha Round is over. And that the Committee on regional trade agreements should be given a strong mandate to examine the existing treaties and how compatible they are with the WTO’s fundamental principles. Many pundits have already criticised RTAs as stumbling blocks rather than building blocks.

Among other eminent persons speaking at the seminar, former Mexican president Ernesto Zedillo, who now heads the centre on globalisation and development at Yale University, stood out with some of his wise remarks. Responding to a participant’s suggestion he felt that the agenda can move forward only if heads of governments recognise that it is an issue which requires attention. He felt that neither senior officials nor trade ministers can move the Doha round forward, as much has to be done and they will not be in a position to make the desirable commitments. For example, agriculture subsidies in the rich countries can only be addressed if George Bush and Jacques Chirac are ready to talk about it.

Zedillo suggested that developing countries should file complaints on the agriculture subsidies at the WTO once the peace clause is over at the end of the year. That could be a sureshot way to move the two trading giants to first, start lowering their farm subsidies, and second, to move the Doha agenda forward.

---

A head for Competition Commission

Published:  The Hindu Business Line, November 20, 2003

 By Pradeep S Mehta 
Nitya Nanda

As the Competition Commission's chief task is to decide whether a particular trade practice is harmful for the market, the economy or consumers, the top slot would require the expertise of an economist. If the right persons are not appointed at its formative stage, a useful opportunity will be lost.

THE recent observation by the Supreme Court on the issue of the appointment of the chairman for the soon-to-be-established Competition Commission of India has triggered a debate of a strange, and probably unique, kind. On the face of it, it appears to be a turf war between the Judiciary and the Executive rather than what the qualifications for the head should be.

What is clear is that in India, where market distortions are galore, the Competition Commission's head will need to be a professional who can meet the challenges of helping the economy grow by following a rigorous and vigorous agenda.

Competition policy is a regulatory function and not a judicial one. If one looks at competition panels worldwide, most are headed by people with either legal or economic/academic background. Putting a retired bureaucrat or a judge in charge may be the norm. One, of course, would find exception in countries such as Italy, where the competition authority has been headed by a former Prime Minister, thus raising the profile of the agency.

If one looks at the most successful and highly-rated competition regulators around the globe, they are, and have been, led by young and dynamic persons.

For example, Mr Allan Fels, who just retired as chairman of the Australian Competition and Consumer Commission, is an economist who blazed a trail of market reforms for the last decade or so. His former colleague and vice-chairman, Prof Allan Asher, was a lawyer with 10 years as a consumer activist. Prof Asher's successor, Prof Louise Sylvan, again an economist, has headed the Australian Consumers Association.

In Brazil, the competition authority — CADE — was headed by an economist in his mid-forties — Prof Gesner Oliviera who reverted to academia, after completing two terms as the CADE Chairman. Prof Olivierahas been succeeded by another mid-career economist.

In South Africa, the Competition Commissioner, Mr Menzi Similane, is a lawyer in his early forties. The Competition Tribunal chief, Mr David Lewis, is, however, a mid-career economist. It is interesting to note that in South Africa, the Competition Commission, which investigates cases and does not have adjudicative power, is headed by a lawyer, while the Competition Tribunal that actually adjudicates the cases is headed by an economist.

The South African law is, perhaps, the best model that India could have followed. As in India, the final arbiter is the South African apex court though it has a specialised Bench.

In Peru, the INDECOPI, that regulates intellectual property, competition policy, consumer protection, market access, anti-dumping, bankruptcy and technical standards and is a model of a integrated regulatory body in a developing country context, has been headed by a dynamic and young Ms Beatriz Boza, an accomplished economist.

Prof Mario Monti, the powerful Competition Commissioner of the European Union, is also an economist. One can find several such examples elsewhere too, including Canada and the US which have the longest experience in competition law and policy.

Not only going by the experience worldwide, even common sense suggests that to be successful, such authorities need to be dynamic and proactive and free from government interference. If one goes by the experience of Monopolies and Restrictive Trade Practices Commission (MRTPC), the present avatar of the proposed Competition Commission, it has always been headed by a retired judge.

The MRTPC became another court. dogged by procedural delays where a case could take several years to be decided. Just as an example, if one looks at the annual report of the MRTP Commission, one can see the real position.

Rarely can one find that a retired person has been able to provide leadership to such an organisation. If at all such a person has been proactive, more often he has become super-zealous rather than providing balanced leadership. Naturally, many consumer groups are worried that even the new avatar of the MRTPC will also be ineffective if manned by retired bureaucrats/judges.

Similarly, the fear has also been expressed by the corporate world that retired bureaucrats and judges might bring with them the hangover of a command-and-control regime.

An inefficient Competition Commission will cost consumers, as it will not be able to check anti-competitive practices. Delayed decisions of the Commission will also cost business dearly as it will bring uncertainty and firms will not be able to take important strategic decisions.

Despite its legal status as a quasi-judicial body, the Commission is not going to be another court but an important institution for economic governance. Thus, like a retired bureaucrat, putting a retired judge at the head of the Commission can send wrong signals. It might also bring in the so-called court culture to the Commission.

The real issue, however, is not whether we need a bureaucrat or a judge but the kind of persons to man the 10-member Commission who understand the issues and can deliver.

Imagine a situation where it has to be decided whether some food or drinks manufactured by a company is safe enough and whether it should be allowed to be sold in the market. It involves a judicial function which means a decision has to be made whether something should be allowed or not.

Obviously, only a food scientist can take the right decision. Similarly, the job of the Competition Commission would be to decide whether a particular trade practice adopted by a company or a group is harmful for the market/economy or consumers. Admittedly, one would require the expertise of an economist.

In developed countries, as mentioned before, such bodies are headed either by an economist or a lawyer. But these countries have a long tradition of competition law enforcement and, hence, many lawyers have adequate expertise in economic issues as well. In developing countries, however, such inter-disciplinary training is not yet available. Hence, it would be better to have an economist head such bodies.

A selection procedure for the head of the Competition Commission that is not transparent would undermine the credibility of the new organisation which will be difficult to regain.

On the other hand, if the right kind of persons are not appointed at its formative stage, a useful opportunity will be lost.

After all, forming and running an efficient organisation is much easier, but turning around an inefficient organisation is very difficult, if not impossible!

That was precisely why a new law was adopted, rather than tinkering with the old MRTP Act. But a new law will need a new approach.

---

WTO Negotiations — Time to Give and Take 

Published:  The Hindu Business Line, November 18, 2003
 By Pradeep S Mehta

International negotiations are a matter of give and take. If one has to become advantageous in six things, one will need to give in on at least two things.

THE Commerce Minister, Mr Arun Jaitley, has arrived as a skilled and thoughtful communicator. Late October at a seminar that featured a post-Cancun analysis speech by him, Mr Jaitley exhorted the country that future trade negotiations are going to be tough and one will have to be ready to make some concessions. Breaking all traditions, some weeks ago, he also wrote a long article in the press on what happened at Cancun and what lies ahead.

It is rarely that a Minister dealing with international trade is so clear and open. Overall, the public discourse will help create a better understanding in India and elsewhere. Also, the controversy surrounding international trade and globalisation will benefit from more transparency.

It is not only the WTO but also the recent offensive by India to enter into bilaterals and regional free trade agreements that came in for debate at the seminar.

This is where the media have to be better informed rather than highlight some stray protest, cautioned Mr Jaitley. This then becomes a sort of mantra of a particular trade deal as being bad. The much older Indo-Sri Lanka FTA had come under attack by the tea, spices and garments lobbies, but it has not affected India's industry.

What is worth noting is that except a few newspapers, none reported this crucial aspect of Mr Jaitley's speech. What most newspapers carried was India's rejection of the September 13 Draft Ministerial Declaration as a basis of taking forward the negotiations at Geneva. In fact, it was this draft which had caused the most heartburn and, thus, turned away countries from reaching any deal. The draft did not capture the feelings of members on both agriculture and Singapore issues, while belittling the issue of cotton subsidies ("eat cakes, if they cannot get bread!"). The last clearly hurt not only the small West African countries, but also the whole continent.

The South African Trade Minister, Mr Alec Erwin, writing in the Financial Times (September 29) criticised the process adopted by the Mexican chair saying that, "On the afternoon of day four (September 13) of the five-day ministerial meeting, the Chairman released the second draft agreement. Developing countries criticised it, sometimes passionately, as an unacceptable basis for negotiations. This was not a political or polemical stance; the balance of the draft was wrong... On cotton, the draft called on West African farmers — whose livelihoods are being destroyed by the effect of the US and the EU subsidies — to consider other economic options, but did not commit the US or the EU to remove subsidies themselves. African countries were appalled".

Mr Jaitley, writing in the Financial Express (October 9) buttressed the issue: "A high degree of distortion prevails in the agricultural sector, with heavy subsidies being given in certain developed countries to their farmers. This not only limits access into markets in these countries, but also prevents fair competition in third country markets. In countries like India, with a huge rural population, entirely dependent on agriculture and a large proportion of them below or close to the poverty line, a small disruption in the market could bring down prices sharply, leading to fall in incomes and to actual starvation and widespread misery."

Development was the buzzword at Doha, and that seems to have been lost somewhere. Cancun reminded us of this, as noted by many ministers and observers. "With a political substance without precedent, a group of countries with a remarkable negotiating capacity and a solid technical preparation has arrived and shown the need to focus on "development" of the great majority of the WTO members. This event is systemic and from now on will have an impact on the negotiating dynamics of the organisation," wrote the Argentinean Foreign Affairs Minister, Mr Rafael Biesla, in El Paes (October 14), one of Spain's leading newspapers. "Cancun has made a change in the balance of the powers within the multilateral system evident".

Another crucial point was made by Mr Jaitley, which did not was reported by the press. He warned that whatever is written needs to be done carefully, because that puts our negotiators under great pressure.

In international negotiations, one really does not know which way the road will turn. Therefore, opinions are often based on experience and perceptions, on which even experts differ.

The most important point made by Mr Jaitley is that international negotiations are a matter of give and take. If one has to become advantageous in six things, one will need to give in at least two things.

That message seems to have got around pretty well, and will, thus, make the lives of Indian negotiators easier — as and when negotiations are re-launched at Geneva. And that is what we want.

---

Don't Take It Out On The Roads 

Published:  The Hindu Business Line, November 07, 2003

 By Pradeep S Mehta 

JAIPUR'S image of a city of non-belligerent road-users was dented recently. A minor mishap involving the cars of a bureaucrat and an MLA ended up in a major brawl.

This shows that road rage can grip anyone, even the educated and elite, that is, when road rage takes over, people tend to forget their dignity and status and stoop down to appalling levels.

According to the Institute of Road Traffic Education (IRTE), Indian roads are witness to over 230 deaths and around 3,500 serious injuries every day, implying an estimated annual social loss of Rs 55,000 crore. More appalling is the fact that a major case for this is neither bad roads nor negligent drivers, but the recently recognised phenomenon of road rage.

The uppermost question, therefore, is: Is it enough to observe traffic rules and be a careful driver, or must one yield to aggressive road-users?

Generally, aggression on the road overcomes a driver without warning and tends to destabilise so completely that it makes him/her irrational and impulsive. Drivers might end up doing things they normally would not — such as chasing, abusing, hurting and, at times, even killing. Not surprising, then, that it is referred to as the `mad driver' disease, which is spreading fast on Indian roads.

It has been rightly pointed out that when people lack the cardinal three Cs — care, courtesy and consideration — while on road, they become potential aggressors as well as possible victims of road rage.

What is the cause of this terrible over-powering feeling of anger while driving? There are a number triggers, but the most obvious ones are high stress levels and suppressed anger.

Stress causes tempers to fly at the slightest provocation and, consequently, normal people behave abnormally. Dr Pradeep Aggarwal, a practising psychiatrist in New Delhi, sees road rage as an extension of urban lifestyle.

When people are unable to cope with the pressures of day-to-day life, they end up expending their frustrations while driving without realising how dangerous this can be.

These high stress levels and anger may lead to petty issues being blown out of proportion.

For instance, in Delhi, a policeman was beaten up by a cyclist for restraining him from crossing the path of a VIP motorcade, and, in another incident, two men were beaten up and shot at by a driver who was chastised by them.

Road-users, in general, lack traffic sense and courtesy. Wanton disregard of traffic rules — jumping signals, taking wrong turns, and so on — has become the norm rather than the exception. Also, as people find themselves in a hurry to reach their destinations, they indulge in mindless driving.

But the conditions — bad roads, pollution and the increasing number of vehicles, including two-wheelers and cyclists — are also to blame for the growing intolerance and impatience. In this context, the following excerpt from a UK newspaper brings out the scene on Indian roads rather well: "Travelling in India is an almost hallucinatory potion of sound, spectacle and experience. It is frequently heart-rending, sometimes hilarious, mostly exhilarating, always unforgettable, and when you're on the roads, extremely dangerous."

Apart from the need to reach the destination on time, it is competition between drivers that results in speeding.

Drivers, especially of autos and private buses, overtake recklessly just for the kick of it. Nearly everyday one hears of road-users being injured or even killed by reckless driving.

Drunken driving is another manifestation of road rage. Alcohol impairs a driver's sense of judgment and also causes him/her them to behave rashly, thus endangering traffic safety. Recently, Delhi saw drunken occupants of a car beat up two cops who were trying to mediate between them and a Blue Line bus driver. Drunken driving is responsible for 60-65 per cent of the accidents.

Using mobile phones is a potential cause for road rage. If the conversation over the cell turns out to be unfavourable for the driver, it could affect the equanimity of the driver.

Curbing road rage is an inherent aspect of road safety. Apart from the financial and social losses, it is the harbinger of misery, suffering and grief, which cannot be compensated with money. Though the monster of road rage has reared its ugly head only recently in India, we must accept it and work towards harnessing it fast to ensure the safety of our road-users.

---

Cancun Collapse: Opportunities And Threats

Published:  The Hindu Business Line, October 01, 2003

 By Pradeep S Mehta 

Can the developing countries sustain the solidarity they forged at Cancun? In that lies the answer to the future of the WTO and what it stands for — equitable trade. The developing countries can do it if they first start trading among themselves more, says Pradeep S. Mehta.

IT IS a hat-trick for agriculture. First, it caused a serious crisis during the Uruguay Round, delaying its conclusion. As per the original schedule, the Uruguay Round was to be completed by 1990 but it got extended by three years and concluded in 1993.

The second time at Seattle, talks failed mainly because there were serious differences over liberalisation in agriculture. Labour standards, however, were made the scapegoat. And, finally, at Cancun, it was agriculture once again. However, this time the blame was passed on to the Singapore issues, especially investment.

In the run up to the Cancun Ministerial, many predicted yet another Seattle. But no one expected such a well-planned `Seattle'. The entire show was very skilfully masterminded by the US. Immediately after the formal announcement of the collapse of trade talks by the chairman, many NGO activists from developing countries were chanting slogans, "We Won, We Won".

But in the true sense it is the developed countries that were the ultimate winners. Their main intention was not to agree on any concession on agriculture and somehow maintain the status quo.

This is also evident from the EU Agriculture Commissioner, Mr Franz Fischler's reaction to the G-21 proposal. According to him, developing countries were asking for the moon. Now Mr Fischler joins the chorus that the World trade Organisation's system for negotiations needs reforms, as it will be difficult for it to reach consensus with 148 countries in the room.

Agriculture dominated the first three days of the Cancun ministerial. The tug of war between the G-21 group and the EU over farm subsidies overshadowed all other issues including the Singapore issues. Both the EU and the US tried their best to break this alliance.

When they could not, they brought in, as it were, "Plan B": Antagonise the developing countries so much as to lead to the ministerial's collapses. The inclusion of Singapore issues in the second revised draft ministerial text (the first during the ministerial), particularly investment, was a part of this strategy. The developing countries fell into the trap.

Following the failure of the EU and the US in breaking the G-21 ranks, the way the negotiations were conducted gave enough indication that the result was fixed by developed countries, especially the US. The delay in bringing in the second revised draft ministerial declaration, the tying up of investment with agriculture, and the final hasty wrap up of talks by the chairman, all raise questions in people's minds, puzzle trade analysts and deserve clarification.

Last time at Doha, when the developed countries were determined to launch a new round of trade negotiations, the ministerial was extended by a day to arrive at a consensus. But at Cancun, when developing countries managed to putting the developed countries in the dock on agriculture subsidies, the latter bulldozed the entire ministerial.

Why the delay in bringing out the revised draft ministerial declaration? The text was released at noon on September 13, and the next afternoon the chairman announced the failure of the ministerial. Less than 24 hours were given to reach a consensus on such contentious issues as investment, competition, trade facilitation and transparency in government procurement.

Was the chairman not aware that in seven years (since the Singapore Ministerial of 1996) neither the protagonists nor the antagonists would budge from their positions? How, then, did he expect a consensus in less than 24 hours?

At Doha, the ministerial revised draft was put out on November 13 and the Ministerial concluded on the 15th. So three full days were devoted for negotiations before the final consensus. At that time, the developed countries were clearly interested in making a success of the ministerial because they were interested in launching a new round of trade negotiations, environment was part of the agenda and, more important, new issues were included in the Doha Work Programme. So, they did everything — from arm-twisting to giving sops to developing countries.

The inclusion of investment in the revised text at Cancun puts a big question mark on the role of the facilitator. Of the 146 WTO members, more than 70 have on record said no to launching negotiations on Singapore issues. Sixteen said no in writing to to negotiations on Singapore issues. If, yet, the draft declaration proposed negotiations on Singapore issues, clearly his mind was set. Moreover, the language on investment, the most contentious issue, was strongest. There was no talk of linking investment with agriculture. If there was any talk of quid pro quo, it was between investment and mobility of labour. Among the new issues, some trade analysts were hoping to strike a compromise on competition rather than on investment. A consensus on investment was beyond anybody's imagination. Furthermore, on investment there is no unanimity even among EU members or their businesses.

Why investment was included in the revised draft declaration? One answer could be that as the G-21 was acting tough on agriculture, the EU wanted to counter it by pushing investment onto the agenda. The second possibility is that as investment was the most contentious Singapore issue, the developed nations zeroed-in on it only to antagonise developing countries and lead to the failure of the talks. And this is what happened.

Fingers are also being pointed at the chairman, who abruptly announced the collapse of ministerial, when the situation was definitely not like Seattle. There was not a slight, but in fact a fairly good, chance of reaching a consensus, had the chairman extended the time for negotiations. Be that as it may, the timely release of the World Bank's Global Economic Prospects 2004 has come as a shot-in-the-arm of developing countries to expose their extremely high domestic farm support given by the rich countries.

According to the report, on cotton the US provides the greatest support to its producers: $3billion annually. The EU provides about $0.6 billion each year to its producers. While the US and the EU were maintaining high support, several cotton-producing developing countries (especially those in Africa) undertook substantial policy reform to raise the efficiency of their cotton sector.

Price and export prospects of developing country exporters — especially in Africa — would greatly improve if support in developed countries were reduced or eliminated.

Incidentally, cotton subsidies were high on the agenda at Cancun. The WTO Director-General, Dr Supachai Panitchpakdi, was himself facilitating the talks on cotton. The economies of four African countries (Chad, Burkina Faso, Mali and Benin), which brought this issue to the negotiating table at Cancun, are heavily dependent on cotton.

Although this issue was raised separately, it was in tandem with the G-21 demand for the complete phasing out of farm subsidies. The four African countries demanded a separate commitment from the US on cotton, while the latter insisted on discussing it only under the Agreement on Agriculture. In view of the uncertainty over agriculture, the four African countries were quite justified in raising this issue separately.

In the aftermath of Cancun, uncertainties arise on two fronts — first on the ongoing Doha Round and, second, on the future of the WTO. As for the first, there are no two opinions that it is now impossible to conclude it on time.

On the future of the multilateral trading system, it all depends on how developed countries take the challenge of the new-found solidarity of developing countries.

For long the Bretton Woods institutions have been virtually the hand-maidens of developed countries, which dictated the policies of these two organisations. If the WTO is not allowed to remain a similar tool in their hands what will be its future?

Many people are speculating a fresh spurt in bilateralism and regionalism. They are already proliferating. The 1990s saw the signing of the maximum number of RTAs. The setting up of the WTO hardly had a negative impact on it. In fact, the newfound solidarity among developing countries may have some impact on bilateral and regional trade negotiations too.

Developing countries have realised their new strength to negotiate on more equal terms. Till now developed countries have had the upper hand in such trade treaties.

For example, the US has its own template of bilateral trade agreements in which it tries to include labour and environment, two highly contentious issues in the multilateral trade negotiations.

The collapse of the Cancun ministerial provides both opportunities and threats to developing countries and the overall world trading system. For the first time developing countries have not succumbed to developed countries' pressures. If the former take this forward, there is a real good chance of reforming the WTO to make it more transparent, democratic and equitable — everything the world body's preamble promises. Second, in the world trading system a country draws its strength from its share of the world trade.

Two-thirds of the world trade takes place among developed countries. For the developing countries to translate their new solidarity into real power they will have to enhance South-South trade. Only then can they sustain before the combined might of the US and the EU. Ultimately, it is economic power that counts.

---

The After Effects Of Cancun

Published:  The Economic Times, September 20, 2003

 By Pradeep S Mehta 

The solidarity shown by the poor countries at the Cancun trade meet, which came as a surprise to many, is a genuine reason for pride in the developing world. It showed what can be achieved in a democratic institution. If only trade negotiations were truly a democratic business!

No sooner was the meeting over, both the United States and the European Union expressed their intention to find other ways to achieve their aims of opening markets for their goods and services. This would mean that countries like India which are without any regional or bilateral arrangements would suffer more than they would have under a multilateral regime.

How did this situation come about? The Cancun WTO ministerial was trapped in some contentious North-South issues and even before the meeting began many had wondered whether common ground could be found. Two of these issues revolved around the age-old subject of agriculture and the Singapore Issues: investment, competition, trade facilitation and transparency in government procurement. Apparently, the resolution of one was tied with the other as the draft declaration had specified a common target date for concluding the negotiations. For a long time the EU, the main demandeur for the Singapore Issues, has been insisting on such a trade off.

When the negotiations on a draft declaration could not succeed, the Green Room process (where few influential countries meet to sort out the differences) was launched. To begin with, the Mexican host started discussions on Singapore Issues rather than the more important subject of agriculture — perhaps at the insistence of few interested countries.

On Singapore Issues, EU eventually agreed to unbundle and drop investment and competition from the WTO agenda entirely. The US was also ready to go along with the EU. Some of the developing countries such as India and Malaysia could live with this. However, the African group did not want any, while the other two EU supporters: Japan and Korea insisted on all four. It is interesting to note that while EU was ready to move on agriculture, both these East Asian countries were immovable. When the discussions appeared to be blocked, the leader of the African group, Kenya, walked out of the Green Room.

In the face of this breakdown, the Mexican chair decided to call the meeting to a close, declaring that the whole ministerial negotiations were impossible. This was immediately rebutted by India and some EU member states, when leaving the meeting, who said that if only the chair had extended the discussions a deal could have been struck. Alas!

This leaves us to wonder what was behind the chair’s seemingly hasty decision; perhaps it’s strong northern neighbour!

Looking at the statements made by the US officials before and since the meeting, it appears as if they were only waiting for an opportunity to move away from the multilateral to the regional and bilateral track. Washington has promised to pursue these negotiations with renewed vigour in the FTAA and elsewhere. Having suspended such a strategy since 1999, the EU has also now announced that it will pick up deals on a bilateral basis from 2005.

What is bad about bilateralism as against a multilateral forum? In bilateral deals, it is the strong which dictate both the policies as well as how they will be interpreted. It is less likely that a poor country is able to make the same show of strength in a one-to-one negotiation with a rich country. The situation is perhaps worse for the countries that will be ignored in the surge of bilateral deals as their markets are too small to interest the big players. Secondly, under a bilateral deal the victimised country cannot even approach the WTO dispute settlement forum, which has earned a good reputation for fairness.

On the other hand, there are small African countries who are quite happy with the failure of the Cancun meeting, because they feel that they would not have gotten anything from it. Their gloom is worsened by the US response to their demand on ending cotton subsidies. Cotton is one area of agriculture on which many of the smaller African countries are highly dependent.

Some commentators have also linked the failure of the Cancun meeting to cotton. Just as the issue of TRIPs and access to medicines had become a symbol of the success of the Doha meeting — held two years ago from which the Doha Round draws its name — the plight of cotton farmers in West Africa became the acid test of the rich countries resolve to support development as an agenda of the WTO. All hopes were dashed when the US backed off on offering anything to the African demands, saying that the cotton issue can only be discussed under agriculture talks. This was perhaps a reason for the Africans to walk out when Singapore Issues were being discussed.

It may never again be possible for the South to achieve the same co-ordination at the WTO because international economic relations are so dynamic and often situations change with so many variables which influence their management. The institution of WTO is itself set to change, as both the two trading powers want sweeping changes in the way it operates. Consensus visibly doesn’t work according to the EU, that promises to come up with a proposal for dramatic reforms. Without the principle of consensus, democracy will make way for the rule of jungle, where might is right.

Back in 1971, at Cancun, North-South economic relations were discussed by heads of government such as Ronald Reagan and Indira Gandhi in the hope that a clash between north and south could be avoided. In 2003 it seems as if polarisation between the rich and the poor may still be deeply entrenched. We cannot forecast the impact of this in future in either of the areas of economic and political relations, but if this new-found developing country solidarity can be sustained, it could bring in a new power equation among the rich and the poor countries of the world.

---

Support For G-21 Swelling, But European Union Still Remains Clueless

Published:  The Financial Express, September 13, 2003

 By Pradeep S Mehta 

Cancun Sept 12:  Agriculture continues to hog the headlines here and any agreement appears as elusive as it was when the ministerial began. The matter continues to agitate those outside the hallowed portals of the convention centre. Farmers groups continued their agitation few miles away charged by the sad incident of a Korean farm leader committing hara-kiri. The farmer: Lee Kyung-hae climbed the high security fence waving “WTO kills Farmers”, took out a knife and stabbed himself in the chest. Incidentally, he was the same farmer who had camped outside the WTO building in Geneva a few months ago asking for exclusion of agriculture from the WTO.

Mr Lee’s death must be in vain. The two groups—with a large silent majority continue to hold hardline positions. The G-21 alliance (comprising of countries like Brazil, India and China) is holding on, with the other party: the EU trying hard to break this alliance. That is the crux of the proceedings that dominated discussions at the WTO ministerial conference in Cancun on September 11. There is a feeling among the EU officials that India is a difficult nut to crack. A strategy to separate Brazil from India may be well on their cards. That is why they have primarily identified Brazil as the leader of G-21 rather than India.

Further, developed countries have spotted some clear differences between the two big developing countries - Brazil and India - on contentious agriculture issues. Brazil, a leading farm exporter and member of the Cairns group of countries is strongly advocating for total liberalisation of agriculture that includes tariff reductions and complete phasing out of subsidies by rich countries.

On the other hand, India is mainly interested in the elimination of subsidies and not the reduction of tariffs, as it itself maintains relatively high tariffs rates to shield her farmers. Another soft target is Argentina, which owes billions of dollars to the International Monetary Fund.

Delivering an update on the day’s happenings at the Ministerial, Franz Fischler, the EU Agriculture Comm-issioner, in a briefing with NGO representatives, said that the meeting this afternoon with the facilitator of the agriculture group was the starting point of the real negotiations in agriculture. The discussions lasted over two hours where the G-21 and the EU presented their respective positions. Mr Fischler commented that the G-21 countries in their proposal were demanding reforms in the Blue Box (elimination of blue box subsidies), Green Box measures (capping and strict criterion) and Amber Box (setting of higher targets and ambitious timeliness for trade distorting subsidies.

According to him, the fact that they were discussing Green box measures, besides Blue box and Amber box makes their proposal flawed. The EU’s position, he said is that “the Green box indicates non-trade distorting subsidies and the WTO is only concerned with trade distorting subsidies, so why should we discuss Green box measures at all”. The risk he said was that discussing this will block discussions on other sectors that need reform.

---

CAS: Bouquet Of Problems 

Published:  The Hindu Business Line, September 11, 2003

 By Pradeep S Mehta, Rajan R. Gandhi 

SINCE June, consumer groups have been cautioning against the implementation of Conditional Access System without adequate safeguards. A Cuts (Consumer Unity and Trust Society) survey of six Indian cities revealed the existence of monopolies and cartels among service providers and a serious level of dis-satisfaction with the last-mile cable TV operator. At a CUTS-sponsored National Seminar in New Delhi on July 1, speakers cautioned against the hasty imposition of Conditional Access System without putting in place a regulatory mechanism.

For reasons not very clear, the Ministry of Information and Broadcasting stuck to its implementation plan and sections of the service providing industry were chortling at the thought of getting their hands on a slice of the Rs 10,000-crore pie. The arithmetic behind this.

There are about 80 million TV sets in the country. Considering that some households do not have access to cable TV or that there could be more than one TV set but only one cable subscription there would still be 48 million cable TV connections, and with each subscriber paying Rs 175 a month it is easy to see why the industry is drooling — at stake is Rs 10,000 crore.

This, of course, is not incremental value. Rs 10,000 crore is the existing value of cable TV subscriptions. The bulk of this — say, 70 per cent — is simply not accounted for by cable TV operators. As there are some 40,000 of them, the revenue is not that difficult to conceal.

One of the declared aims of the CAS is to do away with this under-declaration. To what extent this objective will be achieved remains to be seen. In New Delhi, the existing rates of tax are 8 per cent service tax and Rs 20 per subscriber per month as entertainment tax. Applying these rates to the estimated 48 million cable TV subscribers throughout India, the Central and State governments between them stand to earn close to Rs 2,000 crore. Since this is not a specific cess and the Government is not obliged to do anything at all in return, this is a highly productive method of raising revenue.

Thus far, the arithmetic yields Rs 2,000 crore for the Government and Rs 10,000 crore for the service-providers, at existing rates. Nothing except market forces can prevent broadcasters from raising prices. While there may be a limit to the price, events such as the cricket World Cup could lead to opportunistic pricing. The consumer has been protected from this so far by the much-reviled cable TV operator who will have neither the motive nor the means to do so after CAS takes effect.

The CAS was supposed to be "consumer-friendly" and even the Prime Minister has gone on record affirming this. What is emerging presents a terrifying picture of what can happen when the Government uses its muscles with the favour dispensers.

The Government has all along been saying that no broadcaster would be allowed pricing that permits more than 10 per cent difference between the prices of a `bouquet' of channels (a bundled price) and the aggregate of all the channels priced individually. Thus, if a broadcaster offered five channels at a bundled price of, say, Rs 100, the total outlay of each channel when purchased individually should not exceed Rs 110.

But consider this: Star TV has priced its `bouquet' of nine channels at Rs 50, while the a la carte rates for its nine channels totals Rs 110; not a 10 per cent but a 120 per cent price differential.

And, now, consider this: Cable TV operators have agreed, with great reluctance, to relay 30 FTA channels at the base price of Rs 72 per month plus taxes. There are, however, some 60 FTA channels. The law is silent on whether or not the cable TV operator can levy a charge for the FTA channels in excess of the bare minimum 30 channels.

Yet, the worst transgression of consumer rights possibly lies in the stipulation that consumers must compulsorily purchase a Set Top Box (STB) if they wish to watch pay channels. It cannot be forgotten that CAS originates from disputes about the actual revenue and the sharing of the spoils between the service-providers — the broadcasters, the multiple system operators and the cable TV operators. The viewer is being asked to pay for resolving this dispute, which was not his own making! The position should be the exact opposite: The service providers should actually pay the viewer for keeping track of his or her viewing habits.

Local vendors of STBs have tried some not-too-subtle-moves to create a demand for their products and obfuscating the issue. The truth is that the STB has no built-in circuitry to enhance picture and sound quality. No service provider has announced the provision of value-added services such as video games for which customers will have to pay separately anyway. The customer will also have to invest further in an input device such as a joystick or keyboard to play video games. Picture and sound quality depend on the broadcast and the transmission cable, not on whether an STB is digital or analogue. For political reasons, the implementation of the CAS has been put off in Delhi at least till end-December. Service-providers and the I&B Ministry are too scared of the Shiv Sena to push CAS through in Mumbai, and a sort of uneasy calm prevails. The West Bengal Government has stalled CAS saying that it had not been adequately consulted or briefed. So Chennai becomes the "guinea pig".

At first, multi-system operators (MSOs) in Chennai spoke of the "outstanding success" of the scheme, attributed to the fact that there were only two MSOs and most of the regional language channels were in any case FTA. However, even two MSOs could not form a viable cartel. One of them — SCV — is part of the Sun group and offers Sun's pay channels free. The other MSO, Hathaway, has countered by offering Star TV channels at a highly discounted rate. Thus, on the day that CAS was implemented in Chennai, only 2,000 STBs were sold.

Will the service-providers ever be able to sort out the mess? Most unlikely. Broadcasters blame the MSOs for not settling their overdues or paying on time, and the MSOs the broadcasters for making repeated verbal agreements, but putting nothing in writing, and backing out of commitments. The MSOs also accuse cable TV operators of under-declaring their subscriber base. Consumer groups have repeatedly approached the I&B Ministry and even the PMO. Their reservations are not against CAS per se, but in the way it is being introduced. They see the STB as an unfair financial imposition and have urged the Government to put in place a regulatory mechanism whereby they can be assured of four basics.

First, that the service-providers must pay for the cost of installation and maintenance of the STBs. Second, that the total financial outlay on cable TV subscriptions should not exceed their existing expenditure, even if it means that they will have access to fewer channels than before. Third, that quality of reception must at least be maintained.

And, fourth, that their complaints are promptly and efficiently attended to. Had the Convergence Bill been finalised, it would have been possible to address these concerns along with a host of technical and non-technical issues simultaneously. In its absence, and considering the monopolistic nature of the cable TV industry, an independent regulatory authority seems essential if there is to be no further strife. Simply passing the buck to State governments, as is being contemplated, will just not. Kaun Banega Crorepati? As it stands, no-one.

---

Limited Negotiating Capital Must Be Used Judiciously

Published:  The Financial Express, September 08, 2003

 By Pradeep S Mehta

The WTO secretariat has circulated a revised draft declaration for the Cancun ministerial. However, entrenched positions among countries as well as a flurry of proposals in the interlude held up the release of the draft declaration, originally planned to be released on August 22. The 21-page text covers key areas of the Doha Agenda, and unlike the July 18 Draft, has more flesh on its bones. However, several developing countries have criticised the revised draft as being imbalanced and not taking into account development needs and their proposals in many areas. Nevertheless, the revised draft has tried to adopt a hybrid approach in some crucial issues like agriculture and

non-agricultural market access. Agriculture, along with TRIPs, public health and the four Singapore issues, has been the major contentious issues in the current Doha round of trade negotiations; non-agricultural market access could also claim a place on this list.

On TRIPs and public health, a deal has been struck. But its complexity will certainly add to the list of ‘implementation problematique’. The deal on TRIPs, however, has partially restored developing countries’ confidence that the Doha round has some links to a development agenda.

When the Doha Development Agenda was launched, many had questioned as to how it would enhance development. Proponents had claimed that not just TRIPs, but agriculture liberalisation and technical assistance on various issues too which would constitute a development agenda. Agriculture remains a hot potato, despite some movement. First, the EU’s compromise on Common Agricultural Policy, followed by the US-EU joint proposal, have paved the way for a deal on agriculture at Cancun. As already mentioned, the revised text proposes a hybrid formula for tariff reduction, i.e., between the “Swiss” and “Uruguay Round” formulae, though many developing countries are not happy with it. India, along with China and Brazil, has joined the grand alliance against the US-EC joint proposal. But I am not sure how far India is going to benefit out of it. Clearly, at present India is not a major farm exporter. Perhaps India is howling only because agriculture is a politically sensitive subject at home.

Next, the most contentious issues: the four Singapore issues, especially competition and investment. The revised draft carries the language of both protagonists and antagonists. But, I don’t see how either of the two sets of proposals will be acceptable to all Members. In all probability, some deal will be struck and a middle path adopted. The US has just launched a new proposal on Singapore issues, which has perhaps surprised the EU. The US is ready for negotiations on trade facilitation and transparency in government procurement, and also amenable to a peer review system on competition. It is willing to drop investment knowing fully well that countries are opposed to it. At Doha, the former commerce minister, Murasoli Maran, had succeeded in delaying the launch of negotiations. But, this time it is unlikely that after the US move, the EU will settle for anything less than the launching of negotiations, even with soft law options. The EU has been asking for simultaneous progress on the four Singaporeans as a sort of quid pro quo against what it will be giving up in agriculture. As part of a wider deal, the EU is likely to push US to give more on competition. It already has the support of Japan and Canada for all the four issues. Thus, the EU will push hard for the Singapore issues at Cancun.

What should we do then? We should see the writing on the wall. We have a deal on TRIPs and public health, which will benefit the poor, and the domestic pharmaceutical industry in India, Brazil and South Africa immensely. Secondly, it will also prove that the iron-clad TRIPs agreement can be assailed. This will come in handy when other more critical issues, such as seeds will come up in future. Another, crucial area of developing countries’ interest is Temporary Movement of Natural Persons (Mode 4 of GATS).

Therefore, ideally, India should bargain for better market access for professionals in developed countries. In this area, we can also have an alliance of more than 50 developing countries, including Pakistan, Bangladesh, Sri Lanka and Nepal. This could become a quid pro quo with some Singapore issues.

Quite clearly, the rich countries would not like to see a failure at Cancun and will do everything possible to ensure that it succeeds. However, in pushing their own interests forward they would not give much in substance. Thus, the poor countries, including India, will need to see how they can capitalise on a situation in which the dice is clearly loaded against them. We have limited negotiating capital. Therefore, it is necessary we should use it judiciously. Diplomacy requires that we define our negotiating positions positively, rather than negatively. Further, and most importantly, prior to defining our negotiating position, we must think hard about the end-game. For example, on agriculture, joining hands with China and Brazil will not bear much fruit, as unlike them, India is not a major farm exporter.

Secondly, we need to do a huge amount on our domestic front before we can become a net agriculture exporter. Thus even on the limited deal on agriculture, which will most likely be hammered out at Cancun, the rich will have garnered enough support from their allies in both the poor and rich countries. In such a situation, we will probably be isolated once again.

Whether, it was the URA or the Singapore or the Doha ministerials, we have repeatedly staked very hardline positions and retreated, thereby losing credibility and have been isolated repeatedly. This risk has increased manifold after the entry of China into the WTO.

---

Bumps On The Road To Cancun

Published:  The Economic Times, September 06, 2003

 By Pradeep S Mehta

AT Cancun, all eyes will be on Arun Jaitley. Not because he is handsome, but because the powers will push him hard for not doing a Maran. The Doha meeting was held to ransom by Maran, and Cancun may witness an encore. Once again, we will need to choose between the Red Fort and the Chandni Chowk, i.e., whether we stand firm on our principles, which may not translate into commercial gains, or enter into some tough bargaining to consolidate and expand our gains.

The Cancun WTO ministerial agenda is again locked in controversies. Our own Doha agenda to get implementation issues resolved has been relegated in a sense. Luckily, the access to medicines debate has been resolved. However, this complex resolution will also become a part of the ‘implementation problematique’. On other issues, some type of movement is taking place, but clearly the battle is going to be tough and hard.

To a large extent, the international political and economic agenda, including the WTO, is driven by the two powerful members: the United States and the European Union. There are bumps on the road, which these two have to clear lest the talks end up in a stalemate. That’s a fact of life, whether we or the swadeshiwallahs like it or not.

Agriculture has always been one of the most contentious issues, which was one of the principal reasons for the delay in the Uruguay Round and for the failure of the Seattle meeting. In spite of much haggling, in the run up to Cancun, the two have arrived at some sort of a deal addressing subsidies, which many including India have criticised strongly.  The rather diluted farm deal does not say much on tariffs. The Cairns Group, farm exporting countries, will push hard on tariffs seeking greater market access in both the rich and the poor world. What will happen at Cancun is anybody’s guess but a deal on this will certainly be very crucial for its success.

Another deal, which has been struck between the two giants, and Canada, is on non-agricultural market access, i.e., tariffs on industrial goods such as automobile parts, fishery products, garments, etc. We do not have any problems with this deal and can live with it. We also do not have any problems in maintaining an increasingly liberalising policy to attract foreign investment in the manufacturing sector. However, we do have serious problems with the proposal to multilateralise investment policy. An investment policy is too intrusive and any international agreement can lock in our policy options, which we can ill afford. That is the other strong pillar of our national consensus, our Red Fort thinking of clear opposition.

At Doha, it was agreed that negotiations on investment policy and competition policy can be launched at Cancun if there is an explicit consensus on the modalities of negotiations. Thus investment policy, competition policy and its two stablemates, transparency in government procurement and trade facilitation, are up for grabs at Cancun. We are not opposed only to investment, but to all four of them.

To carry forward our agenda, we are constantly reminded about building up coalitions and alliances with like minded countries. History and realpolitik shows that each country will follow its own self-interests and leave India alone at the end of the day.

EU has been asking for a deal on the four Singapore issues, altogether, as a sort of quid pro quo against its ‘sacrifices’ in agriculture. As part of a wider deal, the US may go along with EU, being supported by Japan and Canada. Thus EU will push hard for its adoption at Cancun, and then what will we do? What we can do is to put on our Chandni Chowk thinking topi and firstly ask for unbundling of the Singapore issues.

Just a few days ago, the US has agreed to unbundle and move on trade facilitation and transparency in government procurement dropping investment, but proposing a peer review process for competition. One is not too sure if the EU will go along with the US on both, but would have to agree to drop investment. If that happens, then it will be wise on our part to agree to the launch of negotiations on competition, trade facilitation and government procurement with a very limited agenda, as has been agreed at Doha. Each of these pacts can enhance welfare without creating problems for our own policy space.

Further, as each of these three pacts will also include special and differential treatment provisions, we will need to get an article of good faith expressed by the rich to agree to strike deals on the pending agenda of implementation issues and SDTs, before we agree to negotiate.

---

Approach Cancun With ’20 In Mind

Published:  The Financial Express, August 18, 2003

 By Pradeep S Mehta

The President and the Prime Minister want India to be a developed country by the year 2020. How we approach the World Trade Organisation (WTO) will be of crucial significance in this journey.

As Cancun approaches, our commerce ministry is engaged in a last minute fire-fighting exercise. Commerce minister Arun Jaitley believes that there is a national consensus: that we should continue to harp on agriculture and we should oppose an investment agreement. Let’s examine the content and the process with which Jaitley has approached these issues.

The ministry got a grant from UK’s DFID to do coalition building with countries over contentious issues that we feel are necessary to either push the WTO members or to stop them from bringing on board. Several meetings have been organised in association with UNCTAD, for example to: a) push for inclusion of our geographical indications and traditional knowledge in the TRIPs pact; b) stop an investment pact from being taken up.

One can’t forecast any results from such ventures, but our national position have been re-stated quite well. As for success, countries are self-centred and when push comes to shove, they could easily change their stance. Whether it was the Singapore Ministerial (1996) or Doha Ministerial (2000), in the last lap India has been isolated. Our allies have crumbled under pressure or allurements.

What hasn’t been done is to build a coalition nationally. The ministry is engaged in last minute consultations without finding the time for a two-way learning and exchange process. In Jaitley’s recent meeting with trade union leaders, even INTUC suggested that India should walk out of the WTO. This portentuous advice has been often stated by the Swadeshi elements including the BMS. The problem runs across the board and is often reflected in our language press, which few policy makers ever read. The world’s trade ministers agreed at Doha thus: “We shall therefore at the national and multilateral levels continue to promote a better understanding of the WTO and to communicate the benefits of a liberal, rules-based multilateral trading system.” Despite the clear intent, we have done very little to educate our people.

Our inherent weakness is that trade policy is run by generalist civil servants from various services: administrative, foreign, revenue, and economic. None has sound experience of the dynamics of trade policy or the science of economics and law on negotiations. A cadre-based trade service exists, but its involvement is at a considerably lower level. The shots are called by the Brahmins. Some of them are arrogant, one can’t even ’educate’ them. There is little institutional memory. Understanding of nuances is at a premium, but there is not a single officer in the ministry who was at Seattle. Fortuitously, some of them are at our mission in Geneva, but then Delhi’s bureaucrats call the shots.

The advisory committee on international trade, of which I am a member, was summoned after after 19 months on 8 August, 2003 just one month before the D-day. The last one had taken stock of what had happened at Doha. In the interlude the ministry set up consultative groups, but their reports have never been discussed publicly.

The notes put up by the ministry at these meetings are also exclusively on what they think and not what the rest of the WTO members think. There is little fresh air and/or challenge thus depriving the ministry of good advice. The world recognises the role of NGOs. But our government behaves like an ostrich. Despite repeated demands and assurances, the ministry refuses to enlist NGOs on the official delegation. Business interests continue to find a place. All developed country governments have various non-official interest groups nominated in their official delegation. Many developing country governments too have started doing this. This helps to convey these government’s sincerity and builds up national and international coalitions. One can’t forecast anything in the WTO until it happens. Things will move fast as we come closer to the D-Day. A crucial issue is the agreement on agriculture and how the grass gets trampled when the US and the EU fight.

After three weeks of talks, both have put forward a joint paper at Geneva. The paper hasn’t met with the world’s expectations. India has — rightly — criticised it. The Cairns Group (an alliance of developed and developing country agriculture exporters led by Australia) has also howled. Some haggling will now ensue, but a deal will be struck.

The US, EU and Canada have also struck a deal on non-agricultural market access. These were two of the contentious issues in the Doha to Cancun trail. (Issues of our interest such as implementation, TRIPs etc have not got the same steam). Look at the political impact of these on Cancun and what India should do. Firstly, the EU has been wanting negotiations launched on the four Singapore issues: investment, competition, trade facilitation and transparency in government procurement. That might be agreeable to the US as part of the agricultural deal, though there would be nuanced differences on how to approach each of these issues. But that is no big deal as the contours of the possible agreement will be shaped over the next few years. Secondly, the EU is not in favour of unbundling the package of the four Singapore issues, which is perhaps a tactical rather than strategic move.

India has been a vocal opponent to the four Singaporeans, most vehemently the investment accord. That is also reflected in the national consensus. Thus we need to see what we could gain or lose if we strategically signal our acceptance to move on the rest of the three issues. Perhaps the EU may relent, and feel happy that they could get something rather than nothing. However, as the US is also a demandeur for a high standard investment agreement, we may need to put that on a slower track than the others. That can be done only, if we can put forward an alternate proposal on the table rather than opposing by arguing on principles and rhetoric.

When Jaitley had visited China in June, there was understanding that Beijing will be our ally in this effort. But subsequently this changed to a Kamraj type of attitude: parkalaam (let’s see). For China, WTO commitments will help them to reform their domestic agenda. This might even apply to us.

I am not suggesting that we should also proceed in the same manner, but we can’t ignore this altogether. Someone will need to do some quick thinking about how we would like to see these issues in 2020, when we join the rich man’s club. Imagine, if we become a net capital exporter, will we need the protection of a multilateral framework on investment. Or if we see that our economic development will be hampered by increasing cross-border anti-competitive practices, a suitably-drafted multilateral competition policy can actually help us. On trade facilitation there is a consensus that it will only help our traders by reducing delays, while on transparency in government procurement it can only increase welfare.

Once again, by saying “no! no!!” and then getting dragged in kicking and screaming will not show us well. What we do at Cancun should be pragmatic and in line with the vision for India in 2020.

---

Election reforms and `Shekhawat formula' 

Published:  The Hindu Business Line, August 13, 2003

 By Pradeep S Mehta

To have 107 elections in a litlle over a decade-and-a-half is something developing countries, such as India, can ill afford.

TALKS of electoral reforms in India are, perhaps, as old as the history of elections. And as for the changes suggested to the poll process, the term "innumerable" explains the phenomenon best.

Though some of them were meant to be more than mere political rhetoric, they either got lost in the melee of suggestions or failed to see light of day.

For a form of government, which is essentially "of the people, for the people and by the people", it goes without saying that elections are a prerequisite, especially so if it is to be preserved not just as a democracy but a "vibrant democracy".

But to one's dismay, going by the available figures, to have as many as 107 elections in little over a decade-and-a-half is something developing countries, such as India, can ill afford.

Talking about the monetary part, the official statistics go on to narrate the taxing tale: The exchequer has been spending no less than a mind-boggling Rs 900 crore for conducting just one general election. And, with the ever-growing trend of coalition politics — both at the Centre and in the States — catching up fast, the number of elections, including those to the State Assemblies, is set to shoot up further. Recurring elections also drive the government's attention away from core issues. The price of democracy is proving a bit too costly for the Indian nation to bear!

The alarming situation has left the intelligentsia, political pundits and the government perturbed. But the irony of the situation remains that despite the concern for both frequency of polls and the escalating cost thereof, due to lack of political will, literally every move of the Election Commission (EC) to put things on the track is derailed by the politicians themselves, whether in or out of power.

Only recently, the Chief Election Commissioner, Mr J. M. Lyngdoh, at a seminar in Jaipur suggested such measures as rectification of the voters' list, prevention of use of muscle- and money-power as also bogus voting. He cited the example of Madhya Pradesh where strict action was taken against some District Magistrates following confirmation of charges of serious discrepancies in the voters' lists in their jurisdictions.

A former judge, Mr Vinod Shankar Dave, surprised the audience with his revelation that he found discrepancy in his own name, while Ms Aruna Rai said that she had been described as a "male" in the voters' list. There was unanimity among those present that the trend of seeking votes in the name of caste and religion was spreading like an epidemic all over the country.

"But all is yet to be lost" seems the message of the Vice-President, Mr Bhairon Singh Shekhawat, who recently offered some suggestions to save the crumbling house. Instead of going Utopian, Mr Shekhawat mooted some concrete, workable measures.

The first move, as suggested by him, in this direction should be to ensure commencement of elections to both the Lok Sabha and the State Assemblies simultaneously — every five years and in a fixed month. Amendments to the Representation of the Peoples Act to this effect will ensure a fixed tenure of the Houses concerned, where the members will also, naturally, have a fixed term of as many years.

But, then, what about the governments shown the door by "no-confidence motion"? To check this malady, Mr Shekhawat wants a subsequent but immediate confidence motion to follow.

A similar provision exists in Germany and some other European countries. This would guarantee a without-delay alternative to replace the first one, and thereby, negating the very possibility of going through the chagrin of holding an election prematurely — before the five-year term of the House concerned.

If in the worse case scenario, no Opposition party gets the requisite numerical support, it would be mandatory for the members of the House to elect one out of them as the Prime Minister or Chief Minister, as be the case, then and there directly. But no elections at all!

Once there is a stable government, the rest will follow as naturally and smoothly as a calm and quiet Ganga flowing down its course. Assured of a fixed five-year term, the politicians will naturally have more time on hand to think about and focus on other growth- and public welfare-related issues, calling for their urgent attention. Also, the government would then be better placed to divert the hard-earned money of the taxpayers to constructive areas instead of allowing it to go down the poll drain.

The viability and the practicability of the suggestions of Mr Shekhawat can be gauged from the fact that it was endorsed by leaders of almost all political parties, except a few who feign ignorance about the "Shekhawat formula", since they know that they do not have anything better to offer.

A person like the Rashtriya Janata Dal supremo, Mr Laloo Prasad Yadav, who is often described as a conservative man and averse to the ideas of change and development, hailed the proposals of Mr Shekhawat in these words: "It is good thinking. All parties should ponder over it."

In fact, Mr Shekhawat's views are more than merely keeping the frequenting polls away — they are about reforming the very political system of India to call it a vibrant democracy in the true sense.

Though the critics may point out that the "Shekhawat formula" calls for too many amendments to both the Constitution of India and the Representation of Peoples Act, it is high time we went for them. For, if that is the way to save India's democracy one should not find much wrong about the technique evolved by the VP.

Even otherwise, how urgently the Constitution needs some remedial changes to keep it in tune with the times is obvious from the fact that within 53 years it had to be amended close to 90 times! If there are some lacunae in the draft, why shy away from admitting the fact? Should one allow the Constitution to become outdated and stale? No! An exercise to keep it up-to-date is the need of the hour.

Experience certainly has an advantage over sheer bookish knowledge. And, it is at this juncture that we need to look up to the elder generation, which has been a witness to the ups and downs of the course of history, for their precious advice.

Also, more and more people like Mr Shekhawat should come forward with constructive ideas to strengthen the nation in every possible way, and more important, prevent it from withering away as the "largest working democracy" from the world map.

---

Examining The Political Case For An Investment Agreement At The WTO

Published:  The Financial Express, August 12, 2003

 By Pradeep S Mehta

As the D-Day for the Cancun Ministerial approaches, trade policy bureaucrats are very busy in formulating their respective negotiating positions. Even the traditional one month’s summer holidays in Geneva have been cut down to a fortnight, as the time is very short.

But, the honchos are busy in their home capitals working out possible trade-offs, so that even if Cancun is not successful, it does not become another Seattle.

As I have written earlier, in the current Doha Round of trade negotiations, so far, agriculture, Trade Related Intellectual Property Rights (TRIPs) and Singapore issues have remained the most contentious subjects of negotiations. Some efforts have been made to bring convergence on views over agriculture and TRIPs, but the jury is still out. Of the two contentious Singapore issues, in my last column (In Search Of A Dealmaker at Cancun, August 4) I dealt with competition. In this column I deal with the more difficult nut: investment.

On this either the demanding or the opposing World Trade Organisation (WTO) members are not willing to budge an inch from their respective positions.

The European Union (EU) is consistent in its demand, while India, in association with China, leads the like minded group (LMG) of vocal opponents of an investment agreement at the WTO.

All the Singapore working groups, including the one on investment, have finished their pre-Cancun meetings and submitted their reports to the WTO’s General Council last month. This means that any further formal talks/progress on this issue will take place only at Cancun. What will happen on investment at Cancun? It is very difficult to predict the same now. However, seeing the hardline stance of protagonists and antagonists, this issue has the potential of playing the role of a spoilsport.

In the WTO, including any issue for negotiation depends either on its economic merit or political support. And it is the business lobbies of each country which drive the agenda. As regards an investment pact, the economic argument may be very weak but there could be a political support behind it. After all, the main demandeurs (EU, Japan, Korea) of an investment agreement in the WTO are big economic powers. A recent interesting debate on this in the Financial Times throws light. While Kavaljit Singh from India has been able to get a piece published in the pro-establishment the Financial Times opposing the possible investment pact, others have argued for it. In a letter to the editor, US International Business Council’s President Thomas M.T. Niles writes, “What business need in order to promote foreign investment are market access and high standards of investor protection.” It is these very two demands, which are strongly opposed by India, China et al.

If we look at the numbers game in the WTO, there is a 15-member EU, supported by Japan and Korea, and some non-EU members such as Norway and Switzerland, who are the main demandeurs of an investment agreement. In all probability they will get support from the USA, Canada and Latin America.

Most of the Latin American countries feel that as investment (and competition) provisions will be inserted in the proposed Free Trade Areas of America Agreement (FTAA), there maybe no harm in a multilateral agreement on investment in the WTO. As it is, a multilateral setting may be better than regional and bilateral agreements. The number of supporters crosses 50 and if the EU manages to rope in all the least developed countries (LDCs) by giving some concessions to them —as it often happens— then they will sail through in the game of numbers.

In the past also, the TRIPs agreement was signed without having any strong economic arguments in favour.

On the contrary, even free trade economists have criticised it most stridently. However, the pact got into the WTO mainly under pressure from big US and European pharmaceutical companies.

Had economic arguments prevailed, the TRIPs pact would not have been there at all. It perpetuates monopoly and rent-seeking behaviour, which are against the principles of free trade.

Similarly, a debate is sill going on, whether WTO is the right forum for handling investment. The trade-investment link, other than what is covered under Trade Related Investment Measures (TRIMs) agreement or the General Agreement on Trade and Services (GATS), is by no means straightforward.

The bulk of foreign direct investment (FDI) flows continue to be market-seeking and actually substitute trade. Therefore, possible trade distorting investment policies have been taken care of under the TRIMs agreement, while service-related investment will be taken care of under the GATS pact.

Hence, there is very little justification of including a full-fledged investment agreement under WTO. The other arguments, often cited against an investment agreement are: lack of empirical evidence supporting increased flow of FDI to developing countries. Secondly, a multilateral investment pact’s one-size-fits-all approach may be good for capital-exporting Japan but may not be beneficial for capital-importing poor countries.

Further, the WTO’s coverage of balance of payment issues is at present confined to current account transactions but an investment pact would necessitate capital account liberalisation etc. Like in any civilised debate, protagonists of investment agreement may have counterarguments for all the above facts but they do not have any compelling arguments in favour of the investment deal in the WTO.

Therefore, if at all negotiations on investment are launched at Cancun, it would be mainly due to the strong political clout of demandeurs. This won’t be surprising because at Doha, the EU managed to get mainstream environment into the work programme of the current trade round in spite of the fact that majority of the members, in principle, were against linking trade with environment.

If such a situation emerges and EU manages to get negotiation on investment launched at Cancun, what should be the negotiating strategy of developing countries?

The first obvious demand is to seek a balance between mobility of capital and mobility of labour. Both are mobile factors of production and in my view the economic arguments for free movement of labour are stronger than those for free movement of capital. This is already mandated in a sense under mode 4 of GATS, which seeks to ease the restrictions on movement of natural persons.

Secondly, the developing countries will need to ask for much more enforceable policy flexibility than what is being proposed. Their experience with the existing special and differential treatment provisions in the WTO have been rather dismal, to say the least.

---

In Search Of A Deal Maker At Cancun Round 

Published:  The Financial Express, August 04, 2003

 By Pradeep S Mehta

Yet another mini-ministerial meeting at Montreal end-July to resolve the Doha Round conundrum was perhaps just another jet-setting opportunity for countries to restate their positions ad nauseum. The motion, if any, was there in Australia’s threat to walk away from world trade negotiations if global farm trade couldn’t be reformed during the current round of talks.

The EU’s continued persistence with launching negotiations on Singapore issues and objections by the US to a draft WTO agreement on access to essential medicines are giving many sleepless nights. In such a scenario, it is very difficult to predict what could be the possible dealmaker(s) at Cancun a few weeks away. One way or the other, countries are quite keen that the Cancun meeting doesn’t become another Seattle.

On agriculture, over the last one month there has been some progress. First, the agreement among EU members to reform their Common Agricultural Policy (CAP), though only a part of the problem has been addressed. This was followed by a decision by the EU and US to draft a joint WTO proposal on farm trade, which has released some tension. In such a complex situation, it is well known that agriculture is the one issue that can either make or break future trade talks. While the EU has shown willingness to give some concessions on agriculture, it is adamant on launching negotiations on Singapore issues. With equal determination, some developing countries are blocking negotiations on them. At the same time, developing countries want the EU to push the US for an agreement on TRIPs and Public Health and to liberalise the movement of professionals under Mode 4.

What does the EU have to gain in lieu of all this, so that they can satisfy their own domestic constituencies? The answer lies in some progress on Singapore issues. The EU is not as keen on transparency in government procurement and trade facilitation as it is on investment and competition. Investment is clearly the most opposed issue across the broad spectrum of developing countries. On this, even the USA remains ambivalent, while some of the EU members are not demandeurs. Competition policy, thus, seems to be the best choice.

The Doha Declaration suggests the launch of negotiations after the fifth ministerial meeting, subject to an explicit consensus on the modalities of negotiations. Till date, even the draft modalities of negotiations have not been worked out on which consensus can be sought. The likely scenario is the establishment of a committee on Trade & Competition Policy somewhat like the Committee on Trade & Environment, which was set up by a diktat of the Marrakesh ministerial meeting. The Working Group on Trade & Competition Policy has proposed this as one of the three ways forward in its latest report. A body like this can develop the modalities of negotia- tions, which can be launched on some appropriate future date. Though the Doha declaration speaks about exceptions and exemptions on grounds of developmental priorities and national policy space, developing countries are worried about the issue of the WTO’s core principles being a part of the deal, particularly national treatment.

They feel that this is essentially to push the market access agenda and that their right to discriminate on the basis of nationality may be impaired. The bite of national treatment can be substantially reduced and more acceptable by adopting a GATS-type positive list approach, as provided in the Doha text. This positive listing can be based on two-way classification: that of different types of anti-competitive practices and that of sectors. For services, the classification already made in the GATS can be adopted, while for goods, a similar classification can be made.

Similarly, different types of anti-competitive practices can be classified, for example, international (hardcore) cartel, domestic cartel, export cartel, import cartel, other restrictive business practices, abuse of dominance, and mergers and acquisitions. This would mean that the WTO obligations will be binding only in the sectors and the type of anti-competitive practices committed to by a member.

Another problem that many poor countries have been citing is that with no or very limited experience, they are not in a position to negotiate on competition policy at a high-stakes forum like the WTO.

The issue of adopting or not adopting a competition law can be addressed by taking an approach like the Agreement on Technical Barriers to Trade Agreement (TBT). It does not compel Members to have technical regulations, but rather governs their preparation, adoption and application to the extent that they affect the trade of other Members. The TBT has provisions dealing with co-operation (mutual recognition of conformity assessment) and includes a code of good practice. In all, the issue of timing as to when countries choose to adopt technical regulations is not a matter that is addressed by the TBT, other than an obligation to apply international standards as a basis for technical regulations.

Similarly, the code of conduct on competition policy would be applicable with the substance and application of national laws if and when a Member decides to have one, subject to the positive list commitment.

Such a code could establish the overall ground rules emphasising transparency and due process, and with other negotiated aspects that would be of interest to developed and developing countries alike. This might be better than a “plurilateral” approach, where by only a select group of countries negotiate a framework which is joined later by those who had no active participation in its negotiation on a “take it or leave it basis”. The proposed code would be a subject of negotiation and exchange by all Members, but lawfully applicable if and when a Member determines to have a law.

Another important aspect of the proposed agreement is co-operation. Even if the current proposal is for voluntary co-operation, an agreed framework in this regard can bring more coherence in the system.

There can be different types or levels of co-operation, ranging from purely technical assistance and sharing of non-confidential information to positive comity, sharing of confidential information, negative comity and mutual recognition and enforcement of laws.

Agreeing to this kind of a structure, like GATS, can give the WTO members something to build upon and thereby reach a ground for compromise. It also allows members, especially developing countries to participate without compromising their national interests.

---

In Search Of Leader Regulators

Published:  The Hindu Business Line, July 23, 2003

 By Pradeep S Mehta

"It is better to light a candle than curse the darkness." — Chinese proverb.

I NDIAN regulatory reforms have not quite outsmarted other institutional reforms in terms of tardiness. But this in itself may be salutary and afford time for constructive reflection as to why they have not succeeded and how best to implement them.

Let us start from the basics. Reformers and non-reformers alike have good reason to believe that sound regulation will enhance economic efficiency by facilitating economic activity and protect consumers' interests by moderating the wedge between costs and market prices. Ironically, though a majority of the people have faith in the utility of regulatory reforms, their successful implementation has still eluded policymakers and administrators. Two reasons come readily to mind: Regulators' incompetence and governments' inability to get over the "command and control" mindset.

On the recent telecom sector imbroglio, the RBI Deputy Governor, Mr Rakesh Mohan, advised that the Government must "restrain itself from undercutting the regulatory body". The wing-clipping of the insurance regulator by depositing all its earnings into the treasury is a case in point.

Also, Mr Rakesh Mohan pointed out the serious lack of technical skills among the regulators. One can characterise most other sectors in the Indian economy similarly. The electricity sector provides a glaring example of the system's ingrained inefficiencies.

Analysis reveals that 50 paise out of every rupee that a consumer pays for electricity goes for the inefficiency costs. And still, to cover the gap between cost and recovery, the electricity regulators embrace the expedient of raising tariffs rather than cutting costs.

This is called for at all levels: Generation, transmission and distribution. That this is a glaring wrong goes without saying. What ought to be said, however, is that there is an urgent need to build the regulatory regime's capacity as a whole.

Failure to realise this will have insidious consequences for the ongoing regulatory reforms. The immediate danger is that the regulators' incapacity may become the bane of reforms at large in that people may lose confidence in them. To avoid such an outcome, it is incumbent on regulators to upgrade their skills and learn the nuances of the 21st century market place, coupled with realpolitik as it prevails.

This can be done in a variety of ways. For example, regulators can forge alliances with research institutions and civil society organisations to:

• Develop the types of competence and expertise that these institutions could furnish, and

• To reach out to the public at large as to what it does and why.

Second, and more important, India needs to evolve a system of appointing regulators on the basis of merit — the lack of which is the single most important factor bedevilling the regulatory process' success. This is apart from the proverbial resource constraint.

It is curious why retired civil servants are deemed to be a lot more suitable than such professionals as economists and lawyers. The biggest challenge for any regulatory reform is not just to establish a regulatory institution, but endow it with enough intellectual capability and professional competence to enable it effectively discharge its responsibility of providing healthy economic regulation.

A beginning in this direction may be made by appointing people with a track record of probity and expertise as leader regulators. Such experts can help establish a regulatory benchmark of skills, behaviour and performance for others to emulate. As of now, there exists no such benchmark. An interesting exception, however, is the Election Commission, thanks to the former Chief Election Commissioner, Mr T. N. Seshan, who compelled political parties to comply strictly with the election aachar-sanhita (code of conduct).

Till the Seshan regime, the Election Commission was seen as a mere extension of the government. There is one subtle lesson from the Seshan case study also: It highlights the significance of individual responsibility, initiative and, most important, capacity.

More than anything else, these attributes help set national standards that other regulators may strive to achieve. A living example of this can be seen in the current CEC, Mr James Lyngdoh, who has been voted as one of the 25 stars of Asia by BusinessWeek. He was selected because of the successful conduct of elections in Gujarat and J&K.

Thus, two salient points emerge from foregoing: One, we need model regulators who can set standards of regulation for others to catch up with. For this it will be necessary to make the recruitment system transparent and merit-based, and give regulators enough independence. Two, the Government needs to focus on the area of its core competence, that is, governance. At present, the mood is to stop controlling, and allow independent institutions develop their own culture and gain the peoples' confidence.

---

One More Chance For Farm Deal At Montreal Meet

Published:  The Financial Express, July 21, 2003

 By Pradeep S Mehta

It’s a dog-eat-dog world. Whether it’s Iraq or the WTO, the USA will have its own will and way. In response to a critical article published early this month by Professor Jagdish Bhagwati in the Wall Street Journal, the US trade representative, Robert Zoellick, has countered in an article that if things (Doha Round) don’t move at Cancun, then the US will continue on its binge of bilateral trade deals. Let the world go to hell!

Bhagwati wrote that the binge showed that Zoellick is working like a handyman, busy filling potholes without a road map; that the US deserves better and that it should respond to the risk by foregoing other efforts to open markets. Zoellick responded: “This would both weaken our hand in the WTO and give up the benefits from advancing free trade on multiple fronts”. Bhagwati feels that Cancun may become another Seattle.

There is very little merit in this argument. Indeed, the run-up to Cancun has been miserable to say the least. Five deadlines have been missed. Frankly looking at the homework done at Geneva, governments would not like to risk an encore of Seattle. At Cancun, a decision is required mainly on the four Singapore issues (investment, competition, trade facilitation and transparency in government procurement). As things stand today, the decision may be to continue with the study process, because of widespread demands from the South, with the USA straddling the fence. “One needs to lower one’s expectations”, said the charismatic Malaysian trade minister Rafidah Aziz at a recent meeting in London. The meeting was not exactly a mini-ministerial but few Commonwealth trade ministers, business and civil society representatives had collected to debate the very same issues which are hogging space in Geneva. One important point which emerged at this meeting was that the Singapore issues need to be unbundled, so that competition policy and trade facilitation could move forward. Investment was clearly a no-no, and government procurement did not attract much favour. In this manner, the EU can at least get a part of the fig leaf to agree to move on agriculture. As things stand today, the EU is not agreeable to unbundling, but may relent at Cancun if other things are all right. In the WTO, one cannot say what may happen at the crux of the time. The last in the series of such informal talks at the ministerial level being held in the run-up to Cancun will be held at Montreal. The previous three such meetings took place in Australia, Japan and Egypt. There is a slender hope that the Montreal meeting might provide some impetus to the stalled WTO negotiations.

The ‘Luxembourg compromise’ on reforming the subsidy-laden EU Common Agricultural Policy (CAP), followed by the proposed meeting between EU farm commissioner Franz Fischler with Mr Zoellick and the US agricultural secretary, Ann M Veneman, just prior to the Montreal mini-ministerial, is seen by many WTO members as a light at the end of the tunnel. However, it does not look so simple. At the meeting held earlier, the EU ministers made it clear that they do not intend to automatically translate internal reforms measures into firm WTO commitments. Instead, they will only agree to binding reductions in the most trade-distorting farm subsidies in return for concessions from its trading partners. The pound of flesh are the four Singapore issues.

Agriculture has always been a ‘deal-maker’ or ‘deal-breaker’ for WTO talks. This was also the principal reason for the failure of Seattle. The US wanted deep cuts in farm subsidies but opposed efforts to cut peak US industrial tariffs or reform anti-dumping rules. The EU and Japan resisted farm reforms while seeking new deals on investment and competition policy. One cannot but forget that the US and the EU are the two who need to do a tango on the core issues for the WTO talks to progress.

Since the Uruguay Round, the developing world has learnt a huge amount. They have tasted blood at Seattle and since Doha, have also flexed their muscles. If a deal between the EU and US is important, so too are developing country interests, such as mobility of labour. The Geneva process after Doha has only widened the gap between the rich and the poor and enhanced the mistrust. If Cancun has to succeed, crucial issues of TRIPs and Public Health, Special & Differential Treatment (S&DT) and Implementation must be resolved before that.

On July 18, the WTO General Council chairman put out a draft ministerial declaration noting: “The somewhat skeletal nature of this first draft is a reflection of the reality of our present situation. It reflects how far we still have to go in a number of key areas to fulfil the Doha mandates. The task ahead of us in the short time remaining before Cancun is to fill in the gaps in this draft so that it becomes a workable framework for action by Ministers”.

The Geneva delegates and WTO officials are unlikely to have any summer holidays this time, as they will be busy trying to get the draft ministerial text moving. The issue of lack of participation and transparency has been raised on several occasions. If this is not paid proper attention this time, this might become a deal breaker or a spoiler. Many large and small developing countries had put forward a paper in the General Council on this issue, but nothing moved forward. Therefore, at Montreal, apart from trying to make a deal on agriculture, members should also work out the process of negotiations which can be adopted at Cancun. More importantly, unlike in past, this time, small countries, particularly LDCs, should not be left out of the process of negotiations or informal consultations.

---

Will The Doha Agenda Move Forward After EU’S CAP Reforms?

Published:  The Financial Express, July 07, 2003

 By Pradeep S Mehta

Why the euphoria over the decision to reform the much debated Common Agricultural Policy (CAP) of the European Union? It is but a blip in trade semantics. Perhaps the decision to decouple subsidies from production would act as a disincentive for EU farmers to over-produce. 

But, whether it will curb the trade-distorting effects is a million dollar question. Farm subisidies is one among a few contentious issues, acting as a logjam in the Doha Round of trade negotiations. The reform decision was adopted by EU farm ministers at Luxembourg on June 26.

The world heaved a sigh of relief in the hope that it would help move the ongoing deadlock in the negotiations. Said Dr Supachai Panitchpakdi, Director General of WTO: “The EU has done a great deal to move the process forward”. This is probably a politically correct statement for the WTO head to make, though his feelings are not shared widely. More on that later.

This small step is but one of the three main pillars of the required reform in agriculture i.e., trade-distorting domestic subsidies. The other two — and certainly the more critical — are: export subsidies and tariff barriers.

The proposal is to take out $50 billion from the left pocket and put it into the right one, i.e., take it out from direct production subsidy and give it to the same farmers as income support.

However, there’s a catch here. Production-based subisidies will continue to be paid for as much as 25% of the EU’s cereal crops and 40% of its beef production. These two products are of greater interest to poor countries as well as the Cairns Group (alliance of developed and developing country agricultural exporters).

Further, overall support given to EU farmers might not reduce significantly, leading to continued over-production and dumping of surpluses in developing countries.

Export subsidies depress prices and do not allow exports from the poor countries to be competitive, in third countries as well as in the EU. On the other hand, high protective tariffs restrict exports into the EU.

Thus, agriculture in poor countries suffer and hinders development and poverty-reduction efforts. EU consumers also suffer because they pay high prices for agricultural goods. Thus, it’s a lose-lose situation for everyone. The only winners are a few rich farmers in the EU.

In a 1992 study, the European Commission found that 80% of the subsidies went to 20% of farmers. The British Sunday Times reported that Queen Elizabeth is to receive GBP220,000 for her Sandringham Estate, while her daughter, Anne, is to receive GBP 400,000 over five years for her Gatcombe Park farm. Even Arab princes are cashing in, reported the paper. Saudi Prince Khalid Abdullah al-Saud claimed GBP120,000 in 1995 for his country estate in Kent. The situation hasn’t changed much after a decade, and a proposal to address this creamy layer does not seem to have been taken up seriously.

Be that as it may, agricultural support in other rich countries is equally scandalous and thus distorting development in the poor world. The US is the second biggest subsidiser in absolute terms, though as a percentage of farm incomes, Switzerland, Norway, South Korea and Japan beat the EU and US. On the other hand, the US has cleverly hidden most of its subsidies under permissible heads in the WTO agreement on agriculture. The OECD in December, 2001 reported the total subsidy figures (see table).

In responding to the EU farm minister’s decision, US officials reacted that the overhaul doesn’t go far enough, rejecting the proposition that the US is now obligated to overhaul its own farm policy (as reported byThe Wall Street Journal). Even the US farm groups joined the chorus and charged the EU for not travelling the whole distance, calling the EU move “minimal reform”.

If one reads the reactions carefully, one can see that the euphoria maybe short-lived. Agriculture has always been the most contentious issue between the two trading giants, and has been either a deal-maker or a deal-breaker in trade negotiations. On the three issues of liberalisation in agriculture, the US stand appears to be much more clear than the EU’s. It has indicated its willingness to eliminate export subsidies and cut tariffs to bring them down to a peak of 25%.

A main cause for the US’ dismay is access into EU markets is more important than subsidies also. Notwithstanding the stand-off on GMOs, the US farm lobby would like to see tariff barriers brought down. This is vital for the success of farm talks at the WTO, and thus the US and the Cairns Group are putting emphasis on this.

The battle is not over yet, and the ball may be thrown back into the EU’s court. If the EU is able to convince the US to reduce its own subsidies, then the Doha round may be able to move forward with less hiccups. As in any similar situation, other countries also have a stake, and how they see the situation will also be of consequence in the forward movement of the Doha agenda. In sum, things are still muddled and not so straightforward in this complex scenario. As far as the EU is concerned, there is clearly a huge task before Franz Fischler, the EU farm supremo. In order to deliver, he has not only to deal with recalcitrant member states (France, Spain and Italy), but also European farm lobbies (like COPA). It was perhaps too early for him to have uncorked the bottle of champagne at Luxembourg.

---

Shipwrecks On Mexico’s Shores 

Published:  The Financial Express, June 24, 2003

 By Pradeep S Mehta

Geneva:  The Doha Development Round of the World Trade Organisation (WTO) is quite a contentious idea, and far from a reality. This anomaly continued to reverberate here at the WTO public symposium organised last week. Skepticism was rather heavy in the warm and humid atmosphere here, where temperatures had reached an unprecedented 35 degree celsius and humidity touching new heights just a week before. 

Over the last 18 months, the rich countries have consistently shown that they are not willing to move forward on what were meant to be the preliminary stages of the negotiations. They have refused to make good their promises on implementation and special and differential treatment, which were meant to precede the other negotiating topics in the Round. This was the hard-won agreement at Doha and it was the primacy of these issues that justify the development insert.

As the next ministerial meeting moves closer, these same countries cannot be surprised if negotiations on market access for industrial goods and services have ground to a halt. Developing countries were anyway suffering from the Syndrome of Acute Mistrust and Tension (Samit) in trade negotiations and needed a demonstration of commitment. Said a delegate, Geneva has not been suffering from SARS, but from Samit. Instead, the discussions have been reduced to a few issues, like the classification of countries into developing and least developed and maybe other categories.

Understandably, this is a delicate issue for countries like India, which, though not as poor as other developing countries nevertheless has a huge number of poor people. More importantly, India and many others have termed this move as another ‘divide and conquer’ strategy.

S&D treatment has three aspects: operationalising existing S&D clauses in agreements, strengthening and extending the scope of S&D in existing agreements and thirdly, making sure that there is adequate S&D in any new agreements. Each of these is important to developing countries, and none is being adequately addressed. In an effort to make progress, the S&D negotiations have been split up between Working Groups and committees, but this strategy will just lead to disarray. It also makes it more difficult for developing countries to take a strong and unified stand as delegates are spread out between the many groups and committees.

The WTO timetable is hard enough to keep up with as it is, without the added burden of having to track down the right negotiating room. Implem-entation and a real consideration of S&D treatment were the medicines prescribed to overcome Samit. But developing countries (without manufacturing capacity) have had no assurance for access to these medicines, just as they are no closer to getting access to medicines for HIV-AIDS under the compulsory licence provisions of the TRIPs Agreement.

These failures compound the fierce disappointment over the TRIPs issue: the US refused to sign onto the compromise TRIPs text in December which was the outcome of Herculean efforts to put together a compromise on when and how developing countries could import medicines from generic manufacturers. It is natural to suspect that the government is in the thrall of the pharmaceutical unions, and similar patterns of powerful lobbies shaping national trade policy are - sadly - extremely common. The US may be trying to focus all the pressure for the hold-up on the European Union, but it must take equal responsibility for holding up the negotiations.

The EU in the meantime, has no negotiating mandate for the keystone of the negotiations: agriculture. However powerful the evidence that agricultural liberalisation would bring great benefits to consumers in the US and EU, French and German government representatives have hardened their defensive position to protect the EU’s Common Agricultural Policy.

Franz Fischler, the Commi-ssioner for Agriculture, has developed proposals to convert the worst of the trade-distorting export subsidies into other forms of transfers to farmers.

While it is not clear that this shuffle is anything more than a magicians trick, even these proposals have not managed to gather any momentum in the recent meeting of agriculture ministers. There is a chance that high-level meetings taking place this week in Greece will provide the European Commission with a viable negotiating position. If not, it seems almost certain that the Cancun meeting will be a damp squib. Of course, developing countries cannot expect to get something without giving something up. It would be wrong to assume that trade barriers in agriculture are asymmetric, loaded to keep developing country products out of the rich countries. Many developing countries have retained high tariffs, particularly in agriculture.

Similarly, with regard to subsidies, there level of support is not so different as a proportion of the national Budget, when you consider susidised access to water, power, fertiliser and other agricultural inputs that many developing country farmers enjoy. But it is clear that in the negotiations, it is basically the tariffs and subsidies of the EU and US that are on the table, not those of their poorer counterparts.

A fizzle at Cancun would be a disappointment, but not a disaster for the WTO’s director general, Supachai Panichpakdi. Seen as more approachable and sympathetic than his predecessor, a stand-off between rich and poor can only undermine the beleaguered institution that he heads. In an effort to hear a greater variety of voices, he recently gathered together a number of international NGO representatives (including me) to hear their opinions on substance and process at the WTO. For someone committed to improving the structure of his organisation, it would be a shame were the negotiations of his first Ministerial meeting to be lost in waves of protesters. This is what he risks if the US and EU cannot be united behind a commitment to multilateralism in international trade. 

---

CAS: A Win-win Situation For All

Published:  The Financial Express, June 16, 2003

 By Pradeep S Mehta

 Is there any chaos, just because the word rhymes with CAS (conditional access system)? Aaj Tak puts out a programme with a more dangerous suffix: CAS ka kahar (curse). There is some chaos, as indeed for anything which is new and creates problems for some.

But there is nothing accursed about something which will be of great benefit to consumers. Often, the government deals with issues hamhandedly, which creates confusion. This is compounded by vested interests who are opposed to any change. Some oppose it because it is just fashionable.

This reminds me of the compressed natural gas (CNG) issue in the capital. A few moons ago, the Supreme Court directed the government to start CNG conversion of public transport, so that vehicular pollution could be arrested. Many bus drivers were opposed to it, because that would stop the extra income they earned by selling diesel. However, under the danda of the apex court, the government went ahead in implementing the order. But the arrangements for making CNG available were very poor. Long queues of vehicles could be seen waiting at filling stations. This has now eased, but the whole experience offers a good insight into governance matters, whenever a pro-people change is being brought about.

We will probably see a similar situation in the cable TV sector in the four metros, which are required to offer a set top box (STB) to consumers who wish to go in for them. What will these STBs do? They will offer a choice to the consumer to select and pay for only such pay channels that s/he wants. However, consumers may not even go for a STB, if s/he is happy watching the free-to-air channels (FTA) only. This is where the chaos springs from. Not all the 6.7 million cable TV consumers in the four metros would go for a STB and pay extra for pay channels.

The other part of the chaos or confusion arises from the silence on the part of the cable TV system to announce the prices of the pay channels. The cable operator was asked to declare the price of pay channels and discounts, if any, by June 15. There is no progress on this front, as the broadcasters have not yet declared channel pricing. They have asked for some time with the specious plea that their key personnel are travelling.

In the midst of all this confusion, one thing remains quite clear: The Information and Broadcasting Ministry’s deadline of July 14 for the CAS roll-out stands firm. The Prime Minister, Deputy Prime Minister and Chief Minister of Delhi on their part have chorused the same — consumer interest should be kept in mind. Ravi Shankar Prasad, the I&B minister, has announced that there will be about 70 FTA channels for a nominal Rs 72 (plus taxes), and that the overall bill will not exceed Rs 200 per month. With this, the government has addressed the crucial issue of pricing of FTA channels, while market forces will determine the price of pay channels. Hence, price-capping is not required for them, claim officials from the I&B ministry.

Indeed, this is a grey area, and broadcasters are already scared of dipping revenues. Revenue from advertisements constitute almost 70% of a broadcaster’s total revenue, and hence, they will have to carefully (read nominally) price channels so as not to lose viewership. More so, because investment in a CAS/STB is required to view pay channels and not the FTA channels.

In light of this and other measures by the government to contain restrictive trade practices like bundling of unpopular channels with popular ones, consumers have little to worry about.

Broadcasters, instead of competing with each other, have decided on presenting bouquets of similar channels. For example, all entertainment channels may be offered as a bouquet. Similarly, all sports channels may be presented as a bouquet, and so on. In the event of the consumer being coerced into buying channels s/he does not want, s/he can go to a consumer group or a consumer court for redressal.

CAS undoubtedy favours consumers. But, not enough information is available to them yet. Some questions need to be addressed, like which channels will be included in the FTA and which would be pay channels; at what prices will the STBs be available; what are the relative advantages of the different types of STBs; what happens if one moves residence or requires to change the cable TV operator; will the STBs be of any use once DTH is launched, and so forth.

According to the Cable Television Networks (Regulation) Amendment Act, 2002, every cable operator will have to publicise, in the prescribed manner, the subscription rates and the internals at which such subscriptions are payable for receiving each pay channel provided by the cable operator. Further, cable operators have offered to allow consumers to choose the pay channels they wish to view at the beginning of every month so that they may be billed likewise. This is good news, as a consumer can subscribe for say a sports channel just before the World Cup or “un-subscribe” an entertainment channel before the board exams are due.

CAS is emerging as a win-win situation for all, with all stakeholders standing to gain by its implementation. Besides the obvious benefits to consumers, it offers broadcasters and multi system operators (MSOs) a system that will reduce revenue leakage from the current subscriber under-declaration. The government also benefits from the entertainment and service tax collections.

The proposal to have an autonomous body to regulate the broadcast industry is a very welcome one. This step comes at the right time when doubts are being raised, creating confusion about CAS. The Broad-cast Regulatory Authority of India (BRAI), as it is tentatively being called, will monitor the industry and regulate it through price-capping and performance standards and resolve inter-industry disputes.

Having taken pro-consumer steps, the government, in turn, needs the support of consumers and consumer groups to bring about a competitive and comprehensive cable TV regime.

---

CAS: Clear Signals For Consumers

Published:  The Hindu Business Line, June 10, 2003

 By Pradeep S Mehta 

Under the Conditional Access System, cable TV operators will neither be able to bundle popular channels along with the less popular ones, nor charge high premiums on the popular ones and a notional sum for others. This, their interests being fairly well protected, consumers can give their thumbs-up to the new regime, which will, hopefully, benefit all the players, says Pradeep S. Mehta 

The Conditional Access System (CAS) has become quite a hot topic, with the Prime Minister and the Deputy Prime Minister getting involved with the “consumer-interest-should-be-kept-in-mind” refrain; they are worried that this might become an election issue. 

The Delhi Chief Minister has added her bit too, asking the Government to withdraw the CAS order. The BJP president, Venkaiah Naidu is not far behind, while the Information and Broadcasting Minister, Ravi Shankar Prasad continues to worry. 

What’s all this brouhaha about and is it really worth it?  CAS or enabling consumers to select only those cable TV channels they wish to see, is all about promoting the consumer interest. But objections from certain vested interests have blown the whole issue out of proportion.

CAS is a popular concept in many countries. When consumers get a huge number of TV channels, they may not want to see all of them. Especially if they are pay channels, the consumer will want to select only those he wants to see. 

A set top box (STB) regulates the channels coming in via cable. The pay channels are scrambled, and the consumer will get unscrambled signals for the channels paid for. With a set of free-to-air channels, the uesr pays much less in the new system than if there was no CAS.

An STB can cost anything between Rs. 2000 and Rs 5000 and is a one-time investment. At this point the boxes are imported but will be manufactured indigenously over time. Once the system is in place, cable TV consumers should end up with a much smaller monthly bill than they have been paying. 

There is also a proposal to give consumers STBs on lease/rental. However, confusion still prevails on whether STBs can be used interchangeably on different systems. That needs to be clarified by the industry. 

To begin with, the Government has proposed that CAS be introduced from 15th July in the four metros of Kolkata, Chennai, Mumbai and Delhi. After studying how it functions, it will gradually be introduced in other parts of the country. 

Undoubtedly, CAS favours consumers, but much more needs to be done before to make it foolproof. It is much easier to uproot a sapling than a tree. Unfortunately the cable TV system in India has grown wildly in absence of any proper regulation in place. 

In the prevailing situation, the Government’s announcement to set up an autonomous regulatory body to oversee the electronic media is most welcome. This step comes at the right time when there is a lot of confusion about CAS. The Broadcast Regulatory Authority of India (BRAI), as it is tentatively called, will monitor the industry and regulate it through price capping and performance standards and resolve inter-industry disputes. 

Some people do feel that the introducing CAS was a hasty decision on the Government’s part, without preparing either the infrastructure or the consumer for such a change. This is true to a certain extent but certainly not something that cannot be rectified. 

In fact, the I&B Ministry has already initiated steps in this direction. Recently, an excellent set of ‘frequently asked questions’ was published by the Ministry in leading dailies to spread awareness among the consumers on this issue. 

Now the government needs to educate the cable TV viewers and try to answer their simple questions, including: Which channels would be included in the free-to-air (FTA) bouquet and which would be pay channels; what would be the subscription to these pay channels; at what prices will the STBs be available; and the relative advantages of the different types of STBs; whether STBs can be moved, like TV sets, to different cities, or operators, and so on. 

Let us look at the subject rationally. CAS gives consumers the right to choose. While the government has decided the FTA package, broadcasters will fix the prices of the pay channels. The FTA package includes more than 30 channels and will cost Rs. 72, plus taxes. There is no need for an STB to watch these channels. CAS not only benefits the consumers but other stakeholders as well. It offers broadcasters and MSOs a system that will reduce revenue leakage from the current subscriber under-declaration. The Government also benefits from the entertainment and service tax collections. 
 
The critical issue of pricing the FTA package has been addressed by the Government, leaving the pay channel prices to be determined by market forces. Here the only thing that the Government needs to do is to ask the broadcasters to declare the prices of the pay channels. 

If required, the Government should intervene here too, in case the prices are unreasonable or if the consumer is coerced into taking more than he wants.
 
Price-capping is resorted to everywhere in the world, including India, in sectors where natural monopolies operate. For instance, electricity and telephone prices, or bus and taxi fares, are all fixed by the government through proper procedures.

                                                                                                     
The fear that the consumers’ right to choose will be defeated by the pay channels’ business strategy to offer single channels at very high prices and making a bundle or a bouquet just about a little more expensive on a cumulative basis, is also being addressed. 

The government is insisting on “unbundling of channels in the real sense” which “allows real choice to the consumers”. In any event, if the consumer is coerced into taking channels he does not want the Consumer Protection Act can be invoked for tied sales or restrictive trade practice.
 
According to the Cable Television Networks (Regulation) Amendment Act, 2002, every cable operator will have to publicise, in the prescribed manner, the subscription rates and the intervals at which such subscriptions are payable for receiving each pay channel provided by the cable operator. 

Thus, even as the advertisers adopt a wait-and-watch policy till the implementation of the CAS, broadcasters will not be able to make good their revenue deficits by either bundling popular channels alongwith the less popular ones, or charging high premiums on the popular ones while charging a notional one for others.

Under these circumstances, and after the PMO’s intervention, given the steps being taken by the Government, consumers have little to worry about. 

Consumers and consumer organisations must give the Government their full support in this matter and help bring about a complete and comprehensive regime that is in the interest of all - broadcasters, MSOs, cable operators and consumers. 

---

WTO Falters Again On Market Access Deadline 

Published:  The Financial Express, June 02, 2003

 By Pradeep S Mehta

Dhaka: It seems that WTO members have reconciled to the bitter truth that no further progress can be made on the Doha Development Agenda before the forthcoming Cancun Ministerial Conference. Even the easier deal on market access on non-agricultrual goods could not be met. These contain mainly tariff issues on industrial goods. 

As per the mandated deadlines, members were to reach a ‘common understanding’ on a possible outline for negotiating modalities by 31 March, 2003 and an agreement on those modalities by 31 May, 2003. Since the first deadline was met, hopes were raised of meeting the 31st May deadline. But members used the 26-28 May meeting of the Negotiating Group on Non-agricultural Market Access to express their first reactions to the Chair’s draft paper submitted on 16th May 2003.

The missed deadlines on non-agricultural market access joins many others, including on TRIPs and Public Health, Special & Differential Treatment (S&DT) for developing countries and most notably modalities for negotiations on agriculture. So there is nothing for the WTO members if they failed to meet this deadline. In fact, it would have been surprising had this deadline been met. Negotiations on dispute settlement understanding, which are scheduled to finish this week, will also most likely miss the bus.

However, unlike other contentious issues of the Doha Work Programme, no member has as yet rejected the draft modalities paper on non-agricultural market access as a basis for negotiation. Many, in fact, see it as a good beginning. Amongst the major countries, Japan has objected strongly to the Chair’s draft paper on modalities, saying it would prefer the use of an average percentage cut as opposed to the across-the-board tariff reductions, which could allow members to keep sensitive sectors safe from deep tariff cuts.

The formula suggested by the paper inter alia is an attempt to meet the Doha Declaration’s mandate of ‘less than full reciprocity’ for developing countries. According to the formula, the higher a country’s average tariff rate, the less will it be required to reduce its tariffs. Since developing countries on average maintain higher duties than developed countries, the formula would lead them to make proportionally bigger cuts than developing countries.

Not all members are happy with this arrangement. Some developed countries want to see the modalities cut more into high tariffs as the proposed formula reward those who keep higher tariff rates. Some developing countries, primarily those with lower average tariffs such as China and Malaysia, are not fully pleased with the draft either. Others, mainly the African Group, are worried about how the modalities might affect their preferential market access arrangements.

The non-agricultural market access was the last among the important deadlines of Doha Round of trade negotiations. It is really unfortunate that almost two of the three-year timeframe of the Doha Round did not result in any significant productive outcome. If at all any patchwork is done at Cancun, it is most unlikely that we would be able to wind up the Doha Round by end-2004, i.e., in a little over a one-year time period after Cancun.

It is really a high time for the international community to take stock of the progress made since the inception of the WTO in 1995 and more particularly after the first Ministerial Conference, which was held at Singapore in 1996. A close examination of the issues since Singapore shows poor progress on issues, which are of interest to developing countries such as agriculture, S&DT, TRIPs and Public Health, etc. On the contrary, much progress has been made on environment and the four “Singapore issues”, which are all of developed countries’ interests.

At Singapore, three separate Working Groups were set up on Competition, Investment, and Transperency on Government Procurement to exa- mine their relationship with trade and also to conduct studies. On the Singapore issue of Trade Facilitation the Council for Trade in Goods was directed to undertake exploratory and analytical work on the simplification of trade procedures in order to assess the scope for WTO rules in this area.

After little over four years at the fourth WTO Ministerial Conference held at Doha in 2001, these issues have been included into the Doha Work Programme. It is a different matter how one interprets the language. The EU and Japan, the main demandeurs of these issues, are very much convinced that they are part of the agenda and at Cancun ministerial decision on modalities of negotiations will be taken. However, whether they can succeed to obtain ‘explicit consensus’ is quite doubtful.

As regards environment, the issue is already being negotiated under the current Doha Round. Though the agenda is limited, the EU, again the main demandeur, is making all efforts to expand the existing mandate and to establish a link between trade and environment.

Quite clearly, one does not see a very bright future as far as the Doha Round is concerned. Indeed, though one does not expect a declaration at Cancun, the trade community will have very little to report there for ministers to speak about. The only possible draft decision expected is on the Singapore issues, but that too is unclear as many countries are not in favour of overloading the existing agenda.

As I write this on the eve of the LDCs ministerial meeting, the mood appears to be against the Singapore issues. Other than that, on the issue of non-agricultural goods, their insistence will be for zero tariff and zero quota on all goods. A big civil society forum has also come out with a parallel declaration to support their governments, and they are not pulling any punches. Some feel that there might be a deal at Cancun, in particular on the TRIPs and public health issue; otherwise the whole Doha round will be imperilled. 

---

Surrogate advertising — Needed, a spirited attack
 

Published:  The Hindu Business Line, May 23, 2003

 By Pradeep S Mehta
 

In India, the trend of surrogate advertisement gathered momentum with the Cable TV Network Regulation Act, which prohibits tobacco and liquor advertisements on TV channels. The liquor industry has intentionally blurred the line between products, advertising `old wine' in a `new bottle,' only this time with a soft-drink label.

 "HUM, tum or mera Bagpiper". This Bagpiper club soda advertisement, featuring cine celebrities, is similar to the earlier one for Bagpiper whisky.

The advertisement comes with the same music and punch line as the one for the popular liquor brand telecast before the ban on liquor advertisements.

This phenomenon, known as "surrogate advertising" (duplicating the brand image of one product extensively to promote another product of the same brand), has become commonplace.

Surrogate advertisements took off not long ago in the UK, where British housewives protested strongly against liquor advertisements "luring" away their husbands. The liquor industry found a way around the ban: Surrogate advertisements for cocktail mixers, fruit juices and soda water using the brand names of the popular liquors.

In India, the trend of surrogate advertisement gathered momentum with the Cable TV Network Regulation Act, which prohibits tobacco and liquor advertisements on TV channels. The liquor industry has intentionally blurred the line between products, advertising `old wine' in a `new bottle,' only this time with a soft-drink label.

A market survey in 2001 revealed that advertising has a direct influence on the consumption habits of 431 million people in India and an indirect impact on 275 million `aspirants' from the lower income group. Considering this and realising that nearly 50 per cent of the television owners have access to cable channels, there is no doubt that the hidden call for alcohol consumption behind the surrogate advertisements is not escaping the eyes of viewers in the world's fourth highest liquor-consuming country. The very purpose of banning liquor advertisements is defeated by surrogate advertising.

Sociological studies have shown that, in India, a significant share of income of a large section of the population is spent on liquor, potentially leading to financial distress and health hazards. According to the International Wine and Spirit Board, a liquor industry publication, there will be a jump in the number of people reaching the legal drinking age of 25 within the next few years. The implication is that the problem is going to grow.

The motivations of firms look even more suspect when they advertise products that cannot be bought. In 2002, for example, Jagatjit Industries, the maker of Aristrocrat Whisky, advertised a product called `Aristrocrat Apple Juice.' The company reportedly confirmed availability of the fruit juice in Delhi, Haryana, Punjab and Rajasthan, yet, no reputed shop in Delhi had ever seen it, let alone sell it.

Understanding the gravity of the situation, the Indian Broadcasting Foundation (IBF) has started to take on the surrogate liquor advertisements. In a recent board meeting, the IBF decided that Jagatjit Industries and other liquor manufacturing units must get production of the advertisement approved both at the `storyboard stage' and after the production of the commercial.

It also ruled that that if liquor companies promote any juice, mineral water or soda, these should be shown in a proper manner and not as trimmings to liquor advertisement.

These are welcome steps, but the key point lies in enforcement. If, in a free society, producers have a legitimate right to let consumers know about their products through advertisements, consumers have the right to information in adverts that are clear and honest.

Surrogate advertisements are not only misleading, but also false and dishonest in many cases. With surrogate advertising so widespread, this is the moment to tackle the problem head-on.

There should be stringent regulatory measures to curb the practice, such as: i) making transparent laws banning surrogate advertisements for different products under a single brand names, by amending the Trade Marks Act, for instance;

ii) providing teeth to the Advertising Standards Council of India to enable it take action against false and misleading advertisements, and keep a close vigil over clever evasion of the law;

iii) asking the electronic and print media to adhere to the advertisement codes and not encourage surrogate advertisements;

iv) calling on the ASCI address complaints received from consumers against surrogate advertisements and take appropriate actions immediately;

v) creating a consumer awareness programme to help people understand the negative impact of surrogate advertisements;

vi) adopting strict laws to penalise those companies featuring surrogate advertisements without any real existence of the product; and

vii) requiring advertising agencies to have full knowledge of the products under the same brand for which they are promoting advertisements, and taking legal actions against those agencies which design surrogate advertisements.

If one believes that honesty is the best policy and truth ultimately gains, the best policy would be to stand up strongly to the dishonest practices of surrogate advertising.

---

Comment Received:

"Is it that the ad industry knows the pitfalls of surrogate advertising and yet indulges in it to satisfy the clients? As an economy, if the Indian Govt. itself is permitting the production and sale of liquor and tobacco as a means towards increasing revenue, is it not right for one to believe that one could expect only cold apathy from the government in such issues??
Let me congratulate you for the clear and lucid portrayal of the surrogate ad concept, its possible implications and a viable range of suggestions to alter the situation."

G. Narasimha Raghavan 

---

Success Of Cancun Ministerial Appears To Be Uncertain! 

Published:  The Financial Express, May 12, 2003

 By Pradeep S Mehta

It is certainly a matter of great satisfaction when one’s writing succeeds in actually moving the agenda. Publicly acknowledging my recent letter in the Financial Times asking the European Union (EU) to do better on its offers for movement of natural persons, the EU’s Trade Commissioner, Pascal Lamy, during his mid-March visit to India, agreed to talk to the EU ministers on a better offer. On his return to Brussels, he honestly did that, and succeeded, too. That may be one reason for India and other demandeur countries to feel satisfied that the WTO may not be such an unequal treaty after all. How-ever, while the EU prepares a better deal on this issue, contentious issues in the Doha Round appear to be immobile, raising fears about the success of the Cancun meeting. 

“Not enough progress has been made to date on the development agenda, but our discussions here have shown a very high level of commitment to meeting the WTO goals and concluding the round by end-2004”, said the New Zealand Prime Minister, Helen Clark, while chairing the Organis-ation of Economic Cooper-ation and Development’s annual ministerial meeting held last month at Paris.

It is not enough that such sentiments are expressed at meetings, because the two trading giants have to stand by their solemn duty to ensure that the agenda moves forward and people do not lose faith. At the same time, at the Paris ministerial meeting, Robert Zoellick, the US trade representative, and Pascal Lamy agreed in a one-to-one pow-wow that the WTO negotiations should focus in the coming months on clearly defined core issues, and that the agenda has to deliver.

Cancun is only five months away and it is only the implementation of the Doha Work Programme which can bail out the trade talks from a possible debacle at Cancun. Neverthe-less, there is some progress, which may result in resolving the current deadlock over the Doha round of trade negotiations. The two important dev-elopments are the EU’s offer on services on temporary movement of natural persons (referred above), and the US and the EU trying to align their proposals on industrial tariffs. But there has been no further movement on the more contentious issues: Agriculture, TRIPs and Public Health, Implementation and Special and Differential Treatment. These are the core issues which can deliver the ‘development’ in the Doha Development Agenda.

From India’s point of view, the most significant development is the EU’s offer on Mode 4 of service supply under Gen-eral Agreement on Trade in Services (GATS). It started with Lamy’s March visit to India, when India supported the EU’s stand on agriculture for using the Uruguay Round formula for tariff reduction, and Lamy reciprocated by ass-uring India that he would discuss the issue of labour mobility with EU member nations.

Under the EU’s new offer on services, temporary workers will be allowed to stay for six months, rather than the present three. It has proposed to do away with the onerous economic needs test in spite of vigorous opposition by members states such as France, Spain and Germany. Instead, the EU would seek to negotiate a quantitative limit on the entry of foreign workers coming in under the provision. The EU insisted, however, that it would make no further concessions in areas of health, education, public utilities and social services. Second, its offer is restricted to skilled professionals.

However, for the Cancun meeting to succeed, much more work needs to be done in Geneva. Agriculture continues to remain central to the Doha Round and unless we make progress on this, fears will remain. Once again, all eyes are on reform of the EU Common Agricultural Policy (CAP) reform. A number of officials attending the OECD ministerial meeting exressed the hope that a planned mid-term review of the EU’s CAP would lead to movement in the WTO trade talks. Lamy recognised the high hopes that have been placed on the Brussels-based Commission’s “aggressive” proposal, but noted that it has yet to win approval from EU member states.

On the other hand, the European Commission has repeatedly said that it will not deliver on agriculture unless it can gain some progress on the ‘new’ issues: investment, competition, trade facilitation and transparency in government procurement. There may be some good things in possible accords on competition policy, trade facilitation, transpar-ency in government procurement, because all these are welfare enhancing. However, on investment many doubt the validity of its need at a multilateral level, and whether it can enhance any capital flows.

In a paper written for the EU India Network on Trade and Development, Peter Nunnen-kamp of the Institute of World Economics, Kiel, Germany, and Manoj Pant of the Jawaharlal Nehru University argue that there is no economic case for an investment agreement. However, for political reasons, the authors caution that developing countries should not shy away from negotiations if they are launched at Cancun. Indeed, since much of the negotiations are trade-offs, if the poor can get better market access, movement of natural persons, and reduction in EU’s agriculture subsidies, etc, as a deal, then an investment agreement based on the GATS-type bottom-up approach may not be such a difficult thing to digest.

---

Competition law has no rivals! 

Published:  The Economic Times, May 10, 2003

 By Pradeep S Mehta

It's often difficult to assess the link between competition policy & law and economic development. However, several studies have shown how a competition law has enabled the growth process by conserving scarce resources and aiding the growth process in the economy.  

For example, a study carried out for the Australian economy estimates the benefits to be expected from a package of competition promoting and deregulatory reforms (including extension and revision of competition rules) to incur an annual gain in real GDP of about 5.5%, or $23 billion where consumers would gain by almost $9 billion.

There would also be an increase in real wages, employment and government revenue. Despite such evidence, our approach to the proposed competition regime is to provide it with peanuts, under a mistaken notion that the presence of a regime will alone deter anti-competitive practices.

One will need sufficient resources to ensure that the agency is not another lame-duck. It can also pay for itself, and add to the national exchequer.

In Peru, a study of the competition agency's effectiveness found that economic benefits due to its operations amounted to $120 million against operating costs of $20 million over a period of seven years.

A soon-to-be-published study in Korea establishes that, as against the cost of implementing the competition law of $18.4 million in 2001, consumer welfare increased by $527 million through price reduction and increased availability of goods from a monopolistic market structure.

The study also shows that the income transfer effect was about $536 million due to good enforcement of the competition law. This included damages and penalties imposed on violators.

So much about the economics. More importantly for a country like India, where there are so many poor people, a question is often asked as to how it will benefit the poor.

Other than macro benefits, some of which will trickle down to the poor, there are very clear linkages in a competition policy to help the poor directly.

This issue was touched upon by the World Development Report, 2000-2001: "Markets work for the poor because poor people rely on formal and informal markets to sell their labour and products, to finance investment, and to insure against risks. Well functioning markets are important in generating growth and expanding opportunities for poor people".

"Well-functioning" implies markets that work efficiently and without distortions, i.e., competitive markets where everyone has the opportunity to participate. An example from Zambia supports the argument.

A large poultry firm in Zambia lowered its prices to such an extent that smaller firms and roadside tiny poultry sellers had to face ruin.

This action was checked by the Zambia Competition Commission. Tiny self-employed entrepreneurs continued to operate, thus protecting their livelihood.

Otherwise they would have slid back into the poverty trap. Zambia is a poor country with a GDP of $3.3 billion (1991), as against India's $459.8 billion.

They enacted a competition law in 1995, with an outlay of nearly 0.05% of the total government budget, while India spent only about 0.0009% of the government budget in maintaining the old competition law.

Besides, the Zambian law was designed to operate on a 'conduct' approach rather than the MRTPA's structural approach. The new law in India — Competition Act, 2002  — has also been fashioned on a 'conduct' approach, i.e., where behaviour is determined as competitive/non-competitive  depending on conduct rather than size.

But there are very few people in India who would understand the change.

And if the government were to appoint retired civil servants and judges to the new Commission, then one can be reasonably sure that their understanding of the difference will be quite wanting.

For, they have been brought up with a command-and-control mindset. That will be bad for both the law and its ramifications on the economy.

That's one of the reasons why I have been arguing incessantly that we need young professionals to man the new authority. It is sometimes argued that it will be difficult to attract young professionals on peon's salaries.

The retirees are happy to work on such low salaries, because their old salary and perks are well protected. They also retain their old bungalows, as we have seen in many recent sinecure cases.

Law minister Arun Jaitley has come out against this pernicious system. He has been advocating that regulatory bodies should not become roosting places for retirees and that we need to pay market level salaries to attract good professionals.

If the government heeds his advice, then we can have a really effective competition regime. If that happens, then we can confidently look forward to achieving a higher growth rate.

---

WTO and the Blame Game

Published:  The Hindu Business Line, May 09, 2003

 By Pradeep S Mehta

"Earlier there was one East India Company, now the WTO is bringing in thousands of them"

NEVER before has the world shrunk so much. Satellite television and the Internet have accelerated the process. Not many realise that globalisation is not the Frankenstein they imagine it to be, but a wave that can help the poor overcome poverty. However, globalisation continues to be attacked by all and sundry for reasons often inexplicable.

At another level the WTO faces the ire of most people, who see it as an ugly vehicle of globalisation. More so in India, Pakistan, and Bangladesh where it is seen as a new avatar of the East India Company.

Much of this is due to ignorance coupled with propaganda by distortive elements in the society.

Says a farmer to a reporter: "Globalisation? Earlier there was one East India Company, now the WTO is bringing in thousands of them."

The bogey of East India Company is superimposed on the Indian psyche. One often sees newspapers carrying stories on the FDI policy with the wolf cry that it will bring back more East India Companies. The FDI policy is being liberalised to attract investment, as it is scarce in India. Not only developing countries such as India, but also rich counties woo foreign investment, as it helps them to move faster on the growth ladder.

However, anything foreign is looked at with suspicion. If the swadeshi (national) outlook can help us improve the economy, it should have happened long ago. Conversely, the WTO — in spite of its faults — can help India grow.

"We read about WTO opening new markets but will they buy our bajra or guar? On the other hand urbanites now buy soyabean and rapeseed oil from abroad, and we have stopped growing mustard," says another farmer. Rapeseed, yes, but the farmer does not know that much of the soya consumed is produced locally. On the other hand, rapeseed or palm oil is much cheaper than mustard oil. This helps the poor in India which has the highest per capita edible oil consumption in the world.

The allegations are often baffling too: If there is no demand for onions then the "imported onions" are blamed; If local seeds are difficult to procure, then the foreign seeds are accused of flooding the market.

Another peculiar link between the WTO and a non-trade issue — the weather — was propounded at a seminar in Mumbai last September. If prices of agricultural commodities vary according to output which suffers from the vagaries of weather then it must the WTO which is responsible for the changing climatic conditions. Weathermen were called upon to study the links!

The latest Budget spoke about reduction in tariffs, so that the production costs are lower and exports more competitive.

India's competitive advantage is huge in the textiles and clothing sector. Thus, there is a strong case for reducing tariffs on inputs such as petrochemicals, man-made fibres and yarn.

Promptly, some vested interests lobbied against the same, arguing rather speciously, that such reductions should be done only in the framework of WTO negotiations.

Using the WTO as a bugbear has become a habit for many. However, there are voices of sanity. At the release of WTO: Road Ahead, published by the Institute of Chartered Accountants of India in New Delhi, the Vice-President, Mr Bhairon Singh Shekhawat, queried the Cassandras: "If communist China has struggled to get into the WTO, why should India even think of exiting from the same."

The Minister of State for Commerce and Industry, Mr R. P. Rudy, at the same function, added that China had done homework for 20 years to prepare itself for the WTO. "We need to emulate China and make progress on all fronts," Mr Rudy asserted.

The fact is that for their own selfish interests, political parties, particularly when in Opposition, distort the debate on globalisation.

A few industrial houses — afraid of competition — also join the bandwagon. The need of the hour is for intellectuals, politicians, consumers and businesses to drop the campaign to discredit globalisation or the WTO.

---

Doha To Cancun: It’s Too Early To Predict The Outcome

Published:  The Financial Express, May 05, 2003

 By Pradeep S Mehta

“The ongoing Doha trade round is collapsing under Europe’s stubborn adherence to its hefty farm tariffs,” writes The Washington Times in a recent editorial. This reaction came after the WTO having missed the March 31st 2003 deadline for setting guidelines for cuts in agriculture tariffs and subsidies. 

Earlier, similar kind of fear was expressed by many, when trade ministers failed to meet a year-end deadline in 2002, for an agreement by poor countries to get access to generic drugs to fight AIDS and other diseases, as agreed under the Doha agreement on TRIPs and Public Health. No doubt, the Doha round of trade negotiation is in crisis, as we have failed to meet one deadline after another. But, it will be little unfair to arrive at any firm conclusion at this moment that Doha trade talks have failed or that Cancun would go the Seattle way. At Cancun, rather than launch any negotiations, trade ministers will take stock of the progress in negotiations since the launch of a new trade round at Doha in 2001.

If we look back at previous trade negotiations, we find that deadlines have been seldom met. The initial time period of the Uruguay Round was four years (1986-90), but it took seven years for its completion. The Tokyo Round concluded in over six years time period (1973-79). So, how can anyone expect the Doha Round to be wound up in three years time? It has a bigger agenda than before, with members being more experienced and resourceful in comparison with the previous rounds.

The deadlines are often to push things forward, and not necessarily for reaching at a clear “Yes” or “No” situation at the end. The EU Trade Commissioner, Pascal Lamy echoes more or less similar views on the current stalemate. “Deadlines are there to focus minds, to get people to clarify their positions. This has largely been achieved: today, we have a much clearer understanding than six or even three months ago about where individual countries stand”, Lamy told an International Chamber of Commerce meeting in Bangkok on April 1.

This viewpoint of Commissioner Lamy makes one thing pretty clear that at Doha, most of the members, especially the two trading giants - the EU and the US, did not reveal their cards. They did not want an encore of Seattle and also wanted to send a positive message across the world after the unfortunate 9/11 terrorist attacks. In other words, members used sentiments rather than logic. The current pessimism over the fate of the Doha trade talks is mainly because of the members’ failure to meet the March 31, 2003 deadline to agree on modalities for the agriculture talks.

In my view, this pessimism is a little unwarranted. At no point of time after the Doha Ministerial, did the EU give an indication that it is going to fulfil its commitment on farm trade liberalisation agreed at Doha.

Moreover, in its last submission on agriculture, the EU reiterated the same Uruguay Round formula for tariff reductions and outrightly rejected the “Swiss formula” as suggested by the US.

The root of the problem lies in the lack of consensus among the EU members over Common Agricultural Policy (CAP) reform. It is neither Lamy nor the EU agriculture commissioner Franz Fischler, but France, which bears the brunt of the responsibility. Disagreement over farm policy divides the EU into two similarly sized camps - anti-reform France and Germany on the one side and . pro-reform UK, Netherlands and Belgium on the other side. Without an internal consensus, Commissioner Lamy will have no authority to deal. This was clarified in his recent article in the Financial Times, written jointly with Franz Fischler, the EU farm commissioner. Both of them have simply substantiated the existing stand of the EU on farm trade liberalisation.

Over the last few months, Fischler brought two sets of proposals for reforming CAP, but none of them succeeded in bridging the gap. However, there is a slight hope that President Jacques Chirac of France, whose approval ratings have soared on account of his opposition to the Iraq war, may abandon his country’s stubborn defence of the outdated common agricultural policy and its lavish payouts to French farmers.

At a recent meeting with African leaders, Chirac did express desire to address the subsidy issue. It does not matter who is to blame, but the result is certainly not good for those of us who want to see trade barriers crumble. The obstacles to agriculture trade seem to be as high as they were at the end of the WTO’s Uruguay Round. Now, the goal is to have trade agreements finalised by 2005 and the way out from the current mess is clear.

“For the new round to succeed, the major players, the US and the EU must contain domestic political difficulties, defuse bilateral conflicts and cooperate intensively,” writes Razeen Sally in a new report from the Cato Institute.

---

Globalisation is no Frankenstein

Published:  The Hindu Business Line, April 18, 2003

 By Pradeep S Mehta

Though globalisation has helped a large number of poor come out of poverty, it continues to be attacked by all and sundry for reasons which are often inexplicable. Using the WTO as a bugbear has been quite a fashion with many. On the one hand, there are misgivings about it, while, on the other, there is a huge propaganda against it.

NEVER before has the world shrunk so much. Satellite television and the Internet have accelerated the process. Even the villagers are aware of what is happening; many may not know that globalisation is not the Frankenstein that they imagine, but a wave which has helped a large number of poor come out of their poverty.

However, globalisation continues to be attacked by all and sundry, for reasons which are often inexplicable. On the other hand, and for entirely different reasons, people's disgust with all symbols of globalisation manifested in the boycott of American goods such as Coke, Pepsi, and McDonalds, as protest against the US attack on Iraq.

British goods are also being targeted, but they do not have the same high visibility. At another level, the WTO continues to face the ire of everyone who see it as an ugly vehicle of globalisation.

More so in India, Pakistan and Bangladesh where this is seen as a form of recolonisation through a new avatar of the East India Company. Much of this is the result of ignorance coupled with propaganda by distortive elements in the civil society, polity and the ill-informed media. Says a farmer to a reporter of a respected English daily in India: "Globalisation?

Earlier, there was one East India Company, now the WTO is bringing in thousands of them". The bogey of East India Company reverberates through our psyche all the time. Particularly, one often sees newspapers carrying stories on the FDI policy movements, crying wolf that this will bring back the East India Company. It is worse in the language press than in the English media. Investment policies are being liberalised to attract FDI. It is not only poor countries such as India, but even the rich, which are wooing foreign investment to move faster on the growth ladder. However, anything `foreign' is looked at with huge suspicion in our part of the world. If the `swadeshi' outlook could have helped India improve its economy, it would have happened long ago.

The WTO, in spite of its inequities, can help India grow, through liberalised trade at the least. But even that is viewed with doubt. "We read about WTO opening new markets but will they buy our bajra or guar? On the other hand, urbanites now buy soyabean and rapeseed oil from abroad, and we have stopped growing mustard," says another farmer.

Rapeseed, yes, but he does not know that much of the soya consumed in India is also produced by farmers in India.

On the other hand, rapeseed or palm oil are much cheaper than mustard oil. This actually helps the poor in our country, which has the highest per capita edible oil consumption in the world.

The chain of arguments linking their backyard with the world is stupendous. If onions are not selling in the market, then they blame ``imported onions''. If they find it difficult to procure ``local seeds'', it is because the ``foreign seeds'' have flooded the market. In all this, it is the WTO's hand.

If the prices of agricultural commodities vary according to the output, which suffers from the vagaries of weather, then it must the WTO which is responsible for the changing climatic conditions.

The Budget spoke about reducing tariffs, so that the production costs are reduced and exports are made more competitive. Especially in the textiles and clothing sector, India's competitive advantage is huge.

Thus, there is a strong case for reducing tariffs on inputs such as petrochemicals, man-made fibres and yarn. Promptly, some vested interests lobbied against the same, arguing, rather speciously, that such reductions should only be done in the framework of WTO negotiations. Because, any reduction can lead to lower-level bindings. One large business house, producing the inputs in India, has, over time, misused the high levels of tariffs to increase wealth, and at a huge cost to the economy. Recently, when such inputs were being subjected to misguided anti-dumping, not only the user industry but the State governments raised a hue and cry. Using the WTO as a bugbear has been quite a fashion with many of the people. On the one hand, there are misgivings about it, while, on the other, there is a huge counter-propaganda against it.

And the reference to the East India Company is a continuous song, which accompanies it as an orchestra. At a recent book release on WTO: Road ahead, published by the Institute of Chartered Accountants of India in New Delhi, the Vice-President, Mr Bhairon Singh Shekhawat, queried the Cassandras: "If Communist China has struggled to get into the WTO, why should India even think of exiting the same".

Another minister, said that China had done homework for 20 years to prepare itself for the WTO. "We need to emulate China and make progress on all fronts", he asserted. The fact is that for their own selfish interests, political parties, particularly when in opposition, distort the debate on globalisation. Few industrial houses, being afraid of competition also join the bandwagon.

The need of the hour is that the intellectuals, politicians, consumers and businesses should drop the campaign to discredit globalisation or the WTO, but encourage the people to face the world in this era of contestability and lobby for the economy.

---

Interim Steel Tariff Rulings: US In Threatening Mood

 Published:  The Financial Express, 07 April 2003

 By Pradeep S Mehta

Last month, a WTO dispute panel found in an interim ruling that punitive US steel tariffs slapped on imports breach global trade rules. The interim ruling is the latest in a string of high profile and politically sensitive cases to find the US at fault. The two recent cases are Byrd Amendment and Foreign Sales Corporation (FSC). The problem of the US steel industry is not new. Neither is this the first time that the US has lost a dispute in the WTO over steel tariffs. Altogether, on six previous occasions, it has faced reverses at the hands of the dispute body over steel tariffs. Earlier, the US applied anti-dumping duties to protect its steel industry. When that drew a hue and cry, it started applying safeguard duties, an instrument when imports surge, as against anti-dumping when sellers are charged with selling at a lower price than they sell at home. In March 2002, the US President slapped hefty tariffs, which went up to 30% tariffs on a range of foreign steel imports to help protect its domestic steel industry.

There was another reason why the US did not use anti-dumping duty this time. At Doha, the US had reluctantly agreed to clarify and improve disciplines under the anti-dumping agreement. It is already facing international ire on dragging its feet on the commitment under the deal on TRIPs and Public Health.

The US reacted angrily over the interim WTO ruling on steel tariffs. The tone of some US congressmen was hard-hitting, as if the WTO had challenged their might, some even threatening that this outrageous decision, unless reversed, would undermine America’s participation in the world trading system. Rep. Sander Levin of Michigan, the ranking Democrat on the House Trade Subcommittee, said, “The US must take a hard look at flaws in the WTO dispute settlement system and the Administration should get serious about ensuring that the US retains the right to use the hard-bargained-for trade remedies in the face of unfair trade and damaging import surges”. Levin noted that since 2001, the US has lost 13 out of 15 cases brought against it in the WTO, and 11 out of the 13 reverses have involved the US trade remedy laws.

The United Steelworkers of America President, Leo Gerard, blasted the WTO’s ruling, labelling it an unalloyed assault on US sovereignty. He asserted that US trade laws and the steel tariffs imposed by President Bush in March 2002 were in line with WTO laws. However, steel consumers have vainly urged the Administration to end the safeguard programme, which has two more years to run as the high tariffs had cost their companies 200,000 jobs over the past year. “We need to find other ways to help the steel industry without hurting their customers”, said Lewis Leib-owitz, general counsel for the Consuming Industries Trade Action Coalition in the USA.

Not unlike its bravado in Iraq, instead of looking at the merits of the case, the US has only been flexing its muscles. So far, the US has won only two of the 76 cases brought against her at the WTO, while 33 have been lost, through February 2003. Furthermore, the US record on compliance with dispute panel rulings has been very poor. Last year, when the US was pulled up on account of massive subsidies handed down to US companies under the Foreign Sales Corporation Act, the EU got a relief from the WTO by way of $4.043 billion of retaliatory duties. The EU has not yet used it, while the US is yet to make the necessary change in its tax laws. A most bizarre US anti-dumping law, which grants the duties to the complainants, the Byrd Amen-dment, instead of repealing it straightaway, appealed to the Appellate Body of the WTO in October 2002. Alas, in January 2003 the Appellate Body confirmed the Panel’s central finding that the Byrd Amendment is WTO-inconsistent.

Officially known as the Continued Dumping and Subsidy Offset Act of 2000, the Byrd Amendment allows US companies that have successfully applied for anti-dumping and countervailing duties on “unfairly” priced and subsidised imports, to receive the money raised by those duties. Under this provision, the US steel industry has earned $536 million. Like everywhere in the world, funds collected from these kinds of duties go into the treasury. Reactions to this ruling were uproarious in the US Congress. “In our view, the WTO has acted beyond the scope of its mandate by finding violations where none exist and where no obligations were negotiated”, said a group of congressmen. History has shown that these type of utterances will continue be uttered by ‘Ugly Americans’, whether one likes it or not. Over time, things will only get worse.

---

Governance, from top to bottom 

Published:  The Hindu Business Line, March 31, 2003

 By Pradeep S Mehta

AS CONSUMER organisations around the world commemorated the World Consumer Rights Day on March 15, one such consumer body — Consumer Unity and Trust Society's (CUTS) — demonstrated the impact the civil society can have on raising awareness on the key issues surrounding development and poverty reduction.

The theme for the conclave, "Biotechnology and consumers" itself showed just how far the consumer movement has come. CUTS, which started out as a tiny operation working out of a garage in 1984 in Jaipur, has become one of the "major international NGOs from developing countries, and a driving force in creating EU-India civil society dialogue," according to Mr Pascal Lamy, the European Union's Trade Commissioner who participated innthe conclave.

Calling on civil society organisations from North and South to work with their counterparts to advocate changes, Ms Erna Witoelar, Commissioner of the Earth Charter and former head of Consumers International, said civil society has the power to initiate and shape debates, a strength it can use to promote long-term poverty reduction. Echoing this, Mr. Wajahat Habibullah, Secretary, Department of Consumer Affairs, Ministry of Food and Consumer Affairs, emphasised the vital role that consumer organisations have to play in promoting good governance and making sure that the processes of globalisation and privatisation do not harm the poor.

On trade and sustainable development, reforms of international governance systems were a recurring theme. Mr S. N. Menon, Additional Secretary, Department of Commerce, called for progress in the current round of trade negotiations, recognising that rich and poor countries should make asymmetric concessions. Others called on India to use its influence at the WTO, as one of the `elephants' of international trade negotiations, to bring forth the concerns of the smaller developing countries.

Problems at the international level do not absolve national governments of their responsibilities. The duties of national governments to provide regulation and safety nets ran through the debates on economic liberalization, foreign direct investment and labour standards that were conducted over the three days.

The political dimension was emphasised by Mr Abul Ahsam, former Foreign Secretary of Bangladesh. Good governance in South Asia has been distorted by chauvinism, corruption and the politicisation of the bureaucracy, he said, which has hindered efforts at poverty reduction.

Initiatives at the local level are crucial complements to national and international policies.

Case studies were presented over the course of the Conclave which highlighted the huge number of successful local initiatives which have addressed issues like farmers' rights and innovative education strategies, and analysed the failure of other steps, such as the privatisation of power sector in Orissa  

---

Quid Pro Quo Between Movement Of Natural Persons And Singapore Issues?

Published:  The Financial Express, March 24, 2003

 By Pradeep S Mehta

 Last week, New Delhi witnessed quite a change of heart and strategy in the otherwise grid-locked negotiations at the World Trade Organisation (WTO) in Geneva, as far as India and European Union (EU) is concerned. India appeared to soften her stand on the conundrum of trade negotiations, apparently willing to change her hitherto strident opposition to ‘new issues’, in return for concessions in areas of her interest. Apparently, the new Indian trade minister, Arun Jaitley, a seasoned and clever negotiator, has brought about this welcome change. This development will certainly osmose into other areas at Geneva.

"We always emphasise that WTO is the forum where members can get the maximum if their approach towards trade negotiations is flexible", was the sort of common point which emerged at a panel discussion entitled ‘Doha to Cancun’ organised by Consumer Unity and Trust Society (CUTS) at Delhi, where EU trade commissioner Pascal Lamy shared the dais with additional secretary of commerce S. N. Menon. Other high-level speakers on the panel included the noted trade economist, T. N. Srinivasan of Yale University, which was moderated by the eminent commentator: Martin Wolf of Financial Times. The panel discussion was organised by CUTS as part of its twentieth anniversary celebrations in association with the Confederation of Indian Industry (CII).

India showed clear signs of softening its stance on the four contentious Singapore issues of competition, investment, trade facilitation and government procurement.

For long, India has held that these four issues are not a part of the trade agenda. But now India has shown willingness to engage in talks. It is really very heartening to see that India is likely to shift from a "No, No" to "Yes, But" approach. The ‘buts’ being Trade Related Intellectual Properties (TRIPs) and public health; special and differential treatment and implementation issues, on which there has been scanty if not negligible progress. Commissioner Lamy immediately reciprocated this gesture by promising to push for liberalisation of the movement of qualified personnel under the GATS Agreement, known as Mode 4 in WTO parlance, but not skilled workers.

He said that he would take up the issue of liberalisation with the EU member governments soon and persuade them to facilitate temporary movement of white collar workers. Lamy suggested four ways through which these regulations could be liberalised, given the political sensitivity of immigration that prevents large-scale opening up. He saw scope for extending the sectors for which skilled technicians and others could enter, by increasing the length of their stay; by reducing the economic needs test criteria; and by relying more on qualifications need test. Mode 4, Movement of Natural Persons (MNP), currently accounts for only a tiny proportion of trade in services, compared to services provided through companies that set up facilities in foreign countries or services that are supplied over borders.

The very heart of international trade -- be it in goods or in factors of production -- lies in exploiting differences. The larger the differences, the greater would be the potential gains from opening up these flows. In the case of temporary MNP, potentially large returns would be feasible if medium and less skilled workers, which are relatively abundant in developing countries, were allowed to move and provide their services in developed countries. Alan Winters, trade economist at Sussex University, UK, estimates that an increase in developed countries quotas on the inward movement of both skilled and unskilled temporary workers, equivalent to 3 per cent of their workforce, would generate an increase in world welfare of over $150 billion per annum.

Other estimates are even higher. Wages sent home are a great direct benefit to poor families in the developing world. The gains do not accrue only to the poor, but are widely shared within the world economy. Moreover, as the rich country populations are ageing and their average levels of training and education rise, they will face an increasing scarcity of less skilled labour. Given that, at least in some occupations, there is really no substitute for human labour, the demand for and benefits of allowing MNP will increase through time.

Thus, while recognising the formidable political challenges it poses, MNP actually offers a strong commonality of interest between many developing and developed countries. Another key to fetching gains from negotiations is strategic alliance building on issues of common interest, not necessarily amongst nations at same level of development.

Commissioner Lamy’s visit has given an opportunity to India to identify common ground with the EU and make issue-based alliance ahead of the Cancun Ministerial. Many experts feel that it would have an immense impact on trade negotiations. One possible area of common ground between the EU and India could be agriculture. India has already endorsed the EU viewpoint on agriculture tariff reductions based on the Uruguay Round formula. Lamy has acknowledged the need for a food-security box within the WTO where lower commitments should be agreed upon if this is necessary for developing countries to attain their legitimate objectives regarding food security.

It is necessary for India not to repeat the same mistakes that it committed in the pre-Doha period. At that time also, many experts felt that India could have easily identified common ground with the US on launching a new round, as the US was for a limited round and India was against it. Finally, India had to give up its fight at Doha and that without any quid pro quo.

On the new issue of a multilateral competition policy, Jaitley has reportedly taken a different approach. Minimum Common Programme is a desirable instrument of global governance, and it is a relief to find that the Indian government is starting to see its value. One of the reasons for their opposition was the balance of the negotiations as a whole, as well as the inequities in the WTO system, but competition policy was not the best bargaining chip. Mr Jaitley now has an opportunity to distinguish himself from previous Ministers with his clear-thinking when the crucial meet at Cancun takes place.

---

Now Agriculture On The Hot Seat, TRIPs and S&DT Pushed Behind

Published:  The Financial Express, March 06, 2003By Pradeep S Mehta

Geneva, March 5:  Talks on TRIPs and Public Health failed; no consensus on S&DT; EU, Japan rejects Harbinson’s draft on agriculture “modalities”; Tokyo Summit fails... . Does anybody need further evidence for the poor progress of negotiations in the current Doha Round? It seems that the mask of “development” from the Doha Work Programme is fast slipping.

Last week, the WTO Agriculture Committee chairman, Stuart Harbinson, unveiled a first draft of the “modalities” paper.

The draft is a starting point for the farm negotiations, which aims at bridging differences and search for the compromises necessary for a final agreement. The “modalities” are targets (also numerical targets) for achieving the objectives of the negotiations.

There could not have been more opportune time for releasing this draft text, as two days later trade and agriculture ministers of 22 select WTO members were gathering at Tokyo to make further efforts towards untying several knots around agriculture and TRIPs negotiations.

The Harbinson’s draft, which was rejected outright by the EU and Japan, calls for minimum 25-45 per cent and average 40-60 per cent cuts in all farm tariffs over five years; an increase in import quotas to 10 per cent of consumption; a 60 per cent reduction in trade distorting domestic subsidies, and a phase-out of export subsidies within nine years.

Japan has rejected the draft proposals, as they will threaten its uncompetitive rice farmers, and described the proposals as biased in favour of exporting countries. The Harbinson’s draft proposes a minimum 45 per cent cut in its 490 per cent rice tariff and a rise in the 7.2 per cent “minimum access” mandatory rice import quota.

The EU trade commissioner Pascal Lamy was more blunt in his reaction. The proposal is simply “unacceptable”, he said, adding “for us, the text is completely unbalanced.

The non-trade concerns of agriculture, which was included in the Doha mandate, have disappeared. It is not acceptable”. The draft has already been dubbed as “US-centric” and Mr Lamy made no effort to hide this feeling, saying “it is very favourable to big exporting nations like the US and the 17-member Cairns group.”

The US quite expectedly welcomed the draft proposal on agricultural modalities, particularly its support for the elimination of export subsidies. However, the US Trade Representative (USTR) Robert Zoellick expressed that the US trade negotiators would like to see further cuts in tariffs and domestic subsidies.

Earlier, in one of my articles, published under the same column, I had argued that what US has done to TRIPs can easily be a role model for the EU in blocking a deal on agriculture as the farm lobby in EU is no less powerful than the pharma group in the US. COPA (Committee of Agricultural Organisations in the EU) and COGECA (General Committee for Agricultural Co-operation in the EU) in their first reaction to Harbinson’s draft termed the proposal as far more damaging for the EU than on other developed countries.

COPA and COGECA have urged the EC to stop using agriculture as a bargaining chip in exchange for other deals. Further, the heads of two agricultural organisations have called upon the Commission that it must defend the values and concerns of European society much more strongly in the WTO.

Already, the current Doha Round has been crippled by deadlock over TRIPs and Special & Differential Treatment (S&DT). The USA has so far vetoed every proposal made. At the Tokyo Mini-Ministerial meeting, Brazil took a fresh initiative by unveiling its plan, intended to meet US’ concerns. Brazil suggested that the World Health Organisation (WHO) be asked to verify whether poor countries seeking compulsory licenses for drugs had the domestic capacity to manufacture life-saving generic drugs themselves in the situation of public health crises.

If they were found with inadequate manufacturing means, they would be ale to import cheap copies of drugs from richer developing countries with pharmaceutical industries, including India, Thailand and Brazil.

However, there is no sign from US that it would drop its opposition to such a deal on medicines. When asked about the Brazilian idea, Robert Zoellick, the US Trade Representative, said, “I don’t think it’s fair to say we had a formal proposal”. Earlier, similar efforts made by the EU and South Africa have gone in vain.

Seeing the continued tough stance of the USA on TRIPs and Public Health issue, it looks like that the matter will be pushed to Cancun, where the USA could give its consent in exchange for some gains in other areas. This was stated in very clear terms recently by Sidey N Weiss, president, Customs and International Trade Bar Association, USA.

In the midst of all these, the biggest casualty has been the S&DT provisions for the poor countries. The 10th February meeting of the General Council failed to adopt a report on S&DT for developing countries, thus missing a third deadline, after having failed to meet the earlier two deadlines - 24th July 2002 and 31st December 2002.

Services, one of the built-in-agenda of the Uruguay Round, so far maintained a low profile in the current Doha Round of trade negotiations. But the recent offers by the EC on services liberalisation have contributed enough to make this sector join the list of other controversial trade issues such as Agriculture and TRIPs. The EC in its offer is only willing to open markets further in areas such as banking and telecommunication, whereas it would not take any new commitments in public services such as health and education as well as in audio-visual services.

The EC‘s denial of access to its trading partners in European markets of health and education clearly reflects double standards. This has jolted the hopes of many developing countries who were hoping to gain access in EU health and education markets through Mode 4 of service supply. The supply of services in banking and telecommunication takes place under Mode 3, where developing countries are at a clear disadvantage.

TRIPs, S&DT, Agriculture and now Services joining the list, alongwith the failure of Tokyo Mini-Ministerial, the forthcoming Cancun Ministerial Conference appears to be heading towards a major fiasco like Seattle.

The new commerce and industry minister of India, Arun Jaitely rightly told, “the road to Cancun is riddled with roadblocks and potholes. It is for the developed countries to win trust back so that the people in the developing countries can see some tangible benefit of a multilateral forum”, when he returned back after attending the Tokyo Mini-Ministerial.

Top