The ratification of the Dunkel Draft by India elicits mixed reactions
Last week, P.V. Narasimha Rao surprised quite a few people in the commerce ministry. In a public speech in Rajasthan, the Prime Minister dwelt on the period after signing the Dunkel Final Act (DFA). And what he said was hardly calculated to raise the morale.
He told the gathering in Jaipur that in the post-GATT period, the west could withhold crucial technologies with the deliberate aim of stunting India’s progress in various fields, ” I foresee the emergence of such trends and building of protectionist walls,” said Rao, while inaugurating the 81st session of the Indian Science Congress.
Only a fortnight before, non-Congress opposition parties had been saying much the same thing. This was during the stormy sessions in Parliament after word had got out that India has agreed to the DFA along with 116 other countries in Geneva. But then, the government in the shape of the commerce minister, Pranab Mukherjee, put up a spirited defence.
He argued that India’s interests in the field of farming, drugs, services, Intellectual Property Rights (IPR) and other contentious aspects of the treaty on General Agreement on Tariffs & Trade (GATT) had been taken care of. He also contended that the country had no other option but to agree to DFA.
This was also the stand of the former commerce minister, P. Chidambaram, Commerce secretary Tajender Khanna also said so, as did the deputy director general of GATT and a former commerce ministry man, Anwarul Hoda. Together, they suggested that there was no other way. And when asked to spell out the pros and cons, all of them were greatly circumspect in their analyses.
Finally, last week, it became clear that those opposed to the DFA had been thinking a little differently from the Prime Minister, himself. Mukherjee, from all indications, seemed suitably embarrassed by the turn of events. Asked what he had to say to the Prime Minister’s observations, Mukherjee told SUNDAY lamely: “I cannot comment unless I see the actual text of his speech.” Nevertheless, nearly three years of subterfuges, half-truths, deceptions and bad bargaining had been exposed by none other than the Prime Minister himself.
The Uruguay Round of GATT has always been controversial. So far, GATT, which was established in 1948, had struck to finding ways to make global trade more free. To that end, it strived to get member nations (called contracting parties) to agree to reduce tariff and non-tariff barriers (like quantitative restrictions).
It cannot be said to have been entirely unsuccessful. Contracting parties joined a club where each country became a most-favoured nation (MFN) for another for trade. Of course, disparities existed. America offered its markets to those countries in Europe and the Pacific Rim that had suffered the horrors. World War II and the growth communism.
Inevitably, countries outside America’s sphere of influence, suffered. India was among them, which never did getting best of GATT. Party, it was the American mind-block against mixed economy. In part, it was also due to the perceived Soviet influence in New Delhi. On the other extreme was Japan that pushed its exports of cars and electronics was GATT but kept its own market protectors with high tariff barriers.
This system was in place for nearly forty years. However, towards the end, it was argued that it had started to hurt countries such as America and to an extent Europe. Recession also grew at an alarming rate, and lay-offs and growing unemployment forced the west to look further about for markets.
By now, despite not getting a level delaying field, some developed countries had started to show promise. But invariably, their markets were protected by high tariffs. ( India with tariffs exceeding 250 percent was said to be amongst the worse offenders). On the other hand, their labour-intensive industry produces cheap goods.
Therefore, you had a situation where Indian, Pakistani, or even Bangladeshi textiles got the better of competition in the west. To protect their own industries, western countries agreed amongst themselves to impose quotas at later took the form of the notorious multi-fiber agreement (MFA). This went against the principles of GATT, but who could protest.
Later, parents became a sore point. For instance, drug multinationals spending millions of dollars researching new medicines, were inevitably trumped by small firms in developing countries. These companies reverse engineered new medicines and made profits without paying any patent money to the original developers.
So the need for new markets forced by recession, and the pressure from transnational corporations for a rightful share of patent monies, whether in drugs, seeds, genetics, etc, forced western governments to wring more out of GATT. And the target of attention became the Uruguay Round that began in the Chilean resort town of Punta de Este.
For the first time in 1986, issues such as trade-related intellectual property rights (TRIPS), trade-related investment measures (TRIMS), and those connected to agriculture were brought to GATT. “I don’t think we could influence the course of events, ” admitted Hoda in a moment of candour, while referring to the inclusion of TRIPS.
Since then, the Uruguay Round has gone through upheavals. It was to have been signed in December 1991, when America had the Bush presidency. But disagreement between America and the European community on such issues as subsidies to farmers and firms came in the way.
India, Brazil and a few others of the forward-looking developing countries also resisted the new patent regime, which would have come with the acceptance of rules related to TRIPS. Unwilling to wait anymore, Arthur Dunkel, then director-general of GATT, prepared a voluminous draft-agreement that soon took on his name. And when he retired from GATT in the middle of last year, he had ensured that any future agreement would necessarily have to be within the four walls of the Dunkel draft.
And that’s how it has been. On 15 December 1993, 117 contracting parties of GATT ended negotiations under the Uruguay Round. This will come for final agreement in Marrakech in Morocco in April this year. But already, a fierce debate is raging.
Those like the National Front/ Left front and the Bharatiya Janata Party, which stand for a fuzzy sort of economic nationalism, are dead against the Dunkel Final Act. After the Geneva Accord, the government has shown itself to be not against it. And yet, Narasimha Rao’s speech in Jaipur reveals that even the government was not entirely happy with the accord.
Does this mean that the new GATT agreement is all bad for us? What will be the impact of the new agreement on TRIPS and TRIMS? Will farmers have to pay more for the seeds they buy?
And yet, Narasimha Rao’s speech in Jaipur reveals that even the government was not entirely happy with the accord. Does this mean that the new GATT agreement is all that bad for us? What will be impact of the new agreement on TRIPS and TRIMS? Will farmers have to pay more for the seeds they buy?
Unhappily, there are no firm answers. Negotiators from the Indian government concede that like trade, which is really a matter of give and take, one should not look for unilateral advantages in the new GATT treaty. But on balance, which are the areas where India has definitely suffered? And where has it gained?
TEXTILES: Till now, its exports were governed by the Multi-Fibre Agreement (MFA) between bulk importers like America, the European Community (EC), Japan, etc. This allowed their governments to impose quotas on cheaper exports from developing nations like India, Pakistan, etc.
When the issue of Intellectual Property Rights (IPR) was first brought to GATT in 1986 by the United States, the developing nations had rather linked this to the scrapping of MFA. The final agreement does end this, but with grave qualifications.
The final act provides for scrapping of the MFA in ten years. But it is also stipulated that 51 percent of the quotas that are imposed under it will go in nine years and the remaining in the tenth year. This is touted as a big gain for India.
Possibly, in the long-term, yes. But exporters and DFA opponents argue that in the first nine years, countries like the United States will bring in other products which are not subject to MFA now. This will help them keep within the GATT law even while keeping out those imports, which are cheap.
Even Chidambaram would have been happier if the MFA had been phased out earlier than ten years. “We have not been able to get a quicker phase-out in the multi-fibre agreement,” he admitted in a chat with SUNDAY.
And on the question of MFA, there is already division. Pakistan and India stand greatly to benefit when it is scrapped. But Sri Lanka, which allowed dis proportionately higher imports to the United States, wants MFA to stay. Significantly, there have been a lot of friendly exchanges between Washington and Colombo on this subject.
AGRICULTURE: The government view is that exports will grow dramatically because the final act curbs government subsides that have so far benefited western farmers. On the plane, this is true.
If export and product subsidies exceed 20 percent of the total value of agricultural output, then these have to be brought down. The worst hit are framers of the European community where subsidies are among the highest. The US was most keen to ram through this legislation leading to war of words across the Atlantic, violent farmer demonstrations and delays in the signing of the final act.
When Subramaniam Swamy was the commerce minister in Chandra Sekhar’s government, he sided with America sighting gains for India. Successively commerce Minister have followed his course without being as blatant. But in the case for benefits for India as unassailable?
“The new agreement says that over six years, production subsidies will have to be brought down by 21 percent and export subsidies by 36 percent,” says commerce secretary Khanna. “This should result in a rise in commodity process world-wide. India, whose agricultural prices are below world prices, will have a scope for better exports. Indian farmers should benefit.”
But former foreign secretary Muchkund Dubey is not as sure. In his deposition before the select committee of Parliament on Dunkel, he said that the requirements of quality and hygiene would certainly come in the way of exports. Also, the final act stipulates minimum access of 3-5 per cent, which opponents fear, will work against Indian agriculture interests.
But the case is not as clear-cut. Countries which have imposed non-tariff batteries against agricultural impose; because they have balance of payment problems will be exempt from the minimum access requirements. However as soon as India tides over its balance payments crisis, it will have to open up, if you believe the finance ministry, this could happen even next year!
The other point of debate is about PDS security. Before the final act was adopted, fears were expressed that India’s Public Distribution System (PDS) would due to be scrapped or pruned. “But it is India’s insistence that the PDS has not been considered as agricultural subsidy,” Khanna.
The Sui-generis system is, dictionary says, one of its kind. Necessarily, this is product-specific. The International Convention for the Protection of New Varieties of Plants ( better known as the UPOV convention) had devised such a system in 1978.
Now, the dispute really is how much successive profit can a commercial breeder of hybrid seeds make? The UPOV 1978 system said that if a farmer merely produced without selling the hybrid seeds further, he hadn’t to pay anything extra to the breeder.
Later, in 1991, this was changed. A farmer had to pay extra to a breeder whether had used the hybrid seeds for raising crop or for commercial marketing.
In their deposition before the select committee of Parliament, representatives of the commerce ministry argued that it was entirely up to India to sign either the UPOV 1978 or the UPOV 1991 convention or to make up its own sui-generis system. But there are fears that pressure will come on India to sign the UPOV 1991 convention, that is as good as giving patents for hybrids.
What will be the upshot? Currently, farmers exchange seeds routinely. But the word “limited” has now been added. This will have a very damaging impact in a country where out of an annual seed requirement of 600,000 tons, as much as 62 percent comes from inter-farmer sales.
All in all, Indian farmers are getting a mixed bag of goods from the Dunkel final act. The removal of subsidies might just help exports, but restrictions on the use of hybrid seeds could be very painful.
Unsurprisingly, most farmers’ leaders have opposed Dunkel. Last fortnight, there was a violent farmer agitation in Gujarat for lowering power tariffs. India’s agricultural subsidies are below the 20 percent GATT benchmark, and there is no immediate need to cut contentious things like fertilizer subsidy. But Mahendra Singh Tikait of the Bhartiya Kisan Union (BKU) ia a convinced anti-Dunkel man.
Only Sharad Joshi of the Maharashtra based Shetkari Sanghathan sees a lot of sense in Dunkel. But significantly, he remains in a minority.
INTELLECTUAL PROPERTY RIGHTS:
The final act says that inventions in all branches of technology will be patentable. This includes as many as seven areas relating to copyright, industrial designs, trademarks and innovations in industrial applications. Where India differs with developed countries is in the area of Pharmaceuticals, food-products and chemicals.
The Indian patents Act (IPA) recognizes only process patents in these areas. And it has a compulsory licensing arrangement where a monopoly situation may be against public interest. Indian companies, especially those manufacturing drugs, have benefited enormously from this.
They have reverse engineered many of the new drugs produced abroad. Multinationals that have produced these at great cost have been denied the patent monies. So they wanted GATT to enforce an IPR regime where product and not process patents would be acceptable.
Most developing nations demurred at first. But the US used the threat of its notorious super 301 and special 301 trade laws. One by one, the resisting countries gave way. Mexico went, then Brazil. Others followed. By the time trade-related intellectual property rights came for ratification, the US had busted most resistance on a bilateral basis.
The case of the Indian government is that it had little choice. Anwarul Hoda of GATT frankly admits that India could have done better in 1986 itself. But now that TRIPS is part of the Dunkel final act, where does it leave India?
The fear is that drug prices in India, otherwise amongst the lowest in the world courtesy process patents, will go up. Chidambaram admits to this. But he also says that the situation is not as alarming.
Explains Chidambaram: “According to my information, on the world Health Organisation’s essential drug list, only seven drugs are patented. Of these, patents of three will expire by 1994, of two in 1995 and of one each in 1997 and 1998 respectively. Of these seven drugs, only three are marketed in India. Even if a new patent comes up, it will be after 10 years.”
Chidambaram continues, “For the sake of argument, even if the patent comes up tomorrow, its immediate effect will be on only three to seven drugs in India. Equivalents are available for all of them. Therefore, to say that the new patent for drugs will come about immediately or that it will affect prices at once is an exaggeration. It is estimated that on patent drugs, prices rise will be of the order of 46 percent.”
But this view is challenged by the national Working Group on Patent Laws. B.K. Keayla, representing it in the Parliament select committee deposition, argued that price rise could not be determined simply by the number of patentable drugs in use but on their overall sales. He revealed that an Operations Research Group (ORG) study on market share of drugs under US patents gave another picture.
Earlier, there was a compulsory licensing clause that came in automatically but now, a country, which wishes to enforce this clause, has to prove that the monopoly is not parting with technology with persuasion, and that this is required for a non-commercial, public interest use.
India wanted an automatic application of the compulsory licensing clause. But this was rejected. Chidambaram admits to this. “We have not got what we wanted to get in compulsory licensing under patent laws, ” he said.
There is another problem with having signed TRIPS. Import of all technology will amount to working of the patent. What is, if company A imports a process for steel making, it has to pay the huge patents costs too. The government argued that if India’s IPR laws were strengthened, more western companies would be willing to enter into joint ventures with Indian firms. But there is more force in the counter-argument that if imports any way mean working of a patent, then why would foreign companies set up production facilities here at great cost?
TRADE IN SERVICES:
Mixed success. Country to fears, Indian negotiators did not agree to open the Indian insurance sector to outsiders. But last week, to chorus of protests from trade unions, the R.N. Mallhotra committee strongly recommended opening the insurance industry to the private sector, Indian and foreign. This is just the kind of opening that giant American and British insurance firms want to enter India’s huge insurance market.
The other side of trade in services is movement of skilled professionals. As many as 65,000 doctors, educationists, software programmers, etc., can move from one place to another. However, each country has a right to determine the numbers. If say India does not give America access to its financial services market, America can restrict the number of Indian professionals entering the country.
INVESTMENT MEASURES :
Not as bad as expected. The apprehension was that India would have to allow foreign companies freely. There is nothing like this. On the other hand, those companies, which have already gained access, have to be treated on par with Indian industry.
In sum, the Dunkel final act leaves much to be desired. Chidambaram has a view and many in the government share it. “There are gains and losses in every negotiation, “he said. “The point is that we should count our losses and gains and then make up our minds whether it is good or not.”
“The government, “he says, “believes that overall it is better to be a member of GATT than to leave it. Just look at China. It is knocking on the doors of GATT to get in. It is inconceivable to me that while China is trying to get in, India should remain out of it.”
But there is another side too. If you examine each of the sections of the DFA, there is more against than in favour. The argument that India had no option is also rejected, as it is felt that a continental economy of India’s size would have been more accommodated if Indian negotiators had tried harder.
Parties like the Bharatiya Janata Party, the Left / National Front, and some farmers lobbies still don’t think it is late. Activists feel that, between now and April, enough heat can be generated in the streets and the fields to reverse the denouement in Marrakech. But those who know better feel that it is already too late.
One of them is Narasimha Rao.
Ketan Narottam Tanna/ New Delhi