Essay on Dunkel Draft: Implications for India

Essay on Dunkel Draft: Implications for India.

Introduction:

Uruguay Round of the GATT on multilateral trade negotiations has given birth to the controversial Dunkel Draft. Its contents have far reaching implications for the future of international trade and India will have to take some tough decisions on vital issues of global trade.

Development of Thought:

Though the draft is an attempt to narrow down the differences among and between participating countries yet the developing countries have adopted strong, eloquent and extensive state­ments reiterating their common position on its main aspects.

Any multilateral negotiation does require mutual adjustments but under no circumstances the developmental interest of less developed countries should have to be sacrificed in the adjustment frame.

Will India be compelled to amend its laws to suit the requirements of Dunkel proposals? Is it likely to put Indian farmers at the mercy of the multi national plant breeders?

Such questions have been agitating the mind of politicians and policy makers and they are looking for the answer and alternates’ to negotiate before agreeing to the proposals of Arthur Dunkel.

India, being one of the 108 members of GATT, cannot afford to opt out, as on date, as the country has adopted a liberal trade policy and has its eyes set on globalization. The present essay critically assesses and analyses the major issues which figure in the round and their implications.

Conclusion:

India has tried to negotiate terms so that the Dunkel draft policies and its trade policies fall in line. On some policies however India will have to give in. This is essential, for without compromise no international agreement involving 110 countries can be possible.

India has to take some hard decisions on vital issues of global trade as the marathon ‘Uruguay Round’ at last enters the wrap-up phase.

Meanwhile, the single market of Europe has come into existence to facilitate free movement of goods and people across the borders of the 12-nation community, as the first step towards an Economic and Political European Union. If India I has to retain and enhance its market share in EC. It has to become more quality conscious and competitive.

Another giant trading bloc, the North American Free Trade Agreement (NAFTA) bringing together USA, Canada and Mexico with 360 million people, is due to go into operation from January 1, 1994. NAFTA, negotiated by the Bush administration, has the support of the new US President Mr. Clinton except that it would be buttressed by side agreements for safeguarding US jobs and for effective environment protection by Mexico.

The emergence of these two blocs of powerful trading nations accounting for some 65 to 70 per cent of world trade has been viewed with great concern in Asia and other parts of the developing world as regional arrangements, though not specifically barred under GATT rules, could seriously erode multilateralism based on universally applied rules and disciplines.

The Uruguay Round, the most comprehensive multilateral trade negotiations ever undertaken with the participation of 108 governments, is clearly designed to reinforce the multilateral trading system.

Success of the Round is as crucial to developing countries as to developed countries, which stand to gain much more through the extension of multilateral disciplines to new areas like agriculture, services and intellectual property rights.

There is no doubt that India’s growth prospects in world trade are bound up with the outcome of the Uruguay Round in which the outstanding differences have been mainly in the field of agricultural subsidies to be sorted out by the USA and the European Community.

On most other issues especially TRIPs (Trade-Related Intellectual Property Rights) and Services as well as the integration of textiles in the GATT system, the United States, the European Community and Japan have identical positions which make it extremely difficult for countries like India to make any substantial I inroads into the global package drawn up by the GATT Director-General Arthur Dunkel.

But for EC-USA sharp differences on the extent and time-frame of subsidi­zation of agriculture by way of reductions in stratification, internal support and export commitments, which have now been satisfactorily resolved, the Dunkel package would have easily passed through other hurdles and the developed countries would have already hailed a “balanced and successful outcome” in the Uruguay Round.

While India has been seeking improvements in regard to textiles, to ensure greater access for its exports, the trade-offs involved in negotiations covering the entire spectrum of trade matters and the lack of solidarity among developing countries have limited its bargaining power.

There are a few issues in relation to agriculture in so far as it affects devel­oping. Countries and Services, which are being brought within an international framework of rules for the first time. Unfortunately, the government has not been able to interact with Parliament in good time to be able to take decisions which are seen to enjoy maximum backing within the country.

However, India cannot prolong the debate when the rest of the world is about to give a broad endorsement to the Dunkel package which, though not wholly acceptable to all countries developed and developing alike, still seems to be the only workable basis for drawing up the Final Act of the Uruguay Round.

All that India could do, with firm understanding reached within government, is to make certain provisions more flexible or unambiguous to safeguard its own interests, whether in TRIPs, textiles, agriculture, services or anti-dumping rules.

In textiles, while there is no front loading of the benefits of liberalization, exporting countries would find the transition towards full integration into GATT much more, advantageous than the multi fibre arrangement which has been in force since 1974 under which individual countries have had to negotiate bilat­erally for quotas.

According to GATT and World Bank studies, restriction on textile and ap­parel imports through MFA cost consumers in USA $ 27 billion a year. Remov­ing tariffs and MFA quotas would lower import prices of textiles and clothing by up to 50 per cent for the American consumer.

According to official sources, the Dunkel package in regard to agriculture would exempt investment and input subsidies for low income and resource poor farmers in developing countries and there would be no need for India to make any change in the domestic agricultural policies, at least in the short and medium term.

Also the export subsidies listed for reduction do not include the export incentives such as Section 80 HHC of the Income Tax Act, at present the main instrument of support in India.

India is, however, seeking some improvements, including exemption from reduction commitment of subsidy on storage for food security and a provision for internal and external freight subsidy for developing countries.

The exceptional treatment accorded to agriculture so far, according to GAIT, has led to uncompetitive production and growing surpluses shielded by a prolif­eration of market restrictions and subsidy practices.

World agriculture trade now stands at $ 400 billion a year, having grown less rapidly than trade in other products, while the farm support in developed countries alone amounted to $ 320 billion in 1991.

The Dunkel package, by reducing the tariffs and domestic and external subsidies mainly in developed countries would enable farmers in countries now largely kept out of international markets by the subsidy practices of major players to improve their opportunities to trade.

An analysis of the Dunkel package relating to agriculture reveals that there It’s a broad measure of agreement of the Indian Government with the Dunkel proposals though in respect of a few items. India might seek a change. In fact. |India has welcomed the proposal on subsidy.

According to the Indian Government, as per the Dunkel proposals, the de­veloping countries have been given the benefit of exemption in respect of generally available investment subsidies and input subsidies for few income and source poor farmers.

India feels that there would be no need to make any changes in the domestic agricultural policies, at least in the short and medium term. Further the export subsidies listed for reduction in the Dunkel package, do not include export incentives.

While the industrialized countries would have to since export subsidies, there is no requirement for India to reduce these incentives. There is also a view that elimination of subsidies by the industrialized countries will create market opportunities for the Indian products.

The implications in respect of protection of plant varieties, is however detrimental. Genetic resources are the common heritage of humanity and their ownership cannot be transferred to individuals big or small. As an interim measure, India should seek modification of the proposal that the burden of proof for infringement of patent lies with the defendant.

If a local agent of a patent holders eels that his patent rights are being violated, it should be for him to prove the allegation. India should refuse to amend its Patent Laws to suit the complainant. Beyond this there should be no cause for panic.

Subsidies are an important component of India’s non-Plan expenditure. The three important subsidies are related to food grains, fertilisers and exports. The crease in their quantum has been one of the main factors behind the unchecked growth of non-Plan expenditure.

Food subsidy is a part of India’s system of food purity for the poorer and weaker sections of the country’s population. It is a basic element in the countries, social policy. An allocation of Rs 2,500 crore was provided on this account in the budget estimates of 1992-93.

The subsidy oper­as through a system of Public Distribution network. Essential commodities are procured by government agencies and sold at subsidized prices at Fair Price shops. The government of India is supplying Six very essential commodities (trough the PDS. Wheat, rice, sugar, imported edible oils, kerosene and soft coke. Fertilizer subsidy has grown into the largest single subsidy in our system.

There is no doubt that fertilizer is an essential ingredient for agricultural production on and agricultural development is vital not. Only for economic growth in general, but also to ensure rising levels of income and employment in rural areas. 11980-81.

The fertilizer subsidy was 12 per cent of the total allocation in the Central and the State plans taken together for Agriculture and Rural Development Special Area Programme and Irrigation and Hood Control. It increased 33 per cent in 1991 – 92. A provision of Rs 5.000 crore for fertilizer subsidy was made in the 1992-93 budgets.

It is being commonly held that Draft Dunkel Text will affect India’s Public Distribution System (PDS) and procurement operations.

Far from it every to try has a right to have a food security system and all the more for a country India’s size with nearly 900 million populations. India has a consumer subsidy scheme in urban areas, and that should not be mixed with subsidy to farm

The position has been repeatedly clarified by the Commerce Ministry: “Dunkel text does not require the reduction of subsidies given to Indian fann­ers.” The reason is as follows. There are two types of subsidies covered by the Dunkel text: non-product specific and product-specific.

Non-product specific subsidies are given for fertilizers, water, seeds, cost of credit, etc,’ which are available generally for all crops. In case of developing countries, the Dunkel text does not require any reduction of such subsidies if their value is below 10 per cent of the total value of agriculture output in the base years 1986 to 1988. In such calculation, the subsidies given to low income and resource poor fanners are to be excluded.

In India non-product specific subsidies given in the year 1986-87 to 1988- 89 did not exceed 5.2 per cent, even if the subsidies given to small and marginal fanners are not excluded.

As regards product-specific subsidies, there are 20 agriculture products for which India provides minimum support price. Here again the Dunkel text re­quires a reduction in subsidies, only if the subsidies exceed 10 per cent of the value of the particular product.

The real battle is between Europe and the United States because of the massive subsidy they give to their farm output. The farm subsidies in US are uniquely different from those in India. While in India the government subsidizes agricultural inputs, the US pays its fanner for not growing anything on their lands.

If the DDT provisions could put a halt to such subsidies the world com­munity would be richer by way of cheaper and abundant supply of food material.

The apprehension sought to be created in the minds of Indian farmers, is mis­placed. There is hardly any basis for the charge that a large number of farmers will become landless laborers.

The Preamble of the Dunkel Draft to the proposed agreement on Import Licensing Procedures contains the following important features: It recognizes that developing countries have financial needs that need to be developed.

It attempts to ensure that import licensing procedures are not used in a manner that would impede the flow of international trade. It desires to simplify administrative procedures and practices used in international trade by making them both trans­parent and equitable.

It would be relevant to examine the present trade policy of the Government of India with a view to identify the areas where further reform is needed so that India’s trade practices conform to the intentions outlined in the Preamble.

The Liberalized Trade Policy being pursued by the Government of India is mostly in keeping with the spirit of the Dunkel Proposals. In some cases even the existing Indian provisions and for the major part congruent to the Dunkel Proposals. An example is afforded by norms and standards in respect of integrated circuits.

India is already a member of the Washington Convention in this respect and as such cannot and does not oppose Intellectual Property Rights proposed in the Dunkel Draft. There are other areas too where DD proposals and Indian policy arc not in conflict. In any case there isn’t much choice as India can’t even think of getting out of GATT.

There are some proposals which are prima-facie not the same as the existing trade policies in India. There are marginal differences on patents for drugs and chemicals.

In this case India has managed to get concessions by way of transi­tional period with the result that Product Patent proposals would become effec­tive only by the year 2005. The OD provision for compulsory licensing in case a patent is not worked is not to India’s liking. India intends to pursue its stand.

On the TRIPs, India has certainly some reservations on the Dunkel draft. Notwithstanding the 10-year delay (till 2003) available for application of the obligations on patent protection.

Efforts are on to secure special compulsory licensing provisions for goods and pharmaceuticals and a clear commitment that importation would not be regarded as working of patents.

The Dunkel Draft does not make any special provision recognizing the primacy of public interest in developing countries though it has provided for the transition period or countries which do not provide product patent protection. Also, adequate safeguards for fanners against plant breeders’ rights are being sought.

In Services, it is noted, there is no general obligation of providing access to foreign service enterprises or for granting to them national treatment. These have been made subject to negotiations on a “request and offer basis.” India’s interest is mainly in accessing markets of industrialized countries in relation to both skilled personnel and labour.

Many modifications suggested by India to the Dunkel Proposals so that the Draft Dunkel policy and India’s trade policies fall in line have been accepted.

Some are being negotiated. On some India may hive to give in. But that’s how any international agreement involving 110 countries with diverse interests could be made feasible.