COMPILED NOTES ITL

Unit 2

Technical Barriers To Trade

Technical requirements exist in all sectors of the economy and have an impact on most
products that we buy. The labelling of the food that we eat, the safety of toys that our children
play with, the technical specifications of our cars or the safety and energy efficiency of our
home appliances are all, to a certain degree, influenced by such requirements.The term
"technical barriers to trade" (TBT) refers to mandatory technical regulations and voluntary
standards that define specific characteristics that a product should have, such as its size,
shape, design, labelling / marking / packaging, functionality or performance. The specific
procedures used to check whether a product is in compliance with these requirements are also
covered by the definition of TBT. These so-called "conformity assessment procedures" can
include, for example, product testing, inspection and certification activities. TBTs are usually
introduced by government authorities with a legitimate public policy objective in mind – for
example, protecting human health and safety, animal and plant life and health or the
environment, or safeguarding consumers from deceptive practices. Nevertheless, TBTs often
have an impact on trade and the competitiveness of exporters, and in particular small and
medium enterprises (SMEs). Adjusting products and production processes to comply with
different requirements in export markets, as well as demonstrating compliance with these
requirements, increase product costs and time-to-market, and can ultimately hurt the
competitiveness of EU exporters. This is why many of these exporters put technical
requirements at or near the top of their concerns on trade barriers.

Technical Barriers to Trade Agreement

The TBT Agreement was negotiated during the Uruguay Round of Multilateral Trade
Negotiations, which was concluded in 1994. The Agreement entered into force in January
1995.

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 • It is regarded as the multilateral successor to the Standards Code, signed by
32 GATT contracting parties at the conclusion of the Tokyo Round of Trade
Negotiations (1979).

• The Agreement seeks to ensure that technical regulations, standards and conformity
assessment procedures are non-discriminatory.

• The TBT Agreement aims to see that these technical standards and specifications for
imported goods of a member country do not create any unnecessary trade obstacles
for the exporting country.

• The Agreement does acknowledge that member countries need to put in place certain
regulations and policy measures for the protection of human health and safety and
also the environment.

• The Agreement also promotes members to have measures based on global standards
as a way to enable international trade.

• The TBT establishes rules and procedures regarding the development, adoption, and
application of voluntary product standards, mandatory technical regulations, and the
procedures (such as testing or certification) used to determine whether a particular
product meets such standards or regulations.

• The Agreement seeks to prohibit the use of technical requirements as needless barriers
to trade.

• Although it applies to a broad range of agricultural and industrial products, sanitary

and phytosanitary (SPS) measures and specifications for government procurement are
covered under separate agreements.

• The TBT Agreement shares the same fundamental principles of non-discrimination,

encouraging predictability of market access and technical assistance (TA) and special
and differential (S&D) treatment for developing member countries.

The WTO-TBT Agreement

The objective of the World Trade Organisation's Agreement on Technical Barriers to Trade
as a preventive instrument is to ensure that such measures do not result in discrimination or
arbitrary restrictions on international trade. The Agreement does not in any way undermine

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the right of governments to take measures to pursue legitimate public policy objectives, such
as the ones the ones mentioned above; it simply aims to ensure that such measures are
prepared, adopted and applied according to some basic principles, in order to minimise the
negative impact on trade.

The growing importance of TBTs in the multilateral trade context-

The significance of technical barriers to trade has increased considerably over the past years,
as tariffs steadily decline and governments worldwide introduce more and more regulatory
requirements to address inter alia health, safety or environmental concerns. The TBT
Agreement is therefore an important tool with which the EU can tackle technical barriers to
trade and address requirements of third countries which might pose significant problems to
European economic operators. In the WTO, the EU has consistently pushed to:
• Achieve greater harmonisation, through more wide-spread use of international standards
• Adopt a more risk-oriented approach in deciding what conformity assessment procedures
should be used for assessing compliance of products
• Improve the implementation of transparency provisions, to ensure that trade partners are
systematically consulted on regulatory initiatives that might influence trade
• Promote and enhance the effectiveness of technical assistance to developing countries in
the TBT field
• Technical barriers to trade Trade 2 A central EU objective in the TBT field is to facilitate
exports by EU manufacturers by reducing technical barriers which unnecessarily restrict
trade in world markets. To this end, the European Commission examines the legislative
proposals of WTO Members to check compliance with the TBT Agreement, and uses all
means at its disposal to tackle unnecessary barriers to trade and improve market access for
European exporters.

Principles of the TBT Agreement

The five principles at the core of the WTO TBT Agreement are: • Transparency (see
Transparency Obligations under the TBT Agreement) - a WTO Member planning to
introduce a measure that might have an important impact on trade should notify this to the
WTO, and take into account comments submitted by other countries on the draft legislation

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• Non-discrimination and national treatment - a measure should not discriminate among
different importing Members and should apply in the same way to both imports and
similar domestic goods
• Proportionality - a measure should not be more trade restrictive than necessary to achieve
the legitimate goal pursued
• Use of international standards - whenever possible, international standards should be used
as a basis for technical regulations
• Equivalence – WTO Members should consider accepting technical regulations of other
Members as equivalent to their own, provided that these measures are an effective way of
addressing the objectives pursued

TBT Agreement Objectives

The broad objectives of the TBT Agreement are as follows:

1. Ensuring that technical regulations, standards and conformity assessment procedures

do not generate unnecessary hindrances to international trade.
2. Leaving WTO members adequate regulatory discretion to protect human, animal and
plant life and health, national security, the environment, consumers, and other policy
interests.
The ‘technical barriers to trade’ refer to broadly the following:

1. Mandatory product regulations

2. Voluntary product standards
3. Conformity assessment procedures (procedures designed to test a product’s
conformity with mandatory regulations or voluntary standards)
The aim of the TBT Agreement is to assure that the above technical requirements do not
create an unnecessary hurdle to global trade. The Agreement tries to maintain a balance
between allowing seamless international trade by regulating such technical non-tariff barriers
and allowing countries to enact product regulations in the interests of health, environment,
consumers, etc. The TBT Agreement tries to maintain a balance between the prevention of
protectionism and the right of members to enact product regulations for legitimate public
policy purposes.

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The Agreement seeks to ensure that standards, technical regulations, and conformity
assessment procedures are to be developed and applied on a non-discriminatory basis.

Main differences between the SPS and TBT Agreements

While the SPS Agreement is a new agreement concluding during the Uruguay Round,
aplurilateral Agreement on Technical Barriers to Trade (TBT), applying only to those
countries which chose to accept it, had already been negotiated during the Tokyo
Round(1974-1979). The TBT agreement, while not primarily negotiated having SPS concerns
in
mind, covered, nevertheless, requirements for food safety, animal and plant health
measures,inspection and labelling. This Agreement was modified during the Uruguay Round
and
constitutes an integral part of the Final Act of the Uruguay Round, thus applying to all
WTOMembers. It covers all technical regulations and voluntary standards and the procedures
toensure that these are met, except when these are sanitary or phytosanitary measures
asdefined by the SPS Agreement. The TBT Agreement also covers measures aimed
atprotecting human health or safety, animal or plant life or health.
To identify whether aspecific measure is subject to the provisions of the SPS or the TBT
Agreement, it is
necessary to look at the purposes for which it has been adopted. As a general rule, if
ameasure is adopted to protect human life from the risks arising from additives, toxins, plant
and animal-carried diseases; animal life from the risks arising from additives, toxins,
pestsdiseases, disease-causing organisms; plant life from the risks arising from pests,
diseases,
disease-causing organisms; and a country from the risks arising from damages caused by
theentry, establishment or spread of pests, this measure is a SPS measure. Measures adopted
for
other purposes, to protect human, animal and plant life, are subject to the TBT
Agreement.For instance a pharmaceutical restriction would be a measure covered by the
TBTAgreement . Labelling requirements related to food safety are usually SPS measures,
whilelabels related to the nutrition characteristics or the quality of a product falls under the
TBTdiscipline.

TBT Committee

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TBT Committee work involves two broad areas:

• review of specific measures

WTO members/observers use the TBT Committee to discuss specific trade concerns
(STCs) — specific laws, regulations or procedures that affect their trade, usually in
response to notifications. Essentially, members raise STCs to find out more about the
scope and implementation of each other's regulations in light of the core TBT
obligations. The discussion is mostly about measures in the pipeline, but can also be
about the implementation of existing measures. To date, more than 750 STCs have
been raised which can be accessed through ePing, the SPS&TBT Platform,
• strengthening implementation of the TBT Agreement
Members exchange experiences on the implementation of the Agreement with a view
to making implementation more effective and efficient. This discussion revolves
around generic, cross-cutting themes, including transparency, standards, conformity
assessment and good regulatory practice.
Over the years, the Committee has developed a series of decisions and recommendations
intended to facilitate implementation of the TBT Agreement. The latest decisions and
recommendations adopted by the Committee can be found

Meetings of the TBT Committee

• The Committee usually holds three formal meetings per year. These are sometimes
preceded by workshops or thematic sessions. Meetings are open to all WTO members
and observer governments. International intergovernmental organizations — several
of them standardizing bodies — also participate observers in the Committee.

WTO and Environment

Sustainable development and protection and preservation of the environment are fundamental
goals of the WTO. They are enshrined in the Marrakesh Agreement, which established the
WTO, and complement the WTO’s objective to reduce trade barriers and eliminate
discriminatory treatment in international trade relations. While there is no specific agreement
dealing with the environment, under WTO rules members can adopt trade-related measures

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aimed at protecting the environment provided a number of conditions to avoid the misuse of
such measures for protectionist ends are fulfilled.
The WTO contributes to the protection and preservation of the environment through its
objective of ensuring sustainable development and avoiding protectionism, through its rules
and enforcement mechanism, and through work in different WTO bodies.

Allowing trade restrictions for environmental reasons ... only under certain specific
conditions
The WTO is not an environment agency. The main objective of the WTO is to foster
international trade and open markets but WTO rules permit members to take trade restricting
measures to protect their environment under specific conditions. Two fundamental principles
govern international trade: national treatment and the most favoured nation (MFN). National
treatment means any policy measure taken by a member should apply in the same way
whether the good is imported and produced domestically. Provided they are similar products
imports should not be treated less favourably than domestic goods. The MFN principle means
that any trade measure taken by a member should be applied in a non-discriminatory manner
across to all countries. What are similar products? WTO case law refined the term 'similar'
using four criteria: the products' physical properties - the products' end-use should be similar
- consumers tastes and habits - the products' tariff classification. The WTO rule book permits
governments to restrict trade when the objective is protecting the environment. The legality
of such restrictive measures depends on a number of conditions including whether they
constitute justifiable discrimination. These measures should not constitute disguised
protectionism. In the preamble of the Marrakech Agreement, which established the WTO,
sustainable development, the protection and preservation of the environment are recognised
as fundamental goals of the WTO. Article XX of the GATT (General Agreement on Trade
and Tariffs) lists exceptions to open trade, among them the protection of the environment.
WTO jurisprudence has regularly reaffirmed members' right to determine their own
environmental objectives. While there may be conflicts between international trade and the
protection of the environment, WTO agreements permit exceptions to trade principles.
Every member is free to determine its appropriate level of protection but must do so in a
coherent manner. If a country bans the importation of asbestos from another, for example, it
must ban asbestos imports from all countries, as well as banning domestic sales. Countries
may also use technical environmental standards or sanitary and phytosanitary measures when

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pursuing their environmental objectives. They may, for instance, impose labelling
requirements on a certain category of products.

What are the trade implications of climate change?

There are no rules in the WTO specific to climate change. However, the WTO “tool box” of
rules (see section above) can apply. The WTO provides a legal framework ensuring
predictability, transparency and the fair implementation of such measures. Climate change
has an impact on various sectors of the economy. Agriculture, forestry, fisheries and tourism
are affected by climate change through temperature increases, droughts, water scarcity,
coastal degradation, and changes in snow cover. These are key sectors in international trade
especially for developing countries which have a comparative advantage on the international
trading scene. Extreme weather can also affect ports, roads, airports and railways. Climate
change can disturb supply and distribution chains, potentially raising the cost of international
trade. Trade itself can also have an impact, positive or negative, on CO2 emissions.
Economic development linked to trade opening could imply a greater use of energy leading to
higher levels of CO2 emissions. However, trade opening has much to contribute to the fight
against climate change by improving production methods, making environmentally friendly
products more accessible at lower costs, allowing for a more efficient allocation of resources,
raising standards of living leading populations to demand a cleaner environment and by
spreading environmentally friendly technologies. In addition, about 90% of trade is carried
out through maritime transport, which is the lowest contributor to CO2 emissions. It
represents less than 12% of the transport sector's contribution to CO2 emissions, while road
transport represents about 73%. Trade can help countries to adapt to climate change. When
countries are faced with food shortages brought about by climate change, trade can play the
role of a transmission belt between supply and demand. In the last decade, countries have
designed new policies to address climate change. They range from standards to subsidies,
from tradable permits to taxes. In doing so, governments have to find the right balance
between designing a policy that would impose minimal costs for the economy while
effectively addressing climate change. The industrial sector's growing concern is to remain
competitive while climate mitigation efforts proceed

What happens after the Doha round? Greater market openings for environmental
goods and services and enhanced coherence between trade and environment

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As part of the Doha mandate, the WTO members agreed to negotiate greater market opening
in environmental goods and services, the relationship between WTO rules and trade
obligations set out in multilateral environmental agreements (MEAs) and on the exchange of
information between those institutions. Agreement in these areas would undoubtedly help
address climate change.
(Elaborate these four points)
• A more open market for environmental goods and services
• More coherence between trade and environment rules
• Better cooperation between WTO and MEAs
• Fisheries subsidies

A WTO dispute: The ‘shrimp-turtle’ case

This was a case brought by India, Malaysia, Pakistan and Thailand against the US. The
appellate and panel reports were adopted on 6 November 1998. The official title is “United
States — Import Prohibition of Certain Shrimp and Shrimp Products”, the official WTO case
numbers are 58 and 61.

What was it all about?

Seven species of sea turtles have been identified. They are distributed around the world in
subtropical and tropical areas. They spend their lives at sea, where they migrate between their
foraging and nesting grounds.

Sea turtles have been adversely affected by human activity, either directly (their meat, shells
and eggs have been exploited), or indirectly (incidental capture in fisheries, destroyed
habitats, polluted oceans).

In early 1997, India, Malaysia, Pakistan and Thailand brought a joint complaint against a ban
imposed by the US on the importation of certain shrimp and shrimp products. The protection
of sea turtles was at the heart of the ban.

The US Endangered Species Act of 1973 listed as endangered or threatened the five species
of sea turtles that occur in US waters, and prohibited their “take” within the US, in its

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territorial sea and the high seas. (“Take” means harassment, hunting, capture, killing or
attempting to do any of these.)

Under the act, the US required US shrimp trawlers to use “turtle excluder devices” (TEDs) in
their nets when fishing in areas where there is a significant likelihood of encountering sea
turtles.

Section 609 of US Public Law 101-102, enacted in 1989, dealt with imports. It said, among
other things, that shrimp harvested with technology that may adversely affect certain sea
turtles may not be imported into the US — unless the harvesting nation was certified to have
a regulatory programme and an incidental take-rate comparable to that of the US, or that the
particular fishing environment of the harvesting nation did not pose a threat to sea turtles.

In practice, countries that had any of the five species of sea turtles within their jurisdiction,
and harvested shrimp with mechanical means, had to impose on their fishermen requirements
comparable to those borne by US shrimpers if they wanted to be certified to export shrimp
products to the US. Essentially this meant the use of TEDs at all times.

The ruling

In its report, the Appellate Body made clear that under WTO rules, countries have the right to
take trade action to protect the environment (in particular, human, animal or plant life and
health) and endangered species and exhaustible resources). The WTO does not have to
“allow” them this right.

It also said measures to protect sea turtles would be legitimate under GATT Article 20 which
deals with various exceptions to the WTO’s trade rules, provided certain criteria such as non-
discrimination were met.

The US lost the case, not because it sought to protect the environment but because it
discriminated between WTO members. It provided countries in the western hemisphere —
mainly in the Caribbean — technical and financial assistance and longer transition periods for
their fishermen to start using turtle-excluder devices.

It did not give the same advantages, however, to the four Asian countries (India, Malaysia,
Pakistan and Thailand) that filed the complaint with the WTO.

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The ruling also said WTO panels may accept “amicus briefs” (friends-of-the-court
submissions) from NGOs or other interested parties.

‘What we have not decided ...’

This is part of what the Appellate Body said:

“185. In reaching these conclusions, we wish to underscore what we have not decided in this
appeal. We have not decided that the protection and preservation of the environment is of no
significance to the Members of the WTO. Clearly, it is. We have not decided that the
sovereign nations that are Members of the WTO cannot adopt effective measures to protect
endangered species, such as sea turtles. Clearly, they can and should. And we have not
decided that sovereign states should not act together bilaterally, plurilaterally or
multilaterally, either within the WTO or in other international fora, to protect endangered
species or to otherwise protect the environment. Clearly, they should and do.

“186. What we have decided in this appeal is simply this: although the measure of the United
States in dispute in this appeal serves an environmental objective that is recognized as
legitimate under paragraph (g) of Article XX [i.e. 20] of the GATT 1994, this measure has
been applied by the United States in a manner which constitutes arbitrary and unjustifiable
discrimination between Members of the WTO, contrary to the requirements of the chapeau of
Article XX. For all of the specific reasons outlined in this Report, this measure does not
qualify for the exemption that Article XX of the GATT 1994 affords to measures which serve
certain recognized, legitimate environmental purposes but which, at the same time, are not
applied in a manner that constitutes a means of arbitrary or unjustifiable discrimination
between countries where the same conditions prevail or a disguised restriction on
international trade. As we emphasized in United States — Gasoline [adopted 20 May 1996,
WT/DS2/AB/R, p. 30], WTO Members are free to adopt their own policies aimed at
protecting the environment as long as, in so doing, they fulfill their obligations and respect
the rights of other Members under the WTO Agreement.

A GATT dispute: The tuna-dolphin dispute

This case still attracts a lot of attention because of its implications for environmental disputes.
It was handled under the old GATT dispute settlement procedure. Key questions are:

can one country tell another what its environmental regulations should be? and

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 do trade rules permit action to be taken against the method used to produce goods (rather
than the quality of the goods themselves)?

What was it all about?

In eastern tropical areas of the Pacific Ocean, schools of yellowfin tuna often swim beneath
schools of dolphins. When tuna is harvested with purse seine nets, dolphins are trapped in the
nets. They often die unless they are released.

The US Marine Mammal Protection Act sets dolphin protection standards for the domestic
American fishing fleet and for countries whose fishing boats catch yellowfin tuna in that part
of the Pacific Ocean. If a country exporting tuna to the United States cannot prove to US
authorities that it meets the dolphin protection standards set out in US law, the US
government must embargo all imports of the fish from that country. In this dispute, Mexico
was the exporting country concerned. Its exports of tuna to the US were banned. Mexico
complained in 1991 under the GATT dispute settlement procedure.

The embargo also applies to “intermediary” countries handling the tuna en route from
Mexico to the United States. Often the tuna is processed and canned in an one of these
countries. In this dispute, the “intermediary” countries facing the embargo were Costa Rica,
Italy, Japan and Spain, and earlier France, the Netherlands Antilles, and the United Kingdom.
Others, including Canada, Colombia, the Republic of Korea, and members of the Association
of Southeast Asian Nations (ASEAN), were also named as “intermediaries”.

The panel

Mexico asked for a panel in February 1991. A number of “intermediary” countries also
expressed an interest. The panel reported to GATT members in September 1991. It
concluded:

that the US could not embargo imports of tuna products from Mexico simply because
Mexican regulations on the way tuna was produced did not satisfy US regulations. (But the
US could apply its regulations on the quality or content of the tuna imported.) This has
become known as a “product” versus “process” issue.

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 that GATT rules did not allow one country to take trade action for the purpose of
attempting to enforce its own domestic laws in another country — even to protect animal
health or exhaustible natural resources. The term used here is “extra-territoriality”.

What was the reasoning behind this ruling? If the US arguments were accepted, then any
country could ban imports of a product from another country merely because the exporting
country has different environmental, health and social policies from its own. This would
create a virtually open-ended route for any country to apply trade restrictions unilaterally —
and to do so not just to enforce its own laws domestically, but to impose its own standards on
other countries. The door would be opened to a possible flood of protectionist abuses. This
would conflict with the main purpose of the multilateral trading system — to achieve
predictability through trade rules.

The panel’s task was restricted to examining how GATT rules applied to the issue. It was not
asked whether the policy was environmentally correct or not. It suggested that the US policy
could be made compatible with GATT rules if members agreed on amendments or reached a
decision to waive the rules specially for this issue. That way, the members could negotiate the
specific issues, and could set limits that would prevent protectionist abuse.

The panel was also asked to judge the US policy of requiring tuna products to be labelled
“dolphin-safe” (leaving to consumers the choice of whether or not to buy the product). It
concluded that this did not violate GATT rules because it was designed to prevent deceptive
advertising practices on all tuna products, whether imported or domestically produced.

Eco-labelling: good, if it doesn’t discriminate

Labelling environmentally-friendly products is an important environmental policy

instrument. For the WTO, the key point is that labelling requirements and practices should
not discriminate — either between trading partners (most-favoured nation treatment should
apply), or between domestically-produced goods or services and imports (national treatment).

Transparency: information without too much paperwork

Like non-discrimination, this is an important WTO principle. Here, WTO members should
provide as much information as possible about the environmental policies they have adopted
or actions they may take, when these can have a significant impact on trade.

Domestically prohibited goods: dangerous chemicals, etc

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This is a concern of a number of developing countries, which are worried that certain
hazardous or toxic products are being exported to their markets without them being fully
informed about the environmental or public health dangers the products may pose.
Developing countries want to be fully informed so as to be in a position to decide whether or
not to import them.

Liberalization and sustainable development: good for each other

Does freer trade help or hinder environmental protection? The Trade and Environment
Committee is analysing the relationship between trade liberalization (including the Uruguay
Round commitments) and the protection of the environment. Members say the removal of
trade restrictions and distortions can yield benefits both for the multilateral trading system
and the environment. Further work is scheduled.

Intellectual property, services: some scope for study

Discussions in the Trade and Environment Committee on these two issues have broken new
ground since there was very little understanding of how the rules of the trading system might
affect or be affected by environmental policies in these areas.

On services, the committee says further work is needed to examine the relationship between
the General Agreement on Trade in Services (GATS) and environmental protection policies
in the sector.

The committee says that the Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS) helps countries obtain environmentally-sound technology and products. More
work is scheduled on this, including on the relationship between the TRIPS Agreement and
the Convention of Biological Diversity.

The Committee on Trade and Environment (CTE)

The work programme of the Committee on Trade and Environment (CTE) covers the main
issues at the intersection of trade and environment. A number of issues indirectly relating to
climate change, such as the environmental benefits of removing trade restrictions in the
energy and forestry sectors and the effect of energy efficiency labelling on market access,
have been discussed in the CTE. The Committee serves as an incubator for ideas to advance

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the trade and environment agenda and is the main gateway should members decide to explore
further the linkages between climate change and trade.

WTO Agreement on Agriculture

The WTO Agriculture Agreement provides a framework for the long-term reform of
agricultural trade and domestic policies, with the aim of leading to fairer competition and a
less distorted sector.
The Agreement covers:

• Market access — the use of trade restrictions, such as tariffs on imports

• Domestic support — the use of subsidies and other support programmes that directly
stimulate production and distort trade
• Export competition — the use of export subsidies and other government support
programmes that subsidize exports.
Under the Agreement, WTO members agree to “schedules” or lists of commitments that set
limits on the tariffs they can apply to individual products and on levels of domestic support
and export subsidies.

The Agriculture Committee

The Committee on Agriculture oversees implementation of the Agriculture Agreement and

monitors how WTO members are complying with their commitments. Members are required
to share information and may ask each other questions or raise concerns about each other's
agricultural policies.ntroduction to the Agreement on Agriculture

The Agreement on Agriculture, (the “Agreement”), came into force on 1 January 1995. The
preamble to the Agreement recognizes that the agreed long-term objective of the reform
process initiated by the Uruguay Round reform programme is to establish a fair and market-
oriented agricultural trading system. The reform programme comprises specific commitments
to reduce support and protection in the areas of domestic support, export subsidies and
market access, and through the establishment of strengthened and more operationally
effective GATT rules and disciplines. The Agreement also takes into account non-trade
concerns, including food security and the need to protect the environment, and provides
special and differential treatment for developing countries, including an improvement in the

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opportunities and terms of access for agricultural products of particular export interest to
these Members.

OR

Agreement on Agriculture

The Agreement on Agriculture (AoA) is a WTO treaty that was negotiated during the
Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and formally
ratified in 1994 at Marrakesh, Morocco. The AoA came into effect in 1995.

• According to its provisions, developing countries were to complete their reduction

commitments by 2000 and developing countries by 2004.

• The Least Developed Countries were not required to make any reductions.

• The Agreement covers products that are normally considered part of agriculture but
excludes forestry and fishery products and also rubber, sisal, jute, coir and abaca.

• The focus of the AoA is the elimination of what are called “trade distorting”
agricultural subsidies.

• According to the WTO, the overall aim of the Agreement is “to establish a fairer
trading system that will increase market access and improve the livelihoods of
farmers around the world.”

Relationship with other WTO Agreements

In principle, all WTO agreements and understandings on trade in goods apply to agriculture,
including the GATT 1994 and WTO agreements on such matters as customs valuation,
import licensing procedures, pre-shipment inspection, emergency safeguard measures,
subsidies and technical barriers to trade. However, where there is any conflict between these
agreements and the Agreement on Agriculture, the provisions of the Agreement on
Agriculture prevail. The WTO Agreements on Trade in Services and on Trade-Related
Aspects of Intellectual Property rights are also applicable to agriculture.

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- Recently, while addressing the G-33 Virtual Informal Ministerial Meeting, India’s
Commerce and Industry Minister pointed out the imbalances in the Agreement on
Agriculture at the World Trade Organization (WTO).

- G-33It is a forum of developing countries formed during the Cancun ministerial

conference of the WTO, to protect the interest of the developing countries in agricultural
trade negotiations.

◦ India is a part of the G33, which is a group of 47 developing and least

developed countries.

◦ It was created in order to help group countries which were all facing similar
problems. The G33 has proposed special rules for developing countries at
WTO negotiations, like allowing them to continue to restrict access to their
agricultural markets.

▪ Three pillars of Agreement on Agriculture:

◦ Domestic Support: It calls for reduction in domestic subsidies that distorts

free trade and fair price.

• Under this provision, the Aggregate Measurement of Support (AMS) is

to be reduced by 20% over a period of 6 years by developed countries
and 13% over a period of 10 years by developing countries.

• Under this, Subsidies are categorized into:

Green Box, Amber Box and Blue Box

◦ Market Access: Market access for goods in the WTO means the conditions, tariff and
non-tariff measures, agreed by members for the entry of specific goods into their
markets.

• Market access requires that tariffs fixed (like custom duties) by individual
countries be cut progressively to allow free trade. It also required countries to
remove non-tariff barriers and convert them to Tariff duties.

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 ◦ Export Subsidy: Subsidy on inputs of agriculture, making export cheaper or other
incentives for exports such as import duty remission etc are included under export
subsidies.

• These can result in dumping of highly subsidized (and cheap) products in

other countries and damage the domestic agriculture sector of other countries.

What is the main purpose of the GATS?

The creation of the GATS was one of the landmark achievements of the Uruguay Round,
whose results entered into force in January 1995. The GATS was inspired by essentially the
same objectives as its counterpart in merchandise trade, the General Agreement on Tariffs
and Trade (GATT): creating a credible and reliable system of international trade rules;
ensuring fair and equitable treatment of all participants (principle of non-discrimination);
stimulating economic activity through guaranteed policy bindings; and promoting trade and
development through progressive liberalization.

While services currently account for over two-thirds of global production and employment,
they represent no more than 25 per cent of total trade, when measured on a balance-of-
payments basis. This — seemingly modest — share should not be underestimated, however.
Indeed, balance-of-payments statistics do not capture one of the modes of service supply
defined in the GATS, which is the supply through commercial presence in another country
(mode 3). Furthermore, even though services are increasingly traded in their own right, they
also serve as crucial inputs into the production of goods and, consequently, when assessed in
value-added terms, services account for about 50 per cent of world trade.

Who participates?

All WTO members are at the same time members of the GATS and, to varying degrees, have
assumed commitments in individual service sectors.

What services are covered?

The GATS applies in principle to all service sectors, with two exceptions.

Article I (3) of the GATS excludes “services supplied in the exercise of governmental
authority”. These are services that are supplied neither on a commercial basis nor in

18
competition with other suppliers. Cases in point are social security schemes and any other
public service, such as health or education, that is provided at non-market conditions.

Furthermore, the Annex on Air Transport Services exempts from coverage measures
affecting air traffic rights and services directly related to the exercise of such rights.

Is it true that the GATS not only applies to cross-border flows of services, but
additional modes of supply? / Modes of Supply

The GATS distinguishes between four modes of supplying services: cross-border trade,
consumption abroad, commercial presence, and presence of natural persons.

• Cross-border supply is defined to cover services flows from the territory of one member
into the territory of another member (e.g. banking or architectural services transmitted via
telecommunications or mail);

• Consumption abroad refers to situations where a service consumer (e.g. tourist or patient)
moves into another member's territory to obtain a service;

• Commercial presence implies that a service supplier of one member establishes a territorial
presence, including through ownership or lease of premises, in another member's territory
to provide a service (e.g. domestic subsidiaries of foreign insurance companies or hotel
chains); and

• Presence of natural persons consists of persons of one member entering the territory of
another member to supply a service (e.g. accountants, doctors or teachers). The Annex on
Movement of Natural Persons specifies, however, that members remain free to operate
measures regarding citizenship, residence or access to the employment market on a
permanent basis.

How are services traded?

The GATS defines trade in services in terms of modes of supply: • Mode 1 covers services
supplied from one country to another (for example, call centre services).

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• Mode 2 covers consumers or firms making use of a service in another country (for
example, through international tourism).

• Mode 3 covers a foreign company setting up subsidiaries or branches to provide services

in another country (such as a bank setting up a branch overseas).

• Mode 4 covers individuals travelling from their own country to supply services in another
(for example, a consultant travelling abroad to provide an IT service).

What are the basic obligations under the GATS?

Obligations contained in the GATS may be categorized into two broad groups: general
obligations that apply to all members and services sectors, as well as obligations that apply
only to the sectors inscribed in a member's schedule of commitments. Such commitments are
laid down in individual schedules whose scope may vary widely between members. The
relevant terms and concepts are similar, but not necessarily identical to those used in the
GATT; for example, national treatment is a general obligation in goods trade and not
negotiable as under the GATS.

(a) General obligations

MFN treatment: Under Article II of the GATS, members are held to extend immediately and
unconditionally to services or services suppliers of all other members “treatment no less
favourable than that accorded to like services and services suppliers of any other country”.
This amounts to a prohibition, in principle, of preferential arrangements among groups of
members in individual sectors or of reciprocity provisions which confine access benefits to
trading partners granting similar treatment.

Derogations are possible in the form of so-called Article II-exemptions. Members were
allowed to seek such exemptions before the Agreement entered into force. New exemptions
can only be granted to new members at the time of accession or, in the case of current
members, by way of a waiver under Article IX:3 of the WTO Agreement. All exemptions are
subject to review; they should in principle not last longer than 10 years. Furthermore, the
GATS allows groups of members to enter into economic integration agreements or to
mutually recognize regulatory standards, certificates and the like if certain conditions are met.

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Transparency(Article 3): GATS members are required, among other things, to publish all
measures of general application and establish national enquiry points mandated to respond to
other members' information requests.

Other generally applicable obligations include the establishment of administrative review and
appeals procedures and disciplines on the operation of monopolies and exclusive suppliers.

(b) Specific commitments

Market access: Market access is a negotiated commitment in specified sectors. It may be

made subject to various types of limitations that are enumerated in Article XVI(2). For
example, limitations may be imposed on the number of services suppliers, service operations
or employees in the sector; the value of transactions; the legal form of the service supplier; or
the participation of foreign capital.

National treatment: A commitment to national treatment implies that the member concerned
does not operate discriminatory measures benefiting domestic services or service suppliers.
The key requirement is not to modify, in law or in fact, the conditions of competition in
favour of the member's own service industry. Again, the extension of national treatment in
any particular sector may be made subject to conditions and qualifications.

Members are free to tailor the sector coverage and substantive content of such commitments
as they see fit. The commitments thus tend to reflect national policy objectives and
constraints, overall and in individual sectors. While some members have scheduled less than
a handful of services, others have assumed market access and national treatment disciplines
in over 120 out of a total of 160-odd services.

The existence of specific commitments triggers further obligations concerning, among other
things, the notification of new measures that have a significant impact on trade and the
avoidance of restrictions on international payments and transfers.

Can specific commitments be withdrawn or modified?

Pursuant to Article XXI, specific commitments may be modified subject to certain

procedures. Countries which may be affected by such modifications can request the
modifying member to negotiate compensatory adjustments; these are to be granted on an
MFN basis.

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Are there any specific exemptions in the GATS to cater for important national policy
interests?

The GATS permits members in specified circumstances to introduce or maintain measures in

contravention of their obligations under the Agreement, including the MFN requirement or
specific commitments. The relevant article provides cover, among other things, for measures
necessary to:

• protect public morals or maintain public order;

• protect human, animal or plant life or health; or
• secure compliance with laws or regulations not inconsistent with the
Agreement including, among other things, measures necessary to prevent deceptive or
fraudulent practices.
Moreover, the Annex on Financial Services entitles members, regardless of other provisions
of the GATS, to take measures for prudential reasons, including for the protection of
investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a
financial service supplier, or to ensure the integrity and stability of the financial system.

Finally, in the event of serious balance-of-payments difficulties members are allowed to

temporarily restrict trade, on a non-discriminatory basis, despite the existence of specific
commitments.

Are there special provisions for developing countries?

Developing country interests have inspired both the general structure of the Agreement as
well as individual articles. In particular, the objective of facilitating the increasing
participation of developing countries in services trade has been enshrined in the Preamble to
the Agreement and underlies the provisions of Article IV. This Article requires members,
among other things, to negotiate specific commitments relating to the strengthening of
developing countries' domestic services capacity; the improvement of developing countries'
access to distribution channels and information networks; and the liberalization of market
access in areas of export interest to these countries.

India and the GATS

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In the years following the post-reform period, India's approach to trade in services underwent
a crucial paradigm shift. From its role as the spokesperson of developing countries opposing
liberalization of services in the Uruguay Round, it has become one of the major players in
today's trade in services. After all, the sector has turned into the main engine of India's
development, placing it among the fastest growing economies in the world.Taking into
account India's export structure and great potential of services sector, its reluctance to engage
in TiSA designing process remains questionable. In light of the current stalemate at the WTO,
India has no other option but to overcome it s aver s ion to plurilateral arrangements. It
should join TiSA with a pragmatic approach to pursue its key interests in the sector. Rather
than placing itself in the position of a rule-taker, it should make sure to sit at the rule-making
table and design future framework of the international trade in services. The negotiated
agreement offers an important platform to engage in trade-off discussions with India's major
trade partners. Given its attractiveness to foreign investors, India has a significant leverage to
exercise in services negotiations. However, rushing into farreaching commitments without
first ensuring a level playing field for domestic suppliers may bring adverse effects on the
livelihood of millionsof people employed in a specific sector. Consequently, a comprehensive
strategy for services encompassing both key domestic reforms as well as progressive
internationalopening up of the economy is a key to advancing modernization of the sector,
allowing India to move up the global value chain and enhance its share in international trade.

TRIPS— Trade-Related Aspects of Intellectual Property Rights

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is

the most comprehensive multilateral agreement on intellectual property (IP). It plays a central
role in facilitating trade in knowledge and creativity, in resolving trade disputes over IP, and
in assuring WTO members the latitude to achieve their domestic policy objectives. It frames
the IP system in terms of innovation, technology transfer and public welfare. The Agreement
is a legal recognition of the significance of links between IP and trade and the need for a
balanced IP system.

TRIPS Council

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The TRIPS Council is responsible for administering and monitoring the operation of the
TRIPS Agreement. In its regular meetings, the TRIPS Council serves as a forum for
discussion between members on key issues.

In its special sessions, the TRIPS Council serves as a forum for negotiations on a multilateral
system of notification and registration of geographical indications (GIs) for wines and spirits.

• Monitoring: Members review each other’s laws

• Consultations: On any Trips Issue

• Technical Cooperation: A work program

• Reviews and Negotiations on specific subjects

• Review of Trips Agreement

What are “intellectual property rights”?

Intellectual property rights can be defined as the rights given to people over the creations of
their minds. They usually give the creator an exclusive right over the use of his/her creations
for a certain period of time.

Intellectual property rights are traditionally divided into two main categories:

• Copyright and rights related to copyright: i.e. rights granted to authors of literary and
artistic works, and the rights of performers, producers of phonograms and
broadcasting organizations. The main purpose of protection of copyright and related
rights is to encourage and reward creative work.
• Industrial property: This includes (1) the protection of distinctive signs such
as trademarks and geographical indications, and (2) industrial property protected
primarily to stimulate innovation, design and the creation of technology. In this
category fall inventions (protected by patents), industrial designs and trade secrets.
For the purposes of the TRIPS Agreement, “intellectual property” refers to:

all categories of intellectual property that are the subject of Sections 1 through 7 of Part II of
the agreement (Article 1:2). This includes copyright and related

24
rights, trademarks, geographical indications, industrial designs, patents, integrated circuit
layout-designs and protection of undisclosed information.

Were intellectual property rights covered under the old GATT (GATT 1947) before the
TRIPS Agreement came into being?

Before the 1986–94 Uruguay Round negotiations, there was no specific agreement on
intellectual property rights in the framework of the GATT multilateral trading system.

However, some principles contained in the GATT had a bearing on intellectual property
measures taken on imports or exports.

Article XX(d) of GATT 1947 (now Article XX(d) of GATT 1994) specifically referred to
intellectual property rights. Under this provision, measures which would otherwise be
inconsistent with the General Agreement could be taken (subject to certain conditions) to
secure compliance with laws or regulations relating, among other things, to intellectual
property rights.

Does the TRIPS Agreement apply to all WTO members?

All the WTO agreements (except for a couple of “plurilateral” agreements) apply to all WTO
members. The members each accepted all the agreements as a single package with a single
signature — making it, in the jargon, a “single undertaking”.

The TRIPS Agreement is part of that package. Therefore it applies to all WTO members.
(More on the single undertaking.)

But the agreement allows countries different periods of time to delay applying its provisions.
These delays define the transition from before the agreement came into force (before 1
January 1995) until it is applied in member countries. The main transition periods are:

• Developed countries were granted a transition period of one year following the
entry into force of the WTO Agreement, i.e. until 1 January 1996.
• Developing countries were allowed a further period of four years (i.e. to
1 January 2000) to apply the provisions of the agreement other than Articles 3, 4 and
5 which deal with general principles such as non-discrimination.

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 • Transition economies, i.e. members in the process of transformation from
centrally-planned into market economies, could also benefit from the same delay (also
until 1 January 2000) if they met certain additional conditions.
• Least-developed countries were granted a longer transition period of a total of
eleven years (until 1 January 2006), with the possibility of an extension. The
transition period has been extended three times, and now runs until 1 July 2034, or
until a member ceases to be an LDC, whichever comes first.

Does the agreement allow compulsory licensing of patents?

Article 31 allows compulsory licensing and government use of a patent without the
authorization of its owner.

But this can only be done under a number of conditions aimed at protecting the legitimate
interests of the right holder. For example: (unless there is an emergency) the person or
company applying for a licence must have first attempted, unsuccessfully, to obtain a
voluntary licence from the right holder on reasonable commercial terms, and adequate
remuneration must be paid to the right holder.

The authorization granted under compulsory licensing must also meet certain requirements.
In particular, it cannot be exclusive, and it must as a general rule be granted predominantly to
supply the domestic market.

Does the agreement require members to provide patent protection to plant varieties?

Article 27.3(b) allows members to exclude some types of plant and animal inventions from
patenting in their countries.

More specifically, it allows them to exclude from patentability “plants and animals other than
micro-organisms, and essentially biological processes for the production of plants or animals
other than non-biological and microbiological processes”.

However, the agreement says members must provide for the protection of plant varieties,
either by patents or by an effective sui generis system (i.e. a system created specially for this
purpose) or by any combination of the two.

These agreement calls for a review of the provisions of Article 27.3(b) four years after the
agreement entered into force (i.e. in 1999). This review is underway in the TRIPS Council

26
Substantive standards of protection:

Copyright-Article 9.2 confirms that copyright protection shall extend to expressions and not
to ideas, procedures, methods of operation or mathematical concepts as such.

Trademarks- Article 15

Geographical Indications- Article 22.1, 24

Industrial Design- Article 25.1

Patents- Article 27.1The TRIPS Agreement requires Member countries to make patents
available for any inventions, whether products or processes, in all fields of technology
without discrimination, subject to the normal tests of novelty, inventiveness and industrial
applicability.

Layout- design of Integrated circuits- Article 35 of the TRIPS Agreement requires Member
countries to protect the layout-designs of integrated circuits in accordance with the provisions
of the IPIC Treaty (the Treaty on Intellectual Property in Respect of Integrated Circuits),
negotiated under the auspices of WIPO in 1989.

Protection of undisclosed information- Article 39.2 the protection must apply to

information that is secret, that has commercial value because it is secret and that has been
subject to reasonable steps to keep it secret.

Control of anti-competitive practices in contractual licenses- Article 40

• Compulsory licensing, a provision in the Agreement on Trade Related Aspects of

Intellectual Property Rights (“TRIPS Agreement”), enables governments to supply its
citizens with generic versions of patented treatments either through domestic production
or foreign imports. Compulsory licensing was used as a successful policy tool for
improving access to antiretroviral drugs in the face of the AIDS epidemic. While there is
no approved treatment for COVID-19 at present, national governments are legally
entitled to issue compulsory licenses and should not shy away from this policy option
when a treatment is available.

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• What are Compulsory Licenses under the Patents Act?

Compulsory licenses are authorizations given to a third-party by the Controller General to

make, use or sell a particular product or use a particular process which has been patented,
without the need of the permission of the patent owner. This concept is recognised at both
national as well as international levels, with express mention in both (Indian) Patent Act,
1970 and TRIPS Agreement. There are certain pre-requisite conditions, given under sections
84-92, which need to be fulfilled if a compulsory license is to be granted in favour of
someone.

As per Section 84, any person, regardless of whether he is the holder of the license of that
Patent, can make a request to the Controller for grant of compulsory license on expiry of
three years, when any of the following conditions is fulfilled –

1. the reasonable requirements of the public with respect to the patented invention have
not been satisfied
2. the patented invention is not available to the public at a reasonably affordable price
3. the patented invention is not worked in the territory of India.

TRIPS and public health

The WTO Doha Declaration on the TRIPS Agreement and Public Health, agreed by WTO
members in 2001, helped to frame the health policy context of the intellectual property
system. It stressed the need for the WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPS Agreement) to be part of the wider national and international action
to address public health problems afflicting developing countries and least-developed
countries. The Declaration identified specific options open for governments to address public
health needs, also termed ‘flexibilities’, and the importance of such flexibilities was
highlighted more recently by their inclusion in the Sustainable Development Goals.

TRIPS and India’s Intellectual Property Rights Regime

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The TRIPs (Trade Related Intellectual Property) regime has emerged as the basic framework
for ensuring intellectual property rights across the world. It is not the universal Intellectual
property law. But it provides a basic framework. Every member of WTO should include
TRIPs provisions in their domestic intellectual property legislations.

Intellectual property regime is anchored by legislations in the corresponding fields. With the
establishment of WTO and the international enforcement of its various provisions; India also
has made corresponding changes in the intellectual property regime.

The intellectual property right regime of the country has been modified by a number of
legislation since 1995. For India, the WTO’s TRIPs agreement became binding from 2005
onwards as the country has got a ten-year transition period (1995-2005) to make the domestic
legislation compatible with TRIPs. Here, India has got additional five-year transition period
because of not having product patent regime in critical sector like pharmaceutical. Hence,
existing laws were amended and fresh legislations were introduced during this period.

TRIMS- Agreement on Trade Related Investment Measures

The Agreement on Trade-Related Investment Measures (TRIMS) recognizes that certain

investment measures can restrict and distort trade. It states that WTO members may not
apply any measure that discriminates against foreign products or that leads to quantitative
restrictions, both of which violate basic WTO principles. A list of prohibited TRIMS, such as
local content requirements, is part of the Agreement. The TRIMS Committee monitors the
operation and implementation of the Agreement and allows members the opportunity to
consult on any relevant matters.

Objectives of Trade-Related Investment Measures

TRIMs believe that there is a strong connection between trade and investment. The goal
of trade-related investments measures is to give fair treatment to all investing members across
the world.

As the TRIMs deal says, members have to inform the World Trade Organization (WTO)
council to buy and sell various services and goods of their current TRIMs that are
incompatible with the agreement.

Main Features of TRIMs

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 • It only applies to investment measures related to goods trade.

• This doesn’t apply to service trade.

• It doesn’t regulate the entry of foreign industry or investment.

• It is about the discriminatory treatment of imported/exported products.

• Concern measures were applied to both foreign domestic firms.

• A transition period of 2 years in the case of developed countries, 5 years in the case of
developing countries and 7 years in the case of LDCs, from the date this agreement
came into effect, which is 1st January 1995.

The main obligation contained in this agreement is that members shall not apply any trade-
related investment major that is inconsistent with Article III (national treatment) or Article XI
(general elimination of quantitative restrictions) of the GATT.

General exceptions

• Article 3 of the TRIMs Agreement provides that all exceptions under GATT 1994 shall
apply, as appropriate, to the provisions of the TRIMs Agreement.

• Developing countries

Article 4 allows developing countries to deviate temporarily from the obligations of the
TRIMs Agreement, as provided for in Article XVIII of GATT 1994 and related WTO
provisions on safeguard measures for balance-of-payments difficulties.

• Transparency

Provisions designed to ensure transparency with respect to the application of TRIMs are
contained in Article 6 of the TRIMs Agreement. This Article provides in particular for the
notification to the WTO Secretariat of lists of publications in which TRIMs may be found.

• Dispute Settlement

The general WTO dispute settlement procedure, as laid down in the Dispute Settlement
Understanding, applies to disputes arising under the TRIMs Agreement (Article 8). Issues
relating to the alleged inconsistency of particular measures with the TRIMs Agreement have
been raised in 34 requests for consultations under the DSU.

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• Article 9 stipulates that, not later than five years after the date of entry into force of the
Agreement, the Council for Trade in Goods shall review the operation of the TRIMs
Agreement. In this review, consideration is to be given as to whether the Agreement
should be supplemented with provisions on investment policy and competition policy.

The TRIMs agreement has directly restricted the following-

• Local Content Requirement-Local content requirement is the measure that if a

developed country wants to trade their products in a developing country. Then the
developing country wishes to agree on that deal if and only if it uses one of the domestic
items on their product. It means that the growth of domestic products will increase.

For example, suppose a mobile brand wants to sell its products in India. However, India
agrees if only the brand uses the battery made in India. If that mobile brand agrees to this
agreement, the value of ‘made in India’ batteries will increase gradually, which is India’s
benefit.

• Trade Balancing Requirements- Trade balancing measures require that an enterprise’s

purchase of imported products is equivalent to the quantity or worth of exported products.
In simple words, someone from India has a business of desi ghee, and they export it in
foreign.

However, they want to expand their business and import foreign cheese. Then, Indian
government gave them the condition that they could import the same amount of foreign
cheese as the amount of desi ghee they export. Basically, balancing the import and export
amount of product or trade is called Trade Balancing.

• Foreign Exchange Restrictions

These include measures restricting importation by limiting access to foreign exchange.

• Domestic Sales Requirements

By using domestic sales requirements, many nations restrict the export of domestic products
and distort trade. Because of this, the value of those products gradually decreases. As a result,
the production of those products is highly available in the market.

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Developing countries are permitted to retain Trade-Related Investment Measures by virtue of
the economic development needs of developing countries. In TRIMs, some restrictions are
overlooked for the developing countries’ economic needs

INTERNATIONAL TRADE LAW

UNIT 3:- TRANSNATIONAL TRANSACTIONS

AND RESOLUTION
 Transnational Commercial Laws

Transnational Commercial Law is born out of conventions, treaties, domestic legislations and
commercial customs or usages. This body of law governs international commercial
transactions and it is applied to a number of legal systems. Transnational Commercial Law
has to be distinguished from International Economic Law since the former focuses on private
law in transactions, especially cross-border transactions, whereas the latter concerns with
dealings between states.

Transnational commercial law consists of that set of rules, from whatever source, which
governs international commercial transactions and is common to a number of legal systems.
Such commonality is derived from international instruments of various kinds, such as
conventions and model laws, and from codification of international trade usage adopted by
contract, as exemplified by the Uniform Customs and Practice for Documentary Credits
published by the International Chamber of Commerce and the Model Arbitration Rules issued
by the United Nations Commission and International Trade Law (UNICITRAL).

Legislative guides of the kind published by UNICITRAL and UNIDROIT are also
contributing to the process of harmonization at international level. So too are ‘soft law’
restatements, such as the UNIDROIT Principles of International Commercial Contracts,
which though not binding are regularly resorted to by arbitral tribunals and influence the
shaping of domestic legislation in developing as well as ‘developed’ countries. Underpinning
these is the lex mercatoria, consisting of the unwritten customs and usages of merchants, and
general principles of commercial law

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 Evolution of Law Merchant

The law merchant was developed in the early 11th century in order to protect foreign
merchants not under the jurisdiction and protection of the local law. Foreign traders often
were subject to confiscations and other types of harassment if one of their countrymen
had defaulted in a business transaction. A kind of law was also needed by which the traders
themselves could negotiate contracts, partnerships, trademarks, and various aspects of buying
and selling. The law merchant gradually spread as the traders went from place to place. Their
courts, set up by the merchants themselves at trade fairs or in cities, administered a law that
was uniform throughout Europe, regardless of differences in national laws and languages. It
was based primarily on Roman law, although there were some Germanic influences; it
formed the basis for modern commercial law.

 UNIDROIT

The UNIDROIT Principles of International Commercial Contracts (UNIDROIT

Principles) are a soft law instrument. Its objective is to harmonize the law of international
commercial contracts. The UNIDROIT Principles are a neutral and widely exhaustive set of
rules which parties may find easier to settle on than any given national law. As a soft law
instrument, UNIDROIT Principles are not binding upon parties of a contract, unless they
expressly agreed to it.

UNIDROIT Principles are most commonly used to interpret and supplement provisions of
a specific domestic law or of the CISG. In international commercial arbitration, subject to any
restrictions at the place of the arbitration, it is also possible for parties to agree on the
UNIDROIT Principles as the applicable law, instead of agreeing on specific domestic law or
the CISG to govern their contract.

OBJECTIVES

If one takes a look at the Statue of UNIDROIT, the first article states, that the organization’s
general aims are to analyze possibilities to abolish differences and problems connected to
private law involving different nations. In the long run it should lead to a state in which its
members, ideally the whole world, can agree on a single international private law system.

33
But since this is just a vision which still lies far in the future, if at all, the Statute also list
various minor objectives to gradually approach the overall goal. First UNIDROIT certainly
shall work on bills of international law or conventions. Through each signing and ratification
of conventions the member states legal systems always get a bit closer together to eventually
reach the general aim. Additionally, it is important for the International Institute for the
Unification of Private Law to construct agreements to improve the affairs between countries
with respect to private law. Another self set field of work is supposed to be the investigation
of differences and commonalities between states with respect to private law. Besides doing
all this, UNIDROIT also demands from itself to study and support current and past initiatives
by similar institutions and organizations. Finally, they want to inform about and distribute
their works to the public, if they see a benefit for the public or other organizations. (Statue of
UNIDROIT, n.d.)

STRUCTURE

Internally UNIDROIT is divided up into 3 parts: the Secretariat, the Governing Council and
the General Assembly. Each of these divisions has distinctive tasks and objectives. The
executive power belongs to the Secretariat and therefore they are committed to routine work
on the set tasks. On top of this organ is the Secretary- General. Currently this position is held
by the German Professor Dr. Herbert Kronke. Besides him several civil servants from various
backgrounds and other employees belong to the Secretariat. The second organ of the
UNIDROIT is the Governing Council. Among its task is also the appointment of the
Secretary-General after he or she has been nominated by the President. At the moment
Professor Dr. Berardino Libonati of Italy is the institute’s President. Who is to be president is
decided by the Italian government. Besides him the organ consists of additional 25 members.
They are elected for a period of 5 years. The organ also has the task to draw up the so called
Work Program and supervise the work of the Secretariat on it. The last of the three organs is
the General Assembly. It consists of one representative from each of members of
UNIDROIT. Therefore it currently has 61 representatives. They elect the members of the
Governing Councils and also vote on their Working Programs.

 International Carriages – Carriage of goods by sea; Carriage by air; Multimodal

transportation.

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International Conventions under UNCTAD

The 1980 UNCTAD Multimodal Convention heralded a hope that the New Convention could
eliminate the gaps between the respective rules. This optimism has not been expressed so far,
because the Convention has not yet been enforced. Meanwhile, in general terms such as
the Lading FIATA bill and the UNCT AD / ICC Rules, a temporary solution is given in this
situation in international multimodal transport. Since the States are not bound by an
international agreement to follow the solution set out in the UNCT AD / ICC rules, the
national courts are not obliged to adhere to such rules that form general conditions.

Carriage of goods by sea

The law regulating maritime trade in the Western world was essentially standardized before
the advent of modern nation-states. Yet in the eighteenth and nineteenth centuries, legislation
and court judgments in pursuit of national interests that had been formulated in detail slowly
removed the ancient and universal rule of the sea from many countries and created serious
conflicts in the rule. Throughout the era in which technological development and the spread
of the Industrial Revolution led to the expansion of maritime trade globally, the flow of goods
was thus hindered from country to country.

It became more and more evident from the last decades of the 19th century that these law
disputes could be resolved by international conventions. The law of commercial shipping
was, of course, one of the first branches of private right to draw attention to future foreign
legislation. The uniform movement resulted in the signing by the Convention in 1924 of
some codes of law relating to Lading’s bills. This was intended merely that all laws on
loading bills and on damage to hull cargo other than live animals should be consolidated.

Any landing bills covered by the convention shall be subject to certain standard provisions
which describe the risk assumed by the carrier and which, unless agreed otherwise, shall be
absolute and shall not be altered by contrary agreement and shall enjoy immunities for the
carrier. Generally, clauses that relieve the carrier of responsibility for negligence with regard
to load, handling, storage, storage, transport and disposal of the goods, are considered void or
that minimize its obligation to supply seamanship. However, the carrier shall be stripped of
the responsibility for errors in navigation or the handling of the ship and the full guarantee of
navigability.

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The majority of maritime countries have ratified the Convention or acceded to it, and other
states have adopted national legislation, including those negotiated at Brussels, such as
Greece and Indonesia. Some countries adhering to the Convention have implemented the
principles of the Convention in their commercial codes, including Germany, Belgium, Turkey
and the Netherlands. Furthermore, the Convention itself has been granted legal force and, in
addition, it has adopted domestic legislation based upon the Convention, including France,
Italy, Egypt, and Switzerland. In most parts of the Western world, concrete requirements for
container loading in maritime transport have essentially become universal.

Carriage of goods by air

Another regulatory approach to problems posed by the transport of goods is explained by

the 1929 Warsaw Convention modified by the 1955 Hague Protocol. It represents a
significant step towards the universal unification of air carriage laws. The Convention shall
refer to the international carriage for payment of passengers, baggage, and supplies as well as
free carriage by an airline. It applies if aircraft belong to private individuals or public bodies;
however, the application of the Convention may be excluded by reasonable reservations in
relation to aircraft which belong to a State directly.

The Convention specifies that where the departures and destinations are in separate
contracting specified or the same contracting state, an international carriage is made available
because the stoppage has been decided in another state, even though this state is not a
convention member. The convention shall extend to any aircraft, airfield, or another plant at
which time the carriers are responsible for the products. It is not true when goods are
transported by a carrier of land, sea or inland water. Many countries are members of the
Convention, including the United States and the United Kingdom.

Multimodal transportation

Multimodal transport is handled by a single carrier aka a multimodal transport operator or

provider. The provider relies on a network of smaller carriers or contractors to do the job, but
it's still a single-contract process for the shipper opting for multimodal transport.

Unlike intermodal shipping, multimodal shipping allows for the cargo to be handled
differently depending on the responsible carrier. E.g. the freight will be moved from a
container to the pallets in a truck because of multimodal transport constraints.

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Benefits of multimodal transportation

In addition to making the entire shipping process easier in terms of contract obligations,
multimodal shipping comes with additional benefits.

Communication

First and foremost, we need to talk about coordination. Multimodal movement wins over
intermodal movement due to much clearer communication. Talking to one carrier company
or service is enough to make freight logistics complicated. Coordination with multiple
carriers can decrease efficiency and lead to loading and shipment delays.

Keeping the movement down to a single contract means better overall control of transit and
less contracts-related work for your legal department.

Accountability

Speaking of contractual obligations, a multimodal movement also means that only one agent
or provider is responsible for the movement of the freight. The tricky part of managing a
supply chain is tracking and holding individual shippers and suppliers accountable for delays
and wasted resources.

Having one agent responsible for the freight is even referred to as "door-to-door" coverage,
meaning your shipment is secured by one company. A single-contract mode will save you
hours of freight management and bring the operational cost down.

Accessibility

Unless you're shipping fragile freight or any freight across the ocean, which entails
movement between ports, keeping the cargo in one container means worse access for the
carriers. Meanwhile, a combination of different modes of transport means that each mode
comes with its own constraints.

Multimodal and intermodal shipping will both get the cargo to its destination. The question
is, do you really need to limit each carrier's access to the transit options at the cost of delays?

Deadlines

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Delivery is good when it's on-time delivery. Supply chain efficiency, logistics management,
and customer satisfaction all depend on the shipping deadlines being met. A clear benefit of
multimodal movement is that you minimize delivery delays by giving one company control
over the entire freight.

Door-to-door, after all, means that shippers and carrier providers are on the same page with
shipments are order fulfillment. Going with multimodal shipping over intermodal shipping
helps you reduce the risk of delays and keep customer satisfaction consistently high.

 International Sales of goods – Vienna Convention on Contract for International Sale

of Goods; Drafting of International Commercial contracts - an Introduction.

International commercial contracts are the agreement between two or more parties from
different nations. According to Article 1(1) of the United Nations Convention on Contracts
for the International Sale of Goods (hereinafter CISG) aka Vienna Convention (1980), the
contracts are considered “international” when the parties concluding the agreement come
from two or more different countries. Article 1(2) describes that more flexible definitions are
possible, such as contracts involving a choice between the laws of different nations, or
contracts with significant connections with more than one nation, or contracts affecting the
interest of international trade. The contracts are identified as “commercial” where each party
is acting in the exercise of its profession or trade, as described in Article 1(1) of the Hague
Principles. International business transactions between different nations governing
international law and customs are generally termed as international contracts.

International Sales Contracts

The International Sale Contract is the most used commercial contract and among the
governing trade relations between two different nations. The agreement includes the rights,
duties, obligations, and remedies for breach of the parties to the contract. The parties can be
either an exporter/seller or importer/buyer. The UN Convention on Contracts for the
International Sale of Goods aka Vienna Convention is the convention that is widely used for
these types of contracts. There are many other sources of uniform contract law that are used
such as Uniform Law on the International Sale of Goods, the Principles of European Contract
Law, and UNIDROIT Principles of International Commercial Contracts (2010).

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The International Sale Contract should have details like quantity and type of product, delivery
time, conditions of payment, price, governing body of law, the forum where the dispute has
to be solved (if any arises), and the method of dispute resolution. If such issues are not
covered under the agreement, then it will be filled in by the disputes resolving authority,
often with surprising consequences. Some of the key details/clauses of the international sales
contract are:

 Description of Goods

This is one of the main clauses in a sale contract, as a buyer always prefers a detailed and
more precise description of the goods from the seller and if the goods are not described
precisely enough that satisfy the buyer, then those goods are unsatisfactory for the buyer’s
commercial purposes. However, it is practical to foresee and permit slight deviations from
that of the description.

 Delivery Terms

The time and place of delivery should be mentioned as clearly as possible. International
Chamber of Commerce published Incoterms Rules that provide reference points that are
widely used throughout the world. They are standardized rules available for incorporation
into international sale contracts solely at the parties’ discretion. The Intercom Rules are
revised every 10 years. It informs sales contracts by defining obligations, risks involved,
costs, etc. These rules are classified into 4 different classes: Ex, Free, Cost, and Delivery on
the basis of which rules for the mode of transport and rules for sea and inland waterway
transport is described. It basically allocates these following rules between the buyer and
seller:

1. The point of transfer and risk.

2. International transport and administrative costs.

3. Responsibility for customs, payment of import duties, and obtaining insurance

coverage.

 Price

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Parties should unambiguously mention the price and the contract currency in both numbers
and figures. A provision explaining the method to determine the price should also be included
if both the parties fail to agree on the price indicated. It is often useful to separately itemize
the price charged for the goods, and the price of any seller supplied non-product services such
as insurance and freight. There are two reasons for this. First, doing so reinforces the chosen
delivery term (Incoterms) by clearly indicating what is and is not indicated in the total selling
price; second, countries differ in their treatment on non-product charges for ad valorem duty
valuation purposes.

 Applicable Law

Parties while deciding the terms of the contract have the freedom to choose anybody of law
that applies to their international sales contract. This decision to choose the applicable law
can present a sticky negotiation point since each party is familiar with their national law.
Therefore, they are biased towards their domestic laws, but CISG is implemented to cover
these situations. If the contract is silent about the applicable law, then CISG automatically
applies, and different laws can be applied by specifying them in the contract.

 Retention of Title

The retention of title clause is the most common clause in an international sale contract. This
clause provides that the seller retains the title of the goods until the full price is paid by the
other party, and the seller also may reclaim the goods if the buyer fails to pay the purchase
price. This clause is the simple retention of the title clause. There is also an extended
variation of the clause under which the seller seeks to extend his title to the proceeds from
any sale of goods and any other indebtedness owed to the seller by the buyer. Apart from this,
a transfer of ownership clause must also be specified in the contract, except for vessel
shipments made under a negotiable marine bill of lading where both ownership and
possession rights reside in the original shipment document.

 Dispute Resolution

The contract must contain a dispute resolution clause which describes that if any disputes
arise then by which mode it is to be solved. The parties to the contract have the option of
litigation and arbitration. Arbitration is a more attractive mode of dispute resolution as it is
speedy and cost-effective as compared to litigation. Most arbitrations take place under the

40
arbitration institution that offers a pre-established set of rules as the applicable law to govern
the procedure. The most common and experienced institution is the ICC International Court
of Arbitration. If the parties opt for arbitration then they should specify the place of
arbitration and language preferred and if they opt litigation then the national or municipal
courts in which a lawsuit has to be filed should be specified in the contract.

 Inspection of Goods

The parties should have a clause of inspection, and the goods must be inspected before
shipment aka pre-shipment inspection along with this the parties should indicate the place
and the company of inspection. The goods should be inspected at both ends- first by seller
and then by the buyer. Sometimes the inspection of the goods is a part of the government’s
requirement, so before drafting the contract, the requirements of the government of each
nation have also been taken into consideration.

 Insurance

If any Incoterm rules are used, then parties have to determine who is responsible for
providing insurance cover but outside of the Incoterm. Generally, the goods are insured while
exporting then it is better to specify in the contract which party will bear the insurance costs.

 Force Majeure

It is common for the parties to include the force majeure or hardship clause in an international
sales contract. This clause excuses the party from the failure of the obligation of the contract
because of impediments beyond their control or inevitable, or which are reasonably
unforeseeable such as the outbreak of war, pandemic, earthquake, etc.

 Document

The parties should include a clause in the international sale contracts requiring the important
list of documents and especially exporters should be meticulous in the management of export
documents. The most important is when the payment is made in the form of a letter of credit.

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The United Nations Convention on Contracts for the International Sale of Goods
(CISG)

This convention is finalized in six official languages of the United Nations at the UN
Conference on Contracts for the International Sale of Goods held at Vienna in 1980 and it
came into force in 1988 initially with eleven contracting states. The CISG is a project of
the UN Commission on International Trade law which also created two substantive
international sales conventions- Uniform Law on the Formation of Contracts for the
International Sale of Goods and the Convention relating to a Uniform Law for the
International Sale of Goods. CISG has been the most successful attempt to unify a broad area
of commercial law at the international level. This convention aims to reduce hindrances in
international trade, by creating modern substantive rules governing the rights and obligations
of the parties to the international sales contract. The CISG governs international sales
contracts if either of the conditions is fulfilled:

1. Applicable law of a contracting state is led by the Private International Law, or

2. Both parties are located in the Contracting States.

This provides autonomy to the contracting states to derogate any CISG rule or exclude the
applicability of CISG entirely in favour of different laws.

The following matters are addressed by provisions of the CISG:

 The role of practices and the usage of international law that are established by the
parties;

 Detailed interpretation of the parties’ contract;

 The revocability, features, and duration of the offers made;

 The effectiveness of offers as well as the effect of attempts to alter in an

acceptance;

 Some update or changes in the international sale contract;

 The buyer’s obligations to take delivery, to examine delivered goods, and to give
notice of any claimed lack of conformity;

 The buyer’s remedies for breach of contract by the seller, including rights to
demand delivery, to require repair or replacement of non-conforming goods, to

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 avoid the contract, to recover damages, and to reduce the price for nonconforming
goods;

 The seller’s remedies for breach of contract by the buyer, including rights to
require the buyer to take delivery and/or pay the price, to avoid the contract, and to
recover damages; etc.
There are no special tribunals or courts which are created for the CISG. It is applied and
interpreted by the national courts and arbitral institutions that have the jurisdiction over
transactions governed by the Convention with an aim to maintain its international character
and uniformity.

 International payments – The role of International Chamber of Commerce in the

development of Transnational Commercial Laws; Uniform Customs and Practices
on Documentary Credits.

international payment and exchange, international exchange also called foreign exchange,
respectively, any payment made by one country to another and the market in which
national currencies are bought and sold by those who require them for such payments.
Countries may make payments in settlement of a trade debt, for capital investment, or for
other purposes. Other transactions may involve exporters, importers, multinational
corporations, or persons wishing to send money to friends or relatives. The reasons for such
payments, the methods of making them, and accounting for them are matters of importance
for economists and national governments.

Uniform Customs and Practices on Documentary Credits

The Uniform Customs & Practice for Documentary Credits (UCP 600) is a set of rules agreed
by the International Chamber of Commerce, which apply to finance institutions which issue
Letters of Credit – financial instruments helping companies finance trade. Many banks and
lenders are subject to this regulation, which aims to standardise international trade, reduce the
risks of trading goods and services, and govern trade.

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The UCP 600 replaced the UCP 500 on the 1st July 2007. It was brought about to standardise
a set of rules aiming to benefit all parties during a trade finance transaction. UCP 600 was
created by industry experts, and mandated by the Banking Commission, rather than through
legislation. The first UCP was created in 1933 and has been revised by the ICC up to the
point of the UCP 600.

The UCP 600 rules are voluntarily incorporated into contracts and have to be specifically
outlined in trade finance contracts in order to apply. They also allow flexibility for the
international parties involved.

An accompaniment to the UCP 600 is the International Standard Banking Practice for the
Examination of Documents under Documentary Credits (ISBP), ICC Publication 745. It
assists with understanding whether a document complies with the terms of Letters of Credit.

Credits that are issued and governed by UCP 600 will be interpreted in line with the entire set
of 39 articles contained in UCP 600. However, exceptions to the rules can be made by
express modification or exclusion.

The UCP 600 are the most successful rules ever developed in relation to trade and
most Letters of Credit are subject to them. At the recent ICC UK Winter Trade Finance
Conference, there was a special programme which addressed the UCP 600. This looked at
recent developments in industry practice and ICC policy, as well as a review of the latest
Banking Commission Opinions.

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UNIT 4:- LAW AND POLICY ON TRADE AND
INVESTMENT- INDIAN PERSPECTIVE

 Introduction to Law and Policy of Export-Import Trade in India:-

The foreign trade of a country consists of outward and inward movement of goods and
services giving rise to inflow and out-flow of foreign exchange. While the foreign trade of
India is governed by The Foreign Trade (Development & Regulation) Act, 1999 and the rules
and orders issued there under, the payments for export and import trade transactions in terms
and Policies of foreign exchange are regulated under the Foreign Exchange Management Act,
1999. The physical operation of the foreign trade transactions of exports and imports both of
goods and services through various modes of transportation, is conducted and regulated under
the customs act, 1962.

In order to project the image of the country as a producer and exporter of quality goods and
services, a detailed programme of quality control and pre-shipment inspection is also in
vogue under the Export (Quality Control and Inspection) Act, 1963. Besides the above four
major Acts governing the foreign trade operation of the country, there are a number of other
rules and regulations relating to export of commodities. Modes of - transportation, cargo

45
insurance, international conventions, etc. which need to be strictly observed while conducting
the export and import business. In this unit, you will learn an overview of important act
related to foreign trade and various process of Export Import Policy of India.

 Foreign Trade (Development and Regulation) Act, 1992

The Foreign Trade (Development and Regulation) Act, 1992 and the Foreign Trade
(Regulation) Rules, 1993 and the Foreign Trade (Exemptions from Application of Rules in
Certain Cases) order, 1993 issued there under, replaced the earlier legal regime consisting of
the Imports and Exports (Control) Act, 1947 and the Import (Control) Order, 1955 and the
Export (Control) Order, 1988 issued there under and amended from time to time. With the
operation of new legal regime, the era of foreign trade controls witnessed its demise.

The Primary objective of this Act is to provide for the development and regulation of foreign
trade by facilitating imports into and augmenting exports from India and for matters
connected therewith or incidental thereto. The Export and Import Policy of India is issued
under this Act and any amendments to the Policy provisions are also made there under. The
permission for export and import is also given under this Act by granting the Importer-
Exporter Code Number (IEC). This IEC number has also dispensed with the need of the Code
Number for Export (CNX). The maximum punishment for the commitment of any offence,
contravention of any law, harming country's trade relations or bringing disrepute to the credit
or the goods of the country while conducting the export-import trade transactions, is also
operated through the suspension and/or cancellation of the Importer-Exporter Code Number.

The necessary provisions relating to Appeal, and Revision are also provided. This Act
provides the powers under the Code of Criminal Procedure, 1973 relating to searches and
seizures and Code of Civil Procedure, 1908 for making any adjudication or hearing any
appeal or exercising any powers of revision under this act.

 Foreign Exchange Management Act, 1999

'The exchange control in India was introduced on September 3, 1939 as a war time measure
in the early period of Second World War under the powers conferred by the Defence of India
Rules. The emergency powers were subsequently replaced by the Foreign Exchange

46
Regulations Act, 1947 which came into operation on March 25, 1947. This Act witnessed
comprehensive revision in the wake of the changed needs of the economy during the post-
independence period and was replaced by the Foreign Exchange Regulations Act, I973
known as FERA. The onset of the era of liberalisation of the external sector of the economy
and the industrial licensing followed by Partial Convertibility of Rupee and full convertibility
on current account necessitated the need for further extensive amendments in the FERA
which were brought about by the Foreign Exchange Regulations (Amendment) Act, 1993.
FERA has been replaced by Foreign Exchange Management Act (FEMA), 1999.

FEMA has been brought to consolidate and amend the law relating to foreign exchange. The
basic objective of this act is to facilitate external trade and payments and to promote the
orderly development and maintenance of foreign exchange market in India. This act deals
with various regulations of foreign exchange like holding and transactions of foreign
exchange, export of goods and services, realisation and repatriation of foreign exchange, etc.
The role of authorised person, the provisions of contravention and penalties and the
procedures of adjudication and appeal and the power of directorate of enforcement are dealt
at great length in this act.

 Law relating to Customs- Customs Act, 1962

The consolidated and self-contained Customs Act, 1962 came into operation on December
13, 1962. repealing the earlier three Acts known as Sea Customs Act, 1878. Land Customs
Act, 1924 and the Aircraft Act. 1934, each one of which was related to a particular mode of
transportation. This comprehensive Act provides the legal framework, guidelines and
procedures related to all situations emerging from the export and import trade transactions.
The primary objectives of this Act are to (a) regulate the genuine export and import trade
transactions in keeping with the national economic policies and objectives, (b) check
smuggling, (c) collect revenue, (d) undertake functions on behalf of other agencies, and (e)
gather i trade statistics. Details about the rate and nature of customs duty leviable on any
item, as decided by the Central government, are specified in the First and Second Schedule of
the Customs Tariff Act, 1975 with regard to imports and exports, respectively.

 Objective of export – import policy

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In other words, the policy aims at:

i) promoting exports and augmenting foreign exchange earnings; and

ii) regulating exports wherever it is necessary for the purposes of either avoiding
competition among the Indian exporters or ensuring domestic availability of essential items
of mass consumption at reasonable prices.

The principal objective of Export Import Policy 1994-2002 are:

i) To accelerate the country's transition to a globally oriented vibrant economy with n view to
derive maximum benefits from expanding global market opportunities.

ii) To enhance the technological strength and efficiency of Indian agriculture, industry and
services, thereby improving their competitive strength while generating new employment
opportunities. It encourages the attainment of internationally accepted standards of quality.

iii) To provide consumers with good quality products at reasonable prices. The objectives
will be achieved through the coordinated efforts of all the departments of the government in
general and the Ministry of commerce and the Directorate General of Foreign Trade and its
network of Regional Offices in particular. Further it will be achieved with a shared vision and
commitment and in the best spirit of facilitation in the interest of export.

SUM UP:-

Government Policy for exports aim at promoting exports to the maximum extent to earn
foreign exchange. At the same time, control is exercised on exports of such commodities and
services which are vital to the economy. The thrust area of new export-import policy has been
to boost exports and liberalise imports. The new EXIM policy 1997-2002 has given major
thrust to acceleration of India's exports through restructuring and revamping of various
exports promotion schemes. The procedures have been simplified and streamlined. The
policy aims at continuing the process of trade liberalisation. It encourages the industry to
enhance its competitiveness in the global market. Exports and imports are made free, except
to the extent they are regulated by the provisions of the policy or any other law for the time
being in force. Various provisions of exports like free exports, denomination of export
contracts, realisation of exports proceeds, exports of gifts, spares, passenger baggage’s,
imported goods, replacement goods, repaired goods, private bonded warehouse and
provisions of deemed exports have been included. The major provisions regarding imports

48
include: actual user condition, import of second hand goods, gifts, import on export basis, re-
import of goods repaired abroad, import of machinery and equipment used in projects abroad,
sale on high seas, import under lease financing, Exports promotion capital goods scheme and
Duty exemption scheme/remission scheme.

 Special Economic Zones and International trade

A special economic zone (SEZ) is an area in a country that is subject to different economic
regulations than other regions within the same country. The SEZ economic regulations tend
to be conducive to—and attract—foreign direct investment (FDI). FDI refers to any
investment made by a firm or individual in one country into business interests located in
another country.

When a country or individual conducts business in an SEZ, there are typically additional
economic advantages for them, including tax incentives and the opportunity to pay lower
tariffs.

SEZs are usually created in order to facilitate rapid economic growth in certain geographic
regions. This economic growth is accomplished by leveraging tax incentives as a way of
attracting foreign dollars and technological advancement.

SEZs may also increase export levels for the implementing country and other countries that
supply it with intermediate products. However, there is a risk that countries may abuse the
system and use it to retain protectionist barriers (in the form of taxes and fees). SEZs can also
create a high level of bureaucracy due to their regulatory requirements. This can have the
effect of funneling money away from the system, making it less efficient.

While there are benefits for businesses, individuals, or entities operating within an SEZ, the
macroeconomic and socioeconomic benefits for a country using an SEZ strategy are subject
to debate.

The first SEZs appeared in the late 1950s in industrialized countries. They were designed to
attract foreign investment from multinational corporations. The first was in Shannon Airport
in Clare, Ireland. In the 1970s, SEZs were also established in Latin American and East
Asian countries.

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Now the term Special Economy Zones (“SEZ”) covers a broad range of zones, such as free
trade zones, export-processing zones, industrial parks, economic and technology development
zones, high-tech zones, science and innovation parks, free ports, enterprise zones, and others.

The following are the main characteristics of Special Economic Zones (SEZ):

 Geographically demarked area with physical security.

 Administrated by single body/authority.

 Enjoying financial and procedural benefits

 Streamlined procedures

 Having separate custom area

 Governed by more liberal economic laws.

Objectives of SEZs

SEZs are normally established with the aim of achieving one or more of the following
objectives:

1. To enhance foreign investment, especially to attract foreign direct investment (FDI),

thereby increasing GDP.

2. Increase shares in Global Export (international Business).

3. As experimental laboratories for the application of new policies and approaches-

China’s large-scale SEZs are classic examples.

4. Generation of additional economic activity, or in support of wider economic reform

strategy, which reduces anti-export bias while keeping protective barriers intact. The
SEZs of China, The Republic of Korea, Mauritius, Taiwan, and China, follow this
pattern.

5. Creation of employment opportunities and to serve as “pressure valves” to alleviate

large-scale unemployment. SEZ programs of Tunisia and the Dominican Republic are
frequently cited as examples of programs that have remained enclaves and have not
catalyzed dramatic structural economic change, but remained robust, job-creating
programs.

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 6. In support of a wider economic reform strategy. In this view, SEZs are a simple tool
permitting a country to develop and diversify exports. Zones reduce anti-export bias
while keeping protective barriers intact. The SEZs of China, The Republic of Korea,
Mauritius, Taiwan, and China, follow this pattern.

7. Development of infrastructure facilities.

8. Exposure to technology and global market.

9.
According Douglas Zhihua Zeng, SEZs confer two main types of benefits, which in part
explain their popularity- “static” economic benefits such as employment generation, export
growth, government revenues, and foreign exchange earnings; and the more “dynamic”
economic benefits such as skills upgrading, technology transfer and innovation, economic
diversification, productivity enhancement of local firms, etc.

SEZs & International Business: From an Indian Perspective

The establishment of SEZ in India was envisaged as an important strategic tool to expedite
the growth of international trade. This manifests itself in the form of increased exports as a
unit set-up to produce goods and services. Hence, the increased level of export has been
critical to the success of SEZs.

With the leverage of economic liberalization and introduction of SEZs on a wide scale, India
has witnessed unprecedented growth in its exports.

Although the period of 1999-2000 witnessed a big change in the government policies towards
exports due to economic liberalization, its growth remained almost static during this period.

 Foreign Investment in India-Liberalization in the nineties. Foreign Investment

Promotion Board. Current issues relating to foreign direct investment

Liberalization of foreign investment policy has been a central component of economic reform
in India, introduced in 1991. The first step was to remove the age-old limit of 40 per cent

51
foreign equity and allow automatic clearance up to 51 per cent foreign equity. Subsequently/
a series of steps have been taken, encompassing policy as well as procedures, to create an
environment for free flow of foreign capital. Liberalization of foreign investment policy has
been of an on-going nature, and the process is continuing even today. At the time of writing
this piece, i.e. the first week of February 1998, the latest dose of liberalization is that no RBI
clearance would be necessary for projects that have the Foreign Investment Promotion Board
(FIPB) nod.

What is significant about India's foreign investment policy is that it is continuing to be

liberalized, even as the debate on some of its basic premises is very much alive. It has been a
case of increasing liberalization amidst continuing debate. The new policy has generated
many polemics on ideological as well as realistic grounds. Accordingly, it has been one of the
most widely discussed aspects of economic policy under the reform process. The polemics
surrounding the policy makes it obvious that there is still lack of clarity as well as consensus
about some fundamental principles of the policy. What is important to note, however, is that
though it is the most debated aspect of India's new economic policy, the need for foreign
capital is hardly disputed and there is a general agreement on the imperative of a liberal
policy. The debate is primarily about the extent and coverage on the one hand and impact
management on the other. Before we go into these issues and review the policy in the context
of the on-going debate, let us briefly present the broad dimensions of the policy.

Main Elements of Foreign Investment Policy

For the first time, we have a broader policy on foreign investment. Prior to 1991, the policy
was not only restrictive but also partial. What was permitted (in a restricted way) was foreign
direct (i.e., equity) investment, or FDI as we call it. Foreigners were not allowed to invest in
the portfolios of the Indian corporate. This facility was available, again in a very limited way,
only to the NRIs and their overseas corporate bodies (OCBs). The present policy is a broader
policy in the sense that it covers equity as well as portfolio investment. With respect to the
latter, the facility is, of course, limited to foreign institutional investors (FIIs) only and not to
every foreign investor. However, the extent of permissible investment is quite significant.
Besides, the coverage of FIIs has been expanded to include practically all sorts of
institutional funds. Further, liberalization of portfolio/asset management operations has
opened up another dimension of foreign investment in India.

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 Coming to FDI component of foreign investment policy, there has been a paradigm shift,
given the highly restrictive nature of the past policy. In the past, the general policy was not to
allow more than 40 per cent foreign equity participation. Higher equity participation was
allowed on condition of availability of sophisticated technologies and higher export
obligation, under 51 per cent and 74 per cent schemes, for instance. One hundred per cent
foreign equity was allowed only in the case of investment under 100 per cent Export Oriented
Unit (EOU) scheme or in the Free Trade Zones (FTZs).

FIPB acts as a medium for bringing FDI into the country within the cap of Rs 1200 crore. It
ensures the process from filing for approval to using funds is done with transparency and
effectiveness.

 FIPB grants single-window approval for the project proposals under foreign direct
investment.
 FIPB acts as the delegator for the government to control the inflow of FDI into the country’s
sector.
 Foreign Investment Promotion Board comprises representatives and secretaries from different
ministries who carefully examine the project proposal under FDI and approve the same.
 The FIPB committee considers proposals up to 1200 crores to approve and sanction the FDI.
 Project crossing the size of Rs 1200 crores needs to take approval from the ministry of
economic affairs (Cabinet Committee on Economic Affairs CCEA).
 Firms and businesses seeking FDI under 1200 can go for e-filing to submit the project
proposal for approval from FIPB.
 The Foreign Investment Promotion Board (FIPB), through this e-filing, maintains
transparency and improves the efficiency of decision-making.

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54