8:03 AM Feb 7, 1996

INDIA UNDER CONTINUED PRESSURE ON BOP RESTRAINTS

Geneva 6 Feb (Chakravarthi Raghavan) -- The General Council of the World Trade Organization adopted the report of the Balance of Payments Committee on consultations with India, but not before the US flagging the Council the same points it had raised in the BOP Committee (and adverted to in the report) and India responding in the same terms.

The report of the BOP Committee shows that major industrial countries would resume, soon after the impending (March-April) general elections in India, their pressures for opening up the Indian market for luxury consumer imports and, towards that end, have ensured further BOP consultations by India October 1996.

The real issue in the Indian case, as in the case of Brazil in November last, relates to questions about judging the adequacy of a country's reserves to justify or challenge the restrictions on the basis of short-term flows of funds from abroad.

But with the International Monetary Fund, which has been advocating removal of all capital controls has developed a vested interest in obliterating all differences between short-term and long-term investment financial flows, and has been using the short-term flows kept in reserves to suggest that developing countries must go further in liberalisation and removal of all trade restrictions.

The relevant GATT articles on BOP restrictions and scrutiny, require the GATT CPs, and the BOP, to take into account the IMF report on the BOP situation of a country.

But over the years the IMF and the GATT secretariat have been acting in tandem to go beyond the actual GATT provisions, to present reports about the economic and trade regimes of countries and, without so saying, their moves towards the neo-liberal orders that the two secretariats push, and towards this end take into account short-term capital flows and obliquely suggest that if countries create domestic environment to attract such flows, they can liberalise their trade fully including luxury consumption goods.

The GATT article specifically precludes the Contracting Parties from suggesting to a country holding BOP consultations from suggesting that if the country follows other (economic and development) policies there would be no need to impose restrictions.

But the IMF reports routinely get around this by focusing on the neo-liberal economic reforms and how far a consulting country has to go.

Both the IMF report, and the Indian government statement to the BOP Committee (annexed to the report) make references to the slackening of portfolio investments and other short-term flows, which the IMF identifies as due to general reappraisal of emerging markets in the wake of the Mexican peso crisis of December 194.

The IMF (taking the short-term portfolio funds into account) reported India had a comfortable reserve of $19 billion at end-September or cover for six-and-a-half months of imports, while the Indian government statement provides a figure of 17.2 billion dollars end-1995.

The discussions in the BOP committee however showed a difference in perceptions.

Though none of the members are identified, the report and explanations of some of the BOP Committee members outside show that the major industrialized nations use the short-term flows to push for liberalisation of imports and free imports of luxury consumption goods -- in effect the path that Mexico took and got into disaster.

Others, according to the BOP Committee report, took the view that while India's external position appeared to be stable, the Indian BOP situation was structurally weak and that foreign portfolio investment constituted a very high proportion of foreign capital flows and that such flows have proven to be volatile and reversible.

Those taking this view thus justified a cautious view by India of its BOP and continued use of the BOP cover provisions of the GATT.

The other side, the US and Europeans and other industrial nations, that through financial reforms and 'high interest rates' India was attracting significant foreign capital inflows with a positive impact on the BOP and foreign reserves, that it was comfortable and sustainable, and thus enabled India to further liberalise.

In its response in the BOP Committee, India insisted that the products subject to import restrictions were not chosen arbitrarily, that import of capital goods was being liberalized progressively, and that given the BOP situation, abrupt liberalization of consumer gods run counter to the trade interests of India's trading partners. The various macro-economic interests would not also allow India to announce a time-table for phasing out quantitative restrictions. India also argued that the BOP appeared comfortable because of the restrictions maintained, that the available foreign exchange had to be allowed to priority needs of the country and at the current level of export earnings, the country could not afford to open up to imports of consumer goods.

Some members of the committee (presumably the US and its ilk) viewed the continued use of QRs inconsistent with the BOP understanding and asked India to present a firm time-table for phasing out of restrictions and providing further information before resumption of consultations.

However, other members did not share this view.

The Committee report, in its final paras, records these differing views and welcomed India's readiness to resume the consultations in October 1996 and notify the WTO all remaining restrictions maintained for BOP purposes soon after announcement of the 1996/1997 export/import policy.

At the General Council meeting, the US again raised the very same issues and expressed its concern over India's use of BOP provisions to justify quantitative restrictions to keep out consumer goods and that India was not adhering to its commitments to provide, within ten days, a detailed (tariff line-by-line) description of its restrictions.

The BOP Committee report however showed that India had undertaken to do so after its annual Export-Import policy had been announced to the Indian Parliament (normally done in April, after the Budget).

According to some members who attended the BOP consultations, some 7000 individual items are involved in a line-by-line notification.

India, in response at the General Council, expressed surprise over the US complaints, reiterated that the questions raised had been answered in the BOP committee and the BOP restrictions had been justified. The Indian restrictions for BOP reasons had in fact been notified to the WTO and the full list of such restrictions were available at the WTO secretariat for anyone to scrutiny.

But in this exchange in the Council, the more general point of the way the IMF and the GATT secretariat were acting beyond their mandate under the WTO/GATT provisions, in looking at economic policy reform questions under BOP scrutiny provisions, or of the IMF (contrary in fact to the spirit of the IMF articles on capital transactions) was using short-term capital flows to suggest an equilibrium on external accounts of developing countries was not raised and discussed - neither by India nor by the other developing countries who privately are expressing concern over these questions.

With only half-a-dozen countries invoking BOP restrictions, the generality of developing countries seem to have no interest in this issue. However, with the neo-liberal order having reached its high tide and, after the Mexican crisis, generally in a state of ebb, it is quite on the cards that many more would find themselves forced to have recourse to the BOP provisions.

The United States also raised under 'any other business', what it termed non-compliance by several countries of their obligation, under Art 70.8 of the TRIPs Agreement, the socalled "mailbox" provisions for pipeline protection, to set up a mechanism and process to receive applications for product patents, in pharmaceutical and agricultural chemical sectors which currently excluded by the national patent laws.

Under this Art. 70, countries not now providing for pharmaceutical and agricultural chemical product patents, and who have ten years transitional period to bring their laws into line with TRIPs, must begin to receive new patent applications from 1 January 1995, to be disposed off when their patent law provides for such patents (no later than before 31 December 2004) and, meanwhile, allow the patent-applicant, if his patent had been granted elsewhere, to be able to be a sole-agent for import and distribution of that product in the country concerned, if the country clears the product for general marketing.

This issue has come up before the TRIPs Council, where the US has been attempting to make the TRIPs Council undertake a general monitoring role and require countries to comply.

In raising the issue in the General Council, the United States particularly mentioned Pakistan and Kuwait as non-complying countries.

According to participants, Kuwait was not present and so there was no response. Pakistan in sarcastically thanking the US for reminding them of their TRIPs obligation, noted that it had already told the Council that the concerned law was in the legislative process.

In other decisions, the Council named Macao (in place of China) to be in the constituency for one member of the Textile Monitoring Body. In anticipation of its WTO membership, China had been named in that constituency, but that decision provided the situation was to be reviewed if China was not a member by 31 December 1995.

The Council agreed to take up the accession application of Kazakhstan and named a working party to go into it. The United Arab Emirate's accession protocol was also accepted and the UAE would become a member, 30 days after the UAE accepts/ratifies the protocol and signs it.