International Journal of Law and Policy Review (IJLPR)

PARTICIPATION OF INDIA IN DISPUTE SETTLEMENT SYSTEM OF WORLD TRADE ORGANIZATION Dr. Humayun Rasheed Khan* ABSTRACT The newest and perhaps most important phenomenon in globalisation process is the emergence of trade agreements as key instruments of economic liberalisation and as a mechanism used by major countries to have discipline and rule based system on a wide range of issues. Any institution seeking international cooperation amongst member countries needs a mechanism to settle disputes arising amongst its member countries. Both the General Agreement on Tariffs and Trade as well as World Trade Organisation has an inbuilt mechanism for dispute resolution. In fact, the Dispute Settlement Mechanism of GATT 1947, of which India was a member, was based on somewhat satisfactory dispute settlement mechanism but the same could not be called an effective dispute settlement mechanism and therefore it needed improvements which ultimately resulted in the establishment of World Trade Organisation in 1995 with an effective dispute settlement mechanism. In this paper, an attempt is made to analyze the level of participation of India in the dispute settlement system of World Trade Organisation both as complainant and respondent. Then a detailed analysis is made regarding certain important disputes involving India so as to find out the reasons for low level of participation while throwing light on attitude of panellists and members of Appellate Body.

KEY WORDS: Appellate Body, Dispute Settlement Body, Globalization, International trade, Panels.

INTRODUCTION We are living in an extremely materialized world where money, markets, trade, commerce and investment matters more than anything else and the whole humanity appears to be running with meteoric speed in this Darwinian competitive race. In such a compulsive competitive atmosphere, the WTO institutionalizes capitalism and provides tremendous opportunities

*

Judge in the state of U.P., presently posted as Deputy Director, Judicial Training & Research Institute, U.P., Lucknow.

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for big business but not in a uniform manner. 1 Those who have greater capacity shall stand in more advantageous position as compared to those who have lesser capacity in this highly complex and competitive world forcing mankind to be more one-dimensional and unidirectional. International trade is the most prominent form of engagement with the world economy. 2 The spread of markets and increasing globalisation reinvigorated the process, which led to a remarkable increase in the degree of economic openness in developing countries. 3 The most remarkable phenomenon in globalisation process is the emergence of trade agreements as the crucial aspect of economic liberalisation and as a mechanism used by major countries to have discipline in the global economic affairs. Any institution seeking international co-operation amongst member countries needs a mechanism to settle disputes arising amongst member countries. It is interesting to note that both the nascent General Agreement on Tariffs and Trade (GATT) as well as upgraded and mature World Trade Organisation (WTO) has an inbuilt mechanism for dispute resolution. In fact, the Dispute Settlement Mechanism of GATT 1947, of which India was an original member, was based on a dispute settlement mechanism but that could not be called an effective dispute settlement mechanism and therefore it needed improvements which ultimately resulted in the establishment of WTO, with its strong Dispute Settlement Mechanism in 1995.4 In fact, the renewed and rejuvenated Dispute Settlement System of WTO after the Uruguay Round of Talks is nothing less than a ‘miracle’ in the history of dispute settlements in International Law in general and WTO in particular. 5 If we look back in GATT history, we will find that a major problem in the operative mechanism was ‘positive consensus rule’ which required unanimous consensus of member countries making blockage in decision-making very easy. It is remarkable to mention that the ‘positive consensus rule’ was given a complete somersault during Uruguay Round of Talks and what had actually been adopted now is called ‘negative consensus rule’ where the panel reports would automatically be adopted unless and until all the member countries decide not to adopt them. This fundamental 1

.Gregory Shaffer, James Nedumpara & Aseema Sinha,’ Indian Trade Lawyers and the Building of State Trade- Related Legal Capacity’, University of Minnesota Law School, Legal Studies Research Paper Series, Research Paper no. 14- 08, p. 1. 2 Deepak Nayyar, Catch Up: Developing Countries in the World Economy (New York: Oxford University Press, 2013) p. 74. 3 Ibid, p.75 4 William J. Davey, The WTO Dispute Settlement System : How have Developing Countries Fared? Illinois Public Law and Legal Theory Research Paper Series, Research Paper No. 05-17, November 30, 2005, p.24. 5 Avinash Sharma, Improving Dispute Settlement in WTO: Flattering or Faltering, Journal of World Investment & Trade, vol. 8, No. 6, Kluwer Law International.

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change in the mechanics of the dispute settlement of WTO has been able to restore faith of developing countries in the system to a great extent and has also helped it to function more comfortably.6 The legal interpretation of WTO provisions has also become highly complex and evolving with its jurisprudence exceeding 70,000 pages of panel and Appellate Body decisions. The increasing modern complexities and technicalities have forced many to be out of position to participate in shaping the WTO legal order and its effects.7 In fact, the negotiation and interpretation of WTO law affects multiple policy issues ranging from intellectual wealth to export of generic drugs, the development of automotive sector, to the regulation of labour and environment, to restrictions on imports and exports through anti- dumping laws. All of these issues have been directly or indirectly the subject of WTO disputes and all of them involve disputes in which India has been a party.8 India has been associated with the multilateral trade system since the beginning and has also been an active member country, if not a pro-active member.9 In terms of cases initiated India has been only slightly less active than Brazil. In fact, the most active developing country user of dispute settlement system of WTO has been Brazil. 10 It is indeed; true that no country can progress in isolation in the present global economic order and if any country attempts to do so the loss will be exemplary. The most prominent example of this fact is the Chinese entry into the World Trade Organisation as a full- fledged member.11 This compelling reality has been beautifully placed in few lines of the trade analyst Anwarul Hooda when he says that “WTO is good for India. It is wrong to consider Uruguay Round a western conspiracy. International trade is not a zero-sum game. Trade is about mutual gain.’’12 International trade is, of course, for mutual gain but have the developing and least developed countries been able to get mutual gain? Is not the weak bargaining capacity of developing and least- developed countries biggest obstacle in their level of participation as compared to the developed countries? These important issues need serious introspection and analysis. The information available shows that India has actively used the dispute 6

M.B. Rao & Manjula Guru, WTO Dispute Settlement and Developing Countries, (New Delhi : LexisNexis, Butterworths, 2004), p. 9 7 . Gregory Shaffer, James Nedumpara & Aseema Sinha, op cit, p. 1. 8 . Ibid.,p.2 9 William J. Davey, The WTO Dispute Settlement System : How have Developing Countries Fared? op. cit, p.24 10 Ibid. 11 Mathew Kennedy, China’s Role in Dispute Settlement, World Trade Review, 2012 p.1. 12 .Anwarul Hoda & Ashok Gulati, WTO Negotiations on Agriculture and Developing Countries ( New Delhi : Oxford University Press, 2008), p.3

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settlement mechanism of the World Trade Organisation for the redressal of its grievances ever since the World Trade Organisation came into effect on 1st January 1995. But has India been able to get its grievances redressed in letter and spirit?

2.

DISCUSSION

2.1: PARTICIPATION OF INDIA IN DISPUTE SETTLEMENT OF WTO The history of dispute settlement system under General Agreement on Tariffs and Trade 1947 13 shows that India, like most other developing countries, did not actively use the Dispute Settlement Body for the redressal of its grievances. There were many reasons for the inactive participation of India in Dispute Settlement Process under GATT 1947, lack of trust and financial difficulties being two most prominent reasons. But the Indian attitude, like other developing countries changed significantly with regard to dispute settlement mechanism of the World Trade Organisation. The information available with the WTO reveals that the developing countries in general and India in particular have, quite actively used the dispute settlement body for the redressal of their grievances ever since the WTO came into effect. 14 It is an important indicator of restoration of faith of developing countries in the new system. Interestingly the story of India’s participation in the WTO dispute settlement system goes back to the year 1995 itself, when India brought a case involving import regime for automobile against Poland. 15 The first dispute involving India as a defendant was brought in 1996 by United States of America with regard to patent protection for pharmaceutical and agricultural product.16 The chronological list of disputes brought before the Dispute Settlement Body of the WTO from January 1995 to 23rd June 2014 shows that a total of 482 disputes have been brought for settlement, out of which India has been involved as a complainant in 19 disputes the latest being one against United States in 2012 relating to steel sector,17 whereas India has been involved as a defendant in 22 disputes from January 1995 to 23rd June 2014, the latest being dispute relating to renewable energy brought again by United States.18 The following tables would make the participation 13

Retrieved from htpp://www.wto.org and the website of Third World Network (TWN) (http://www.twn.com). 14 Deepak Nayyar, Supra, p.2 15 Retrieved from http://www.wto.org Poland – Import Regime for Automobile (Complainant: India) WT/DS 19, 28th September, 1995. 16 Retrieved from http://www.wto.org. India – Patent Protection for Pharmaceutical and Agricultural Products (complaint: United State) WT/DS 50, 2nd July 1996. 17 Retrieved from http://www.wto.org; US- Countervailing Measures on Certain Hot Rolled Carbon Steel Flat Products from India (complaint : India) WT/DS 436, 2012. 18 Retrieved from http://www.wto.org. India – Certain Measures Relating to Solar Cells and Solar Modules (Complaint: United States) WT/DS 456, 6 February 2013.

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of India in the dispute settlement process under the World Trade Organisation from 1995 to 2014 more clear. Table-I India’s Position in Dispute Settlement System From 1995 to 23 June 2014 Total Disputes from 1995 to June 2014

Disputes Involving India either as Complainant or Defendant

Total 42 Disputes involving India so far

As Complainant

As Defendant

By India as % of total

19

22

9.25%

482

*Source: Compiled by the author on the basis of information on the WTO website The above table shows that India has been involved in WTO dispute settlement system on an average of more than two disputes and less than three disputes per year during the last 20 years of its operation. It may also be noticed here from the above table that India has used the Dispute Settlement Body as a complainant in less than fifty percent of total disputes that it has been involved into. In two disputes,19 India had joined as a cocomplainant with other countries such as Pakistan, Malaysia, Thailand, Australia, Brazil and Korea etc. It clearly appears that India has been more defensive rather than being aggressive as far as participation in the WTO Dispute Settlement System is concerned. Table-II** INDIA AS A COMPLAINANT IN WTO DISPUTES FROM 1995 TO JUNE 2014 Title of the case

US-CVD on

Disput Year of Panel Appella Sector e Consultati Establish te Body Concerned/Tr Numb ade on ed er Association 436

2012

Yes

No

Steel

19

Retrieved from http://www.wto.org; WT/DS 217 and WT/DS 58. Retrieved from http:// www.wto.org.

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Carbon Steel TurkeyTransitional Safeguards

428

2011

No

No

Textiles (Texprocil)

EU- Seizure of Generic Drugs

408

2010

No

No

Pharmaceutica ls

EU-Expiry Review of AD/CVD on PET

385

2008

No

No

Chemicals and Plastics (Chemplast)

USCustoms Bond Directive

345

2006

Yes

Yes

Fisheries/Mari ne (MPEDA/SEA I)

EC-Steel Products

313

2004

No

No

Steel

EC-GSP

246

2002

Yes

Yes

Textiles and Clothing (Texprocil)

US-Textiles Rules of Origin

243

2002

Yes

No

Textiles and Clothing (Texprocil)

ArgentinaPharmaceuti cals

233

2001

No

No

Pharmaceutica ls

2001

No

No

Textiles and Clothing

Brazil-Jute Bags

229

US-Byrd Amendment

217

2001

Yes

Yes

Multiple sector affected

US-Steel Plate

206

2000

Yes

No

Steel

South AfricaPharmaceuti

168

1999

No

No

Pharmaceutica ls

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cals EC-Bed Linen

141

1998

Yes

Yes

Textiles and Clothing (Texprocil)

EC – Unbleached Cotton Type Bed Lenen

140

1998

No

No

Textiles and Clothing

EC- Rice

134

1998

No

No

Agriculture

US-Shrimp

58

1996

Yes

Yes

Fisheries/Mari ne

TurkeyTextiles

34

1996

Yes

Yes

Textiles and Clothing

US-Wool Shirts & Blouses

33

1996

Yes

Yes

Textiles and Clothing

USWomen’s and Girl’s Wool Coats

32

1996

Yes

No

Textile and Clothing

PolandAutomobile

19

1995

No

No

Automobile

** Source: Compiled by the author on the basis of information on the WTO website Table-III*** INDIA AS A RESPONDENT IN WTO DISPUTES FROM 1995 TO JUNE 2014 Title of Disput e the Case Numb er

Year of Pan Consultati el on

Appella te

Sector Concerned/Associa tion

India456 Solar Cells and Solar

2013

No

Renewable Energy

42

No

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Modules India430 Import Measures on Agricultur e products (US)

2012

Yes

No

Agriculture

India380 Taxes on Wine and Spirits

2010

No

No

Agriculture/Wine and Spirits

IndiaAdditional Duties (U.S.)

360

2006

Yes

Yes

Agriculture/Wine and Spirits

India352 Import Measures on Wines (EC)

2006

No

No

Agriculture/Wine and Spirits

IndiaAntidumpi ng Measures (Chinese Taipie)

318

2004

No

No

Agriculture Chemicals

India – 306 Lead Acid Batteries (Banglades h)

2004

No

No

Chemicals

India – 204 Antidumpi ng on Certain Products (EC)

2003

No

No

Agriculture Chemicals

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India Customs Duties (EC)

150

1998

No

No

Textiles & Clothing

India – 149 Import Restriction s (EC)

1998

No

No

Agriculture

India-Auto (EC)

146, 175

1997

Yes

Yes

Automobile

India120 Certain Commoditi es

1998

No

No

Agriculture, leather

India- QRS 90, 91, 1997 92, 93, 94, 95 and 96

Yes

Yes

Agricultural, Textiles and Industrial Products

IndiaPatents (EU)

79

1996

Yes

No

Pharmaceutical and Chemicals

IndiaPatents (US)

50

1996

Yes

Yes

Pharmaceuticals and Chemicals

*** Source: Compiled by the author on the basis of information on the WTO website 2.2: ATTITUDE OF PANELLISTS AND APPELLATE BODY TOWARDS INDIA Let us now discuss India’s participation in the WTO’s dispute settlement system with the help of some of the important disputes involving India. In fact, one of the most popular disputes involving India is Imports of Wool Shirts and Blouses from India 20 in which India was complainant. The dispute arose when the United States adopted transitional safeguard measures on import of Textile Product. 20

Retrieved from http://www.wto.org; United States – Measures affecting imports of Woven Wool Shirts and Blouses from India (Complainant : India) WT/DS 33, 14th March 1996. Retrieved from http:// www.wto.org.

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The Panel which was constituted to look into the dispute, found the measure adopted by the United States to be in violation of the Agreement on Textile and Clothing (ATC). It is unfortunate to note that the Panel adopted a restrictive approach regarding the scope of examination of the provision. More unfortunate was the fact that while determining the conformity of the US measure with Article. 6.2 of the ATC, the Panel restricted its review to an examination of a bare statement issued by the US investigating authority when the United States requested consultation under the ATC with India in April 1995.21 After finding that the measure adopted was in violation, the Panel did not consider India’s request that importing country was required to choose at the beginning of the process whether it will claim the existence of ‘serious damage’ or ‘actual threat of serious damage’ to the domestic industry. India made such a claim before the Panel because in its view these two were separate concepts and not inter-changeable with each other. Further the Panel also did not consider India’s claim that the United States consulted with India only on the basis of ‘serious damage’ and referred the matter to the Textiles Monitoring Body (TMB) on that basis alone and not on the basis of actual threat. The Panel also refused to consider that the United State had improperly back dated the effective date of restraint. India was not satisfied with the above mentioned findings of the Panel despite the fact that the United States had lifted the measure against imports from India in December 1996. India decided even before the issuance of the final report of the Panel to file a notice of appeal in February 1997.22 The appeal was filed on the following grounds: i)

On which party would the burden of proof lie in a dispute relating to the legality of trade restrictive measures?

ii)

What is role of Textile Monitoring Body in Dispute Settlement Process in matters associated with Textile Sector?

iii)

Should a panel give findings on all legal claims made by a complaining party?

The Appellate Body agreed with the legal findings and conclusion of the Panel on all issues and upheld the Panel’s finding that it was up to India to present evidence and agreement sufficient to establish a presumption that the measure adopted by United States was inconsistent with the Agreement on Textile and Clothing.23It will only be after such presumption having been established, it will then be up to the United States to bring evidence and 21

M.B. Rao & Manjula Guru, supra p.94. Ibid. 23 Retrieved from http://www.wto.org- EC-Anti Dumping Duties on Imports Cotton Type Bed Linen from India, WT/DS 141, 23 August, 1998. Retrieved from http://wto.org. 22

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arguments to rebut this presumption. While discussing the role of Textiles Monitoring Body, it held that the information which TMB may take into account was purely a descriptive comment and not a ‘legal finding or conclusion’ which the Appellate Body may uphold, modify or reverse. Moreover, the Appellate Body agreed with the panel’s finding in relation to ‘judicial economy’ that it only needed to address those legal claims which it considered necessary for the resolution of a particular dispute and the same was in consonance with the Dispute Settlement Understanding as well as the practice under GATT 1947 and the WTO Agreement. 24 The Dispute Settlement Body (DSB) adopted the reports of Panel and the Appellate Body in May, 1997 without going into the implementation issue because the restraint was no longer in place at the time of the adoption of the report. On an analysis of the facts and findings in above mentioned dispute, it appears that the motive of India, in bringing this case, was probably systemic rather than economic. That is why India pursued the case even after the revocation of the measure by the United States. In response, the Appellate Body came up with clear ruling on the burden of proof and judicial economy, which may not have necessarily satisfied India, but nevertheless greatly influenced later practice in the WTO. In fact, the Appellate Body report in this dispute became an important precedent regarding burden of proof and judicial economy, often cited by Panel and Appellate Body in some other cases.25 In fact, the unfortunate lesson not only for India but for the entire developing world, which emerged out of the developments that surrounded this dispute, is that one cannot expect too much of rule making from the WTO Dispute Settlement System. The message that came out of this dispute is crystal clear that both the Panels and Appellate Body would generally exercise a judicial restraint and limit their findings to only those issues which are absolutely necessary for bringing a dispute to a conclusion. This is, indeed, a very restrictive approach on the part of adjudicatory bodies that may slow down the growth of law in any emerging branch of law and is certainly not a satisfactory approach for the Dispute Settlement Mechanism of WTO. Next important dispute is Bed Linen Dispute26 in which the EC initiated an Anti-Dumping investigation in September 1996 on Cotton Types Bed Linen

24

James Cameron & Kevin R. Gray, ‘Principles of International Law in WTO Dispute Settlement Body, International & Comparative Law Quarterly, Vol. 50 (2), April 2001, P. 283. 25 WT/DS50/R – India – Patent Protection for Pharmaceutical and Agricultural Chemical Product, 2nd July 1996. Retrieved from http://www.wto.org 26 WT/DS 141, 23rd August 1998. Retrieved from http://www.wto.org

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from India and some other countries.27 This led to imposing Anti-Dumping duties, after the EC linked ‘Dumping’ with injury and imposing provisional anti-dumping duties from January 1997. Soon after this, India moved to the Dispute Settlement Body. The DSB adopted the Appellate Body report and the Panel report as modified by the Appellate Body report and recommended that the European communities should bring its measures in conformity with its obligations under the Anti-Dumping Agreement. Consequently E.U. suspended levy of anti-dumping duties on 7th August 2001 and later amended its regulation imposing definitive anti-dumping duty. However, India made a statement before the Dispute Settlement Body whereby it expressed the view that the new EC regulation did not bring the EC legislation into full compliance with the Dispute Settlement Body’s recommendation. On 8th March 2002 India sought recourse to Article 21.5 (request for consultation) regarding the disagreement on the measures taken to comply with the recommendations and rulings.28 Then India requested for establishment of a compliance panel. At the Dispute Settlement Body meeting, it was agreed that the matter be referred to the original Panel. The US reserved its third party rights to participate into the proceedings. The Panel gave its ruling against India. India then moved in appeal to the Appellate Body against the panel on the compliance report.29 It may be added that the EC in order to implement the recommendations and ruling of the Dispute Settlement Body, adopted the WTO enabling regulation. 30 Under the enabling regulation, the EC adopted regulation 1644/2001 amending the original definitive anti-dumping duties on Bed Linen from India, purporting to comply with the Dispute Settlement Body recommendations, while simultaneously suspending its application. This redetermination was amended by the Council regulation 160/2002 terminating the proceedings against Pakistan. On 13th February 2002, the EC terminated anti-dumping proceeding against Egypt.31 It is pertinent to point out here that at the time of adoption of the above WTO enabling regulation, the commission’s view was that although WTO rules do not obliged the community to implement the report adopted by the Dispute Settlement Body, in certain circumstances the community might find it appropriate to amend anti-dumping or anti-subsidy regulations to bring them in line with such report. 27

Ibid. WT/DS 141; Pakistan and Egypt were third party participant in the WTO action. Retrieved from http://www/wto.org. 29 Rao, M.B. and Guru Manjula, supra, p. 179 30 Raj Bhalla & David A Gantz: “WTO Case Review”, Arizona Journal of International and Comparative Law, Vol.XIX, No. 2009, p. 324 31 Regulation NO. 1515/2001 of 23rd July 2001. 28

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It is surprising to note that Article. 15 of the Anti-Dumping Agreement was clearly disregarded by the Panel in its findings. Article. 15 of Anti-Dumping Agreement under the heading ‘developing countries member’ recognises that the special regard must be given by the developed country member to the special situation of developing country member when considering the application of anti-dumping measures under the agreement. Possibilities of constructive remedies shall be explored where entry would affect essential interest of developing country member. It is submitted here that the approach adopted by the Panel while considering Article. 15 of the Anti-dumping agreement is quite dissatisfactory and tilts the balance of rights against the developing country and in favour of developed country which is detrimental for any institution based on rules and working as an impartial institution for adjudicating the rights and obligations of member countries. The next important dispute involving India which has generated a lot of debate as to the position of developing countries against the might of developed countries. That is the dispute of India-quantitative Restriction case 32 in which again no consideration was given to the provision of ‘special and differential treatment’ of Article 21.7 and 21.8 of the Dispute settlement Understanding. The Appellate Body rejected the argument raised by India of the principle of institutional imbalance in considering the balance of payments position by the Panel. In Support of its stand, India referred to the GATT Panel reports in the EC Citrus and Korea Beef, the Appellate Body observed that the Panel reports in EC citrus and ECBananas were both un-adopted. Moreover, these two reports concern the relationship between Article. XXIII & XVIII on balance of payments restrictions, with the relationship at issue in this case. Similarly the Appellate Body distinguished the Penal Report in Korea – Beef.33 It is submitted that the distinction sought by the Appellate Body is without a difference, so much for the consistency in approach by the adjudicating bodies under the WTO is an open disregard to the special and differential treatment in favour of developing countries. Unfortunately, the Appellate Body’s decision in this case was also adopted by the Dispute Settlement Body, despite strong reactions by the developing countries at the meeting of Dispute Settlement Body of the way, the special & differential treatment provision in favour of developing countries have been ignored. It would not be out of place here to mention the reservations of the then Indian Ambassador, who was compelled to join the consensus mainly due to ‘negative consensus rule’ but he did actually express and highlight the 32

WT/DS 90;India – quantitative Restriction on Imports of Agricultural Textile and Industrial Products, , 1997. Retrieved from http:// www.wto.org. 33 Rao M.B. and Guru Manjula, op. cit., p. 213

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reservations on the issue which India felt to be crucial not only for it but for the entire developing world. India was, indeed, able to bring home the major point that some issue is interpreted by these important bodies differently in relation to different agreements and parties. The big question, indeed, is why do these adjudicatory bodies adopt this kind of attitude showing discrimination? The effect of Appellate Body report was that it resulted in rejection of India’s right under Article XVIII: 11 of GATT 1994 which could happen with any other developing country as well. It also affected the right to follow its own ‘development policy’, and with a different policy there would be no need for balance of payments restrictions.34 Unfortunately, the most adverse effect of this Appellate Body ruling came in the form that the “macroeconomic policies” of the industrialised economies aimed at achieving and maintaining full and productive employment or development of economic resources, can not be challenged in the WTO while the ‘macro-economic policies’ pursued by developing countries can be challenged and the International Monetary Fund and the World Trade Organisation can ask the developing country concerned to change their macroeconomic policy so that no balance of payments restrictions are necessary.35 Then there had been Tariff Preferences to Developing Countries case36 in which India requested consultations with the European Communities pursuant to Article. 4 of the Dispute Settlement Understanding, Article XXIII: I of the General Agreement on Tariffs and Trade, 1994 and Paragraph 4 of Most Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries. The request was circulated to members and E.C. as well as India held consultations with a view to reaching a mutually satisfactory resolution of the matter. Unfortunately, the consultations failed to settle the dispute. India brought to notice the following features of the European Communities Generalised System of Preferences Scheme:(i)

the tariff preferences accorded under the special arrangements for combating drug production and trafficking are available only to specified countries selected by EC, and

(ii)

the tariff preferences accorded under the special incentive arrangements for the protection of labour rights and the environment are accorded only to countries that are determined

34

WT/DS 90;India – quantitative Restriction on Imports of Agricultural Textile and Industrial Products, , 1997. Retrieved from http:// www.wto.org. 35 Retrieved from http://twn.org C. Raghavan – ‘A millstone for developing world, a milestone for the US (South – North Development Monitor, 1999). 36 Retrieved from http://www.wto.org; European Communities Conditions for the Granting of Tariff Preferences to Developing Countries, WT/DS 246. 2002.

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by the EC to comply with certain labour and environment policy standards. The outcome had been a little dissatisfactory in the process of determination of important issues such as whether the provisions of the EC Generalised System of Preferences scheme granting tariff preferences under the special arrangements for combating drug production and trafficking and the special incentive arrangements for the protection of labour rights and environment, and implementation rules and regulations. 37 The battle for protection of rights of the developing countries goes on and on. 2.3: SOME IMPORTANT CASE STUDY INVOLVING INDIA The first important and one of the most controversial disputes involving India was India- Patents Case where the Panel and Appellate Body interpreted provisions of TRIPS Agreement which was between a developed country ( United States of America) on one hand and developing country (India) on the other hand. The situation could have drastically changed after the year 2000, if developed countries choose to secure compliance with the TRIPS agreement by developing countries and countries- in- transition by rigorously having recourse to the dispute settlement mechanism. Let us now take up two important case studies involving India and discuss them at some length. Case Study I: India-Patent Protection for Pharmaceutical and Agricultural Chemical Products38 Background of the Dispute India became a WTO member in 1995 and had to apply the new TRIPS rules for medical drugs in its national patent legislation by 1 January 2005 at the latest. The Government of India amended the Indian Patent Act of 1970 after the formation of the WTO in 1995 and coming into existence of the TRIPS agreement so as ensure compliance with the international commitments. Product patents of at least 20 years duration had to be provided for medical inventions after the date. The Indian pharmaceutical industry has been campaigning for the legal provision of anti-monopolistic safeguards like compulsory licensing parallel imports, restricting the life of

37

Rao, M.B. & Manjula, WTO Dispute Settlement and Developing Countries, LexisNexis, Butterworths, New Delhi, 2004 p.94. 38 Retrieved from http://www.wto.org -WT/ DS50- India- Patent Protection for Pharmaceutical and Agricultural Chemical Products. See also Biranchi Narayan Prasad Panda, WTO Dispute Settlement and Concerns of Developing Countries (Deutschland: Lambert Academic Publishing,2013), p.140-169.

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patents on essential drugs to 10 years, not allowing imports to be considered as working of a patent.39 If we look back to the scenario before the TRIPS agreement, we will find that developing countries were following their domestic IPR law and India did not recognize product patent as Indian Patent law only recognized process patents. The United States brought the case against India in Dispute Settlement System on 2 July 1996, concerning the alleged absence of patent protection for pharmaceutical and agricultural chemical products in India.40 Facts of the Dispute   

India has violated Articles. 27, 65 and 70 of the TRIPS Agreement. The insufficiency of the legal regime – India’s “mailbox rule” – under which patent application for pharmaceutical and agricultural chemical products could be filed and The lack of a mechanism for granting exclusive marketing rights to such products.

Details of the Case Study The U.S. argued that India had failed in patent protection and it should change its Patent laws as there was no patent protection for pharmaceutical and agricultural chemical products in India. There is no effective means for the filling of patent applications for pharmaceutical and agricultural chemical products due to the absence of a legal authority for the granting of exclusive marketing rights (ERM) for such products. Request for establishing a Panel: On 2 July 1996, the U.S. requested for establishing a panel to examine the complaint. In this complaint U.S. stated that, India should establish an effective “mail box” system under the Indian Patent Act, but this administrative mechanism is not appropriate one to give effective legal security to the patent applications. Establishment of Panel: The U.S. argued that India’s administrative mechanism for the patent applicant under the “mail box” system is a hurdle as it cannot give effective legal security. But India argued that, it had already established the “mail box” system through administrative mechanism and it could give same legal protection to the patent applications. India also argued that the administrative mechanism of “mail box” system was working effectively by

39

Biranchi Narayan Prasad Panda, WTO Dispute Settlement and Concerns of Developing Countries, (Deutschland: Lambert Academic Publishing, 2013), p.141. 40 Ibid., p.142-143.

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allowing applicants of pharmaceutical and agricultural product patents and there was no need to bring about a change in the Indian patent law as such.41 Article.63 of TRIPS requires that there must be transparency to all its member countries in TRIPS agreements. Transparency here actually means all countries should notify the laws and regulations that have been made public to the Council for TRIPS and are made available publicly to other countries. 42 India completely failed to make public information on the existing system for the filling of mail box applications after expiry of the Patent Ordinance, 1994, argued the United States. The U.S. also argued that India had not notified to the TRIPS Council that it had actually set up the ‘means’ of filing the potential patent applications through an administrative order and as such violated the transparency requirements under the relevant provisions. The U.S. made vociferous attacks on India by arguing that India had failed to fulfill its commitments under Article. 70.9 of the TRIPS agreement by not establishing a legal authority for granting exclusive marketing rights (EMR) for the products for which the potential patent applications were filed under the ‘mail box’ system. India argued that Article 70.9 of the TRIPS agreement did not impose an immediate obligation to provide EMR. India took the stand that the obligations under Article. 70.9 are ‘postconditional occurrence obligations’ as they do arise only after the events specified in Article. 70.9 have occurred.43 The panel held that “the ‘means’ for filing the patent applications was important because countries that do not provide patent protection under Article. 27 of the TRIPS agreement (in India’s case this meant not providing product patenting to pharmaceuticals) must examine, after the expiry of the transitional period, the applications that have been filed and consider them for patent protection”.44The panel also held that “in order to achieve and fulfill the objective of Article. 70.8, it is important that the novelty of the patent applications is preserved. Further for a patent application to be considered for patenting after the expiry of the transitional period, it is also important that the priority date of the patent application is maintained. The panel also held that in order to find out whether the administrative system put in place by India fulfilled the objective of Article 70.8, it was important to analyze the Indian patent law. Analyzing the Indian Patent Act of 1970, the panel found that Section 15(2) created confusion regarding the security and predictability of the administrative order in preserving the novelty and 41

Ibid., p.145-148. See Article.63 in TRIPS Agreement. 43 See Article.70.9 in TRIPS Agreement. 44 Biranchi Narayan Prasad Panda, WTO Dispute Settlement and Concerns of Developing Countries, supra,p.153. 42

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priority of the patent applications. The panel consequently found that potential patent applicants suffered legal insecurity due to the mandatory legislation to restrict the patent applications on pharmaceuticals and agricultural chemical products”.45 The Appellate Body Report India was not happy with the panel report so it made an appeal against certain aspects in the Appellate Body (AB) essentially on four grounds relating to law and legal interpretations. The first argument taken by India was that the ‘legitimate expectations of the member countries must be taken into account while interpreting the TRIPS agreement. The second important issue raised by India was that the panel did not properly interpret the requirement under Article. 70.8. India further claimed that the panel committed error in the treatment of the Indian municipal law or in its application of burden of proof while examining the issue that whether India had complied with Article. 70.8 or not? Last but not the least, the panel also failed to properly interpret Article.70.9.46 The Appellate Body while examining the ‘legitimate expectations’ principle as developed by panel in this dispute held that the panel was wrong in using this principle as an interpretative principle of the TRIPS agreement and consequently held that the invocation of the principle of ‘legitimate expectations’ was not a correct interpretative principle in interpreting the TRIPS agreement. The Appellate Body upheld the panel’s view that the use of the term ‘means’ as provided in Article. 70.8 is to preserve the ‘novelty’ and as such priority of the patent applications should have a sound legal basis. The Appellate Body further held that India was under an obligation to set up a sound legal basis for the filing of the patent applications under Article. 70.8 of the TRIPS agreement but had no obligations beyond that. As far as the issue of burden of proof is concerned, the Appellate Body upheld the panel’s view and said that the panel had enunciated and implemented the burden of proof in the correct manner.47 On the issue of Article .70.9, the Appellate Body upheld the panel’s view saying that this provision came in force from the day the WTO agreement and the TRIPS agreement came into force. Hence, India was in violation of its obligation under Article 70.9 of the TRIPS agreement and it should put in place a mechanism to grant EMR. The Appellate Body upheld the panel’s finding on Articles. 70.8(a) and 70.9 with certain modifications as to the reasoning but ruled that Article. 63 were 45

Ibid.,p.152-162. Ibid.,p.163-166. 47 Ibid. 46

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not within the panel’s terms of reference. The appellate report and the panel report with the modifications made therein were adopted by the DSB in January 1998. Later on, the United States and India announced that they had agreed on an implementation period of 15 months at a DSB meeting. India amended its Patent Act to provide for a mailbox system and also provided EMR after it lost the case in WTO dispute settlement. Case Study II: Dispute Regarding Shrimp and Shrimp Products (Complainants- India, Malaysia, Pakistan and Thailand)48 It is one of the high profile cases involving the WTO concerns and is associated with the U.S. Regulations on imported shrimp. This dispute reminds us about a critical dispute that occurred under the erstwhile GATT of 1947 involving trade liberalization issues on the one hand and protection and preservation of environment on the other hand. The safety of turtles was apparently the major issue in this dispute but substantially it was not so as the big question related to ‘power-politics’ in the system in the sense that the major issue was whether exporting countries have to adopt measures which were similar to the domestic law of trading giants as any deviation could dis-engage them from trading intercourse with these major trading nations?49 Background of the Dispute This dispute gave birth to what may be called a lasting influence in WTO dispute settlement relating to trade and environment. In U.S. court of international trade (CIT), there was a case between Earth Island Institutes v. Christopher. In this case the CIT ordered that shrimp imported from all countries, which had not adopted adequate policies to protect sea turtles be barred. It suggested of ruling on an interpretation of section 609 of Public Law. So according to this section 609, the Caribbean and western Atlantic countries come under this issue by not having turtle safe shrimp practice. With the extended of the scope Section 609, the department of state banned the shrimp harvest countries such as India, Pakistan, Thailand and Malaysia etc. there was strong opposed by the developing countries taking to this matter. They argued that shrimp must be allowed in the U.S. market regardless of the “process” by which they are caught. The dispute settlement panel ruled against the United States on the grounds that the ban was inconsistent with Article 11 (limiting the use of import prohibitions) and could not be justified under Article 20.50 48

Retrieved from http://www.wto.org WT/ DS58- United States – Certain Prohibition of Certain Shrimp and Shrimp Products. See also Biranchi Narayan Prasad Panda, WTO Dispute Settlement and Concerns of Developing Countries (Deutschland: Lambert Academic Publishing,2013), p.169-188. 49 Ibid. 50 Ibid.

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Details of the Dispute This dispute is the result of a ban by U.S. on the importation of shrimp and shrimp products from India, Malaysia, Pakistan and Thailand, under Section 609 of U.S. Public law. This U.S. law restricts the entry of shrimp and shrimp products into the U.S. from countries that kill turtles while catching shrimp. In fact, shrimp of only those countries that use turtle-friendly technology is allowed unrestricted entry into the U.S. But there was an exception to this law where importation of shrimp (in cases where turtles were killed) was permitted provided the concerned country had a programme aimed at conserving turtles or controlling the incidental deaths of turtles while catching shrimp, similar to the one the U.S. had. Further, those countries that did not have a measure or mechanism aimed at conserving or controlling turtle deaths were allowed to export shrimp to the U.S. with the condition that they used turtle excluding devices (TED) more or less similar to those used in the United States. Interestingly, India, Pakistan, Malaysia and Thailand neither used TEDs nor had a measure or mechanism aimed at conserving or controlling the deaths of turtles.51 Consultations India, Pakistan, Malaysia and Thailand requested consultations with the U.S in the aftermath of ban but the DSU report shows that the consultation did not produce positive results. Panel After the failure of consultation, Malaysia and Thailand made a request for the panel on January 9, 1997. Then came the request of Pakistan on January 30, 1997 and consequently a panel was established on February 25, 1997. India also made a request for the establishment of a panel on the same matter and on the same day and another panel was established. Later on the two panels were merged to form a single panel on April 15, 1997. The panel held that “the ban imposed by the U.S. on the import of shrimp from these four countries was in violation of Article XI of GATT. Article XI prohibits countries from maintaining quantitative restrictions (QR) on imports. A careful reading of Article XI.1 would show that countries cannot impose any prohibitions or restrictions on imports coming from other countries, either in the form of quotas or import/export licenses. The only form of restriction that a country can employ is the imposition of tariffs. In other words, countries are not allowed to impose non-tariff barriers except in certain cases such as critical shortages of food stuff, the application of food standards, or to safeguard any balance of payment problem.”52 While 51 52

Ibid. Ibid

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reflecting on the validity of the U. S. ban on shrimp, the panel found it equivalent to a quantitative restriction and consequently was found to be in clear conflict with its obligations under Article XI of GATT. Appellate Body (AB) The United States having been dissatisfied with panel’s findings challenged it before the Appellate body. While reversing the findings of the panel, appellate body said that the use of unilateral measures could not be considered to be per se inconsistent with the principles of the multilateral trading regime. The Appellate Body by reversing the panel’s decision actually rejected the jurisprudence that had evolved out of the TunaDolphin dispute. Since the reason for finding the move illegal as given by the Appellate Body was entirely different as compared to the panel’s reasoning, it did not mean that the Appellate Body found the U.S. ban on shrimp legal53 From the above cases studies it looks like that it never ending disputes within the multilateral framework have not only become spiteful but have even questioned the viability of DSB as trade resolution body. It is important to note that Shrimp- Turtle dispute has raised two important issues related to the process of dispute settlement under the Dispute Settlement Understanding which are -: (i)

Is the Appellate Body permitted to assume to itself the role reserved for member countries? and

(ii)

Can Non-Governmental Organisations take greater privileges in comparison to those accorded to WTO member countries?

The questions raised here need serious attention and may very well be taken as part of the agenda for the review of Dispute Settlement Understanding by developing Countries whenever the actual negotiations for the review of Dispute Settlement understanding starts in future. The differences between India and the United States over intellectual property rights (IPR) could disturb otherwise smooth economic relations between these two important trading partners and it would be possible to resolve them through negotiations. One of the most positive gesture was the de U.S. decision not to designate India a Priority Foreign Country (PFC) on account of alleged ‘’deterioration’’ in its environment for IPRs, in special 301 report released on 30 April, 2014. In fact, designating a country as a Priority Foreign Country (PFC) in Special 301 Report is a declaration that such a country is a worst IPR offender. Moreover, the U.S. could have decided to impose trade sanctions on India but that could certainly have deteriorated the economic relations between 53

Ibid.

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the two countries. India has now been retained on the less serious Priority Watch List (PWL).54The WTO history shows that the disagreement between India and U.S. relating to intellectual property rights issues appeared during the Uruguay Round Talks when India along with some other developing countries insisted on the entry of flexible measures in the TRIPS Agreement which they were able to secure as well. It is indeed, an irony that India could not utilize more than twice, those flexible measures after incorporating them into its domestic laws in 2005. The first instance relates to a German multinational Bayer selling a cancer drug at such a high price which was well beyond the reach of a majority of Indian patients suffering from this deadly decease and to meet out the problem of high prices a compulsory license was issued to an Indian manufacturer. The second instance is the denial of patent on drugs to U.S. pharmaceutical giant Novartis on the ground that the drug did not exhibit enhanced efficacy and what was found was just an incremental innovation. It were not these instances which alone led to the opposition of India’s IPR regime by big pharmaceutical companies but it was actually the fear that other countries might follow Indian path in future that led to the India’s opposition by the big corporations.55

CONCLUSION It is crystal clear from the above discussion that India has been more active participant in the Dispute Settlement Body of the World Trade Organisation during last about two decades than other developing countries. India has been a party in 41 disputes out of a total 482 dispute brought so far before the Dispute Settlement Body (DSB) which is not an insignificant share of participation by a developing country like India. It has also been observed that most of the time either the complainant or defendant had been United States or European Communities which are the most frequent users of the Dispute Settlement Process of WTO. An analysis of the cases involving India shows that the powerful shadow of developed countries still surrounds in its own way over the legal mechanism of the WTO. The most pertinent example is India- Patents Case in which the final victory was that of United States. It is ironic that in most of the cases the recommendations of Panel and Appellate Body are often being delayed on one pretext or the other and have many times not been implemented particularly by the developed countries. Is it not a strong indicator of ‘power show’ of economic giants? While in case of developing or least developed countries the situation is totally different. Till date developing countries have maintained good faith by suitably implementing recommendations as required by the Panels or the Appellate Body and still waiting for the same in reverse from the developed 54 55

Editor’s Colum, ‘Discussions, The way forward’, The Hindu, Thursday, May 8, 2014. Ibid.

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countries. Hence the time has come wherein the developed countries need to consider the impact they are creating on the credibility and legitimacy of the WTO by not implementing their obligations which certainly affects the WTO regime. It is also evident that all is not well with the dispute settlement system of WTO when it comes to disputes involving a developing country member of the WTO. India is no exception to the general attitude of indifference adopted by the Panels and the Appellate Body. India needs to be more cautious in future and needs to coordinate with Like-Minded Group so that it could take some concrete steps towards the protection of its own interest in WTO regime in the increasing economic complexities of the modern world. It is, indeed, extremely disturbing to note that Bodies/Institutions created to render ‘justice’, while resolving trade disputes tilt the balance against the weaker party and hence adversely affect the fundamental principles of justness, fairness and reasonableness.

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