THE INFLATION WORRIERS::Assocham REPORT

The Assocham study has identified that the present inflationary pressure has originally started in the form of food and fuel prices hike in the first half of the year 2009-10. By the second half of 2009-10, mainly helped by the persistent supply side pressures and bad monsoons, it was generalized.




Though in the month of November 2010 owing to some transient reasons like new crop arrivals in the markets, inflation has temporarily come down, the long term supply side constraints coupled with higher level of domestic demand pressure and hardening material and fuel prices in the external markets will not allow the inflation to soften in the near future.



The study has stated that the inflation expectations are presently well anchored and ‘Inflation Expectations Survey of Households’ conducted by Reserve Bank proved the same. The survey assessed the inflation expectations of 4000 households across 12 cities for the October-December quarter as well as for the year ahead.



It was found that households expect inflation to rise further by 20 and 60 basis points during the next quarter and the next one year respectively. The survey revealed also that expectations of general price rise are mainly influenced by movement in prices of food products, housing and non-food products.



As regards the industrial sector, continued hyper-inflation has been putting pressure on the Indian manufacturing sector. The much higher increase in the prices of primary products, wages and fuel, as compared to that of manufactured products have been eroding the price cost margins of firms

These inflation figures, says the chamber study, indicate the play of both domestic and external factors. Prices of fuel and primary products have substantial external and policy influences. Manufacturing inflation reflects the performance of the domestic private sector as also has influenced by the exchange rate and global inflationary conditions.




The year-on-year inflation rates given in Table 1 show that the prices of primary articles that had started picking up in the wake of expected economic recovery in 2009 continued with that trend in the current fiscal as well. Prices of the main inputs of manufacturing sector, the primary articles, increased by 18.0 percent during April-November 2010 on year-over-year basis.



Higher prices of primary articles, especially rise in food prices, indirectly also effects the production by first pushing up the cost of living which, makes labour to ask for wage hikes and higher wage costs will in turn result in soaring cost of production.



As for the fuel inflation, it has also registered 12.5 percent in the first eight months of the current fiscal as against a negative growth in the corresponding period of the previous year. Thus, if we consider manufacturing as the process of transforming primary articles into finished products by working on them with the help of labour and machines that work on fuel, all the three major operating costs of manufacturing sector viz., raw material cost, labour and fuel costs are all increased owing to persistence of higher inflation rates.



According to ASSOCHAM, presently there exists a huge gap between the price received by the producer and the price paid by the consumer. This gap needs to be filled by creating transport and storage infrastructure to the required extent. The government needs to regulate the functioning of the agriculture markets.



Assocham study has found that a long chain of intermediators benefit from the gap between the price the farmer gets and the price the consumer pays. Besides these intermediators have no stake in the supporting the farmer with required inputs or giving him timely and useful market information.



This is the basic cause for a large number of government schemes falling flat on the farm front. Many farmers commit suicide because they have no one to guide them through the intricacies of the tricky market for farm products and also from failure to gain effective farm practices and inputs.



If the logistics and storage side is not addressed adequately by the Government at the centre and the states the food inflation will continue to rise even may touch again to very alarming rate and generate tremendous disaffection.

INFLATION WORRISOME

2011 may continue to give pain on food inflation to the government and put pressure on the manufacturing sector due to the hyper-inflation, says the Assocham paper on “Realizing the Objective of Stabilized Inflation”.




The paper says the major draw back of the country’s inflation control strategy is that it always considers inflation as a seasonal and temporary problem. Monsoon failure has always been dubbed as the main cause of inflation. Similarly, above average rainfall has been interpreted as the end of hyperinflation era. In reality, besides the domestic climatic conditions, external market conditions, logistics deficiency, unauthorized hoarding and ineffective agriculture policy too have been the major causes of inflation.



Rather the current food inflation needs to be seen from two angles: one, there is a shift in income brackets with the growth of the middle class as a result of industrialization and growth of services raising demand pressure, and two, the gap between producer prices and consumer prices is widening with retailing at consumer level a highly profitable job as demand pressure increases.

THE EGYPT affairs :: WHAT NEXT ?

Egyptian President Hosni Mubarak said Thursday he would remain in office until his term ends in September while ceding authority to Vice President Omar Suleiman. His address to the nation, and a following speech by Suleiman, served only to further inflame the hundreds of thousands of protesters in Cairo’s Tahrir Square who had expected to hear that he was stepping down altogether. Experts were divided on whether Egypt’s army, its most powerful and respected institution, would side with demonstrators and force Mubarak out.




Whether this would result in democratic rule, however, remains a very open question. If Suleiman takes full power, he is expected to be a ruthless authoritarian akin to Mubarak, and there is little reason to expect an honest election later this year. But if the army takes over and announces it will oversee a transition to democracy, there is vast uncertainty as well.



One survey by Pechter Middle East Polls shows the most powerful factor driving recent demonstrations is anger over the economy and high unemployment, especially among well-educated young people. The same poll says the Muslim Brotherhood – the powerful religious group feared by the U.S., Israel and Mubarak alike – is only viewed positively by 15 percent of the those surveyed. This offers hope for creation of a secular, Turkey-like democracy.



However, other polls are alarming. A Gallup survey showed Egyptians support democracy, but most define the term as theocracy, with two-thirds saying Islamic law alone should govern the country. This suggests creation of a nominal democracy dominated by Muslim authoritarians – a prospect that bodes ill for Egypt’s Coptic Christian minority and could prompt the army to suspend a transition to democracy.



The implications of this tumult for the U.S. – and Israel, which has peacefully cooperated with its western neighbor for three decades – are unsettling. If the army maintains power with U.S. support – and the continuation of $2 billion in annual U.S. aid – only an economic turnaround is likely to stem further public unrest. But changing who governs Egypt won’t in the short term change endemic problems – corrupt public institutions, relatively few natural resources, poorly developed export industries – that keep the economy weak. A revolt remains possible, one that could bring to power an Iran-style regime that abrogates the Egypt-Israel peace treaty and turns the Sinai Peninsula into a battleground again.



Obviously, the stakes are high, and not just for Egyptians yearning for change.



Meanwhile, the Arab world’s perception of U.S. hypocrisy is likely to grow. America’s preference for stable regimes, dictatorial or otherwise, may be defensible, but it is hard to reconcile with our noble rhetorical championing of democracy. So much for a “hearts and minds” strategy to improve the U.S. image in the Middle East and in other Islamic nations so as to lessen the support for jihad against the West.

TAX STRUCTURE in India

Tax Structure in India


The Tax Structure present in India is very strong and it follows the financial year. The taxation as per the tax structure in India is applicable for any kind of income pertaining to any person working as an employee in the public sector units or private sector units or foreign companies in India or in Departments of the State Governments of India, or Departments of the Central Government of India or is self employed and engaged in commercial activities which are legal in nature.



Several corporations that are engaged in commercial activities also come under taxation. The public bodies as well as state governments and central government have clear demarcation of their functioning. Central government imposes tax on all types of income such as customs duties, central excise, and service tax apart from the income pertaining to agriculture. The State Governments of India are responsible for imposing tax such as sales tax, Value Added Tax (VAT), income from agriculture, professional tax, state excise duty, land revenue, etc. Taxes imposed by the local bodies pertain to Octroi tax, drainage and sewage utilities, water supply utilities, property tax, etc.



Different types of taxes levied under tax structure in India:



•Direct Taxes

•Personal Income Tax

•Tax on Corporate Income

•Tax Incentives

•Capital Gains Tax

•Indirect Taxes

•Securities Transaction Tax

•Service Tax

•Excise Duty

•Customs Duty

•Taxes Levied by the State Governments and Local Bodies

•Other Taxes

•Sales Tax or Value Added Tax

Different heads of income under tax structure in India:



•Salary

•House property

•Profit in business or profession

•Capital gains

•Other sources

The different types of exemption schemes under tax structure in India:



•Exemption on income spent for higher educational purpose

•Exemption on income spent on the treatment of a diseased person if he/she is dependent

•Exemption on income that is spent as contribution towards provident fund, insurance policies, etc

•Exemption on the income that is spent on buying national savings certificates as well as investments in other government based savings schemes

•Exemption on income of a disabled person

•Exemption on income spent for payment of interest on loan

Other important facts under tax structure in India:



•The laws pertaining to central government income tax collection & recovery is governed by Department of Tax and Revenue under the Ministry of Finance, India

•The system of taxation completely depends on the personal assessment of income

•Penalties as well as interest are charged incase of non payment of taxes & failure to file returns

•The filing date cannot be extended. Any late filing is charged with interest

•Returns pertaining to losses need to be filed within the due date

•All the medium sized and large sized taxpayers are subject to investigative assessment

•For the purpose of filing returns, designated due dates are ascertained

•Tax is deducted at source by employers on behalf of employees as well as from all types of defrayments to non residents

Major policy changes in Indian Aviation

The new civil aviation policy to be announced soon is expected to radically change the existing norms. If deregulation is the trend in all sectors in India, aviation is fast with disinvestment along with deregulation. The government has already decided to dilute its stake in Indian Airlines and give the management to a strategic partner.

The new policy is expected to allow domestic airlines to fly on international routes and privatize most aviation infrastructure like ground handling, training and aviation support services. To encourage aircraft manufacturing in the country the government may allow 100 per cent foreign equity in aircraft manufacturing. There are plans for a new aviation regulatory body to replace DGCA (Director General Civil Aviation) on a model based on British CAA. The new regulator with statutory autonomy is expected to be a watch dog and a facilitator.



Next important development is the decision to dilute government stake in all aviation companies except Airport Authority Of India. The government is planing to become minority share holders in Air-India the international airline, Indian Airlines the domestic airline and Pawan Hans which hire and operate helicopters.



First step has already been taken with the Government decision to sell its majority stake in Indian Airlines (IA), the company which was a monopoly till a few years ago in the domestic aviation sector. The Cabinet Committee on Disinvestment (CCD) has decided to offload 51 per cent in Indian Airlines. Out of this 26 per cent stake will be given to a strategic partner and the remaining 25 per cent will be shared by financial institutions (FIs), employees and the public. The strategic partner will be decided through a bidding process.



The strategic partner with 26 percent stake will be given a free hand in running the airline under the supervision of a board, which will be clearly defined in the shareholder agreement keeping in view national security and possible emergency requirements. The agreement will be finalized and approved by the Government before financial bids are invited from the prospective partners. There are however issues which will keep many potential parties especially foreign airlines away. Those bidding for the 26 per cent stake cannot have more than 40 per cent foreign equity because of the stipulations in the present domestic air transport policy and foreign airlines cannot be a joint venture strategic partner to pick up the 26 per cent stake as per the present law.



An inter-ministerial group (IMG) will decide how the 25 per cent stake should be split between FIs, IA employees and the general public. The group will select a suitable global advisor to help in market analysis, preparation of documents and advise the Government on the specific steps to be taken for implementing the disinvestment. The Inter Ministerial Group will consist of representatives of the divestment department, the civil aviation ministry, department of public enterprises, department of economic affairs of the finance ministry and IA.

What’s stopping airlines from flying the big bird to India?

New Delhi’s swanky Terminal 3 has only had a fleeting visit from the world’s largest and most modern passenger aircraft, the A380 super jumbo.




So what’s stopping airlines from flying the big bird to India?



The simple answer is India’s Ministry of Civil Aviation, which is doing the equivalent of flashing the dreaded yellow and red lights that keep aircraft on hold, interminably.



The ministry has held back permission without citing any reasons, but aviation circles are rife with speculation that the motive is to protect Indian carriers. Some domestic airlines that fly to Europe are worried that the A380 would take away passengers from their routes, with travelers lured by the new aircraft and attractive fares that are possible with the larger, more economical plane.



If true, such a deliberate delay would be short-sighted and ultimately against India’s own interests. Indian carrier Kingfisher has five A380s on order and the option to buy five more. Air India, which has a strong partnership with Lufthansa, could also make the A380 available to its customers through its existing code-share agreement with the German carrier on the Delhi-Frankfurt route.



Lufthansa was expected to start flying the A380 on the Delhi-Frankfurt route with the opening of T3. The airline announced as much, but then it wasn’t allowed to fly the super jumbo to India, and instead had to deploy it elsewhere.



To date, European aircraft manufacturer Airbus has 234 orders worldwide for the A380 (including more than 40 deliveries). The largest customer by far is Dubai-based Emirates, which already operates 15 of its total order of 90 aircraft. Of India’s seven scheduled carriers, only Kingfisher has put in orders for the aircraft. Barring any further production delays or deferments, deliveries to Kingfisher will start in 2014. Other airlines, particularly from Europe and Asia-Pacific, have placed more sizable orders and many already operate the super jumbo.



Emirates, Lufthansa, Singapore Airlines, Qantas and other airlines are keen to fly their newly acquired fleet to India, which has become one of the world’s fastest-growing aviation markets. It is in India’s interests to welcome the world’s newest aircraft.



Given its unrivalled fuel efficiency, the A380 would help meet the nation’s air-travel demands in an environmentally friendly way. Anyone who has had the pleasure of flying in the aircraft will attest to the outstanding on-board experience and state-of-the-art service standards. It would also help India in its efforts to come up with an answer to its strongest competitors in aviation: Dubai Airport and Singapore’s Changi. Both these airports function as de facto hubs for India, and beefing up traffic and service in Delhi would allow India to gain some ground and reduce the need for nearby hubs.



Gulf carrier Emirates conducted A380 test flights to Delhi and Mumbai in May 2007 and operated a proving flight from Dubai to Delhi to validate the demand of such a route. In order to test T3 for operational readiness prior to its opening last year, Emirates was also allowed to combine two of its flights, on regular aircraft, into one flight on the super jumbo to Delhi on July 15, 2010. The flight and all handling procedures at the airport went without a hitch. Given the huge traffic volumes between India and the Gulf, the carrier is waiting for approval to operate regular flights using its fleet of large aircraft.



Delhi International Airport Pvt. Ltd. (DIAL), the developer and operator of Indira Gandhi International Airport, is keen to receive the 525-seater aircraft on a regular basis. The airport has been designed specifically to cater for large, so called “code F” type aircraft. The 4,430 meter runway at T3 is one of the longest in Asia and has all the facilities needed to handle the super jumbo. Accommodating a regular A380 operation would not only add prestige to India’s capital airport but also showcase recent efforts to upgrade the country’s airport infrastructure.



It would also help the airport earn the necessary returns on its considerable investments in state-of-the-art A380 infrastructure, which otherwise lies unused.



There is no reason why India should linger while China‘s aviation industry, which has also undergone huge infrastructure improvements, has attracted large foreign investments that have catapulted the country into the premier league of aviation nations. In 2010, Beijing Capital Airport made it to the Top 10 of the Skytrax global airport rankings –surpassing North American and European airports, including big shots such as London’s Heathrow and Charles de Gaulle in Paris. Today, A380s are daily visitors to Beijing. There are many parallels between Beijing’s Capital Airport and Delhi’s T3. Both were opened just before the hosting of major international events; the 2008 Beijing Olympics and last year’s Commonwealth Games in Delhi. Both airports are meant to reflect their nations’ status as leading world economies.



Allowing the A380 to operate commercially has many other benefits, including low noise pollution levels. According to Airbus, the A380’s noise level is about 50% lower than that of many competing long-haul aircraft. This would offer some respite to residents living under an airport’s flight path.



Delhi is not the only Indian airport capable of handling the A380. Considerable investments have been or are being made to upgrade other airports across the country: Chennai, Hyderabad, Kolkata and of course Mumbai. All would benefit greatly from the additional capacity the aircraft brings to congested skies and runways.



A380 operators, passengers and India’s gateway airports are clearly ready to let the big bird nest on the subcontinent. It’s hard to see how India, which over the last couple of years has been adding world-class airport infrastructure, will become a globally competitive aviation hub without the A380 flying here.



Sooner or later the aircraft will surely take to India’s skies. Let’s hope that Vayalar Ravi, India’s newly appointed Minister for Civil Aviation, will adopt a forward-looking policy that speeds up what is right for the industry and the economy, rather than letting short-sighted politics delay the inevitable.

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Government Procurement




The Final Act contains an agreement related to accession procedures to the Government Procurement Agreement which is designed to facilitate the membership of developing countries. It envisages consultations between the existing members and applicant governments. These would be followed by the establishment of accession working parties to examine the offers made by applicant countries (in other words, the public entities whose procurement will be opened up to international competition) as well as the export opportunities for the applicant country in the markets of existing signatories.



This agreement should be distinguished from the new Agreement on Government Procurement.

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Decision on achieving greater coherence in global economic policy-making




This will set out concepts and proposals with respect to achieving greater coherence in global economic policy-making. Among other things, the text notes that greater exchange rate stability based on more orderly underlying economic and financial conditions should contribute to “the expansion of trade, sustainable growth and development, and the timely correction of external imbalances”. It recognizes that while difficulties whose origins lie outside the trade field cannot be redressed through measures taken in the trade field alone, there are nevertheless interlinkages between the different aspects of economic policy. Therefore, WTO is called upon to develop its cooperation with the international organizations responsible for monetary and financial matters. In particular, the Director-General of WTO is called upon to review, with his opposite numbers in the World Bank and the International Monetary Fund, the implications of WTO’s future responsibilities for its cooperation with the Bretton Woods institutions.

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Trade Policy Review Mechanism




An agreement confirms the Trade Policy Review Mechanism, introduced at the time of the Mid-term Review, and encourages greater transparency in national trade policy-making. A further Ministerial decision reforms the notification requirements and procedures generally.

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Understanding on Rules and Procedures Governing the Settlement of Disputes




The dispute settlement system of the GATT is generally considered to be one of the cornerstones of the multilateral trade order. The system has already been strengthened and streamlined as a result of reforms agreed following the Mid-Term Review Ministerial Meeting held in Montreal in December 1988. Disputes currently being dealt with by the Council are subject to these new rules, which include greater automaticity in decisions on the establishment, terms of reference and composition of panels, such that these decisions are no longer dependent upon the consent of the parties to a dispute. The Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) will further strengthen the existing system significantly, extending the greater automaticity agreed in the Mid-Term Review to the adoption of the panels’ and a new Appellate Body’s findings. Moreover, the DSU will establish an integrated system permitting WTO Members to base their claims on any of the multilateral trade agreements included in the Annexes to the Agreement establishing the WTO. For this purpose, a Dispute Settlement Body (DSB) will exercise the authority of the General Council and the Councils and committees of the covered agreements.



The DSU emphasizes the importance of consultations in securing dispute resolution, requiring a Member to enter into consultations within 30 days of a request for consultations from another Member. If after 60 days from the request for consultations there is no settlement, the complaining party may request the establishment of a panel. Where consultations are denied, the complaining party may move directly to request a panel. The parties may voluntarily agree to follow alternative means of dispute settlement, including good offices, conciliation, mediation and arbitration.



Where a dispute is not settled through consultations, the DSU requires the establishment of a panel, at the latest, at the meeting of the DSB following that at which a request is made, unless the DSB decides by consensus against establishment. The DSU also sets out specific rules and deadlines for deciding the terms of reference and composition of panels. Standard terms of reference will apply unless the parties agree to special terms within 20 days of the panel’s establishment. And where the parties do not agree on the composition of the panel within the same 20 days, this can be decided by the Director-General. Panels normally consist of three persons of appropriate background and experience from countries not party to the dispute. The Secretariat will maintain a list of experts satisfying the criteria.



Panel procedures are set out in detail in the DSU. It is envisaged that a panel will normally complete its work within six months or, in cases of urgency, within three months. Panel reports may be considered by the DSB for adoption 20 days after they are issued to Members. Within 60 days of their issuance, they will be adopted, unless the DSB decides by consensus not to adopt the report or one of the parties notifies the DSB of its intention to appeal.



The concept of appellate review is an important new feature of the DSU. An Appellate Body will be established, composed of seven members, three of whom will serve on any one case. An appeal will be limited to issues of law covered in the panel report and legal interpretations developed by the panel. Appellate proceedings shall not exceed 60 days from the date a party formally notifies its decision to appeal. The resulting report shall be adopted by the DSB and unconditionally accepted by the parties within 30 days following its issuance to Members, unless the DSB decides by consensus against its adoption.



Once the panel report or the Appellate Body report is adopted, the party concerned will have to notify its intentions with respect to implementation of adopted recommendations. If it is impracticable to comply immediately, the party concerned shall be given a reasonable period of time, the latter to be decided either by agreement of the parties and approval by the DSB within 45 days of adoption of the report or through arbitration within 90 days of adoption. In any event, the DSB will keep the implementation under regular surveillance until the issue is resolved.



Further provisions set out rules for compensation or the suspension of concessions in the event of non-implementation. Within a specified time-frame, parties can enter into negotiations to agree on mutually acceptable compensation. Where this has not been agreed, a party to the dispute may request authorization of the DSB to suspend concessions or other obligations to the other party concerned. The DSB will grant such authorization within 30 days of the expiry of the agreed time-frame for implementation. Disagreements over the proposed level of suspension may be referred to arbitration. In principle, concessions should be suspended in the same sector as that in issue in the panel case. If this is not practicable or effective, the suspension can be made in a different sector of the same agreement. In turn, if this is not effective or practicable and if the circumstances are serious enough, the suspension of concessions may be made under another agreement.



One of the central provisions of the DSU reaffirms that Members shall not themselves make determinations of violations or suspend concessions, but shall make use of the dispute settlement rules and procedures of the DSU.



The DSU contains a number of provisions taking into account the specific interests of the developing and the least-developed countries. It also provides some special rules for the resolution of disputes which do not involve a violation of obligations under a covered agreement but where a Member believes nevertheless that benefits are being nullified or impaired. Special decisions to be adopted by Ministers in 1994 foresee that the Montreal Dispute Settlement Rules which would otherwise have expired at the time of the April 1994 meeting are extended until the entry into force of the WTO. Another decision foresees that the new rules and procedures will be reviewed within four years after the entry into force of the WTO.

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Agreement on Trade Related Aspects of Intellectual Property Rights, Including Trade in Counterfeit Goods




The agreement recognises that widely varying standards in the protection and enforcement of intellectual property rights and the lack of a multilateral framework of principles, rules and disciplines dealing with international trade in counterfeit goods have been a growing source of tension in international economic relations. Rules and disciplines were needed to cope with these tensions. To that end, the agreement addresses the applicability of basic GATT principles and those of relevant international intellectual property agreements; the provision of adequate intellectual property rights; the provision of effective enforcement measures for those rights; multilateral dispute settlement; and transitional arrangements.



Part I of the agreement sets out general provisions and basic principles, notably a national-treatment commitment under which the nationals of other parties must be given treatment no less favourable than that accorded to a party’s own nationals with regard to the protection of intellectual property. It also contains a most-favoured-nation clause, a novelty in an international intellectual property agreement, under which any advantage a party gives to the nationals of another country must be extended immediately and unconditionally to the nationals of all other parties, even if such treatment is more favourable than that which it gives to its own nationals.



Part II addresses each intellectual property right in succession. With respect to copyright, parties are required to comply with the substantive provisions of the Berne Convention for the protection of literary and artistic works, in its latest version (Paris 1971), though they will not be obliged to protect moral rights as stipulated in Article 6bis of that Convention. It ensures that computer programs will be protected as literary works under the Berne Convention and lays down on what basis data bases should be protected by copyright. Important additions to existing international rules in the area of copyright and related rights are the provisions on rental rights. The draft requires authors of computer programmes and producers of sound recordings to be given the right to authorize or prohibit the commercial rental of their works to the public. A similar exclusive right applies to films where commercial rental has led to widespread copying which is materially impairing the right of reproduction. The draft also requires performers to be given protection from unauthorized recording and broadcast of live performances (bootlegging). The protection for performers and producers of sound recordings would be for no less than 50 years. Broadcasting organizations would have control over the use that can be made of broadcast signals without their authorization. This right would last for at least 20 years.



With respect to trademarks and service marks, the agreement defines what types of signs must be eligible for protection as a trademark or service mark and what the minimum rights conferred on their owners must be. Marks that have become well-known in a particular country shall enjoy additional protection. In addition, the agreement lays down a number of obligations with regard to the use of trademarks and service marks, their term of protection, and their licensing or assignment. For example, requirements that foreign marks be used in conjunction with local marks would, as a general rule, be prohibited.



In respect of geographical indications, the agreement lays down that all parties must provide means to prevent the use of any indication which misleads the consumer as to the origin of goods, and any use which would constitute an act of unfair competition. A higher level of protection is provided for geographical indications for wines and spirits, which are protected even where there is no danger of the public’s being misled as to the true origin. Exceptions are allowed for names that have already become generic terms, but any country using such an exception must be willing to negotiate with a view to protecting the geographical indications in question. Furthermore, provision is made for further negotiations to establish a multilateral system of notification and registration of geographical indications for wines.



Industrial designs are also protected under the agreement for a period of 10 years. Owners of protected designs would be able to prevent the manufacture, sale or importation of articles bearing or embodying a design which is a copy of the protected design.



As regards patents, there is a general obligation to comply with the substantive provisions of the Paris Convention (1967). In addition, the agreement requires that 20-year patent protection be available for all inventions, whether of products or processes, in almost all fields of technology. Inventions may be excluded from patentability if their commercial exploitation is prohibited for reasons of public order or morality; otherwise, the permitted exclusions are for diagnostic, therapeutic and surgical methods, and for plants and (other than microorganisms) animals and essentially biological processes for the production of plants or animals (other than microbiological processes). Plant varieties, however, must be protectable either by patents or by a sui generis system (such as the breeder’s rights provided in a UPOV Convention). Detailed conditions are laid down for compulsory licensing or governmental use of patents without the authorization of the patent owner. Rights conferred in respect of patents for processes must extend to the products directly obtained by the process; under certain conditions alleged infringers may be ordered by a court to prove that they have not used the patented process.



With respect to the protection of layout designs of integrated circuits, the agreement requires parties to provide protection on the basis of the Washington Treaty on Intellectual Property in Respect of Integrated Circuits which was opened for signature in May 1989, but with a number of additions: protection must be available for a minimum period of 10 years; the rights must extend to articles incorporating infringing layout designs; innocent infringers must be allowed to use or sell stock in hand or ordered before learning of the infringement against a suitable royalty: and compulsory licensing and government use is only allowed under a number of strict conditions.



Trade secrets and know-how which have commercial value must be protected against breach of confidence and other acts contrary to honest commercial practices. Test data submitted to governments in order to obtain marketing approval for pharmaceutical or agricultural chemicals must also be protected against unfair commercial use.



The final section in this part of the agreement concerns anti-competitive practices in contractual licences. It provides for consultations between governments where there is reason to believe that licensing practices or conditions pertaining to intellectual property rights constitute an abuse of these rights and have an adverse effect on competition. Remedies against such abuses must be consistent with the other provisions of the agreement.



Part III of the agreement sets out the obligations of member governments to provide procedures and remedies under their domestic law to ensure that intellectual property rights can be effectively enforced, by foreign right holders as well as by their own nationals. Procedures should permit effective action against infringement of intellectual property rights but should be fair and equitable, not unnecessarily complicated or costly, and should not entail unreasonable time-limits or unwarranted delays. They should allow for judicial review of final administrative decisions. There is no obligation to put in place a judicial system distinct from that for the enforcement of laws in general, nor to give priority to the enforcement of intellectual property rights in the allocation of resources or staff.



The civil and administrative procedures and remedies spelled out in the text include provisions on evidence of proof, injunctions, damages and other remedies which would include the right of judicial authorities to order the disposal or destruction of infringing goods. Judicial authorities must also have the authority to order prompt and effective provisional measures, in particular where any delay is likely to cause irreparable harm to the right holder, or where evidence is likely to be destroyed. Further provisions relate to measures to be taken at the border for the suspension by customs authorities of release, into domestic circulation, of counterfeit and pirated goods. Finally, parties should provide for criminal procedures and penalties at least in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale. Remedies should include imprisonment and fines sufficient to act as a deterrent.



The agreement would establish a Council for Trade-Related Aspects of Intellectual Property Rights to monitor the operation of the agreement and governments’ compliance with it. Dispute settlement would take place under the integrated GATT dispute-settlement procedures as revised in the Uruguay Round.



With respect to the implementation of the agreement, it envisages a one-year transition period for developed countries to bring their legislation and practices into conformity. Developing countries and countries in the process of transformation from a centrally-planned into a market economy would have a five-year transition period, and least-developed countries 11 years. Developing countries which do not at present provide product patent protection in an area of technology would have up to 10 years to introduce such protection. However, in the case of pharmaceutical and agricultural chemical products, they must accept the filing of patent applications from the beginning of the transitional period. Though the patent need not be granted until the end of this period, the novelty of the invention is preserved as of the date of filing the application. If authorization for the marketing of the relevant pharmaceutical or agricultural chemical is obtained during the transitional period, the developing country concerned must offer an exclusive marketing right for the product for five years, or until a product patent is granted, whichever is shorter.



Subject to certain exceptions, the general rule is that the obligations in the agreement would apply to existing intellectual property rights as well as to new ones.

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General Agreement on Trade in Services




The Services Agreement which forms part of the Final Act rests on three pillars. The first is a Framework Agreement containing basic obligations which apply to all member countries. The second concerns national schedules of commitments containing specific further national commitments which will be the subject of a continuing process of liberalization. The third is a number of annexes addressing the special situations of individual services sectors.



Part I of the basic agreement defines its scope — specifically, services supplied from the territory of one party to the territory of another; services supplied in the territory of one party to the consumers of any other (for example, tourism); services provided through the presence of service providing entities of one party in the territory of any other (for example, banking); and services provided by nationals of one party in the territory of any other (for example, construction projects or consultancies).



Part II sets out general obligations and disciplines. A basic most-favoured-nation (m.f.n.) obligation states that each party “shall accord immediately and unconditionally to services and service providers of any other Party, treatment no less favourable than that it accords to like services and service providers of any other country”. However, it is recognized that m.f.n. treatment may not be possible for every service activity and, therefore, it is envisaged that parties may indicate specific m.f.n. exemptions. Conditions for such exemptions are included as an annex and provide for reviews after five years and a normal limitation of 10 years on their duration.



Transparency requirements include publication of all relevant laws and regulations. Provisions to facilitate the increased participation of developing countries in world services trade envisage negotiated commitments on access to technology, improvements in access to distribution channels and information networks and the liberalization of market access in sectors and modes of supply of export interest. The provisions covering economic integration are analogous to those in Article XXIV of GATT, requiring arrangements to have “substantial sectoral coverage” and to “provide for the absence or elimination of substantially all discrimination” between the parties.



Since domestic regulations, not border measures, provide the most significant influence on services trade, provisions spell out that all such measures of general application should be administered in a reasonable, objective and impartial manner. There would be a requirement that parties establish the means for prompt reviews of administrative decisions relating to the supply of services.



The agreement contains obligations with respect to recognition requirements (educational background, for instance) for the purpose of securing authorizations, licenses or certification in the services area. It encourages recognition requirements achieved through harmonization and internationally-agreed criteria. Further provisions state that parties are required to ensure that monopolies and exclusive service providers do not abuse their positions. Restrictive business practices should be subject to consultations between parties with a view to their elimination.



While parties are normally obliged not to restrict international transfers and payments for current transactions relating to commitments under the agreement, there are provisions allowing limited restrictions in the event of balance-of-payments difficulties. However, where such restrictions are imposed they would be subject to conditions; including that they are non-discriminatory, that they avoid unnecessary commercial damage to other parties and that they are of a temporary nature.



The agreement contains both general exceptions and security exceptions provisions which are similar to Articles XX and XXI of the GATT. It also envisages negotiations with a view to the development of disciplines on trade-distorting subsidies in the services area.



Part III contains provisions on market access and national treatment which would not be general obligations but would be commitments made in national schedules. Thus, in the case of market access, each party “shall accord services and service providers of other Parties treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its schedule”. The intention of the market-access provision is to progressively eliminate the following types of measures: limitations on numbers of service providers, on the total value of service transactions or on the total number of service operations or people employed. Equally, restrictions on the kind of legal entity or joint venture through which a service is provided or any foreign capital limitations relating to maximum levels of foreign participation are to be progressively eliminated.



The national-treatment provision contains the obligation to treat foreign service suppliers and domestic service suppliers in the same manner. However, it does provide the possibility of different treatment being accorded the service providers of other parties to that accorded to domestic service providers. However, in such cases the conditions of competition should not, as a result, be modified in favour of the domestic service providers.



Part IV of the agreement establishes the basis for progressive liberalization in the services area through successive rounds of negotiations and the development of national schedules. It also permits, after a period of three years, parties to withdraw or modify commitments made in their schedules. Where commitments are modified or withdrawn, negotiations should be undertaken with interested parties to agree on compensatory adjustments. Where agreement cannot be reached, compensation would be decided by arbitration.



Part V of the agreement contains institutional provisions, including consultation and dispute settlement and the establishment of a Council on Services. The responsibilities of the Council are set out in a Ministerial Decision.



The first of the annexes to the agreement concerns the movement of labour. It permits parties to negotiate specific commitments applying to the movement of people providing services under the agreement. It requires that people covered by a specific commitment shall be allowed to provide the service in accordance with the terms of the commitment. Nevertheless, the agreement would not apply to measures affecting employment, citizenship, residence or employment on a permanent basis. The annex on financial services (largely banking and insurance) lays down the right of parties, notwithstanding other provisions, to take prudential measures, including for the protection of investors, deposit holders and policy holders, and to ensure the integrity and stability of the financial system. However, a further understanding on financial services would allow those participants who choose to do so to undertake commitments on financial services through a different method. With respect to market access, the understanding contains more detailed obligations on, among other things, monopoly rights, cross-border trade (certain insurance and reinsurance policy writing as well as financial data processing and transfer), the right to establish or expand a commercial presence, and the temporary entry of personnel. The provisions on national treatment refer explicitly to access to payments and clearing systems operated by public entities and to official funding and refinancing facilities. They also relate to membership of, or participation in, self-regulatory bodies, securities or futures exchanges and clearing agencies.



The annex on telecommunications relates to measures which affect access to and use of public telecommunications services and networks. In particular, it requires that such access be accorded to another party, on reasonable and non-discriminatory terms, to permit the supply of a service included in its schedule. Conditions attached to the use of public networks should be no more than is necessary to safeguard the public service responsibilities of their operators, to protect the technical integrity of the network and to ensure that foreign service suppliers do not supply services unless permitted to do so through a specific commitment. The annex also encourages technical cooperation to assist developing countries in the strengthening of their own domestic telecommunications sectors. The annex on air-transport services excludes from the agreement’s coverage traffic rights (largely bilateral air-service agreements conferring landing rights) and directly related activities which might affect the negotiation of traffic rights. Nevertheless, the annex, in its current form, also states that the agreement should apply to aircraft repair and maintenance services, the marketing of air-transport services and computer-reservation services. The operation of the annex would be reviewed at least every five years.



In the final days of the services negotiations, three Decisions were taken — on Financial Services, Professional Services and the Movement of Natural Persons. The Decision on Financial Services confirmed that commitments in this sector would be implemented on an MFN basis, and permits Members to revise and finalize their schedules of commitments and their MFN exemptions six months after the entry into force of the Agreement. Contrary to some media reports, the audio-visual and maritime sectors have not been removed from the scope of the GATS.



Agreement on Trade Related Aspects of Intellectual Property R

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Agreement on Safeguards




Article XIX of the General Agreement allows a GATT member to take a “safeguard” action to protect a specific domestic industry from an unforeseen increase of imports of any product which is causing, or which is likely to cause, serious injury to the industry.



The agreement breaks major ground in establishing a prohibition against so-called “grey area” measures, and in setting a “sunset clause” on all safeguard actions. The agreement stipulates that a member shall not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side. Any such measure in effect at the time of entry into force of the agreement would be brought into conformity with this agreement, or would have to be phased out within four years after the entry into force of the agreement establishing the WTO. An exception could be made for one specific measure for each importing member, subject to mutual agreement with the directly concerned member, where the phase-out date would be 31 December 1999.



All existing safeguard measures taken under Article XIX of the General Agreement 1947 shall be terminated not later than eight years after the date on which they were first applied or five years after the date of entry into force of the agreement establishing the WTO, whichever comes later.



The agreement sets out requirements for safeguard investigation which include public notice for hearings and other appropriate means for interested parties to present evidence, including on whether a measure would be in the public interest. In the event of critical circumstances, a provisional safeguard measure may be imposed based upon a preliminary determination of serious injury. The duration of such a provisional measure would not exceed 200 days.



The agreement sets out the criteria for “serious injury” and the factors which must be considered in determining the impact of imports. The safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment. Where quantitative restrictions are imposed, they normally should not reduce the quantities of imports below the annual average for the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury.



In principle, safeguard measures have to be applied irrespective of source. In cases in which a quota is allocated among supplying countries, the member applying restrictions may seek agreement with others. Members having a substantial interest in supplying the product concerned. Normally, allocation of shares would be on the basis of proportion of total quantity or value of the imported product over a previous representative period. However, it would be possible for the importing country to depart from this approach if it could demonstrate, in consultations under the auspices of the Safeguards Committee, that imports from certain contracting parties had increased disproportionately in relation to the total increase and that such a departure would be justified and equitable to all suppliers. The duration of the safeguard measure in this case cannot exceed four years.



The agreement lays down time limits for all safeguard measures. Generally, the duration of a measure should not exceed four years though this could be extended up to a maximum of eight years, subject to confirmation of continued necessity by the competent national authorities and if there is evidence that the industry is adjusting. Any measure imposed for a period greater than one year should be progressively liberalized during its lifetime. No safeguard measure could be applied again to a product that had been subject to such action for a period equal to the duration of the previous measure, subject to a non-application period of at least two years. A safeguard measure with a duration of 180 days or less may be applied again to the import of a product if at least one year had elapsed since the date of introduction of the measure on that product, and if such a measure had not been applied on the same product more than twice in the five-year period immediately preceding the date of introduction of the measure.



The agreement envisages consultations on compensation for safeguard measures. Where consultations are not successful, the affected members may withdraw equivalent concessions or other obligations under GATT 1994. However, such action is not allowed for the first three years of the safeguard measure if it conforms to the provisions of the agreement, and is taken as a result of an absolute increase in imports.



Safeguard measures would not be applicable to a product from a developing country member, if the share of the developing country member in the imports of the product concerned does not exceed 3 per cent, and that developing country members with less than 3 per cent import share collectively account for no more than 9 per cent of total imports of the product concerned. A developing country member has the right to extend the period of application of a safeguard measure for a period of up to two years beyond the normal maximum. It can also apply a safeguard measure again to a product that had been subject to such an action after a period equal to half of the duration of the previous measure, subject to a non-application period of at least two years.



The agreement would establish a Safeguards Committee which would oversee the operation of its provisions and, in particular, be responsible for surveillance of its commitments.

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Agreement on Subsidies and Countervailing Measures




The Agreement on Subsidies and Countervailing Measures is intended to build on the Agreement on Interpretation and Application of Articles VI, XVI and XXIII which was negotiated in the Tokyo Round.



Unlike its predecessor, the agreement contains a definition of subsidy and introduces the concept of a “specific” subsidy — for the most part, a subsidy available only to an enterprise or industry or group of enterprises or industries within the jurisdiction of the authority granting the subsidy. Only specific subsidies would be subject to the disciplines set out in the agreement.



The agreement establishes three categories of subsidies. First, it deems the following subsidies to be “prohibited”: those contingent, in law or in fact, whether solely or as one of several other conditions, upon export performance; and those contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods. Prohibited subsidies are subject to new dispute settlement procedures. The main features include an expedited timetable for action by the Dispute Settlement body, and if it is found that the subsidy is indeed prohibited, it must be immediately withdrawn. If this is not done within the specified time period, the complaining member is authorized to take countermeasures. (See the section on “Dispute Settlement” for details on the procedures).



The second category is “actionable” subsidies. The agreement stipulates that no member should cause, through the use of subsidies, adverse effects to the interests of other signatories, i.e. injury to domestic industry of another signatory, nullification or impairment of benefits accruing directly or indirectly to other signatories under the General Agreement (in particular the benefits of bound tariff concessions), and serious prejudice to the interests of another member. “Serious prejudice” shall be presumed to exist for certain subsidies including when the total ad valorem subsidization of a product exceeds 5 per cent. In such a situation, the burden of proof is on the subsidizing member to show that the subsidies in question do not cause serious prejudice to the complaining member. Members affected by actionable subsidies may refer the matter to the Dispute Settlement body. In the event that it is determined that such adverse effects exist, the subsidizing member must withdraw the subsidy or remove the adverse effects.



The third category involves non-actionable subsidies, which could either be non-specific subsidies, or specific subsidies involving assistance to industrial research and pre-competitive development activity, assistance to disadvantaged regions, or certain type of assistance for adapting existing facilities to new environmental requirements imposed by law and/or regulations. Where another member believes that an otherwise non-actionable subsidy is resulting in serious adverse effects to a domestic industry, it may seek a determination and recommendation on the matter.



One part of the agreement concerns the use of countervailing measures on subsidized imported goods. It sets out disciplines on the initiation of countervailing cases, investigations by national authorities and rules of evidence to ensure that all interested parties can present information and argument. Certain disciplines on the calculation of the amount of a subsidy are outlined as is the basis for the determination of injury to the domestic industry. The agreement would require that all relevant economic factors be taken into account in assessing the state of the industry and that a causal link be established between the subsidized imports and the alleged injury. Countervailing investigations shall be terminated immediately in cases where the amount of a subsidy is de minimis (the subsidy is less than 1 per cent ad valorem) or where the volume of subsidized imports, actual or potential, or the injury is negligible. Except under exceptional circumstances, investigations shall be concluded within one year after their initiation and in no case more than 18 months. All countervailing duties have to be terminated within 5 years of their imposition unless the authorities determine on the basis of a review that the expiry of the duty would be likely to lead to continuation or recurrence of subsidization and injury.



The agreement recognizes that subsidies may play an important role in economic development programmes of developing countries, and in the transformation of centrally-planned economies to market economies. Least-developed countries and developing countries that have less than $1,000 per capita GNP are thus exempted from disciplines on prohibited export subsidies, and have a time-bound exemption from other prohibited subsidies. For other developing countries, the export subsidy prohibition would take effect 8 years after the entry into force of the agreement establishing the WTO, and they have a time-bound (though fewer years than for poorer developing countries) exemption from the other prohibited subsidies. Countervailing investigation of a product originating from a developing-country member would be terminated if the overall level of subsidies does not exceed 2 per cent (and from certain developing countries 3 per cent) of the value of the product, or if the volume of the subsidized imports represents less than 4 per cent of the total imports for the like product in the importing signatory. For countries in the process of transformation from a centrally-planned into a market economy, prohibited subsidies shall be phased out within a period of seven years from the date of entry into force of the agreement.



In anticipation of the negotiation of special rules in the civil aircraft sector, under the subsidies agreement, civil aircraft products are not subject to the presumption that ad valorem subsidization in excess of 5 per cent causes serious prejudice to the interests of other Members. In addition, the Agreement provides that where repayment of financing in the civil aircraft sector is dependent on the level of sales of a product and sales fall below expectations, this does not in itself give rise to such presumption of serious prejudice.

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Agreement on Import Licensing Procedures




The revised agreement strengthens the disciplines on the users of import licensing systems — which, in any event, are much less widely used now than in the past — and increases transparency and predictability. For example, the agreement requires parties to publish sufficient information for traders to know the basis on which licences are granted. It contains strengthened rules for the notification of the institution of import licensing procedures or changes therein. It also offers guidance on the assessment of applications.



With respect to automatic licensing procedures, the revised agreement sets out criteria under which they are assumed not to have trade restrictive effects. With respect to non-automatic licensing procedures, their administrative burden for importers and exporters should be limited to what is absolutely necessary to administer the measures to which they apply. The revised agreement also sets a maximum of 60 days for applications to be considered.

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Agreement on Rules of Origin




The agreement aims at long-term harmonization of rules of origin, other than rules of origin relating to the granting of tariff preferences, and to ensure that such rules do not themselves create unnecessary obstacles to trade.



The agreement sets up a harmonization programme, to be initiated as soon as possible after the completion of the Uruguay Round and to be completed within three years of initiation. It would be based upon a set of principles, including making rules of origin objective, understandable and predictable. The work would be conducted by a Committee on Rules of Origin (CRO) in the WTO and a technical committee (TCRO) under the auspices of the Customs Cooperation Council in Brussels.



Much work was done in the CRO and the TCRO and substantial progress has been achieved in the three years foreseen in the Agreement for the completion of the work. However, due to the complexity of the issues the HWP could not be finalized within the foreseen deadline. The CRO continued its work in 2000. In December 2000, the General Council Special Session agreed to set, as the new deadline for completion of the remainder of the work, the Fourth Session of the Ministerial Conference, or at the latest the end of 2001. The negotiating texts are contained in documents G/RO/41 and G/RO/45.



Until the completion of the harmonization programme, contracting parties would be expected to ensure that their rules of origin are transparent; that they do not have restricting, distorting or disruptive effects on international trade; that they are administered in a consistent, uniform, impartial and reasonable manner, and that they are based on a positive standard (in other words, they should state what does confer origin rather than what does not).



An annex to the agreement sets out a “common declaration” with respect to the operation of rules of origin on goods which qualify for preferential treatment.

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Agreement on Preshipment Inspection




Preshipment inspection (PSI) is the practice of employing specialized private companies to check shipment details — essentially price, quantity, quality — of goods ordered overseas. Used by governments of developing countries, the purpose is to safeguard national financial interests (prevention of capital flight and commercial fraud as well as customs duty evasion, for instance) and to compensate for inadequacies in administrative infrastructures.



The agreement recognizes that GATT principles and obligations apply to the activities of preshipment inspection agencies mandated by governments. The obligations placed on PSI-user governments include non-discrimination, transparency, protection of confidential business information, avoidance of unreasonable delay, the use of specific guidelines for conducting price verification and the avoidance of conflicts of interest by the PSI agencies.



The obligations of exporting contracting parties towards PSI users include non-discrimination in the application of domestic laws and regulations, prompt publication of such laws and regulations and the provision of technical assistance where requested.



The agreement establishes an independent review procedure — administered jointly by an organization representing PSI agencies and an organization representing exporters — to resolve disputes between an exporter and a PSI agency.

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Agreement on Implementation of Article VII (Customs Valuation)






The Decision on Customs Valuation would give customs administrations the right to request further information of importers where they have reason to doubt the accuracy of the declared value of imported goods. If the administration maintains a reasonable doubt, despite any additional information, it may be deemed that the customs value of the imported goods cannot be determined on the basis of the declared value, and customs would need to establish the value taking into account the provisions of the Agreement. In addition, two accompanying texts further clarify certain of the Agreement’s provisions relevant to developing countries and relating to minimum values and importations by sole agents, sole distributors and sole concessionaires.

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Agreement on Trade Related Aspects of Investment Measures




The agreement recognizes that certain investment measures restrict and distort trade. It provides that no contracting party shall apply any TRIM inconsistent with Articles III (national treatment) and XI (prohibition of quantitative restrictions) of the GATT. To this end, an illustrative list of TRIMs agreed to be inconsistent with these articles is appended to the agreement. The list includes measures which require particular levels of local procurement by an enterprise (“local content requirements”) or which restrict the volume or value of imports such an enterprise can purchase or use to an amount related to the level of products it exports (“trade balancing requirements”).



The agreement requires mandatory notification of all non-conforming TRIMs and their elimination within two years for developed countries, within five years for developing countries and within seven years for least-developed countries. It establishes a Committee on TRIMs which will, among other things, monitor the implementation of these commitments. The agreement also provides for consideration, at a later date, of whether it should be complemented with provisions on investment and competition policy

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Agreement on Technical Barriers to Trade




This agreement will extend and clarify the Agreement on Technical Barriers to Trade reached in the Tokyo Round. It seeks to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade. However, it recognizes that countries have the right to establish protection, at levels they consider appropriate, for example for human, animal or plant life or health or the environment, and should not be prevented from taking measures necessary to ensure those levels of protection are met. The agreement therefore encourages countries to use international standards where these are appropriate, but it does not require them to change their levels of protection as a result of standardization.



Innovative features of the revised agreement are that it covers processing and production methods related to the characteristics of the product itself. The coverage of conformity assessment procedures is enlarged and the disciplines made more precise. Notification provisions applying to local government and non-governmental bodies are elaborated in more detail than in the Tokyo Round agreement. A Code of Good Practice for the Preparation, Adoption and Application of Standards by standardizing bodies, which is open to acceptance by private sector bodies as well as the public sector, is included as an annex to the agreement.