Open Markets, Free Trade and Sustainable Development: Perspectives from EU and India [1st ed. 2019] 978-981-13-7425-8, 978-981-13-7426-5

Table of contents :
Front Matter ....Pages i-xvi
Introduction (Amitabh Kundu)....Pages 1-13
Front Matter ....Pages 15-15
Social Rights in the European and the Indian Union (Jörg Luther)....Pages 17-37
“Transition from the Informal to the Formal Economy”: The Continuing Relevance of State Law (Kamala Sankaran)....Pages 39-47
Front Matter ....Pages 49-49
Open Markets and Diversity of India’s Politico-Legal Ordering (Amar Pal Singh)....Pages 51-59
A Peasant’s Imagination of Alternative Legal Order: Land Reform in India, Food Security and the WTO (Pratyush Kumar, Andreas Buser)....Pages 61-88
Front Matter ....Pages 89-89
India in Pursuit of Sustainable Development: A Critique of India’s Trade and Investment Policies (A. Jayagovind)....Pages 91-98
India’s Need for a Sustainability Strategy—Creating a Stable and Balanced Development (Michael von Hauff)....Pages 99-121
Globalization and Environment: Antagonistic or Agnostic (Niraj Kumar)....Pages 123-136
Sustainable Public Procurement in Europe: Creating Markets or Distorting the Internal Market (Rike Krämer-Hoppe)....Pages 137-153
Front Matter ....Pages 155-155
The EU-India Development Partnership: Legal Framework and Political Perspectives (Markus Kaltenborn)....Pages 157-170
Access to Services in the EU Market: With Specific Focus on Movement of Natural Persons (R. V. Anuradha, Ronjini Ray)....Pages 171-183
Front Matter ....Pages 185-185
Free Trade Agreements and National Constitutional Law—From CETA and TTIP Onwards (Ralph Zimmermann)....Pages 187-207
Common Market Under the Constitution of India (Uday Shankar)....Pages 209-226
National Treatment Obligation Under Article 3 of GATT Vis-à-Vis Indian Constitution (Sanjay Jain)....Pages 227-259
Front Matter ....Pages 261-261
Capital Flows into India—Role of Monetary Transfer Provisions in India’s International Investment Agreements (Prabhash Ranjan)....Pages 263-287
Legal Risks in Foreign Direct Investment in India (Anil Kumar Rai)....Pages 289-306
Back Matter ....Pages 307-310

Citation preview

Mahendra Pal Singh · Wolfram Cremer · Niraj Kumar   Editors

Open Markets, Free Trade and Sustainable Development Perspectives from EU and India

Open Markets, Free Trade and Sustainable Development

Mahendra Pal Singh Wolfram Cremer Niraj Kumar •

•

Editors

Open Markets, Free Trade and Sustainable Development Perspectives from EU and India

123

Editors Mahendra Pal Singh Center for Comparative Law National Law University, Delhi New Delhi, India

Wolfram Cremer Juristische Fakultät Ruhr-Universität Bochum Bochum, Germany

Niraj Kumar Centre for Comparative Law National Law University, Delhi New Delhi, India

ISBN 978-981-13-7425-8 ISBN 978-981-13-7426-5 https://doi.org/10.1007/978-981-13-7426-5

(eBook)

© Springer Nature Singapore Pte Ltd. 2019 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Preface

Against the background of advancing economic cooperation between the EU and India, it was thought to be pertinent to hold an international conference on the related issues. It took place in New Delhi in March 2016. In view of a broader framework of Twenty-first Century Constitutionalism, the conference focused on potential synergies as well as dichotomies between open markets and free trade on the one hand and sustainable development policies on the other hand. The conference developed the subject from different perspectives using comparative and interdisciplinary methods. Its overall aim was to establish a critical dialogue between Indian and European views on parallel issues. Therefore, each topic was presented by at least one Indian and one German speaker followed by an intensive discussion by all participants. Not only the legal infrastructure was examined, but also policy options for market liberalization, free trade enhancement and strengthening development policies and cooperation were deliberated upon. Furthermore, the presentations and discussions focused on tensions between different policy options, thereby including comparative perspectives on the German and European as well as the Indian constitution. Among many other themes, the contributions also dealt with matters of social market economy, cultural diversity and its effects on, e.g., labour law, competition, environment and more importantly the balance between free and fair trade. Moreover, there was an examination of whether market liberalization could even be an instrument in order to support sustainable development. In addition to that, there was a special focus on the progressing developmental cooperation between the EU and India, including the planned free trade agreement. Furthermore, the discussion concentrated on matters of an improved market access for some goods and services, as well as investments and public procurement. After the conference was over, it was decided in the valedictory proceedings that we must explore the possibilities of getting a few selected presentations published. It required that the responsibilities for collation, editing and other consequential work must be undertaken by representatives from both the jurisdictions, viz. Germany and India. Professor Wolfram Cremer from Germany and Prof. Mahendra Pal Singh and Dr. Niraj Kumar from India decided to do so. v

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Preface

The conference and the subsequent book would not have been possible without the benevolent host in Prof. Ranbir Singh, Vice Chancellor, National Law University, Delhi. He was more than ready in conceding to all the requests which are required for hosting the conference attended by scholars from different continents, whereas one of us, Prof. Wolfram Cremer, had borne the responsibilities of coordinating and facilitating the endeavours of scholars coming from Europe (primarily from Germany). The editors must acknowledge the inputs of Prof. Upendra Baxi, right from the first day of the conference till the valedictory session. The process of to-and-fro communications between editors and the contributors started thereafter. Since it required coordination across various time zones, it was quite obvious that it was going to take much time and effort. The editors must acknowledge the cooperation and patience of the contributors throughout the process. The editors will fail in their duty if the extraordinary support of Prof. Amitabh Kundu in the form of a very nuanced and scholarly introduction is not acknowledged. The process of coming up of with the book would not have fructified without the cooperation on the part of publishers. We hope that the present volume contributes to the existing debates on the related issues and will also trigger the future engagement on them. New Delhi, India Bochum, Germany New Delhi, India

Prof. Mahendra Pal Singh Prof. Wolfram Cremer Dr. Niraj Kumar

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amitabh Kundu Part I

Social Market Economy

Social Rights in the European and the Indian Union . . . . . . . . . . . . . . . Jörg Luther “Transition from the Informal to the Formal Economy”: The Continuing Relevance of State Law . . . . . . . . . . . . . . . . . . . . . . . . Kamala Sankaran Part II

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Markets and Cultural Diversity

Open Markets and Diversity of India’s Politico-Legal Ordering . . . . . . Amar Pal Singh A Peasant’s Imagination of Alternative Legal Order: Land Reform in India, Food Security and the WTO . . . . . . . . . . . . . . . . . . . . . . . . . . Pratyush Kumar and Andreas Buser Part III

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Market Liberalisation and Sustainable Development

India in Pursuit of Sustainable Development: A Critique of India’s Trade and Investment Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. Jayagovind

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India’s Need for a Sustainability Strategy—Creating a Stable and Balanced Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Michael von Hauff

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Globalization and Environment: Antagonistic or Agnostic . . . . . . . . . . . 123 Niraj Kumar

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Contents

Sustainable Public Procurement in Europe: Creating Markets or Distorting the Internal Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 Rike Krämer-Hoppe Part IV

Cooperation Between Indian and the European Union

The EU-India Development Partnership: Legal Framework and Political Perspectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 Markus Kaltenborn Access to Services in the EU Market: With Specific Focus on Movement of Natural Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 R. V. Anuradha and Ronjini Ray Part V

Market Liberalisation in Goods and Services

Free Trade Agreements and National Constitutional Law—From CETA and TTIP Onwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187 Ralph Zimmermann Common Market Under the Constitution of India . . . . . . . . . . . . . . . . . 209 Uday Shankar National Treatment Obligation Under Article 3 of GATT Vis-à-Vis Indian Constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 Sanjay Jain Part VI

Market Freedom of Establishment and Free Movement of Capital

Capital Flows into India—Role of Monetary Transfer Provisions in India’s International Investment Agreements . . . . . . . . . . . . . . . . . . . 263 Prabhash Ranjan Legal Risks in Foreign Direct Investment in India . . . . . . . . . . . . . . . . . 289 Anil Kumar Rai Brief Valedictory Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307

About the Editors

Mahendra Pal Singh is a Professor Emeritus at the University of Delhi and Chair Professor of Comparative Law at National Law University Delhi. He has also served as Vice Chancellor of National University of Judicial Sciences, Kolkata and as Chair of the Delhi Judicial Academy. He was a Visiting Professor and fellow at various institutions and universities around the globe and in India. His publications include well over one hundred papers in national and international legal journals and several books. He is the founding editor of the NUJS Law Review and The Indian Yearbook of Comparative Law, and has collaborated in national and international research projects in the area of comparative public law and also directed a project on the nature of the Indian legal system. Wolfram Cremer is Dean and Chair Professor of Public Law and European Law, at the Faculty of Law, Ruhr University, Bochum, Germany. He is also a Visiting Professor at the Faculty of Law, National University of Singapore. Since 2005, he has been the Director of the Institute for Mining and Energy Law at Ruhr University. He has contributed numerous book chapters and essays and edited several monographs and books. He has also made valuable contributions through commentaries, reviews, case discussions and conference reports. Niraj Kumar is currently an Assistant Professor at the National Law University Delhi, where he is also the Research Director at the Centre for Comparative Law at National Law University, Delhi. He taught at the Faculty of Law, University of Delhi. He has published numerous articles in national and international journals and has presented papers on environmental law, constitutional law and comparative public law at various conferences. His areas of interest are administrative law, constitutional law, environmental law, interpretation of statutes, jurisprudence and comparative law.

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Preliminary Remarks By now, comparative legal studies in all branches of private, criminal and public law have become a well-known phenomenon. The phenomenon is comparatively of recent origin and is still in the process of growth and acquisition of its final shape even though random instances of its existence and use since Aristotle’s time are cited.1 Doubts are still expressed whether comparative studies are suitable in all disciplines of law.2 However, what is relevant for the current purpose is its modern beginnings in small conferences since the middle of the nineteenth century in Europe which ultimately culminated in the well-known Paris Conference in 1900. Initially focussing on private law for quite some time, it has slowly crept into all disciplines into its fold and is now as common in public law as in private. Furthermore, comparative law is now no more an exclusively European or Western phenomenon; it has covered almost all parts of the globe. Instances of this phenomenon having entered in the domain of public law in India are available since the middle of the twentieth century to which both Indian and German scholars richly contributed.3 In that process, one of us—Mahendra—also entered the fray in the later part of the century expanding comparative public law from constitutional law to administrative law.4 In the very initial stages of this process, we two were introduced 1

See, Rohdes (1984). See, e.g., Scalia and Breyer (2005). See also, for a different perspective, Eser (2017). 3 See, e.g., Tripathi (1957) and D. Conrad, Limitation of Amendment Procedures and the Constituent Power, 15–16 Indian Yearbook of International Affairs, 375 (1966–67) based on a lecture delivered at Benares Hindu University in 1963. Also reprinted in D. Conrad, Zwischen den Traditionen, 47 (Franz Steiner Verlag Stuttgart, 1999). 4 This could be possible because of Dr. D. Conrad’s suggestion to me—Mahendra—to apply for Alexander von Humboldt-Stiftung fellowship which I got in early 1980. The visit culminated in my book German Administrative Law in Common Law Perspective in 1985 which had a revised edition in 2001 and is now under revision for the third edition by Springer Publication, Berlin, in association with Dr. Ralph Zimmermann, one of the participants in this conference. 2

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to each other by our common German friends.5 That friendship continued to grow in our common interest in public law studies and occasional meetings in Germany. It is in one of such meetings that the idea of holding a joint conference between the German and Indian scholars at the Institute for Advanced Studies at Berlin (Wissenschaftskolleg zu Berlin), where Mahendra happened to be Fellow in 2002– 03, was conceived. The first conference held in early 2003 brought together some German and Indian scholars including a few from non-law disciplines engaged in public law issues. The proceedings of that conference later took book form under our joint editorship as an addition to comparative legal literature.6 This beginning of joint conferences was repeated at Delhi University in 2005 at the time of Mahendra’s superannuation from the university. Its proceedings also appeared in the book form. Once again, the next conference was held in India at National Law University of Juridical Sciences, Kolkata, in 2008 with increased participation of German and Indian scholars. Unfortunately, the papers presented in this conference could not be published because of their accidental disappearance from the computer and lack of time and initiative to trace them in the hard form or asking the contributors to send them in the soft form.7 Again, the next conference with quite a few new faces from Germany and India was hosted by Prof. Kotzur in Leipzig in 2010. Its proceedings also could not be published for some reason. It is in continuation of that process that the last joint conference took place at National Law University, Delhi, under the leadership of Prof. Wolfram Cremer from Bochum University, Germany, and Prof. Ranbir Singh, Vice-Chancellor, NLUD. The papers presented in the conference instead of becoming an occasional publication now become The Indian Yearbook of Comparative Law 2017, a series expected to last infinitely in the series of conferences that led to the birth and growth of comparative law in India. Let us hope the Indo-German dialogue in comparative law will continue to contribute to the study and growth of comparative law ad infinitum. It is hoped that the tradition of comparative legal studies started by us in the early part of this century in Berlin having moved to younger hands of German partner Prof. Wolfram Cremer will continue to flourish until it also moves into equally younger and competent hands in India. It will revive and strengthen the historical tradition of the engagement of German scholars such as Max Mueller and Julius Jolly, who distinguished themselves in introducing the world with India’s legal and general culture.8 In our times, that tradition was carried forward by Dieter Conrad, considered the father of the basic structure doctrine in India and Werner 5

This was done by Judge Dr. Joachim Bornkamm and his lawyer wife at the instance of Dr. D. Conrad. 6 Singh et al. (2008). 7 One of us—Mahendra—was Vice-Chancellor of NUJS, Kolkata, from December 2006 to December 2011. Helmut visited that university almost every year and was instrumental in organizing the conference. 8 See, e.g., among others, Max Mueller’s 50-volume series of translations The Sacred Books of the East including Manusmriti, considered as initial code of Hindu law, and Julius Jolly’s Hindu Law and Customs (Tagore Law Lectures, 1883).

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Menski who is well known for his works on Hindu and Muslim laws besides comparative law in general. More of the younger colleagues are now taking interest in the Indian legal system and collaborating with their counterparts in India.9 As the language barriers between Indian and German scholars are loosening with the proficiency in English, more German legal scholars are now interested in Indian legal developments. On the other hand, with the increased availability of German legal materials including superior court decisions in English, the Indian law persons are taking equal interest in German legal materials. In this exercise, several important questions, such as whether Indian legal traditions are closer to civil law system of Germany and other European countries than they are to common law system which was introduced by British colonizers, are being raised.10 In view of these developments, hope may be expressed for increased academic interaction and exchange between the German and the Indian legal scholars. Like any academic conference, the conference was designed as academic dialogue on certain preconceived issues on a specific theme. As such, it was expected to follow the rules of communication in scholarly disciplines which include law and related fields such as sociology, political science, economics and history. The rules are based on running the imagined community—as one may say nowadays11—of scientists and researchers all over the world. These rules imply the assumption of ongoing process of free access to and free statement and critic of the totality of results in the universe of science and research. They result in the establishment of a republic of scholars who meet periodically but also work together in their daily routine as either as a group of researchers, or as an institute, university chair or faculty, or in any other form.

The Methods of Scholarly Interaction Scholarly interaction and communication may follow any of the available methods for such interactions or communications. It may be in the form of a publication by an isolated individual in the hope of his work becoming known and read. As a

9

Among the younger colleagues, we may count Martin Lau at School of Oriental and African Studies (SOAS), London, UK, Alexander Fischer, formerly at SOAS, Philip Dann at Humboldt University, Berlin, Markus Kotzur at Hamburg, Wolfram Cremer at Bochum and a few others. 10 See Singh (2017/18). 11 For the term, see, Benedict Andersen, Imagined Communities. Reflections on the Origin and Spread of Nationalism (Verso 2006), in German Benedict Andersen, Die Erfindung der Nation. Zur Karriere eines erfolgreichen Konzepts (Campus, Frankfurt a.M. 1988) and later editions; the term ‘imagined community’ may be used—or abused—for communities other than nations too if they are so large and widespread that the individual members of these communities do not know each other personally and live even in countries and continents apart.

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product of thoughts of such an individual, the publication may be considered as a product of a dialogue within the soul of the author, checking the mental assumptions by logical arguments, an image which has been used to describe thinking as an internal process as in the case of Socrates and Plato in the west12 and ancient Rishis in India.13 Also, the author expects reactions, critique and the possibility of interaction. A closer look at such individual product of research may, however, reveal friends and midwives that made the publication of the thoughts of the author possible. It is for the reason that the human achievements always depend on social interaction that may be purely in terms of research and discovery. Such interaction may again be traced back to Greek philosophers like Socrates and Plato or Indian Rishis, as well as to the dialogue of philosophers that are based on equal terms among its participants.14 Another method could be the peripatetic dialogue or discussion during walks as described by Aristotle and practiced by Gandhi, especially with journalists. Such dialogue normally takes place between two or more persons in a small group.15 In the sociology of science, the tradition of the creative communication in context does exist as much as the idea of the individual researcher who discovers a new rule or norm and thus opens the field for a scientific revolution. The context-oriented creation of scientific facts adopted and applied by Ludwik Fleck, a Polish medical doctor, whose findings have been published in English after his death,16 has also been used to interpret the habit of forming schools and communities of public law in Germany.17

12

See Hannah Arendt, The Human Condition (University of Chicago Press 1998), Chap. 6, Sect. 41; in German Hannah Arendt, Vita activa oder Vom tätigen Leben (Munich 1967, paperback Munich 1983) Kap. 6, Absch. 41, 369; the source is a definition of Socrates in Plato, Theaitetos 189 e 4 (the precise quotation we owe to Prof. Michael Wolff, Bielefeld, with whom Helmut attended a seminar on Theaitetos in Hamburg, during their first semesters of studies). 13 Rishis in India are more of a people of religious enlightenment than of rational enligthenment as is the case with Plato and Aristotle. See, e.g., Sadhu Mukundcharandas, Rishis, Mystics and Heroes of India (Swaminarayan Aksharpith, 2005). 14 See, of course, the Platonic dialogue implying the Socratic method of teaching as cultivated in the American tradition of law schools in class; for the background of this method, which is based in equal terms between teacher and student, see Alexander Somek, ‘Zwei Welten der Rechtslehre und die Philosophie des Rechts’ in 71 Juristenzeitung (Mohr Siebeck 2016) 481 seq. (484). 15 Aristotle after return from Macedonia to Athens joined the academy in Peripatos again, near town; and there, supposedly, the peripatetic tradition emerged combining the dialogue with motivating walks in the yards and hall ways of the building as an instrument to reach better awareness of the participants in such discussions, again, on equal terms. 16 See Ludwik Fleck, The Genesis and Development of a Scientific Fact (Frederick Bradley & Thaddeus J. Trenn trs, University of Chicago Press 1979); in German Ludwik Fleck, Entstehung und Entwicklung einer wissenschaftlichen Tatsache: Einführung in die Lehre vom Denkstil und Denkkollektiv (Lothar Schäfer & Thomas Schnelle (Eds.), (Suhrkamp Verlag 1980) and later. 17 See Guenther (2004).

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The alternative perception of the ways of achieving results is more individualistic. It may be represented by Thomas S. Kuhn and his interpretation of scientific revolutions.18 His view focuses on the individual achievement, the genius insight of an isolated academic in his study, in the laboratory or on a walk. For Kuhn, at the core of academic achievement, there is no continuity of thought and argument, but the change of paradigms as a revolutionary tool of thought. Both approaches might be right. The history of scientific learning and research may establish these facts and propositions. Any mix of both perspectives might be found in the life of law and legal studies. Law as an academic discipline may be less inventive and creative than the natural sciences or even philosophy. But in any case, the ways and means as well as the methods of academic communication are an integral part of the life of knowledge and wisdom, science and research. As law follows traditions,19 new and sudden inventions are less common in law than in other fields. Besides, the above two methods of research and generation of knowledge academic exercises may be pursued in regular meetings of the members of a groups, or they may be made visible to an academic public in the form of results such as the ones expressed in or emerging from conferences organized periodically as work in progress. In either case, the context establishes the possibility of debate among a number of participants the results of which may be documented, and even if documentation is not done the exchange of ideas leads to a better understanding and a better culture of critiquing. It is this type model which has been followed in the Indo-German dialogue in the form of joint conferences. There can be better alternatives for the creation or refinement of knowledge than the dialogue in the form of conferences, but we have found it quite suitable for our purpose of understanding the existing legal phenomenon and for paving the path for its future development or evolution. Conferences are in any case a sort of market place for the presentation and exchange of ideas as well as of academic communication. At least, they are a starting point for the next generation of researchers and scholars. We must have the satisfaction that we are on the right path in search of knowledge through comparative method. Like any other international or bilateral conference, it serves the goals which any conferences of this kind serves. The underlying assumption is that it creates some new knowledge and better understanding of law. It is expected to impart some knowledge and understanding of the law of the two countries and legal systems in terms of their different laws, draft legislation or application of international law. Second, such conferences may initiate some understanding of the 18

Thomas S. Kuhn, The Structure of Scientific Revolutions (second edition, University of Chicago Press 1970); in German Thomas S. Kuhn, Die Struktur wissenschaftlicher Revolutionen (second edition, Suhrkamp Verlag 1967); Kuhn follows concepts of progress, maybe in a Hegelian sense; besides Hegelian dialectics here is not the place to enter into some considerations on a philosophy of and tolerance for ambiguities in precolonial Arabic and maybe Indian worlds, see especially for an intense approach to such topics, Thomas Bauer, Die Kultur der Ambiguität (fourth edition, Verlag der Weltreligionen im Insel Verlag, Munich 2015)15 seq. and, as to Hegel and his philosophical concept of progress in history and knowledge, 296 seq. 19 For studies of traditions by comparing them, see Glenn (2014).

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different cultures and traditions in which the laws of the two countries are embedded. This may engage the future generations of lawyers or legal scholars in the two countries to pursue interest in each other’s culture, traditions of law and law in general.20 The topics presented in the conferences might serve this interest. Finally, such a conference is expected to overcome existing misunderstandings between the two academic communities and also in the societies to which those communities belong. It acquaints them with their past and current issues as well as develops the laws and institutions to solve the social, political and economic issues in the two societies. These goals are best served if the conferences attract and encourage young scholars from both sides to participate because they become a starting point and a link for encouraging other young scholars to participate ensuring indefinite continuance of such conferences. Such a strategy would ensure a lasting and sustainable basis not only for such conferences but also for the growth of law as well as cooperation of practicing lawyers advising in business or politics in the participant countries. Let us hope our present and future conferences consciously plan and work for the realization of all these goals. With that hope, we wish the organizers on the two sides Prof. Dr. Ranbir Singh, Vice-Chancellor, National Law University of Delhi, and Prof. Dr. Wolfram Cremer, Dean, Faculty of Law, Bochum University, every success in the deliberations and outcome of this conference. We also wish that the process continues indefinitely in future with successively improved quality of the conferences and their goals. Helmut Goerlich Mahendra Pal Singh

References Eser, A. (2017). Comparative Criminal Law. Beck, Munich, Hart, London, Nomos, Baden-Baden. Glenn, H. P. (2014). Legal Traditions of the World (5th). Oxford. Guenther, F. (2004). Denken vom Staat her. Die bundesdeutsche Staatsrechtslehre zwischen Dezision und Integration 1949–1970 (pp. 10–15). Munich: Oldenburg Verlag. Rohdes, P. J. (1984). Aristotle: The Athenian Constitution (Penguin Books, reprint 2002). Scalia, A. & Breyer, S. (2005). A comparison between US Supreme Court justices. International Journal of Constitutional Law, 519. Singh, M. P. (Ed.), Examining India’s Common Law Identity: An Enquiry into India’s Legal Systems and Traditions, Forthcoming OUP (2017/18). Singh, M. P., Goerlich, H. & von Hauff, M. (Ed.). (2008). Human rights and basic needs: Theory and practice. Universal Law Publishing: New Delhi. Tripathi, P. K. (1957). Foreign precedents and constitutional law. Columbia Law Review, 57(3), 319. 20

Glenn (n 8) does compare legal traditions; Uwe Kischel, Rechtsvergleichung (Auflage, Munich 2015) 13 states this and makes a difference between comparing laws and comparing traditions of law; also, he does state differences between such traditions and cultures of law; see op.cit.. § 3 no. 131 seq., and 148, p. 158 seq. & 165 seq.

Introduction Amitabh Kundu

1 The Context of Globalisation Conversations in academic platforms as also in corridors of decision making on growth and development have been dominated by the perspective of globalisation since the mid-seventies. Issues concerning sustainability, inclusivity, equity and labour market conditions were unfortunately pushed to the backyards of policy platform. International and national laws pertaining to protecting environment, promoting regional and social inequality and ensuring labour protection and social security were viewed not as solutions to many of the emerging crisis faced in different parts of the world but as a part of the problem in decelerating growth and leading to recession. Development analysts, who swear by human capability and efficacy of market mechanism, argue that an alarmistic perspective about ecology and environment is unwarranted. The extreme position taken by many among them is that the concept of sustainable development has no real content, since politician of different hues and colours have been pushing forward their own preferred agenda under this name. The problems of spatial imbalance and social turmoil, they admit, may have tenuous links with globalisation strategy but can be resolved through efficient governance, creation of equal opportunities for all and by removing the imperfections in the market. Proponents of globalisation, therefore, perceive great risks to growth in many of the legislative interventions at national level and from the postulates emerging through international declarations that directly or indirectly curtail the free functioning of the global and regional market. In recent years, particularly since the beginning of the current decade, there is, however, a realisation that the issues pertaining to environmental degradation, reduction of regional imbalances, protection of informal and small scale production units A. Kundu (B) Research and Information System for Developing Countries, New Delhi, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_1

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and ensuring justice to vulnerable sections of population can no longer be put in the backburner. These issues not receiving adequate policy attention are being considered as responsible for many of the crises, faced by several less developed countries. The MDGs are noted to have left the task of building equitable societies unfinished. Also, environment has been the major casualty of the growth strategy followed in the past few decades. The failure on the part of the architects of MDGs to incorporate ecological, social and spatial dimensions explicitly into their goals and targets is seen as a serious blunder. The perspective of sustainability has emerged basically as a warning for the decision makers that natural resources such as water, air, vegetation, minerals, etc. are exhaustible and hence need to be scientifically managed and judiciously used. Also, the concept of ‘need’ must refer to the basic requirements of humanity as a whole, emphasising thereby the postulate that growth must be inter-generationally and globally inclusive and socially just. This implies that environmental and equity considerations should be built into development plans. Sustainable development, therefore, is seen not as a matter of mere technological advancement but also of equitable social organisation. This underlines the importance of regional, national and international regulatory system in bringing about an effective legal environment, leading to the desired social ordering. Undoubtedly, attainment of Sustainable Development Goals cannot be a reality by 2030 unless backed by proactive policies and effective monitoring at national and global level. The other major concern is that the free flow of commodities and investible resources within and across countries has not addressed the problem of regional imbalances and exploitation of labour. The rapid expansion of the informal economy in less developing countries and deteriorating socio-economic conditions of workers therein, have questioned the thesis that free market can lead to inclusive development, covering all regions and sections of population, through trickle-down mechanism. There is, thus, an urgent need to understand and strengthen the legal framework of development, based on a comparative assessment of the economic and social norms and practices. The framework must be redesigned to ensure appropriate bilateral and multi-lateral relations across countries and to achieve the socio-political goals of equity within the country. More specifically, national labour laws and institutions must not only address the needs of the exporting companies of making their products globally competitive but also those of the self-employed and own-account workers, to ensure their inclusion in the growth process as a partner. There must be constitutional and legal provisions of publicly funded social assistance programmes for workers who cannot contribute to regular social security systems. Since the current contracts of employment do not protect the interests of labour due to asymmetry of power equations, the states must ensure economic justice in the functioning of labour markets through an effective legal framework. Similarly, the international covenants, declarations etc. that have relevance for promoting balanced and sustainable development must determine the framework and context of globalisation. The latter, if not guided and supported by a legal framework, can have disastrous consequences. It is important to point out that the Indian Constitution envisions promoting “a social order in which justice, social, economic and political, shall inform all the

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institutions of the national life” and of securing all citizens the right to adequate means of livelihood, including relief for the unemployed, aged and sick through its Articles 38, 39, 41 and 42. The state must, therefore, ensure that the minimum volume of work and decent working conditions are guaranteed. This can be achieved through an appropriate legislative system and not by the workers and their employers within their enterprise through collective bargaining. The goal of transitioning the workers from the state of informality to formality, therefore, must not be left to the bipartite norms created in the labour market. This necessitates continuing presence of the State.

2 Overview of the Issues Emerging from the Papers Given the emerging global and national scenario, wherein the model of globalisation is confronting a dilemma among both the proponents and opponents of free market, the present volume can be considered as extremely timely and significant contribution. It analyses the implications of different legislative measures, bilateral and regional agreements in the context of trade, investment and mobility of labour, focussing on India and countries in European Union. Furthermore, it analyses the concerns for sustainability, equity, regional balance and social security in the perspective of globalisation, the macro environment created by ultra nationalism, and the policies and programmes of different governments. Most of the research papers pertain to India and European Union but the issues raised and challenges discussed have ramifications in the larger context of global trading and investment policies. Given the urgency of minimising the market restrictions, on the one hand, and the emergence of environmental, socio-economic and nationalistic concerns on the other, it is extremely important to discuss the role that can be played by the Constitution and legal system within the countries as also the relevant international laws, covenants and agreements. Empirical investigation into questions posed in the preceding section and the thrust of the arguments emerging from different papers, as summarised below, would help in understanding and appreciating the contemporary context, for making effective policy decisions. The paper by Joerg Luther makes a case for sustainable social market economy which can be achieved only through adequate protection of social rights. He argues that the adoption of 2030 Agenda for Sustainable Development is an admission that the fundamental social rights are still in their infancy. Both EU and the Indian Union have to bridge serious gaps in this regard, between goals and reality since, the weakened states, under the pressure of globalization, have been unable to operationalise the desired development strategy. Both the unions show respect for the social and cultural realities of the developing countries and endeavour for compliance with international human right laws and common traditions of social constitutionalism. The Social rights in the contemporary world are not perceived as justiciable. These are noted to be governed by weaker forms of review and backed up by scrawny legal support system or remedial measures. Although they stipulate strong state actions,

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their realisation is determined by legislative (and not constitutional) measures. Also, allocation of financial resources for their institutionalisation and compliance is based on the principle of gradualism, without a fixed time frame for achieving the goals. The agencies entrusted with the implementation of social rights are not exclusively the state, sub-state or supranational public bodies but include a large number of civic institutions. Luther concludes that both the European and Indian Union must learn a lot from their own experiences and from each other, taking lessons from the social rights discourses. A major strand in Europe’s social rights movement is to demand the politicians to meet their commitments and obligations. This carries important lessons for the Indian social right interest groups. Also, he believes that the India-EU free trade agreement can help smoothening the existing anomalies and controversies by focussing on social rights in the ongoing human rights dialogue. Kamala Sankaran regrets that since the time of Washington Consensus, priorities of growth have dominated the global and national development agenda. A fall out of this is that the labour laws are being viewed as constituting unwarranted rigidities in decelerating growth, globally as well as in less developed world. This position of the author is supported by the recent publication of Niti Aayog on Doing Business in India which posits the labour laws as the key factor behind India’s tardy progress in improving business environment and attracting foreign capital. Critiquing this perspective, Sankaran argues that the current labour contracts do not protect the interests of the working class due to asymmetry of power equations Consequently, the state is expected to intervene for ensuring justice in the functioning of labour market. It would be important to ensure that the minimum level of employment and a decent work environment are decided not merely by the workers and their employers within each enterprise, based on collective bargaining, but by the State, through promulgation of laws. The pursuit of economic growth and focus on entrepreneurship development, therefore, cannot be accepted as the sole objective without incorporating concerns for labour. Sankaran would like the focus in global conversations to shift from growth and development to labour, particularly in the context of developing countries like India where the working conditions, particularly in the informal market, are alarming. The transition to a decent work agenda here depends critically on pro-active state policy, addressing the needs of the selfemployed and own-account workers that constitute the bulk of the work force. It also requires publicly funded social assistance missions to strengthen the fragile social security systems in the country. Amar Pal Singh analyzes the interactive paradigm of market, culture and legal system in the context of inherent diversity and plurality of India. He explains that there has been a shift in the legal paradigm under British regime for the purpose of creating a judicial order which changed the very foundation of the classical legal ordering in the country. While discussing the relevance of the essentials of the ancient system in post-independent India, the author makes a case for a pluralist approach for studying regulatory pattern and market systems. He argues that institutions of legal pluralism develop over time through dialectics of legal and socio-economic order. The laws and customs must, therefore, be situated in historical context. This pluralist perspective would lead to an examination of cultural or ideological nature of

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laws rather than of their mechanical application in situations of dispute. Laws must not be seen simply as a mechanism for exercising coercive power but as a system of thought. It is an instrument for facilitating economic transactions and settling dispute situations with minimum frictional costs. Positing the above perspective, Singh highlights the need to harness regulatory capacity over social spheres through state intervention as an alternative to leaving the self-regulating market to steer the course of development. He argues that market mechanism would flourish and achieve better outcomes, if the legal environment is accommodating and flexible wherein the disputes will emerge only as exceptional events. The focus, therefore, should be on understanding the mosaic pattern of socioeconomic behaviour of communities across global markets. This pluralist approach, focusing attention on ideological or instrumental value of the law, is of special significance to India as it opens up a window to examine the aspects of domination through law, resistance to law and interactions between dominant and subordinate groups. Pratyush Kumar and Andreas Buser trace the intellectual roots of farmers rights to the early peasant movements led by Swami Sahajanand Saraswati and connect these to current land reform initiatives of the Indian government and the issues placed before WTO. They argue that while India has rightfully criticised deficiencies in WTO agreements and agricultural policies in the EU and US, it has yet not come up with convincing reform proposals. India must make serious efforts to understand and articulate the views of the peasants at local level and strategize its interventions on issues such as the right to cultivate land, use of forest products, freedom from excessive rents and taxation, access to drinking water, right to education and food etc. in various platforms, voicing the needs of poor agricultural producers, not only in India but also other parts of Global South. The authors argue that the socioeconomic conditions of the peasants have not changed perceptively since the early days of Sahajanand and increased globalization has further intensified inherent dangers for them. The land acquisition act and land acquisition ordinance, promulgated by the present government, whereby land can be taken away from farmers and passed on to private players exercising its right of eminent domain, puts a serious question mark on the genuineness of the concern of the government for the farmers. The recent land reform initiative has the danger of reinstalling the old Zamindari system, driven by huge agricultural corporations. The authors argue that the Indian trade representatives would gain legitimacy visa-avie their counterparts from developed countries, if they act consistently following a bottom up approach by building the interests of subsistence farmers into the policies, adopted at local and global levels. Indian reform proposals of international trade rules, such as legally shielding public stockholding, installation of Special Safeguard Mechanisms etc., could be designed so as not to harm any other country in the Global South. A. Jayagovind focuses on the emergence of extreme nationalist positions in pursuing a policy of industrial development in different parts of the world, that tend to have scanty respect for ecological concerns at global level. He argues that the host state has the right to regulate foreign investments, both at the level of their entry and

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operation. Measures launched by the former for legitimate public policy objectives and in compliance with relevant international norms and conventions ensuring sustainability of the development process at local and global levels would, therefore, be justified. While overviewing India’s macro-economic scenario, the author argues that its trade and investment policies are in compliance of international consensus on sustainability issues within the U.N. framework. These, however, have not been properly integrated with its development strategy. Despite the institutions of planning being in place and the Ministry of Environment being assigned a central position in designing and directing the development strategy, the net result is not very satisfactory. The country has failed in protecting environment not because of an absence of laws or implementation machinery, but the failure of the machinery to enforce laws. Another important lacuna is that the country has failed in carrying its genuine socio-economic concerns to WTO or other international organisations which are responsible for the obstacles, it is currently facing at global level. Michael von Hauff underlines the point that despite India endorsing the SDGs through a number international declarations and being a part of several conventions, having a bearing on these goals, it has not been able to formulate its national sustainability strategy. He notes that there exist several national laws pertaining to environmental protection as also an elaborate justice system, providing a framework for building and implementing a sustainability strategy. Furthermore, its rate of economic growth in the past decade and a half has been impressive both by global and national standards. And yet, an analysis of the achievements in various social sectors in the country reveals serious deficiencies. Most importantly, there are environmental and equity linked problems that are rendering the development process non-sustainable. An overview of the implementation of various policy goals shows that the instruments adopted and the processes launched have been rather weak and inadequate. Social and political heterogeneity in the country exert strong pressures on political actors to settle for solutions of compromise at the highest level, resulting in undermining the pronounced goals and targets. More importantly, at lower levels of governance and delivery of services, the economic and political elites are able to corner large chunks of benefits through their money power and political connections. Happily, the new middle class, backed by their increasingly powerful civic society institutions, has been able to raise the level of awareness on issues of sustainable development and place demands related to these on the government. This holds forth a promise to provide the right orientation to the national sustainability strategy, provided the middle class accepts the interests of also those who are at lower rungs in the hierarchy. Niraj Kumar argues that serious threats to environment have emerged during the four centuries of capitalistic development. This is not due to the high rate of economic growth but the structure of growth. Unfortunately, the discussion on trade and environment has generally been focused on facilitating freer trade and fixing environmental issues within the framework of trade laws. Environmentalists typically deal with situations where markets do not operate and consequently have tried

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to find market based solutions such as Carbon trading, Green Tax etc. to deal with the emerging problems. The scholar argues that while both globalization and environment are realities in the contemporary world, it would be appropriate to have an environmental policy in place and then pursue free trade. Within this perspective, it is important that the WTO’s Appellate Body gives the right to countries to carry on with free trade but, it at the same time, stipulates obligations to protect environment, human health, endangered species, and exhaustible resources. Opening up of domestic markets without fixing standards for trade and investment and setting up an agency, as an international watchdog, can lead to disastrous consequences. Focusing on India, Niraj Kumar notes with concern that despite high rates of economic and social development, there has been environmental plunder, forcing many to view ‘development’ and ‘environment’ as antagonistic goals. Happily, the Supreme Court has become increasingly active in protecting and improving the environment, recognising the right to clean environment as flowing from Article 21 (Right to life) of the Constitution, gaining thereby the reputation of being a ‘Green Court’. Generally, the Court has recognised the necessity to maintain a balance between environment and developmental activities. It is, however, a matter of concern that its interventions have resulted in shifting of polluting activities from areas that have strict environmental norms to those with less stringent norms. Rike Krämer-Hoppe raises the issue concerning the sustainable procurement policy in Europe which has created tensions between the requirements of the policy and development strategy followed by the member States. The 2020 strategy of the EU underlines the need for sustainability of development, envisaging promotion of more efficient, competitive and greener use of resources. It suggests that through this new policy of public procurement, the EU shall work towards sustainability based on the principle of achieving price stability, full employment, social progress and regional balance, while improving the quality of environment. Both social as well as environmental considerations have, thus, found their way into the Charter of Fundamental Rights of the European Union. The Directives issued in 2014 specify how the authorities, responsible for the procurement system, must contribute to protection of environment as well as fostering of social goals. The critical issue here is how the ‘distortions’ in the internal market, created as a result of the legal barriers, imposed for compliance with sustainability criterion, be remedied? The author holds that changing the price focus in the award criterion, through inclusion of life cycle costs, would strengthen sustainability in the development process. In multi-level governance settings, the principle of “link-tothe-subject-matter” can be a decisive element to deal with this tension since this can help in expanding internal market, leading to free movement of goods and services and, at the same time, preserve sustainability in the procurement policy. Markus Kaltenborn overviews the bilateral framework of partnership between India and the EU since the early 1960s and holds that the key factor governing the bilateral cooperation efforts is the EU Law pertaining to the principle of complementarity. With the emergence of India as a bilateral donor at global level, opportunities are opening up for fruitful EU-India dialogue for development cooperation in third countries. As India is currently getting engaged in developing partnership with,

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besides its neighbors, countries in Latin America and Africa, south-south engagement could be the basis for enhanced trilateral programs. These could be powerful ways of fostering the international exchange of knowledge in areas, such as health, education, energy and information technology. Understandably, there is no “onesize-fits-all” solution and consequently, the approaches would have to be diverse for optimally shaping the EU-India development partnership. The paper by R. V. Anuradha and Ronjini Ray examines the opportunities and challenges faced by service providers from India when they have to post professionals in countries of the European Union. It examines the relevant legal provisions affecting trade in services in the EU and discusses the commitments made by the latter through various multilateral and bilateral agreements. It argues that the degree of restrictiveness for the non-EU service professionals has gone up primarily due to the fear of losing jobs to foreign professionals, which was also the key reason for Brexit. For a meaningful free trade agreement with the EU, the authors argue that India must negotiate and access space in labour market in fields that are of its interest and pursue to remove country and sector specific restrictions. The key suggestion made here is that the issue of any trade related movement of staff must be delinked from labour migration. A service supplier must have, under a trade agreement, the capacity to place certain number of employees temporarily in another country. This can be done by delinking the issues of employment from those of getting permanent residency, through creation of a separate FTA visa category, under which the years of presence are not to be counted towards entitlement of residency. Clubbing the two together can make the issue highly emotive and create hurdles in resolving the issue. Ralph Zimmermann focuses on the issue of the industrialized countries, striving for new regional or even “mega-regional” free trade and investment agreements, outside of the framework of WTO. He argues that the agreements such as CETA and TTIP go beyond mere reduction of tariff barriers and aim at establishing standards for global trade. These often have areas of frictions with the national laws and constitutional provisions that merit serious consideration by the legal experts. He argues that a nation state, entering into an International agreement, exercises the option of limiting its sovereign power by transferring it to an international or supranational body and, thereby, compromising its democratic accountability. It would, therefore, be important to critically evaluate the guidelines for such future free trade and investment agreements from judicial, legislative and administrative viewpoints, the Comprehensive EU-India Free Trade Agreement being no exception. There are, indeed, concerns that the latter would compromise the principle of regulatory sovereignty of the member states of EU, resulting in problems of democratic accountability. This agreement may lead to establishment of a Regulatory Cooperation Body which would identify the priority areas for mutual cooperation and supervise the implementation of the agreement. There are apprehensions that certain private companies and investors would challenge national governments or EU directly in international tribunals for violation of democratically founded state legislations. Attempts have indeed been made to stop the EU from further negotiations on CETA and TTIP, as these are seen as infringement of fundamental rights and compromising the sovereignty of the members of the European Union. The other point of criticism is that the executive

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bodies of the EU have gained too much power so as not to be amenable to a transparent procedure and democratic scrutiny by the member states and hence should not be allowed to have further negotiations on CETA and TTIP. The author, however, argues that much of these criticisms are ill-founded since the latest versions of the CETA and TTIP are compatible with the constitutional laws of the member states. These laws are, in general, very restrained in setting up boundaries for the contents of international treaties. He maintains that the powers transferred to any international entity must be delineated in a sufficiently precise manner and a nation should have the right to challenge the decisions of international organisations, wherein it is not a partner. Accordingly, the national Constitutional laws will be benchmark, facilitating the adoption of new agreements between the EU and India as well. Uday Shankar observes that the constituent units in a federal system often impose restrictions on trade and commerce, invoking “public interest”. He argues that the benefits of a common market in a federal system would critically depend upon the Constitutional arrangement, monitoring commitment and compliance of the constituent units and effective control of the national government to ensure the unhindered movement of goods and services across sub-national jurisdictions. The author holds that the present development model in India is responsible for accentuating inter and intra state inequalities in economic and social spheres. Visualizing the difficulties in achieving the objective of economic justice within a system of free and fair trade within the federal framework of the country, the author proposes establishment of an authority to monitor the conduct of the key actors—the centre, states and market, with both advisory and executive functions, under Article 307. He holds that there is need for further legal and institutional innovations to realize the goal of ‘common market’, without compromising the schema of provincial sovereignty, ingrained in the Constitution. Sanjay Jain raises the question of dissonance between normative constitutionalism and provisions in global trade by focusing on the rough edges between the GATT agreement and Articles 265 and 301–307 of Indian Constitution. He argues that although the regime of uniform taxation throughout India will shortly be put in place with the adoption of GST, this is likely to create friction in adherence to the GATT obligations. India cannot become a single unified market with uniform taxation structure when important exemptions exist for say petroleum products and alcohol. The critical question is whether the union executive, with its powers under Article 73 and the Parliament deriving power to incorporate treaties through legislations under Article 253 of the Constitution, can deal with the GATT and other bilateral and multilateral free trade agreements. The author argues that the acceptance of both GATT and GATT plus obligations amounts to amendment to the national Constitution since the NT obligation under Article 3 of GATT 1994 is all-pervasive, prohibiting any kind of trade protectionism. Although India, having signed and ratified WTO, has to comply with this obligation, GATT has a number of exemptions providing room for accommodation. Given that non-adherence to the GATT obligations would be extremely difficult, it would be important to strategically comply with these when it is launching measures to create unified market in the country.

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Jain further elaborates that although the threshold for free market access is ‘like treatment to like products’ in respect of origins of the goods, there is a scope for discretion in defining what constitutes ‘likeness’. It should be possible to find legal justification for launching an open market strategy and create an environment for unified market within the framework of the Indian Constitution. This would, however, call for creation of new institutional structures, both at Central and State levels. The paper by Prabhash Ranjan examines the clauses relating to monetary transfer provisions (MTPs) under a number of International Investment Agreements (IIAs), in the context of the regulatory powers of the Indian state to impose capital controls. He discusses the merits and demerits of capital account convertibility globally and in situations specific to India. While a few of these agreements contain provisions restricting the right to transfer funds under certain circumstances, the majority provide an unqualified right. These subject the MTPs to no domestic law and thus give an absolute right to the foreign investors to transfer funds generated through their investment. India can, however, impose restrictions on transfer of funds by relying on international treaties like the General Agreement on Trade in Services (GATS) and IMF. Also, the customary international laws can be used to impose conditionalities, even if these are not specifically mentioned in the agreements. The international law permits imposing regulations on capital transfers in the event of serious balance of payments difficulties. Furthermore, a violation of the MTPs and thus a breach of the IIAs can be excused, if the situation falls under any exceptional clause of a Non Precluded Measure (NPM). However, arguments based on international laws are not always accepted by the ITA tribunal. Also, majority of NPM provisions in Indian IIAs are defined narrowly and allow deviations from the obligations only in cases of essential security interest or in situations of extreme emergency. Consequently, the latter may not commonly be a valid ground to justify imposition of restrictions on transfer of funds. The author, thus, concludes that any capital control imposed by India can generally be challenged as a violation of the existing provisions on monetary transfer. Anil Rai overviews the development of capitalist market in India through a complex interplay of state, public and private institutions including companies operating in national and international market since Independence. Although economic policy and governance system were built on premises delinked from the tenets of capitalism, the these had started changing since the mid-seventies. The turning point, however, came in 1991 and by the turn of the century, when interactions of India with the rest of the world via trade, industry and investment attained their peak. The paper discusses the nuanced intrusion of foreign capital, their methods of dealing with risks due to various economic and political factors, their interplay with local actors and institutions, norms and practices for their entry, exit and judicial settlement. It analyses how the enterprises deal with public authorities, national and international laws and frequent interventions by the courts. It expresses concern regarding important legislations being rushed through without much debate as also clash between different public institutions on interpretation of regulatory powers and jurisdictions in recent times. Rai believes that it would be necessary to build confidence amongst the investing community that there is a rule of law in the country

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with total predictability. He goes on to identify the deficiencies in the system and indicates the directions in which remedies could be sought. In his concluding observations, Upendra Baxi argues that Constitution must not be viewed only as a judicial text for providing legal meanings to events or relationships but also as an instrument, through which the process of development, governance, human rights etc. find a context. It is important to realize that legal orders comprise elements of ‘creative destruction’ due to existential imperishability of the normative expectations from them. In this context, he observes that the legal framework of EU is founded on the notion of social justice. This is true for the Indian Constitution as well. Both pursue the image of human dignity as the cornerstone of national development. Unfortunately, the progress towards the goal of creating a decent and just society has been slow in India. The latter, must, therefore, learn from the achievements of the Constitutional Court in European countries such as Germany. Europe, on the other hand, may take a lesson or two from the social action litigations, currently being filed and addressed in the Supreme Court of India. Baxi notes that the process of producing surplus values through ‘capitalism’ has been highly ‘coercive and violent’ in the colonial era. In modern times, however, this goal is achieved through a less personal and more formal system of profit making. Here, law is the primary instrument in determining how the surplus value is to be extracted and distributed. Understandably, the global, regional and national legal system can play a key role in determining the nature of trade, investment and cooperation in the EU and India. He holds that unfettered international trade and multinational impunity do not go smoothly with the core of human rights. Consequently, the question of reconciling human rights norms with the principle of free trade and commerce remains extremely important and subject of empirical research. Baxi regrets that academics wield no power in the policy domain but often aspire to influence the contemporary power structure. Those in power, on the other hand, tend generally not to get influenced by what academics say and as a consequence, policy making tends to become research neutral. The critical question would, therefore, be how the researchers can become the masters of influence. He hopes that the proposed Indo-German Conference becomes a prism through which academicians are able to influence at least the course of Indo European relation, trade and development.

3 The Way Forward One would immediately agree with Helmut Goerlich and Mahendra P. Singh that the rules and traditions of creative communication in the sociology of science have been, and need to be, diverse and independent of the political disposition of the government. This is more true today than ever before. Research studies, conferences, media reporting etc. within this perspective, provide the basic ground material for interaction in the market place of knowledge, wherein exchange of ideas takes place. Academic interactions, therefore, is a powerful way of developing social science research and the series of Indo-German dialogue, which has resulted in the publica-

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tion of the present volume, focusing on areas of contemporary and critical concern for globalisation, holds a testimony to that. The key message one gets from the papers in the volume is that the major challenge to globalisation comes not from the environmental, social or labour lobby but from those projecting a strong nationalist perspective. The election of Donald Trump as the President of the U.S.A and his decision not to ratify the Paris Accord on the climate change signifies the culmination of this perspective. The most powerful dismissal of the thesis of globalisation has, thus, come not from those who propagate state intervention in the interest of socio-economic goals and the marginalized population but the champions of nation state. The present American establishment and the architects of Brexit can be seen, along with several leaders in the developed world, taking this extreme nationalistic position, disregarding, to an extent, larger environmental and other concerns of global equity and inclusiveness. The present challenge before the world, thus, is not whether the political economy of WTO and other global trade linked institutions can adequately protect the interest of the poor and politically marginalised population. The real challenge today is whether these institutions, scaffolding the framework of globalisation, would survive the formidable assault from the ultra-nationalists. The present volume may not herald the birth of comparative legal studies in India, being the fifth in the series produced through an extremely productive Indo-German dialogue, spread over a time span of about two decades, but can certainly be credited for bringing in a paradigm shift in the discourse by linking the issues with the highly contested theme of globalisation. It analyses the contemporary problems in trade, investment and factor mobility, emerging through the complex interaction of market, state policies and socio environmental concerns, expressed at national and global platforms, in the context of evolving legal system. I am confident that analytical insights on many of the critical issues coming for the papers in the volume, would become a basis of future academic communications and inspire the next generation of researchers and policy makers, dealing with comparative legal problems to explore the issues with greater empirical rigour. Knowledge of law is considered a crucial ingredient for better designing the strategy of economic development, particularly in the context of movement of commodities and factors of production, across international borders. The present volume would be of great help in formulation of a well informed strategy through an appropriate understanding and critical appraisal of the laws of the countries, besides those of one’s own and building a comparative perspective on international law. It would help in cultivating appreciation of different cultures and traditions in which the national laws are embedded and in overcoming misunderstandings and prejudices among policy makers and academic communities. It would also provide an input in fostering sustainable governance system, not only in the countries and states of European and Indian Union but also other developed and developing nations that are revisiting their strategies of globalisation in the context of growing concerns of sustainability, regional imbalance, social inequality and absence of social security for the workers. It is difficult to disagree with Helmut Goerlich and M. P. Singh that continuity with traditions is extremely important, particularly in areas pertaining to legal system.

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An exposure to alternate legal paradigms across countries can, however, break new grounds and help in bringing in elements of innovation in the legislative system as also Constitutional provisions.

Part I

Social Market Economy

Social Rights in the European and the Indian Union Jörg Luther

1 Starting Insights From a legal point of view, the social part of what European call the ‘social market economy’ is played by social rights that interact both with economic and cultural rights. An ongoing worldwide political and legal drama is facing the gaps between yellow ideals of happiness and a grey reality of ‘weak rights’ granted by weakened states under the pressure of globalization. The 2030 Agenda for Sustainable Development (2030 Agenda) and at least the first 12 of the 17 Sustainable Developments Goals (SDGs) adopted at the UN Summit in September 2015 (A/RES/70/1) recognize that fundamental social rights are still under construction and are often reduced to goals to be scored. The European and the Indian social rights dramas focus on different economic and cultural realities of more and less developing countries, but they are connected through international human rights law and common traditions of what we can call social elements of constitutionalism or social constitutionalism’ tout court. If we look at the European Union (EU) law, Christian Joerges’s deconstruction of the concept of ‘social market economy’ (2004) was sceptical on whether a judicial activism of fundamental social rights and the open method of coordination of social policies could ‘bridge the gap between the economic and the social constitution 1 of Europe’. The final Lisbon treaty has neither promised a ‘Social Union’, nor prescribed an ‘Unsocial Union’, but it has strengthened social rights through the Charter of fundamental rights and it has enlarged the social policy-competencies of the Union, prospecting in its preamble ‘economic and social progress’ based on solidarity between the peoples and on the attachment of all EU states to fundamental 1 Joerges

and Rödl (2004).

J. Luther (B) Department of DIGSPES, University of Eastern Piedmont, Via Cavour 84, 15100 Alessandria, Italy e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_2

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social rights. For the purpose of a ‘highly competitive social market economy, aiming at full employment and social progress’, the EU shall ‘combat social exclusion and discrimination’, promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child and ‘economic, social and territorial cohesion and solidarity among Member states’ (art. 3 (2) TEU). The paper aims to demonstrate that these commitments are not just slogans of good will and soft law, but a further little step in a long path of progressive realisation of social human rights that limit and legitimise the social market economy. Notwithstanding the new social rights pillar strategy of Mr. Juncker,2 these ideals of a European social constitutionalism are still associated mostly to the national state, a genuine product of common European history that is facing with diverging performances new challenges of financial crisis and migration and even moments of crisis of the European Union itself. If we look at the Indian Union law, Singh’s (2015) comparative perspective on socio-economic rights depicts an even bigger gap. On the one hand, a written constitution recognizes social rights primarily as directive principles of State Policy (art. 39 c): that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment and, on the other hand, social reality has one of the worst records in wealth equality and socio-economic indicators, even if compared to the other BRICS that share all specific social rights traditions.3 The necessity to bridge the gap allowed a limited judicial activism based on public social interest litigation and on a reinterpretation of the general rights to life and personal liberty combined with human dignity that supported a sort of hard core of the social rights defined by articles 24 and 25 of the Universal Declaration of Human Rights (UDHR), specially food, education, housing, health care, livelihood. Nevertheless, the ideals of this form of social constitutionalism seem to be not only under the stress of what Upendra Baxi calls a ‘structural adjustment program’ directed against Indian judicial activism.4 While the ‘NHRC-India Submission to the UN Human Rights Council for India’s Second Universal Periodic Review’ (2012) criticised the outcomes of governmental ‘flagship’-initiatives,5 the working group recognized significant efforts in the sphere of social and economic advancement and the achievement of the Millennium development goals, but recommended to sign the Optional protocol to the International Covenant of Economic, Social and Cultural Rights (ICESCR).6 In order to promote a new Indo-European dialogue, the paper offers first a comparative contextual analysis of the argument looking at the common geo-history, the different institutional frameworks, political cultures, legal systems and economic performances and the relevant international relations (2). The next step will be an attempt to outline a common ‘spirit’ and concept of social rights in Europe as a thin, 2 Juncker

(2015). (2015). 4 Baxi (2014). 5 National Human Rights Commission (2011). 6 http://daccess-dds-ny.un.org/doc/UNDOC/GEN/G12/151/08/PDF/G1215108.pdf?OpenElement. 3 Singh

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neither neoliberal nor socialist synthesis and as a hybridisation of national legal and constitutional traditions and international law that could be compared with the Indian case (3). The paper looks in a further step at the state of social rights within the European Union, especially the European Social Model and the ways of Europeanization of social policies and their interaction with changing European welfare state systems (4). In the following step the European Social Charter will be compared to the SAARC Social Charter and further opportunities of social rights protection will be explored (5). The final question with only partial answer is what the European and the Indian Union could learn from each others’ social rights protection experiences (6).

2 Comparative Contextual Analysis Any transcontinental dialogue and comparison has to practice precaution, being aware of the asymmetries of knowledge and the dangers of romantic exoticism, magisterial arrogance or curatorial particularism.7 The European Union and the Indian Union have prima facie extremely different and far distant social rights discourses. In order to measure and prospect the circulation of legal ideas and models of social rights between both Unions, one should bear in mind various relevant contexts: the common history matters (1), different institutional frameworks (2), different political cultures of democracy (3), different legal cultures (4) and different economical performances (5), but common international relations (6). (1) The history of Eurasian migrations and Indo-European languages since the so called Axial age and along the Silk road has framed a common Eurasian cultural heritage of legal myths and ideas, including the sacredness of ‘jeu(o)s’ (jus),8 as well as the inventions of empires and the rule of law (Rajadharma v. Nomos Basileus). The memory of this common legal heritage has been divided by occidentalism/orientalism and partially cancelled by experiences of colonialism, but it could still support modern cosmopolitanism as well as minority rights discourses against ongoing clashes of civilizations. The lost memory of the Indian roots of the Sinti minority in Europe is just one example, the lost memory of the European roots of the concept of nationhood another. Looking at this common history, social rights are first of all grounded on the ancient duties to take care and give hospitality to the poor, the ill and the stranger, duties that have been ruled and institutionalized prior to the Christian caritas and Islamic zadak in Hindu D¯ana and Hebrew tzedakah. Already the Babylonian king Hamurabi codified its laws for the purpose ‘that the strong might not injure the weak, in

7 Sen

(2005). (1973), Thiruvengadam (2012).

8 Benveniste

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order to protect the widows and orphans’.9 The ancient rule of law could have been a rule of social law. (2) The different forms of federalism in both Unions matter for social rights protection. Meanwhile the Indian Union is a sovereign national mega-state, based on a postcolonial constitution with federalism and social directives, the European Union is a treaty based on a supranational federation (or confederacy) of pre-existing nation-states with different constitutional cultures and welfare systems and a principle of solidarity tempered by subsidiarity. The Indian Union is centralized, but moving towards more federalism, notwithstanding strong experiences of partition and secessionism.10 The EU is less centralized and governed by an executive federalism under a perceived German hegemony, shocked by the BREXIT referendum and an increasing north/south divide, but it is still facing further demands of accession and expectations of social federalism.11 Sovereignty and federalism matter both for the performance and effectivity of social rights, because federalism could stimulate solidarity among communities. Federal frameworks don’t necessarily enhance social homogeneity and strong solidarity among territories, but they can promote a sufficient degree of social cohesion and support social rights related services at local and regional level, but the performance of social rights under federalism has not yet been measured with universally recognized social rights indicators. The EU might become a model for a South Asian Economic Union, but federal solidarity among rich nations could be less difficult than among countries with more poverty. (3) Even democracy and political culture matter for the protection of social rights. The imperfections of democracy could be a factor and/or a consequence of the weakness of social rights and state directives, especially if associated to a concept of capabilities.12 India is considered the ‘largest democracy of the world’ with a great pluralism of languages, religions and political parties, but even higher illiteracy and some troubling ‘clashes within’.13 On the other hand, the EU is developing a proper model of ‘transnational democracy’14 and their post-authoritarian democracies are facing tendencies of post-democracy. On the one hand, the Indian concept of democracy has still the purpose of a ‘socialist’ and ‘secular’ form of state, on the other hand, democracy in the EU aims to be grounded on values of a society where ‘pluralism, non-discrimination, tolerance, justice, solidarity and equality between women and men prevail’ (art. 2 TEU). Both unions converge on new common ideals of ‘inclusive democracy’ and democratic ‘responsiveness’, but face new realities of plutocracy, technocracy, videocracy etc. 9 ‘The

Code of Hammurabi’ (L. W. King tr, Yale Law School). http://avalon.law.yale.edu/ancient/ hamframe.asp. Accessed August 2, 2017. 10 Singh (2005). 11 Dann (2011). 12 Sen (2000), Nussbaum (2003). 13 Nussbaum (2009). 14 Habermas (2011).

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(4) Differences in social rights protection can be grounded in different rule of law conceptions. Social rights need specific legislation and administration and can find special judges for labour, welfare and administrative justice. The Indian law has a common law culture, integrated by oriental sources of Hindu law and other sources; meanwhile the EU law aims to offer a European synthesis of different national legal cultures, being supported by a common historical basis of Roman law. Common law traditions could be perceived as more liberal or market friendly than social rights centred, meanwhile civil law traditions can transform the ‘rule of law’ in a ‘rule of social law’ (sozialer Rechtsstaat). The judicial review of legislation being practised in both unions and most EU member states, socio-economic rights can find more weak forms of political and administrative protection, for example in more realism oriented Scandinavian legal cultures. (5) The Indian economy is still fast growing with lower-middle incomes, the locomotive of BRICS. Meanwhile the high income countries of the EU, India’s largest trade and investment partner, suffer more from the global economic slowdown and sovereign debt crisis, and the Euro-group countries have more unemployment than other EU states. Both Unions are members of the WTO, but the EU is only a cooperation partner, not a member of World Bank and World Monetary Fund. The OECD recommended India improve the macroeconomic framework, in order to raise employment through a more flexible labor law, increase female economic participation, and to improve health outcomes for all.15 No specific recommendations to EU have been made, but the troika’s recommendations to Greece and other countries have been found incompatible with several social rights guarantees by the European Committee of Social Rights.16 Meanwhile in India economic growth seems to favor poverty reduction, in the Euro-group austerity policies are suspected to harm the social rights. (6) EU-India relations are relations among soft powers with voting Diasporas.17 The European Union was created in the context of larger organisations of the such as the Council of Europe (CoE), NATO (1949), and OECD (1961), and has a special status in ILO, WHO and UNESCO, the Indian Union is a regional power in the Asia-Pacific region, part of the Commonwealth and of the South Asian Association for Regional Cooperation (SAARC), with neighbour states that have more constitutional social rights provisions than other Asian countries. Inspired by a common interest in a new bridging multilateral order based on peace and at least a minimum of global social justice, both are committed to development cooperation and have since 2004 a strategic partnership with an annual ‘local’ human rights dialogue. Main areas of EU concern include poverty, caste discrimination (Dalits), violence against women, children’s rights, rights

15 OECD

(2014). No. 79/2012 Panhellenic Federation of Pensioners of the Public Electricity Corporation v Greece [2012] ECSR. 17 Mahotra (2015). 16 Complaint

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of indigenous people (Adivasis) and poor prison conditions.18 Negotiations of a ‘broad-based bilateral trade and investment agreement’ have been stopped when India rejected clauses for the protection of labour rights and environmental sustainability.19 Meanwhile most EU development projects support social rights, the EU-India Agenda for Action-2020 (2016) gives only a mandate to ‘explore possibilities within G20 to enhance collaboration to promote decent work, productive employment, social protection and occupational safety and health and fostering sustainable global supply and value chains’.

3 The Spirit and Concept of Social Rights in European Constitutional and Legal Traditions The common tradition of social rights protection in Europe has been today at least partially ‘constitutionalised’ through sources of constitutional law as well as through sources of regional international human rights law. The European tradition has a preChristian matrix in the concepts of ‘cura’ and ‘se-curitas’ that were grounded in stoic ideals of dignity.20 The transformation of the religious and political duties of solidarity first in pre-modern institutions of ecclesiastical and civic social assistance and later in contemporary secular social rights was promoted mainly by cultural revolutions. Subjective rights were invented at the same time when medieval canonical law recognized that ‘by natural law all things are common’, which means in times of necessity they must be shared with those who need them.21 Italian Renaissance developed a dignity concept open for human creativity and opposed to ascetic concepts of miseria hominis, but only the modern constitutions outlined liberty, equality and fraternity as leading principles in human and citizen’s rights. Meanwhile the US-declaration of independence declared a right to the ‘pursuit of happiness’, the French declaration invoked in its preamble the welfare of all (bonheur de tous) and added the famous definition of constitutionalism whereby a society that doesn’t divide the powers and ‘ensure’ (assurer) the rights has no constitution at all. The duty to ensure the rights implied not a legal right to security, but a right of access to justice and to military or civil service. Sieyes’ preliminaries of the Constitution recognized furthermore a right of all citizens to share the benefits (bienfaits) of their ‘social union’. Citizens that by force of a malheur were unable to satisfy their needs should be ensured the ‘just rights to get help (secours) from their con-citizens’. Human beings would need a good public education and instruction system and the Nation would need an active control over 18 Sachdeva

(2015); ‘India: Human Rights’ (European Parliament, March 2015). http://www. europarl.europa.eu/RegData/etudes/ATAG/2015/551312/EPRS_ATA(2015)551312_EN.pdf. Accessed August 1, 2017. 19 Zwagemakers (2012). 20 Cicero (1913), Zwierlein (2015). 21 Van Beuren (2013), Marchettoni (2008).

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its relations with over peoples. Nevertheless the declaration should not list all the values of a good constitution, being sufficient to establish a right of citizens to all action the state can take on their benefit.22 Under the Jacobin Constitution of 1793 that declared directive principles on social aid and public education (art. 22, 23), slavery was abolished, but Napoleon revoked that decision and the declaration of 1815 granted only free primary school (art. 11). Karl Marx observed23 that the preamble of the constitution of 1848 transformed vindicated rights to education, labour and to ‘support of the orphan, the infirm and the aged’ into directive principles of the Second Republic (art. 8), preceded by a duty of the individual ‘to ensure themselves through work the means of existence and through foresightedness (‘prévoyance’) the resources for the future; they shall concur to the common well-being by helping each other like brothers and to the general order by observing moral rules and written laws that reign the society, the family and the individual.’ The liberal model of social state was therefore declined any subjective public social right.24 During the eighteenth century, the liberal reluctance to social rights prevailed all over Europe. Social rights became popular and constitutional commitments only through the revolutions of last century, in Latin America through the Mexican Constitution of 1917 and in Europe after the trauma of the First World War through the Constitutions of Weimar in 1919 and of Stalin in 1937. The fundamental rights and duties provisions of the Weimar Constitution translated the general principles of social protection provided for the new International Labour Organisation by the almost hated treaty of Versailles in guarantees of a ‘social existence respecting human dignity for all’ (menschenwürdiges Dasein).25 As an alternative, corporatist and fascist regimes strengthened fundamental social duties, socialist regimes tried to realize social rights without markets. A research carried out in 1999 for the EU pointed out that after the end of the Second World War social rights have been more and more constitutionalised and protected in different forms and degrees of justiciability. With the exception of the UK—the homeland of common law hasn’t a single constitutional texture but a strong tradition of social legislation highlighted by Beveridge’s Report of 1942 and echoed by Franklin D. Roosevelt’s freedoms ‘from fear and want’—all European constitutions include at least one social right, even Germany and Austria, where at least mothers or children have social rights (and regional constitutions provide further guarantees).26 The constitutional entrenchment of social rights is more advanced in southern than in northern Europe, including specific subjective rights to education, health 22 Sieyes

(2013). (1851). 24 Wiederin (2005). 25 International Labour Organisation Constitution (adopted 28 June 1919) 241 UNTS 874 (ILO) art 427. 26 Fabre (2005). In Austria an overlapping reform consensus is acknowledged by Schäffer and Klaushofer (2014). 23 Marx

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care, social security, work, rarely housing, but never food or water, sometimes a constitutional declaration of a general human right to ‘a decent life and to social security’ (art. 9 Cyprus) or to ‘lead a life in keeping with human dignity’ (art. 23 Belgium). The rights clauses have been in some cases surrogated, in others integrated by directive principles of social policy (art. 45 Ireland) and fundamental constitutional principles of state action for substantial freedom and equality (art. 3 (2) Italy), for the ‘personal, economic and cultural wellbeing of the individual’ (art. 2 (2) Sweden) or simply for the ‘sozialer Rechtsstaat’ (art. 28 (1) Germany), a rule of law for a social state that allows to protect even positive obligations deriving from classical liberties.27 The textual differences are partially compensated by further explicit or implicit general clauses that oblige most EU-countries to make interpretation of laws ‘in the light’ of international law, including existing regional human rights instruments such as the European Social Charter (ESC). Europe has already a common concept of social rights in the Council of Europe (CoE) and EU-law that includes a standard set of rights or directive principles for education, healthcare, social security, specific protection for weak categories (woman, children, elders, disabled) and for a healthy environment. This concept is open for “new social rights” related to development, land, housing, food, water and internet., the doctrines and practices of European Constitutions have framed furthermore a common European constitutional standard on the basis of a core right of a person to get protected in its own ‘social existence’ and various forms of legal guarantees of social security referred to property, equality or dignity rights or principles.28 The degree of constitutional entrenchment of social rights is not necessarily relevant for social expenditure and redistribution, but it is much disputed to what extent the success of the “social state” is conditioned by the force of institutions and the ethnic homogeneity of the national state. One could object that the force of institutions and the perception of homogeneity can be conditioned by religious energies and by the force of the constitution as a whole. Social justice and security are at any case purposes of the European pactum societatis et subjectionis that citizens agree and accept for governments.29 A study of the European University Institute of 2010 showed that the Charter of Fundamental Rights of the European Union (CDFEU) of 2000 has strengthened the principle of indivisibility of human rights, a principle that is binding for the Union but does not impose the homologation of the national social rights protection policies and legal cultures.30 On the one hand, the EU-law reflects the trend to take them more seriously and to promote both individual and collective complaints of social rights. On the other hand they still rely in different forms and degrees to the specific constitutional identities of the European national democracies. As long as the national systems of social security are regarded, comparative social and political research 27 Butt

et al. (1999). (2005), 53. 29 Langford (2014). 30 Roman and Others (2010). 28 Wiederin

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divides the welfare capitalism in Europe into three areas: the liberal, the conservative–corporatist and the social-democratic one.31 The legal comparison presents five models of welfare in the EU-countries in a geographic order of decreasing economic competitiveness: (1) the Nordic welfare, based on universal citizenship rights with collective responsibility for extensive public services for health, education and job placement, extensive public employment and unemployment insurance managed by trade unions; (2) the Anglo-Saxon welfare, based on a national health service and residual entitlements of the poor through targeted, needs-based state action with individual responsibility in conditions of equality of opportunities and self-reliance maximising markets, deregulated labour market and decentralized labour relations; (3) the North-Western version of continental welfare, based on obligatory social insurance for workers and their families (Bismarck) and a subsidiary collective responsibility allocated in families, churches and public corporations; (4) the Southern version of the continental model, with a lower public social protection that leaves more responsibility to family assistance and voluntary third sector aid and offers a universal health care and highly differentiated pension schemes with deficits in woman employment and more fragmented trade unions (and political parties); (5) the Eastern versions of welfare in post-communist States with new market economies that adapted and hybridized the other models under international pressure. These differences explain why national constitutions in Europe have not been homologated to the international instruments of social rights protection. The national concepts and catalogues of social rights and state directives are more or less thick or thin in consideration of their relation to the other categories of rights, especially civil and political rights, being more or less inspired by ideals of liberalism, conservatism, and socialism and by the national design of welfare. Nevertheless, social rights are a concept of a common European public law that has a common content. Social rights can be defined as a species of the genus, fundamental rights of a human person because they offer at least a minimum of international and constitutional protection and mandatory legislative implementation. They are no more presumed to be not justiciable, but they can still have weaker forms of review in the international and in the national constitutional order.32 Social rights can be distinguished from other fundamental rights by their object, being first of all expectations and claims of positive action. The fulfilment of the duty to protect social rights is generally conditioned by a mandate of legislation and of allocation of financial resources, with general principles that command gradual development over time and prohibit unreasonable regression. The duty bearers of social rights are not exclusively the state and sub- or supranational public bodies under a principle 31 Esping-Andersen 32 For

(1990). the constitutional level see Tushnet (2008).

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of subsidiarity, being such rights even binding for non-state actors, especially for private power holders like employers, land- and house-owners or parents. The rights of children and workers to get alimentation and pay are most prominent examples of fundamental social rights grounding private and civil law. Finally, even after the end of the socialist regimes in Europe, social rights are encumbered by social duties (to work, schooling etc.) that concretize the responsibilities of the social rights holder for their own happiness.33 If this is the common analytical frame of social rights, the common spirit of their constitutional and international guarantees rely mainly on values and fundamental principles of dignity against misery, of positive freedom and substantial equality (no discrimination and equal opportunities), of solidarity duties, inclusive citizenship and effective access to justice. This spirit has been strengthened by the incorporation into the CFREU, of most rights of the European Social Charter (ESC) that has been ratified by all EU and CoE-countries except Switzerland, either in the shorter original (Turin 1961) or in the longer revised version (Strasburg 1996) and was earlier recognized by the EUtreaties and even by the jurisprudence of the European Convention of Human Rights (ECHR).34 Under EU and CoE law, social rights can be protected both as subjective rights and objective principles, or just respected as objective principles not to be promoted without political competences. The common spirit is a thin but solid, neither neoliberal nor socialist synthesis and hybridisation of national constitutional and legal traditions and regional international law, a spirit that doesn’t bring happiness, but helps to reduce the unhappiness in situations of fear and want. Recent research conducted by Jung et al. (2014). still divides sharply the constitutions of post-communist countries from those of “Western Europe and North America”. Latin America and post-communist constitutions would represent a strong entrenchment of economic and social rights, Western Europe and North America “share a strong norm against ESR entrenchment”.35 A more politically correct geography should recognize that the spirit of social rights is a fundamental of the constitution of the European welfare states and of the EU being European constitutionalism more social constitutionalism than the North American one. There are of course strong North-South and West-East divides even within EU and CoE, for example on the question whether social rights of citizens should be stronger than those of other human beings. Nevertheless, the Euro-group is promoting a “Social Rights Pillar” that takes social rights as seriously as fundamental rights, with adequate international and constitutional guarantees.

33 Waldron

(2010). (2003). 35 Jung et al. (2014). 34 Tulkens

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4 The State of Fundamental Social Rights in the European Union: More Virtual Than Real Progress? The European Union promoted the above said common spirit of fundamental social rights, but didn’t fill up the gap between the ideals of social justice and the reality of social inequalities. The EU is not a ‘social union’, but it could not survive if it would become an ‘unsocial union’, especially on the actual background of the migration crisis. In any case, the performance of the EU in the field of social rights protection is still controversial and uncertain. If we look at the CRFEU and at the competences of the Union in the field of social policies, the performance of the duty to “respect” will be presumably higher than the performance of the duties to “protect” and “fulfil”. The EU recognizes the indivisibility of rights and respects most, but not all social rights, being still significantly excluded the rights to housing and to fair remuneration. The realisation of all social rights, however, can be only partially promoted at EU-level, being still mainly under the responsibility of the member states and their presumptive democratic governments. If we look at the history of EU law, the transnational integration process has produced significant welfare tools such as the European Social Fund (1957), the Social security of migrant workers (Regulation No. 1408/71), the Regional Development Fund (1975), the Committee for social dialogue (1992), the European Employment Strategy (1997), the Common Principles of Flexicurity (2007) and finally the strategies of Lisbon (2000) and Europe 2020 (2010). More than half of the Europe 2020 agenda seems to be devoted to social policies and even the other economic objectives can be conceived as social investments: The Digital Agenda is the EU’s strategy to help digital technologies, including the internet, to deliver sustainable economic growth. The Innovation Union aims to improve conditions and access to finance for research and innovation in Europe, so that innovative ideas can be turned into products and services that create growth and jobs. Youth on the Move provides support for more than 400,000 young people each year to work, train and study abroad. Resource efficient Europe supports a shift towards a more resource-efficient, low-carbon economy to achieve sustainable growth. An Industrial Policy for the Globalisation Era sets out a strategy that aims to boost growth and jobs by maintaining and supporting a strong, diversified and competitive industrial base in Europe offering well-paid jobs while becoming more resource efficient. The Agenda for New Skills and Jobs is how the Commission will help the EU reach its employment target: 75% of the working-age population (20–64 years) in work by 2020.

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The European Platform against Poverty and Social Exclusion is designed to help achieve the EU target of lifting at least 20 million people out of poverty and social exclusion by 2020. The balance sheet of the state of social rights shows that the EU is no more just an agency for the coordination of social policies of different welfare systems and a partial harmonization of social legislation, but points on specific flagship missions, for example the European Platform against Poverty and Social Exclusion. The competences regarding ‘social policy for the aspects defined in this Treaty’, ‘common safety concerns in public health matters, for the aspects defined in this Treaty’ or ‘economic, social and territorial cohesion’ (arts. 4, para. 2, 151 ff., 168, 174 TFEU) have been enlarged. The open method of coordination has strengthened the ‘coordination of the employment policies of the Member States, in particular by defining guidelines for these policies’ (arts. 5, para. 2, 145 ff. TFEU) and the “coordination of Member States social policies” (arts. 5, para. 2, 151 ff. TFEU), or “actions to support, coordinate or supplement the actions of the Member States” regarding “protection and improvement of human health; education, vocational training, youth and sport” (arts. 6, 165, 168 TFEU). Other areas of EU-policies and activities such as consumer and environment protection, agriculture or infrastructures developed further specific social rights and principles. All areas of competences can be affected transversally by social rights insofar as the EU ‘shall aim to eliminate inequalities, and to promote equality, between men and women’ (art. 8 TFEU), ‘take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion, and a high level of education, training and protection of human health’ (art. 9 TFEU), ‘take appropriate action to combat discrimination based on sex, racial or ethnic origin, religion or belief, disability, age or sexual orientation’ (art. 19 TFEU). Last but not least, ‘given the place occupied by services of general economic interest in the shared values’, the EU shall take care that such services operate on the basis of principles and conditions, particularly economic and financial conditions, which enable them to fulfil their missions (art. 14 TFEU). From a legal point of view, the EU prospects a ‘highly competitive social market development, aiming at a full employment and social progress, and a high level of protection and improvement of the quality of the environment’ (art. 3 para. 3 TEU), with increased economic and social competences. The Union shall combat social exclusion and discrimination and promote social justice and protection, gender equality as well as solidarity between generations and protection of the rights of the child. The legal design of the EU has been bettered and even in the political reality one can observe that EU-action has increased occupational safety and health and has promoted more universal and sustainable social protection systems, inclusive labour markets, a multilevel social dialogue and a quality framework for social services of

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general interest.36 This European social model has therefore been considered highly competitive when compared with social policies in the United States, Latin America, Asia and Africa. Nevertheless, this social model is still under construction, appears vague and inconsistent and is lacking of political consensus and support. In the context of the ambiguous principle of subsidiarity, a ‘highly competitive social market economy’ sounds still like ‘Keynes at home and Smith abroad’. An ambivalent role has been played even by the European Court of Justice (ECJ). On the one hand, ECJ protected social rights as implications of the freedom to move and of the prohibition of discriminations for citizenship; on the other hand, the judges stopped collective action of trade unions colliding with economic freedoms (Viking/Laval).37 The popular consensus for a European solidarity is still weak and unable to bridge the conflicts on migration. The veto against the constitutional treaty in Netherlands and France was partially motivated by a fear to lose social protection offered by the Nation which is perceived as an enlarged family. A large scale of political actors and electors still prefer to identify social security with ‘national’ security that should remain in the sole responsibility of the members states. When EU faced the banking and financial crisis, political scientists highlighted the persisting asymmetry between a strong neoliberal expansion of economic freedoms backed by the judges (negative integration) and a weak commitment to social policies and market-correction left to national legislators with a more restricted budget autonomy (positive integration).38 The discriminating acronym of PI(I)GS during the sovereign debt crisis and the asymmetric effects of austerity policies marked a further loss of confidence and increasing differences between the European welfare states, with people of northern countries anxious to pay for the debts of the poorer countries of the South. In the European post-industrial societies, new social risks have been imposed to workers and trade union membership is decreasing all over Europe as a result of the single market.39 The European welfare states learnt new forms of recalibration and new perspectives of ‘social investment’.40 Social rights are no more a hope for socialism, but not even a horror for neoliberalism. Nevertheless what is the definite state of social rights in the EU remains a controversial question. A recent commission staff working document for the consultation on a new “European Pillar of Social Rights” acknowledges that unemployment is decreasing, but the risk of poverty or social exclusion affects 1 of 4 persons.41 Europe is under demographic pressure as an ageing continent with more female workers, changing family structures, growing diversity of immigration and rising levels of education. The ‘fourth industrial revolution’ takes place with increased employment and social disparities that may weigh heavily on the performance of the Euro area. 36 Vaughan-Whitehead

(2015). and Rödl (2014), Hervey (2015). 38 Scharpf (2010). 39 Crouch (2010). 40 Hemerijck (2012). 41 Commission Staff Working Document COM (2016). 37 Kingreen

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As a matter of fact, the EU represents at global level ca. 7% of population, 25% of gross domestic product (GDP) and 50% of social expenditure of the world.42 What we call the ‘European Social Model’ is made today first of all by a public social expenditure rate43 per GOP of 28.6% of all EU-countries and 29.4% in the Euroarea with larger differences east/west than north/south (for example, France 33.7%, Greece 31.6%, Finland 31.2%, Italy 29.8%, Germany 29.0%, UK 28.1%; Poland 17.7%, Latvia 14.4%). Taking all benefits together at constant prices, the annual growth over the 2008–12 period averaged an estimated 1.7% in the EU-28.44 OECD data45 show that in recent years some EU-countries such as Greece, Estonia, Germany, Hungary, Ireland and the United Kingdom have experienced substantial declines in social spending, but in most EU-countries social spending remains at high levels. Only if one includes the private expenditures, United States comes closed even to France, meanwhile public spending in emerging economies is lower than the OECD average of 22%. In the BRICS, Russia (15.7%) and Brazil (14.4%) leads over China (9.1%), South Africa (8.8%) and India (4.6% in 2007). Development matters: Public social expenditure as a percent of GDP in 2012 or last year available

If we ask for the percentages of social expenditure in the EU-budget, no precise answer is given by the institutions. That does not mean that there isn’t any expenditure, but the budget is based on various missions and probably any attempt to separate expenditure for economy and for social purposes could be technically hard and politically unwise. A global benchmarking and bench learning for the performance of the social objectives is still under way.46 A comparison EU-India regarding the substantial protection of social rights could be started looking at some macro data:

42 Cavalli

and Martinelli (2015).

43 Expenditure for old age, sickness/healthcare, disability, family/children, housing, unemployment,

survivors (widows and widowers), social exclusion not elsewhere classified. 44 http://ec.europa.eu/eurostat/tgm/. 45 OECD, ‘Social Spending is failing in some countries, but in many others it remains at historically high levels’. http://www.oecd.org/els/soc/OECD2014-Social-Expenditure-Update-Nov20148pages.pdf. Accessed August 2, 2017. 46 For Germany see Obinger (2014), Scruggs et al. (2013); Eurostat ‘The EU in the World—Living Conditions’. http://ec.europa.eu/eurostat/statistics-explained/index.php/The_EU_in_the_world_-_ living_conditions. Accessed August 2, 2017.

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– the $1.90 a day poverty headcount ratio (Worldbank) was reduced in India from 31.4% in 2009 to 21.3% in 2011, meanwhile monetary poverty and severe material deprivation increased in EU since 2008 with 17% of Europeans that live on less than 60% of their country’s average household income and 24% at risk of poverty47 ; – the unemployment rate in the European Union raised from 7.0 (2008) to 10.8% (2013), in the Indian Union from 2.5 (2012) to 4.5% (2013)48 ; – the social security in an ageing society is conditioned by the life expectancy at birth, in the EU 80.6 (EU-28 2013) years, in India 69.89 (CIA 2012)—even more increasing, – the rights of the family are conditioned by the fact that more than three quarters of households in India have four or more persons, compared with one fifth in the EU-28.

5 The European Social Charter Compared to the SAARC Social Charter The European Pillar of Social Rights might be strengthened by an accession of the European Union to the European Social Charter (ESC), accession that has been already supported by both the European Parliament and the Parliamentary Assembly of the CoE.49 The ESC goes beyond the Nizza Charter (CFREU) insofar as it includes a general right to work, the right to fair remuneration, the right to be protected from poverty and social exclusion, and the right to housing. Today 19 of 28 EUmember states ratified the Revised European Social Charter (RESC) of 1996, 9 states (including Germany and UK) are bound only by the 1961 Charter. Being the signing state free to make a choice of its Charter obligations, it has to be added that today only France and Portugal have accepted all obligations. 14 EU member states have accepted the Additional Protocol of 1995 establishing a system of collective complaints to be examined by the European Committee of Social Rights (ECSR). The so-called Turin process within the Council of Europe aims to encourage the EU to take the ESC/RESC ‘into account in the legislative process’, to reinforce the dialogue between the ECSR and the Court of Justice (CJEU) and the links to the 47 “Close to 9% of all Europeans live in severe material deprivation—they do not have the resources to own a washing machine, a car, a telephone, to heat their homes or face unexpected expenses. 10% of Europeans live in households where no one has a job. There is a wide gap in performance between the welfare systems in different EU countries—the best reduced the risk of poverty by 60%, the least effective by less than 15% (EU average 35%)”. 48 Eurostat, ‘Statistics Explained’. http://ec.europa.eu/eurostat/statistics-explained/. Accessed August 1, 2017. 49 Resolution of the European Parliament of 27 February 2014 on the situation of fundamental rights in the European Union (2012) (2013/2078(INI)); Parliamentary Assembly of the Council of Europe, Resolution of 8 December 2014 on the implementation of the Memorandum of Understanding between the Council of Europe and the European Union, at http://www.coe.int/T/DGHL/ Monitoring/SocialCharter/Doc_Bruxelles_version_EN_FR_DEF.pdf.

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Fundamental Rights Agency (FRA), to implement ‘early warning’ procedures and, last but not least, to ‘work towards the proposed accession of the EU to the Charter’.50 Now if we look at the differences between the European and the SAARC Social Charter (SAARCSC), we find first of all the purpose to ‘ensure an overall and balanced social development of their peoples’ (art. 1 SAARCSC) and to ‘improve their standard of living and their social well-being’ (preamble ESC). Being the SAARC committed to “sustained social development” (art. 2) of developing countries (art. 2 sect. 3 ICESR), it aims not only to ‘facilitate economic and social progress’ (Preamble, RESC) but even ‘to accelerate economic growth, social progress and cultural development’ (preamble SAARCSC). The SAARCSC furthermore opens with a declaration of ‘principles, goals and directives’ (art. 2) that imply a stronger dimension of ethical responsibility, equity, tolerance, universal respect and a human rights education ‘in the context of inculcating in children intrinsic and attendant sense of duty and set of values directed towards preserving and strengthening the family, community, society and nation’. Human dignity is not only to be ‘respected’ and ‘protected’ (art. 1, CFREU) as a ‘dignity at work’ (art. 26 RESC), it must be ‘promoted’ as well as participatory governance, social justice and solidarity (art. 2 (2) vi SAARCSC) and a person must be enabled to “realize” his or her personal dignity (xiv). A specific vulnerability of ‘human rights and dignity’ is recognized to women and children (art. 6, 7 SAARCSC). Poverty alleviation is the first topic of the SAARCSC (art. 3), protection against poverty and social exclusion and the last entry in the European Social Charter (art. 30). The success of the Indian report is based on an absolute poverty threshold that is still lower than the Worldbank indicator,51 the right to social security and the right to social assistance in European countries are construed on the basis of a more relative concept of poverty the minimum social income through two thresholds, a collective one that amounts to 50% of the country’s net median equalised household income per adult, and an individual that amounts to 40–50% of the previous earnings of a person (art. 12 RESC as interpreted by the ECSR52 ). This minimum social income amounts in Norway to 1.514 e, in Romania to 88 e/month. The ESC-rights catalogue starts with the right to work and other work-related rights not included in the SAARCSC and only partially guaranteed at constitutional level in India. The right to bargain collectively and to collective action in cases of conflicts of interest are not explicitly protected by the Constitution and only half of fundamental ILO Conventions are ratified.53 The ESC is based furthermore on concrete undertakings of the member states for the protection of the social rights. Especially the right to health (art. 11 RESC) is 50 Nicoletti

(2014); See Luther (2016). Ministry of Statistics and Programme Implementation (2014), Datt et al. (2016). 52 Mikkola (2016). 53 Not ratified: C087—Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87); C098—Right to Organise and Collective Bargaining Convention, 1949 (No. 98); C138—Minimum Age Convention, 1973 (No. 138); C182—Worst Forms of Child Labour Convention, 1999 (No. 182); C129—Labour Inspection (Agriculture) Convention, 1969 (No. 129). 51 See

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protected through concrete duties of prevention, including ‘the encouragement of individual responsibility in matters of health’. The SAARC Charter provides specific goals of ‘population stabilization’ (art. 8) and ‘drug de-addiction’, including a ‘stabilisation in the growth of population in each country, through voluntary sustainable family planning and contraceptive methods’ and prevention of ‘unsustainable population changes’. Even the ESC rights can only partially be invoked by migrants. Finally, different mechanisms are provided for the implementation of the social charters. The SAARCSC distinguishes national implementation at the national level through a National Action Plan and a ‘National Coordination Committee or any appropriate national mechanism as may be decided in each country and a review through ‘appropriate SAARC bodies’ at the regional level (art. 10). That would neither exclude an agreement for the involvement of the SAARC Arbitration Council, nor the establishment of a specific advisory body similar to the European Committee of Social Rights (ECSR). The independent experts of the ECSR deliver conclusions in reporting procedures and decisions on collective complaints made by organisations of employers and trade unions and NGO’s with consultative status. The collective complaints procedure appears as a new form of public interest litigation, but the ECSR is not a judge and the EU has not yet embraced the position of the European parliament for an EU-accession to the revised Charter. If the committee finds that the Charter has not been applied in a satisfactory manner, the Committee of Ministers shall adopt, by a majority of two-thirds of those voting, a recommendation addressed to the Contracting Party. The ECSR-jurisprudence is published, but rarely quoted by courts and academic doctrine. In conclusion, the SAARCSC still prefers a state goal approach to the rights approach of the revised ESC, but both instruments recognize that social justice is a global problem with needs of regional protection. They come from a world of divided rights protection regimes, but they could become both more useful for the social rights protection than expected.

6 Learning Opportunities The paper moved from the idea that the social part of the highly competitive social market economy has to be played by fundamental social rights that are recognized and protected both at the international level as human rights and at the constitutional level either as constitutional rights or state directives. From a normative point of view, a sustainable social market economy can be reached only through adequate protection of social rights. The European and the Indian Union have to bridge serious gaps between yellow ideals of happiness and a grey reality of ‘weak rights’ granted and protected by weakened states under the pressure of globalization. Both Unions focus different economic and cultural realities of more and less developing countries, but are connected through general international human rights law and common traditions of social constitutionalism. Their human rights dialogue needs a postcolonial approach.

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Comparatists must be aware of socio-cultural differences and asymmetries in knowledge and help institutional operators to learn from each other. Starting from a comparative contextual analysis, the paper remembers first the common Eurasian heritage not only of empires but even of a ‘rule of social law’. Even the different forms of federalism matter for social rights protection, especially for federal solidarity and for recalibration of welfare systems. The supranational federalism of the EU might become a model for a South Asian Economic Union, but solidarity among rich nations could be less difficult than among countries with more poverty. The EU is considered to be less democratic than the biggest democracy of the world, but the imperfections of all democracies could be both a cause for, and a consequence of the weakness of social rights. The different legal cultures could furthermore explain why social rights find less constitutional entrenchment in common law countries than in civil law countries. Even the economic differences are relevant: growth matters for the dimensions of poverty and financial crisis for the sustainability of social rights systems. Finally, the missing India-EU FTA is not hindering an ongoing human rights dialogue that could even help to focus social rights. Both soft-powers could have common interests in global social justice. The second chapter shows that there is a common ‘spirit’ and concept of social rights in Europe as a thin, neither neoliberal nor socialist synthesis and as a hybridisation of national legal and constitutional traditions and international law discourses. The constitutional history of social rights teaches that US and Europe do not share a strong norm against ESR entrenchment in constitutions. Notwithstanding German scepticism, all European constitutions include at least one social right and all EUcountries ratified the original and most (except UK and Germany) the revised ESC. Social rights are no more presumed to be non-justiciable ethics, but they can still have weaker forms of review in the international and national constitutional order. They claim for positive state action, but their realisation is generally conditioned by a mandate for legislation and allocation of financial resources with a principle of gradual development over time and a prohibition of unreasonable regression. The duty bearers of social rights are not exclusively the state and sub- or supranational public bodies. Social rights imply social duties that concretize even the responsibility of the social rights holder for its own happiness. This concept relies to values and fundamental principles of dignity against misery, positive freedom, substantial equality, solidarity, inclusive citizenship and access to justice which can be construed as universal values. The third chapter shows that the state of social fundamental rights in the EU is controversial. Aspects of progress are the growing competences and actions, even in the agenda Europe 2020 that move beyond the coordination of welfare systems by focussing social investments. Aspects of regression are increasing inequalities and poverty risks in the North/South and West/East divide. The judges play an ambiguous role in the defence of social rights, the social expenditure rate of the EU is still unavailable and the social rights pillar of the monetary and economic Union is still under construction. The fourth chapter showed some significant differences between the European Social Charter and the SAARC Social Charter. Both instruments reflect still ideas

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of a special status of social rights as rights in need of collective protection and state goals, but develop different regional solutions for the common problem of global social justice. The Europeans could learn about action plans for poverty reduction, the SAARC-lawyers from ESRC ‘jurisprudence’. In conclusion, both the European and the Indian Union can learn a lot from each other and from themselves, looking at their social rights discourses as sources of virtue. Europe’s social rights discourse teaches a right to hope and a duty of politicians to promote intelligent social investments. The Indian social rights teach a duty to patience and a right to sleep that implies not only substantial health and working force recreation, but even a right to dream some progress in the realisation of social rights.54

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Schäffer, H., & Klaushofer, R. (2014). Zur Problematik sozialer Grundrechte? In D. Mertens & H. Papier (Eds.), Handbuch der Grundrechte in Deutschland und Europa (3rd ed., Vol. VI, 76 ff). Heidelberg: Österreich. Scharpf, F. W. (2010). The asymmetry of European integration. Or why the EU cannot be a “Social Market Economy”. Socio-Economic Review, 8, 211 ff. Scruggs, L., Zimmermann, C., & Jeffords, C. (2013). Implementation of the human right to social security around the world. In L. Minkler (Ed.), The state of economic and social human rights (117 ff). Cambridge: CUP. Sen, A. (2000). Development as freedom. New York: Anchor. Sen, A. (2005). The argumentative Indian (139 ff). UK: Penguin. Sieyes, E. J. (2013). Préliminaire de la Constitution (p. 32). Charleston: Nabu Press. Singh, M. P. (2005). The constitution of India: Symbol of unity in diversity. Jahrbuch des öffentlichen Rechts der Gegenwart, 53, 649. Singh, M. P. (2015). Socio-economic rights in India: A comparative perspective. Jahrbuch des öffentlichen Rechts, 7, 643. Thiruvengadam, A. K. (2012). Excavating constitutional antecedents in Asia: An essay on the potential and perils. Chicago-Kent Law Review, 88, 45. Tulkens, F. (2003). Les droits sociaux dans la jurisprudence de la nouvelle Cour européenne des droits de l’homme’. In C. Grewe & F. Benoit-Rohmer (Eds.), Les droits sociaux ou la démolition de quelque poncifs (117 ff). Strasbourg: Presses universitaires. Tushnet, M. (2008). Weak courts, strong rights. Judicial review and social welfare rights in comparative constitutional law. Princeton: Princeton University Press. Van Beuren, G. (2013). Socio-economic rights and a bill of rights—An overlooked British tradition. Public Law, 822. Vaughan-Whitehead, D. (Ed.). (2015). The European social model in crisis: Is Europe losing its soul? Geneva: ILO Publications. Waldron, J. (2010). Socioeconomic rights and theories of justice. New York University Public Law and Legal Theory Working Papers 245. http://lsr.nellco.org/nyu_plltwp/245. Accessed August 1, 2017. Wiederin, E. (2005). Sozialstaatlichkeit im Spannungsfeld von Eigenverantwortung und Fürsorge. Veröffentlichungen der Vereinigung der Deutschen Staatsrechtslehrer, 64, 61 ff. Zwagemakers, F. (2012). The EU’s conditionality policy: A new strategy to achieve compliance (p. 12). Milano: Giuffré. http://www.iai.it/sites/default/files/iaiwp1203.pdf. Zwierlein, C. (2015). Se-curare, sine cura, se-curitas, assecuratio: Innovationen der Sicherheitsproduktion in der Renaissance. In G. Melville, G. Vogt-Spira, & M. Breitenstein (Eds.), Sorge (p. 109). Köln: Böhlau.

“Transition from the Informal to the Formal Economy”: The Continuing Relevance of State Law Kamala Sankaran

Two important international instruments adopted by the UN and the ILO in 2015 reflect a growing international recognition of the need to foster a decent work environment. The United Nations adopted the Sustainable Development Goals (SDG) in 2015, and Goal No. 8 of the SDG focuses on the promotion of inclusive and sustainable economic growth, and employment and decent work for all. The International Labour Organisation adopted Recommendation No. 204 conerning the transition from the informal to the formal economy in June 2015 which addressed contemporary concerns in the world of work. The United Nations had emphasised the idea of decent work, a key area of focus that the ILO has put forward in the past decade and more, in order to provide guidance to countries and stakeholders regarding the direction of positive changes that need to be carried in order to deal effectively with globalisation and a changing economic order. The ILO ‘decent work for all’ agenda has included the provisioning of decent work opportunities for all, ensuring income security and providing social protection 1 among others. The return of a ‘labour’ focus in the global conversations on growth and development in recent years is a welcome one since it allows us to acknowledge and reflect on the nature of work and employment in countries of the global South including 1 For more details see, https://www.ilo.org/global/topics/decent-work/lang--en/index.htm. Accessed on December 25, 2018.

I am grateful for the comments and questions received from participants of the Conference held in the National Law University Delhi. I have also drawn on previous research and my presentation made to the IALS General Assembly Conference on Labour Law and Labour Market in the New World Economy held in Milan in 2010. K. Sankaran (B) Tamil Nadu National Law University, Dindigul Main Road, Tiruchirappalli 620027, Tamil Nadu, India e-mail: [email protected] Campus Law Centre, Faculty of Law, University of Delhi, Delhi 110007, India © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_3

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India which often have not found adequate attention among international agencies. For a long period following the Washington consensus it appeared as if the narratives and priorities of growth and development would dominate global agendas. In fact labour-related concerns and labour law itself was often identified as a part of the problem in achieving higher rates of growth. One of the recurring themes in the globalization discourse in recent years has been the role played by labour law in hampering or fostering growth of the economy. An often-heard line of analysis has been that labour law constitutes a rigidity, but for which, the benefits of globalization, particularly, expansion of the labour market would have certainly taken place. This paper examines the labour law regime pertaining to the formal and informal economy governing employment relationships and argues that there is a continuing relevance for labour and social law in countries such as India.

1 Dealing with Globalisation and the Economic Crisis In 2009, a Commission of Experts headed by Joseph Stiglitz presented a report to the UN General Assembly on Reforms of the International Monetary and Financial System. This Commission was set up in November 2008 following the deep financial crisis confronting the global economy. As the Report of the Commission of Experts stated in its conclusion, “The crisis is not just a once in a century accident, something that just happened to the economy, something that could not be anticipated, let alone avoided. We believe that, to the contrary, the crisis is manmade: It was the result of mistakes by the private sector and misguided and failed policies of the public.”2 The Report went on to conclude: “Flawed policies helped create the crisis and helped accelerate the contagion of the crisis from the country of its origin around the world…. These flawed theories distorted decisions in both the private and public sector, leading to the policies that contributed so much to the crisis and to the notion, for instance, that markets are self-correcting and that regulation is accordingly unnecessary.” Can we extend these arguments to what is termed the “real economy” (where wealth is created by labour not financial speculation), and to the regulatory architecture governing employment relations and working conditions? Would it be fair to assert that the conclusions of this Commission of Experts also constitute a reply to the many doubts raised about the relevance or need for labour law? That the Commission of Experts rejects arguments voiced fairly frequently for the past couple of decade that labour law exemplifies the rigidities imposed by regulations? Such a reading of the Report does seem possible. The Report asked the question: “Can we manage the global economy in ways that enhance the well-being of most citizens around the world?”3 It went on to state that “If we are to live together in peace and security 2 Report

of the Commission of Experts on Reforms of the International Monetary and Financial System p. 132. 3 Ibid. pp. 136–7.

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on this planet, there must be a modicum of social justice and solidarity among the citizens of the world.”4 A pro-active regulatory framework that keeps in mind those who are rendered further vulnerable by the operation of the market needs to provide for the aspect of social justice. Labour law, in this view, has not yet outlived its original premise and much more is expected of it in the coming decades as the global economy expands its scope and reach. A similar view has also been put forward by the ILO about the impact of globalisation on those who work and the need to ensure fair outcomes for those who work in these globalised times.5 The period of rapid growth in the developed world following the end of World War II was also based on a social compact of large social spending and the adoption of social welfare spending. In the newly independent countries of Asia, Africa and Latin America there was a focus on providing social welfare benefits. The eighties and nineties of the last century saw the end of a period of rapid growth with its resultant social crisis in several developed countries. It is in such a context that the WTO articulated a need for a ‘social clause’ in the trading regimes. The employers and member states had initially raised a need to have minimum labour standards in the WTO, in their Ministerial at Singapore in 1994. The debate over social clauses and the need for the ILO to regain its place as the legitimate voice dealing with labour matters, resulted in the adoption of the ILO Declaration on Fundamental Principles and Rights at Work in 1998 followed closely by its elaboration of a decent work agenda. This agenda was initially incorporated in the Millennium Development Goals of the UN, and Global Jobs Pact during the economic crisis of 2008, and eventually resulted in the SDG adopted by the UN in 2015.6 Globalisation has marked the ever-deeper penetration of the market to all parts of the globe. So much so, the global and local economies have numerous linkages and in many ways constitute a single whole. The global economy straddles not only global assembly chains cutting across several countries, or the trans-national corporations that operate across and often, above, many state jurisdictions; it also includes purely local production chains which are linked to an ever globalising market.7 Any discussion of labour in the global economy with an agenda of social justice and providing decent work has to focus on improving the conditions of workers in conditions of informality, whether in the formal or informal sectors of the economy. Thus, the two international standards adopted by the UN and ILO in 2015 serve to underscore the manner in which the global economy interacts and affects the informal economy in general in India, why the informal economy needs to be brought centre-stage in 4 Ibid.

p. 138. the ILO Declaration on Social Justice for a Fair Globalization adopted in 2008. 6 The SDG 2015 has also set up target and milestones to achieve these goals as elaborated by the UN. For details see, https://sustainabledevelopment.un.org/sdg8. 7 For various approaches to globalization see World Commission on the Social Dimension of Globalization, A Fair Globalization: Creating Opportunities for All (ILO 2004); Santos and RodríguezGaravito (2005). 5 See

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order to understand how labour interfaces in the national and global economy, and the implications such a focus has for the development of law and policies dealing with the social effects of growth and globalisation.

2 Increasing Informality The ILO estimates that in India “the overall proportion of informal workers in total employment (e.g. unorganized sector workers plus informal workers in the organized sector) has remained relatively stable, at around 92 per cent.”8 The public sector constitutes the largest chunk of the formal sector employment being twice as large as the private organised sector employment. The latter according to the National Commission for Enterprises in the Unorganised Sector (NCEUS) constitutes just two percent of the work force in India. Thus, the idea that linking with the global economy and rapid economic growth would lead to increase in jobs has not been borne out by the Indian experience. Further, there is evidence to suggest that with greater trade liberalisation, there is the phenomenon of jobless growth or else growth in ‘bad’ jobs as in subcontracting. Internationally, many scholars have commented upon the ‘vertical disintegration’ of the firm as economies of scale of an earlier period gave way to smaller and more ‘flexible’ firms that could respond more readily to market changes.9 In this postFordist period, the workers are no longer homogenous and a permanent, regular worker could be working alongside a contractual or casual or temporary worker engaged by a sub-contractor/intermediary. Often the work-site itself is dispersed and the erstwhile single factory of an earlier period is dispersed across the globe with supply chains contributing to the manufacture of a single product. As the norms of production vary, and greater outsourcing is resorted to, it becomes increasingly difficult to locate and identify who the employer is, and who should bear liability for production or employment-related risks. Within India too, there have been large changes in the labour market over the past few decades. India always had a large informal self-employed sector in the form of street vendors, marginal farmers, handicraft workers, fish and forest workers. Those in employment have comprised those in vulnerable and precarious jobs such as those in domestic work, home-based work while the numbers in ‘good’ jobs with social security, written contracts of employment, leave with wages etc. have been less than ten percent of the work force. Workers excluded from labour law are considered to fall within the informal economy. The informal economy extends to those working in agriculture, in small-scale establishments, the self-employed and also casual, temporary workers in the formal sector who are not covered because they do not have the minimum required period of employment in a given year to be eligible 8 ILO, India Labour Market Update, July 2017, available at https://www.ilo.org/wcmsp5/groups/ public/---asia/---ro-bangkok/---sro-new_delhi/documents/publication/wcms_568701.pdf. 9 Collins (1990) and Deakin and Wilkinson (2005). Also see Supiot (2001).

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for benefits.10 It is estimated that more than 80% of total employment in Southern Asia is in the form of informal employment (this includes those working in agriculture).11 (The formal sector is usually covered by labour laws, while establishments in the informal sector often fall outside the scope of labour regulation). In the case of those who are self-employed and who normally take the assistance of family members, such persons and the enterprises they run are referred to in the literature as ownaccount enterprises, that use the unpaid labour of a contributing family member. Such persons also constitute an important segment of those in informal employment, and are often described as poor and vulnerable. The divide in counties in South Asia, the dualism as the NCEUS put it, “significantly has moved away from the textbook division of agriculture and nonagriculture (often referred to as traditional and modern) sectors and has been replaced by the informal and formal dichotomy, cutting across all sectors.”12 It was expected that closer integration with the global economy would bring higher rates of growth and also employment generation as protectionist strategies were dismantled and investment flowed into labour intensive sectors.13 Despite the period of rapid growth in the past ten years, the growth in employment has not been able to keep pace. The NCEUS has estimated that the annual growth of employment declined from 2.03% in 1983–1993/94 to 1.85% between 1993–94 and 2004–05.14 The proportion of workers in the formal sector grew slightly from 24.01 million in 1983 to 27.18 in 1993 peaking at 28.24 in 1997. It has since declined to 26.64 in 2006, and according to the ILO, the share of workers in the unorganised sector was round 82.2% in 2011–12.15 The recent decades have shown there is a further ‘informalisation’ of this already small formal sector. The public sector lost 1.46 million jobs between 1993 and 2006. As a proportion to the workforce, formal sector employment fell from 7.9% in 1983 to 7.3 in 1993/94 to 5.8% in 2004–05.16 The net growth in employment since the onset of liberalisation and opening up of the economy from the early nineties in India has been largely of an informal kind. The numbers of workers with social protection has remained more or less constant because most of the increase in the formal sector employment took the form of informal employment in the formal sector with an increase in the numbers of workers engaged through a contractor and the employment of casual workers engaged on an intermittent basis, who are largely outside the scope of social protection. 10 For

details of the labour law concerning the informal economy see Sankaran (2006). further details see, ILO, Women and Men in the Informal Economy: A Statistical Picture, 3rd edition (2018) available at https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/ documents/publication/wcms_626831.pdf. 12 National Commission for Enterprises in the Unorganised Sector, The Challenge of Employment in India: An Informal Economy Perspective (Government of India, 2009) at p. 24. 13 Ibid at pp. 8–9. 14 Ibid at p. 9. 15 ILO, India Labour Market Update, July 2016, available at http://www.ilo.org/wcmsp5/groups/ public/---asia/---ro-bangkok/---sro-new_delhi/documents/publication/wcms_496510.pdf. 16 NCEUS, ibid. p. 11. 11 For

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Globalisation has contributed to the increase in informalisation of work processes within the formal sector resulting in the growth of the informal economy. This too, in part, has contributed to the increase in the informal sector in countries such as India in the past two decades. In addition, with the adoption of flexible production processes and as a cost—cutting measure, production has also been moved out of larger formal sector units to smaller ancillary units that may fall outside the scope of the regulatory framework. The informal manufacturing sector has shown high growth in output, employment and also capital.17 Integration with the global economy has not always meant better-paid jobs for the growing numbers in the work force. Wages of workers in the formal sector are reported to be 4–5 times higher than those in wage employment in the informal sector.18 However more recent studies indicate that the as far as casual workers are concerned there is no difference in their wages and working conditions regardless of whether they are in the formal or informal sector.19 Clearly, what we are observing is that firms in the formal sector prefer informal employment relationships. They prefer to employ contract labour or temporary workers when demand increases (so much so they have been termed permanent temporary workers), casual workers and outsourcing of jobs particularly in manufacturing and services sectors. This is done either to make production more flexible or simply to reduce labour costs. Some of the workers who are in the global economy such as those in call centres or factory workers in producing nations may be protected by the labour laws of the producing countries. However, many others fall outside the scope of labour regulation for a variety of reasons: their firm size may be lower than the stipulated minimum, workers may not work for the stipulated minimum number of days to qualify, they may be engaged via an intermediary and so the relationship may be seen as a commercial one rather than as an employment relationship etc. We can now try to relate these features to the question we had initially examined: Can we place the cause for the increasing informality at the door of labour law and its perceived rigidities? It appears that labour law needs to address these challenges posed by the shifts in the nature of employment and quality of the employment relationships to reassert its relevance in these fast-changing times. The regulatory framework under the Industrial Disputes Act, 1947 (IDA) has often been blamed for the inability to provide more jobs in the formal sector in India. One of the reasons cited is that the prior permission denied for retrenching workers make the law very rigid and discourages employers form employing labour. Further, the difficulty in recruiting workers on contract labour (since these could potentially be regularised by an order under the Contract Labour (Regulation and Abolition) Act, 1970) also contributes to rigidity.

17 Unni

and Rani (2008). for Monitoring Indian Economy cited in Bhowmik (2009). 19 NCEUS 2009 p. 21. 18 Centre

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3 The Need to Transition from the Informal to the Formal Economy It is at such a time that the ILO has adopted Recommendation No. 204 concerning the transition from the informal to the formal economy in June 2015. This ILO Recommendation No. 204 aims to pursue a threefold objective in their policies addressing informality: (1) to facilitate the transition of workers and economic units from the informal to formal economy, while respecting workers’ fundamental rights and ensuring opportunities for income security, livelihoods and entrepreneurship; (2) to promote the creation, preservation and sustainability of enterprises and decent jobs in the formal economy and the coherence of macroeconomic, employment, social protection and other social policies; and (3) to prevent the informalization of formal economy jobs.20 The Recommendation was proposed by the employers within the tripartite structure of the ILO, as a means to expand job creation and to boost economic growth. The Recommendation is also an acknowledgement that there are not enough ‘jobs’, and that efforts must be made to address this deficit. That the initiative for the creation of better jobs and working environment came from the employers comes as no surprise. Almost a hundred years ago, the ILO itself was founded at such a similar moment at the end of World War I upon the suggestion of employers to reconstruct the work place decimated by war. The need for international standards was seen as an elegant solution to a prisoner’s dilemma of preventing a race to the bottom. The ILO itself was seen as an attempt to take the high road to maintain labour standards, and to prevent any unfair competitive advantage to any member State. Surely today we can note that the more things change, the more they remain the same! An agenda to transition to a decent work agenda requires a proactive state policy geared toward bringing a modicum of social protection to all those who work. This requires an acknowledgment of the dichotomy between work and employment, and a recognition that the labour law must address the needs of the self-employed and own-account workers who continue to constitute the bulk of the work force in countries such as India.21 The binary of worker and independent contractor is now yielding to what is best termed as a dependant contractor in some jurisdictions. It is estimated that half the global work force and many economic units are engaged in the informal economy, with women and youth disproportionately engaged in the informal economy.22 It also needs a policy to provide publically funded social assistance to those who are not able to contribute to regular social security systems, such as those in informal or intermittent employment or those who perform unpaid care work within the home. Such forms of unpaid work are usually carried out by women. 20 See

Paragraph 1 of ILO Recommendation No. 204. (2010). 22 See ILO, Women and Men in the Informal Economy: A Statistical Picture, 3rd edition (2018) available at https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/publication/ wcms_626831.pdf. 21 Sankaran

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Moving to a system of social assistance addresses the gender imbalance in formal social security systems that typically tend to exclude many working women. Such a broad conception of what a humane social and economic policy ought to address and the understanding that the labour market is unlike other markets is something that has often been highlighted. This distinct feature of the labour market, and that labour is not a commodity, needs to be recognised. Almost a hundred years ago Hugo Sinzheimer of Germany recognised this quality of the labour markets. He highlighted that the function of labour law was not just providing a voice to workers to facilitate collective laissez-faire. He pointed out that it also needed the state through law to provide economic justice and the constitution of labour markets. The contract of employment continues to hide the asymmetry of power within this relationship. Whether the state should continue its function of protection continues to be a main question that presents itself once again at the present time.23 India’s Constitution is based on the protective function of the State and it mandates the State under Art 38 “to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all institutions of the national life”. Under Art 39, the State is expected to direct its policy toward securing that the citizens, men and women equally, have the right to an adequate means of livelihood…that the ownership and control of the material resources of the community are so distributed as best to subserve the common good…Art 41 mandates public assistance in cases of unemployment, old age, sickness, while Art 42 provides that the State should work towards “just and humane conditions of work and for maternity relief”. With such a constitutional vision, it requires that the minimum standards of work and a decent work environment is to be decided not merely by workers within each enterprise based on collective bargaining between workers’ organisations and the employers, but also by the State through law to ensure a minimum level that must be made available to its citizens as a mark of a civilised state. Transitioning workers to a state of formality, ensuring that enterprises function on the basis of some minimum standards require a continuing presence of the State, which cannot be left to the bipartite norms created by collective bargaining. It is in this context that the continuing relevance of “state law” to borrow a phrase from Hugo Sinzheimer seems relevant in a country such as India.

References Bhowmik, S. K. (2009). Labour sociology searching for a direction. Work and Occupations, 36(2), 126–144. Collins, H. (1990). Independent contractors and the challenge of vertical disintegration to employment protection laws. Oxford Journal of Legal Studies, 10, 353. Deakin, S., & Wilkinson, F. (2005). The law of the labour market: Industrialization, employment, and legal evolution. Oxford: OUP. 23 See

for instance, Dukes (2011).

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Dukes, R. (2011). Hugo Sinzheimer and the constitutional function of labour law. In G. Davidov & B. Langille (Eds.), The idea of labour law. New York: OUP. Sankaran, K. (2006). Protecting the worker in the informal economy: The role of labour law. In G. Davidov & B. Langille (Eds.), Boundaries and frontiers of labour law: Goals and means in the regulation of work. Oxford: Hart Publishing. Sankaran, K. (2010). Labour law in South Asia: The need for an inclusive approach. In T. Tekle (Ed.), Worker protection and labour law in developing countries. Oxford: Hart Publishing. Santos, B. S., & Rodríguez-Garavito, C. A. (Eds.). (2005). Law and globalization from below: Towards a cosmopolitan legality. Cambridge: Cambridge University Press. Supiot, A. (2001). Beyond employment: Changes in work and the future of labour law in Europe. Oxford: OUP. Unni, J., & Rani, U. (2008). Flexibility of labour in globalizing India: The challenge of skills and technology. New Delhi: Tulika Books.

Part II

Markets and Cultural Diversity

Open Markets and Diversity of India’s Politico-Legal Ordering Amar Pal Singh

1 Part-I: Introduction Generally speaking Open market in a political economy is the one where all economic actors have an equal opportunity of entry into that market. It can be contrasted with a market where monopolies or oligopolies persist or where the entry in the market is subject to tariff barriers. Since all political systems either in the name of protecting their vulnerable sections of the economy or for ensuring justice element do impose tariffs of one sort or the other, the concept of open market is a relative concept. But the purpose of all this in all conditions is to use the instrument of market (call it invisible hand a la Adam Smith) for organizing the economic life of the community in a better way. Culture, in the similar sense of the term is an attempt to organize some other dimensions of individual and community life. Though difficult to encapsulate in words, it is in this sense that the culture is considered to be the food for the mind and the soul, the one that shapes the identity of the individual and the community and one that enriches the life of an ordinary mortal, the softer side of human individual in a larger whole, called community. Indian Constitution, which according to Granville Austin is more of a social than a political document has sought to provide a frame where all dimensions of citizens life, be it economic, social, religious or cultural, are taken care of. Indian polity from the very inception of civilization has been distinctly, plural, diverse, inclusive, secular, flexible, justice and spiritually oriented and therefore has been able to adjust itself to the realities of variety of shades of impacts coming from outside, be they legal, political or economic. M.A. English, (Meerut University), LL.B. (Poona University), LL.M. (Constitution), M.D.S. University, Ajmer, Ph.D. (Rajasthan University), LL.M. (Legal Theory), European Academy of Legal Theory, Brussels (Belgium), Professor (Law), University School of Law and Legal Studies, GGS IP University, New Delhi. A. P. Singh (B) USLLS, GGS IP University, New Delhi, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_4

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The foreign implant in variety of models was so easily absorbed by the fertility of India’s pluralistic cultural soil that the stream of culture continues to flow seamlessly, in its most diverse and pluralistic forms. This has not been the experience of postrenaissance modernity alone, but throughout Indian history, where the streams of ideas and foreign implants have been continuously and effortlessly absorbed by the popular culture. For the purpose of illustrating it, this study has been divided into six parts. PartI, designed in the form of introduction is followed by an attempt to analyse the interactive paradigm of market, culture and legal order in part-II. Part-III seeks to explain and highlight the inherent diversity and plurality that is extant in its classical legal ordering in India. Part-IV, moves on to explain the shift in the legal paradigm under British regime which obviously was for the purpose of creating a judicial order but ended up in changing the very foundation of the classical legal ordering of India. Part-IV, explains the continuance of the essentials of the ancient system in post-independent India and part-VI is majorly an attempt to demonstrate the utility of the approach that this study has adopted and therefore designed in the form of conclusions and provocations.

2 Part II: Market, Culture and Legal Order It is noteworthy that markets are not mere spaces of rationally maximizing profits, they are the place of cultural exchanges as well. Markets are those spaces wherein various sections of society meet on common grounds, a social space, creating equal playing field for varied groups of people, regardless of class and social status etc. Market places are the places of social contact, the places of rubbing along, where shared sense of identity, reinforcing sameness leads to development of hybrid identities and therefore markets can and do play a wonderful role in social inclusion of immigrant communities and minorities. The inclusion and embedment of Zoroastrian community in India, an incredibly resilient Marwari and Punjabi community within and outside India could be said to be some wonderful examples of such identities that have been bred and fostered by the marketplace. Markets have long served as both economic and social spaces, bringing disparate groups of people together. The ideal, “diverse market” is a space of open exchange, where social rules and hierarchies are suspended—and people meet on an “equal playing field.1 No doubt that while interaction between diverse groups can encourage a sense of shared identity, hybridity, or appreciation of differences, contact can also reinforce social difference and exacerbate pre-existing tensions, particularly under circumstances of economic competition. A key question thus concerns the types of market spaces, and conditions, that encourage meaningful interaction, and role of the State during contemporary times in creating such market spaces where these possibilities are minimized and eliminated altogether, if possible. 1 Generally

see Pottie Sherman (2011).

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Any kind of an economic ordering does require a proper socio-cultural and politico-legal environment, within which it manifests itself in variety of formats. In fact any kind of socio-economic development is deeply affected by those intangibles which are collectively known as culture. Cultural diversity increases the range of choices and nurtures human capacities and values and therefore is a mainspring for sustainable development.2 J. S. Mill noted that cultural constraints on individuals could have stronger impact on them than the pursuit of personal financial gains.3 Understanding culture therefore enables us to understand the politico-economic process in a better way. Understanding culture, with a view to understand market mechanism better, though entirely not a new claim and has been recognized in many different context. However the classical economic model that tried to construct a “homo-economicus”, worked on an economic model that was an absolutely autonomous area of human activity. Contemporary literature on the point, however does recognize the socio-cultural underpinnings of economic development. Culture is about the everyday activities through which we live our lives, it gives meaning to and becomes embodied in concrete institutions, practices and rituals but cannot be reduced to those material effects. The elements that make up a culture and our identification with it include affective, spiritual and aesthetic responses. Culture therefore is almost a ‘meta-idea’, because it exceeds the cognitive or linguistic. Culture in that sense of the term is basically a constitution of our emotional responses. All such responses may not be culturally determined, but they are refracted through the lens of cultural conventions. It guides us on the concrete and particular ways in which cultural meanings inform our everyday practices, rather than focusing on the big ideas generated by major thinkers and policymakers. Socio-economic ordering backed by a deep sense of cultural embedment forms the backdrop of a credible politico-legal ordering. This legal ordering, essentially diverse in character is a layered structure, each structure having its own normative order, which are either in consonance and in accordance with the principal legal order or even at variance, but not necessarily opposed to the principal legal order, depending on interpretation of that order. Indian civilization represents a very special and peculiar setting of legal pluralism which is capable of adjusting and accommodating variety of normative systems. This phenomenon is certainly not unique to India alone and one can find profuse examples of diversity of legal systems in western paradigm as well, however the distinctive character of Indian legal system is that this diversity is not something marginal or just tolerated across the spectrum, in fact it is embraced, advocated and celebrated openly. The understanding of law in the western world has dominantly been that of formalistic and positivistic in character and this has been inherited by most of Afro-Asian systems including India, which have been part of colonial project of European powers. Legal rules and court decisions in terms of precedents are the universe in such a system and the notion of legal centralism which implies that lawyers, courts and prisons systems are the only ways whereby a legal 2 United

Nations Educational, Scientific and Cultural Organization Constitution, (adopted on 16th November, 1972) 4 UNTS 275 (UNESCO) Preamble. 3 Mill (1977).

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system is organized, is the norm. The dominant understanding, above all is that law owes its existence to the State system, that the legal system with all its paraphernalia of rules and procedures makes an attempt to secure order in the society and prevents chaos and anarchy, violence and injustices, and that law is the only rational, faire and workable alternative to the Hobbesian idea of ‘life being brutish nasty and short’.4 It is almost a truism that the source of legal pluralism is sociological pluralism and almost every society across the globe is essentially plural in character. Nevertheless the myth of unitary nature of State Law has come to prevail in legal systems across the globe. The answer appears to be as Norbert Rulland5 explains, that State, for the purpose of establishing its influence need to deny the fact of heterogeneity of social order, so that its primacy is not questioned. The myth of unity, as such becomes the norm for the system. This allows the regulation of the market mechanism by the over-all authority of the State, which completes the hegemonic idea of the market over socio-legal ordering.

3 Part-III: Diversity of Legal Ordering and India India offers a unique plurality of traditional customs, rules and regulations. Encapsulated within the concept of ‘Dharma’, the legal traditions would emphasize on the duties and obligations of an individual, as Mahatma Gandhi would put it, ‘the best of human rights flow from the duties well performed’.6 ‘Duty first value system’ of Indian tradition is a peculiar element that distinguishes India’s politico-legal order from the western paradigm of right based orders. A vast country with religious and linguistic diversities, manner of living, dress habits and customs would differ from place to place in a land that stretches from frozen Himalayan ranges to the hot and humid climate of coastal lands to the south and hot arid zones of Thar deserts to the west. Indeed India is said to be an epitome of the world involving a micro-cosmos within its body politic. India’s politico-legal ordering for centuries has represented a system, which is not a monolith but a labyrinth of customs, beliefs and faiths cris-crossing each other at every point of human existence, individual or collective. Characterized by an intense syncretism of local religious practices, India came to be grouped together by the term ‘Hinduism’ in 1891 census and continues to be identified with the same nomenclature by census enumerators during succeeding decades. Any religious faith ever born on this earth is said to be well and adequately represented in Indian soil. This has a huge bearing on India’s liberal traditions, that have become the hall-mark of post-independence republican existence of modern, emerging India. According to Maharshi Aurobindo, “Indian culture did not deface nor impoverish the richness and grand game of human life, it never depressed or mutilated the activities of our nature. On the contrary, subject to certain principle of 4 Hobbes

(2010). (1994). 6 Quoted in Nariman (2010). 5 Rulland

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harmony and government, it allowed them their full often their extreme value. Man was allowed to fathom on his way all experiences to give to his character and action a large rein and heroic proportions to fill in life opulently with colour and beauty and enjoyment”.7 For a better perspective, and appreciation of India’s pluralistic traditions in politico-legal ordering, one may bank upon the concept of legality vs authority, the former characterizing the western paradigm of Law and the State and the later characterizing the world-view of Indian system where the authority of the ‘Shruti’ and ‘Smriti’ is treated as the source of law in the sense it is used in the discipline of natural sciences. The idea is that since everybody is bound by the order of nature, everyone seeks to conform to standards. The norm or the standard functions as a light-post, a guiding spirit, prompting and powering every activity of human life. Western paradigm of Law and State on the contrary is hypothetically the representative of popular opinion (Will) and the rule that governs the life of the people is the expression of this popular opinion having sanction of the sovereign. The difference as Robert Lingat8 attempts to demonstrates is that the non-compliance of the expression of popular will diminishes the authority of the sovereignty, its majesty is tarnished, jeopardizing the whole community, while the light-post law continues to be worked upon, discussed and orientated in variety of ways seeking to flexibly conform to the contemporary community concerns. Non-conformity in its crudest sense of the term does not in any way diminishes the authority of the light-post law, the “Dharmam iti Dharyet” Law. ‘Manusmriti’, which is considered to be the most authentic source of preceptual law in India, at no point of history has found uniform application through the length and breadth of India. Variety of customs and practices not in consonance with the ‘Smriti’ law continued to prevail, in nooks and corners of Indian land mass, but never opposed to the idea of basic law, meaning thereby that though the law may have been at variance with ‘Smriti’ Law, but not opposed to it, always seeking to conform to the established standards and norms. This kind of an embedded flexibility of India’s politico-legal ordering continued to act as the binding thread of diversity of people and their traditions. The Indian world was in no way a ‘Universe’ but a “Pluriverse”,9 which sustained the inherent unity of Indian thinking for millenniums. As a result of this the customs and the written law have been woven together to give rise to the rules, norms and standards of day to day life of the common man.

7 Shri

Aurobindo (1990). (1998). 9 See generally Querejazu (2016). 8 Lingat

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4 Part-IV: From Authority to Legality The above discussion demonstrates this peculiar and unique feature of Indian system wherein flexibility and resilience, and diversity and plurality were inherent and embedded facts. With the onset of the British Colonial project and the reform process that followed, replaced the idea of authority by legality. It was Warren Hastings who initiated a new system of civil courts, named ‘Diwani Adalats’ in Eastern part of Indian subcontinent (Bengal and Bihar provinces). Apparently an innocent move to redesign the justice delivery mechanism for the purpose of making it efficient and quick, the move really ushered into a new type of mechanism, where-under the established order was demolished to be replaced by an idea, a foreign implant. To put it mildly it resulted in a complete paradigm shift. The extant Hindu legal system of ‘floating text’ of law, aiming at providing immediate solution to the problem in hand, leaving the idea of law intact, actually re-inforced the authority of the original text (law). But now the same was to be interpreted by an Englishman with a very different world-view for the purpose of establishing a precedent which would change and transform the very idea of established order to become the reference point of future legal action, silently burying the idea of plurality and flexibility. Under the traditional order, the objective of the judgment was to understand the law in a very specific way and not to change the interpretation of law, however the new way of interpretation would now change the very way of understanding the text, establishing a precedent to be followed in future dispute situations in a similar adjudication processes. Commentaries and digests (Teeka and Bhashya) which are considered to be the third most important source of Hindu Law after ‘Shruti’ and ‘Smriti’, was one of the ways to understand extant laws, but once it was interpreted by an English Judge and established in the form of a precedent, the creativity involved in commentaries and digests got slowly dried up and precedent became the only authentic record of customary law. This resulted in subversion of the traditional plurality and resilience. The sterile legality was the new order killing the fecundity of an old order, an open ended mechanism to adjust and accommodate the flexibility, the diversities of transforming life processes. The interpreter of law, an English judge having a new worldview and a new agenda of colonial project, became the creator of new law instead of a mere interpreter. Indigenous plurality embedded in the traditional legal order was a complex body of interacting and intersecting norms which were local law ways, guiding the smaller groupings of people and their varied hues, spread over a vast landmass of Indian subcontinent. This new way of justice dispensation did away with these local law ways of resolving dispute situations as the new instrument of a legal rule took over the vast delegation of authority that was inherent in the traditional ways of regulation. This tradition of legal instrumentalism and legal centralism completely moved the focus away from the other forms of legal ordering that were the bye-products of the local law ways. This pattern of regulation ended up in undermining variety of contesting and even contradictory systems of local regulation which were beyond the pale of state regulation. A new paradigm of legal centralism intending to manipulate and

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manage diverse social realities came into play. From a contemporary perspective, a typical market regulation is patterned wherein a gap between planned, intended outcome and the reality of market forces has a big hiatus as the regulatory pattern fails to take note of a variety of components underlying the market behaviour.

5 Part-V: Post-independence Diversity and Plurality Indian Constitution, in the post-independence phase has consciously or unconsciously preserved this diversity and plurality of legal order, the sanctity of ‘authority’ as is talked about in “Classical Law of India” by Robert Lingat. The broad interpretation of the expression “law” under article 13, read with the permissive character of article 372, and the continuing relevance of personal laws in India’s socio-legal (political) domain is the reflection and refraction of India’s diverse and pluralist legal order. This diversity, in the limited understanding of this author has escaped the attention of much of legal scholarship in India, but continues to be relevant and important for the survival of the Idea of India. This diversity and plurality, despite an onslaught of uniformist interpretation of ‘stare decisis’ law for more than 200 years, continues to survive and kicking in the post-independence India. In the post-73rd and 74th Constitutional amendment phase, the passing of PAISA-1996, the plurality of India’s politico-legal ordering would get promoted by a huge amount of structures that have come up at the local level and apart from other things have given rise to this diverse politico-legal order, which is at variance, but not necessarily opposed to the mainstream politico-legal order. Market mechanism in India despite being in consonance with much of trade law and corporate law across the globe, does have the reflection of this diversity and plurality, much of mortgage law, that is prevalent in post-independence India, despite Transfer of Property Act-1882 and much of corporate and banking law is just one example.10 In the personal law domain, despite the a gloss of uniformity imposed by the statist order in the form of “Hindu Code Bill”, the diversity and plurality of India’s politico-legal ordering is mind boggling to say the least.11 The ‘Khola’ in the former princely state of Bikaner in Rajasthan,12 ‘Dwamushyayana” system amongst Nettukottai Chettiars’, and ‘Nambudri’ Brahmins in Kerala, ‘Illatom’ amongst Reddys and Kamas of Tamilnadu and Andhra Pradesh in the area of adoption laws could be another example of this diversity of legal orders in India’s socio-political domain.

10 Rashbihary

Ghose “Mortgage Laws” and Tagore Law Lecture (Sir Ashutosh Sinha)… done with reference to adoption laws in India…. J. D. Mayne’s “Hindu Law and Usage” Bharat law House…. 12 Ref. Ramanlal versus Mst Nanda, BLR 1931, p. 25. 11 Study

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6 Part-VI: Conclusions and Provocations The question that this study begs is as to what is the utility of this approach in the laws and legal studies in India and for India’s politico-legal order and market systems that function under it. May it be noted that understanding the dynamic of a process is one thing with all its attendant complexities and defining the same is different. The later is more of a mechanical exercise as a part of systems management effort, barely helping in advancing the understanding of complexities of a human process, which is essentially dynamic and pluralistic, mere definitional attempt does not suffice the purpose. The human institutions that give rise to situations of legal plurality, both interact with and constitute and define each other. Therefore explaining, interpreting and defining law and legal process, custom and tradition for the purpose of understanding them is not as important as contextualizing them in a particular historical context or appreciating their resilience, flexibility and plurality in a larger human relational paradigm. This helps in defining and refining new tools of socio-economic governance in the emerging economic scenario in India. Secondly, the pluralist approaches to law and legal systems might help in appreciating ideological and cultural underpinnings of law and the way normative ordering is obtained in a given situation of disputes, as to how variety of groups and subgroups, social and business guilds negotiate their differences in order to achieve an equilibrium for facilitating economic transactions, settling disputes with minimum of frictional costs. Sally Falk Moore, has sought to explain the rule focused approach that evaluates the events of compliance and deviance of human systems actually result in reducing the dynamism of human life and the very objective of understanding as to what goes on gets distorted in the process stunting the growth of socio-economic instruments of proper legal establishment. Thirdly, the pluralist approaches also provide an opportunity to understand and appreciate not only the dynamic of dispute situations, but also the set of facts that help a community or a group in ordering their normative systems in non-dispute situations. In any case the market mechanism would flourish and provide a better outcome in a flexible environment where differences could be negotiated in a nondispute and non-adversarial paradigm. Holleman explains that situations of disputes are not normal situations in the life of a community, they are ‘exceptional events’ in human institutions and do not provide valid indications as to real shape of human orderings. Pluralist approaches that might look at events from historical standpoints as well provide better tools and techniques to understand human institutions which represent rainbow like situations of human systems, affecting market regulatory patterns and outcomes. Enormous changes in the behaviour of migrant populations constituting the emerging market systems, the consumer behaviour in the market place, human capital attainments, labour force and employment patterns, all form a part of big data analytics of contemporary market situations. Traditional pattern of melting pot western market paradigm is slowly recognizing the mosaic pattern of socio-economic behaviour of communities across the global markets requiring

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new approaches to predict better outcomes of market processes in the contemporary world. Finally, pluralist approaches also provide indications as to how in a particular system of socio-economic ordering, politico-legal institutions behave in the process of impositions of rule and confront the situations of resistance. What leads to the acceptance and resistance phenomenon, highlights interactive dynamic of variety of groups and subgroups and how the situations of dominance are obtained through the instrumentality of law, what are the limits of these dominations, how the resistance at individual or group level evolves and is sustained?, are some of the ideas which help in better appreciating the market phenomenon and help in obtaining better regulatory instruments. This way one can assess the ideological or instrumental value of the law and its limitations so as to harness the regulatory capacity of the social sphere within a market paradigm. This opens myriad ways for an observer to study the relational pattern of market and social sphere, which in a way constitute and reconstitute each other.

References Hobbes T. (2010). In I. Shapiro (Ed.), Leviathan: Or the matter, forme and power of a commonwealth and civil. Yale University Press. Mill, J. S. (1977). In J. M. Robinson (Ed.), The collected works of John Stuart Mill: Essays on politics and society, Part-II (Vol. 19). University of Toronto Press. Nariman, F. S. (2010). Before memory fades: An autobiography. Hay House India. Pottie Sherman, Y. (2011). Markets and diversity: An overview. www.mmg.mpg.de/workingpapers. Rulland, N. (1994). Legal anthropology (P. G.Planel, tr). Athlone Press London. Shri Aurobindo. (1990). Foundations of Indian culture (3rd ed., p. 116). Shri Aurobindo Ashram. Lingat, R. (1998). In The classical law of India (p. 257, J. D. M. Derret, tr). OUP. Querejazu, A. (2016). Encountering the pluriverse…. Revista Brasileira de Política Internacional, 59(2), e007.

A Peasant’s Imagination of Alternative Legal Order: Land Reform in India, Food Security and the WTO Pratyush Kumar and Andreas Buser

1 Introduction The one time in modern Indian history when peasants had an organized effort not just in their movement but also in the articulation of their views, which are at once folk as well as sanskritik in its intellectual roots, was during the All India Kisan Sabha days in the 1930s and 1940s. An All India Kisan Sabha (AIKS) was formed at Lucknow in April, 1936 with Swami Sahajanand Saraswati as its first national president presided 1 by Kamala Devi Chattopadhyay. The importance of the Kisan Sabha cannot be

1 Almost all prominent leaders of the country save Mahatma Gandhi were in attendance at the Kisan

Sabha which included people like Acharya Narendra Deva, E. M. S. Namboodiripad, Jayaprakash Narayan, K. M. Ashraf, Z. A. Ahmed, Sohan Singh Josh, Sampoornanand, Awadheshwar Prasad Singh, Pandit Jamuna Karjee, Pandit Jadunandan Sharma, Pandit Karyanand Sharma, N. G. Ranga, Indulal Yagnik, Achyut Patwardhan and others For more, See: Gupta (1982), Das (2008a), Pradhan (2008). P. Kumar (B) UNIUPO, Alessandria, Italy e-mail: [email protected]; [email protected] A. Buser Freie Universität Berlin, Berlin, Germany e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_5

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overestimated.2 It was a wide-based movement cutting across all castes and class.3 Ultimately, the movement culminated in the abolition of the zamindari system first in the state of Bihar followed by many others, those historical developments left a remarkable imprint on Indian society and its legal order. The supreme articulator of the views of the peasants, much too important for the subaltern or rather peasants’ intellectual history, is that of Swami Sahajanand Saraswati.4 He was a non-conformist and had the heart and mind of a tenacious and obstinate peasant at all points of time in his life. However, the efforts of Swami Sahajanand Sarswati have long been neglected in Indian public discourse along with the plight of India’s peasants.5 While the Indian State has officially addressed the plight of peasants or has appeared to address it, e.g. with an ambitious food security program,6 the government at the same time has recently engaged in a highly problematic land reform project.7 New land reform legislation would inter alia allow the State to take away land from the peasants and give it to private companies for corporate farming. Such measures could have disastrous consequences for rural (peasant) communities, including the depopulation 2 All

other streams of movements at the cusp of India’s political freedom were simultaneously working at two levels: at one level they wanted to usurp the Kisan Sabha or take its credit, and on the other completely subsume and temper its demands and remove its fangs. All Congressmen, Socialists and Communists who rose to prominence in subsequent years started their political career or took advantage of its popularity with the Kisan Sabha but kept deserting or usurping it as their political purpose was served. See: Introduction by Raghav Sharan Sharma, pp. 7–46 in Raghav Sharan Sharma (ed.), Swami Sahajanand Saraswati Rachnawali (Hindi), Prakashan Sansthan, Delhi, 2003; See also: Political Special, File No. 281 of 1929, Bihar State Archives, cf. Alam (2004) (“The dominance of the landlords in the Bihar Congress was also challenged by the Kisan Sabha whose leaders, like the Congress Socialists, stressed that the Congress should no longer represent the interests of all groups, rather, it should be the vanguard of the peasant struggle”). For more, See: Sharma (1989). 3 For more, See: Sharma (2014), Kumar (2015) which includes nearly all the archival materials on the movement though other writers had attested to such mass support even earlier, like: Bandyopadhyay (2008), Dhanagare (1983), N. G. Ranga and Swami Sahajanand Saraswati, Agrarian Revolts, pp. 47–65, Binay Bhushan Chaudhuri, Agrarian Movements in Bengal and Bihar 1919–1939, pp. 337–374, and Sen (1979). 4 See on the life and struggle of Swami Sahajanand: Hauser and Jha (2015), Hauser (2005a, b). 5 The full scope of the movement led by Swami Sahajanand Saraswati and his co-workers and the massive impact it had on India’s struggle for freedom and the series of land-reform legislations as a result of it, is only now being explored. His movement is directly responsible for creating the public sphere when, even after winning the case at the Apex Court in Sir Kameshwar Singh of Darbhanga v. State of Bihar (1952 1 SCR 889), the Government of India swiftly made the First Amendment to the Indian Constitution taking all land reform legislations in the ninth schedule of the Indian Constitution thus taking them out of the purview of the courts and thus watering down the right to property as only a legal right as against a fundamental right in the original constitution. See: Sharma (2014), Kumar (2015), two more volumes are due publication. 6 See: National Food Security Act, No. 20 of 2013, India Code (2013) (available at: http://indiacode. nic.in/acts-in-pdf/202013.pdf last accessed: 25th August, 2017). 7 The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (available at: http://indiacode.nic.in/acts-in-pdf/302013.pdf last accessed: 25th August, 2017) talks of consent of 80% of the landowners for private projects and consent of 70% of the landowners for public-private partnership projects. What about the landless labourers or Swami

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of rural areas, increased poverty of landless workers that have to seek precarious work in the bigger cities and the complete and forced change of rural life. These developments make a close reading of Swami Sahajanand Saraswati’s writings and political action and movements all the more relevant. Such a reading suggests that many of the interests, sorrows and claims of today’s peasants were already given decades ago. However, in a globalized world their situation has become all the more complex. With rising import competition from products highly subsidized by Northern economies and increasingly from other more industrialized agricultural producers from emerging economies it is no wonder that small scale farmers struggle to make a living. Therefore, we suggest that a more global approach is needed to address the interests of the Indian peasants taking in the concerns of peasants in other parts of the world. In order to do so, we will first provide a short inquiry into the early peasant movements led by Swami Sahajanand Saraswati and their legal claims. Secondly, we will connect those issues to current land reform initiatives of the Indian government. Finally, we will bring in the WTO Agreement on Agriculture, explain how it might affect subsistence farmers and what India has done internationally to address related problems. We argue that while India rightfully criticizes deficiencies in WTO agreements and agricultural policies in the EU and US it has yet not come up with entirely convincing reform proposals. Most importantly, the Indian government should give more prominence to locally supporting the peasants allowing them to articulate their own views and actually listen to their cause. Moreover, in the global context it is also a crucial necessity to take into account the needs of poor agricultural producers in other parts of the Global South.

2 Swami Sahajanand Saraswati and the Peasant Movement in India The knowledge of history is always a good start to improve the present. Let us therefore start with a short overview of Swami Sahajanand Saraswati’s political struggle and the peasant movements’ historic importance. Swami Sahajanand Saraswati was born in a Jijhoutia Brahmin family which after its migration from Bundelkhand to Eastern Uttar Pradesh merged into the larger Bhumihar Brahmins who having taken to secular pursuits like agriculture and serving in armed forces were looked down Sahajanand Saraswati’s khet mazdoor even though they are technically included in the “affected families” group under the act? But the voice of these marginal peasants and workers is not heard in the gram sabhas or village level representations along with the “social impact assessment” being done by the village leadership and expert groups who can easily be intimidated and manipulated by big corporate entities or senior government officials. The consent and lives of the landless do not count! When this act itself is having such massive shortcomings in terms of not accounting for the landless workers who are the overwhelming majority of rural populace along with percentage being set in terms of land ownership, what about the new exceptions to the consent being introduced by the proposed amendments to the act.

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upon by the more ritualistic Brahmins.8 When he took the vow of sanyasa, and took to learning Sanskrit in the ashram, he was looked down upon by his other inmates for being a “lesser” Brahmin. He did not just complete his studies and a rigorous learning of Sankhya and Nyaya, but also became a dandi sanyasi, which is the highest order which an individual sanyasi can achieve in the traditional order of sanyasis among Hindus, one of the famous ones among his forebears being Adi Shankaracharya himself. The spiritual solace which he was seeking could not be fulfilled by anyone but by his service to the poor peasants and agricultural workers and labourers. Swami Sahajanand Saraswati took to active politics first with Brahmin caste associations which he dissolved himself for the larger cause of Indian freedom and the rights of toiling peasants and then landless workers.9 He increasingly realized that all caste associations were essentially upholding the rights of the landlords and zamindars as against peasants. In the initial phase of the movement, he did not favour abolition of zamindari but later became the biggest votary of its abolition. To start with, his movement in the Bihar Pradesh Kisan Sabha was spearheading the rights of tenants who mostly constituted big and marginal peasants but he increasingly realized that it was the landless peasants who toil on the land who are the real peasants. Therefore, even amongst the lot of sanyasis, even after achieving the highest order, he is not well-regarded because of his politics. Amongst ritualistic Brahmins he is disliked for showing how those Brahmins who took to secular professions were regarded higher in the Brahminical hierarchy rather than those who just performed rituals. Amongst Brahmin landlords who were mostly Brahmins of the non-ritualistic order, he is reviled for destroying their paradise, their zamindari and empowered the tenants and landless workers. In his political ideology, he increasingly turned left, or rather combined Srimadbhagvata Gita and Marx, to indigenize left ideology and combine it with the folk religion and religious practices of rural India, and not talk in the godless left verbiage of the west which finally became the nemesis of the communist parties 8 Hauser

and Jha (2015). is interesting to note how with increasing concern for India’s political freedom Swami Sahajanand Saraswati got more and more involved in the works of Indian National Congress and Gandhian constructive works in the 1920s and then to pursue to rights of peasants through his Kisan Sabha. It reached a head-boil when he realized that the Brahmin Mahasabha or Bhumihar Brahman Mahasabha which he has been associated with is concerned only with the interests of Brahmin landlords and not peasants and the working classes that he became the sole reason for the dissolution of the Bhumihar Brahmin Mahasabha in 1929 after which his peasant and nationalist activism kept on increasing and became more and more radical leading finally to the abolishment of zamindari, enactment of land ceiling act and even the first amendment to the Indian constitution putting land reform legislations in the ninth schedule putting them out of bound of courts. This is in sharp contrast with the political career of Dr. Sachchidanand Sinha and Dr. Rajendra Prasad who kept their community affiliations through the Kayastha Mahasabha intact, or for that matter Pandit Madan Mohan Malviya kept contact with the Hindu Mahasabha intact or for that matter many leaders of the Indian National Congress remained members of different community organizations like Muslim League and Hindu Mahasabha simultaneously. It is also remarkable to note how most of the successful peasant agitations led by him, his friends and followers were against the same Bhumihar Brahmin zamindars, the subcaste of Brahmins to which he belonged. In his view, it was the class character of the zamindars which made them repressive of one and all, including their “fellow Brahmins”.

9 It

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in India as they never understood the pre-modern sacralized worldview of Indians.10 This made him unpalatable to both puritanical religions as well as to communists held up in what was being dictated from Moscow or Beijing. He critiqued Gandhi and Congress leaders for being soft on zamindars and not supporting its abolishment which turned him into an anathema for Congress establishment. A close reading of his text, which has only now begun, would reveal his imagination of an alternative modernity of India and all such economies which still have a huge peasant and pre-industrial population. His style of movement also pre-empts the forced industrialization of peasant economies in Russia and China and their mass-killings and complete destruction of their form of life along with their lives and livelihoods. Another distinction between the leadership in the Russian Revolution and that of Sahajanand’s peasant movement is how the Russian Revolution quintessentially was led by the urban elite as against the peasant-subaltern whereas Sahajanand himself came from a peasant background and led a movement with his host of supporters and home-grown leaders who also were mostly from peasant background. What is most pertinent is that this foremost peasant leader himself was a subaltern and spoke and wrote prolifically in the language of the peasant masses quite unlike many other national leaders who were urban bred and mostly came from well-placed middle classes and even from elite settings. It is an example of a subaltern speaking, because he is one from them, read the peasants; and speaks in their language and idioms and wrote in their language and willed and welded their movement according to their socio-economic setting, not disregarding their folk culture which again reflects his subalternity and destroyed the empire and its henchmen, the zamindars, who were made the Gods on earth through the Permanent Settlement.11 And this, when the movement largely remained peaceful from the side

10 Arun Kumar, Rewriting the Language of Politics: Kisans in Colonial Bihar, (2001) at p. 28, “‘Re-discovery’ of the Gita by nationalist leaders in the twentieth century, strongly suggests the quest for a language of politics. ‘Language as a repository of action’ is beautifully exhibited in the reinterpretation of the text. As Gandhi and Sahajanand found in the Gita moral and philosophical support for their ideas and actions. Many central categories of politics of the times derived their meanings from new interpretations of Gita which were being made available by the leaders. Needless to say, the process of constructing a language of mass politics was not arrived at unilaterally by the leaders, as the imprint of the people affecting the leadership is too obvious to miss.”. 11 Professor Walter Hauser writes, “While Sahajanand, especially in his later career imbibed in some elements of Western thought, especially so in the case of Marxism, he was first and foremost grounded in the intellectual and social experience of India, defined explicitly in Indian cultural terms. Essentially what I am saying is that we can only understand Sahajanand if we appreciate the Indianness of his being, whether in rural Ghazipur, in the year of his wandering as a young ascetic, and so too during the period of social reform, of Congress politics, Kisan Sabha activism, and after. It is that quality of being Indian, from a rural, religious background that permitted him to be involved so totally as he was with the peasants of rural India. It was in every sense a symbiotic relationship. The peasants understood Sahajanand and he understood them, literally because he was one of them. He did not have to read about what it meant to be a peasant; it was rather a fundamental part of his lived experience.” Cf. Walter Hauser, Sahajanand Saraswati, 1889–2005: Reflections on a Lifetime of Activism, pp. 3–26 (at p. 9) in Dalip Kumar (ed.), Rural Development and Social Change: Thoughts of Swami Sahajanand, Deep and Deep (2007).

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of the peasants. The swami exhorted the peasants to respond through “danda”12 or lathis/traditional sticks only in self-defence to protect themselves from the henchmen of zamindars who would get violent on these hapless peasants at the slightest pretext.13 The political leaders of the day critiqued his exhortation of the “danda” for self-defence as something promoting the cult of violence in politics but the Swami defended it on the following grounds14 : Zamindars are using all kinds of violent atrocities on peasants who could not be organized to offer any sustained, collective, non-violent resistance.

Still, Sahajanand was not asking for any organized mass violence. Through the flexing of their muscles, the peasants would succeed in deterring away zamindar’s goons playing with their lives, properties and even misbehaving with their women folk. It was nothing but a self-defense measure which was even permitted under the existing law. Swami reminded his opponents that even Gandhiji has stated several times that if he had to choose between violence and cowards, he would have chosen violence. Swami never favored widespread and organized mass violence. All that he was championing was mass action to change the iniquitous social system. Even in his essay, ‘Maharudra ka Mahatandav’, he did not plead for organized violence. Instead he was a champion of mass and popular action. Even in his ‘Kranti and Samyukta Morcha’, he argued for majority led peaceful revolution combining Lenin with Indian national movement. A largely peaceful and democratic movement which is the most successful peasant movement till date in India scores well over Russian Revolution which was led by the urban middle class which then killed and tortured peasants in subsequent years and then fell under its own weight. And on the cultural front, it is in contrast with the 12 “Danda” evokes a myriad sense of imagery for the rural Indian masses. Danda or stick is in its literal physical existence for self-defence but it also signifies “danda” as the spiritual authority of Swami Sahajanand Saraswati as a dandi sanyasi of the dasnami order which has traditionally signified immense spiritual and temporal authority of such sanyasis/ascetics. And here the dandi sanyasi has become one with the peasants for their right to self-defence by the use of danda/lath/stick. Also, danda signifies punishment or penance for wrongdoing. And the intelligent and fiery Swami wants to give “danda” to the zamindars and British rulers for perpetrating violence and suppression of the peasantry. 13 In his public speeches, he used to speak in the ordinary language of the masses and used to wield his “danda” (both in its spiritual and temporal sense) in defiance against the British Rule and its minions, the local zamindars. See: Dalip Kumar and Bhawana Jha, “Justice and Equity for the Peasants of Jharkhand: A (sic) Swami Sahajanand Saraswati’s View, at p. 144 in Anil Kumar Thakur, Dalip Kumar (eds.), Economic Thoughts on Justice and Equity, pp. 132–154 (2007), “Swami Sahajanand Saraswati was a unique communicator who understood and adopted both the peasants’ aspirations and elements of their discourse. Challenging the combined might of the British Empire and its toady landlords, in his public meetings the doughty old Swami would wave his symbolic danda (religious stick) and call out, “Kaise logey malguzari?” (How will you collect the land rent?). And the peasants would respond full-throatily, “Latth hamara zindabad!” (Long live our sticks!). 14 Ram Chandra Pradhan, Swami Sahajanand Saraswati: An Integrated Reappraisal of His Life and Legacy in the Smarika (Memorium) published by Swami Sahajanand Vichar Manch, JNU, Delhi and Amar Shaheed Dr. Shivpujan Rai Pratishthan released on 7 September, 2014 at Gandhi Peace Foundation (pp. 74–104) at p. 93.

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Chinese Revolution as well because Sahajanand respected and gave space to the folk culture and was not intellectually tied to a “bigoted rationality of Marxism” which again led to the killing of millions of Chinese most of whom were peasants who were tied to their roots through their folk culture which has been completely eviscerated by Mao. Another major point of departure from “scientific socialism” of the Soviet and Chinese variety and their communist contraptions and “mimic men” in India, Swami Sahajanand Saraswati laid great emphasis on changing the mindset of individuals to bring about revolution at a collective plane thus reflecting his vedantic training and folk Indian ethos which would respect the liberty of individuals though not in conflict with equality which is a quintessential byproduct of European enlightenment.15 It is Sahajanand’s imagination that “food grains is God and those who grow it, read peasants, who is God”, which becomes the peasants’ imagination of an alternative global legal order and globalization. In his work, Kisan Kya Karen (What do the peasants do?), Swamiji says, “The kisan is the real god. Whether the world believes it or not, he is my god (p. 146).”16 In his autobiography, Mera Jivan Sangharsh (My Life struggle),17 he writes, “Religion, I think, is a completely personal matter, like intelligence, heart, eyes, nose, etc. Two people do not have same intelligence or eyes. Then how can the religion of two people be one? (p. 477)”18 In his commentary on the Gita, Gita Hridaya, he writes, “Our task is to create a classless society, not to wipe out God or to get after Him…. According to the Gita, religion is an individualized or personal affair…. There is no conflict in Gitadharma and Marxism (pp. 100–29).”19 Also, in the rural hinterland, which is all subaltern, according to subaltern historians because inhabitants are not in a position to articulate their views and interests, there is a counter in Sahajanand who rises like a meteor who is of the peasants articulating the interests of peasants and peasants as the foremost stakeholders in India’s freedom from colonial rule and how if they don’t go hungry, India would be 15 Despite the fact that Swami appeared to be in agreement with most of the Marxist-Leninist formulations on revolution, he did make some of his own conceptual contributions taking into account the Indian situation. In Vijayawada conference of Kisan Sabha, he made it clear that revolutionary changes in the mindset of people would be necessary for bringing about revolutionary changes on the material plane. It is the internal revolution in the thinking process of the people which would ultimately lead to revolution on external and material plane. He admitted that that was the most difficult task as feelings and perception of the people about old and ancient system does not get ordinarily changed. Therefore, unless the people are prepared for the final battle even at the cost of their lives, he did not see much hope for the exploited sections of the society. Here we find an indirect reference to old Marxist debate on the relative role of consciousness and social being—which of two is more important. A number of Marxist scholars had quoted Marx to say that it is the social being that decides the consciousness and not the vice versa. It is clear from the above that the Swami thinks otherwise and he underlines the central role of consciousness and rejects the Marxist concept as historical determinism per se. To me, such a view does not sound surprising. After all, more than being a Marxist, he was also a Vedantist. Hence, he equally understands the importance of consciousness as well as of material condition. 16 Cf. Arun Kumar, Rewriting the Language of Politics: Kisans in Colonial Bihar, (2001) at p. 144. 17 Professor Hauser and Jha (2015). 18 Supra at n. 14. 19 Ibid.

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free, ringing true for all developing and less-developed economies of Asia, Africa and Latin America whose major chunk of population is still engaged in agriculture and agriculture dependent small-scale industries. He and his Kisan Sabha collapses the distinction between the civil and the political. The rural subalterns in a backward state like Bihar could never have a civil society as a byproduct of the colonial encounter and Sahajanand belonged to a family of small-scale farmers who were tillers themselves and did not belong to the rural traditional intelligentsia (even if there were civil society it could not have been the civil society as we envision it today because it is a European concept which is essentially a byproduct of industrial revolution and massive urbanization) and yet Kisan Sabha is an association of the political performing civil actions in terms of both articulating the views of the farmers through different books and journals as well as running the movement for empowerment, rent-reduction and finally zamindari (a pernicious system made extremely exploitative through Permanent Settlement in 1793 and other land related laws by the British to increase their revenue from India) abolition.20 It is also interesting to note how Swami Sahajanand Saraswati had a very constructive role for religion in the sense that he never exhorted to religion and religious symbols to divide the peasantry. He respected the religious ideas and practices of simple village folk and was never dismissive of their practices as regressive and reactionary which was the fashion of a lot of western trained and ideologically brainwashed Indian leaders but he also wanted to increasingly make them aware of their rights and fight for a just and equitable world “in this world” and “in this life”. It is remarkable coming from an ascetic of the order of a dandi sanyasi of dashnami sampradaya who had eschewed all obscurantism and narrow-mindedness of the tradition, or as it had crept into the tradition, and gave new energy and vigour to the public life of India by giving his voice to the voiceless, rather becoming the voice of the voiceless. As a sanyasi, he had no worldly gains to be made, no family to support and nothing to acquire—fighting for the rights of peasants became a spiritual virtue for him like uniting the Shaiva and the Vaishnava tradition and setting up of the four peethams and reviving the sanatana dharma had become for Adi Shankaracharya, another famous dandi sanyasi from the eighth century CE. If there is one intellectual counter to Gandhi it is Sahajanand and not some of the others who have shot into prominence recently for political reasons or to be on the “right” side of the age.21 This when, Swamiji was one of the most important 20 Swami Sahajanand presents a formidable challenge to the theoretical construction of Partha Chatterjee in his essay Lineages of Political Society in Partha Chatterjee, Lineages of Political Society, pp. 1–26, Permanent Black (2013). 21 His break with Gandhiji came in the year 1934, after the Bihar earthquake, when he went to meet him and impress upon him the fact that zamindars were exploiting the peasants and all relief measures are being siphoned off by them to which Gandhi said that he would recommend that the peasants complain to the very same zamindars who were exploiting them and taking away their earthquake relief. How was it possible? The congress organization drew lot of funds from these zamindars many of whom were active members of the Congress. How could action be taken against them? And how would Congress spearhead the abolition of zamindari? For more, See: Hauser (2004a).

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associates of the Congress and he left it only post-independence. Professor Walter Hauser writes, “From his first meeting with Gandhi in 1920 to his death in 1950, Sahajanand was by any definition a major player in the events of the day. Few will know that from 1923 he was a member of the Uttar Pradesh Congress Committee (UPCC) and from 1924, at the age of 35, a member of the All India Congress Committee (AICC), or that in the 1930s when he was the central figure in the Bihar Provincial Kisan Sabha and the All India Kisan Sabha, he was at the same time a member of the Working Committee of the Bihar Provincial Congress Committee (BPCC). In all of these capacities and certainly by the middle 30s he was universally recognized as India’s foremost peasant leader.”22 The three defining events which left an indelible imprint on the fiery but sincere swami were exploitation of the rural peasantry and landless labourers (whom he refers to as dalits much before it became a common usage) when he sees how they are not even left with enough cloth to cover their dead body, leave alone anything other than a small hut as a dwelling place, even when they created all wealth for the world; and the systematic eviction of tribal peasants from their own land and village and he made a promise to himself as to how the poor peasants alone are his God.23 What will Swami Sahajanand have to say on the same cycle of moneylending, damaged crops due to rain or drought or new problems with seeds, insecticides, pesticides and other such inputs which go into agricultural production and then hundreds of thousands of his kisans, his Gods committing suicide as a result of it. And then waiving off of “farm loans” being touted as the biggest fiscal burden on the economy as against tax havens and benefits being given to big companies. If giving incentives to companies is required in a modern economy, then so is required to make agriculture profitable for small farmers and agricultural labourers so that the loans which they take from government banks do not turn out to be bad loans in the first place. “Why isn’t the root of the problem being addressed?” this would be Sahajanand’s question today, and then there wouldn’t be much need for loans, leave alone loans turns turning bad because peasants are unable to repay it and then it becomes a fiscal burden. Cities are offered as panacea for all economic ills when city poverty and deprivation is more acute than village poverty24 and certainly the graph of quality of life is poorer for poor landless agricultural labourers or Sahajanand’s khet mazdoor and small and subsistence farmers living in hovels in cities with bad drinking water, poor-quality food and polluted air to breathe. Even a slight improvement in

22 Cf.

Hauser (2004b). and Jha (2015, pp. 417–419). 24 The UNICEF report testifies to the fact on how rural poor are actually better off than urban poor. See: Rural poor in India better off than urban poor, The Hindustan Times, March 1, 2012, accessed at: http://www.hindustantimes.com/delhi-news/rural-poor-in-india-better-off-than-urbanpoor-unicef/story-WcS08mq0ysf3OdD6Ge3GNL.html (last accessed: August 26, 2017); A huge percentage of population lives in urban slums. See: Rukmini Srinivasan, 17% of urban India lives in slums: Census, The Times of India, March 22, 2013, accessed at: http://timesofindia.indiatimes.com/ india/17-of-urban-India-lives-in-slums-Census/articleshow/19118219.cms (last accessed: August 26, 2017). 23 Hauser

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agricultural growth and lives of rural poor leads to massive reduction in poverty and standards of living as compared to urban areas.25 Having had a peek into Sahajanand’s peasants’ imagination of the world the debate is at once localized and subalternized but there is scope for folk culture which is actually the lifeline of cultural nationalism which is uniquely Indian but certainly not cast in a monolithic, modernized and a very specific reading of Hinduism. This cultural nationalism draws its sustenance from the peasant folk culture unlike militant nationalism in a modernist European garb which is what is rightfully criticized by political thinkers both Indian and European.26 What place does this peasant worldview have in the globalized world order where the percentage of goods as a constituent of global trade has considerably declined and the role of primary agricultural goods in money terms has declined even further. This also coincides with agriculture constituting a decreased percentage of GDP in countries like India where the majority still lives in villages and draw their sustenance and livelihood and folk culture from their villages. They have no Sahajanand to articulate their views and fight for their rights to bring about a more just global legal order. And such a concern is a concern of peasants and subalterns not just in India but across vast swathes in Asia, Africa and Latin America and even among small farmers and peasants in Europe and the working classes in North America. What world do we want to create? This indiscriminate pursuit of profit for profit’s sake, what kind of damage is it doing to our environment and peasant societies and livelihoods? For the kisans of Jharkhand Swami Sahajanand provided some answers to those difficult questions. He actually provided a list of laws and actions demanded by the kisans which were of most significance and should be reread to inform the debate today like27 : (1) Their right to cultivation of different kinds of land (based on different forms of settlement) should be allowed and all legal and administrative means should be adopted to that effect. (2) There should be a general rent reduction and Bengal Land tenancy Act 1885 should be amended for their benefit. (3) There should be no restrictions on the kisans’ use of jungle products for their daily domestic use and otherwise for maintaining their livelihood. (5) Immediate arrangements should be made for providing pure drinking water for the kisans and their cattle. (6) Protection of forest and enactment of laws for it.

25 Raghav Gaiha, The Overrated Urban Spinoff: Agriculture’s contribution to poverty reduction is five times more than that of metropolitan centres, The Indian Express, November 2, 2016, accessed at: http://indianexpress.com/article/opinion/columns/brics-urbanisation-forumsmart-city-rural-3732844/ (last accessed: August 26, 2017). 26 For more, See: Tagore (2012), Chatterjee (2014), Kaviraj (2012), Bose (2017), Abhay Prasad Singh (ed.), Radhtravad ka Bharatnama (Hindi), Orient Blackswan, 2017; Benedict Anderson, Imagined Communities, Verso (1983); John Hutchinson and Anthony D. Smith (eds.), Nationalism, Oxford Readers (2012). 27 For the complete and exhaustive list, See: Hauser (2005a).

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(7) Immediate arrangements should be made to educate the adivasis and other backward people and kisans in their own languages. Elementary education in their own languages should be made compulsory. Moreover quick steps should be taken to provide facilities for higher education free of cost. (8) Full irrigation facilities should be provided to the kisans immediately and the zamindars and laws and regulations should be made accordingly. (9) Kisans can be sued only for one year’s arrear of rent, neither more nor less. If the kisan pays his rent before the expiry of the year, he need not pay a single paisa of interest. (10) […] Finally, the zamindars should not have the power of seizing, issuing certificates or attaching standing crops of the kisans in settlement of suits. (11) Government should provide loans to the kisans at a maximum interest of 3 percent per annum. Under no circumstances should the charging of compound interest be accepted as legal. Any interest above 3 percent should be illegal and no court should pass a decree for any amount more than double the principle sum advanced. And there should be strict enforcement of laws to stop the practice of usury. (12) Any form of slavery and the kamiya system should be declared illegal and its complete abolition must be enforced. (13) Arrangements should be made with all speed so that only government officials having a thorough knowledge of the languages of the adivasis and the backward kisans as well as their culture, should try their cases. […] It would be still better if these officers were to be recruited from amongst the adivasis themselves. […] (16) Whatever laws, enactments, or other measures are adopted which affects the kisans, these should be given full publicity and announced promptly from door to door and village to village, thereby fully to inform the kisans of their rights. (17) There should be better justice delivery mechanism for speedy justice to the kisans and tribals.

This rather detailed list at first sight might sound very specific to the historic circumstances. Yet, at a closer look several aspects appear strikingly progressive and of general applicability today and can be translated into concrete rights and freedoms for the peasants. Those include the right to cultivate land, the right to use forest products, freedom from excessive rents, freedom from excessive taxation, access to drinkable water, right to (higher) education, the right to food (e.g. shielding one year’s requirement of foodgrains against collection of debts), access to reasonable loans, freedom from slavery and comparable acts, transparency of legal acts, due process in court (including the right to be informed in one’s own language), right to an effective and fast administrative and judicial procedure and the protection against environmental harm from mining or in modern days from other industrial activities. However, the next section will show that recent land reform initiatives by the Indian government do not sufficiently guard those concerns.

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3 Recent Land Reform Initiatives: The Zamindar System in New Clothes?28 Land as a question of colonial and post-colonial India has affected its polity and public law ever since the ‘permanent settlement’ of 1793. The organized peasant movement starting in the 1920s gave a shot in the arm of India’s struggle for independence on the one hand and abolition of zamindari (landlordism), unsettling the colonial ‘permanent settlement’, on the other.29 In this backdrop, the Supreme Court of India went against the tide of time in deciding in favour of the biggest landlord in the country in Sir Kameshwar Singh v. State of Bihar leading to the abolition of right to property as a fundamental right and taking away all the land reform legislations from the purview of the court by putting them in the Ninth Schedule of the Constitution. Recently land reform legislation has again come to the spotlight in India. In 2013 the central government came up with a proposed land acquisition act which was then taken up with changes by the land acquisition ordinance of 2015 to develop on the idea of ‘development’ where land was to be taken away from farmers and effectively passed on to private players exercising its right of eminent domain. This puts a question mark on what is Indian land policy today; what is the nature of Indian public sphere shaping Indian public law; and if such a law sees the light of day how will Indian courts, including the apex court, clinch the matter in the twenty-first century.

3.1 Historical Context Historically, there were, of course, series of revolts against the British colonial rule throughout its presence in India, and this has also included the British system of land governance. The revolt of 1857 is most well-known, but one of the reasons for its failure was because its leadership comprised of disenchanted elites who wanted to recreate the Mughal Empire under the titular leadership of the last Mughal Emperor Bahadur Shah Zafar. 1920s saw the rise of Mahatma Gandhi as well as the verita28 This section draws from one of the author’s work Kumar (2016) which is a draft presentation and paper at the 2016 ICON-S Conference at Humboldt University in Berlin. Pratyush Kumar, Religion Influencing Public Sphere, Public Reason and Public Law Discourse in Colonial and PostColonial India presented at Panel 126 – “The Laws of Societies”, p. 147 at ICON-S Conference, University of Humboldt, 2016, accessed at: https://icon-society.org/wp-content/uploads/2016/06/ 160616-ICON-S-PROGRAMME-DIGITAL.pdf (last accessed: 15th October, 2018). 29 “No other measure of the Bihar government generated so much controversy as the abolition of zamindari. The legislative process itself took no less than five years to complete, so that the person most responsible for the reform, Swami Sahajanand Saraswati, did not live to see the day when the ‘Permanent Settlement in Bihar was permanently unsettled.” (Speech of the Bihar Premier, Dr. Shri Krishna Sinha, in the Muzaffarpur District Kisan Conference at Riga (1945), cited by Ram Vilas Sinha, ‘The Man Behind Zamindari Abolition in Bihar’, Searchlight, 1 Sept. 1949), cf. Das (seventh impression, 2008b).

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ble peasant leader Swami Sahajanand Saraswati. Sahajanand was initially with the Congress himself but increasingly got disillusioned with its politics of ‘compromise’ and to his view disregard for the aspirations of the toiling millions in the rural hinterland, who were the real subalterns, and “who could not speak”. He gave voice to these peasants, and spoke in their tongue, and started the most effective organized peasant movement for the abolition of Zamindari, land reform legislations and occupancy rights of the tillers of land in a democratic polity. Whatever ‘moth-eaten’ land reform legislations which were brought about across the Indian sub-continent, were a direct result of the peasant movement led by Sahajanand. The first state to introduce the Zamindari Abolition Bill was the State of Bihar, and it is in Bihar it received the first constitutional challenge from the biggest zamindar in the country, the Maharaja of Darbhanga, Sir Kameshwar Singh. The Right to Property was a Fundamental Right in the original constitution and then it was ‘reduced’ to a legal right through the first amendment in order to protect land reform legislations which materialised as a direct result of Swami Sahajanand Saraswati’s organised peasant movement. Sir Kameshwar Singh won both in the Patna High Court as well as the Supreme Court of India. The thrust of the movement for India’s political freedom had land reform legislations as its undercurrent and people like Sahajanand wanted abolition of zamindari without any compensation whereas Congress had settled for abolition with compensation. Anyhow, zamindari got abolished but land reform legislations across the country were implemented in a slipshod manner or not implemented in many cases or there were many loopholes which were exploited by the landed gentry and the elite classes in the country. Policies of various governments during post-independence were also ambivalent as far as implementation of land reforms and land ceiling laws is concerned. Furthermore, with whatever was implemented, it was only the tenants who had benefitted from the abolition of zamindari. The huge percentage of subsistence and landless farmers remained outside the fold of benefit. However, a strategic and dynamic shift appeared post-1991.30 It is when the economy was liberalized and all political parties of whichever ideological inclination ‘sided’ with this strategic policy shift. The periodical opposition to these liberal economic policies were only meant to befool the electorate. But by 2010s, it is firmly established and no party really has the support (corporate), mandate or even policies running counter to it.

30 The share of agriculture to the GDP has declined steeply after the opening up of Indian economy in 1991 even though the share of workers and population dependent on it has not changed as dramatically. The rural population is still in the majority and would remain so in many decades to come and there is also no problem in being rural if primary needs are fulfilled at the local level along with an economic thrust given to agriculture. This is coupled with an increase in share of the trade and tertiary sector in India’s GDP. This has further diminished the voice of the marginalized peasantry who are all scattered in their organization and have no subaltern intellectual to voice, articulate, organize, empower and give their life in service of the peasantry. The rural peasantry is not organized and united in their struggle for empowerment and betterment of their condition in the villages. This is where the movement and ideas of Sahajanand are most relevant.

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3.2 Colonial Legacies and the Land Acquisition Act of 2013 Now, there is an additional problem of immense fragmentation of landholdings across the country and specially for densely populated states of the country reducing the overall cultivable land and therefore agricultural output. In such circumstances, with per-capita small land-holdings and not much government land available again the landless farmers cannot be provided with land. Massive industrialization like the industrial revolution for England is also problematic, as it would lead to massive displacement of people without providing job opportunities to those who are displaced apart from the usual problems of housing and other social amenities. This is in addition to the immense cultural loss to these people whose ancestors have lived in these villages for the last several centuries even several millennia and their languages or dialects or just their way of living is threatened by such displacement. How those problems will be addressed becomes a protracted debate of public law. The whole issue gets further complicated when it is aligned with the Land Acquisition Act of 2013 along with the amendment ordinance of 2015. The catch is how “eminent domain” will be used to acquire land of rural peasantry and then be given to “private companies for public purpose”. The legal question here is: Can the government using the legal principle of “eminent domain” acquire land from the masses of peasantry and give it to private individuals/companies? And once it is given to private companies, would they really operate for public purposes? It is assumed that private companies operate for profit. Public good or public purpose is not their job and they should not be expected to suddenly change their goals. It is here that the role of the state comes in. The state is still the most powerful and the most inclusive institution. Why should it devolve itself of this power and responsibility in favour of private actors? Even when we do not go into the debate of the developmental model where “nature has been reduced to natural resources”, it is a valid concern that this act, in spite of its benign motives, might lead to sheer disenfranchisement of rural peasantry for the loss of their land, livelihood, languages, and “way of life”. The rural peasantry has no collective voice today to express its concerns, and they do not even have an adequate platform to express them. The debate in the wider media concerning their issues is also grossly lacking. ‘Eminent Domain’ is also a colonial byproduct which was used to disenfranchise natives from their land, community and locality. There were violent resistances to such wholesale colonial acquisition of land and forest by the colonial masters which were brutally suppressed by them. It is crucial to note that land relations were never or very marginally tampered with throughout most of India’s history since the later Vedic times. Whether it was the Mauryas or the Guptas or the Muslim rulers during Delhi Sultanate or the Moghul rulers, they never tampered with the larger land relations of the Indian people. This aspect of Hindu Law of inalienable rights over the land and collective rights and responsibilities over commonly held property of the village remained unaffected. It is one of the reasons for the living traditions of India since times immemorial.

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It is this land relation which the colonial masters unsettled for the worse, ensuring pernicious control by landlords, like it was in England, which led to an indiscriminate exploitation of the rural peasantry. The British as mercantilist people, just wanted money and more and more revenue to take it back “home” or pay huge salaries to Europeans working for the “Empire” in India. Sadly, the Indian government postindependence has continued with the policy of its colonial masters like in so many other instances. It is almost telling how India got independence from British rule but not “Swaraj”. And this lack of change in fundamental policies and understanding of the Indian ethos is grossly lacking, irrespective of which political party is in power or which political ideology they purportedly espouse. Ever since human settlement land ownership and control is important for empowerment of the masses. And this aspect received wide protection under Hindu law, if we were to consider the dominant tradition in India. But even otherwise, the Muslim rulers in India also did not change it. Under the different tribal traditions prevalent across the Indian sub-continent, there are beliefs of sacred forests, groves and mountains. There is no right of an Indian state following the colonial footsteps in destroying the lives and livelihoods of these tribal people to give these lands for mining and destroying the already fragile ecosystem which is under tremendous strain. On the sidelines, there is also the Bataidari bill for the rights of sharecroppers which was cold-shouldered by the Nitish Kumar government in Bihar. The land reforms committee which gave the report for such a Bataidari Bill was headed by D. Bandopadhyay, who is the architect of land reforms in West Bengal which is the state which implemented land reforms in its most ideal terms. For West Bengal, it came full circle from Permanent Settlement to land reforms but for Bihar which has the credit of being the first state to abolish zamindari did not take the lead for further land reforms. And it was this “eminent domain” to be exercised by the Communist government of West Bengal to take away the land from farmers in Singur and Nandigram and give it to private players that it became its final nemesis. It was routed in the elections and has not come back to power since then. It was a hard-won battle for land rights and peasants did not want to forgo the hard-won rights over land. Legal means for empowerment of peasantry was lost in Bihar due to non-implementation of the Bihar Land Reforms commission headed by D. Bandopadhyay. The legacy of Sahajanand and Gandhi has been lost to the Indian polity today. It has been completely supplanted by neo-liberal economic policies (rather than having libral social democracy) which, more often than not, functions for self-serving interests. Though, growth is important, it must be linked with inclusive development. On all these public law issues, where land and law intersect, it is at a cusp of conflict and often the real issues and concerns get lost in the din of rhetoric.

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4 Indian External Economic Policies: From Self-reliance to Free Trade As we have seen domestic reforms in the post-colonial period were at best ambiguous when it comes to the interests of the peasants. But how has India fared at the international level?

4.1 After Independence: Non-alignment and Import Substitution India soon after its establishment as an independent state around 1950 embarked an international policy of political non-alignment and economic autarky. Based on the colonial experience and socialist economic theory, Prime Minister Nehru pursued economic independence through policies of import substitution and extensive state ownership of production effectuated by the Licence Raj system.31 Policies of import substitution inter alia were a response to the colonial trade system imposed upon India by Britain. This system had required India to open its markets for finished products from Britain while Britain on the other hand ensured through protective means that only raw products from India would reach its market.32 This system inter alia had devastating effects on Indian producers of textiles which could not compete with industrialized producers from Britain. The policy of import substitution in response was aimed at bringing India to self-fulfil its needs through local production and industrialization. While economists have pejoratively referred to the “Hindu rate of growth” during those times, it must be acknowledged that India at least achieved to sustain a growth rate of 4% per annum between 1961 and 1990.33

4.2 The 1990s: Opening up and Membership in the WTO Policies of import substitution and centrally planning the economy ended abruptly in 1991 when India faced bankruptcy and had to lend money from the IMF. As part of the conditional ties required from India by the IMF’s lending policies, it had to engage in “structural reforms” that involved neoliberal policies associated with the Washington Consensus including opening up the Indian market to both foreign trade and investment.34 Consequently Indian import tariffs were significantly 31 See

for a short introduction into early Indian foreign economic policy from the perspective of an international lawyer: Chimni (2010). 32 See on the colonial trade system between India and Britain e.g. Roy (2011). 33 Figures are based on the World Banks statistics for India available at: www.data.worldbank.org. 34 See e.g.: Chimni, above n 25, 168 et seq.

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reduced and the import/export licensing system was simplified. Only three years later in 1995 India became a founding Member of the WTO and consequently was legally required to further open up its market to global trade and to reform other areas of legislation such as the protection of intellectual property as a consequence of the TRIPS agreement. It is no secret, at least in critical scholarship, that the creation of the WTO was the result of an immense powerplay by the US and Europe. Earlier coalitions of the “Third World” had weakened in the late 1980s due to internal conflicts and an increased fragmentation into smaller alliances and groups.35 At the same time debt crisis in many developing countries (including India) which required those countries to borrow from international financial institutions that promoted economic policies of the “Washington Consensus” further weakened classical “Third World” positions and economic thinking. This setting enabled the US and European Countries to bundle their power and push for a global trade regime that largely resembled their interests and economic preferences. While the earlier GATT was far from perfect, it largely left developing countries outside any legally binding commitments while at the same time allowing for special treatment with regard to market access (at least in the latter years of GATT).36 Now how did Western countries convince developing countries to leave the GATT behind and embrace WTO agreements that would highly limit their policy space and require strenuous reforms of economic policies? This was due to several strategic moves by US and European trade representatives and their governments. First, developed States in the Uruguay Round pointed out that they regarded the old GATT as legally distinct from the new WTO agreements and that they would terminate the old GATT after the completion of the round. Consequently States unwilling to sign WTO agreements would have been left outside global trade altogether, loosing market access granted by the GATT. Moreover, developed States strongly pushed for the so called “single undertaking” approach, according to which every Member State had to accept all proposed WTO agreements together (e.g. TRIPS, GATS, GATT 1994 etc.) or stay outside the WTO completely. Both the single undertaking approach and the legal distinction between GATT 1947 and WTO agreements were finally incorporated in the GATT secretariat’s draft Final Act, issued in December 1991.37 Thereby developed States ensured that developing countries who did not want to be left completely outside the trade regime (without GATT 1947 and special preferences) had to sign on to the whole of WTO agreements, regardless of their capacity to fulfill those agreements in the long run (in fact implementation remains a large problem for many developing States till today).38 35 See

for more details: Thomas and Trachtman (2009). for an in-depth historical overview: Hudec (2010). 37 Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, 20 December 1991, commonly known as “the Dunkel Draft” after Arthur Dunkel then GATT Secretary General. 38 See for an in depth assessment of the political processes and power based negotiation that led to the conclusion of WTO agreements: Barton et al. (2010), 66. 36 See

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4.3 The WTO Agreement on Agriculture and Subsistence Farming However, while signing on to the WTO’s agreements developing countries almost immediately after the Uruguay Round’s completion started to complain about its unequal outcomes.39 Strong concerns over the WTO agreements’ economic impact on developing countries and the overall balance of agreements also evaporated from economic and legal scholarship.40 Important for our topic, the concept of free trade between developed and the developing countries, with entirely different structures of agricultural production, was soon realized to pose inherent dangers for subsistence farmers that increasingly faced competition from often subsidized and highly industrialized producers from the global North. Concerns by developing countries, combined with strategic “framing” of a new negotiation round as a “development round” by the WTO secretariat and developed country trade representatives, ultimately led to the start of the Doha Development Round (DDR) in 2001. The DDR was meant to promote the interests of developing countries and make the WTO and its agreements friendlier to development issues but has become notorious for repeated stalls and lack of meaningful outcomes. The conclusion of the Trade Facilitation Agreement,41 and the phasing out of agricultural export subsidies42 being recent mentionable exceptions. Consequently it appears that the Doha Round has been buried factually at the Nairobi Ministerial in 2015. While disputes on how to continue remained, with developing countries supporting further negotiations within the Doha Round and developed economies arguing to continue only on selected issues, it appears that without a consensus negotiated frameworks and drafts will be left behind. Now much depends on whether and how Member States can reach any consensus for a future agenda in Buenos Aires at the end of 2017. Meanwhile, inequities in the WTO Agreements remain to bother many developing countries and their poor constituencies. With regard to the livelihood and food security of the peasants, the Agreement on Agriculture is of the highest concern. Historically, while agriculture was covered by the GATT 1948 numerous exemptions allowed States to largely pursue agricultural trade policy without any disciplines.43 This markedly but still imperfectly changed with the conclusion of the AoA as part 39 See

for an analysis e.g.: Ostry (2008), 285–300, 287. e.g.: Dani Rodrik, ‘The Global Governance of Trade as if Development Really Mattered’ Report submitted to the UNDP, https://www.mtholyoke.edu/courses/epaus/econ213/ rodrikgovernance.PDF 2001; Stiglitz (2002), Stiglitz and Charlton (2005), Pogge (2005), Joseph (2011). 41 Agreement on Trade Facilitation, Ministerial Decision of 7 December 2013, WT/MIN(13)/36, WT/L/911; for a revised version see: Protocol Amending the Marrakesh Agreement Establishing the World Trade Organization, General Council, Decision of November 2014, WT/L/940. 42 “Export Competition”, Ministerial Decision of 19 December 2015, WT/MIN(15)/45-WT/L/980. 43 See e.g.: Mavroidis (2016), vol. 2 544 et seqq.; WTO, Agriculture, 2015th ed. (Geneva, Switzerland: World Trade Organization, 2015) [3], 9. 40 See

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of the Uruguay Round’s outcome. Among the diverse deficiencies the following are the main arguments of critics.44 First, the AoA allows for too many carve-outs that favour interests of developed countries: The agreement is unable to curb domestic support and limit export support substantially with the effect that already highly industrialized agricultural producers in the North get further support. Combined with open markets this allegedly harms countries of the global South economically and violates human rights of producers in the Global South that face “unfair” competition and lose their livelihood (e.g. violating social and economic rights under the ICESCR). Second, neither the AoA nor WTO Agreements (e.g. general exceptions, anti-dumping etc.) do provide developing countries with workable exceptions and safeguards to defend themselves against unfair competition from the Global North. So weak discipline on developed countries and too rigid disciplines for developing countries is often seen as the general problem. While we do not have the space here to elaborate upon those critiques in sufficient depth we rather want to focus on how the Indian government has taken up those critiques and at least rhetorically defends the rights of its poor peasants at the WTO.

5 Hope for Change? Reform Proposals by India in the WTO Emerging powers are in a comparably good position to change the global order in the interests of developing countries more broadly.45 As former (semi) colonies, still more affiliated with developing countries than with the developed world and still populated by a huge number of impoverished subsistence farmers they should be expected to share a common memory of marginalization. Importantly, as rising economic powers those States may bring up the economic leverage the Third World was lacking in the early days of the promotion of a New International Economic Order.46 As the next section will show India has indeed presented itself as the champion of poor farmers arguing for several reforms of the AoA.

44 See

for an overview of those arguments: Ratner (2015); for more details see e.g.: Joseph, above n 34, 185 et seqq.; Sandra Kattau, WTO-Agrarrecht, EU-Agrarrecht und das Menschenrecht auf Nahrung (Baden-Baden: Nomos, 2015) Band 70; Häberli (2016). 45 Cf. Gordon (2009), Cai (2013), 757 et seqq, 795. 46 See for an overview on the NIEO and its impact on international economic law: Giorgio Sacerdoti, ‘New International Economic Order (NIEO), June 2014’, in Wolfrum and Rüdiger (eds), The Max Planck Encyclopedia of Public International Law (Oxford University Press Oxford date of last update), opil.ouplaw.com/home/EPIL.

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5.1 India as the (Rhetoric) Champion of Peasant’s Rights at the WTO India at the WTO has proclaimed the role of a defender of the interests of the poor and of developing countries more broadly, evident in the following statements given at various Ministerial Conferences: Development is not simply an adjunct to the global trading system. It is intrinsic to every aspect of this Round [The Doha round]. It concerns nothing less than ensuring access of the world’s poor to basic material necessities, a decent quality of life commensurate with human dignity.47 Trade commitments which throw hundreds of millions of people already on the edge of subsistence into a chasm of poverty and unemployment simply cannot be supported. The ambition of developed countries cannot and must not trample on the aspirations of four-fifths of humanity.48

India has long criticised agricultural subsidies in the Global North and called for their prohibition: The legitimate concerns of billions of farmers in developing countries, for whom agriculture means survival and not commercial operation, cannot be sacrificed to sub-serve agri-business profits of a few millions elsewhere sustained through $1 billion subsidy everyday in the OECD countries.49

Moreover, India has argued for increased flexibility for developing countries to adopt domestic policies under the AoA to provide continued employment to the large segment of population dependent on this sector [agriculture] and to improve the general levels of production both with the aim of improving the overall availability of food grains and for enhancing the income levels of the rural poor. In brief, we have to find ways to ensure that the Agreement on Agriculture whose main objective is to remove distortions in international trade does not adversely affect the food security of countries like India.50

At the Bali Ministerial Conference in 2013 India further highlighted that for India “food security is non-negotiable” and that governments of all developing nations have a legitimate obligation and moral commitment towards food and livelihood security of hundreds of millions of their hungry and poor.51

47 India, Statement by H. E. Mr. Kamal Nath Minister of Commerce and Industry, WT/MIN(05)/ST/17, 14 December 2005. 48 Ibid. 49 India, Statement by H. E. Mr. Arun Jaitley Minister of Commerce and Industry and Law and Justice, WT/MIN(03)/ST/7, 10 September 2003; para. 8. 50 Communication from India made at Informal Intersessional General Council meeting on 26–27 October, WT/GC/W/114, 18 November 1998. 51 India, Statement by H. E. Mr. Anand Sharma, Minister of Commerce and Industry, WT/MIN(13)/ST/22, 4 December 2013.

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At the Ministerial Conference in Nairobi (2015) India has reiterated those calls and argued that Member States of the WTO bear a “duty to safeguard the legitimate interests of poor farmers and the food security of hundreds of millions in developing countries” and complained that the reduction of domestic agricultural subsidies has still not been addressed because “a handful of farm lobbies of some countries have shaped the discourse and determined the destiny of millions of subsistence farmers of the developing countries.”52 Among India’s concrete proposals to change the WTO Agreement on Agriculture the issue of Public Stockholding for Food Security Purposes and the Special Safeguard Mechanism (SSM) have attracted most attention. Those initiatives can be seen as direct responses to the above mentioned basic criticism of the AoA. The SSM is proposed as a “defense shield” to prevent import surges of and declines in prices for agricultural products through (subsidised) imports. Public Stockholding For Food Security Purposes could at least provide some price security to poor farmers and provide food security in times of high international prices or food shortages. The following paragraphs will analyse both initiatives more closely.

5.2 Public Stockholding for Food Security Purposes Public stockholding programs are aimed at providing food security through building buffer stocks of agricultural products in times of surplus which can be released when shortages appear.53 To provide agricultural producers with some stability of their incomes, even if prices fall, administered prices paid to domestic producers under such programs are often administered by governmental agencies. India additionally distributes acquired products among the poorer parts of its population at subsidized and below-market prices.54 From a legal perspective such programs are not prohibited but are subject to legal limitations and conditions under the AoA. According to Annex 2 para. 3 of the AoA developing countries are only allowed to purchase food from domestic producers for stockpiling purposes at the prevailing market price without limits. If States however use non-market based administered prices than the difference between administered prices and an “external reference price” multiplied by the “eligible production”55 52 India, Statement by H. E. Mrs. Nirmala Sitharaman, Minister of State for Commerce and Industry, Ministerial Conference, Tenth Session, Nairobi, WT/MIN(15)/ST/9, 17 December 2015. 53 See on public stockholding programs within the WTO context: McMahon (2006), 69; Kattau, above n 38, 153 et seqq.; Raul Montemayor, ‘Public Stockholding for Food Security Purposes: Scenarios and Options for a Permanent Solution’ ICTSD Programme on Agricultural Trade and Sustainable Development, Issue Paper No. 51 (2014) 3. 54 See for a summary of Indian agricultural support programs from a WTO perspective: Jayagovind (2014). 55 In Korea—Measures Affecting Imports of Fresh Chilled and Frozen Beef, the Panel acknowledged that countries may officially set a limit to the scope of their prices support programs and thereby limit “eligible production” to a certain portion or percentage of local production but rejected Koreas

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qualifies as trade distorting support and is subject to legal ceilings.56 While this limitation has initially posed no threat to developing countries’ support programs (which mostly were non-existent or small), India and others increasingly fear that they might reach their legal limits. Especially as due to increased economic resources and the 2008 food crises those countries have substantially increased their agricultural support programs. Additionally, inflation has increased the differences between the fixed external reference price base on 1986–1988 prices and today’s administered prices leading to inflation of support levels without any real increases.57 Earlier estimates suggested that India might breach its de minimis domestic support limits under the AoA in 2015.58 Furthermore, India introduced a new ambitious food security program in 201359 which will highly increase the State’s expenditures on food security and aggravate the danger of overstepping legal commitments. Given the high risk of being sued by developed country agricultural exporters India had to do something to protect its ambitious programs from legal challenge. While other developing countries had earlier called for greater flexibility to keep and increase their public stockholding programs,60 finally it was the emerging power India together with its G-33 allies that brought the issue into the spotlight of WTO negotiations. Of high interest for the subject of this paper India repeatedly argued that public stockholding instead of being viewed simply as an agricultural support measure is necessary to protect the life of Indian peasants, as evident in the following statement: Agriculture sustains millions of subsistence farmers. Their interests must be secured. Food security is essential for over four billion people of the world. For India, food security is non-negotiable. Need of public stock-holding of foodgrains to ensure food security must be respected. Dated WTO rules need to be corrected.61

Despite these arguments India was not fully able to convince WTO Members of the non-protective character and necessity of its policies. Instead only a compromise solution was found. From 2013 on a new peace clause shields public stockholding argument to base “eligible production” on actual purchases, Korea—Beef Products, WT/DS161/R and WT/DS169/R, para. 827; see also: Report of the Appellate Body, WT/DS161/AB/R and WT/DS169/AB/R, 11 December 2000, para. 122. Simulations show that if countries would do so many could avoid breaching their AMS or de minimis caps; see: Montemayor, above n 47, 2. 56 See: Annex 2, para. 3, Fn. 5 AoA; see also: Mavroidis, above n 37, 595. 57 South Centre, ‘The WTO’s Agriculture Domestic Supports Negotiations’, January 2017, 34; Jayagovind, above n 48, 509. 58 Munisamy Gopinath, ‘India’, in avid Orden et al. (2011). 59 See: National Food Security Act, No. 20 of 2013, India Code (2013) (available at: http://indiacode. nic.in/acts-in-pdf/202013.pdf last accessed: 25th August, 2017). 60 See for an overview of different proposals: “Timeline of the public stockholding proposal”, Factsheed prepared by the WTO secretariat, available at: https://www.wto.org/english/tratop_e/ agric_e/factsheet_agng_e.htm. 61 India, Statement by H. E. Mr. Anand Sharma, Minister of Commerce and Industry, WT/MIN(13)/ST/22, above n 45; see in a similar vein: Statement of Shri Anand Sharma, Minister of Commerce and Industry in Parliament on the 9th Ministerial Conference of WTO at Bali, Press Information Bureau Government of India, 17 December 2013 available at: http://pib.nic.in/ newsite/PrintRelease.aspx?relid=101827.

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programs of developing countries from legal challenge.62 Such a peace clause does not formally allow public stockholding programs but refrains Members from pursuing legal remedies against such a measure. India in the pre-Nairobi process was further able to reject any deadline for the peace clause by threatening to object the adoption of the Trade Facilitation Agreement.63 The peace clause now remains in force until a permanent solution will be negotiated, which will take some time.64 Therefore India factually achieved its goal of permanently shielding its food security policies.65 However, this solution is far from perfect. The solution is not beneficial for all developing countries, as the peace clause only covers support measures that are already in place. It is also questionable whether the Indian support program will be protected if it will further increase.66 Moreover, while at first sight a huge success for India and its peasants, a deeper analysis suggests a more differentiated picture. On the domestic plane much actually depends on whether Indian authorities will be able to implement public stockholding programs efficiently and without corruption. From an international perspective further inherent dangers exist. Just as domestic support in developed countries, support in emerging countries may on the long run harm farmers in other parts of the Global South if subsidized agricultural products reaches their markets. With regard to India there have already been reports that publicly procured food has been exported at dumping rates to African Countries potentially harming their poor local producers.67 Such practice is actually not covered by the Peace Clause as it explicitly prohibits States from dumping publicly acquired food on world markets.68 Moreover, such practice questions the credibility of the Indian government’s pro poor agenda at the WTO.69

5.3 The Case of a Special Safeguard Mechanism Another subject that has been strongly proposed by Indian trade representatives at the WTO is a Special Safeguard Mechanism (SSM). Such a safeguard is aimed at addressing so called import surges and sudden price drops by allowing a State to 62 Public Stockholding for Food Security Purposes, Ministerial Conference, Ninth Session, Bali, 3–6, December 2013, WT/MIN(13)/38, WT/L/913, Ministerial Decision, 7 December 2013. 63 ICTSD, ‘WTO Members Weigh Options as India Pushes Food Security Link on Trade Facilitation Deal, Bridges, Volume 18, Number 27’, 24 July 2014, http://www.ictsd.org/bridges-news/bridges/ news/wto-members-weigh-options-as-india-pushes-food-security-link-on-trade. 64 “Public Stockholding for Food Security Purposes”, General Council Decision, WT/L/939, 28 November 2014, para. 2; see also: Kerr (2015). 65 Ibid., 4. 66 Jayagovind, above n 48, 512. 67 Ibid., 512 with further references. 68 Public Stockholding for Food Security Purposes, Ministerial Conference, Ninth Session, Bali, 3–6, December 2013, WT/MIN(13)/38, WT/L/913, Ministerial Decision, above n 56, para. 4. 69 See also: Jayagovind, above n 48, 512.

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impose additional duties on particular agricultural products when there is a stark increase of imports or import prices undercut domestic prices to a considerable extent. The problem of import surges is well documented. Both FAO and the South Centre provide extensive lists of cases where such import surges have destroyed entire agricultural sectors of some developing countries and considerably harmed others.70 The proposal to establish a Special Safeguard Mechanism has led to fierce opposition from the Global North, most notably the US.71 However, the SSM is actually no radical departure from the AoA as it already contains a “Special Safeguard Provision” in Article 5. The problem with the existing safeguard is that it is only available to a very small number of countries (excluding India and many other developing countries) due to some technicalities.72 As a consequence only a small number of developing countries has made use of the Special Agricultural Safeguard (SSG) while developed nations have been among its major users.73 Consequently the SSG has been termed a “reverse special and differential treatment privileging developed countries.”74 India has become one of the main supporters of an SSM clearly linking the issue to the protection of its poor peasants. Indian trade representatives repeatedly stated that the SSM is necessary to “secure and ensure the livelihood and food security of millions” of poor farmers in India and elsewhere.75 However, reform proposals that would install such an SSM within the AoA were so far unable to find consensual acceptance. Quarrels over the SSM involved questions about its trigger levels (the quantitative increase that would trigger the additional duty), the height of the additional duty and most prominently whether the additional duty would be allowed 70 There exists actually no clear definition of an import surge and qualifications are dispute, however it shall suffice here that the FAO and the South Centre have identified a number of cases where high increases of agricultural imports have considerably harmed local agricultural producers: FAO, Committee on Commodity Problems, Sixty-fourth Session, ‘Some Trade Policy Issues Relating to Trends in Agricultural Imports in the Context of Food Security’Rome, 18 March 2003; FAO, ‘Import Surges and the Special Safeguard Mechanism revisited’ (15) FAO Trade Policy Technical Notes on issues related to the WTO negotiations on agriculture (2014); South Centre, above n 51. 71 Controversies over the SSM between India and China on the one side and the US on the other even led to the breakdown of Doha Round negotiations in 2008; see: ICTSD, ‘Agricultural Safeguard Controversy Triggers Breakdown in Doha Round Talks, Bridges, Volume 12––Number 27’, 7 August 2008. 72 The SSG is only available to those countries that undertook “tariffication” of their non-tariff trade barriers, as many developing countries used so called ceiling bindings instead they are not eligible to use the SSG; see: Jayson Cainglet, ‘Can Protective Trade Policy Instruments like Special Products (SP) and Special Safeguard Mechanisms (SSM) contribute to a more Sustainable and Fairer Multilateral System of Trade in Agriculture?’ (22) Heinrich Böll Stiftung, Global Issue Papers 5 (2005), 12. 73 See: Finger (2009), World Bank Policy Research Working Paper, Annex 1. 74 Hopewell (2016). 75 See e.g.: India, Statement by H. E. Mr. Kamal Nath Minister of Commerce and Industry, WT/MIN(05)/ST/17, above n 41; India, Statement by H. E. Mrs. Nirmala Sitharaman, Minister of State for Commerce and Industry, Ministerial Conference, Tenth Session, Nairobi, WT/MIN(15)/ST/9, above n 46.

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to exceed existing tariff bindings. At the last Ministerial Meeting in Nairobi 2015 Members only were able to reiterate that developing countries will have the right to use a Special Safeguard Mechanism somewhere in the future unable to agree on the mechanism’s technical and legal details.76 Despite India’s insistence on an SSM to protect its poor farmers it is highly questionable whether such an instrument will actually do any good to the poor on a global scale. Economic analysis rather suggests that an SSM based on the quantity and price triggers actually proposed by India, G-33 and others would often allow additional duties when they are not needed and prohibited when they are useful.77 Moreover, studies show that the SSM would often discriminate against cheaper exports from other developing countries78 which due to less diversified economies depend on the export earnings. Other concerns include that widespread use of safeguards could destabilize world prices and affect consumers negatively in cases of domestic shortages.79 All in all it appears that the proposed SSM is at best an ambivalent instrument to achieve food security in the Global South. India probably would have done better by strengthening its efforts through the G-20 grouping and together with Brazil focussing on bringing down domestic and export support of agriculture in the EC, the US and elsewhere in the first place.

6 Conclusion As perhaps the most important subaltern genealogical theoretician for the rights of peasants, Sahajanand’s life and struggle had a crucial importance for the rights and freedoms of the Indian peasants. His list of laws and actions initially proposed to alleviate the peasants’ sufferings in the state of Jharkhand (part of the then Bihar) rings very true even today and has been included as a matter of illustration and example to inform today’s debates. The sorrows of India’s peasants have not remarkably changed since the early days of Sahajanand. Instead the phenomenon of increased globalization has provided further inherent dangers for the peasant’s way of life. Instead of alleviating the plight of the peasants recent land reform initiative runs in danger of reinstalling a factual Zamindar system driven by huge agricultural corporations. We conclude that while the Indian government and its trade representatives have been busy blaming the WTO for the plight of the Indian peasants, new domestic legislation initiated by the same government threatens to harm poor peasants even 76 See: Special Safeguard Mechanism for Developing Country Members, Ministerial Decision of 19 December 2015, WT/MIN(15)/43 WT/L/978, 2015. 77 Finger (2009), 307 et seqq. 78 Finger (2010), 313 et seq.; de Gorter, H., Kliauga, E. and Nassar, A. (2009), ‘How current proposals on the SSM in the Doha impasse matter for developing country exporters’ Instituto de Estudos do Comercio e Negociacoes Internacionais, Sao Paolo, Brazil. 79 Thomas Hertel, Will Martin and Amanda M. Leister, ‘Potential Implications of a Special Safeguard Mechanism in the WTO: The Case of Wheat’ World Bank Policy Research Paper No. 5334 (June 1, 2010), 24.

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more directly. This should not suggest that the government’s criticism of the AoA has been unsound. Still, Indian trade representatives could gain legitimacy viz-aviz their developed country counterparts, if the Indian government would act more consistently in the interests of subsistence farmers at home. At the same time we conclude that Indian reform proposals of international trade rules, such as legally shielding public stockholding and the installation of a Special Safeguard Mechanism, could be further improved. Critical attention should be paid to preventing any harm from protective means on other States of the Global South and particularly Least Developed Countries and their poor farmers. This critical assessment should not be misread as utterly pessimistic. While we do not have perfect solutions at hand either we suggest a bottom up approach and reject any form of paternalism. Allowing the peasants to speak for themselves and listening to their point of view might help to achieve internationally as well as domestically what they really seek and need. A rereading of Sahajanand’s alternative view can be a start to begin such a process.

References Alam, J. (2004). Government and politics in colonial Bihar (p. 148). Mittal: New Delhi. Bandyopadhyay, S. (2008). From Plassey to partition: A history of modern India (pp. 407–409). Hyderabad: Orient Blackswan. Barton, J. H., Goldstein, J. L., & Josling, J. E. (2010). Evolution of the trade regime (p. 66). Princeton: Princeton University Press. Bose, S. (2017). The nation as mother and other visions of nationhood. Gurugram: Penguin. Cai, C. (2013). New great powers and international law in the 21st century. EJIL, 24(3), 755–757. Chatterjee, P. (2014). Nationalist thought and the colonial world and the nation and its fragments in the Partha Chatterjee omnibus. Oxford: Oxford university Press. Chimni, B. S. (2010). Mapping Indian foreign economic policy. International Studies, 47(2–4), 163. Das, A. N. (2008a). Swami and Friends: Sahajanand Saraswati and those who refuse to let the past of Bihar’s peasant movements become history. In W. R. Pinch (Ed.), Speaking of peasants (pp. 193–232). New Delhi: Manohar. Das, A. N. (2008b). Agrarian change from above and below: Bihar 1947–78, p. 182. In R. Guha (Ed.), Subaltern studies II: Writings on South Asian history and society, Oxford (seventh impression, 2008). Dhanagare, D. N. (1983). Peasant movements in India (p. 141). Oxford: Oxford University Press. Finger, J. M. (2009). Systemic lessons from WTO experience with implementation, trade facilitation, and aid for trade. In C. Thomas & J. P. Trachtman (Eds.), Developing Countries in the WTO Legal System (pp. 75–103). Oxford, New York: Oxford University Press. Finger, J. M. (2010). A special safeguard mechanism for agricultural imports: What experience with other GATT/WTO safeguards tells us about what might work. World Trade Review, 9(02), 289–313. Gordon, R. (2009). The dawn of a new, new international economic order? Law and Contemporary Problems, 72, 131–132. Gupta, R. (1982). Bihar peasantry and the Kisan Sabha (1936–47) (pp. 132–133). New Delhi: People’s Publishing House. Häberli, C. (2016). Agricultural trade: How bad is the WTO for development? European Yearbook of International Economic Law, 103–117.

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Hauser, W. (2004a). The life of a text and its meanings: Reflections on Sahajanand Saraswati’s Mera Jivan Sangharsh (pp. 155–191 at pp. 172–175). In M. Hasan & N. Gupta (Eds.), India’s colonial encounter: Essays in memory of Eric Stokes. New Delhi: Manohar. Hauser, W. (2004b). The life of a text and its meanings: Reflections on Sahajanand Saraswati’s Mera Jivan Sangharsh (pp. 155–191 at p. 165). In M. Hasan & N. Gupta (Eds.), India’s Colonial Encounter: Essays In Memory Of Eric Stokes. New Delhi: Manohar. Hauser, W. (Ed.). (2005). Swami Sahajanand and the Peasants of Jharkhand: A view from 1941 (An edited translation of Jharkhand ke Kisan with the original Hindi text and an Introduction, Endnotes, and Glossary by Walter Hauser), at pp. 199–201, Manohar, New Delhi. Hauser, W. (Ed.). (2005). Sahajanand on agricultural labour and the rural poor (An edited translation of Khet Mazdoor with the original Hindi text and an introduction, notes and glossary), Manohar, New York. Hauser, W., & Jha, K. C. (Eds.). (2015). Culture, vernacular politics and the peasants: India, 1889–1950 (editor and translator of Swami Sahajanand’s autobiography Mera Jivan Sangharsh—My Life Struggle). New Delhi: Manohar. Hopewell, K. (2016). Breaking the WTO: How emerging powers disrupted the neoliberal project (p. 172). Stanford, California: Stanford University Press. Hudec, R. E. (2010). Developing countries in the GATT legal system. Cambridge [etc.]: Cambridge University Press. Jayagovind, A. (2014). India and food security: WTO perspective. Indian Journal of International Law, 54(4), 505. Joseph, S. (2011). Blame it on the WTO?. A human rights critique, Oxford, New York: Oxford University Press. Kaviraj, S. (2012). The imaginary institution of India. New York: Permanent Black. Kerr, W. A. (2015). Food security, strategic stockholding and trade—distorting subsidies: Is there a permanent solution? The Estey Journal of International Law and Trade Policy, 16(1), 4. Kumar, V. (Ed.). (2015). Kisan movement in the records of Bihar State Archives (vols. I–V), Directorate of Bihar State Archives, Bihar, Patna. Mavroidis, P. C. (2016). The regulation of international trade: The WTO agreements on trade in goods. Cambridge, Massachusetts: The MIT Press. McMahon, J. A. (2006). The WTO agreement on agriculture: A commentary (p. 69). Oxford: Oxford University Press. Orden, D., Blandford, D., & Josling, T. E. (Eds.). (2011). WTO disciplines on agricultural support: Seeking a fair basis for trade (pp. 277–309, 305). Cambridge, New York: Cambridge University Press. Ostry, S. (2008). The uruguay round north-south grand bargain: Implications for future negotiations. In D. L. M. Kennedy & J. D. Southwick (Eds.), The political economy of international trade law: Essays in honor of Robert E. Hudec (pp. 285–300, 287). Cambridge [etc.]: Cambridge University Press. Pogge, T. (2005). Recognized and Violated by International Law: The Human Rights of the Global Poor. Leiden Journal of International Law, 18(4), 717. Pradhan, R. C. (2008). Raj to swaraj (pp. 267–270). New York: Macmillan. Ratner, S. R. (2015). The thin justice of international law: A moral reckoning of the law of nations (p. 342). Oxford: Oxford University Press. Roy, T. (2011). The economic history of India, 1857–1947 (3rd ed.). New Delhi: Oxford University Press. Sen, S. (1979). The Kisan Sabha. In A. R. Desai (Ed.), Peasant struggles in India (pp. 428–441). Oxford: Oxford University Press. Sharma, K. K. (1989). Agrarian movements and congress politics in Bihar 1927–47 (pp. 68–69). New Delhi: Anamika. Sharma, R. S. (Ed.). (2014). India’s war of independence through Kisan documents (vols. I–III). New Delhi: Manohar. Stiglitz, J. E. (2002). Globalization and its discontents (1st ed.). New York: W.W. Norton.

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Stiglitz, J. E., & Charlton, A. (2005). Fair trade for all: How trade can promote development. Oxford, New York: Oxford University Press. Tagore, R. (2012). Nationalism. In S. K. Das (Ed.), The English writings of Rabindranath Tagore (pp. 417–466). New Delhi: Sahitya Akademi. Thomas, C., Trachtman, J. P., Thomas, C., & Trachtman, J. P. (Eds.). (2009). Editors’ introduction. Developing countries in the WTO legal system (pp. 1–20, 8). Oxford, New York: Oxford University Press.

Part III

Market Liberalisation and Sustainable Development

India in Pursuit of Sustainable Development: A Critique of India’s Trade and Investment Policies A. Jayagovind

1 Introduction With the dawn of industrial revolution, there arose a belief that humanity could solve all its problems with the help of science and technology. By the middle of twentieth century, the people by and large thought that they were about to reach the peak of material civilization. But by the early seventies, they had to face a rude shock. Steep hike in petroleum prices, increasing pollution, social unrest and political instability shook them out of their complacency; and they realised that humanity has been dangling from the precipice. Possibility of exhaustion of natural resources and mounting pollution in land, sea, and air forced them to think seriously about environmental problems. This anxiety was reflected in the Stockholm Conference of 1972. The central concern in that Conference was whether we can sustain our way of living and civilization on a long-term basis. In brief, the issue was whether the economic and social development, which we had taken for granted so far was sustainable, and if not, how to devise a strategy for sustainable development. Though Stockholm Conference did not actually use the expression ‘sustainable development’, that concern was at the centre of deliberations and the final Declaration. It was Brundtland Commission in its report on ‘Our Common Future’ coined the expression ‘sustainable development’ (SD) and it defined its meaning and scope as follows: SD is a development that meets the needs of present without compromising the ability of future generations to meet their own needs. It contains two key concepts: the concept of needs, in particular the essential needs of the world’s poor, to which the overriding priority should be given; and the idea of limitations, imposed by the state of technology and social 1 organisation on environment’s ability to meet the present and future needs. 1 Brundtland

et al. (1987).

A. Jayagovind (B) National Law University, Delhi, New Delhi, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_6

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The idea of sustainability drives home the point that the natural resources such as water, air, vegetation, minerals, etc., are exhaustible; and hence they have to be scientifically managed and judiciously used. Secondly, the concept of needs refers to the needs of humanity as a whole; and thereby emphasising the idea that growth must be inclusive nationally as well as internationally. In brief, sustainable development must be ecologically sound and economically just. Philippe Sander has formulated four international legal principles concerning SD on the basis of above definition: 1. Inter-generational equity: It refers to the need to preserve natural resources for the benefit of future generations. 2. Sustainable Use: Natural resources should be exploited in a sustainable, prudent, and rational manner. 3. Inter-generational equity: Every state must take into account the interests of other states. 4. Integration: Environmental considerations must be built into development plans; and developmental needs must be taken into account while pursuing environmental objectives.2 Sustainable development is ultimately a function of technological advancement and equitable social organisation. The problem of devising a strategy to achieve sustainable development is to appreciate human potential in this regard. A few decades ago, we were told that the world would run out of petroleum by 2050 or so. But at present, we are awash with petrol, thanks to shale technology. Hence, many right wing thinkers who swear by human capability and market mechanism, are of the view that this talk about sustainable development is hogwash. According to Jadgish Bhagwati: Even God does not know what sustainable development means. It has become nonsensical, anything you want it to mean. The term today is what socialism was in the 1960s, when every concerned and committed politician in the Third World professed it while justifying his preferred agenda cynically.3

The above view, which until recently was considered a cranky minority view has become a dominant view with the election of Donald Trump as the President of the U.S.A. His decision not to ratify the Paris Accord on the climate change has shocked environmentalists all over the world. However, quite unlike Jagdish Bhagwati, Donald Trump positively hates free market and globalisation. Till recently, the debate was between free market ideologues who subscribed to market fundamentalism and others who insisted on markets accommodating environmental and other social concerns. But Trump repudiates both these views and stands for extreme nationalistic economy disregarding environmental and other social considerations. The question before us is whether the World Trade Organisation (WTO) and other institutions, representing globalisation tempered with environmental and other social considerations will survive this formidable assault. 2 Sands

(2003). (2004).

3 Bhagwati

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2 Globalization Liberalization stands for privatization of all economic activities. Privatization signifies that all economic decisions are taken and executed by individuals guided solely by market considerations. Liberalization, as applied to international economic transactions, becomes globalization. In concrete terms, globalization stands for free movement of goods, services and capital cutting across national frontiers, guided solely by market signals. Though some people argue that globalization should include free movement of people, states do not accept this idea because of social and political problems involved therein. Though the expression “globalization” has political, social and cultural dimensions, it is normally confined to economic arena in the sense that international legal norms have come up only in the context of international commercial transactions. In other areas, the role of law is marginal. What is the inter-relationship between market liberalization and SD? And is market liberalization a prerequisite for SD? Historically, both the ideas: liberalization and SD have emerged in global scenario more or less together, i.e. in 1970s. Further, market economies have by and large better track record regarding environmental protection. In so far as economic freedom is viewed as part of overall human rights, a liberal economy can provide better framework for the protection of human rights. An effective enforcement of Environmental Law requires conscious participation by individuals. Viewed this way, liberalization and environmental protection can go together. From this, it does not necessarily follow that any ideology, other than liberalism is incompatible with environmental protection. For example, both India and China have been facing serious environmental problems; and it is nobody’s case that democratic India has done better than communist China. Probably, China with its economic and technological resources and disciplined governance has done a much better job than India. In brief, the experience of OECD countries cannot be generalised to conclude that market liberalization is prerequisite for sustainable development. Ultimately what counts is good governance. No ideology by itself can guarantee good governance. But for the world at large, democratic model of India can be better replicated than the autocratic model of China. Hence, the Indian model is keenly watched world over especially by developing countries. All international instruments in the area of environmental law emphasise that multilateral trading system, liberal economy, and sustainable development mutually reinforce each other. The general view is that efficiency in allocation of resources can be better achieved under liberal economic system. For example, para. 2.37 of Agenda 21, issued at the end of Rio Conference, calls upon participating states to: Encourage private sector and foster entrepreneurship by improving institutional facilities for enterprise creation and market entry. The essential objective would be to simplify or remove restrictions, regulations and formalities that make it more complicated, costly and time consuming to set up and operate enterprises in many developing countries.

It must be emphasised that liberal economy envisaged above is not based upon laissez-faire philosophy espoused by right wing economist, such as Milton Friedman. It is akin to social democracy practised by European countries. In Europe, the

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governments play a very active role as Regulators while acknowledging the property rights of individuals. Even Communist countries like China have been slowly moving towards this position, i.e. encouraging private initiative and entrepreneurship subject to regulatory jurisdiction of the government. Generally speaking, the philosophy of social democracy where under both state and market play very active role, mutually complementing each other, is accepted all over the world, though individual states may have their own views regarding the scope and regulatory jurisdiction. In brief, in so far as market liberalization is understood against the background of social democracy, market liberalisation is prerequisite for sustainable development.

3 Trade and Investment Policies for Sustainable Development The WTO is the custodian of international trade policy. Though it broadly subscribes to the idea of social democracy, there have always been certain sharp edges injuring the interests of developing countries. The pressures exerted by the bodies like the U.N. Conference on Trade and Development (UNCTAD) have blunted these sharp edges to some extent. The preamble to the WTO Agreement calls for the optimal use of world resources in accordance with the objective of sustainable development. The market liberalization, envisaged by the WTO, is calibrated in the sense that a member can pursue the objective of free trade at its own phase. Article XX of the GATT enables a member to restrict international trade to protect the life and health of people, animals and plants. A state can take steps to conserve exhaustible natural resources. In the Shrimp-Turtle case,4 the (WTO—add proper name) Appellate Body gave expansive interpretation to the term ‘exhaustible natural resources’ to include the Convention on Trade in Endangered Species within its scope. Since this Convention recognised sea turtles as endangered species, the Appellate Body held that they can be considered as ‘exhaustible natural resources’ under Article XX (g) of the GATT. Further, a member can rely upon the Agreements on Technical Barrier to Trade and Sanitary and Phytosanitary measures to take appropriate action to protect environment. As far as foreign investments are concerned, the relations between host state and foreign investors are governed by bilateral investment treaties (BITs). All international efforts to conclude a multilateral treaty have not succeeded. There is an increasing tendency in recent times to include a chapter on investments in regional free trade agreements such as North American Free Trade Agreement. There are about 3300 bilateral investment agreements. There is a general perception that free trade agreements and BITs are tilted in favour of investors; and investor-state dispute settlement mechanism, provided therein, normally favour investors as against host states. Against this background, 4 WTO,

United States: Import Prohibition on Certain Shrimp and Shrimp Products (12 October 1998) WT/DS58/AB/R.

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the UNCTAD has come up with a report on Investment Policy Framework for Sustainable Development in 2015. The Report makes a strong case for ‘New Generation Investment Policies’ which emphasise inclusive growth and sustainable development. It deals with policy issues both at both the national, and the international level. At the national level, it advocates integration of investment policies into sustainable development strategy. At the international level, it calls for balancing of rights and obligations of states and foreign investors. It points out that the old colonial hangover, which has treated developing countries as recipients of capital, is no longer valid. Many developing countries including India have emerged as capital exporters. Now a days, nearly one-third of Foreign Direct Investments (FDIs) are coming from developing countries. Hence, the international investment regime can no longer be treated as tug of war between developed and developing countries. Both have an equal stake in developing a stable legal regime. The Report strongly supports the host state’s right to regulate foreign investment both at the level of entry and operation. It also advocates some kind of Article XX (of the GATT) exceptions in relation to investments. Measures by host states, taken for legitimate public policy objectives and in compliance with relevant international instruments, are considered as legitimate. It is host state’s responsibility to promote responsible investment that is consistent with social and environmental goals. In the course of operation of foreign investments, the host states must have adequate policy space to ensure sustainable development needs. According to the Report, international investment agreements must also emphasise the investor’s responsibility. Corporate social responsibility of foreign investors must be emphasised in these instruments.

4 Indian Experience India is the world in miniature; and we have been struggling hard with all conceivable political, social, and cultural problems. It is however noteworthy that we have been trying to solve them within the framework of constitutional democracy. With all its imperfections, the democratic model, based on consensus, is the only model possible in modern circumstances. Hence, Indian experience is keenly watched all over the world. Indian thinking on economic and environmental issues has been in consonance with international consensus most of the times. Like most other developing countries, India started with planned economic development; and slowly moved towards market economy. Indian Constitution provided for the right to property initially, and India has always had a strong private sector, albeit subject to regulations. By 1980s, India had started moving towards market economy; and liberalization became the official policy in 1991. Foreign Trade Policy and Industrial Policy Resolutions, issued from time to time by the Central Government, govern the trade and investment policies in India. Till 1990s, importation was strictly controlled and open general licences were available

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only for very few products. With the ushering in of liberalization in 1990s, Indians can import foreign goods under open general licence with very few exceptions. Indian rupee was made convertible for all current international transactions. Industrial Policy, announced in 1991 dispensed with industrial licensing requirement except for a few industries. To expedite the decisions on foreign investments, a Foreign Investment Promotion Board consisting of Secretaries at the highest level was established. A Cabinet Committee, consisting of Prime Minister, Finance Minister and a few others can review the decisions of Foreign Investment Promotion Board. By all accounts, liberalization has boosted economic growth in India. India has become one of the fastest growing economies. It attracts foreign investments in large quantities. But, it has paid heavy price for the so called economic growth in terms of environmental degradation. To quote the observation of our Supreme Court, ‘our cities have become gas chambers and our rivers have become sewage carriers.’ Our Himalayan glaciers are receding and the list can go on and on. Environmentally, we have become a basket case. It is not that we do not have laws to combat these problems, but the Government does not have the will to enforce these laws. It is just a matter of effective governance. It is unfortunate that when India was pursuing a sensible policy, the international community instead of supporting it, frustrated it. To reduce dependence on fossil fuels, the Government has been actively encouraging the use of solar power. It encouraged private undertakings to produce electricity using solar power and sell such electricity to the Government. The Government will procure this electricity by paying guaranteed price which will ensure decent returns to the producers. But, to get such guaranteed price, the private entrepreneurs have to purchase solar modules and cells that are produced indigenously. The USA challenged this measure under Article III: 4 of the GATT, i.e. discrimination against foreign producers of solar modules and cells. Both the Panel and the Appellate Body decided against India.5 It may be noted that the similar measure by Canada was also invalidated by the WTO. From economic point of view, the issue for India is one of protecting infant industry. If cheap solar cells and modules from China and U.S.A. are allowed, India will not be able to develop indigenous power production. In view of the huge demand of solar cells from all over India and also in view of huge current account deficits, it is a sensible decision to develop indigenous industry. The adjudicatory bodies of the WTO looked at the issue as one of free trade versus protectionism ignoring the issue of sustainable development. If India could meet a significant part of its electricity requirement using solar power, it would be a good contribution to sustainable development. This point was not taken note of by the WTO. As far as foreign investments are concerned, India had followed a cautious approach during the early years of independence. With the ushering in of liberalization, foreign investments are encouraged. India has entered into several free trade agreements which include foreign investment provisions and bilateral investment treaties (BITs). Most of these BITs contain national treatment as well as most 5 WTO, India: Certain Measures relating to Solar Cells and Modules (16 September 2016) WT/DS

456/AB/R.

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favoured nation clause. They left very little space for regulation in the public interest by host states. But it has not created serious problems. Only investment dispute that the Government of India has had to face so far was the dispute raised by White Industries of Australia under the BIT between India and Australia. The matter was referred to an arbitral tribunal under UNCITRAL Rules. Because of the Most Favoured Nation (MFN) clause incorporated in the BIT, White Industries could successfully invoke a provision relating to judicial delays found in Indo-Kuwait Bilateral Investment Agreement. Stung by this bitter experience, India has drastically revised its policies on BITs in accordance with the advice of Indian Law Commission. All future BITs which India will conclude hereafter will be based on this Model BIT. The most significant aspect of this Model BIT is the emphasis on Regulatory Jurisdiction of the host state. Under Article 32 of the Model BIT, the Government can take measures to protect public health, public order and investment. This is somewhat akin to Article XX of the GATT. In addition, many ambiguous expressions, such as fair and equitable treatment, etc., are clearly defined. The Model BIT seems to be based on UNCTAD Report on new generation investment policies. There have been criticisms that this new approach may discourage foreign investment. But a close analysis of experiences of countries of South East Asia, including China, would show that what matters to foreign investors is the efficient enforcement of law. In White Industries case, the domestic litigation within India took a little over 10 years; and this judicial delay proved to be costly to India. The time has come to set up parallel benches to handle exclusively commercial disputes including investment disputes.

5 Conclusion India’s trade and investment policies have been in consonance with international consensus developed within the U.N. framework. But, the proper integration of these policies with our development programme, which must include sustainability dimension as well, is doubtful. The concept of planned economic development which we had practiced for a long time emphasised such integration. But the net result is not encouraging. Ultimately, it seems that while we are good at making laws, we are poor in implementation. As pointed out, we have failed miserably in protecting our environment. The issue here is not the lack of laws or implementation machinery, but sheer failure of implementation machinery to enforce laws.

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References Bhagwati, J. (2004). In defence of globalization (p. 156). OUP. Brundtland, G. H., et al. (1987). Our common future (p. 43). OUP. Sands, P. (2003). Principles of international environmental law (p. 253). CUP.

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India’s Need for a Sustainability Strategy—Creating a Stable and Balanced Development Michael von Hauff

List of Abbreviations WSSD SDG MGNREGA ISEW HDI OECD RTI NFHS UNDES

World Summit of Sustainable Development Sustainable Development Goal Mahatma Gandhi National Rural Employment Guarantee Act Index of Sustainable Economic Welfare Human Development Index Organisation for Economic Co-operation and Development Right To Information National Family Health Survey United Nations Department of Economic and Social Affairs

1 Introduction A commitment was made by the international community of nations in 1997 to develop national sustainability strategies by the year 2002. The World Summit of Sustainable Development (WSSD) convened in Johannesburg in 2002 and pressed once again those nations that had not developed a national sustainability strategy to do so and honor their commitment (von Hauff et al. 2013). A sustainability strategy, according to Agenda 21, develops and implements sustainable development as a collaborative, participative, and comprehensive process: “A strategy should build upon and harmonize the various sectoral economic, social and environmental policies and plans that are operating in the country.” (United Nations Conference on Environment and Development (UNCED) 1992, Chap. 8.7). M. von Hauff (B) Birkenwaldstr. 199, 70191 Stuttgart, Germany e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_7

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In contrast to Germany and other countries, India does not have a separate document and there is no separate process in the context of a national sustainability strategy. India rather attempted to incorporate a conceptual framework for sustainable development directly into an existing national development planning document and to merge the existing strategies, for example, an integrated water resource management plan into the existing water policy and statutes (von Hauff and Mistri 2016). In 2005, the National Rural Employment Guarantee Act was passed in India. The Act, also known as the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is aimed at developing a public works program. It guarantees 100 days of paid labor to every household in the rural areas per budget year. The law is intended to ensure food is available to the people in rural regions. The law grants, for the first time, employment and compensation rights to the rural population of India. The economic development of India, over the past several years deserves attention and, in some cases, even admiration. An analysis of new trends is important in order to understand and evaluate India’s current situation and future perspectives. Past analyses have primarily concentrated on the dynamic economic growth, which has increased greatly since the early 1990s—both in the national as well as the international spheres. The major focus has been on GDP and foreign trade. The overall positive economic development of India, however, is greatly hindered by several problems: poverty, pollution, an inadequate energy supply, regional water stress, inequality, growing income disparity, widespread corruption, and an inadequate infrastructure. It has not been possible to reduce or solve these problems satisfactorily to date (Dréze and Sen 2013). Looking at the Sustainable Development Goals as the basis for a future-oriented sustainability strategy, India is still relatively far away from the majority of these goals. These problems may be referred to as imbalances in the context of sustainable development. Section two discusses the challenges that this paradigm presents for sustainable development. The three dimensions are contextually defined and, subsequently, the dimensions are brought together. The reason for this is that a national sustainability strategy can only be derived through a clarification of the context of the three dimensions or, the paradigm of sustainable development. Section three classifies selected development patterns in India according to the three sustainability dimensions. This classification illustrates the extent to which Indian development corresponds to the demands of sustainable development. A brief introduction to the development of the German national sustainability strategy and the essential requirements of a national sustainability strategy is presented in section four. Section five introduces a new method for developing a national sustainability strategy: the integrated sustainability triangle. The final chapter concludes with a presentation of several problems facing the development of a sustainability strategy for India.

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2 The Requirements of Sustainable Development The challenge begins with the principle that all three dimensions of sustainable development are co-equal in rank (von Hauff 2014, p. 32). In the process, it must be taken into account that the aims of sustainable development portray an ideal state. Generally, in reality there are priorities in implementation to consider regarding the three dimensions. The principle that applies here is that an ecological system makes it necessary to restrain economic and social actions within the limits of nature. This is made quite evident from the example of climate change. The following discussion focuses on the contextual definition of the three dimensions: the environment, the economy, and the society. Ecological sustainability: The continued survival of the human species is not ensured without the existence of certain natural states or ecological systems. Consequently, economic as well as social systems cannot be sustained on their own. Our continued existence depends on the balanced interaction of economies and the society together with the ecological systems. There is a broad international consensus that some ecological systems across the world including the water resources in India have already partially reached a level of over-consumption that places humanity at risk. If we have a look to the SDGs this contradicts the SDGs 8 and 12 (SDG 8: “Promote sustained, inclusive and sustainable economic growth”, SDG 12: “Ensure sustainable consumption and production patterns”). Escalating environmental destruction, for example in respect of the availability of water of adequate quality (see SDG 6: “Ensure availability and sustainable management of water”), also in turn has negative effects on India’s economic prospects (von Hauff and Mistri 2016). Therefore, ecological sustainability aims at the conservation of the ecological systems and the environmental resources. The reason for this is that ecological systems are the life support systems for all human activity. They are both a collection medium (cesspool) for anthropogenous emissions and the source of all raw materials used directly or indirectly by humans. Economic sustainability: The aim of economic sustainability is to strengthen economic power so as to maintain a satisfactory or desirable quality of life over time. Economic power can be strengthened by encouraging innovation, capital investment, labor productivity, and spending on research and development. However, in the context of economic sustainability, this requires a rethinking of the current production methods and consumption patterns, which are now classified as non-sustainable. A desirable living standard demands the preservation of the tangible as well as the intangible basics of life. In the context of economic sustainability, there are divided opinions on the quantitative development of growth, but it must be noted that the measure of that growth is also being called into question (von Hauff 2015, p. 113 ff). A series of sustainability indicators have been developed that fundamentally differ from GDP. These do not measure the national composite income or the per capita income, i.e., they are not a measure of affluence. These sustainability indicators aim at the social well-being and discussion revolves around welfare indicators or the welfare approaches such as

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the Index of Sustainable Economic Welfare (ISEW), the Human Development Index (HDI), or the Pressure State Response Approach of OECD. In particular, the Stiglitz study has recently received much attention in this regard (Stiglitz et al. 2009). Between 1991 and 1999 India’s GDP grew by an average of 5.63%. In the period from 2000 up until 2015 growth even reached an average of 7.2%. But the positive economic development in India also shows negative trends. For instance, despite a strong economic momentum with positive growth rates, there has been no noteworthy absorption of workers from the agricultural sector by the secondary and tertiary sectors (see SDG 8: “full and productive employment and decent work for all”). This essentially is the reason for the high proportion of workers in the informal sector, accounting for around 80% of the total workforce. This sector suffers from numerous problems such as a underemployment, lack of social security and frequently irregular income (Chandran et al. 2012, p. 11). Social sustainability: Although social sustainability is the subject of increasing attention, it has not been discussed or analyzed for content to the same extent as the other two dimensions. Nevertheless, the idea of social sustainability, which focuses on the social cohesion of humanitarian ideals, liberty, and justice, is no less important than the other two dimensions in guaranteeing the future sustainability of a society or an economy (see SDG 16: “Promote peaceful and inclusive societies for sustainable development”). In India there are in some cases considerable differences and thus also conflicts between individual social groups. For this reason, the term “cohesion function” is used together with social sustainability. One possible theoretical access to social sustainability is found in the New Institutional Economics (von Hauff and Schiffer 2010, p. 1). According to this theory, it is all about the formal and informal standards and rules, which can either promote or impair the long-term cohesion of a society. An important concept in the new institutional economics is the transaction costs approach. Correspondingly, all assets have both physical as well as ownership features, although transaction costs accrue with any changes in the latter (North and Wallis 1994, pp. 611 ff). In practice, the transaction costs can vary (Scott 2006, p. 207). In the context of social sustainability, this means that a norm that promotes social cohesion is accepted by the society when the marginal utility (e.g., safety) exceeds the marginal costs (e.g., the restrictions on individual rights) (von Hauff and Schiffer 2010, p. 15). The relationships among the three dimensions: A contextual differentiation of each of the three dimensions can only describe the interrelationships among them to a limited extent. Therefore, it is essential to analyze and illustrate the complementarity of the three dimensions (von Hauff 2014, p. 43). In the recent debate there is more discussion of the role of social capital, for example, in the preservation, accumulation, and productivity of two other kinds of capital, i.e., capital in kind (real capital) and natural capital. This is evident in areas like stability of the law, achievement of equal rights, and participation (e.g., civic involvement), which are categorized under social sustainability. However, environmental sustainability can also make a valuable contribution to economic sustainability. This can be illustrated by the example that clean air and clean water improve human health and increase the productivity of

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human capital. It may be said that the synergies springing from the complementarity of two or more kinds of capital can improve the overall quality of life.

3 Selected Challenges for India in the Context of Sustainable Development The major focus in India for sustainable development is provided by the Sustainable Development Goals, which are summarized as follows: combating poverty, education, gender equality, healthcare, environmental protection, and conservation of resources as well as global partnerships. In India, there have been a series of projects and programs in the social area, clean-tech (clean energy, clean water, and sustainable agriculture), and human capital, all of which are designed to contribute to sustainable growth (von Hauff et al. 2013, p. 138 ff). Progress has been noted in the area of renewable energy (especially wind energy), increases in agricultural growth to reduce rural poverty, funding for education, and expanded infrastructure to promote economic growth. The Ministry of Environment and Forests (MOEF) is responsible for the coordination of the diverse activities in support of sustainable development. In this respect, however, it must be taken into account that the projects and programs which promote sustainable development often start at a relatively low level and, in some cases, are accompanied by a high degree of inefficiency. In India today, the environmental, economic, and social dimensions diverge significantly from what is demanded for sustainable development. For this reason, examples are used to illustrate what role sustainable development can play in the stable growth of the Indian economy. As stated earlier, the macroeconomic development in India has been thoroughly positive. However, looking at the ecological sustainability, the economic sustainability, and the social sustainability there are substantial differences to what is required for the long term. The environmental dimension: The overall positive macro-economic development of the last nearly twenty years has significantly contributed to the intensification of environmental stress. An environmental crisis in India, at least in certain regions, can be observed from a study of individual environmental resources, for example, water and air conditions have not yet reached their peak. A sufficient supply of clean water is of critical importance for agricultural production and also for the food supply. The water cycle is also a strong determinant of people’s health. Consequently, water plays a critical role not only for future economic development, but also for the social development of the country (von Hauff and Mistri 2016, p. 27). In addition to energy production and the increasing commercial and private traffic congestion, the industrial manufacturing sector (which generates a significant share of economic growth), is also responsible for a major share of the environmental pollution. The World Bank estimates that the annual costs incurred by India are USD 9.7 billion, which equates to 4.5% of the GDP (at 1992 prices). USD 7 billion alone can be traced back to air and water pollution (USAID 2001, p. 2). Indian industries

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produce about 36,897 million m3 of wastewater annually, of which approximately 70.5 million m3 is discharged daily directly and untreated into the rivers and lakes. The economic dimension: An important criterion of economic sustainability is the economic strength of a country (von Hauff et al. 2013, p. 140). This refers not only to the traditional indicators like GDP, but also to the quality of economic strength. First, it is important to highlight the dynamic development of the Indian economy during the past decades. This economic growth is not only to be attributed to the tertiary sector (service sector) alone, but rather also to the dynamic development of the industrial sector. The industrial sector consists of several especially strong growth sectors, which in turn have a positive impact on other sectors. But this only exacerbates the environmental problems mentioned earlier and clearly shown in the context of ecologic and economic sustainability. From an economic perspective, it must be noted that the economic growth is primarily generated by the domestic economy, although India’s foreign trade has also shown positive development. This economic development has also substantially increased the average per capita income. Despite this dynamic development, the economic strength harbors some imbalances. The fact that the secondary and tertiary sectors show greater than average rate of growth does not negate the fact that the macro-economic development still depends today to a significant degree on the primary sector. The primary sector meanwhile reflects a relatively low productivity and is, among other things, negatively impacted by climate change. Another problem is the infrastructure, which has shown a substantially lower pace of development than the overall economy. This can be said for both the energy sector as well as for the transportation infrastructure. It is interesting to note that the tremendous dynamic in the economy is creating relatively few additional jobs in many segments of the secondary and tertiary sectors. This also explains, in part, the high percentage of workforce, approximately 80–90%, in the informal sector. This also means that the majority of the working population is living without any social security. The economic growth patterns in India identified so far have also contributed to a growing imbalance in income distribution. This leads on one hand to a relatively slow increase in buying power for the domestic demand especially among the lower income groups. The social dimension: India exhibits a series of social challenges that are problematic for social development and social cohesion. One of the best examples of these is the inequality and shortcomings in the education sector (von Hauff 2010, p. 259 ff). Despite very positive economic growth in the past two decades, the regional inequality between the Indian states as well as the social disparity among the population has significantly increased. (Wagner 2009, p. 96). A particular challenge in India is the unequal distribution of income. According to an OECD study, gender and racial discrimination represent the major determinants of income inequality in the developing countries. (OECD 2011, p. 58). The Indian Constitution expressly names some promotional measures for disadvantaged castes, scheduled castes (SC), and scheduled tribes (ST). For example, at least 15% of the student acceptance at state universities and jobs in the public sector must be provided to members of the Scheduled Tribes. This positive discrimination was expanded by the 73d Amendment to more disadvantaged castes whereby, an

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additional 27.5% of the student acceptance and jobs are to be awarded to members of these castes (Azam 2009, p. 1 ff). Nevertheless, this was only partially effective in reducing the pronounced social differentiation and discrimination in India, which sometimes leads to social conflicts. In summary, the situation in India today remains a long way off from sustainable development. This is a situation that has a long term negative effect on the nation’s environmental, economic, and social development. If, and to what degree, this will lead to social tensions cannot be determined at the present time. Of course, it is possible for India to develop a process for a national sustainability strategy. A methodical process for achieving precisely that is introduced in section five. But before presenting that, it is necessary in the next section to present the German experience and several features of the national sustainable strategy of Germany. This is intended to explain some of the framework conditions for a national sustainability strategy.

4 The Implementation and Development of Germany’s National Sustainability Strategy The German government presented its first national sustainability strategy, with the title “Perspectives for Germany,” at the World Summit on Sustainable Development in Johannesburg (von Hauff 2014, p. 225). This reflected the current generation’s commitment to solving the self-inflicted problems immediately and emphasized the critical importance of change in the production and consumption structures. The sustainability strategy set down principles that addressed environmental, economic, and social dimensions. This established fundamentals that remain firmly embedded in the current version (a continuation of the first edition) of the sustainability strategy. The separate updates are notable for the fact that experts are able to bring them into the consultation process. The originally chosen structure of the fields of action and indicators, however, is unchanged until the present. In 2006, the parliamentary Advisory Council for Sustainable Development was established by the federal government and now conducts hearings on various sustainability issues. In the next step, the Federal Statistical Office took on the monitoring tasks as an independent institution and has published two indicator reports. Beyond these steps, the federal government has based its sustainability declaration on the three dimensions of sustainability and, in this context, recognized special ecologic requirements: Environmental protection, economic efficiency, and social responsibility must be equally weighted so long term decisions are made in consideration of all three aspects – from a global perspective. Preserving the viability of the planet Earth is the absolute outer boundary: In this framework sense, the aim is to optimize the realization of various political goals. (Federal German Government 2008, p. 21)

A sustainability-based impact assessment introduced in February 2007 has become a key tool for the integration of sustainability in the political process. This

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document clearly shows that coordination among the individual departments of government on the overall sustainability concept is essential. Increasingly, it is now recognized that many goals can only be achieved through cooperation with the federal states and municipalities. For example, the goal of reducing land use to 30 hectares per day can only be met if the states set the appropriate planning guidance and the municipalities align their land use designations. Furthermore, in recent years it has been critically pointed out that the integration of sustainability throughout the entire political spectrum needs further enforcement (Council of Environmental Advisors 2008, item 54). In 2009, the federal government invited a group of international experts to audit the progress of the sustainability policies in Germany. The expert group was also tasked to formulate recommendations to promote the transition to a sustainable economy and society. The group published its findings in a report titled “Sustainability Made in Germany.” In 2015, the expert group was reconvened in order to prepare a second progress report. In addition to specific recommendations for the individual fields of action, there were also some new general proposals. Consequently, the updates of the strategy are to be viewed not merely as a clean rinse of routine procedures. In the Progress Report of 2016, the Federal Government set up the national sustainability strategy for the first time on the 17 Sustainable Development Goals. This led to a reorientation. The information of how Germany has implemented a national sustainability strategy now serves as background to continue this paper with an approach for developing and implementing a sustainability strategy in India.

5 The Integrated Sustainability Triangle—A Method for Developing and Implementing a Sustainability Strategy The ecological, economic, and social dimensions are to be reconciled as co-equals, in order to satisfy the needs of current and future generations (von Hauff et al. 2013, p. 141). In the process, while people continue to interact within their social and economic systems, the long-term preservation of the natural basis of life must be ensured through sustainable consumption. Each of the three dimensions is a co-equal component for sustainable growth. Correspondingly, only when all three dimensions are taken together is a viable concept formed. On the one hand, this means that each issue is to be weighed according to its ecological, economic, and social aspects. On the other hand, as mentioned above prioritization is by all means possible: Some topics of relevance to sustainability tend to be ecological in nature while others are more social and economic. The unique features of sustainability issues can be represented in the integrated sustainability triangle. The integrated sustainability triangle enables the systematic analysis of the interdependencies of economic, ecological, and social fields of action. This system pre-

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mainly social socioecologic

socioeconomic socioecologiceconomic

ecologiceconomic

economic

ak we gic lo eco

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weak social

mainly ecologic

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Fig. 1 Areas of action for sustainable development. Source Own chart

vents the consideration of the fields of action in isolation from one another or, the undifferentiated merging of fields. Sustainable growth requires such a joint process with the participation of government, business, and society. As key actors, the responsible ministries, associations, corporations, and social organizations each have an important role to play. Each must be integrated from the start in developing a sustainability strategy and share responsibility for its implementation. In the new method, interrelationships among three dimensions are identified and respectively labeled in the interior of the triangle. The three dimensions are brought together to take account of the growing demands of integration. The integrated sustainability triangle is differentiated into several areas to which the various subject areas of sustainable development can be assigned (see Fig. 1). The challenge is in finding a structure that allows further operationalization. The defined areas can be further subdivided into fields of action. In determining the fields of action, it is recommended that a manageable number be defined to ensure achievability or implementation of the sustainability strategy. Each field of action should clearly relate to the Agenda 21 Program. In addition, it is essential to fix responsibility for each field of action by assigning the implementation to one individual or organization. The next step is to coordinate and define goals for each field of action among the responsible actors. Then in the final step, define the

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Society

E E.a Civic Commitment E.b Development Cooperation E.c Secure Social Coexistence E.d Justice and Equity

F

D

F.a Mobility F.b Urban Development and Housing F.c Sanitary Equipment F.d Consumption and Production

D.a Employment & Income D.b Governmental Ability to Act D.c Education and Qualification D.d Population Control

G G.a Health and Nutrition G.b Public Infrastructure G.c State, Administration, Community

A

C B

A.a Biodiversity A.b Environment A.c Climate Protection & Renewable Energies

.

Ecology

B.a Resource Productivity B.b Ecological Management B.c Land Use B.d Consumption and Production

C.a Net Product C.b Provision for Future Economic Development C.c Innovation C.d Financial System

Economy

Fig. 2 The fields of action in the integrated sustainability triangle. Source Own chart based on research from Chandran et al. (2012), p. 18 f; Butola (2013), p. 53 ff

indicators that reflect the degree of achievement. Table 1 shows the potential fields of action with the respective indicators that are relevant to India. The table below depicts the fields of action and indicators in the integrated sustainability triangle (Figs. 2 and 3). The many areas of interaction between the fields of action are clearly shown in this graphic of fields of action and indicators. This also helps to explain why a sustainability strategy can only be implemented as an integrated process. Many approaches in the past, unfortunately, have focused only on one dimension of sustainability. Learning from experience, Agenda 21 as well as the Sustainable Development Goals take all three dimensions of sustainability into consideration (Butola 2013, p. 60 f). However, some confusion still exists at times among the relationships between the various fields of action.

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Table 1 Fields of action and respective indicators for a national sustainability strategy for India Field of action

Indicators

A. Natural basis of life A.a Biodiversity

Conservation areas

A.b Environment

Groundwater quality Air quality Nitrogen emissions Forest areas

A.c Climate protection and renewable energies

Greenhouse gas emissions Share of renewable energy compared to the overall energy consumption

B. Resource utilization B.a Resource productivity

Energy productivity Share of the value of minerals compared to the GDP

B.b Ecological management

Consumption of exhaustible natural resources Loss in power transmission

B.c Land use

Efficiency of agricultural land use Irrigated farmland

B.d Consumption and production

Consumption of food Corporate environmental management

C. Economic power C.a Net product

Labor productivity GDP per capita Global competitiveness index

C.b Provision for future economic development

Gross fixed capital formation

C.c Innovation

Expenditures for research and development

C.d Financial system

Access to financial resources

D. Performance capability of the society D.a Employment and income

Employment rate Pay gap between men and women Share of the informal employment market

D.b Governmental ability to act

Net of social safety Integrity with the global economy Debt of the overall public budget

D.c Education and qualification

School drop-out rates Net school-enrollment-rates Gross university-matriculation-rates Literacy level Public expenditures for education

D.d Population control

Fertility rate

E. Social responsibility E.a Civic commitment

Amount of “RTI” requests Phone and internet usage (continued)

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Table 1 (continued) Field of action

Indicators

E.b Development cooperation

Development aid Literacy rate in rural and urban regions Differences in life expectancy amongst various social groups

E.c Secure social coexistence

Conviction rate

E.d Justice and equity

Proportion of women elected to the Parliament Sex ratio at birth Poverty rate Consumption share of the poorest quantile Income disparities

F. Living environment F.a Mobility

Fuel consumption of road transport

F.b Urban development and housing

Access to electricity Access to drinking water

F.c Sanitary equipment

Access to sanitary equipment

G. Population G.a Health and nutrition

Maternal mortality Prevalence of underweight children

G.b Public infrastructure

Proportion of paved roads Proportion of slum-population

G.c State, administration, community

Corruption indices

Source Own chart based on research from Chandran et al. (2012), p. 18 f, Butola (2013), p. 53 ff

5.1 Natural Basis of Life Land, air, and water represent basic natural resources, elementary and essential for human existence. People need the ecological systems to satisfy needs that go beyond pure survival. As mentioned above, nature provides resources and also serves as a collection pool for by-products and wastes left from consumption and production (Brickwedde 2010, p. 47). For this reason, a sustainable development policy for the preservation of our natural resources is required. The high quality of life must also be preserved for future generations (Spiellemaeckers et al. 2011, p. 79). This goal clearly encompasses the fields of action “Biodiversity,” “Environmental and climate protection,” and “Renewable energies.” A more detailed look at biodiversity is provided below.

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Society E − − − − − − −

F

− − −

Amount of RTI“ Requests ” Phone and Internet Usage Development Aid Rural / Urban Literacy Rate Diff. in Life Expectancy amongst verious Social Groups Conviction Rate Propo. of Women elected to the Parliament Sex Ratio at Birtg Poverty Rate Income Disparities

D − − − − − − − − − − − −

− Fuel Consumption of Road G Transport − Access to Electricity − Maternal Mortality − Access to Drinking Water − Prevalence of − Access to Sanitary Equipment Underweight Children − Proportion of Paved Roads − Proportion of Slum Population − Corruption Indices

Employment Rate Pay Gap between Men and Women Share of the Informal Employment Market Net of Social Safety Integrity with the Global Economy Debt of the Overall Public Budget School Drop-Out-Rates Net School-Entrollment-Rates Gross University-Matriculation-Rates Literacy Level Public Expenditures for Education Fertility Rate

B A − − − − −

Conservation Areas Groundwater Quality Air Quality Nitrogen Emissions Forest Areas

.

Ecology

− Energy Productivity − Share of the Value of Minerals compared to the GDP − Consumption of Exhaustible Natural Ressources − Loss in Power Transmission − Efficiency of Agricultural Land Use − Irrigated Farmland

C − − − − − −

Labour Productivity GDP per Capita Global Competitiveness Index Gross Fixed Capital Formation Expenditures for R&D Access to Financial Ressources

Economy

Fig. 3 Indicators of the integrated sustainability triangle. Source Own chart based on research from Chandran et al. (2012), p. 18 f, Butola (2013), p. 53 ff

5.1.1

Biodiversity

Biodiversity describes the diversity of life in all of its incredible natural forms, where the number, the variety, and the evolutionary resilience are of great significance. We differentiate between genetic diversity, the diversity of the species, and the diversity of the ecosystems. The establishment of protected areas contributes to the preservation of biodiversity (Wolfrum 2001, p. 417). The wilderness conservation areas in India currently claim an area of at least 1000 hectares. This figure includes national parks, natural monuments, reserves, land conservation areas and other areas with restricted public access (The World Bank 2014b). In 2012, the proportion of protected areas in India to the total land area was 5.2 and 14.3% worldwide. In 2009, the ratio of water conservation areas to the total under state jurisdiction was 1.7% in India versus 10% worldwide. In 2010, India managed to increase this indicator to 5.5% (The World Bank 2014a). Both indicators reflect a gap between India and average worldwide figures, although the percentages have narrowed in recent years.

M. von Hauff Share of expenditure on research and development of GDP in %

112 2.5

2

1.5 World

1

India

0.5

0

2000

2001

2002

2003

2004

2005

2006

2007

Year

Fig. 4 India’s expenditures for R&D in comparison to Germany and the global average, 2000–2007. Source Own chart based on research from The World Bank (2014a): http://databank.worldbank.org/ data, retrieved: 14.08.2014

5.2 Economic Power Economic sustainability starts with the economic strength of a country. This refers not merely to traditional indicators like GDP, but more to the quality of the economic power. This includes, for example, environmentally friendly investments and innovations. A sustainable restructuring or transformation of the economy and the society depends very much on economic power (Leitch 2006, p. 8 ff). This sustainability area covers the fields of action: value creation, economic provisions for the future, and innovation. Innovation plays a key role in the economic development of a country. In turn, the supply of human capital is an essential factor for the development of innovations (Brosch and von Hauff 2009, p. 157). The key indicator is the expenditure on research and development. However, in the context of sustainable development, it is even more important to look at the share of the R&D budget that is distributed to innovations that can solve or reduce current social, economic, and ecological challenges, i.e., sustainability problems (Chandran et al. 2012, p. 26). To date, there are no relevant figures for comparison, which is why the internationally accepted indicator “Expenditures on R&D” is used as the basis. The share of R&D expenditure of total Indian GDP is compared in the chart below to the global average. The figures clearly show that India’s R&D spending is well below the worldwide average (Fig. 4).

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5.3 Social Cohesion The “efficiency of the society” is an area of sustainability that addresses the socioeconomic dimensions of sustainable development and, because it is highly relevant to India, it deserves a closer look. This area evaluates the improvements in equal opportunity and the elimination of discrimination. The assessment for this area provides information about the future development of a country and the well-being or the living standard of its citizens (Rauschmayer et al. 2011, p. 19 f). Let’s take a more detailed look at the field of action called “poverty reduction.” Poverty reduction and sustainable development demand sound policy, especially, as concerns the increase in expenditure on education and the qualification of human capital (The World Bank 2000, p. xiii). There is broad consensus that education and training is a prerequisite for the development of human capital and positive economic growth (Brosch and von Hauff 2009, p. 157 f). A World Bank study clearly confirmed the positive effect of education on the economic efficiency of a country (World Bank 2012, p. 1 ff). The limited access to education by a large percentage of the youth represents a core problem in many developing countries. In addition to the direct costs, it is the indirect costs of education that give cause to parents who expect their children to contribute to the financial security of the family from an early age. This leads them to choose to not attend school at all or to infrequent attendance. Besides the school fees, relevant costs include, inter alia, classroom materials, school uniforms, transportation to school, and the opportunity cost of lost income for the family (Flammer 2009, p. 1 f). The following indicators are selected for discussion below: dropout rate, literacy rate, and public expenditure on education. The poor quality of education in India is admittedly a factor in the high dropout rate. However, the opportunity costs also play a role, in particular, among the poor and increase as they get older (Brosch and von Hauff 2009, p. 166). The student dropout rate for the academic year 2004–2005 is shown in the following chart according to grade levels and by gender (Fig. 5). Although the dropout rates are relatively high, some positive developments can be identified in India. In the first five years of the primary school education, dropout rates have declined by half since 1980/81—from 58.7 to 29%. It was found that since 2002/03, the dropout rate is lower for girls than for boys. This positive development can, perhaps, be traced back to the introduction of the free school lunch program in 1995 (mid-day meal scheme) (Ministry of Human Resource Development 2007, p. XX ff). However, there is a still a great difference between the first five years and the higher grade levels. Figure 6 presents the literacy rates for adults (age 15 and above) for selected years according to gender. It can be seen that women are still disadvantaged. Yet again, a positive trend is noted in that the literacy rate for the female population is rising faster than for males. The literacy rate among males in the year 1961 was three times higher than for females. In 2001, we see that it was only 50% higher. Yet, again we can

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Early school leaving in %

70 60 50 40

Boys Girls

30

Both

20 10 0

School years I-V

School years I-VIII

School years I-X

Fig. 5 India’s school dropout rates, 2004–2005. Source Own chart based on research from the Ministry of Human Resource Development (2007), p. XXI 80

Literacy rate in %

70 60 50 Male 40

Female

30

Total

20 10 0

1961

1971

1981

1991

1996

1998

1999

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Fig. 6 Literacy rate of India’s adult population, 1961–2001. Source Own chart based on research from Ministry of Human Resource Development (2007), p. XXXIX

determine that in the context of sustainable development, there is still considerable room for improvement. The public expenditures on education are analyzed in more detail in Fig. 7, which shows the development of the Indian education budget for the period from 1990 to 2011. It can readily be seen that the expenditures on education have not kept pace with the strong GDP growth. According to the Indian government’s policy guidance on state education from 1986, 6% of GDP is to be provided for public spending on education. In 2004, for example, spending amounted to only 3.8%. In comparison to other industrializing nations, India invests significantly less per child in primary and secondary education (Brosch and von Hauff 2009, p. 158 ff). The efficiency and the functioning of judicial institutions play a crucial role in maintaining social sustainability (von Hauff et al. 2013, p. 150). An efficiently functioning judicial system in the country will ensure safe community life and will pro-

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0 1990

Education spending in billion US dollars (PPP$)

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Year Fig. 7 Development of the Indian education budget, 1990–2011. Source Own chart based on research from World Bank (2014a): http://databank.worldbank.org/data, retrieved: 14.08.2014

mote important human values necessary for social sustainability. The number of cases solved in relation to the total number of cases reported can very well reveal the pace at which people get justice in a country. In response to one Right To Information (RTI) query submitted in 2007, it was revealed recently that there are about 30 million cases pending in all the courts of the country. The share of the cases pending in the 21 high courts is roughly 3 million, while it is as high as 26.3 million in the subordinate courts. Out of the total crimes reported in 2009, the rate of conviction is lowest in case of crimes against women followed by the crimes against scheduled castes and tribes (Government of India 2009a). This shows a very slow functioning judicial system and one that is incapable of giving speedy justice to the victim especially the vulnerable segments. Despite the fact that the Indian Constitution not only grants equality to women, including universal adult franchise since the time of its independence and that it also empowers the state to adopt measures of positive discrimination to favor women, the percentage share of women parliamentarians declined from 9.7% in 1991 to 9.1% in 2007 (Government of India 2009b). The share is 10.3% in 2009 following the 15th General Elections held in April–May 2009. Taking into account the elected members of the state legislative assemblies together with the members of the national parliament, the representation share of women members has increased from 3.28% in 1990 to 6.04% in 2002. India’s persistent gender gap is undoubtedly anti-development and an obstacle to inclusive growth. The sex ratio at birth is a good indicator to capture the incidence of gender gap inherent in a society, as it is a reflection of the biases favoring a malechild. Also, it can be projected to give an idea of future trends in the adult sex ratio of the country. Recently, it has been a matter of much concern because of a decline according to the latest census of India. The child sex ratio in India has dropped to 914 females for 1000 males—the lowest since independence—based on the provisional

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8.0

9.5 7.3

Poorest quintile % share

9.6

Rural Urban 1993 94

2004 2005

Time period Fig. 8 Share of national consumption by poorest quintile in India (in pct.). Source NSSO (1997, 2007)

2011 census report (Census of India 2011). Also according to the projections given by the Population Division of United Nations Department of Economic and Social Affairs, child sex ratio in India is much lower than that of the global level (UNDES 2011). Although there has been significant improvement in the aggregate level of economic indicators like gross domestic product, purchasing power parity, etc., there is still a massive gap between the poorest and the richest segments—of the population as mentioned before. India’s recent economic development cannot be called sustainable until there is a reasonably proportionate distribution of wealth among all segments of the population. This will also help in fulfilling the objective of the sustainable development goal to eradicate poverty. It is very important to monitor this indicator in order to evaluate the government’s success in achieving its agenda of inclusive growth. The share of the poorest quintile in total consumption (consumption by the poorest fifth of the population) is a very good measure of that indicator. As seen from Fig. 8, this share declined from 9.6% in 1993–94 to 9.5% in 2004–05 as measured in the rural areas. This decline was sharper in the urban areas where the ratio declined from 8 to 7.3%. This decrease in the share of consumption by the poorest quintile could be one of the reasons for the growing inequalities, particularly in the urban areas.

5.4 Population Three central problems covered in the move towards sustainability are health and nutrition, public infrastructure, and governance (von Hauff et al. 2013, p. 149). The level of health and nutrition of the population has an overall impact on the sustainable development of a country. The Millennium Development Goals have set a target for India to reduce maternal mortality ratio (MMR) to three quarters of its present level between 1990 and 2015. Incidence of deaths to women in the reproductive age group 15–49 due to pregnancy related causes as measured by MMR, has experienced a

Time period

India’s Need for a Sustainability Strategy—Creating a Stable …

47.8

2005-06 1998-99 1992-93

117

47.0 53.4 Percentage underweight in total children aged under 5 years

Fig. 9 Trend in the percentage of moderately/severely underweight children (under 5 years of age) in India. Source National Family Health Survey (IIPS 2007)

quick downturn during the period 2003–2006, from 301 per 100,000 live births in 2001–2003 to 254 per 100,000 live births in 2004–2006, based on sample registration system data. Statistics provided by UN Population Division, show the indicator of maternal mortality in India has improved in recent years. Statistics, being merely estimates, do not always depict the broader situation (UNDES 2011). The all-India trend of the proportion of underweight (severe and moderate) children below 3 years of age shows India is making only slow progress in eliminating the effects of malnourishment. India has a major share of underweight children in the world. According to recent National Family Health Survey (NFHS) data, it has even increased marginally, inviting a great deal of concern (Fig. 9). The condition of the physical infrastructure is the primary basis for the classification of slum and non-slum areas. It is a good indicator for the level of public infrastructure availability in a country. With a population of well over 1 billion people, India is the second most populous nation in the world and home to 63% of all slum dwellers in South Asia. This amounts to 170 million people, 17% of the world’s slum dwellers. The expansion of India’s slums is partly due to the rise in India’s total population, which increased from 683 million in 1981 to 1.03 billion in 2001. This has been exacerbated by the exodus of rural peasants from the countryside seeking manual labor in India’s cities. As India continues to develop its infrastructure and compete economically with the West, it is important to achieve significant improvements in the lives of slum dwellers quickly, especially in terms of secure tenure and other community facilities. Road density is the ratio of the length of the country’s total road network to the country’s land area. The road network includes all roads in the country: motorways, highways, main or national roads, secondary or regional roads, and other urban and rural roads. This indicator is very helpful in understanding a country’s infrastructural development. As the data suggest, India has experienced a noticeable increase in the road density over the past twenty years. This is a positive indicator of economic development as it shows the level of connectivity of the local economy with the national and global economies (Fig. 10). Transparency is one of the most important aspects for the efficient functioning of any system and, especially, in a democracy. India at present is plagued by massive

M. von Hauff

% slum in urban

118 54.9

1990

48.2

1995

41.5

2000

34.8

2005

32.1

2007

Year Fig. 10 Trend in the percentage of urban population living in slums in India. Source United Nations (2011)

corruption scandals unprecedented in the history of the country. Common citizens in India pay bribes totaling $4bn a year and about 62% of citizens polled in “India Corruption Study,” had the experience of paying a bribe or “using a contact” to get a job done in a public office (Center for Media Studies 2008). The report also says that paying bribes has become a way of life in India. The study done by Transparency International in 2009 proved that in private sector corruption, India ranks 85 out of the total 185 countries. India is one of the few countries besides Indonesia, Morocco, and Egypt where more than 60% of the business executives included in the survey reported to have experienced pressure to pay a bribe from various key institutions (Transparency International 2009). The high incidence of corruption has a direct negative impact on the development of the country, most clearly in the economic growth. The implementation of an effective anti-corruption bill is perhaps India’s most urgent need in achieving sustainable development.

6 Consideration of Restraints In conclusion, it is necessary to ask if there are any typical “Indian restraints” in developing and implementing a national sustainability strategy. In this respect, Mahatma Gandhi made a very poignant observation: “The earth provides enough to satisfy everyone’s need but does not provide enough to satisfy everyone’s greed.” This, of course, is not a phenomenon exclusive to India, but it is applicable to India. Although globalization—in the sense of the increasing international exchange of products, services, concepts—contributes to a convergence of solutions and problems as well, there is a country-specific explanation for the restraints encountered in the development and implementation of a sustainability strategy in India. For example, when Zingel looked at the environmental problems in India, he came to the conclusion that there is a close relationship between ecological and social problems (Zingel 2009, p. 152).

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The environmental problems in India reveal that in addition to the economic and social components, there are significant domestic and foreign considerations, security issues, and religious aspects. It is striking to note that the government of India has established and continues to develop many differentiated legislative efforts. Examples include equal opportunity laws for the various groups within the society, the development of large scale programs designed to solve the problems of specific segments of the population, and also the structural organization of various areas of government, for example, for financial policy, economic policy, educational policy, and even foreign trade policy. However, when attention is focused on the implementation and control of the various policy goals, the Indian government may also be viewed as relatively weak. It is particularly evident that at the lower levels of government and administrative positions, substantially better solutions are found for the economically well-to-do and the better organized groups. This explains why the development and, especially, the implementation of a national sustainability strategy in India are faced with several fundamental obstacles. It can be observed that the social and political heterogeneity in India exert strong pressure on the political actors to seek compromise with their social competitors Otherwise, they run the risk of political insignificance or even their own downfall (Jürgenmeyer 2009, p. 85). Still, it is fair to expect that at least some percentage of India’s new middle class along with an increasingly powerful civic society will raise the level of awareness for sustainable development and the respective demands on the politicians will be met with a growing attentiveness in the future. The Sustainable Development Goals can be for India as already for Germany an important orientation towards the development of a national sustainability strategy.

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Globalization and Environment: Antagonistic or Agnostic Niraj Kumar

1 Introduction The term ‘environment’ means different things to different people for the obvious 1 reason that, in aggregate, the term encompasses everything that is present. For instance, when business leaders refer to the term, they usually mean business or economic environment; when politicians use it, their reference generally is towards the political and legal environment; those involved in criminal activities directly or indirectly use the term to suggest the plight of law enforcement. Similarly, used in the context of polluters, the term refers to the regulatory environmental mechanism. Such variegated meanings purported to a term point at the fundamental incoherence of the term, and, at the same time, makes its formulation as a unitary concept a diffi2 cult task. Nevertheless, over the course of time, a somewhat vague convention has emanated that hints at a subset of meanings to the term ‘environment or environmental issues’ by stressing upon the link between ‘human activity and (a) the condition or health of the bio or ecosystem which supports that activity, (b) specific qualities of that ecosystem such as air, water, soil and landscapes and (c) the quantities and qualities of the natural resource base for human activity, including both reproducible 3 and exhaustible assets’. It is this latter meaning of environment that this paper is concerned with, i.e. the term environment here is being used in the context of nature referring generally to the physical surroundings.

1 See,

Harvey (2016). p 161. See also, Rose (1991). 3 Harvey (n 1), p 162. 4 Sen (2009). 2 ibid.

N. Kumar (B) National Law University, Delhi, New Delhi, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_8

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Since its appearance as an issue of global concern, a clear shift in the formulation of the call for protection of the environment is visible. In the early years, the debates concerning environmental protection had their singular focus on preservation. In contrast, the later formulations demand active pursuits, in addition to preservation of environment. In other words, the value of environment is not restrained to preserving what is there, but also consists of the opportunities that it offers to people in terms of development. As a consequence, the impact of the environment on human lives 4 is among the principal considerations in assessing the value of the environment. But, at the same time, it is also a well-established fact that many human activities accompanying the process of development have destructive consequences. Therefore, the environment versus development debate is a complex one and there is no easy answer to it. This article engages with this issue in the light of globalisation. It argues that it is within human ability to enhance and improve the environment in which we live without compromising the developmental process.5 In sum, the work argues that while thinking about the steps that may be taken to halt environmental destruction, we have to include constructive human intervention. The last statement is a serious proposition for scholarly engagement. Consider the following example regarding functioning of a liberal democracy so as to have an idea of what the proposition points at as well as what I aim to do here. Classic liberal thinkers vehemently proposed that in order to function effectively, a liberal democracy required nothing other than good check and balance mechanism. So much so that even quality of citizens in such a setup would have had no impact on it.6 Immanuel Kant, for example, observed that the problem of good government ‘can be solved even for a race of devils’.7 However, with the passage of time and development of liberal and democratic political theory, it is evident that merely possessing good procedural-institutional mechanisms so as to balance self-interests of individuals as well as social groups does not suffice, and that a certain standard of civic virtue and public-spiritedness is imperative for a liberal democracy to function effectively.8 On similar lines, the willingness of citizens to show self-restraint and exercise personal responsibility in making choices which affect the environment is vital.9

2 Globalization and Trade Liberalisation To begin with, globalization was applauded and termed as inevitable by many. But they were soon followed by criticisms coming from the ‘anti-globalizers’ who proclaimed its vices and its vincibility.10 As a result of such diverging opinions of 5 ibid. 6 See,

Kymlicka (2002).

7 ibid. 8 ibid. 9 ibid. 10 See,

Bhagwati (2004).

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globalization in differing contexts, there prevail several formulations of it. Amongst them, the most talked and discussed is the economic one with which this work is also concerned. As a starting point, ‘economic globalization [can be understood as] constitut[ing] integration of national economies into the international economy through trade, direct foreign investment (by corporations and multinationals), short-term capital flows, international flows of workers and humanity generally, and flows of technology’.11 In current debates, globalization has often acquired a narrow connotation, associating the phenomenon with liberalization of international trade and investment.12 At times, the interpretation is even narrower and focuses on the particular institutional framework within which expansion of the idea of globalization takes place, involving World Trade Organization and related bodies.13 This narrow interpretation does injustice to the significance of the growing connectedness and interdependence of societies. It also makes big concession to those who want to put this growing interdependence primarily at the service of corporate profit and privileged interests.14 Therefore, the impact of globalization, which in the broader sense of growing interdependence can also be harnessed for other goals, such as world peace, environmental sustainability, human rights, democracy, and economic prosperity is made limited.15 Nonetheless the fact that trade liberalisation is one of the major outcomes of globalisation cannot be refuted. In addition to it, the fact that it has enhanced the income of countries by forcing resources to move from less productive uses to more productive uses, or as economists would phrase it—utilizing comparative advantage is undeniable.16 As a result of economic globalisation, in today’s free trade world, as in a free economy in any one country, transactions take place among private entities-individuals, business enterprises, charitable organizations, and the conditions at which they are furthered are agreed on by all the parties to that transaction. Therefore, as an obvious consequence of economic globalization, interests of various parties are harmonized, and thus, cooperation rather conflict becomes the rule.17

2.1 Free Trade and Environment Belief in the robustness of nature has been a long-standing conviction of humanity. “Though you drive Nature out with a pitchfork”, Horace has assured us, “she will find her way back”.18 Although such comforting belief was nice and reassuring, but 11 ibid. 12 See,

Drèze and Sen (2002).

13 ibid. 14 ibid. 15 ibid. 16 See,

Stiglitz (2002a). Friedman and Friedman (1990). 18 Drèze and Sen (n 13), p 25. 17 See,

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environmental smugness is difficult to sustain given the scientific evidence that is now available.19 This has given way, in recent decades, to the increasing recognition that the environment we live is, in many ways, quite fragile.20 On the legal plane, law relating to environment is often described and referred to as ‘young’, and the law of sustainable development is barely believed to be in its infancy. By contrast, trade law has deeper foundations. The General Agreement on Tariffs and Trade (GATT) came into effect in 1947, when ‘environment’ or ‘environmental law’ simply did not exist as a policy issue.21 This is why in general discourses trade and environment are projected as if they are two ends of a binary set up. Hence many conclude that if trade is liberalized then it will necessarily result into dilution of environmental norm. This part of this paper tries to explore the later proposition. One of the most frequently appearing items in newspapers are the ones covering protests by environmental groups on the sites of free trade negotiations. In this scenario of post-industrial revolution, and more recently post-GATT and after Stockholm, therefore, free trade and environment are viewed as two of the most important variables in decision making process. On one hand, the phrase—Protection for free traders—represents the consummate evil, particularly for the environmentalists. On the other, for the trade community, ‘protection’ conjures up dark images of Smoot and Hawley. The result is that they see different images as their focus differs, i.e. the environmental camp views clear mountain streams, lush green forests, and piercing blue skies while the trade camp views it as trade conservatism.22 But, the more important question, as Panayatou rightly puts it, is “Will the world be able to sustain economic growth indefinitely without running into resource constraints or despoiling the environment beyond repair? What is the relationship between a steady increase in incomes and environmental quality? Are there tradeoffs between the goals of achieving high and sustainable rates of economic growth and attaining high standards of environmental quality?”23 Contrary to this, some scholars have suggest that there is no inherent conflict between trade and environment. For instance, Pascal Lamy once stated, “We must remember that sustainable development is itself the end-goal of this institution [the WTO]. It is enshrined in page 1, paragraph 1, of the Agreement that establishes the WTO”.24 The environment versus development debate is further complicated by putting developed North and developing or undeveloped South in the mix. Surely, one cannot blame all of the tensions at the trade-environment interface on linguistic differences, but these

19 ibid. 20 ibid. 21 See,

Holder and Lee (2007). (2001). 23 See, Panayotou (2016). 24 See, Pascal Lamy, ‘Trade can be a Friend, not a Foe, of Conservation’, Speech delivered at WTO Symposium on Trade and Sustainable Development within the Framework of Paragraph 51 of Doha Ministerial Declaration, Geneva, 10 October 2005. Available online at https://www.wto.org/english/ news_e/sppl_e/sppl07_e.htm. 22 Esty

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competing perspectives are emblematic of a deep clash of cultures, theories, and assumptions.25 Focusing on the linkages between environment and trade, Whalley writes “Our global trade institutions (especially GATT) have evolved as if there were no environmental linkages to trade”.26 Observing on similar lines, Ekins, Folke and Costanza say, “When evidence of environmental damage from economic activity, and pressure from environmentalists, meant that such linkages could no longer be ignored, the proponents of free trade sought to treat the environment much like any other good by arguing that free trade protects the environment by helping to generate the economic growth that both increases the demand for environmental protection and provides the resources necessary for it”.27 Until recently, most of the discussion on trade and environment has focused on facilitating freer trading relationships, and hence on fitting environmental issues into the framework of trade law.28 Nevertheless, the debate over the role which international trade plays in determining environmental outcomes has at times generated more heat than light.29

2.2 Apparent Conflict Between Trade and Environment Environmental lawyers often approach trade as a threat to environmental protection.30 The relationship between trade liberalization and the protection of non-economic issues, such as the protection of human rights and the environment has been a subject of a long and continuing debate. It is often claimed that the WTO deals only with the trade, not the protection of the environment or any other societal concerns.31 Thus, the link between international trade and the protection of the environment requires further exploration. Some environmentalists condemn liberalized international trade as essentially bad for the environment on factual, ideological and political grounds. Criticism is directed on the effects of trade liberalization on local populations, in particular in weaker economies, and the accelerated exploitation of natural resources due to increased transportation, production, consumption and waste generation.32 Further there is a view that in its application also trade law operates as bête noire of environment improvement measures. Klein submits that green programs—the strong ones that are needed to lower global emissions fast—were increasingly being challenged under international trade agreements, particularly the World Trade Organiza-

25 Esty

(n 24). Whalley (1991). 27 See, Ekins et al. (1994). 28 See, Weiss (1992). 29 See, Antweiler et al. (1998). 30 Holder and Lee (n 23), p 264. 31 Voigt (2009). 32 ibid. 26 See,

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tion’s rules.33 Ekins et al. argue that if the structure and behaviour of the economy generates pervasive negative environmental externalities, proportionate economic growth will increase the absolute level of externality, i.e. the environmental damage.34 The modern discourse on harmonization of trade and environmental concerns are presented under the umbrella of ‘Sustainable Development’. Professor Philippe Sands has remarked that there are two principal challenges to the development of international sustainable development law. The first is to develop rules that recognize “the need to reconcile the inherent and fundamental interdependence of the world environment with the sovereign world of independent states”. The second challenge is “defining the relationship between international environmental law and other areas of international law, particularly in the economic and social domain”.35 One of the quandaries which arise in the discourse of balance between trade and environment is the proposition that the economists relating to the philosophical tradition view nature as a handmaiden to mankind.36 According to them, every time we engage in commodity exchanges mediated by money (and this proposition holds just as firmly for any prospective socialist society) it will be impossible in practice to avoid money valuations. Moreover, valuations of environmental assets in money terms, while highly problematic and seriously defective, are not unmitigated evil.37 This practice has led some economists trying to estimate the value of the global ecosystem by reference to the ‘services’ that it provides. Such services include the supply of raw materials, food production, climate regulation, the purification of air and water, mitigation of floods, pest control, and the generation of fertile soils. The value of such intangibles as recreational and cultural services, including holidays, ecotourism, and artistic or spiritual uses of the environment, were included. In 1997, the average value of these services was estimated at $ 33 trillion.38 Such view has also led to the development of various financial instruments that are supposed to provide incentives to achieve compliance with environmental rules. Overall result of this has been that in recent years, market based systems of tradable environmental allowances that define a limit to environmental withdrawals or emissions and permit free trade of allocated allowances under those limits have become popular.39

33 Naomi

Klein (2014). et al. (n 29). 35 See, Sands (2008). 36 See, Bhagwati (n 10), p 135. 37 Harvey (n 1), p 169. 38 Stuart Bell and Donald McGillivray, Environmental Law (Oxford University Press 2008), pp. 50–1. 39 Dietz et al. (2009). 34 Ekins

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2.3 Indian Scenario The World Health Organization reports that thirteen of the G20’s most polluted cities are in India. A recent assessment of the global burden of disease estimates that outdoor air pollution causes 620,000 premature deaths per year in India.40 A 2010 study by the Energy and Resources Institute (TERI) suggested that environmental degradation in India took a toll of about 4% of India’s 2007 GDP. More recently, the World Bank raised this economy-wide cost estimate to 5.7% of India’s 2009 GDP.41 This suggests that theme of nature at present is ubiquitous given the far reaching and perhaps even epochal transformations in the human environment that we are living through. Therefore, nature in contemporary India can hardly be viewed apart from the larger context of the planet we live in and are part of. Here, the long-and short-term shifts in the global economy and environment are of importance for all.42 Contemporary India is a fantastic mosaic of fishing boats and trawlers, of cowherds and milk-processing plants, of paddy fields and rubber estates, of village blacksmiths and steel mills, of handlooms and nuclear reactors.43 Its people live in tiny fishing hamlets and camps of nomadic entertainers; in long-settled villages and slowlydecaying towns; in suburban ghettos and burgeoning metropolitan cities.44 Naturally, the demands of this remarkable mosaic on the country’s resources are exceedingly varied.45 India’s environmental record has many alarming features. Even if we leave out the contribution that India increasingly makes to global atmospheric damage (this is still comparatively small, but can expand rapidly through the growing consumption level of a large population), the local environment shows many signs of being under stress, and in some cases, thoroughly ravaged.46 To meet the idea of a freemarket society hundreds of millions of Indians would need to quit agriculture and traditional occupations, vacate the villages and the forests and make way for modern infrastructure, industries and mines.47 The record of economic and social development in India since independence, though highly uneven and far from exemplary, includes substantial overall progress in many fields.48 The same period, however, has also been one of formidable environmental plunder. In view of these contrary trends, there has been a temptation in public discussions to think of ‘development’ and ‘environment’ in antagonistic terms.49 The two oft-heard arguments from supporters of economic growth regardless of its impact on the environment are that environmental concerns are an obstacle to growth 40 See,

Noronha (2014).

41 ibid. 42 Mahesh 43 Gadgil

Rangarajan, ‘The Problem’, Seminar, 690 (February 2017), p 14. and Guha (2004).

44 ibid. 45 ibid. 46 Drèze

and Sen (n 13), p 25. Kothari and Shrivastava (2012). 48 Drèze and Sen (n 13), p 214. 49 Drèze and Sen (n 13), p 214. 47 See,

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and that, following the example of developed world; India needs to grow first and then worry about environment.50 The term ‘Sustainable development’, incidentally, was first defined by the Indian economist Nitin Desai in the report of the World Commission on Environment and Development called Our Common Future.51

2.4 Approach of Indian Judiciary: Through the Prism of Three Cases The Indian Constitution is amongst the few in the world that contains specific provisions on environmental protection. The directive principles of state policy and the fundamental duties chapters explicitly enunciate the national commitment to protect and improve the environment. Judicial Interpretation has strengthened this constitutional mandate.52 The modern environmental movement in India is perhaps the most robust and diverse outside the West and was launched a decade or more before similar movements in Asia.53 Although the foundations of it were laid by the earlier Gandhian movement and British pioneers such as the urban planner, Patrick Geddes, the now renowned Chipko (tree embrace) movement in the Himalayan villages of 1973 is identified as the start of the popular movement.54 The intertwining of local lielihood concerns with spiritual if not religious meanings would be repeated in many expressions of environmental protests across India.55 Two of the most dramatic and influential of such movements were related to displacement and environmental destruction caused by the construction of big dams in India.56 The role of the courts is especially important in the context of the protection of the environment and giving effect to the principle of sustainable development.57 Indeed, the Johannesburg Principles adopted at the Global Judges’ Symposium underscore the role of the Judiciary in the protection of the environment…. Courts therefore have a crucial role to play in the protection of the environment.58 The Supreme Court of India’s growing reputation as a ‘Green Court’ stems from its increasingly active interventions in protecting and improving the environment.59 Judicial decision 50 Noronha

(n 42). Ramesh (2015). 52 See, Divan and Rosencranz (2001). Also see Articles 48 A, 51-A (g) of The Constitution of India, 1950. 53 See, Duara (2015). 54 ibid. p 45. 55 ibid. 56 ibid. 57 Fuel Retailers Association of Southern Africa v. Director General: Environment Management, 2007 (6) SA 4 (CC). 58 ibid. 59 Sahu (2014). 51 See,

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making on important public issues has become an important part of democratic political culture not only in India but across the globe.60 There are catenas of cases decided by Supreme Court of India which can have a bearing on the issue being discussed. A few representative cases are being discussed to highlight the judicial approach. Case 1: Bichhri Village Case In Rural Litigation and Entitlement Kendra, Dehradun v. State of UP,61 the Supreme Court was for the first time directly confronted with issue of reconciliation between developmental activities and environment. This was the first case of its kind in the country involving issues relating to environment and ecological balance. It brought into sharp focus the conflict between development and conservation and served to emphasise the need for reconciling the two in the larger interest of the country.62 Supreme Court in this recognized right to clean environment as flowing from Article 21 of the Constitution. The rift between industrialization, export earning on one hand, and Environmental concerns on the other arose very sharply in Indian Council for Enviro-Legal Action v. Union of India.63 In the small village of Bichhri woes in this regard began somewhere in 1987 when Hindustan Agro Chemicals Limited started producing concentrated form of Sulphuric acid (H acid). This production was exclusively meant for export, and posed immense threat to the regional land.64 The production of H-acid and its manufacture have been banned in the western countries because of its ill-effects on human health as well as general environment. Therefore, the future need of H-acid started to be catered to by industries, like the Silver Chemicals and Jyoti Chemicals, in this part of the world.65 In the process of production, untreated toxic sludge was thrown in the open in and around the complex. As a result, toxic wastes started to percolate deep into the bowels of the earth polluting the aquifers and the subterranean supply of water spreading disease, death and disaster in the village and the surrounding areas.66 Case II: The Bhopal Gas Leak Case The Bhopal disaster, which took place just after midnight on 3 December 1984, is undoubtedly the worst industrial accident in the history. Forty tons of highly toxic methyl isocynate (MIC), which had been manufactured and stored in Union Carbide’s chemical plant in Bhopal, escaped into the atmosphere and was wind-borne directly towards the city centre. The lack of documentation of deaths that fateful night, the 60 ibid. 61 AIR

1985 SC 652. Litigation and Entitlement Kendra, Dehradun v. State of UP, AIR 1985 SC 652, para 1. 63 AIR 1996 SC 1446. 64 Indian Council for Enviro-Legal Action v. Union of India, AIR 1996 SC 1446, para 2. 65 ibid. para 4. 66 ibid. 62 Rural

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subsequent chaos in administering aid to the victims since then, and the ongoing disputes over cause of illness, deaths, and the effects of the exposure all lead to the conclusion that the actual numbers of sick and dead will never be accurately fixed.67 One of the estimates reports that on the night of the second to the third of December 1984, killed between 16,000 and 30,000, and injured around 500,000.68 Out of the thirty-eight countries where Union Carbide hoisted its flag, no other has established such long standing and warm links with the company as India.69 The profits along with the conviction that the country would one day become one of the world’s great markets had induced Carbide to re-group all kinds of production under the aegis of its Indian subsidiary, i.e. Union Carbide India Limited.70 The Bhopal disaster raised complex legal, moral and ethical questions about liability of parent companies for their subsidiaries, of transnational companies engaged in hazardous activities, and of governments caught between attracting industry to invest in business development while simultaneously protecting the environment and citizens.71 In case of Oleum gas leak case,72 Shriram Industries settled with the claimants. Although Shriram considered many claims to be bogus, the company decided to pay reasonable amounts to every claimant, rather than risk a contest and an award in a few genuine cases that was linked to the company’s ‘ability to pay’.73 If one traces the trajectory of Bhopal and Shriram, it will be starkly noticed that the Bhopal was an acutely argued case whereas in comparison Shriram was all about compliances of court’s interim orders and overt effort on the part of respondents to bring closure of the case. The most significant difference between Bhopal and Shriram, in this regard, was that in first case the company had not much stake to continue in India, whereas in second case they were not only operating in India but were supposed to do so in future also. It can lead one to reasonably presume that liberalization and opening up without uniform global standards and some international watchdog agency can result into not only short circuiting the process of justice but also may result into almost no social commitments. Case III: Research Foundation for Science v. Union of India (I & II) In both the cases the court was grappling with the issue of hazards associated with the operation of ship breaking industries. These cases clearly reflect the shifting of polluting activities from the jurisdictions having strict environmental norms to those having less strict norms. The direction in these cases led to formation of expert committees to look into the issue and the subsequent actions on the basis of their recommendations. It resulted into putting in place the regulatory mechanisms for 67 Divan 68 See,

and Rosencranz (n 39), p 547. Lapierre and Moro (2009).

69 ibid. 70 ibid.

p 66. and Rosencranz (n 54), p 549. 72 M.C. Mehta v. Union of India, AIR 1987 SC 1086. 73 Divan and Rosencranz (n 54), p 536. 71 Divan

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inward movement of potentially hazardous waste. The court also emphasized the necessity to maintain environment along with the developmental activities.

3 Is Globalization Antithetic to Environment? Environmentalists are typically dealing with situations where markets do not exist-as when pollutants are dumped into lakes, rivers, and oceans, and into the sky above, and the polluter does not have to buy permits to do so-and therefore must be specially created.74 Maybe above mentioned philosophy was behind introduction of many market based mechanism in Environmental discourse like Carbon trading, Green Tax etc. Trade agreements have largely been designed to expand the scope of trade, on the premise that trade is beneficial. Trade policy has become controversial because there are some notable instances where that does not seem to be the case.75 Bhagwati argues that it’s a common fallacy that freer trade without environmental policy in place is harmful. He although concedes that this may happen is surely correct but that it must happen is incorrect.76 Stiglitz elaborates upon famous Shrimp-Turtle case77 to highlight interface between free trade and environment. In that case, the dispute arose over US restrictions on imports of shrimps from countries that did not have conservation programs for migratory turtles. As a result, each year, thousands of sea turtles are killed in shrimp trawl nets. To protect these endangered animals, the US passed a law to prohibit the import of shrimp from nations which do not require shrimp boats to be equipped with ‘turtle-excluder devices’ (TEDs), attachments that enable turtles to exit unharmed from the nets. The US measure was challenged in WTO by India, Malaysia, Pakistan, and Thailand. These countries argued that the law was an illegal restriction on their shrimp exports and thus contravened WTO obligations. In response, the United States argued that their measure was covered by Article XX of the GATT, exempting WTO members from their trade obligations in order to protect human, animal, and plant life (Article XX (b)) or conserve natural resources (Art. XX (g)) when deemed necessary. In its adjudication, the WTO’s Appellate Body made clear that the WTO gives countries the right to take trade obligations in order to protect environment, in particular relating to human health, endangered species, and exhaustible resources. It argued that the preamble to the WTO recognized the goal of sustainable development as an objective of the organization and this made environmental protection a legitimate and important goal of policy, ranking with protection of international trade as a WTO objective. The Appellate Body also said that measures to protect sea turtles would be legitimate under GATT Article XX,

74 Bhagwati

(n 10), p 137. (n 18), p 135. 76 Bhagwati (n 10), p 138. 77 WT/DS58/AB/R. 75 Stiglitz

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which provides exceptions to the WTO’s trade rules so long as certain basic criteria such as non-discrimination are met.78 David Harvey submits that the idea that capitalism is encountering a fatal contradiction in the form of a looming environmental crisis is widespread in certain circles. He considers it as a plausible but controversial thesis. He gives following four reasons to cast doubt on the idea. First, capital has a long history of successfully resolving its ecological difficulties. Second, the ‘nature’ we are supposedly exploiting and exhausting and which then supposedly limits or even ‘takes revenge’ on us is actually internalised within the circulation and accumulation of capital. Third, capital has turned environmental issues into big business. Fourth, which he terms as perhaps the most uncomfortable thought of all, it may be perfectly possible for capital to continue to circulate and accumulate in the midst of environmental catastrophes.79

4 Conclusion Many threats could bring us down. Climate change is the most obvious, and there is no clear solution that is politically feasible.80 One of the striking characteristics of the Anthropocene is that it is made of the principles of geographic distributions. If highways, clear-cuts, and soyabean plantations create islands where none existed before, global trade and global travel do the reverse: they deny even the remotest islands their remoteness.81 The history of environmentalism in most countries has followed a broadly similar pattern, i.e. an early period of pioneering and prophecy, culminating in recent decades in a widespread social movement.82 Guha quotes writings of Aldo Leopold to argue that its not obvious that Capitalism does more damage to Environment- “As nearly as I can see, all the new isms- Socialism, Communism, Fascism…outdo even Capitalism in their preoccupation with one thing: the distribution of more machine-made commodities to more people. Though they despise each other they are competitive apostles of a single creed: salvation by machinery.”83 Jared Diamond in Chinese context argues on similar lines and observes, “China’s leaders used to believe that humans can and should conquer Nature that environmental damage was a problem affecting only capitalist societies, and that socialists societies were immune to it. Now facing overwhelming signs of China’s own severe environmental problems, they know better”.84 He suggests that globalization results into globalization of problems too. He argues that globalization means nothing more 78 Stiglitz

(n 18), p 136. Harvey (2014). 80 See, Deaton (2013). 81 See, Kolbert (2014). 82 See, Guha (2014). 83 ibid. p 172. 84 Diamond (2005). 79 See,

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than improved worldwide communications, which can convey many things in either direction; globalization is not restricted to good things carried only from the First to the third World.85 Randhir Singh argues differently, he submits, “the environment has been damaged by all social systems, more or less, since at least 15,000 years ago, since the agricultural revolution which brought in class-society, and the civilization the way we have known it. But four odd centuries of capitalism have transformed the world far more drastically than all the millennia of previous human history combined…. Not a natural process nor the result of economic growth or industrialization as such, this damage and the accompanying threat have grown directly out of the specific structural logic of capitalism”.86 Stiglitz argues that, ‘when trade policy affects the environment, there must be some mechanisms for the environmental ministers’ voices to be heard. They would insist, for instance, that provisions be inserted that prevent race to the bottom, that low environmental standards (e.g. those associated with allowing the pollution of the world’s atmosphere) be viewed as a form of subsidy to be prohibited’.87 Therefore, it appears that optimal policy is to have an appropriate environmental policy in place, to look after the environment, and then to pursue free trade to reap the gains from the trade.88 By using both policies, you get both objectives accomplished.89 Globalization and environmentalism are the two realities of the contemporary world and it appears that they are here to stay. Therefore it’s very important for the practitioners of the ideologies to accommodate the other.

References Antweiler, W., Copeland, B. R., & Taylor, M. S. (1998). Is free trade good for the environment. NBER Working Paper Series. Working paper No. 6707. Available online at http://www.nber.org/ papers/w6707.pdf. Bhagwati, J. (2004). In Defense of globalization: With a new afterword (p. 3). Oxford University Press. Deaton, A. (2013). The great escape: Health, wealth, and the origins of inequality (p. 325). Princeton University Press. Diamond, J. (2005). Collapse: How Societies choose to fail or succeed (p. 373). Penguin. Dietz, T., et al. (2009). The struggle to govern the commons. In M. Reynolds et al. (Eds.), The environmental responsibility reader (p. 212). Zed Books Ltd. Divan, S., & Rosencranz, A. (2001). Environmental law and policy in India: Cases, materials, and statutes (p. 41). Oxford University Press. Drèze, J., & Sen, A. (2002). India: Development and participation (p. 340). Oxford University Press. 85 ibid.

p 517. (2009). 87 Stiglitz (2002b). 88 Bhagwati (n 10), p 141. 89 ibid. 86 Singh

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Duara, P. (2015). The crisis of global modernity (p. 45). Cambridge University Press. Ekins P., et al. (1994). Trade, environment and development: The issues in perspective. Ecological Economics, 9(1). Esty, D. C. (2001). Bridging the trade-environment divide. The Journal of Economic Perspectives, 15, 113. Friedman, M., & Friedman, R. (1990). Free to choose: A personal statement (p. 51). Houghton Mifflin Harcourt. Gadgil, M., & Guha, R. (2004). The use and abuse of nature (p. 1). USA: Oxford University Press. Guha, R. (2014). Environmentalism: A global history (p. 5). UK: Penguin. Harvey, D. (2014). Seventeen contradictions and the end of capitalism (pp. 246–50). Penguin. Harvey, D. (2016). The ways of the world (pp. 160–66). Profile Books. Holder, J., & Lee, M. (2007). Environmental protection, law and policy: Text and materials (p. 264). Cambridge University Press. Klein, N. (2014). This changes everything (p. 64). Allen Lane. Kolbert, E. (2014). The sixth extinction: An unnatural history (p. 198). Bloomsbury. Kothari, A., & Shrivastava, A. (2012). Churning the earth: The making of global India (p. 3). Penguin Books. Kymlicka, W. (2002). Contemporary political philosophy: An introduction (p. 285). Oxford: Oxford University Press. Lapierre, D., & Moro, J. (2009). Five past midnight in Bhopal: The epic story of the world’s deadliest industrial disaster (p. xxi). Scribner. Noronha, L. (2014). Managing the environment. In B. Debroy et al. (Eds.), Getting India back on track: An action agenda for reform (p. 227). Random House India. Panayotou, T. (2016). Economic growth and the environment. The Environment in Anthropology, 140. Ramesh, J. (2015). Green signals: Ecology, growth, and democracy in India (p. 94). Oxford University Press. Rose, C. M. (1991). Rethinking environmental controls: Management strategies for common resources. Duke Law J, 1. Sahu, G. (2014). Environmental Jurisprudence and the Supreme Court (p. 1). Orient BlackSwan. Sands, P. (2008). Environmental protection in the twenty-first century: Sustainable development and international law. In R. L. Revesz et al. (Eds.), Environmental law, the economy and sustainable development: The United States, the European Union and the International Community. Cambridge University Press. Sen, A. (2009). The idea of justice (p. 248). Penguin Books. Singh, R. (2009). Contemporary ecological crisis: A Marxist view (p. 141). Aakar Publications. Stiglitz, J.E. (2002a).Globalization and its discontents (p. 59). New York: Norton. Stiglitz, J. (2002b). Globalization and its discontents (p. 168). Penguin. Voigt, C. (2009). Sustainable development as a principle of international law: Resolving conflicts between climate measures and WTO law (p. 120). Martinus Nijhoff Publishers.. Weiss, E. B. (1992). Environment and trade as partners in sustainable development: A commentary. American Journal of International Law, 86, 728. Whalley, J. (1991). The interface between environmental and trade policies. The Economic Journal, 101, 180.

Sustainable Public Procurement in Europe: Creating Markets or Distorting the Internal Market Rike Krämer-Hoppe

1 Introduction In 2010, the European Commission communicated its vision for Europe in 2020: the 2020 strategy. In this strategy, the European Commission states the need for a smart, sustainable and inclusive economy. The 2020 strategy defines sustainable growth as the promotion of a more resource efficient, greener and more competitive economy. One of the tools to reach out for such sustainable growth is public procurement, in particular sustainable public procurement. Therefore, the 2020 strategy states that the European Commission will encourage wider use of sustainable public procurement. Public procurement should for example be used to reduce energy and resource use and to invest in energy efficiency in public buildings and in more efficient recycling. In which ways can the EU encourage sustainable public procurement or buying green and how can the EU solve the tension between the creation of new sustainable markets and the distortion of the internal market? Empirical evidence shows 1 that sustainable public procurement is on the increase. However, public authorities still perceive legal barriers as one constraining factor in their involvement in sus2 tainable procurement. Consequently, law, especially if it is ambiguous and vague, does not seem to be the most promising way forward. However, in 2014 new public procurement Directives were enacted. One of the attempts of the new Directives was to clarify how contracting authorities can contribute to the protection of the environment and to foster social goals, consequently, solving the tension between the creation of new sustainable public procurement markets and the internal market. The paper will preliminary assess whether and how this goal has been achieved. 1 CEPS

and College of Europe (2012). and Walker (2009).

2 Brammer

R. Krämer-Hoppe (B) Faculty of Law, Ruhr-University Bochum, Bochum, Germany e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_9

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As a background, the paper will start with a definition of sustainable public procurement followed by a description of the tension between creating new sustainable markets and the distortion of the internal market in the EU public procurement regime. In a second step, the paper will turn towards the solutions for the tension in the EU by firstly giving an account of the developments and debates in sustainable public procurement in the EU and secondly analysing the changes in the Directives. Thereby, it will become clear that the main mechanism to smooth the tensions between the two policy goals internal market and sustainable procurement is the “link-to-the-subjectmatter”. In a third step, this mechanism will be analysed in more depth. The paper ends with a conclusion and a preliminary assessment whether these new paths and changes in the Directive might solve the outlined tensions.

2 Sustainable Public Procurement In general, the term “sustainable” includes not only environmental considerations but also social and economic ones and stems originally from the Brundtland report in 1987.3 However, there is not just one final and agreed definition of sustainable procurement. For example, the UK sustainable task force defines sustainable procurement as: a process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole life basis in terms of generating benefits not only to the organisation, but also to society and the economy, whilst minimising damage to the environment.4

The definition of the Sustainable Procurement Platform developed by ICLEI, an association of over 1,200 local governments that represent the interests of local authorities within the United Nations and at international policy forums, is as follows: Sustainable procurement means making sure that the products and services an organisation buys achieve value for money and generate benefits not only for the organisation, but also for the environment, society and the economy.5

Even so both definitions slightly differ, they lay down some common features of sustainable procurement. The buying authorities should take into account the environmental, social and economic consequences of the purchased products or services. Economic consequences mainly focus on strengthening the local economy, like procuring local grown food for schools or encouraging large contractors to work with local subcontractors.6 In the following sections, economic issues will not be considered. Instead, the focus will be on social and environmental friendly considerations. Social aspects could be contracting with the voluntary sector or social 3 World

Commission on Environment and Development (1987). (2006). 5 Sustainable Procurement Platform (2016). 6 Preuss (2009). 4 Defra

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enterprises, like a manufacturer who employs people with disabilities. Environmental consideration could be recycled content requirements or limiteduse of detergent in cleaning service contracts.7

3 Creating Markets or Distorting the Internal Market—Sustainable Public Procurement How can contracting with a social enterprise or buying goods with a recycled content create or distort market? To answer this question, we will start with an attempt to define the term “market”. Even so, the term “market” is one of the corner terms in economics, its existence is usually presupposed and not defined in economic literature.8 Coase even described the term market as having a “shadowy role” in economics.9 One definition of markets, proposed by Aspers, is that markets encompass a social structure for the exchange of rights in which offers are evaluated and priced.10 More generally, definitions of markets deal with three categories: (1) demand, (2) supply and (3) institutions.11 In a nutshell, we would have people who are willing to pay for a certain product, as well as at least two producers who are able to produce the product for a certain price and a variety of institutions that enable a transfer of the product. When it comes to sustainable procurement one example could be organically produced fruits. Here, the public purchaser, for example a public school, is in demand of organically produced fruits, it can purchase these fruits from two different producers and according to certain criteria, for example the price, the public school chooses one of them. Why can this distort markets? This question can be answered by looking into the theory of integration of different national markets. The internal market is not a “natural” market as the market for fruits or clothes or anything similar. Instead it is a political choice to integrate the national markets of the Member States into an internal European market. For such a market integration, there are two possible mechanisms: positive integration, in the sense of the establishment of common rules, and negative integration, the removal of trade barriers between countries.12 Due to the issue of sustainable procurement, like buying organically produced fruits, only positive integration seems a way forward to integrate sustainable public procurement markets and to maintain the internal market. Otherwise each Member State can choose their own sustainable criteria. This could lead to the creation of new sustainable product markets or services due to a new demand for sustainable products, goods and services. The average size of the procurement market in the Member States is 14% of the GDP, which is unbeatably 7 Ibid.:

217f. Aspers, Märkte (Springer VS 2015) 50. 9 R.H. Coase, The firm the market and the law (The University of Chicago Press 1988) 7f. 10 P. Aspers, Märkte (Springer VS 2015) 19. 11 Sarasvathy and Dew (2005). 12 Tinbergen (1965). 8 P.

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a huge market.13 Different criteria in each Member State could, however, distort the internal market. As Kunzlik rightly points out, “green procurement sits at one of the many intersections between the objectives of environmental protection and of the maintenance of the integrity of the Internal Market and, as such, reflects the tensions that can exist between those competing policy objectives.”14 As long as there are no harmonized rules for sustainable public procurement tension between opening up new sustainable procurement markets and the internal market can exist.

4 Sustainable Public Procurement in the EU from the 90th Until Today How has the EU solved the tension between creating sustainable procurement markets and distorting the internal market? A strategy developed over time. Sustainable public procurement is not a European novelty that was created in 2010 via the 2020 strategy but has been controversially discussed since the 90s in the EU. We can clearly see a change in perception of sustainable procurement from being an obstacle to trade towards being a strategic goal. However, the limits of sustainable procurement are still debated. As long as sustainable public procurement criteria are not totally harmonised at the EU level, they bear the possibility to distort the internal market. Public authorities in the various Member States may use different criteria which might make it difficult for tenders from other Member States to bid. In the EU, the discussion to use procurement to enhance environmental protection and to foster social goals began in the end of the 80s. At that time, sustainable criteria were discussed with an undertone of disapproval as “secondary” policies. In the beginning, the European Commission approached sustainable procurement from a certain angle, a certain perspective—the internal market one. Sustainable procurement for the European Commission was a way for the Member States to cause trade distortion to the internal market. Therefore, the first document addressing especially one part of sustainable procurement, green procurement in 1996 was very sceptical about allowing environmental-friendly criteria to be part of the tendering process and to be included in the tendering or award criteria.15 The European Commission perspective towards environmental procurement during that time could be summarized as follows: protecting the internal market at any cost. This view was still predominant, at least within Directorate General internal market, when the European Commission started drafting the new procurement Directives in 2000, but changed quite substantively during the legislative process and thereafter.16 Especially the European Parliament required a less restrictive approach 13 European

Commission (2016a). (2003). 15 European Commission, Green Paper, Public Procurement in the European Union: Exploring the way. 16 For the developments see Krämer (2013, 83ff). 14 Kunzlik

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towards sustainable procurement. This conflict between the European Commission, some Member States and the European Parliament was gradually solved by the first judgement of the ECJ dealing with green procurement, the famous Concordia Bus case.17 The subject matter of the case was an award procedure of the of Helsinki concerning the entire bus transport network of the city of Helsinki. In the tender documents it was laid out that the contract should be awarded to the most economically advantageous tender. Three criteria were laid down in the tender documents to assess which one of the tenders is the most economically advantageous: the price of operation, the quality of the buses and the operator and the environmental management. In the category “quality of the buses” a tender could gain additional points for the compliance with threshold values for noise and nitrogen oxide emissions. The tenderer Concordia, the complainant in this case, failed to receive such additional points and only came out second in the tendering process. Finally, the contract was awarded to the HKL-Bussiliikenne, a city-owned enterprise. Before the ECJ three questions were raised but only one if of interested here: whether environmental criteria are eligible for consideration within the economically most advantageous tender. The answer to this question of the ECJ was yes, Member States may include environmental criteria in the award criteria. This new status quo in European law allowed fora compromise in the legislative process. And finally in 2004 the first European Procurement Directives (2004/17 and 2004/18) were enacted which included the term “environment” as well as “social” at several stages of the procurement process. However, this was not the end. Several questions and issues had not been addressed in the Directives and the European Commission, now the DG environment, turned to soft law instruments for clarification.18 One of the soft-law instruments was the handbook “Buying green, A handbook on green public procurement” issued in 200419 (now already available in a third edition).20 In 2010, the European Commission also issued a handbook for social procurement.21 Another path to minimise the tensions between the internal market and environmental-friendly procurement was the development of so-called Green Public Procurement criteria.22 The first set of those criteria, which aimed to foster GPP, was developed by an external consultant without any Member State’s involvement. The Member States complained about this, they demanded to take part in the process. Some of them claimed their own criteria could act as templates for European ones. Since 2010, a more formal procedure is in place. Ever since, GPP

17 ECJ

Judgement, Concordia Bus Finland Oy Ab v Helsinginkaupunki, HKL-Bussiliikenne [2002] ECR2002 I-07213. The first judgement dealing with social criteria was the Beentjes Case, which also allowed for social considerations to some degree, ECJ judgement, Beentjes vs Netherlands State [1988] ECR 1988 I-04652. 18 Caranta (2010). 19 European Commission (2004). 20 European Commission (2016b). 21 European Commission (2010). 22 Burja (2009).

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criteria have been developed with Member State and stakeholder involvement in coordination with the EU Ecolabel development process.23 To conclude, the EU perspectives changed during the last decades. In the new legislative process, starting in 2011, even the term “strategic use of public procurement” was coined. Sustainable considerations in public procurement are no longer perceived mainly as a hurdle, an obstacle or something that does not belong into procurement procedures. Such considerations like purchasing renewable energy have become more and more a common feature of public procurement and are even required and harmonised in some areas.24 But all these changes in perception still did not lead to a final solution for the tensions between the two policy goals internal market and environmental protection or fostering social goals. At least academics controversially discuss the limits and constraints of including environmental or social considerations into public purchasing decisions.25

5 The New Directives In January 2011, the European Commission started the process of amending the old Directives from 2004 by publishing a Green Paper on the modernisation of EUpublic procurement policy—Towards a more efficient European Procurement Market.26 One of the reasons for an amendment were the goals set out in the 2020 strategy, developing an economy based on knowledge and innovation; promoting a low-carbon, resource-efficient and competitive economy; and fostering a high-employment economy delivering social and territorial cohesion. Public procurement was perceived as playing a key role in achieving these goals, due to the large public procurement market. In December 2011, the European Commission therefore issued a proposal for new Directives.27 The new package was finally adopted in 2014 consisting of the Directive 2014/23/EU, 2014/24/EU and 2014/25/EU. The protection of the environment and social considerations and social inclusion, were some of the issues debated in the whole legislative process and in the Green paper. The European Commission stated that given “the key role of public procurement in coping with today’s challenges, the existing tools and methods should be modernised in order to make them better suited to deal with the evolving political, social and economic context.”28 Instead of “secondary policies”29 or “horizontal 23 For

the process see http://ec.europa.eu/environment/gpp/gpp_criteria_process.htm accessed 19 September 2016. 24 See for example Article 5 of the Clean Vehicles Directive (2009/33/EC) or Article 6 of the Energy Star Regulation (106/2008). 25 One example is the debate between Kunzlik and Hettne, see Kunzlik (2013) and Hettne (2013). 26 Commission (2011a), 15 final. 27 Commission (2011b), 896 final. 28 Commission (n 27), 4. 29 Pitschas and Prieß (2000).

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Fig. 1 Stages in the procurement process where sustainability considerations are included in percentage (Kahlenborn et al. 2011), VIII

policies”30 the green paper uses the term “strategic use of public procurement”. Several questions in the consultation process were concerned with the strategic use of public procurement ranging from whether the technical specifications make sufficient allowance for the introduction of considerations related to other policy objectives to whether the link to the subject matter should be softened.31 This turn towards strategic use, which seems to give environmental and other consideration a real recognition in public purchasing, can still be found in the final Directives.32 Instead of only clarifying how the “contracting authorities may contribute to the protection of the environment and the promotion of sustainable development” (para 5 Directive 2004/14), the new Directive speaks of an “appropriate integration” (para 37 Directive 2014/24).33 Whether this integration and clarifying was successful in the final outcome of the Directives will be further analysed below. The paper will limit its scope to only assess the changes in the 2014/24 Directive and to the relevant stages of the procurement process. The relevant stages are first, the planning, assessment of the needs and the budget, this stage is not regulated at the EU level. Public authorities are free to decide whether they want to buy anything. The second stage is the creation of a tender in which all the features of the required good or service are laid down in the tender documentation. The third step is the evaluation phase in which the ability of the bidders is assessed. This is followed by the award of the contract in accordance with the award criteria as laid down already in the tender. The last stage is the performance of the contract by the awarded party (Fig. 1).

30 Arrowsmith

and Kunzlik (2009, pp. 9–54). (n 27), p. 35ff. 32 Dragus and Neamtu (2014, 301ff). 33 The paragraph about clarifying is still in the new Directive para. 91. 31 Commission

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5.1 Principles of Procurement Article 18 One novelty in the new Directive is that sustainable considerations are now enshrined in the procurement principles. According to Article 18.2, Member States shall take appropriate measures to ensure that in the performance of public contracts economic operators comply with applicable obligations in the fields of environmental, social and labour law established by Union law, national law, collective agreements or by the international environmental, social and labour law provisions listed in Annex X. This is a novelty compared to the 2004 Directive and indicates that the status of secondary policies has clearly changed. In the legislative process it was discussed whether the obligation to ensure conformity with environmental laws should be optional or compulsory. In the end, the obligation became compulsory.34 However, on its own it does not solve all the questions currently debated with regard to environmental or social considerations in public purchasing. Especially with regard to the limits to refer to environmental consideration that go beyond environmental or social requirements already laid down in law. To summarise, Article 18.2 basically states that environmental and social laws and obligations already in place should not be violated. This is a clarification and also changes the status of sustainable considerations. With regard to international law it also shows the importance of international agreements in this area. However, it does not include real change, particularly with regard to environmental considerations.

5.2 Technical Specifications The technical specification includes the totality of the technical prescriptions contained in particular in the procurement documents defining all the characteristics of the product, good or service required. Like in the old Directives, environmental characteristics can be included into the technical specification. However, the new Directive changes the order of preference for the formulation of such technical specifications. The Directive 2004/18 first mentions the use of technical specifications and standards to formulate the technical specifications of the required good and afterwards mentions that they could also be formulated in terms of performance or functional requirements (Article 23.3). The new Directive changes this order. Firstly, technical specifications should be formulated in terms of performance or functional requirements, including environmental characteristics and secondly, by referring to standards or technical specifications (Article 42.3). Formulating a bid in terms of performance or functional requirements usually opens up a wider range of possibilities to include innovative environmental or social considerations and gives more room to manoeuvre to the purchasing authorities.

34 Van

der Abeele (2014).

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Generally, all characteristics of a work, good or service laid down in the technical specification have to be linked to the subject-matter of the contract and have to be proportionate to its value and its objectives. Besides this minor change of order, the new Directive does resolve a bigger question, namely, whether it is possible to require products produced in an environmental friendly or more socially acceptable manner, without child or forced labour for example. This question mirrors the old debate about process and production methods in the WTO.35 Annex XII defines technical specification as including levels of environmental and climate performance, design for all requirements (including accessibility for disabled persons) and conformity assessment, performance, safety or dimensions, including the procedures concerning quality assurance, terminology, symbols, testing and test methods, packaging, marking and labelling, user instructions and production processes and methods at any stage of the life cycle of the works. Like in the old Directive, production and process methods are mentioned. It can therefore generally be assumed that also not intrinsic characteristics like for example renewable energy can be purchased. The European Commission in their Buying Green handbook has taken a slightly different stand towards this. They created the difference between “visible” or “invisible” criteria. “However, since all technical specifications should bear a link to the subject matter of the contract, you can only include those requirements which are related to the production of the good, service or work being purchased, without necessarily being visible.”36 The question therefore remains what exactly displays an “invisible characteristic”? In the first edition of the Buying Green Handbook the European Commission explains invisibility as following: “You can for example ask for electricity produced from renewable energy […] although green electricity is not physically different from electricity produced from conventional energy sources, and makes the lights work in exactly the same way. However, the nature and value of the end product has been modified by the process and production method used. For example, electricity produced from a renewable source will in principle be more expensive, but cleaner, than electricity from a conventional source.”37 In the third edition of the Handbook, the Commission only mentions that the requirement does not need to be a visible one.38 The ECJ, however, has clearly indicated not to follow the visible/invisible distinction but has instead highlighted that “there is no requirement that an award criterion relates to an intrinsic characteristic of a product, that is to say something which forms part of the material substance thereof. The Court held thus, in paragraph 34 of EVN and Wienstrom, that European Union legislation on public procurement does not preclude, in the context of a contract for the supply of electricity, a contracting authority from applying an award criterion requiring that the electricity supplied be produced from renewable energy sources. There is therefore nothing, in principle, to 35 Pauwelyn

(2004). Commission (2011). 37 European Commission (2004, 23). 38 European Commission (2016b, 51). 36 European

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preclude such a criterion from referring to the fact that the product concerned was of fair trade origin.”39 Another argument against the visible/invisible distinction can be found in Article 67.3 of the Directive 2014/24. According to the Article award criteria can include factors like the specific process of the production even where such factors do not form part of their material substance. Even so Article 67.3 deals with award criteria, it indicates that the new Directives do not follow the invisible/visible distinction, instead the main criteria to limit environmental and social considerations is the link to the subject-matter. One debate is therefore clearly resolved by the new Directive.

5.3 Selection Criteria The selection criteria generally focus on the question whether an economic operator is able to fulfil the contract. Like in the old Directive, the selection criteria are divided into two groups. First, grounds where the contracting authority shall exclude an economic operator (Article 57.1-3) and second, grounds where the contracting authority may exclude an economic operator (Article 57.4). Sustainable considerations are still not included into the first category. However, the link between sustainable considerations and the possibility to exclude an economic operator is much clearer in the new Directive. In the general principles for the selection of an economic operator, as laid down in Article 56, it is stated that contracting authorities may decide not to award a contract to the tenderer submitting the most economically advantageous tender where they have established that the tender does not comply with the applicable obligations referred to in Article 18.2. As outlined above, environmental as well as social and labour law obligations, national, European or international ones, are mentioned in 18.2. Offences to the detriment of the environment or against labour law can therefore lead to the exclusion of an economic operator. Recital 39 of the Directive 2014/24/EC also clarifies this as non-compliance with the relevant obligations could be considered to be grace misconduct on the part of the economic operator. All criteria required have to be related and proportionate to the subject-matter of the contract.

5.4 Award Criteria Instead of the two award criteria provided in the 2004/18 Directive (lowest price and most economically advantageous tender), the new Directive has only one award criteria, the most economically advantageous tender MEAT (Article 67.1). The MEAT shall be identified from the point of view of the contracting authority on the basis of 39 ECJ Judgement, Commission v Kingdom of the Netherlands (Dutch Coffee) [2012] ECR 20120000, para. 91.

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price or cost, using a cost-effectiveness approach, such as life-cycle costing in accordance with Article 68, and may include the best price-quality ratio, which shall be assessed on the basis of criteria, including qualitative, environmental and/or social aspects, linked to the subject-matter of the public contract in question (Article 67.2). Such criteria may comprise, for instance: (a) quality, including technical merit, aesthetic and functional characteristics, accessibility, design for all users, social, environmental and innovative characteristics and trading and its conditions; (b) organisation, qualification and experience of staff assigned to performing the contract, where the quality of the staff assigned can have a significant impact on the level of performance of the contract; or (c) after-sales service and technical assistance, delivery conditions such as delivery date, delivery process and delivery period or period of completion. Furthermore, the new Directive enables the Member States to provide that contracting authorities may not use price only or cost only as the sole award criteria. This clearly indicates a move away from price being the decisive factor in awarding contracts. The Directive tries to encourage other criteria as well.

5.5 Article 68 Life Cycle Costing One of the real novelties in the Directives is the inclusion of life-cycle costs as award criteria. This clearly shows that the European Commission has changed the perspective quite a bit. Starting out from fighting for award criteria with a direct economic advantage to the contracting authority40 to a broad life cycle approach. With this novelty the European Commission follows a trend in other areas of European environmental law—e.g. waste management.41 But what does “life cycle” mean with regard to public procurement? According to Article 2.1.20 ‘life cycle’ means all consecutive and/or interlinked stages, including research and development to be carried out, production, trading and its conditions, transport, use and maintenance, throughout the existence of the product or the works or the provision of the service, from raw material acquisition or generation of resources to disposal, clearance and end of service or utilisation. Besides these working definition, Article 68 lays down the different possibilities of what can be included in Life-Cycle costing as award criteria ranging from costs relating to acquisition to the end of life costs. For environmental consideration it is of particular importance that also costs imputed to environmental externalities linked to the product, service or works during its life cycle, provided their monetary value can be determined and verified, may be included. In addition, the cost of emissions of green40 ECJ

Judgement, Concordia Bus Finland Oy Ab v Helsinginkaupunki, HKL-Bussiliikenne [2002] ECR2002 I-07213, para 52. 41 Dalhammer (2015).

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house gases and of other pollutant emissions and other climate change mitigation can be taken into consideration. All these costs might be costs to the society at large but they do not always have a direct economic advantage for the public authority. However, using life-cycle costs may itself also involve costs. Including too many environmental criteria may lead to more bureaucracy and in the end favour large economic actors for whom it is easier to fulfil the required documentation.42 In addition, if a label is not available, it might be difficult for the contracting authority to follow up whether the requirements have been fulfilled. And thirdly it should be kept in mind that life cycle costs and the outcome of a life cycle analysis depends upon the methodology chosen and their main assumptions.43 Even so the new Directive clearly includes benefits for the society at large as award criteria, the Directive still favours numbers. It is necessary that a monetary value can be determined and verified. Public authorities need to be able to measure or forecast advantages for common goods and to put a price-tag on them.

5.6 Contract Performance The new requirements dealing with the performance of the contract are laid down in Article 70 of the new Directive instead of Article 26. This new position, right after the award of the contract, seems much more reasonable. As a contract can only be performed if it was awarded. The wording has not changed a lot but still differs in some ways. Article 70 now includes explicitly the requirement that conditions for the performance of the contract have to be linked to the subject matter of the contract.44 The list of conditions that may be included in contract performance requirements is also a little broader. Besides mentioning social and environmental considerations, it now includes economic, innovation-related, environmental, social or employmentrelated considerations. For the environmental considerations there is not so much change in the Directive. Whether this holds true for social considerations, especially while naming employment-related considerations like minimum wage requirements, remains to be seen. With the ECJ approach in the Bundesdruckerei case45 some scepticism should apply. However, the more recent Regio Post case46 indicates a change in the ECJ’s stand towards minimum wage requirements and gives more latitude to the public authorities to include social considerations.

42 Ibid. 43 Ibid. 44 The

old Directive did not include this explicitly, however, it has been argued that even then the link to the subject matter was a requirement, see Krämer (2013); Opitz (2004). 45 ECJ Judgement, Bundesdruckerei vs. Dortmund, Case C-549/13. 46 ECJ Judgement, Regio Post vs Landau, C-115/14.

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6 Solving the Tension Between Creating Sustainable Public Procurement Markets and the Internal Market: The Link to the Subject Matter As it is clear from the description above, all environmental as well as social considerations have to be linked to the subject matter. Besides clarifying some possibilities, one approach in the new Directive to solve and to integrate the internal market and new sustainable public procurement market is the link to the subject matter. This link to the subject matter appears to be an all-in-one device suitable for every purpose. It seems to solve all the tensions between the internal market and environmental protection and social considerations without the necessity for harmonisation. So what constitutes a link to the subject-matter? The link to the subject matter was invented and further clarified by ECJ case law. It was first mentioned in the first case dealing with environmental consideration—the Concordia Bus case. Here, the ECJ stated that the Member States can include any kind of environmental criterion, as long as this criterion is linked to the subject matter of the contract.47 The reasoning given in that case was that “since a tender necessarily relates to the subject-matter of the contract, it follows that the award criteria which may be applied in accordance with that provision must themselves also be linked to the subject-matter of the contract”.48 The content was not really clear at that time. This requirement has been further clarified by the ECJ in the case Wienstrom.49 The subject matter of the case was an award procedure for renewable energy. In the tender documents it was laid out that all the tenders should disclose how much energy from renewable sources they have produced in the past. However, this criterion was not linked to the expected annual consumption of renewable energy in the contract. Instead, the requirements favoured large producers of renewable energy over smaller ones. The ECJ states that this requirement was incompatible with European law. The link to the subject matter of the contract was missing in this case. Only the disclosure of production in so far as it was necessary to fulfil the contract would have been justified and regarded as linked to the subject of the contract. The link to the subject matter also found its way into the old Directive and was codified in Article 53 of Directive 2004/18. In the more recent Dutch Coffee case the ECJ had to consider the scope of the link to the subject matter requirement in this Article.50 The case concerned an attempt of a Dutch region to supply fair trade tea and coffee. The European Commission argued that the label used by the Dutch region, named EKO and MAX HAVELAAR, was not linked to the subject-matter

47 ECJ

Judgement, Concordia Bus Finland Oy Ab v Helsinginkaupunki, HKL-Bussiliikenne [2002] ECR2002 I-07213. 48 Ibid., para. 59. 49 ECJ Judgement, EVN and Wienstrom [2003] ECR2003 I/14527, para 67–72. 50 ECJ Judgement, Commission v Kingdom of the Netherlands (Dutch Coffee) [2012] ECR 20120000.

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of the contract, in so far as the criteria underlying those labels do not concern the products to be supplied themselves, but the general policy of the tenderers.51 The ECJ denied this argument. It stated that “[i]n order to assess the validity of the claim that there is an insufficient link between the award criterion at issue and the subject-matter of the contract, it is necessary, first, to take into consideration the criteria underlying the EKO and MAX HAVELAAR labels. As is clear from paragraphs 34 and 37 above, those underlying criteria characterise the products derived from, respectively, organic agriculture and fair trade. With regard to the method of organic production subject to European Union legislation, that is, at the relevant time, Regulation No 2092/91, recitals (2) and (9) in the preamble to that regulation state that method of production promotes environmental protection, inter alia because it implies significant restrictions on the use of fertilisers and pesticides. With regard to fair trade, it is clear from paragraph 37 above that the criteria laid down by the foundation which grants the MAX HAVELAAR label seek to promote the interests of small-scale producers in developing countries while maintaining trading relations with them which take into account the actual need of those producers, and not only the dictates of the market.”52 The court concluded that the contract in question was concerned with the supply of coffee and tea. Only the tea and coffee supplied by the contractor needed to be certified, not the overall purchasing policy of the tender. Therefore, those criteria related to products the supply of which constituted part of the subject-matter of that contract. The new Directive codifies this case law and includes a definition for the link to the subject-matter of the contract in Article 67.3. According to this Article, award criteria shall be considered to be linked to the subject-matter of the public contract where they relate to the works, supplies or services to be provided under that contract in any respect and at any stage of their life cycle, including factors involved in: (a) the specific process of production, provision or trading of those works, supplies or services; or (b) a specific process for another stage of their life cycle, (c) even where such factors do not form part of their material substance. More content is given to the concept when read in conjunction with Recital 97 of the Directive: However, the condition of a link with the subject-matter of the contract excludes criteria and conditions relating to general corporate policy, which cannot be considered as a factor characterising the specific process of production or provision of the purchased works, supplies or services. Contracting authorities hence should not be allowed to require tenderers to have a certain corporate social or environmental responsibility policy in place. In conclusion, a link to the subject matter requires that the criterion refers to the content of the contract and not a general policy of a tender. Public authorities can 51 Ibid., 52 Ibid.,

para 82. para. 90.

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ask for fair trade products, however, they may not ask the tender whether he/she only sells fair trade products. Still this definition is vague and there might be cases where the link to the subject matter might be questionable,53 but it fulfils an important role. Public procurement should not be the tool to regulate the general behaviour of bidder or companies. The right place for regulating general behaviour is regulation. If we want to close a market for a certain product or if a certain behaviour of companies is deemed necessary—the procedure of regulation via the legislator is the right path to go.54 Within public procurement and especially within a certain tender, the public procurement regime should allow for innovation and room to experiment. This room however ends, if criteria no longer connect with the goal purpose or content of the contract at hand. The link to the subject-matter therefore separates the policy space for using European procurement law to pursue environmental protection and social justice and the policy space for national regulation. It divides the room to manoeuvre of the administration in a procurement process and the room to manoeuvre of the legislator in setting general policy goals. It also separates the different policy spaces of the Member States. As those policy spaces might be more or less constraint through European law if it comes to setting national environmental or social regulations. This separation does not solve all possible tensions between environmental policies or the internal market but it provides the purchasing authority with an argumentative structure and framework.

7 Conclusion As other authors have already assessed, the new Directive is a way forward with regard to sustainable procurement. Not only does the Directive change the status of sustainable procurement in the EU procurement law from being a secondary policy towards being a strategic goal, it also clarifies some of the uncertainties for the public authorities in the Member States. And “to a certain extent lowering the regulatory risks attached to this approach under the 2004 Directives.”55 All this should lead to a further increase in sustainable procurement criteria being used and European law will not be conceived as a constraint to sustainable procurement any longer. All the changes in the new Directive, like including sustainable procurement into the main principles of procurement law in Article 18.2 as well as changing the price focus in the award criteria and including life cycle costs, show that the EU legislators obviously wanted to foster sustainable procurement even more. They however abstained from including hard sustainable criteria of what to buy and instead focused on reducing legal constraints and clarifying some of the possibilities. Even 53 For

a critic on this concept see Semple (2014). the distinction government as purchaser and government as regulator see, Arrowsmith and Kunzlik (2009, 9, 21ff). This distinction is also common in US procurement law and is called the “market-participant doctrine”. Regarding this see Krämer (2014). 55 Caranta (2015). 54 For

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so some may find this a pity, it clearly shows respect towards purchasing authorities in the Member States and a sense of necessity that public procurement is not and should not be confused with EU environmental, labour or social law. Ranging from the technical specification to the contract performance clauses, every procurement process step, where sustainable criteria could be included, requires a link to the subject-matter. This requirement also clearly indicates that procurement regimes and sustainable consideration should not be confused or fused together. The European public procurement regime as laid down in Directive 2014/24 clearly enables public authorities to experiment with sustainable products and find innovative solutions. It does not however enable the administration to legislate environmental or social matters via procurement law through the back door. Hereby it draws a line between do’s and don’ts in EU procurement law. In general, the new legislation shows that the EU can live up to its own standards. The principle of sustainability is laid down in Article 3 III TFEU, according to this the EU shall not only establish an internal market. This internal market shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. The protection of the environment is further laid down in Article 11 and Article 191 TFEU. The social values are further specified in Article 151. Both social as well as environmental considerations also found their way into the Charta of Fundamental Rights of the European Union in the Article 25–32 and Article 37 for environmental protection. The integration of sustainable consideration in the procurement process can therefore be seen not only as a political choice of the EU but also as living up to the standards laid down in its own “constitution”.

References Arrowsmith, S., & Kunzlik, P. (2009). Public procurement and horizontal policies in EC law: General principles. In S. Arrowsmith & P. Kunzlik (Eds.), Social and environmental policies in EC procurement law: New directives and new directions. Cambridge University Press. Brammer, S., & Walker, H. (2009). Sustainable procurement in the public sector: An international comparative study. International Journal of Operations & Production Management, 452–476. Burja, A. (2009). Using green public procurement (GPP) for sustainable consumption and production. Journal of European Environmental and Planning Law, 319, 328. Caranta, R. (2010). Sustainable public procurement in the EU’ in Roberto Caranta and Martin Trybus. In The law of green and social procurement in Europe (p. 15, 27). DJØFPublishing Copenhagen. Caranta, R. (2015). The changes to the public contract directives and the story they tell about how EU law works. Common Market Law Review, 391, 397. CEPS and College of Europe. (2012). The uptake of green public procurement in the EU27. Report. Submitted to the European Commission (2012). http://ec.europa.eu/environment/gpp/studies_en. htm. Accessed September 19, 2016. Commission. (2011a). Green paper on the modernisation of EU public procurement policy towards a more efficient European procurement market.

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Commission. (2011b). Proposal for a directive of the European parliament and of the council on public procurement. Dalhammer, C. (2015). The application of ‘life cycle thinking’ in european environmental law: Theory and practice. Journal for European Environmental and Planning Law, 97–127. Defra. (2006). Procuring the future—The sustainable procurement task force national action plan (p. 10). London: DEFRA. Dragus, D. C., & Neamtu, B. (2014). Sustainable public procurement in the EU: Experiences and prospects. In F. Lichere, R.Caranta, & S. Treumer (Eds.), Novelties in the 2014 directive on public procurement (301 ff). DJØF Publishing Copenhagen. European Commission. (2004). Buying green, a handbook on green public procurement (1 ed.). European Commission. (2010). Buying social, a guide to taking account of social considerations in public procurement. European Commission. (2011). Buying green, a handbook on green public procurement (2nd ed., p. 28). European Commission. (2016a). Public Procurement. https://ec.europa.eu/growth/single-market/ public-procurement_en. Accessed, September 19, 2016. European Commission. (2016b). Buying green, a handbook on green public procurement (3rd ed.). Hettne, J. (2013). Strategic use of public procurement—Limits and opportunities. European Policy Analysis, 1–18. Kahlenborn et al. (2011). Strategic use of public procurement in Europe. http://ec.europa.eu/ internal_market/publicprocurement/docs/modernising_rules/strategic-use-public-procurementeurope_en.pdf. Final Report to the European Commission MARKT/2010/02/C. Accessed, May 7, 2019. Krämer, R. (2013). Die Koordinierung zwischen Umweltschutz und Freihandel im Mehrebenenrechtsverbund am Beispiel des Vergaberecht. Tübingen: Mohr Siebeck. Krämer, R. (2014). Trade and environment: Diagonal conflicts in WTO, EU and U.S. procurement law. Jean Monnet Working paper 13/14. Kunzlik, P. (2003). Making the market work for the environment: Acceptance of (some) ‘green’ contract award criteria in public procurement. Journal of Environmental Law, 175–201. Kunzlik, P. (2013). Green public procurement—European law, environmental standards and “what to buy” decisions’. Journal of Environmental Law, 173–202. Opitz, M. (2004). Das Legislativpaket—Die neuen Regelungen zur Berücksichtigung umwelt-und sozialpolitischer Belange bei der Vergabe öffentlicher Aufträge (p. 421, 425). VergabeR. Pauwelyn, J. (2004). Recent books on trade and environment: Gatt phantoms still haunt the WTO’. European Law Journal, 575–592. Pitschas, C., & Prieß, H.-J. (2000). Secondary policy criteria and their compatibility with EC and WTO procurement law—The case of the German scientology declaration. Public Procurement Law Review, 171–195. Preuss, L. (2009). Addressing sustainable development through public procurement: The case of local government. Supply Chain Management: An international Journal, 213, 217. Sarasvathy, S. D., & Dew, N. (2005) New market creation through transformation. Journal of Evolutionary Economics, 15, 533, 536. Semple, A. (2014). The link to the subject-matter: A glass ceiling for sustainable public contracts. Working Paper. https://ssrn.com/abstract=2565051. Accessed May 7, 2019. Sustainable Procurement Platform. (2016). http://www.sustainable-procurement.org/about-spp/. Accessed September 19, 2016. Tinbergen, J. (1965). International economic integration (2nd ed, 76 ff). Elsevier. Van der Abeele, E. (2014). Integrating social and environmental dimensions in public procurement: One small step for the internal market, one giant leap for the EU? ETUI Working Paper 2014. World Commission on Environment and Development. (1987). From one earth to one world: An overview. Oxford: Oxford University Press.

Part IV

Cooperation Between Indian and the European Union

The EU-India Development Partnership: Legal Framework and Political Perspectives Markus Kaltenborn

1 Introduction The Development Partnership between India and the EU already looks back at more than fifty years of manifold experience. The Indian government and the EU institutions are meanwhile cooperating in a wide range of subjects—starting from “classical” rural development and infrastructure projects right up to large scale sector support programs mainly in the health and education sector. Measured against the total volume of the Official Development Assistance (ODA) which India is receiving from the international community, the Europeans are among the most important partners of India. According to the figures published by the OECD for the years 2016–2017, EU institutions and the three most important European donor countries—UK, France and Germany—provided development aid to India amounting to 1.6 billion US-Dollar 1 per year. Moreover, it should be noted that the projects of the International Development Association (which is after Japan, the biggest donor to India) are funded largely by contributions made by the governments of its richer member countries—amounting to about 40% from EU Member States. Similar calculations can be made for the Global Fund to Fight AIDS, Tuberculosis and Malaria and for Gavi, the Vaccine Alliance, which both get nearly half of its replenishments from European countries and from the European Commission. 1 OECD Development Co-operation Directorate, Aid at a glance charts. Interactive summary charts by aid (ODA) recipients (India). https://public.tableau.com/views/ OECDDACAidataglancebyrecipient_new/Recipients?:embed=y&:display_count=yes&: showTabs=y&:toolbar=no?&:showVizHome=no, accessed on 31 July 2017. India related development projects funded by the EU are listed at European Commission, International Cooperation and Development, India. http://ec.europa.eu/europeaid/countries/india_en, accessed on 31 July 2017.

M. Kaltenborn (B) Faculty of Law, Institute of Development Research and Development Policy (IEE), Ruhr University Bochum, Bochum, Germany e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_10

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This article analyzes some legal aspects of the EU-India Development Partnership.2 First, a short overview of the bilateral framework of the partnership is provided (I.). In the following a broader perspective is taken which includes both the European legal background of the EU-India relations (II.) and the international legal framework of such development partnerships (III.).

2 The Bilateral Framework of the EU-India Development Partnership The main underlying legal and political instruments of the relations between India and the EU are the Cooperation Agreement of 19943 on the one hand and the EU-India Joint Action Plan4 as well as the recently adopted EU-India Agenda for Action-2020 on the other hand.5 Whereas the first instrument is a legal one—in the strict sense of the word—the other two belong to the realm of “soft law”, which, of course, does not imply their minor importance. 1. The Cooperation Agreement of 1994: Although meanwhile more than twenty years old, the Cooperation Agreement is still the current legal framework for the partnership. Its primary objectives are, among others, the further development and diversification of trade and investment, a better mutual understanding and the strengthening of ties between the two regions with regard to technical, economic and cultural matters, the promotion of exchange and connections between their business communities, and in addition the support of India’s efforts in building up its economic capabilities, in particular to improve the living conditions of the poorer sections of the population (Art. 1 of the Cooperation Agreement). As a consequence, the Agree2 For

an in-de pth analysis of the partnership see Jain (2007), Baroowa (2007), Wagner (2008), Abhyankar (2009), Wülbers (2010), Peral and Sakhuja (2012), Hess (2013), Khandekar (2013), Jain (2014a, b), Mawdsley (2014), Schmidt (2015a, b),Winand et al. (2015), Kavalski (2016); Jain and Pandey (2019); cf. also the contributions to the Foreign Policy Research Journal 2013 (1). http:// www.fprc.in/pdf/J-13.pdf, accessed on 31 July 2017. 3 Cooperation Agreement between the European Community and the Republic of India on partnership and development, Official Journal of the European Communities, 27.8.94, No L 223/24. 4 European Union, ‘EU-India Summit Marseille, 29 September 2008: Global partners for global challenges. The EU-India Joint Action Plan (JAP)’. http://eeas.europa.eu/india/sum09_08/joint_ action_plan_2008_en.pdf, accessed on 31 July 2017; India-EU Strategic Partnership, Joint Action Plan of 2005, (September 2005). http://eeas.europa.eu/india/docs/joint_action_plan_060905_en. pdf, accessed on 31 July 2017. 5 EU-India Agenda for Action-2020 (March 2016). http://www.consilium.europa.eu/en/meetings/ international-summit/2016/03/30/, accessed on 31 July 2017. For more specific sectors of cooperation between India and the EU (e.g. energy, climate change, water, migration and mobility, security) see the documents listed by the European Union External Action Service in the EU-India Relations Fact Sheet. http://eeas.europa.eu/factsheets/docs/eu-india_factsheet_en.pdf, accessed on 31 July 2017 and in the feature story ‘EU-India Summit: A new momentum for the EU-India Strategic Partnership’, (March 2016). http://eeas.europa.eu/headquarters/headquarters-homepage/3538/ eu-india-summit-a-new-momentum-for-the-eu-india-strategic-partnership_en, accessed on 31 July 2017.

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ment covers several fields of cooperation (e.g. trade, agriculture, industry, energy, telecommunication, intellectual property, investment, services, tourism, science and environment). In terms of development cooperation, the Agreement emphasizes the importance of rural development and the public health sector, as well as further projects and programs targeted towards the poorer sections of the population (Art. 16 para 2 and 3 of the Cooperation Agreement). It should also be mentioned, that the Agreement already refers to the idea of a “development partnership” with regard to the emphasis on “mutually agreed priorities”. On the governance level a Joint Commission was established. It consists of highranking representatives of both sides who shall meet every year, either in Brussels or in New Delhi (Art. 22 of the Cooperation Agreement). In a press release the European Commission praised this governance structure for having opened the door to the broad political dialogue that has since evolved, notably through annual summits since 2000, and through regular ministerial and expert-level meetings.6

However, for several years this dialogue had lost some of its momentum; particularly the diplomatic problems caused by the Italian marine case7 had led to an interruption of the annual sequence of conferences. But meanwhile—following to the long-delayed EU-India summit held in March 20168 —the dialogue has been resumed. 2. EU-India Joint Action Plan: The EU-India Joint Action Plan (JAP), adopted at the 2005 summit and reviewed in 2008, is based on the Cooperation Agreement, but also brings out some new points such as, for instance, peacekeeping, post-conflict assistance, disarmament and cooperation in counter-terrorism efforts as well as new activities to address the global problem of climate change. The plan follows the European Commission’s Communication of June 2004 on an “EU-India Strategic Partnership”9 and the Indian Response Paper of the same year.10 With regard to development cooperation, the objective of the partnership is to deepen the cooperation both in the health and the education sector, primarily by supplementing two important Indian social sector programs (universalization of elementary education

6 European

Commission, ‘EU-India Relations. General Background Note’, MEMO/10/265 of 21 June 2010. http://europa.eu/rapid/press-release_MEMO-10-265_de.htm?locale=en, accessed on 31 July 2017. 7 Panda (2016). See also the Statement by High Representative/Vice-President Federica Mogherini on the developments in the case of two Italian military personnel in India, 16.12.2014. http://eeas. europa.eu/statements-eeas/2014/141216_04_en.htm, accessed on 31 July 2017. 8 European Commission (2016). 9 European Commission, ‘Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee of 16 June 2004: An EU-India Strategic Partnership’ COM (2004) 430 final—not published in the Official Journal. See generally on the concept of “strategic partnerships”, Ferreira-Pereira and Vieira (2016). 10 See, Ministry of External Affairs, Government of India, Indian Response to EU Communication on a Strategic Partnership, August 2004.

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[Sarva Shiksa Abhiyan]11 and the National Rural Health Mission [NAHM]12 ). This shift from a project-based approach to a sector-wide approach offers certain advantages, including the potential for a more harmonized and coherent set of policies and strategies, wider impact, more local ownership and better chances of sustainability.13 The two focal sectors—health and education—can also be found in the Country Strategy Paper for India (2007–2013) published by the European Commission in 2008.14 According to this paper it is necessary to (a)ssist India in meeting the MDGs [Millennium Development Goals] by providing budget support to the social sector (health/education), encompassing best practice models in good governance, decentralised decision-making and development, including innovative methods for improved service delivery to address poverty, gender issues, institutional reforms and public sector management.15

The Mid-Term Review16 stated, that for the period 2011–2013 up to 85% of the EU-budget for development cooperation with India shall be allocated to the social sector, the rest shall be used for the implementation of other parts of the Joint Action Plan (mainly in the sectors Higher Education, Energy and Environment and Trade Related Technical Assistance). Another point in the Join Action Plan, worth mentioning, emphasizes the role of India as a so-called “new donor”—as an “increasingly active player in an evolving development policy”.17 This important new dimension of the India-EU development partnership fits well with recent developments at the global level and is therefore discussed in more detail later (see infra III.). 3. The EU-India Agenda for Action-2020: The 13th Summit between the European Union and India which took place in Brussels on 30 March 2016 gave—after quite a long period of inactivity—new momentum to the partnership.18 The Presidents of the European Council and of the European Commission and the Prime Minister of India endorsed the “EU-India agenda for action 2020” which reemphasized those objectives that were largely already subject to the previous action plan (e.g. in areas such

11 See,

Ministry of Human Resource Development, Sarva Shiksha Abhiyan. http://mhrd.gov.in/ sarva-shiksha-abhiyan, accessed on 31 July 2017. 12 See, Ministry of Health & Family Welfare, National Rural Health Mission. http://nhm.gov.in/ nhm/nrhm.html, accessed on 31 July 2017. 13 Special Report No 10/2003 concerning the effectiveness of the Commission’s management of development assistance to India in targeting the poor and ensuring sustainable benefits, together with the Commission’s replies (pursuant to Article 248(4), second subparagraph, EC) (2003/C 211/02), [57]. 14 European Commission, India: Country Strategy Paper 2007–2013. http://eeas.europa.eu/india/ csp/07_13_en.pdf, accessed on 31 July 2017. 15 Ibid., p. 1. 16 European Commission, India: Country Strategy Paper 2007–2013, Mid-Term Review (April 2010). http://eeas.europa.eu/india/csp/11_13_mtr_en.pdf, accessed on 31 July 2017. 17 Joint Action Plan of 2005 (n 4), p. 19. 18 For an analysis of the summit see Kandhekar (2016), Frontini and Mocker (2016).

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as foreign policy, security cooperation, human rights, trade,19 investment, business, environment, climate change, energy, information and communications technology). No special section is explicitly devoted to development cooperation, but there are several issues mentioned in the Agenda which can be broadly assigned to it: Both partners want to strengthen cooperation on education including through India’s Global Initiative of Academic Networks (GIAN) program20 and EU’s Erasmus + program,21 in addition they intend to cooperate in the field of skills development, and to explore possibilities within G20 to enhance collaboration in order to promote, among others, decent work, productive employment and social protection. Urban development (including a regular dialogue on issues such as infrastructure, energy, sanitation and water management) is another priority theme of the partnership. A clear focus on development cooperation can also be seen in the commitment to the 2030 Agenda for Sustainable Development. Development policy issues were raised again at the 14th Summit held in New Delhi on 6 October 2017 where the leaders advocated for the continuation of the EU-India Development Dialogue and adopted, among others, a Joint Statement on Clean Energy and Climate Change and a Joint Declaration on a Partnership for Smart and Sustainable Urbanisation.22

19 It is, however, noteworthy that there has been no remarkable progress in negotiating the BroadBased Trade and Investment Agreement (BTIA) which is already under negotiation since 2007. As Frontini & Mocker (n 18) have summarized “talks have stalled due to markedly different positions on trade liberalization and the needs and rights of an emerging economy like India. In a nutshell, Brussels demands lower tariff barriers and increased access to public procurement, as well as stronger protection of intellectual property rights in India. Delhi would like to see greater temporary mobility for its skilled professionals in Europe and urges the EU to grant its world-class IT companies ‘data security’ status, thereby improving business prospects with and within Europe”. See also, Khorana et al. (2010), Goddeeris and Unkule (2013), Wouters et al. (2014), Garcia and Masselot (2015), Orbie and Khorana (2015), Mukherjee et al. (2015). 20 See, Global Initiative of Academic Networks. http://www.gian.iitkgp.ac.in/, accessed on 31 July 2017. 21 See, EU’s Erasmus + program. https://ec.europa.eu/programmes/erasmus-plus/node_en, accessed on 31 July 2017. 22 See, European Commission, ‘EU—India Summit: strengthening our strategic partnership and moving forward with our common agenda’, Press Release of 6 October 2017. http://europa.eu/rapid/ press-release_IP-17-3728_en.htm, accessed on 7 May 2019. Sustainable development, research cooperation as well as trade and investment issues are also thematized by the Joint Communication ‘Elements for an EU strategy on India’ which the European Commission and the High Representative of the Union for Foreign Affairs and Security Policy adopted in November 2018, JOIN(2018) 28 final.

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3 European Union Law and Development Cooperation—Complementarity of EU Programs and Member States’ Activities 1. Parallel competences: The Cooperation Agreement of 1994 as the main legal framework for the relations between India and the EU is an international treaty concluded on the European side solely by the Council of the European Union. It is no “mixed agreement” wherefore the EU member states themselves are not parties to this treaty. In 1996 the European Court of Justice confirmed that the approach, which has been chosen for the agreement, corresponds to the provisions of EU primary law.23 The EU competence governing development cooperation is characterized as a so called “parallel competence”: The European Union is authorized to engage in political and legal activities in this area, but the Member States can exercise their corresponding competences as well. Art. 4 para. 4 of the Treaty on the Functioning of the European Union (TFEU) states: In the areas of development cooperation and humanitarian aid, the Union shall have competence to carry out activities and conduct a common policy; however, the exercise of that competence shall not result in Member States being prevented from exercising theirs.

This statement is supplemented by Article 208 para. 1 TFEU which says: The Union’s development cooperation policy and that of the Member States complement and reinforce each other.

The India-EU Cooperation Agreement of 1994 contains a clause which seeks to tackle this phenomenon of parallel competences. According to Art. 25: this Agreement nor any action taken thereunder shall in any way affect the powers of the Member States of the Communities to undertake bilateral activities with India in the framework of economic cooperation or to conclude, where appropriate, new economic cooperation agreements with India.

As a consequence, India needs to negotiate not only with one partner on the European side, when it comes to talking about new priorities or new programs in the field of development cooperation but it is essential to address also the individual EU Member States. On the one hand, the Government of India is in close contact with the EU Commission, but on the other hand it is also holding intensive talks with the foreign offices, ministries for development cooperation and development agencies of several 23 See Case C-268/94, Portugal v. Council I-6207 [1996], [30] et seq.—Both in the academic sphere

and in the practice of external relations there is an ongoing debate on how to determine the competence spheres of the Union and its member states with regard to agreements with third countries. While the case of the EU-India-agreement has been clarified in court, clarification is still needed in other cases where EU agreements also include subjects belonging to the competence sphere of member states. For the discussion on CETA and TTIP—the agreements which the EU wants to conclude with Canada and the US—see e.g. European Parliament, ‘EU-Canada Comprehensive Economic and Trade Agreement’, Briefing January 2016, p. 3. http://www.europarl.europa.eu/ RegData/etudes/BRIE/2016/573929/EPRS_BRI(2016)573929_EN.pdf, accessed on 31 July 2017; Barbière (2016).

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Member States of the European Union. At first sight, this institutional design seems to be a suboptimal—if not even problematic—basis for a “partnership”. But the consequences of such a multitude of actors are not necessarily adverse: Certainly this leads to an increased administrative burden—particularly for the Indian side—but it should not be overlooked that such parallel competences can also result in a competition of approaches and ideas which could be very fruitful for the effectiveness of development cooperation. This argument is well known from the domestic debates on federalism: The proponents of a federal system mostly refer to the concept of “competitive federalism”24 —a concept according to which the “best” policies and “best” legislative proposals come out on top in the long run. 2. The principle of complementarity—from parallel to joint programming: It is, however, important to emphasize that European primary law does not allow the parallel exercise of competences in development cooperation without any restrictions: As Art. 208 TFEU states, the Union’s development cooperation policy and the ones of the Member States have to be guided by the principle of complementarity.25 Furthermore, Article 210 TFEU has to be taken into consideration which stipulates that (i)n order to promote the complementarity and efficiency of their action, the Union and the Member States shall coordinate their policies on development cooperation and shall consult each other on their aid programmes (…). They may undertake joint action. Member States shall contribute if necessary to the implementation of Union aid programmes.

Over the past decade the EU institutions made several efforts to improve the implementation of the principle of complementarity: In 2007 a “Code of Conduct on Division of Labour in Development Policy” was adopted which recommends to concentrate the activities on a limited number of national sectors (so called focal sectors).26 Therefore, EU donors are required to confine their assistance in a partner country to two sectors for which they offer the best comparative advantage, as recognized by the government of the partner country and the other donors. Apart from these two sectors, donors should provide budget support and finance programs. Or, to take an another proposal of the Code of Conduct: In each priority sector it is recommended to establish a lead donorship with a focus on the coordination of all donor activities in the respective sector for reducing the transaction costs; in addition, delegated cooperation arrangements could enable a donor to act on behalf of other donors concerning the administration of funds, but also to pursue the dialogue with the partner government to decide which policy is to be implemented in the respective sector. Furthermore, the EU institutions are seeking to encourage the Member States as well as their own officials to go further on Joint Programming.27 24 See,

Watts (2007). more details of the interpretation of this principle see Carbone (2007), pp. 48, 56, Bartelt (2008), p. 31, Van Vooren and Wessel (2014), p. 313, cf. also Dann (2013), pp. 332, 345. 26 European Commission, ‘Communication from the Commission to the Council and the European Parliament, EU Code of Conduct on Division of labour in Development Policy’ COM (2007) 72 final. 27 On joint programming, see Council of the European Union, ‘Council conclusions on stepping up Joint Programming’, No. 8831/16, http://data.consilium.europa.eu/doc/document/ST-8831-2016INIT/en/pdf, accessed on 7 May 2019; Joint statement by the Council and the representatives of 25 For

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This approach serves as an instrument to improve coordination amongst donors: Each of their partner countries needs to be analyzed to identify those areas in need of most support, to determine which donor should work in which sector, and how much resources should be allocated as a result.28 Where appropriate, other donors can be involved in this process. The new “Global Strategy on Foreign and Security Policy”29 which has been presented by European Union’s High Representative for Foreign Affairs and Security Policy, Ms. Mogherini, in June 2016 likewise focuses on more cooperation of the EU and the member states in their relations to their partners in the Global South and as a consequence claims the need to enhance joint programming.30 Certainly, in practice there are some limits to all these efforts towards improved complementarity and better coordination: Many Member States are focusing their aid programs on a reduced number of targeted countries, but not yet in a really “coordinated” way.31 Moreover, the implementation of concepts such as “lead donorship”, “delegated cooperation” or “joint programming” is still a challenging task with regard to the wish of several Member States to not dilute their bilateral relationships.32 But on the whole, the past few years were fruitful with regard to enhanced complementarity and coordination. What does this mean for the India-EU Development Partnership? In the “Joint Programming Tracker”33 the countries are listed where Joint Programming is implemented. India has not been mentioned in the list. This is because the Commission progressively shifts its relationships with new donors such as India away from bilateral cooperation through projects and programs towards more strategic partnerships on global and regional development issues.34 Since 2014, the EU is therefore phasing out direct aid to India. This process which can also be called ‘graduation’ is equally relevant to other Asian countries (e.g. China, Indonesia, Thailand, and Malaysia). However, this does not mean that these countries are no longer partners for the the governments of the Member States meeting within the Council, the European Parliament and the Commission ‘The New European Consensus on Development’, Official Journal of the European Union, 30.6.2017, 2017/C 210/01, para. 757; European Commission (2017); and https://ec. europa.eu/europeaid/policies/eu-approach-aid-effectiveness/joint-programming_en, accessed on 7 May 2019; furthermore Furness and Vollmer (2013), Galeazzi et al. (2013). See also generally on implementing coordination and division of labour among European donors, European Union (2014), p. 16. 28 European Commission, ‘The European Union announces new initiatives to increase transparency and improve coordination in aid delivery’, Press Release of 30 November 2011. http://europa.eu/ rapid/press-release_IP-11-1472_en.htm, accessed on 31 July 2017. 29 European Union (2016). 30 Ibid., p. 49. 31 OECD—Development Assistance Committee (2012), p. 77. 32 Ibid., p. 77. On progress in the area of joint programming in recent years see European Commission, Mid-term review report of the External Financing Instruments, COM (2017) 720 final, p. 17; OECD—Development Assistance Committee (2018), p. 82. 33 See, https://europa.eu/capacity4dev/joint-programming/minisite/country-cases/jointprogramming-tracker, accessed on 7 May 2019. 34 Cf. also Koch (2015), p. 483.

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EU in bilateral development cooperation. Rather, they have reserved eligibility for programs with a regional or thematic focus. Apart from that, several Member States of the EU are important development partners of the Indian government—and they intend to maintain this position also in future. Germany is a good example: The main areas of the German development cooperation with India are the energy sector, environmental protection and sustainable urban development, as well as innovative development policy approaches, for instance in social and economic policy.35 Most of these subjects are also priority themes of the EU relations with the Indian government. Therefore, it is quite obvious that improving complementarity will remain a relevant issue for the governance of the EU-India development partnership.

4 The EU and India as Partners in Triangular Development Cooperation Not least, there is considerable impetus for the future of the India-EU-development partnership emanating from the international political and legal sphere. Besides the new goals of the UN 2030 Agenda for Sustainable Development,36 which now form the conceptual framework of future development cooperation, the conference-series both on Financing for Development37 and on Aid-Effectiveness38 mainly affect the organizational (and as a consequence also legal) design of development cooperation. In the present context, the debates on the role of the so-called “new donors” (such as India) and their relationship to the “old donors” (such as the European Union) are of particular relevance. At the 4th High Level Forum on Aid-Effectiveness, which took place in Busan, Korea, in 2011, the participating governments and international organizations adopted a document called “Busan Partnership for Effective Development Co-operation”.39 In section 14 of the document it is stated: Today’s complex architecture for development co-operation has evolved from the NorthSouth paradigm. Distinct from the traditional relationship between aid providers and recipients, developing nations and a number of emerging economies have become important providers of South-South development co-operation. They remain developing countries and still face poverty at home. As such, they remain eligible to benefit from development co35 Federal Ministry of Economic Cooperation and Development (BMZ), ‘India’. http://www.bmz. de/en/countries_regions/asien/indien/index.html, accessed on 7 May 2019. 36 See, United Nations on ‘Sustainable Development Knowledge Platform’. https:// sustainabledevelopment.un.org/post2015/transformingourworld, accessed on 31 July 2017. See, on India’s engagement in the SDG process at UN and country level, Lucci et al. (2015), p. 4. 37 See, United Nations, Department of Economic and Social Affairs, Financing for Development. http://www.un.org/esa/ffd/, accessed on 31 July 2017. 38 See, OECD for Effective Development. http://www.oecd.org/development/effectiveness/, accessed 31 July 2017. 39 Busan Partnership for Effective Development Co-operation (2011). See also http:// effectivecooperation.org/, accessed on 7 May 2019.

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operation provided by others, yet they have increasingly taken upon themselves the responsibility to share experiences and co-operate with other developing countries. … While NorthSouth co-operation remains the main form of development co-operation, South-South cooperation continues to evolve, providing additional diversity of resources for development. At Busan, we now all form an integral part of a new and more inclusive development agenda, in which these actors participate on the basis of common goals, shared principles and differential commitments.

And moreover, in section 30 of the Busan Partnership document, a specific form of collaboration between old and new donors is described—the so-called triangular cooperation: South-South and triangular co-operation have the potential to transform developing countries’ policies and approaches to service delivery by bringing effective, locally owned solutions that are appropriate to country contexts. We recognise that many countries engaged in South-South co-operation both provide and receive diverse resources and expertise at the same time, and that this should enrich co-operation without affecting a country’s eligibility to receive assistance from others. We will strengthen the sharing of knowledge and mutual learning by scaling up – where appropriate – the use of triangular approaches to development co-operation ….

The authors of the EU-India Joint Action Plan (JAP) already pointed out the promising options associated with India’s position of an emerging bilateral donor. They see the opportunity “for a fruitful EU-India dialogue on optimal implementation of development cooperation in third countries.”40 Currently, India is engaged as a development partner primarily in some of its neighboring countries,41 but political observers also see significant potential for a closer relationship with Latin America and, more particularly, with African countries.42 The current main sectors of India’s development co-operation are health, education, energy and information technology. According to OECD estimates, India’s total concessional development finance

40 EU-India

Joint Action Plan of 2005 (n 4), p. 19.

41 OECD-Development Co-operation Directorate, ‘India’s Development Co-operation’. http://www.

oecd.org/dac/dac-global-relations/indias-development-co-operation.htm, accessed on 31 July 2017; see also OECD-Development Co-operation Directorate, ‘Development Co-operation by Countries Beyond the DAC’ (2015), p. 6. http://www.oecd.org/dac/dac-global-relations/Dev%20Coop% 20by%20Countries%20beyond%20the%20DAC.pdf, accessed on 31 July 2017. For more details on India’s development cooperation see Chaturvedi et al. (2014), Katti et al. (2013), cf. also Choedon (2015). 42 Shyam Saran, ‘India-Africa Cooperation on Global Issues’. http://www.mea.gov.in/in-focusarticle.htm?25957/IndiaAfrica+Cooperation+on+Global+Issues, accessed on 31 July 2017; see also generally Michael (2014), McCormick (2008).

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amounted to 1.4 billion US-Dollar in 2014.43 Moreover, on the global level, India is very active in South-South learning programs. From the European perspective, this South-South engagement of the Indian Government could be the basis for enhanced trilateral programs.44 There are several policy fields, where triangular cooperation could not only be a powerful way of fostering the international exchange of knowledge, but also reinforce the effectiveness of development projects.45 The German government, for instance, runs a program called “Global alliances for social protection”.46 In this program several emerging economies, including India, exchange their knowledge on the organization and expansion of social protection systems. India has already extensive experience in building large-scale and efficient social protection systems –the national health insurance program “Rashtriya Swasthya Bima Yojna” (RSBY)47 or the famous public works program based on the “Mahatma Gandhi National Rural Employment Guarantee Act” (MGNREGA)48 are prominent examples.49 This could be a policy area well suited for triangular programs, through which India and Germany are encouraged to cooperate in the fight against absolute poverty not only with other emerging economies, but also with poorer developing countries.50 43 OECD-Development

Co-operation Directorate (n 39), p. 6.—According to the Remarks by Ambassador Dr. Palitha Kohona, Permanent Representative of Sri Lanka to the United Nations on behalf of India-Pakistan-Sri Lanka Troika at the 6th session of the Open Working Group on Sustainable Development Goals (9–13 December 2013) there is “much potential in South-South and triangular cooperation. However, it is our consistent position that South-South co-operation is only a supplement and not a substitute to North-South cooperation.”; see, ‘Partnerships and Means of Implementation for achieving Sustainable Development’, (December 2013). https:// sustainabledevelopment.un.org/content/documents/5103srilanka2.pdf, accessed on 31 July 2017. 44 Cf. also European Union, Evaluation of the EU-India Strategic Partnership and the potential for its revitalisation, Study of the Policy Department, Directorate-General for External Policies on request by the European Parliament’s Committee on Foreign Affairs (2015), p. 34 (“A regular dialogue between the EU and the Indian Development Partnership Administration (DPA) could promote a better understanding of Indian activities abroad and may help to identify areas of joint project implementation in third countries.”). 45 See Federal Ministry of Economic Cooperation and Development (BMZ), ‘Triangular cooperation—New forms of cooperation’. https://www.bmz.de/en/what_we_do/approaches/triangular_ cooperation/index.html, accessed on 31 July 2017. For an overview of the different forms of cooperation with so called “Global Development Partners” (such as India) see Federal Ministry of Economic Cooperation and Development (BMZ), Development cooperation with Global Development Partners. Sharing responsibility—Shaping sustainable development (BMZ Strategy Paper 4/2015e), pp. 9 et seq.; on triangular development initiatives see also, generally, OECD-Development Cooperation Directorate (2013), Quiñones (2015), and http://www.oecd.org/dac/dac-global-relations/ triangular-cooperation.htm, accessed on 7 May 2019. 46 See, ‘Global Alliances for Social Protection’. https://www.giz.de/en/worldwide/29046.html, accessed on 7 May 2019. 47 See, http://www.rsby.gov.in/, accessed on 31 July 2017. See also the new program “Ayushman Bharat Yojana”, https://www.pmjay.gov.in/, accessed on 7 May 2019. 48 See, http://www.nrega.nic.in/netnrega/home.aspx, accessed on 31 July 2017. 49 On India’s social protection policy see, generally, Mutatkar (2013). 50 See, generally, on the impact of South-South approaches in social protection policies, Surender and Urbina-Ferretjans (2013).

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The implementation of trilateral programs is undoubtedly not an easy task—and there is, of course, no “one-size-fits-all”-solution to deal with the practical problems which arise from the different expectations of the parties involved. But it is to be assumed that these and similar approaches will shape the future of the EU-India development partnership.

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Furness, M., & Vollmer, F. (2013). EU joint programming: Lessons from South Sudan for EU aid coordination (p. 18). German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE) Briefing Paper. https://www.die-gdi.de/uploads/media/BP_18.2013.pdf. Accessed on July 31, 2017. Galeazzi, G., Helly, D., & Krätke, F. (2013). All for one or free-for-all? Early experiences in EU joint programming. ecdpmBriefing Note, 50. http://ecdpm.org/publications/one-free-earlyexperiences-eu-joint-programming/. Accessed July 31, 2017. Garcia, M., & Masselot, A. (2015). EU-Asia free trade agreements as tools for social norm/legislation transfer. Asia Europe Journal, 13, 241. Goddeeris, I, & Unkule, K. (2013) The EU–India free trade agreement negotiations: Political concerns and social reaction. In Jakub Zajczkowski, Jivanta Schottli, & Manish Thapa (Eds.), India in the contemporary world. Polity, economy and international relations (p. 446). India: Routledge. Hess, N. M. (2013). Understanding the EU’s strategic partnerships with Brazil, India and South Africa (pp. 302–318) (Dissertation). University of Hamburg. http://d-nb.info/1053811268/34. Accessed July 31, 2017. Jain, R. K. (Ed.). (2007). India and the European Union. Radiant: Building a Strategic Partnership. Jain, R. K. (Ed.). (2014a). India and the European Union in a changing world. Aakar Books. Jain, R. K. (Ed.). (2014b). India-EU strategic partnership: Perceptions and perspectives. NFG Working Paper Series, no. 10. NFG Research Group “Asian Perceptions of the EU” Freie Universität Berlin. Jain, R. K., & Pandey, S. (2019). The EU global strategy and EU-India relations. A perceptions study. In Natalia Chaban & Martin Holland (Eds.), Shaping the EU global strategy. Partners and perceptions (p. 101). Palgrave Macmillan. Kandhekar, G. (2016). EU-India—Reincarnation of a strategic partnership. EU Observor. https:// euobserver.com/opinion/132847. Accessed July 31, 2017. Katti, V., Chahoud, T., & Kaushik, A. (2013). India’s development cooperation—Opportunities and challenges for international development cooperation (p. 18). German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE) Briefing Paper. https://www.die-gdi.de/ uploads/media/BP_3.2009.pdf. Accessed July 31, 2017. Kavalski, E. (2016). The EU–India strategic partnership: Neither very strategic, nor much of a partnership. Cambridge Review of International Affairs, 29, 192. Khandekar, G. (2013). The EU-India strategic partnership. From blind acknowledgement towards recognition. European foreign affairs review, 18, 487. Khorana, S., Perdikis, N., Yeung, M. T., & Kerr, W. A. (2010). Bilateral trade agreements in the era of globalization. Edward Elgar. Koch, S. (2015). From poverty reduction to mutual interests? The Debate on differentiation in EU development policy. Development Policy Review, 33, 479. Lucci, P., Khan, A., & Stuart, E. (2015). Means of implementation and the global partnership for sustainable development: What’s in it for emerging economies?. Overseas Development Institute. Mawdsley, E. (2014). Development and the India-EU strategic partnership: Missing incentives and divergent identities. In C. Castillejo (Ed.), New donors, new partners? EU strategic partnerships and development (p. 35). Academia Press. McCormick, D. (2008). China and India as Africa’s new donors: The impact of aid on development. Review of African Political Economy, 35, 73. Michael, A. (2014). Advent of a ‘Game Changer’?: India’s economic, political and strategic engagement in Sub-Saharan Africa from 1991 until 2014. India Quarterly, 70, 341. Mukherjee, A., Chanda, R., & Goyal, T. M. (Eds.). (2015). Trade in services & trade agreements: Perspectives from India and the European Union. Sage. Mutatkar, R. (2013). Social protection in India: Current approaches and issues. In J. Midgley & D. Piachaud (Eds.), Social protection, economic growth and social change. Goals, issues and trajectories in China, India, Brazil and South Africa (p. 102). Edward Elgar. OECD–Development Assistance Committee (2012). Peer Review European Union 2012. OECD. http://www.oecd.org/dac/peer-reviews/peer-review-europeanunion. Accessed July 31, 2017.

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OECD–Development Co-operation Directorate (2013). Triangular cooperation. What can we learn from a survey of actors involved? OECD. https://www.oecd.org/dac/dac-global-relations/ OECD%20Triangluar%20Co-operation%20Survey%20Report%20-%20June%202013.pdf. Accessed July 31, 2017. OECD–Development Assistance Committee (2018). Peer Review European Union 2018. OECD. https://read.oecd-ilibrary.org/development/oecd-development-co-operation-peer-reviewseuropean-union-2018_9789264309494-en#page84. Accessed May 7, 2019. Orbie, J., & Khorana, S. (2015). Normative versus market power Europe? The EU-India trade agreement.Asia Europe Journal, 13, 253. Panda, A. (2016). Where do European Union-India relations stand? The Diplomat. http:// thediplomat.com/2016/03/where-do-european-union-india-relations-stand/. Accessed July 31, 2017. Peral, L., & Sakhuja, V. (2012). The EU-India partnership: Time to go strategic?. EU Institute for Security Studies. Quiñones, B. R., Jr. (2015). Social and solidarity economy in Asia: A south-south and triangular cooperation perspective. International Labour Organization. http://www.ilo.org/wcmsp5/groups/ public/---dgreports/---exrel/documents/publication/wcms_366029.pdf. Accessed July 31, 2017. Schmidt, J. D. (2015a). India’s rise, the European Union and the BRICS: An uneasy relation. In M. Rewizorski (Ed.), The European Union and the BRICS: Complex relations in the era of global governance (p. 121). Springer. Schmidt, J. D. (2015b). India and the European Union. A precarious relationship. Asia Europe Journal, 13, 443. Surender, R., & Urbina-Ferretjans, M. (2013). South-South cooperation: A new paradigm for global social policy. In R. Surender & R. Walker (Eds.), Social policy in a developing world (p. 237). Edward Elgar. Van Vooren, B. & Wessel, R. A. (2014). EU external relations law. Text, cases and materials. Cambridge University Press. Wagner, C. (2008). The EU and India: A deepening partnership. In Giovanni Grevi & Álvaro de Vasconcelos (Eds.), Partnerships for effective multilateralism. EU relations with Brazil, China, India and Russia (p. 87). Chaillot Paper no. 109. http://www.iss.europa.eu/uploads/media/cp109_ 01.pdf. Accessed July 31, 2017. Watts, R. L. (2007) Basic issues of the federal state: Competitive federalism versus co-operative federalism. In R. T. Bauset al. (Eds.), Competition versus cooperation. German federalism in need of reform. A comparative perspective (p. 85). Nomos. Winand, P., Vicziany, M., & Datar, P. (2015). The European Union and India. Rhetoric or meaningful partnership?. Edward Elgar. Wouters, J., Goddeeris, I., Natens, B., & Ciortuz, F. (2014). Some critical issues in the EU–India free trade agreement negotiations. European Law Journal, 20, 848. Wülbers, S. A. (2010). The paradox of EU-India relations: Missed opportunities in politics, economics, development cooperation, and culture. Lexington Books.

Access to Services in the EU Market: With Specific Focus on Movement of Natural Persons R. V. Anuradha and Ronjini Ray

Abbreviations BV CARIFORUM CETA CSS EEA ENT EQF EU FTA GATS GATT ICT IP LDC MAC MR OECD STRI U.K. WTO

Business Visitors Caribbean Forum EU—Canada Comprehensive Economic and Trade Agreement Contractual Service Supplier European Economic Area Economic Needs Test European Qualifications Framework for lifelong learning European Union Free Trade Agreement General Agreement on Trade in Services General Agreement on Tariffs and Trade Intra-Corporate Transferee Independent Professional Least Developed Country Migration Advisory Committee Mutual Recognition Organisation for Economic Co-operation and Development Service Trade Restrictions Index United Kingdom World Trade Organization

R. V. Anuradha (B) Clarus Law Associates, New Delhi, India e-mail: [email protected] R. Ray Clarus Law Associates, Graduate Institute, New Delhi, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_11

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1 Background Services has been occupying a significant and growing share of domestic and international transactions. This growth has been spurred by many factors, such as rapid advances in information technology, rising demand for services in both developed and developing countries, the growing importance of multinational firms, and increased outsourcing of many service activities by firms. It is important to note that the initial rounds of trade negotiations only encompassed goods which were incorporated into the General Agreement on Tariffs and Trade (GATT) in 1947. However, with rapid globalization of the world economy, trade in services has been becoming a major interest to more and more countries. Globally, trade in services has increased in GDP share from 64% in 2000 to 68% in 2014.1 The growing importance of services led to services being brought into the purview of the trade negotiations especially during the Uruguay Round negotiations. These negotiations resulted in the establishment of the World Trade Organization (WTO) whose integral part is the multilateral framework on services known as the General Agreement on Trade in Services (GATS). It is important to note that unlike goods, services are not necessarily delivered in a particular tangible physical form. Therefore, supply of service under the GATS is four-pronged, based on the location of the supplier and the consumer in the following manner: • Cross-border supply of services where both the supplier and the consumer remain in their respective home territories; (also referred to as “Mode 1”) • Consumption abroad where consumers move outside their home territory to consume services (also referred to as “Mode 2”) • Commercial presence where service suppliers move to the territory of the consumers to provide them services, whether by establishing affiliates or through direct investment abroad (also referred to as “Mode 3”) • Movement of labour (temporary migration) to supply the service in the foreign territory (also referred to as “Mode 4”). The focus of this paper will be on the movement of natural persons or Mode 4 which is the supply of services by a service supplier of one Member, through the presence of natural persons of that Member in the territory of any other Member. However, it must be pointed out that the GATS does not cover measures affecting natural persons seeking access to the employment market of a Member, citizenship and residence or employment on a permanent basis.2 Mode 4 is of particular importance for developing countries and Least Developed Countries (LDCs) given their comparative advantage in the area of the movement of persons.3 India’s key strength with regard to trade in services is also in its skilled 1 World Bank, ‘World Development Indicators: Structure of output’. http://wdi.worldbank.org/table/ 4.2#, accessed 4 November 2016. 2 General Agreement on Trade in Services, Annex on Movement of Natural Persons Supplying Services under the Agreement (15 April 1994) 1869 U.N.T.S. 183. 3 World Trade Organization (2009, para 49).

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professionals. The WTO Secretariat observed that if developed countries were to raise their quotas on the inward movement of temporary workers from developing countries, a large overall yearly gain would be realised by both developed and developing countries alike.4 Despite these potential benefits, the degree of Mode 4 access committed under the GATS schedules of WTO Members is rather shallow.5 Additionally, WTO Members are putting up barriers that hinder affective market access that has already been granted by Members in their GATS Schedule of Commitments. In light of the above, this paper will discuss trade in services between India and the European Union (EU) in order to examine the challenges and opportunities for meaningful market access in relation to the on-going India-EU trade negotiations. This paper aims to discuss the above by dividing it into sections. The introductory section is followed by Sect. 2 which analyses India’s services trade market and subsequently discusses India’s services trade with the EU. Subsequently, Sect. 3 presents an overview the EU services market and discusses measures affecting trade in services that are applicable in the EU. Section 4 then evaluates the degree of restrictiveness prevalent in some EU Member countries which are of interest to India, particularly the UK so as to examine the true level of market access that has been granted by EU. Section 5 scrutinises the Mode 4 commitments made by EU in various multilateral and bilateral agreements including EU’s revised offer at the WTO and in its recent free trade agreements so as to identify the level of liberalization the EU is willing to undertake. Accordingly, this paper provides recommendations for India to engage in effective trade negotiations with the EU.

2 Services Market: India and EU Services exports have been a dynamic element of India’s trade and globalization in recent years. India’s services export grew from $16.8 billion in 2001 to $155.6 billion in 2014. These exports constitute 7.5% of India’s GDP, making it the 8th largest services exporter in the world.6 The services sector has also been a key driver of India’s economic growth. In 2015–16, it contributed to around 66.1% of its Gross Value Added growth.7 The EU is India’s number one trading partner (13% of India’s overall trade with the world in 2014–15) while India is the 9th largest trading partner of the EU (2.2% of EU’s overall trade with the world in 2015).8 Trade in services between the two

4 Ibid.,

para 43. para 74. 6 Ministry of Finance, Government of India (2016). 7 Ibid. 8 European Commission, ‘India—Trade—European Commission’. http://ec.europa.eu/trade/policy/ countries-and-regions/countries/india/, accessed 4 November 2016. 5 Ibid.,

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nations has almost tripled in the past decade, increasing from e5.2 billion in 2002 to e14 billion in 2015.9 During the last few years (2010–2015), growth for the EU’s international trade in services increased by 43% and was higher than that of trade in goods.10 EU imports of services from non-EU Member countries progressed from e462 billion in 2012 to e660 billion in 2015.11 It is clear that EU has key interest in services trade. The 2015 data confirmed that, the United Kingdom (U.K.) was the EU Member State with the highest value of exports of services to non-member countries, its services exports of e189 billion is equivalent to 23% of the EU’s overall services export.12 The data summarized above reveals the potential symbiosis that exists in trade in services, for both India and the EU.

3 State of Services Liberalisation Within the EU As discussed above, the EU has a robust services market, but, it does not have a single ‘internal market’ for services. Therefore, harmonization of qualifications requirements and regulations relating to the practice of various professional services within the EU are being developed but are still at a very nascent stage. The diversity of regulations and practices between EU Members is the biggest challenge faced when negotiating with the EU and effectively means that the negotiations need to be conducted with 28 different countries in most sectors.13

3.1 Measures Affecting Mode 4 Services Applicable for EU Nationals The two main legal instruments governing supply of services through Mode 4 within the EU, and provide for intra-EU movement of service suppliers, are as follows: • Directive 2005/36/EC (also referred to as the “Mutual Recognition Directive”), which seeks to put in place a system for easier recognition of qualifications from other EU Members.

9 Ibid. 10 EuroStat, ‘International trade in services’. http://ec.europa.eu/eurostat/statistics-explained/index.

php/International_trade_in_services, accessed 4 November 2016. 11 Ibid. 12 Ibid. 13 European

Union, ‘Member countries of the EU’. https://europa.eu/european-union/about-eu/ countries_en#on-the-road-to-eu-membership, accessed 4 November 2016. Note: EU will comprise of 27 countries if the UK leaves pursuant to the UK Referendum on leaving their membership to the European Union—Brexit impact.

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• Recommendation 2008/C 111/01 (also referred to as the “Qualifications Framework Recommendations”) which establishes the European Qualifications Framework for lifelong learning (EQF). These measures have limited value for service providers from non-EU countries as nationals from these countries cannot seek the same benefits in terms of recognition and treatment as EU nationals. Nevertheless, an understanding of these developments is important in order to obtain an overview of the challenges that are faced even within the EU in respect of access to the market for services in each Member. Mutual Recognition Directive The Mutual Recognition Directive, which came into effect in October 2007, is the first comprehensive step towards harmonization within the EU. Mutual Recognition (referred to as MR), as the term indicates, refers to mutual recognition of qualifications and experience of service professionals, which in effect provides the right to a service professional qualified in one jurisdiction to render services in another jurisdiction. The diversity of qualifications and regulatory requirements for rendering services in each EU Member has led to mutual recognition being a contentious issue. The MR Directive applies in general to regulated professions such as Doctors, Nurses, Midwives, Pharmacists, Dentists, Veterinarians and Architects unless otherwise stated. For example, it does not apply to matters covered by specific directives such as statutory auditors or lawyers. Pursuant to this Directive, for the seven professions mentioned above, recognition of qualifications is automatic. In other words, the required qualifications or diploma offered in one EU Member State will be automatically recognized in another Member State without any further requirement for assessing equivalence of qualifications. The MR Directive is applicable only for EU and non-EU European Economic Area (EEA) nationals. In other words, if an Indian doctor or architect qualifies in the UK, the Mutual Recognition Directive does not grant such professional automatic recognition in say, France. Any non-EU national will have to apply separately for such recognition. Qualifications Framework Recommendations The Council and the European Parliament formally adopted the Recommendation on the establishment of the European Qualifications Framework for lifelong learning (EQF) in April 2008. The main purpose of the EQF is to act as a translation device and neutral reference point for comparing qualifications across different education and training systems. To achieve this objective, eight levels have been fixed in which qualifications will be classified. Member States were invited to indicate the EQF level on each qualification by 2012. EQF levels simply provide a basis for comparative assessment of levels of education and qualification between different EU Member states. Unlike the MR Directive, they do not result in the recognition of equivalence for different qualifications. It simply provides a ready framework for assessment of

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qualifications which can help the relevant national authorities to prescribe requirements relating to any incremental education or training or work experience related qualifications that may need to be undertaken by the relevant professional. As with the MR Directive discussed above, EQF benefits will be available only for EU nationals. Professionals from India are not impacted by this.

3.2 Measures Affecting Mode 4 Services Applicable for Non-EU Nationals With reference to liberalisation of Mode 4 services for non-EU countries, it is worth noting that requirements regarding work permits and visas are under the jurisdiction of individual Member States. Nevertheless, the EU has undertaken some uniform initiatives to facilitate entry of foreign nationals such as the Schengen Visa and the EU Blue Card. The Schengen Visa allows short term entry of foreign nationals for tourism and business purposes into most EU countries (except for Bulgaria, Croatia, Cyprus, Ireland, Romania and the U.K.). The Blue Card system allows high-skilled non-EU nationals to enter, re-enter and reside (for more than three months) in the territory of an EU Member State. The legal framework for Blue Card system is Directive 2009/50/EC (also referred to as the “Blue Card Directive”). The Blue Card Directive creates a system which sets out the entry and residence conditions only for “highly qualified” non-EU nationals, and their families in an EU country (except Denmark, Ireland and the U.K.). This Directive came into force on 19 June 2009 and EU Members had to incorporate it into their national laws by 19 June 2011. In spite of the objective of facilitating the entry and residence of highly qualified non-EU nationals, the Blue Card Directive makes use of demanding eligibility criteria. In order for Blue Card Directive to apply, non-EU nationals have to fulfil a number of requirements such as proof of higher professional qualifications, an annual gross salary of at least one and a half times the average national salary, fulfilment of profession specific qualification requirements, and etc. It is important to note that the EU Blue Card is in addition to applying for a visa because whether an applicant needs the Schengen visa is dependent on the nationality of the applicant and the rules of the EU country the applicant arrives in. The duration of the EU Blue Card allows service suppliers to stay and work for a period of between one and four years. A valid EU Blue Card allows persons to enter, re-enter and stay in the EU country which has issued the card and also pass through other EU countries and stay there for up to three months. As already stated above, the EU Blue Card has demanding eligibility criteria, and these criteria are based on the individual Member States’ labour market and immigration policies. For example, in Germany highly-qualified workers include scientists with special knowledge and university teachers or assistants with executive

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functions.14 The salary of these highly skilled workers must reach a national threshold set at 1.5 times the average gross annual salary.15 The specified minimum threshold stood at e46,400 in 2013.16 Additionally, if the university degree of the applicant was not awarded in Germany, it must either be recognised or equivalent to a German university degree. A research report has observed that the EU Blue Card has only marginal effect on the attractiveness of EU Member States for highly skilled migrants from India.17 The EU Blue Card has so far not made any significant difference for highly qualified non-EU nationals especially those from India. This is because of the demanding eligibility criteria discussed above as well as the threshold requirement of receiving a Schengen visa which is granted under each individual EU Member states’ laws.

4 Degree of Trade Restrictiveness in the EU Services Market Despite efforts at liberalisation, there exist several trade barriers that further complicate market access to services in the EU. In order to measure the degree of restrictiveness in trade in services, the Organisation for Economic Co-operation and Development (OECD) has developed the Service Trade Restrictions Index (STRI), a scoring methodology utilising binary scores to identify policy measures that restrict trade in services. The STRI indices map restrictiveness in 22 sectors by taking the value from 0 to 1, where 0 is completely open and 1 is completely closed. They are calculated on the basis of information in the STRI database which reports regulation currently in force. The OECD STRI allows countries to evaluate the level of restrictions applicable in other countries. This paper while focusing on Mode 4 has examined the OECD country assessments of some EU countries to briefly determine the degree of market access that is being realized. EU Member States restriction trends STRI has mapped the fact that there are significant restrictions for the movement of natural persons in the EU specifically pertaining to professional services. Some EU Member States such as France, Germany and Spain have restrictions in professional services specific to the legal and accounting sector. Barriers in supplying Mode 4 services are also created by way of licensing and qualification requirements. For example, in France, there is no temporary licensing system in place for auditing and accounting as a result of which foreign accountants and auditors have to completely 14 EU Immigration Portal, ‘Germany’. http://ec.europa.eu/immigration/what-do-i-need-beforeleaving/germany/worker/highly-qualified-worker_en#, accessed 7 November, 2016. 15 Hercog and Wiesbrock (2012). 16 See Footnote 14. 17 See Footnote 15.

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re-do their university degree, practice and exam.18 Generally, EU Member States tend to lack equivalence in considering foreign degrees and licenses act and these are major barriers to the supply of services through Mode 4. Other types of restrictions include requirements of shareholding and ownership. These, to some extent, interlink Modes 3 and 4. For example, in Germany for legal services, a majority of the shares and voting rights in limited liability companies must be owned by lawyers who have a local license from Germany or another EU member state.19 Additional restrictions in the nature of residency requirements and fees also act as barriers. In general, the OECD based on its evaluation of measures maintained by EU Member States through the STRI has suggested that these states can reduce their restrictions pertaining to the temporary movement of workers in order to promote trade in services and improve their STRI. Restrictions for service suppliers in the United Kingdom As already pointed out, the U.K. has the greatest services market for India. In fact, the U.K. accounts for two thirds of the Indian community in the EU with an Indian diaspora of about 1.2 million. The same can be attributed to a variety of factors, primary among them being language skills.20 The U.K. has a lower that average score on the STRI in 19 out of the 22 sectors.21 Services represent 38% of gross exports and account for almost 80% of GDP and employment in the U.K. Furthermore, its contribution to trade and employment is one of the largest among the EU Member States.22 However, the UK has been increasingly adopting restrictive measures, especially in respect of skilled professionals moving to the UK. While the genesis of the issue appears to be the flooding of the UK labour market with EU professionals, UK has limited policy choices while it remains within the EU, to contain that phenomenon. As a consequence, increasing number of regulatory restrictions impacting non-EU professionals have been placed in the UK market. These have a direct limiting effect on Indian professionals. Recently, the Government of U.K. commissioned the Migration Advisory Committee (MAC) to examine Tier 2 category of the immigration system and to advise on “significantly reducing the level of economic migration from outside the EU”. Tier 2 is the relevant visa category that a skilled foreign worker needs to apply for to obtain market access into the UK. It has two sub-categories: Tier 2—General, which

18 OECD

STRI, ‘France’. http://www.oecd.org/tad/services-trade/STRI_FRA.pdf, accessed 7 November, 2016. 19 OECD STRI, ‘Germany’. http://www.oecd.org/tad/services-trade/STRI_DEU.pdf, accessed 7 November 2016. 20 Ministry of External Affairs, Government of India (2001). 21 OECD STRI, ‘United Kingdom’. http://www.oecd.org/tad/services-trade/STRI_GBR.pdf, accessed 7 November 2016. 22 Ibid.

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is the relevant category for contractual service suppliers and independent professionals seeking access into the EU, and Tier 2 (ICT) which pertains to intra-corporate transferees. The U.K. government on 24 March 2016 announced the review of the Tier 2 policy as per recommendations made by MAC to come into effect in autumn 2016 and April 2017.23 Accordingly, on 3 November 2016, the U.K. government announced that it will implement changes as per the MAC recommendations as follows24 : • Increase Tier 2 (General) salary threshold for experienced workers to £25,000, with some exemptions. • Increase Tier 2 (ICT) salary threshold for short term staff to £30,000. • Reducing the Tier 2 (ICT) graduate trainee salary threshold to £23,000 and increasing the number of places to 20 per company per year. • Closing the Tier 2 (ICT) skills transfer sub-category. Additional changes announced included evidence of overseas qualification for the Tier 4 category as well as a new English language requirement at level A2 of the Common European Framework of Reference for Languages for non-EEA partners and parents. The MAC recommendations that are yet to be implemented include the following: • All persons under Tier 2 (ICT) are required to pay the Immigration Health Surcharge. • Requirement for Tier 2 (ICT) (except Graduate Trainees) to qualify under a single route with a minimum salary threshold of £41,500. • Separate ICT category for graduate trainees, with a lower salary threshold of £23,000. • The Immigration Skills Charge will be levied on Tier 2 (ICT) and Tier 2 (General) employers at a rate of £1,000 per person per year from April 2017. • Further increase in Tier 2 (General) salary threshold to £30,000 in April 2017 but, previous threshold of £20,800 for new entrants will be maintained. This trend of raising additional barriers to trade specifically pertaining to Mode 4 services greatly reduces the scope of services trade and also hinders the market access that has been granted. These are the types of measures and considerations that must be recognised and raised during times of negotiations.

5 EU Commitments in the WTO and in FTAs The previous sections have examined the autonomous regime in the EU and the types of measures relating to trade in services that are applicable in the EU Member States. In order to assess the type of services liberalisation that bilateral trading partners 23 Home 24 UK

Office and The Rt Hon James Brokenshire (2016). Visas and Immigration (2016).

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have negotiated in Free Trade Agreements (FTA) with the EU, this section examines commitments made by the EU therein. FTAs provide an effective forum through which countries can negotiate greater market access. It is therefore beneficial, when negotiating an FTA with the EU, to examine its commitments under other FTAs. Prior to examining EU’s commitments in FTAs, this paper will briefly assess the revised offer made by EU at the WTO in 2005 (referred to as “EU Revised Offer”),25 which is used by the EU for FTA negotiations. The EU Revised Offer covers four categories of natural persons who provide services such as intra-corporate transferees (ICTs), business visitors (BV), contractual service supplier (CSS) and independent professional (IPs). A brief explanation of these categories is provided below26 : (i) Business Visitors (BV): A short-term visitor from a country who seeks entry into the host country for developing trade and business opportunities. Most BV commitments are accompanied with the clarification that the person cannot earn an income as a BV in the host country. (ii) Intra-Corporate Transferees (ICT): This category of natural persons refers to persons who are employees of a company, say in India, who the company wants to transfer to its subsidiary in any EU member state. Typically, commitments relating to ICTs are confined to senior resources of a company such as those in managerial and executive positions or specialists. (iii) Contractual Service Suppliers (CSS): Employees of a service supplier of a country without a commercial presence in the host country, but are providing a service pursuant to a service contract concluded between their employer and a client/customer in the host country. (iv) Independent Professionals (IP): A self-employed person who supplies service to a local client/customer in the host country pursuant to a service contract. At the start of the WTO, Member’s commitments, including those of EU Members, under Mode 4 in their GATS Schedule of Commitments were largely limited to the first two categories i.e. ICT and BV.27 Overall, the degree of Mode 4 access that has been bound is quite shallow, with a marked bias towards persons linked to a commercial presence i.e. ICT.28 The EU Revised Offer specifies commitments for all four categories, but this is accompanied by several restrictions to market access and national treatment particularly for Mode 4 in the form of economic needs test (ENT), quotas, residency requirements and limitation on professionals who can seek market access in the EU. Moreover, the sectors in which commitments have been made for the non-Mode 3 linked categories of CSS and IP is highly limited. 25 It should be noted that EC’s Revised Offer dated 29 June, 2005 is only in respect of 25 countries of the EC, and does not include the more recent accessions by Bulgaria and Romania. In respect of the EC 27, no further revisions to the 2005 Revised Offer have been made as yet. 26 World Trade Organization (2009, para 26). 27 World Trade Organization, ‘Movement of natural persons’. https://www.wto.org/english/tratop_ e/serv_e/mouvement_persons_e/mouvement_persons_e.htm, accessed 23 November, 2016. 28 Ibid.

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EU commitments in its FTAs The trade agreement between EU and Canada—the EU-Canada Comprehensive Economic and Trade Agreement (CETA) was signed on 30 October, 2016 and is by far the most far reaching agreement ever concluded by the EU in the area of services and investment. The European Parliament is yet to give its consent to CETA for it to enter into force provisionally. The CETA will also need to be approved by Member States in the Council as well as the European Parliament. Some of its key principles pertaining to Mode 4 are as follows: (i) Mode 4 liberalisation: The CETA provides for entry of categories of natural persons such as CSS, IP, BV and Key Personnel, which comprises ICTs such as specialists, senior personnel and graduate trainees.29 The CETA also prohibits the application of any economic needs test or numerical quotas for the ICT category. (ii) Mutual recognition of professional qualifications: The CETA provides a framework to approve the recognition of qualifications in regulated professions such as architects, accountants and engineers. The Agreement additionally provides for non-binding guidelines with respect to the negotiation and conclusion of MRAs. The EU-Chile Association Agreement presents another example of a FTA framework that addresses greater services liberalization. Some of its key principles are as follows: (i) Mode 4 liberalisation: EU has committed the four categories of natural persons. The FTA commits parties to review the rules and conditions applicable to the movement of natural persons (Mode 4) with a view to achieving further liberalization. (ii) Mutual Recognition: Each Party is required to put in place strict timelines for evaluating licenses and certification of the other party’s service provider. The Parties are required to encourage the relevant bodies in their respective territories to provide recommendations on mutual recognition. These recommendations are for the purpose of enabling service suppliers to fulfil, in whole or in part, the criteria applied by each Party for the authorization, licensing, accreditation, operation and certification of service suppliers and in particular professional services. The Economic Partnership Agreement between the EU and the Caribbean and African countries (CARIFORUM countries), is perhaps the most ambitious agreement between EU and developing countries. This Agreement has an interesting provision specifying four key services in which Mutual Recognition is specifically emphasized. Parties are required to encourage the relevant professional bodies in their respective territories to start negotiations no later than three years after entry 29 EU—Canada

Chap. 10.

Comprehensive Economic and Trade Agreement (CETA), art 7—relevance?,

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into force of this agreement in order to jointly develop and provide such recommendations on mutual recognition, among others, in the disciplines of accounting, architecture, engineering and tourism.

6 Conclusion A trade agreement is a significant opportunity for countries to negotiate and achieve commitments on key issues of market access. With the growing importance of services trade, one of India’s main areas of interest is that pertaining to professional services. The range of professional services where Indian qualified service professionals have a significant opportunity include—accountancy services, taxation and advisory services, research and development services, medical and dental services, nurses and physiotherapists, paramedical personnel, photographic services, convention agency services, stenography services, sound recording services, construction services, higher education services, hotel and restaurant services, entertainment services, maritime auxiliary services, sea-faring services, and environmental services. As noted in the analyses above, EU’s market access is often limited through economic needs tests, regulations relating to qualification and licensing, as well as salary thresholds which act as market access barriers. EU’s Mode 4 commitments under GATS are limited, and predominantly focused on intra-corporate transferees, i.e., persons who need to be transferred to the branch/subsidiary of an Indian company in the EU. EU’s Revised Offer at the GATS is moderately better than its existing GATS commitments; but continues to be limited in scope. An FTA with the EU provides the basis for negotiation of ambitious market access into the EU services market. As evinced by an examination of recent EU FTAs especially the CETA, the EU appears to be willing to negotiate on aspects such as categories of natural persons and elimination of economic needs test at least for certain persons. For a meaningful FTA with the EU, it is important for India to negotiate and obtain market access in areas that are of significant interest to it and additionally, remove country specific restriction in jurisdictions that are of significant interest to India such as UK, Germany, Italy, Spain, France and Netherlands. Although the CETA is the most ambitious EU FTA, India can negotiate additional liberalisation based on EU demands it is prepared to accede to. In this regard, some of the aspects which would be useful for India include in its negotiations are as follows: (a) Commitments on temporary entry for professionals in key service sectors of interest to India’s trade; (b) Clarity on visa categories for these commitments, and exemption from any discriminatory salaries or other discriminatory charges applicable for such professionals; (c) Recognition of Indian qualifications and licenses obtained by professionals in the sectors where access is being sought;

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(d) Freeze on the increase of the minimum salary threshold; (e) No arbitrary or discriminatory charging of fees. The challenges are, however significant. Fear of unemployment and loss of jobs to foreign service professionals is leading to increased barriers in countries worldwide. In fact, this was one of the key reasons for Brexit. As discussed in this paper, UK has been imposing higher restrictions on its visa categories under which foreign service professionals can move to the UK, whether as intra-corporate transferees, or as independent professionals and contractual service suppliers. Trade negotiators are likely to have an uphill task addressing these barriers. One possible way in which it could be addressed is to delink any trade related movement from “migration” related issues. The very essence of movement of a service supplier under a trade agreement, is to have temporary presence to supply a service. In fact, the WTO’s GATS clarifies that the agreement will not deal with issues relating to accessing the employment market of a country, or permanent residency. Its sole purpose and focus, is the temporary movement of persons for supplying services. This therefore needs to be carved out as a separate area of market access, rather than be clubbed with the highly emotive issue of migration of foreigners and the usurping of jobs by immigrants. A separate FTA visa category could be put in place, that delinks the two, with the specification that a person seeking a trade related entry, will not be eligible to count the years of presence towards migration or permanent residency. Innovative ways in which this issue can be addressed needs to be considered. Otherwise, it is likely to be a lost opportunity for skilled Indian service professionals who constitute the core of India’s services industry.

References Ministry of External Affairs, Government of India. (2001). Report of the high level committee on the Indian diaspora (Chap. 11, p. 138). Ministry of Finance, Government of India. (2016, February, 26). Economic survey 2015–16: Services sector remains the key driver of economic growth contributing almost 66.1% in 2015–16. Press Information Bureau. Hercog, M., & Wiesbrock, A. (2012). Making Europe more attractive to Indian highly-skilled migrants?. CARIM-India Research Report. Home Office and The Rt Hon James Brokenshire. (2016, March, 24). Visa changes to reduce reliance on foreign workers. https://www.gov.uk/government/news/visa-changes-to-reduce-reliance-onforeign-workers. Accessed November 7, 2016. UK Visas and Immigration. (2016, November, 3). Changes to the immigration rules. https://www. gov.uk/government/news/changes-to-the-immigration-rules. Accessed November 7, 2016. World Trade Organization. (2009, September, 15). Presence of natural persons (Mode 4). Background Note by the Secretariat, S/C/W/301.

Part V

Market Liberalisation in Goods and Services

Free Trade Agreements and National Constitutional Law—From CETA and TTIP Onwards Ralph Zimmermann

1 Introduction Once again, in some countries for the first time ever, Free Trade Agreements are at the heart of political debates in Canada, Europe, and the United States of America. For the past decade, negotiations within the World Trade Organization (WTO) have been 1 stalled by conflicting positions between the global North and South. As a result, many countries, especially the major industrialized ones, are striving for new regional or even so-called “mega-regional” Free Trade—and Investment—Agreements outside of the WTO. For Europe, the most prominent ones are the Transatlantic Trade and Investment Partnership (TTIP) with the United States of America and the Comprehensive Economic and Trade Agreement (CETA) with Canada. These treaties go well beyond the mere reduction of tariff barriers; they aim at establishing global standards and, at the same time, shift the forum in which International Trade and Economic Law is negotiated.

1 This

is highlighted by the continuing impasse in the Doha Development Agenda of the WTO, cf. S. Lester, ‘Is the Doha Round Over? The WTO’s Negotiating Agenda for 2016 and Beyond’ (2016) 64 Free Trade Bulletin accessed 19. October 2016. R. Zimmermann (B) University of Leipzig, Leipzig, Germany e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_12

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In this context, civil society has broadly entered into a public debate on trade policy, namely on the contents of CETA, TTIP, and the secrecy around their negotiations, thus politicizing this field anew.2 The profundity of this political controversy throughout Europe is reflected in an—as of completion of this manuscript—unsuccessful attempt3 of an European citizen’s initiative to stop the European Union from all further negotiations on CETA and TTIP.4 On a national level, the debate has also determined a large number of individuals to institute proceedings against the negotiations—in Germany, for example, a constitutional complaint against the signing and ratification of CETA signed by more than 125,000 complainants has been filed with the German Federal Constitutional Court on 31 August 2016.5 The complainants maintain that due to the contents of the agreement the ratification of CETA amounts to an infringement of their fundamental rights to democratic participation. Albeit it rejected the application for an interim order, the German Federal Constitutional Court—in its judgment of 13 October 20166 —at least considered it possible that the ratification and application of CETA could be in breach of the principle of democracy as laid down in the German Basic Law. This judgment is but the latest legal outcome of the political debate on CETA and TTIP. Across the spectrum of the debate and as background to the constitutional complaint four main issues can be identified.7 First and foremost, the investor-to-state dispute settlement (ISDS) procedures these treaties shall include are contested. For TTIP this concerns the first publicly known draft version. It is feared that private companies and investors could challenge national governments or the European Union directly in international tribunals not subject to democratically founded state legislation. This is perceived as a way for companies to threaten (European and) national legislations across a wide spectrum of policies. Eventually, it is apprehended to be a major drawback for democracy as such and an infringement of the people’s fundamental rights to democratic participation if the mere threat of legal investor-to-state disputes was to prevent elected governments from enacting progressive legislation.8 This point of critique is maintained even though both the—most likely—final version of CETA and the European Union’s revised draft proposal on TTIP already provide for an Investment Court System. 2 Cf. A. Shah et al. (2015), 1; H. Mayer (2015); for the German critique see further R. Streinz (2015);

Bode (2015). most recent chapter to this attempt was added by a (rejecting) order of the Vice-President of the CJEU, cf. Case C-400/16 P(R) Efler and Others v Commission (2016) ECLI:EU:C:2016:735; a decision on the merits of the case is still pending. On the political stage, the negotiations on CETA have been stalled over another annex regarding the rights of the European regions, especially Wallonia. 4 For the exact contents of this initiative, cf. Efler Commission Decision C (2014) 6501 final. 5 For a summary of the complaint cf. B. Kempen, ‘Constitutional Complaint against CETA’ (2016) accessed 19 October 2016. 6 2 BvR 1368/16 and others, CETA einstweilige Anordnung (2016). 7 For the following cf. H. Mayer (n. 2), 48 seqq. Petersmann (2015). 8 Cf. B. Kempen (n. 5), 4 seqq. 3 The

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Secondly, with regard to regulatory cooperation, there is widespread concern that it might compromise the principle of regulatory sovereignty of the European Union, and especially of its Member States, potentially resulting in fundamental democratic accountability problems. Since regulatory coherence and cooperation is a central content of the “mega-regional” Free Trade Agreements this amounts to an issue affecting the agreement as a whole. On the one hand, regulatory coherence comprises guidelines about good regulatory practices, transparency, and stakeholder engagement in a domestic regulatory process. On the other hand, regulatory cooperation is the process of interaction between different—national or supranational (e.g. the European Union)—regulators to achieve a closer partnership and greater regulatory interoperability.9 For example, TTIP will likely contain a framework for cooperation between the European Union, its Member States and the United States of America to handle regulatory issues in specific policy fields. This framework would apply to all measures of general application, including legislative measures and other forms of rules regardless of the level of government at which these measures are adopted. For the European part, measures by the European Union and its Member States would be affected likewise if they had effects on transatlantic trade. This framework will likely be accompanied by the establishment of a Regulatory Cooperation Body that supervises the regulatory cooperation and can identify priority areas for regulatory cooperation. This leads, thirdly, to concerns regarding the competencies of all treaty bodies established by these Free Trade Agreements. It is argued that CETA and TTIP will introduce bodies vested with treaty-changing powers or the competency to interpret the treaty texts in a binding manner without the European Union or especially its Member States being able to appoint the members of these bodies. Therefore, a lack in democratic accountability is feared when it comes to future amendments or binding interpretations of these Free Trade Agreements.10 The fourth major point of criticism has been the lack of transparency and the generally secretive nature of the TTIP and CETA negotiations that were mainly conducted through the European Union, its organs, and the United States of America and Canada respectively. Public debate in Europe took issue with the fact that the executive bodies of the European Union gained too much power, but in turn were not subjected to democratic scrutiny in the Member States. Various recent decisions of the national constitutional courts on matters regarding the European Union (e.g. on the handling of the financial crisis in Europe) have made the public much more aware of the delicate balance between and the reciprocal boundaries of national and European decision-making authority.11 The European Union has recently reacted to 9 For

these definitions see U.S. Chamber of Commerce, ‘Regulatory Coherence & Cooperation in the Transatlantic Trade and Investment Partnership (TTIP)’ accessed 19 October 2016, 1 seq. 10 Cf. German Federal Constitutional Court (n. 6), para. 59–65; for a detailed analysis of this point of criticism see Weiß (2016b); cf. further A. Fisahn and R. Ciftci, ‘Rechtliche und politische Probleme von Freihandelsabkommen am Beispiel von CETA’ (2015) 12 Ad Legendum 177, 180. 11 Cf. H. Mayer (n. 2), 49.

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this criticism by releasing the main documents on the negotiations regarding TTIP and CETA. These four main issues all document the public’s perception that national and European constitutional values—particularly with regard to democratic accountability, judicial review of legislative and administrative measures, rule of law, and transparency of public proceedings—should guide and limit the substance negotiable under International Trade Law. Thus, the public debate directs the scientific attention to the role national constitutional law—with its legal requirements on these matters—and its review by constitutional courts can and must play as a boundary to the conduct and the outcome of negotiations on Free Trade Agreements. To this end, the article will start (2) with a short description of the main contents of CETA and TTIP, in order to explicate the contents which are to be pitted against national constitutional law. Then (3), it will present the demands national constitutional law—in its construction by and under the review of constitutional courts—makes when nation states enter into an International Law agreement that could limit national sovereign power or even transfer it to an international or supranational body. Finally (4), the findings will be summed up to provide general guidelines for future Free Trade Agreements, for example a Comprehensive EU-India Free Trade Agreement.

2 Main Contents of CETA and TTIP 2.1 CETA Due to the fact that the negotiation and ratification process on CETA is the most advanced of all “mega-regionals” the European Union is partaking in, it will be at the centre of this article, although the negotiations on TTIP have sparked a much wider public debate.12 Nevertheless, the main contents of the two agreements are akin. For CETA, the European Commission on 5 July 2016 has formally proposed its signature and conclusion to the Council of the European Union. This happened after a legal review process of the draft text on CETA by the European and the Canadian side. However, the political process of negotiating the terms of CETA is still ongoing.13 As is the case with other Free Trade Agreements, when entering into force, CETA will primarily eliminate or cut tariffs and reduce non-tariff barriers; e.g. levies imposed to control cross-border trade will be cut to zero and non-tariff barriers will be reduced by 25–50 percent. Secondly and—as was already shown—sparking a profound public debate, CETA seeks a new approach on investment protection and its dispute settlement mechanism. Therefore, it creates an independent Investment Court System, consisting of a permanent tribunal and an appeals tribunal competent 12 A

non-binding text version of CETA for information purposes can be found at accessed 19 October 2016. 13 Cf. German Federal Constitutional Court (n. 6), para. 39.

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to review decisions of the tribunal, where dispute settlement proceedings will be conducted in a manner that is meant to strive for transparency and impartiality. Thirdly, CETA will provide for regulatory coherence and cooperation. In this regard, it will include an explicit reference to the right of governments to regulate in the public interest and clearer and more precise investment protection standards, i.e. the rules, as set out in CETA, thus removing ambiguities that could make these standards open to abuses or excessive interpretations. Fourthly, CETA provides for competencies of its Joint Committee and other Committees on specific fields of policy.

2.1.1

Regulatory Coherence and Cooperation

In detail, Art. 8.9 CETA preserves the European Union, its Member States, and Canada their respective right to regulate and to achieve legitimate policy objectives, such as protection of public health, safety, environment, public morals, social or consumer protection and the promotion and protection of cultural diversity. It will also explicitly be foreseen that governments can change their laws, also in a way that affects investors’ expectations of profit and that the application of European Union’s state aid law does not constitute a breach of investment protection standards. As all other Free Trade Agreements CETA contains a fair and equitable treatment clause under which foreign investments—that means, investments by Canadians in the European Union and vice versa—are protected. What is new to CETA is that it introduces a precise and specific standard of treatment of investors and investment. In a clear, closed text Art. 8.10 CETA defines precisely the standard of treatment, without leaving discretion to the future investor-to-state dispute tribunals. In detail, a breach of the fair and equitable treatment obligation can only arise when there is denial of justice in criminal, civil or administrative proceedings; a fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings; manifest arbitrariness; targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; or abusive treatment of investors, such as coercion, duress and harassment. In addition, CETA clarifies what constitutes “indirect expropriation” in detailed language in order to avoid claims against legitimate public policy measures. To that end, Art. 8.12 and Annex 8-A to CETA state that legitimate public policy measures taken to protect health, safety or the environment do not constitute indirect expropriation. Only measures which are manifestly excessive in light of their objective might amount to indirect expropriation. Indirect expropriation can further only occur when the investor is substantially deprived of the fundamental attributes of property such as the right to use, enjoy and dispose of its investment.

2.1.2

Investment Dispute Resolution System

According to Art. 8.18, investment dispute settlement under CETA is limited to breaches of a few investment protection provisions, which enshrine fundamental

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principles such as non-discrimination, expropriation for a public purpose and against adequate compensation, fair and equitable treatment, and which have caused damage to a specific investor. A claim cannot be brought to investment dispute settlement simply because an action has an impact on investors’ profits. Also it cannot be used by an investor to claim a breach of another part of the CETA agreement. In Art. 8.27 to 8.29, CETA creates a permanent investment Tribunal and an Appellate Tribunal. Contrary to the traditional investment dispute settlement approach, the Tribunal will be composed of fifteen members nominated by the Union and Canada and not by arbitrators nominated by the investor and the defending state. The tribunal will hear cases in divisions of three members appointed via a randomised procedure. The Appellate Tribunal will review decisions of the Tribunal. CETA defines the grounds for reviewing awards of the Tribunal. The Members of the Tribunal and Appellate Tribunal will have the same qualifications as for the International Court of Justice and will have to be beyond reproach in terms of ethics. The European Union and Canada will adopt a decision setting out the practical details, already identified in CETA. Art. 8.30 of CETA establishes strict rules of ethical behaviour for the Members of the Tribunal which guarantee their full independence and impartiality. Situations where a Member of the Tribunal can act as a counsel or an expert in pending or new investment disputes are prohibited. Further, CETA has a binding code of conduct for the Members of the Tribunal. The code is based on the ethical rules of the International Bar Association, subject to further revision. It prevents conflicts of interest. In case a Member of the Tribunal is found not to comply with the code, they will be replaced. That decision is taken by an independent outside party—the President of the International Court of Justice—and not by the remaining members of the division of the Tribunal hearing the case. Art. 8.36 of CETA will introduce full transparency in investment dispute settlement proceedings. All documents (submissions by the parties, decisions of the tribunal) will be publicly available on a United Nations website, financed by the European Union. All hearings will be open to the public. Interested parties (NGOs, trade unions) will be able to make submissions. These will be binding and cannot be waived by the tribunal or the parties to a dispute. As is also the practice in national or local courts in the European Union and Canada, information can potentially be withheld in case of business secrets and information considered confidential under the national laws of the responding state. These instances are clearly defined. Furthermore, CETA—in its Art. 8.22 and 8.24—prohibits parallel proceedings: investors cannot seek remedies in domestic courts (or other international tribunals) and before the CETA investment tribunal at the same time. The aim is to avoid double compensation and divergent verdicts. CETA also strives to prevent fraudulent or manipulative claims. For example, the making of an investment or business re-organisation for the sole purpose of bringing a case is explicitly prohibited by Art. 8.18 para. 3. As for the consequences of a decision by a CETA Tribunal, Art. 8.39 CETA clarifies that awards rendered by the Tribunal cannot lead to the repeal of a measure in the European Union, one of its Member States, or Canada. The most that can be required of a country is a compensation limited to the level of losses actually suffered. It is not possible under CETA to impose punitive fines, as may be possible

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under domestic laws. Eventually, the losing party pays the costs of the proceedings, in accordance with Art. 8.39 para. 5.

2.1.3

Competencies of the CETA Joint Committee and Committees on Specific Policy Fields

CETA will establish a sophisticated network of competencies divided between the parties to the agreement and the CETA Joint Committee—as established under Art. 26.1 of CETA—and Committees on specific policy fields such as the Committee on Services and Investment—as established under Art. 8.44 of CETA. In this network, the Committees, especially the Joint Committee, will hold competencies to interpret the provisions of CETA in a way binding to the parties (see Art. 26.3 para. 2 CETA), to review the text of CETA and its annexes, to recommend amendments to CETA or even to amend the text of protocols and annexes to CETA by itself (see Art. 26.1 para. 5 lit. [c], 30.2 para. 2 s. 1 CETA). Protocols and annexes to CETA quantitatively make up the main part of CETA.14 Despite its substantive competencies, the composition of the Committees is not defined by the provisions of CETA (see e.g. Art. 5.14 para. 1, 6.14, 26.1 para. 1).

2.2 TTIP As TTIP is still in the process of negotiation between the United States of America, the European Union, and its Member States, only preliminary information on its main contents is available.15 Therefore, all articles given in the following part refer to the European Union’s proposal on a text for TTIP16 ; and it is impossible to predict even now, whether this proposal will become binding or will be extensively modified before the conclusion of TTIP. In Part 2, TTIP will contain provisions on regulatory cooperation. In response to the public debate, the newest update to the proposed text on TTIP clarifies the role of regulatory cooperation as a contribution to pursuing high levels of protection in public policy. Art. X.1, para. 1 lit. (a) and (b) clarifies that protection of public policy includes public health, safety and the environment. Furthermore, the text proposal commits to enhance or maintain the levels of protection in public policy areas, to respect the right to regulate and the application of the fundamental principles of the European Union such as the precautionary principle, Art. X.1 para. 2 and 3. To identify possible areas of regulatory cooperation and to reach a high level of coop14 Cf.

German Federal Constitutional Court (n. 6), para. 60. 14th round of negotiations took place in June 2016, main fields of TTIP are still open to discussion to the negotiators, cf. European Commission (2016). 16 All negotiating texts of the European Union on TTIP can be found at accessed 19 October 2016. 15 The

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eration, the European Union and the United States of America pledge themselves to update the other side regularly on planned regulatory measures, to let natural or legal persons of both sides submit proposals on measures of cooperation, and to cooperate with a view to strengthen, develop and promote the adoption and implementation of internationally agreed regulatory documents, Art. X.5. None of these provisions establishes an obligation to the parties of the agreement to achieve any particular regulatory outcomes, as Art. X.1, para. 4 highlights. In answer to the public debate on the negotiations on TTIP, the updated negotiation proposal of the European Union on Chapter II—the investment protection section of the agreement—in its Section 2 sets out four types of basic guarantee for investment protection. The European Union and the United States of America would commit not to discriminate against each other’s investors on the grounds of nationality; nor to take control of or expropriate their assets, such as through nationalisation without paying them compensation (Art. X.5 and Annex I); not to allow foreign investors to eventually transfer funds related to their investments to and from their home country—for example, by repatriating profits or using them to add to their capital base (Art. X.6); nor to protect foreign investors against being unfairly treated in certain other ways, such as through denial of justice or targeted discrimination based on (grounds such as an investor’s) gender, race or religious belief, as laid down in Art. X.3, para. 2. Furthermore, in Section 3 of Chapter II the publicly challenged investor-to-state dispute settlement system (ISDS) shall be replaced by an Investment Court System (ICS). To this system, an investor could only bring a claim that alleged a breach of one or more of these four guarantees (Art. X.1, para. 1). Contrariwise, investors could not bring a claim on the sole grounds of lost profits due to government regulation so that the system guarantees the right of governments to pass regulation in the public interest. The proposed Investment Court System would set up an Investment Tribunal and an Appeals Tribunal with judges publicly appointed by the European Union and the United States of America (cf. for the following Art. X.9 to 11). It would comprise an Investment Tribunal with 15 judges five of whom would be EU nationals, five US, and five nationals of other countries, as well as an Appeals Tribunal with six judges (two EU nationals, two US nationals, and two nationals of other countries). All judges would have to hold qualifications comparable to judges in other international courts, such as the International Court of Justice, and would be assigned to each case on a random basis in order to guarantee their independence. The procedural provisions for the Investment Court System would provide that each case or appeal would be heard by three judges—one judge from the European Union, one from the United States of America, and one judge from a third country. Proceedings before this Court System would have to follow a set of strict rules on ethics. For example, all judges would be banned from working as legal counsel on any other investment disputes while they act as judge. Building on the provisions that are included into CETA, the European Union’s proposal for TTIP tries to safeguard the (European and national) governments’ right to regulate. To this end, it clearly states that governments’ right to regulate for public

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policies is fully preserved and demands that investment protection provisions cannot be interpreted as a commitment by governments not to change their laws in the future, even if that may negatively affect the investor’s expectations of profits, cf. Art. X.2. Parallel to CETA, the proposal for TTIP clearly defines standards of protection, in order to prevent abuse of the Investment Court System. It further provides full transparency in the dispute settlement proceedings; for example, all documents would be posted online and all hearings would be open to the public (Art. X.18). Eventually, it would require the loser in a case to pay for the costs of hearing the case, intending to deter investors from bringing cases which are unfounded in the first place. Finally, the European Union’s proposal for institutional, general and final provisions for TTIP is very much akin, if not equal to the provisions under CETA on this matter. Hence, Art. X.1 and X.3 of the chapter on these provisions are identical to the CETA text (therefore, cf. supra 2.1.3.).

3 Boundaries to Free Trade Agreements Set by National Constitutional Law These contents of the prospective agreements CETA and TTIP have been pitted against the European, but especially the values of national constitutional law in the public debate—particularly with regard to democratic accountability, judicial review of legislative and administrative measures, rule of law, and transparency of public proceedings. But before being used as a benchmark for these Free Trade Agreements in the scientific discussion, it is to be clarified to what extent national constitutional law is able to set boundaries to International Law, especially when this Law is negotiated and concluded by the European Union.

3.1 Differentiation Between “EU-Only” and “Mixed” Agreements The law of the European Union and its relation to the law of the Member States is governed inter alia by the principle of conferral/conferred powers. This principle has been named “one of the cornerstones of the EU legal order”.17 Under this principle, the European Union shall act only within the limits of competences conferred upon it by the Member States in the treaties regulating the European Union to attain the objectives set out therein. Competences not conferred upon the European Union remain with the Member States.18 It is this principle that applies also to the foundation

17 De 18 Cf.

Baere (2011). Art. 4, para. 1; Art. 5, para. 2 Treaty on European Union (TEU).

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of external competences and relations of the European Union,19 including the conclusion of treaties under International Law.20 These treaties are so-called “EU-only” when they exclusively fall within the treaty-making competences of the European Union. The concept of a so-called “mixed agreement”, on the other hand, comes into play when parts of an envisaged agreement do not fall within the European Union’s competences while other parts do.21 An agreement can remain “EU-only” when its essential object lies within the Union’s competences and the matters belonging to the competence of the Member States affect only ancillary aspects of the prospective treaty. Thus, where the European Union does not hold competence of its own for all substantive matters in the future agreement, it has to rely on the Member States for the conclusion of a “mixed” agreement. This means that the European Union and its Member States conclude an agreement together with the other contracting party (in the cases of CETA and TTIP: Canada and the United States of America). That way, the conclusion of a treaty under International Law can be assigned to the competent levels inside the European Union. The main practical difference between a “mixed” agreement and an “EU-only” agreement is that all the Member States are involved not only via the Council of the European Union, but that “mixed” agreements also need a national ratification procedure in all 28 Member States. This can—depending on specific national rules—include approval of the agreement not only by the European Parliament, but also by all the national parliaments. The approval of an agreement by a national parliament is subject to the boundaries set by national constitutional law. Thus, a “mixed” agreement can be pitted against national constitutional law and its values. For CETA and TTIP, this is the background against which it is necessary to ascertain the categorisation of these two agreements. The European Commission, at least for CETA, has affirmed that it is a “mixed” agreement.22 As—at least—the European Union’s negotiation proposal text on TTIP is akin to CETA, TTIP would frame a “mixed” agreement, too, were it to be concluded in this proposed form. From a legal perspective, the affirmation by the European Commission proves correct23 : Starting from the exclusive competence of the European Union to conclude trade agreements pursuant to Art. 207, 216 para. 1, and 218 TFEU24 —historically oriented towards the multilateral GATT/WTO contexts which referred to tariff barriers—, the European Union can conclude agreements on its own in this field. The Treaty of Lisbon amplified the scope of these rules, so that all WTO issues and “foreign direct investments” are covered. That means that a large part, but not the whole of CETA 19 For a confirmation of this principle by the European Court of Justice with regard to external competences, see Opinion 2/00 Cartagena Protocol (2001) ECR I-9713. 20 See Weiß (2016a). 21 Cf. Maresceau (2010). 22 See the Commission’s press release at accessed 12 September 2016. 23 Cf. on the following German Federal Constitutional Court (n. 6), para. 52–58; and the convincing paper of F. C. Mayer (2014); S. Mayer (2015); Grezszick and Hettche (2016). 24 Treaty on the Functioning of the European Union.

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and TTIP falls under Art. 207, 216, and 218 TFEU. But even if an agreement governs issues not covered by these articles or other provisions of the TFEU, under certain conditions an exclusive external competence of the European Union can exist under the so-called “implied powers” doctrine.25 In all other cases (i.e. the agreement also governs a Member State competence), the EU cannot conclude an agreement alone, and needs the Member States as additional parties to the agreement (mixed agreement). In short, some provisions on investment protection contained in CETA—and foreseeably in TTIP—necessitate the involvement of the Member States, making both “mixed” agreements. This is mainly due to the comprehensive approach of its investment protection sections; they embrace forms of investment for which the Member States are competent, e.g. portfolio investments, i.e. investments which serve financial gain without pursuing any entrepreneurial purpose, investment protection clauses, and rules on maritime trade, cross approval of professional qualifications, and employment protection.26

3.2 Provisions of National Constitutional Law Regarding International Law Agreements CETA and TTIP thus being dependent on the approval of national parliaments in the Member States, the provisions and boundaries of national constitutional law regarding International Law agreements are relevant. Even more so when it comes to the conferral of powers to an international organisation. Nowadays, the idea that sovereignty is vested in the people is the cornerstone of European constitutions.27 This idea is accompanied by the principle of supremacy of the nation, bound by the human rights which arise from the inviolability of human dignity, including democratic rights, and the rule of law.28 In this context, sovereignty originally meant the concept of a supreme and unlimited power, regarding both the internal relations within the state and its foreign relations.29 But with the increasing role of International Law and the institutionalisation of the international community, sovereignty is no longer perceived as an unlimited power to exert influence on other states or as manifestation of power that is free from external influences. In the words of the German Federal Constitutional Court: The German constitution is directed towards opening the sovereign state order to peaceful cooperation of the nations and towards European integration. Neither pari passu integration 25 See

P. Eckhout, EU External Relations Law (2nd ed., OUP 2011), 70 seqq.

26 For an in-depth analysis see the works cited above n. 20 and German Federal Constitutional Court

(n. 6), para. 52–57. 27 See Albi (2005), 9. 28 Cf. inter alia for Poland Trybunal Konstytucyjny, K 32/09, Treaty of Lisbon (2010) 30 Polish YB of Intl L 304 (excerpts). 29 See Fowler and Bunck (1995), 11 seqq.

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into the European Union nor integration into peacekeeping systems such as the United Nations is tantamount to submission to alien powers. Instead, it is a voluntary, mutual pari passu commitment which secures peace and strengthens the possibilities of shaping policy by joint coordinated action. The Basic Law does not protect individual freedom, as the self-determination of the individual, with the objective of promoting uncommitted highhandedness and the ruthless enforcement of interests. The same applies to the sovereign right of self-determination of the political community. […] This understanding of sovereignty becomes visible in the objectives laid down in the Preamble. The Basic Law abandons a self-serving and self-glorifying concept of sovereign statehood and returns to a view of the state authority of the individual state which regards sovereignty as ‘freedom that is organised by international law and committed to it’ ([…]). It breaks with all forms of political Machiavellianism and with a rigid concept of sovereignty which until the beginning of the 20th century regarded the right to wage war – even a war of aggression – as a right due to a sovereign state as a matter of course ([…]), even though the Conventions signed at the Hague Peace Conference on 29. July 1899 initiated a gradual proscription of the use of force between states, whilst still preserving the ius ad bellum.30

What is true for the process of integration into the European Union and integration into peacekeeping systems such as the United Nations, applies analogously to the transfer of sovereign powers to international institutions or agreements in trade policy to strengthen the possibilities of shaping policy in that field. This exemplary view of the German Federal Constitutional Court is in agreement with constitutional law, jurisprudence and doctrine throughout the other Member States of the European Union.31 Thus, the mere negotiations on and the conclusion of Free Trade Agreements including the abandonment of tariffs or non-tariff trade barriers or establishing a Regulatory Cooperation Body, a system of Committees or an Investment Court System do not per se constitute a breach of national sovereignty. To the contrary, incurring international liabilities and managing them do not lead to the loss or limitation of a state’s national sovereignty, but are its confirmation and manifestation. This point of view is accompanied by the perception that—in accordance with national constitutional law—a state is generally able to confer its competences or at least parts thereof to bodies established under international treaties.32 As a starting point, this conferral of powers can be of a far-reaching extent.33 30 German

Federal Constitutional Court, 2 BvE 2/08 and others, Treaty of Lisbon (2009), BVerfGE 123, 267, para. 220, 223; also available in English at accessed 19 October 2016. 31 For an in-depth analysis see Albi (n. 27), passim; C. Grabenwarter, ‘National Constitutional Law Relating to the European Union’, in v. Bogdandy and Bast (eds.), Principles of European Constitutional Law (2nd ed., Hart, C. H. Beck, and Nomos 2010), 83, 95 ff.; see also Trybunal Konstytucyjny (n. 28); for the Czech Republic Ústavni Soud, Pl. ÙS 19/08, Treaty of Lisbon I (2008); Pl. ÙS 29/09, Treaty of Lisbon II (2009); French Conseil constitutionnel, 92-308 DC, Treaty of Maastricht (1992), Grandes décisions du Conseil constitutionnel, no. 45; cf. for further countries D. Shelton (ed.), International Law and Domestic Legal Systems. Incorporation, Transformation, and Persuasion (OUP 2011). 32 See n. 29 and the German Federal Constitutional Court (n. 30), para. 226; Starck (2015). 33 See—inter alia—German Federal Constitutional Court (n. 30), para. 226.

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However, some, if not most of the constitutional courts of the European Union’s Member States—with an outstanding position of the German Federal Constitutional Court—claim that the powers of a state to confer competences to bodies under International Law are granted under the condition that the sovereign statehood of a constitutional state is maintained and that this state does not lose its ability to politically and socially shape living conditions on its own responsibility.34 Hence, constitutional courts have established procedural as well as substantive limitations to the conferral of power to bodies established under International Law, especially with regard to democratic accountability, judicial review of legislative and administrative measures, rule of law, and transparency of public proceedings. These limitations are known as structural safeguard clauses.35

3.2.1

Rule of Law and Judicial Review of Legislative, Judicial and Administrative Measures

Regarding the rule of law and the competence of national courts to judicially review legislative, judicial, and administrative measures, the empowerment of a state to transfer sovereign rights to institutions established under International Law means that it is not guaranteed constitutionally that legal protection against acts of these institutions can be sought from national courts.36 In the Member States of the European Union, constitutional provisions open up the national legal system in such a way as to withdraw the respective nation’s exclusive 34 German Federal Constitutional Court (n. 30), para. 226; for the other European states—each regarding the European Union—see: for Denmark Højesteret, Judgment of 6 April 1998—I 361/1997, Section 9.8; for Estonia Riigikohus, Judgment of 12 Juli 2012—3-4-1-6-12, para. 128, 223; for France Conseil Constitutionnel, decision No. 2006-540 DC of 27 July 2006, 19. recital; decision No. 2011-631 DC of 9 June 2011, 45. recital; Conseil d‘État, judgment of 8 February 2007, No. 287110 Ass., Société Arcelor Atlantique et Lorraine, 43 Europarecht (2008) 57, 60 seq. for Ireland Supreme Court of Ireland, Crotty v. An Taoiseach (1987), I.R. 713, 783; S.P.U.C. (Ireland) Ltd. v. Grogan (1989), I.R. 753, 765; for Italy Corte Costituzionale, decision No. 98/1965, Acciaierie San Michele, 2 Europarecht (1966) 146; decision No. 183/1973, Frontini, 10 Europarecht (1974) 255; decision No. 170/1984, Granital; decision No. 232/1989, Fragd; decision No. 168/1991; decision No. 117/1994, Zerini; for Latvia Satversmes tiesa, judgment of 7 April 2009—2008-35-01, para. 17; for Poland Trybunal Konstytucyjny, judgments of 11 May 2005—K 18/04, para. 4.1., 10.2.; of 24 November 2010—K 32/09, para. 2.1. ff.; of 16 November 2011—SK 45/09, para. 2.4., 2.5.; for Spain Tribunal Constitucional, declaration of 13 December 2004, DTC 1/2004, recital 2; decision of 13 February 2014, STC 26/2014, recital 3, 34 HRLJ 475, 477 f.; for the Czech Republic Ústavni Soud, judgment of 8 March 2006, Pl. ÚS 50/04, part VI.B.; judgment of 3 May 2006, Pl. ÚS 66/04, para. 53; judgment of 26 November 2008, Pl. ÚS 19/08, para. 97, 113, 196; judgment of 3 November 2009, Pl. ÚS 29/09, para. 110 ff.; judgment of 31 January 2012, Pl. ÚS 5/12, part VII.; for the United Kingdom High Court, Thoburn v. Sunderland City Council 2002, EWHC 195 (Admin), para. 69; UK Supreme Court, R (on the application of HS2 Action Alliance Limited) v. The Secretary of State for Transport (2014) UKSC 3, para. 79, 207; Pham v. Secretary of State for the Home Department (2015) UKSC 19, para. 54, 58, 72–92. 35 See C. Grabenwarter (n. 31), 100 ff. 36 See, for example, German Federal Constitutional Court, 2 BvR 1107/77 and 195/79, Eurocontrol I (1981), BVerfGE 58, 1.

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claim to govern in the area to which its constitutional law applies and allow room for the direct validity and applicability of law from another source within the national sovereign territory.37 Hence, this claim must not be reframed by trying to subject institutions or bodies established under International Law or their decisions—may they be even of a judicial kind themselves—to judicial review by national courts. The meaning and purpose of an empowerment by national constitutional law to confer competences to this kind of institutions or bodies could be hampered by such a claim, particularly if the international institution or body feared the risk of uneven legal protection in the individual states.38 Thus, the state—in negotiating and concluding a treaty under International Law or transforming it into national law—has broad discretion not only as to whether and to what extent an international institution may be granted sovereign powers and in what way this institution is to be given legal and organizational shape, but also with respect to the shaping of legal protection against actions of the international institution.39 There are, nevertheless, boundaries to this “conferral empowerment” with regard to the basic principles of a state’s constitution; this holds true especially for the guarantee—embodied in the very principle of the rule of law—of effective legal protection against acts of the public authority (of an international organisation, its institutions, and bodies).40 That means that the limitations set to that transfer of powers by basic principles of a state’s constitution might be exceeded where the basic principle of effective legal protection—as embodied in the very principle of the rule of law—were to be impaired by the very foundation of an international institution or its legal and organizational pattern.41 On this understanding, the investment dispute settlement mechanisms to be established under CETA and TTIP are unlikely to violate the structural safeguard clauses of national constitutional law regarding the rule of law and judicial review. This holds true because the mechanisms are limited to certain core areas of investment protection, thereby leaving legal protection for any other field of policy to the national courts. Even more so, CETA and TTIP will likely create a permanent Tribunal and Appellate Tribunal system that safeguards the independence, impartiality, and qualification of its judges both personally and on the merits, equality of arms for the parties of a dispute, a way to appeal against decisions by the Tribunal, and full transparency in investment dispute settlement proceedings. This accounts for all elements of the principle of effective legal protection as recognized by European and national constitutional law, jurisprudence and doctrine. 37 See German Federal Constitutional Court, 2 BvL 52/71, Solange I

(1974), BVerfGE 37, 271, 280. German Federal Constitutional Court, 1 BvR 248/63 and 216/67, EEC Regulations (1967), BVerfGE 22, 293, 298; a worldwide analysis can be found in Reinisch (2013); for Germany: A. Proelß, Bundesverfassungsgericht und überstaatliche Gerichtsbarkeit (Mohr Siebeck 2014). 39 See German Federal Constitutional Court (n. 36). 40 See German Federal Constitutional Court, 2 BvR 1058/79, Eurocontrol II (1981), BVerfGE 59, 63. 41 For a detailed analysis of European law see C. Görisch, ‘Effective Legal Protection in the European Legal Order’, in Szente and Lachmayer (eds.), The Principle of Effective Legal Protection in Administrative Law (Routledge 2016), 29 ff. 38 Cf.

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Democratic Accountability and Transparency of Public Proceedings

The second main component of the structural safeguard clauses of national constitutional law regards democratic accountability and transparency of public proceedings. Emanating from the inviolability of human dignity and the constitutive principle of personal freedom,42 the right to vote is perceived as the citizens’ most important individual right to democratic participation under national constitutional law. This right to equal participation in democratic self-determination can be violated if the organisation of state authority were changed in such a way that the will of the people can no longer effectively be shaped or that citizens cannot rule according to the will of a majority. This would be the case where new national or international bodies were established to exercise public authority, thereby considerably curtailing the rights and democratic freedom of action of those constitutional bodies—especially national Parliaments—which have directly come into being according to the principles of free and equal elections.43 But that does not mean that the shape of political rule on an European or international level made possible by national constitutional law could be schematically pitted against the requirements of a national constitutional state.44 On the contrary, constitutional law of the European Union’s Member States grants its public authorities powers to engage in a far-reaching transfer of sovereign powers to bodies established under International Law. At the same time, these powers are granted on the condition that the sovereign statehood of the state is maintained, and that the Member State does not lose its ability to politically and socially shape living conditions on its own responsibility.45 This generally permits for derogations from the organisational principles of democracy applying at a national level, which can arise from the requirements of a treaty negotiated under international law, which in turn is based on the principle of equality of states.46 In detail, this means that national public authorities are permitted to shift parts of the political rule to international organisations. The empowerment to exercise supranational powers, however, comes from the Member States of such an institution. They therefore permanently remain the masters of the treaties the international organisation is based on.47 National constitutional law does not authorise the respective state bodies to transfer sovereign powers in such a way that their exercise can independently establish other competences for the international

42 See

Czech Republic Ústavni Soud, Pl. ÙS 19/08 (n. 31), para. 103. the above see German Federal Constitutional Court (n. 30), para. 210. 44 German Federal Constitutional Court (n. 30), para. 219. 45 German Federal Constitutional Court (n. 30), para. 226; for the other European states see C. Grabenwarter (n. 31), 100 ff. 46 For the treaties establishing the European Union see Czech Republic Ústavni Soud, Pl. ÙS 19/08 (n. 31), para. 98; German Federal Constitutional Court (n. 30), para. 227. 47 See Trybunal Konstytucyjny (n. 28); German Federal Constitutional Court (n. 30), para. 231. 43 For

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organisation. According to national constitutional law, such integrational steps must be factually limited by the act of transfer and must, in principle, be revocable.48 The condition that sovereign statehood of the state must be maintained even when the state confers powers to an international organisation, bears even more results. The powers transferred to the international organisation must be delineated in a sufficiently precise manner.49 In so far as the people itself is not directly called upon to decide, democratic legitimation can only be achieved by means of parliamentary responsibility.50 Where treaty law of an international organisation is to allow treaty amendment without a ratification procedure solely or mainly by the institutions of the international organisation, whilst preserving the principle of conferral, a special responsibility to safeguard the principle of democracy is incumbent on the national legislative bodies and the government—so-called “Integrationsverantwortung”.51 Hence, the requirements national constitutional law places on the organisational structure and the decision-making procedures of an international organisation depend on the extent to which sovereign responsibilities are transferred to it and the degree of political independence in the exercise of the sovereign powers it enjoys.52 Forming the outmost border, national constitutional law prohibits the complete emptying of the democratic legitimation empowering national parliaments and their freedom of political action by conferral of powers to international organisations; this bars a state from entering into agreements that would carte blanche authorise an international organisation to exercise public authority or even confer the power to confer itself new powers (Kompetenz-Kompetenz in German) to the international organisation.53 This outmost border is transgressed where the bodies or organs established by a treaty under international law are allowed to arbitrarily exercise public authority. That form of public authority would neither be sufficiently legitimized by the people of the Member States of the international organisation, nor could the people influence it freely and equally.54 Whether this boundary is transgressed, can and must be scrutinized by the national constitutional courts.55 In exercising this judicial control, the German Federal Constitutional Court—as most other constitutional courts throughout Europe—is restraining itself: It only wants to assert a violation of the principle of democracy as set out under the German Basic Law, when there is a “sufficiently qualified transgression of competencies” by bodies

48 See Czech Republic Ústavni Soud, Pl. ÙS 19/08 (n. 31), para. 106; German Federal Constitutional Court (n. 30), para. 233. 49 German Federal Constitutional Court (n. 30), para. 236. 50 German Federal Constitutional Court, 2 BvR 2134/92 and others, Maastricht (1993), BVerfGE 89, 155, 212. 51 German Federal Constitutional Court (n. 30), para. 236. 52 German Federal Constitutional Court (n. 30), para. 262. 53 See German Federal Constitutional Court, 2 BvR 2728/13 and others, OMT-Programm (2016), 69 Neue Juristische Wochenschrift 2473, 2476; Trybunal Konstytucyjny (n. 28). 54 See German Federal Constitutional Court (n. 53), 2477. 55 For the German “Identitätskontrolle” see German Federal Constitutional Court, ibid.

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or organs established under international law.56 This kind of transgression is required to be evident and of structural significance to the allocation of competences between the international organisation and its Member States.57 With regard to “mega-regional” Free Trade Agreements, these limitations set by national constitutional law presumably will not be breached by the provisions on regulatory coherence and regulatory cooperation. This is because—as in Art. 8.9 of CETA, in Art. X.1, and X.5 of Part 2 of TTIP—these Agreements preserve the right of the contracting parties to regulate and to achieve legitimate policy objectives, such as protection of public health, safety, environment, public morals, social or consumer protection and the promotion and protection of cultural diversity. These provisions will also explicitly foresee that governments can change their laws, also in a way that affects investors’ expectations of profit. Hence, the legislative powers of the democratically legitimized Parliaments of the European Union’s Member States are not significantly restricted. This is, at least not to an extent that would not be permitted as derogation from the organisational principles of democracy applying at national levels which arise from the aforementioned requirements of a treaty negotiated under international law. In contrast, the competencies conferred to the CETA—or TTIP—Joint Committee and the other specific Committees established by CETA or TTIP might cause particular objection as to a transgression of the outmost boundaries of the principle of democracy as part of national constitutional law. The German Federal Constitutional Court, being the only constitutional court yet to decide on CETA, pointed out that the system of Committees under CETA might be an infringement of the principle of democracy. It elaborated on this matter58 that Art. 26.1 CETA will establish a Joint Committee with responsibility for all questions concerning trade and investment between the contracting parties and the implementation and application of CETA (Art. 26.1 para. 3 CETA). According to Art. 26.3 para. 2 of CETA, the decisions made by this Committee shall be binding on the contracting parties, subject to the completion of any necessary internal requirements and procedures, and the contracting parties are bound to implement them. Even more so, the CETA Joint Committee has the competence—Art. 26.1 para. 5 lit. (c) CETA—to consider or agree on amendments as provided in CETA. The same holds true for the protocols and annexes for CETA, Art. 30.2 para. 2 CETA. Protocols and annexes for CETA form the largest part of this Free Trade Agreement. Furthermore, the CETA Joint Committee may, by decision, add other categories of intellectual property to the definition in Art. 8.1 CETA, thus broadening the scope of the agreement. These competencies are all the more problematic, because the wording of CETA—the same is true for TTIP—does not provide for secured influence of the European Union’s Member States in the system of Committees. The formation and the procedure of the Committees are regulated only rudimentary. Art. 26.1 para. 1 of CETA only states that the CETA Joint Committee is established comprising 56 German

Federal Constitutional Court (n. 53), 2478. Federal Constitutional Court, ibid. 58 For the following see German Federal Constitutional Court (n. 6), para. 60 ff. 57 German

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representatives of the European Union and of Canada. In contrast, it is not mandatory that each of the European Union’s Member States is represented in the CETA Joint Committee by its own seat and mandatary, even if the Committee is debating matters appertain to the Member States. Although the procedure—Art. 26.3 para. 3 of CETA—demands that all decisions and recommendations made by the CETA Joint Committee shall be reached by mutual consent, this only guarantees that these cannot be concluded against the will of the European Union and its representatives. It remains unclear whether or how the European Union’s Member States will be represented; they could only be represented through the European Union. That way it seems plausible that national public authorities—with their democratic legitimization—would be completely barred from influence, cutting off the personal and factual legitimization of the Committee’s work and the connection to the will of the people. And it applies analogously to the special Committees, Art. 26.2 para. 4, 13.18, 21.7 para. 5 and 7 CETA. This could affect all chapters of CETA, especially trade remedies, technical barriers to trade, sanitary and phytosanitary measures, customs and trade facilitation, investments, cross-border trade in services, temporary entry and stay of natural persons for business purposes, mutual recognition of professional qualifications, domestic regulation on professional qualifications, financial services, international maritime transport services, telecommunications, electronic commerce, competition policy, state enterprises, monopolies, and enterprises granted special rights or privileges, government procurement, and intellectual property. Such a transgression of the boundaries set by the principle of democracy according to national constitutional law can only be averted when it is made mandatory that all decisions and recommendations by the CETA Joint Committee or the special Committees regarding matters for which the European Union’s Member States hold competences must be reached by mutual consent given by all Member States.59

4 Summary In summary, national constitutional law of the European Union’s Member States can at least be a benchmark for Free Trade Agreements, be they bilaterally negotiated between the European Union and another country or “mega-regional”, when it is a so-called “mixed agreement”. This is the case when parts of an envisaged agreement do not fall within the European Union’s competences while other parts do, thus partly falling into the competences of the Member States. This holds particularly true for CETA and TTIP and other prospective “mega-regional” agreements, which pursue a comprehensive approach to free trade regulation. Nevertheless, most of the public criticism based on national constitutional law and its values, the “mega-regional” Free Trade Agreements CETA and TTIP have come in for proved not to hold up. Particularly, critique of regulatory coherence and cooperation and the criticism directed against the investment dispute settlement 59 See

German Federal Constitutional Court (n. 6), para. 65.

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system are legally ill-founded. Both are—based on the most up-to-date versions of the CETA and TTIP negotiation texts—most likely compatible with national constitutional law of the European Union’s Member States. That is because this law is very restrained in setting up boundaries for the contents of treaties under International Law. Underlying this restraint is an understanding of sovereign statehood that abandons the self-serving and self-glorifying stances of sovereignty taken in past centuries. It rather regards sovereignty as freedom that is organized by International Law and committed to it. However, national constitutional law of the European Union’s Member States does set outmost limits to the negotiation on and conclusion of treaties under International Law, including Free Trade Agreements. These limits apply to all future Free Trade Agreements, inclusive of “mega-regionals”, and will apply to the Free Trade Agreement currently negotiated between India and the European Union as well. Regarding the rule of law and the judicial review of legislative, administrative and judicative measures, the constitutionally permissible conferral of powers to international organisations is exceeded where the basic principle of effective legal protection—as embodied in the very principle of the rule of law—were to be impaired by the very foundation of an international institution or its legal and organizational pattern. Therefore, any mechanism established by a Free Trade Agreement to settle investment disputes must guarantee effective legal protection to both the investor and the respondent state, including the independence, impartiality, and qualification of the judges, both personally and on the merits, equality of arms for the parties of the dispute, a way to appeal against decisions reached by a judicial body, and full transparency in investment dispute settlement proceedings. In contrast, national constitutional law sets stricter limitations to the conferral of power to an international organisation with regard to democratic accountability. Although constitutional law of the European Union’s Member States grants its public authorities powers to engage in a far-reaching transfer of sovereign powers to bodies established under International Law, these powers are granted on the condition that the sovereign statehood of the state is maintained and that the Member State does not lose its ability to politically and socially shape living conditions on its own responsibility. This generally permits for derogations from the organisational principles of democracy applying on a national level, which can arise from the requirements of a treaty negotiated under international law, which is based on the principle of the equality of states. But as outmost border national constitutional law prohibits the complete emptying of the democratic legitimation empowering national parliaments and their freedom of political action by conferral of powers to international organisation; this bars a state from entering into an agreement that would blank form empower an international organisation to exercise public authority or even confer the power to confer itself new powers (Kompetenz-Kompetenz in German) to the international organisation. This outmost border is transgressed where the bodies or organs established by a treaty under international law are allowed to arbitrarily exercise public authority. That form of public authority would neither be sufficiently legitimized by the people of the Member States of the international organisation nor could the

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people influence it freely and equally. Whether this boundary is transgressed can and must be scrutinized by the national constitutional courts. Hence, the powers transferred to the international organisation must be delineated in a sufficiently precise manner. This includes the substantive scope of the conferred powers and at the same time the formation and procedure of the bodies established under International Law so that it becomes evident in which way the European Union’s Member States can exert and secure their influence on the decisions of the international organisation. National constitutional law would bar a decision of an international organisation the Member State was not represented in reaching. After all, when considering future “mega-regional” Free Trade Agreements, for example between the European Union and India, national constitutional law will be a benchmark, yet one rather enabling than obstructing new agreements.

References Albi, A. (2005). EU enlargement and the constitutions of Central and Eastern Europe. Cambridge University Press. Bode, T. (2015). Die Freihandelslüge: Warum wir CETA und TTIP stoppen müssen. 6th ed. DVA. De Baere, G. (2011). The basics of EU external relations law: An overview of the Post-Lisbon constitutional framework for developing the external dimensions of EU Asylum and Migration Policy. In De Bruycker, P., et al. (Eds.). (2011). External dimensions of EU migration and asylum law and policy=Dimensions externes du droit et de la politique d’immigration et d’asile de l’UE (pp. 121–174). Bruylant. European Commission. (2016). Public report on the 14th round of negotiations for the transatlantic trade and investment partnership. http://trade.ec.europa.eu/doclib/docs/2016/August/tradoc_ 154837.pdf. Accessed 19 October 2016. Fowler, M. R., & Bunck, J. M. (1995). Law, power, and the sovereign state: the evolution and application of the concept of sovereignty. Penn State University Press. Grzeszick, B., & Hettche, J. (2016). Zur Beteiligung des Bundestages an gemischten völkerrechtlichen Abkommen. Internationale Freihandelsabkommen als Herausforderung des deutschen Europa-und Außenverfassungsrechts. Archiv des oeffentlichen Rechts, 141(2), 225–267. Maresceau, M. (2010). A typology of mixed bilateral agreements. In C. Hillion & P. Koutrakos (Eds.), Mixed agreements revisited. The EU and its Member States in the World (pp. 11–29). Hart. Mayer, F. C. (2014). Stellt das geplante Freihandelsabkommen der EU mit Kanada (Comprehensive Economic Trade Agreement, CETA) eingemischtes Abkommen dar? https://www.bmwi.de/ BMWi/Redaktion/PDF/C-D/ceta-gutachten-einstufung-als-gemischtes-abkommen,property= pdf,bereich=bmwi2012,sprache=de,rwb=true.pdf; English summary of the paper at https://www. bmwi.de/BMWi/Redaktion/PDF/C-D/ceta-gutachten-einstufung-als-gemischtes-abkommenzusammenfassung-englisch,property=pdf,bereich=bmwi2012,sprache=de,rwb=true.pdf both accessed 19 October 2016. Mayer, H. (2015). Between “NATO for Trade” and “Pride in Angst”: The German TTIP Debate and its Spill-over into Wider Transatlantic Concerns. In Morin J. F., et al. (Eds.), The politics of transatlantic trade negotiations: TTIP in a globalized world (pp. 45–58). Ashgate. Mayer, S. (2015). “Mixed” oder “EU-only”–Sind die Investitionsschutzbestimmungen im CETA von der Außenhandelskompetenz der EU “gedeckt”? Europarecht, 50(5), 575–600.

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Petersmann, E. U. (2015). Transformative transatlantic free trade agreements without rights and remedies of citizens? Journal of International Economic Law, 18(3), 579–607. Reinisch, A. (Ed.). (2013). The privileges and immunities of international organizations in domestic courts. OUP Oxford. Shah, A., Tiedemann, N., & Kotas, K. (2015). Critical Perspectives on TTIP: Expropriation. New research in global Political Economics. working paper No. 03/2015. https://kobra.bibliothek. uni-kassel.de/bitstream/urn:nbn:de:hebis:34-2015111749362/1/New_Research_in_GPE_3_ 2015.pdf. Accessed 19 October 2016. Financial Deregulation and Domination of the World: Universitätsbibliothek Kassel. Starck, C. (2015). International Law, Law of the European Union and National Constitutional Law. In Blanke, H.-J., et al. (Eds.), Common European Legal Thinking: Essays in Honour of Albrecht Weber (pp. 125–140). Springer. Streinz, R. (2015). Disputes on TTIP: Does the agreement need the consent of the German Parliament?. In Herrmann, C., et al. (Eds.). Trade policy between Law, Diplomacy and scholarship: Liber Amicorum in Memoriam Horst G (pp. 271–295). Krenzler: Springer. Weiß, W. (2016a). Kompetenzverteilung bei gemischten Abkommen am Beispiel des TTIP, 69, Die Öffentliche Verwaltung (pp. 537–548). Weiß, W. (2016b). Verfassungsanforderungen und Integrationsverantwortung bei beschließenden Vertragsorganen in Freihandelsabkommen. Europäische Zeitschrift für Wirtschaftsrecht, 27, 286–291.

Common Market Under the Constitution of India Uday Shankar

1 Introduction The Constitution of India provides for a federal arrangement wherein the powers and functions are well-divided between the two layered government, i.e., the central government and the state governments. Of the many opportunities federal set-up offers, the constituents are blessed to operate in a large open market. The integration of open market would guarantee economic growth on account of its competitiveness and the free flow of goods. The benefit of a common market in a federal arrangement of government depends upon the constitutional arrangement, commitment of the constituent governments, and effectiveness and control of the national government to monitor the unhindered movement of goods and services across the jurisdiction of the state governments. The idea of common market and efforts to realize it in the last seven decades is the central theme of the work. The makers of the Constitution had recognised the need of common market by introducing Part XIII of the Constitution which provides for ‘Trade and Commerce within the territory of India’. The architectural framework of this Part allows the Parliament to create a common market with the conditional power to constituent units to interfere with the measures of the centre on the ground of ‘public interest’. The drafters visualized the difficulty in achieving the objectives of ‘free trade and commerce within the territory of India’; hence it was proposed to establish an authority to monitor the conduct of the regulators, the centre and the states, of the market. Driven by parochial interest, the market regulators which made laws in individual states, after independence, has imposed restrictions on trade and commerce on account of “public interest”. Such laws have impeded the economic growth of country as a whole and resulted into asymmetrical development of the states. Needless U. Shankar (B) Rajiv Gandhi School of Intellectual Property Law, Indian Institute of Technology Kharagpur, Kharagpur, India e-mail: [email protected]; [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_13

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to say, the ambitious goal to maximize the benefit from the large market of India eludes the beneficiary of the common market. The quality of life of the residents of the States that have made economic progresses is better than lesser-developed states. The widening inequality in economic growth has led to inequitable growth amongst the states. The states with lesser resources fallen behind from richer states, thus the quality of life differed from one region to another. The chapter begins with the delineation of the meaning of common market. Further, it traces the historical argument relating to Part XIII of the Constitution by traveling through the debates undertaken in the making the Constitution. Also, it draws upon the scheme of the provisions relating to common market laid down in the Constitution of India along with the judicial approach on the issue. The paper does not dwell upon the Constitution (One hundred and first) Amendment Act 2016 which introduces the Goods and Services Tax (GST) in the Indian Constitution.

2 Common Market: Delineating the Meaning Common market signifies the absence of obstacles and the free flow of goods across the territorial boundary of the constituent units of a nation. It facilitates accessibility of the market without any discrimination to every player of the market. Common market primarily based on the premise of integration of fragmented market and barrier-free movement of trade. In relation to trade arrangements between two countries, the genesis of common market related with the idea of preferential trading arrangement between two countries about systematic removal of restrictions on bilateral trade flows.1 Arthur A. Shenfield describes ‘Common Market’ in economic aspects as “First, there is the customs union itself, with the removal of obstacles to inter-member trade and the establishment of a common ring- fence tariff against non-members. Second, there is the drive toward harmonization of taxation and of labor legislation, and possibly also toward the centralization of economic initiative. Third, there is the grant of special preferential status to the dependent, or recently dependent, territories of the Members. Fourth, there is the scheme for a managed agriculture.”2 The elucidation of a common market by Shenfield describes the idea of a common market in relation to more than one sovereign nation whereby fall in tariff would be a source of increased wealth and welfare for the world. It is not only about common policy for trade but also for services and movement. The common market in Europe was driven by the schema of removal of internal barriers which might result in the establishment of apolitical union. Common market initiatives began in the year 1968, had started with the creation of customs unions for goods. In the year 1992, Maastricht Treaty was signed with one of the objectives to establish Single Market to remove or eliminate trade barriers within the European Union. Article 2 of EEC has described the need for the establishment of the common 1 Viner

(1950). (1965).

2 Shenfield

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market to formulate harmonious economic policies and to accelerate the standard of living between the States of the Community.3 Economic integration of Europe was considered as an enabling step of political unification of the participating sovereign states.4 The approach in Europe asserts the importance of integrated market not only for better trade and commerce but also for improved political scenario. The Supreme Court of India, in a matter related to anti-dumping duty on a material exported to India from a member country of European Union, has explained the objective behind the formation of common market as “It is a well-known fact that the European Union was formed with an object of creating a common market among its member States. The treaty forming the European Union-commonly known as the Treaty of Rome provided for the elimination of commercial/customs barriers to facilitate free movement of goods, workers, services and capital among the memberStates and the establishment of a common tariff and commercial policy towards nonmembers. To achieve these objects, the said Treaty also provides for common policies in agriculture, competition, and transportation. It also provides for the harmonisation of the member-State laws generally to the extent required for the proper functioning of the common market.”5 Article 1 of the East African Community Market Protocol states common market as “A common market is formed when the member states of a Regional Economic Community, in this case, the EAC, agree among themselves to operate as a single market with free movement of people, services, labours, and capital. It is a legal and binding commitment to a deeper and stronger functional integration by member states through the removal of all trade barriers on goods and services; and the liberalization of the movement of factors of production (capital and labour).”6 The Protocol promises integration of capital, labour, goods and services amongst the signatories of the treaty. Common market has also been advanced in the form of ‘internal market’ which is described as an area without frontiers in which free movement of goods, persons, services and capital is ensured. Economists in economic federalism pay almost no attention to the internal market, they assume, in the federation, the internal market is a ‘single market’.7 However, the concept of the single market is far from reality in a federation due to fragmented jurisdictions over varied issues such as tax, trade, and movement. Generally, in the federation, the foundational document authorizes the 3 Article

2 reads as “The Community shall have as its task, by establishing a common market and progressively approximating the economic policies of the Member States, to promote throughout the community a harmonious development of economic activities, a continuous and balanced expansion, an increase in stability, an accelerated raising of the standard of living and closer relations between the States belonging to it.” 4 Schwarze (2006). 5 Designated Authority Anti-Dumping Directorate Ministry Of Commerce v M/s. Haldor Topsoe A/s. AIR 2000 SC 2556. 6 East African Community Market Protocol, East African Business Council. The East African Community is an intergovernmental organization composed of Republic of Burundi, Kenya, Rwanda, Uganda and the United Republic of Tanzania. 7 Oates (1999).

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federal government to undertake measures to attain the goal of a common market by regulating the power of the provincial governments to the levy of taxes, duty or any other trade barriers.8 Recently, the court has enunciated the attributes of the common market under the scheme of the Indian Constitution, as “The freedom Under Article 301 comprehends, as we have seen, the free movement of goods, services, persons and capital. These are essential ingredients in the creation of a common market as an incident of an economic union.”9 The agenda of the establishment of ‘common market’ is to achieve the goal of economic integration and growth of a federation. Different measures are to be employed to remove the barriers which cause hindrance in the constructing integrated economic unit for the whole territory.

3 Constituent Assembly Debates: Unfolding the Deliberations on Common Market The monumental task of the formulation of a supreme document executed by more than three hundred representatives of Princely States, Provincial Governments, and British India embraced the vision of united India, political and economic. On the other hand, a range of provisions has been scripted to secure political unity and integrity in the country, a dedicated chapter has been incorporates scores of the provision to guarantee integrated economic unit traversing geographical boundaries of provinces. When the country got independence, the rulers of the princely states governed less than half of the territory. The princely states were having limited sovereignty rights based on agreement with the British Empire which was enjoying suzerainty over these states. In exercise of the limited legislative power, these states were levying taxes and erecting tariff barriers to impede the flow of trade, commerce and intercourse between themselves and the rest of India. The makers of the Constitution were aware of the impediments, amongst princely states, prevailing in relation to free flow of trade, thus they commit to the constitutional goal of barrier free trade through out the territory of India.10 The Advisory Committee on Fundamental Rights, which submitted a report on fundamental rights, suggested for the abolition of internal customs over a period of time on the basis of an agreement to be reached between the Centre and the provinces in order to ensure freedom of trade for every citizen. The Committee submitted that “Clause 10 deals with the freedom, throughout the Union, of trade, commerce, and intercourse between the citizens. In dealing with this clause, we have taken into account the fact that the several Indian States depend upon internal customs for a 8 For the purpose of this paper, three expressions, common market, internal market and single market,

are used synonymously. Stainless Ltd. v State of Haryana MANU/SC/1475/2016, para 477. 10 Sarkaria Commission, para 18.3.07. 9 Jindal

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considerable part of their revenue and it may not be easy for them to abolish such duties immediately on the coming into force of the Constitution Act. We, therefore, consider that it would be reasonable for the Union to enter into agreements with such States in the light of their existing rights, with a view to giving them time, up to a maximum period to be prescribed by the constitution, by which internal customs could be eliminated and complete free trade established within the Union.”11 Munshi suggested that the third proviso to Clause 10 shall refer to nondiscriminatory conditions. He stressed that there is a need to have a nondiscriminatory and same-level playing field in the matters of trade amongst the state. He clarified that “The proviso contemplates that a Unit can impose certain customs duty with a view to bringing up the level of the price of goods imported to the level of the price of the goods manufactured in the Unit itself. Otherwise, the goods produced in other Units will flood that particular Unit…Therefore, the whole point is that there should not be any regulation or any conditions of such a nature which would favour the goods produced in the Unit as against those produced and imported from outside.”12 There was a proposal to include a fundamental right, Article 16 of the Draft Constitution, on freedom to trade, commerce and intercourse throughout the territory of India. ‘Subject to clause’ in Article 16 of the Draft Constitution raised a concern in the mind of the members of the Constituent Assembly regarding the content of the rights to be enjoyed by the right-holder in the case of prohibitory laws enacted by the legislature under Art. 244.13 Dr. Ambedkar clarified that the reason of carving out a separate fundamental right to freedom of trade was to guarantee the free flow of trade to everyone within the state as well as across the states. But in view of a number of considerations, including the need to regulate trade and commerce14 11 CAD

Vol. III 438 Clause 10, which guarantee trade and commerce free, ran as: “Subject to regulation by the law of the Union trade, commerce, and intercourse among the units by and between the citizens shall be free: Provided that any Unit may by law impose reasonable restrictions in the interest of public order, morality or health or in an emergency: Provided that nothing in this section shall prevent any Unit from imposing on goods imported from other Units the same duties and taxes to which the goods produced in the Unit are subject: Provided further that no preference shall be given by any regulation of commerce or revenue by a Unit to one Unit over another.” 12 CAD Vol. III 476. 13 Article 244 of the Draft Constitution read as “Notwithstanding anything contained in Article 16 or in the last preceding Article of this Constitution, it shall be lawful for any State— (a) to impose on good imported from other States any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) to impose by land such reasonable restrictions on the freedom of trade, commerce or intercourse with that State as may be required in the public interests: Provided that during a period of five years from the commencement of this Constitution the provisions of Clause (b) of this Article shall not apply to trade or commerce in any of the commodities mentioned in Clause (a) of Article 306 of this Constitution.” 14 CAD Vol. VII 803.

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finally the provisions relating to trade and commerce were consolidated n Part XIII of the Constitution. While drafting Part XIII of the Constitution, the authors of the Constitution stressed on the significance of economic unity and realized that it is a pre-condition to guarantee stability and progress of the federal polity. The Government of India Act, 1935 had dealt with prohibitions or restrictions in respect of import into or export from a Province, of goods generally. The Constitution of India has built upon this provision the 1935 Act. The 1935 Act empowered the provincial government to impose taxes and prohibit discrimination against goods manufactured or produced beyond territory of the province or goods produced in different localities.15 The applicability of Section 297 of the 1935 Act was confined to provincial legislatures and governments. The Constitution of India enlarges the scope of inhibitions by laying down the limits within which the Union Parliament and a State Legislature may legislate with reference to trade, commerce and intercourse inter-State, intra-State and throughout the territory of India.16 The framers of the Constitution intended to create a well-knitted economic union along with an element of fiscal sovereignty to the provinces.

4 Scheme of the Constitution The Indian Constitution embraces all the features of federation with specific powers and responsibilities to the Centre and the States with institutions needed for maintaining the federal structure. Amidst federal set-up, the Constitution promises economic unity, stability and integrity of the country through the free flow of trade, commerce and intercourse within and across inter-state borders. Along with federal set-up, the Constitution makers had also envisaged the potential of a large market of the country for bringing economic growth and quality of life and creation of authority to tap the benefit by allowing barrier-free trade throughout the territory. A unified and integrated domestic market is necessary to make the Indian economy efficient and competitive. Article 301 mandates that trade, commerce, and intercourse throughout the territory of India shall be free. This provision enables the unobstructed 15 “297.—(1)

No Provincial Legislature or Government shall— (a) by virtue of the entry in the Provincial Legislature List relating to trade and commerce within the Province, or the entry in that list relating to the production, supply, and distribution of commodities, have power to pass any law or take any executive action prohibiting or restricting the entry into, or export from the province of goods of any class or description; or (b) by virtue of anything in this Act have power to impose any tax, cess, toll or due which, as between, goods manufactured or produced in the Province and similar goods not so manufactured or produced, discriminates in favour of the former, or which, in the case of goods manufactured or produced outside the province, discriminates between goods manufactured or produced in one locality and similar goods manufactured or produced another locality. (2) Any law passed in contravention of this Section shall, to the extent of the contravention, be invalid.” 16 Atiabari Tea Co. Ltd. v State of Assam MANU/SC/0030/1960, para 11.

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flow of trade, commerce and intercourse from one part of the territory of India to another. The idea underlying the provision is to abolish all those trade barriers and custom posts in the interest of national solidarity, economic and cultural unity. Under Article 302,17 Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. Parliament is empowered to regulate the free-flow of trade in the interest of public. The quotient of public interest to be measured on the scale of pan-Indian attributes in order to build coherent, compact and integrated economic unit in the country. Therefore under Article 302, it is not the case of overarching power with Parliament to impose a restriction on measures undertaken by the states, but only of those measures which have got a ‘direct and immediate effect’ on the freedom to be regulated through a legislative process at the behest of the Centre. It has been observed that “The question whether a law imposes a restriction or not depends on the question whether the said law imposes directly and immediately a limitation on the freedom of movement of trade. If it does, the extent of the impediment relates to the question of degree rather than to the nature of it. If it is a restriction, it must satisfy the conditions laid down in Article 302 of the Constitution.”18 On parliamentary control, the Report of Sarkaria Commission reasoned out that “the need for empowering Parliament to place restrictions on trade and commerce even within a State is obvious. Ours is a vast country with varying economic potentiality and considerable differences in regard to existing levels of development. The Union’s responsibility in respect of certain matters may, therefore, entail regulating Trade and Commerce even within a State for achieving national objectives. The importance of Parliamentary control over intraState trade is also significant where centres of production of certain commodities are situated entirely within a State but the centres of consumption are located outside the State.”19 Article 30320 precluded Parliament and the State Legislatures from making a law giving preference to a State or States or making discrimination among the States. This provision strongly advocates for the creation of a common market in India by prohibiting every kind of discriminatory legislative enactment in relation to any entry in the Seventh Schedule which may affect trade or commerce.

17 Article 302: Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India, as may be required in the public interest. 18 The Automobile Transport (Rajasthan) Ltd. v State of Rajasthan MANU/SC/0065/1962, para 54. 19 Sarkaria Commission, para 18.3.13. 20 Article 303 (1): “Notwithstanding anything in article 302, the Parliament shall not have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule.”

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Article 30421 confers power on the provincial legislature to levy taxes on goods imported from other States on similar goods manufactured in that State so that there is no favoritism between goods so imported and goods so manufactured or produced within the State. State legislature is allowed to impose restrictions, reasonable, on free trade with or within that state in the larger public interest. However, the power to impose restrictions on the state government is subject to obtaining prior sanction from the President. Thus, the President shall examine the veracity and genuineness of the grounds on which discriminatory laws are enacted by the state government. Article 304 (a) is a very significant provision in the scheme of ‘common market’ as it allows the state undertake all the necessary efforts, in the federal scheme, to maintain a trade-related competitive edge in relation to other states. The idea of the integrated market is not to be fulfilled at the cost of fiscal measures related to economic development of a state.22 However, the state shall not be allowed take the benefit from discriminatory laws. The schema of Part XIII balances the interest of nation and autonomy of the states in the federal set-up. The makers of the Constitution were well-versed with the reality that compartmentalized role between the centre and the states in the federal structure is an obsolete model and need to be replaced with cooperative and shared responsibilities amongst two-tier governments. For shouldering the responsibility of economic integration of the country, the drafters of the Constitution envisaged the need for an independent authority to oversee the implementation of the objectives of Part XIII. Sadly, even after seven decades of independence, the consecutive governments failed to implement the mandate of the makers of the Constitution. In fact, at some places, they negated the very need of such authority on the ground of that the authority may fail to perform due to the well-known malaise of bureaucratic framework on any institution. Before Sarkaria Commission, The Department of Civil Supplies expressed its view as follows: “Since the situations keep on changing from time to time in the country, the Ministries at the Centre should be able to respond to such situations more promptly and appropriately because they have the readily available advice with them of experts, legal opinion, information from various parts of the country and views of the producing and consuming States, etc. The establishment of an authority under Article 307, would only cause delays, conflicts, and controversies among the various States/regions. Moreover, the authority if established can only be a data collecting, deliberative and advisory body but not a decision-making authority which still shall have to rest with the Central Government. The Department, there21 Article 304: “Restrictions on trade commerce and intercourse among states: Notwithstanding anything in Article 301or Article 303, the Legislature of a State may by law-(a) impose on goods imported from other States [or the Union territories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: provided that no Bill or amendment for the purposes of Clause (b) shall be introduced or moved in the Legislature or a State without the previous sanction of the President.” 22 Anand Commercial Agencies v The Commercial Tax Officer VI Circle, Hyderabad MANU/SC/0808/1998.

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fore, does not consider the necessity of setting up of an authority under Article 307 of the Constitution to settle issues among the various States.”23 More than a billion populations with common currency with fundamental rights to move freely and settle in any part of the Constitution, India has a potential of becoming the vast common market. The conceptualization of common market encompasses regulatory regimes, such as the provisions for lighting, speed, good condition of vehicles, timings, rule of the road and similar others, which facilitate the freedom of movement. Therefore, the market shall not be allowed to operate without any regulatory restrictions. But, it shall be the responsibility of the court to examine the validity of such restrictions on the touchstone of Part XIII of the Constitution. Parliament and the State legislatures are empowered to legislate on subject matters related to tax and trade which may have an indirect effect on the free flow of trade. In this regard, the role of the Authority to be established by Parliament by law under Article 307 becomes very vital for maintaining a balance between freedom of trade and the legislative autonomy of state in the matters of taxation and trade. Hence, it is the responsibility of the Authority to ensure that the nature of autonomy accorded to the provinces need not be compromised in accomplishing the goal of ‘common market’.

4.1 Sarkaria Commission Sarkaria Commission expressed the concern about the growing economic inequalities amongst the states and argued for strengthening the economic health of them. The Commission eulogized the benefit of the value-added tax in putting an end to cascading effect of sales taxation and rate wars among states. On the significance of the sanction from the President before imposing restrictions by the state government, the Commission aptly observed that “intra-State trading activities often have a close and substantial relation to inter-State trade and commerce. State laws though purporting to regulate intra-State trade may have implications for inter-State trade and commerce. These may impose discriminatory taxes or unreasonable restrictions, impeding the freedom of Inter-State trade and commerce. If clause (b) of Article 304 is deleted, the commercial and economic unity of the country may be broken up by State laws setting up barriers to free flow of trade and intercourse through the parochial or discriminatory use of their powers. The suggestion of the State Government is not workable even from a functional standpoint.”24 The Commission rejected the viewpoint of the government about the need for independent authority under Article 307 with the vehement observation that “We are, therefore, of the view that it would be advantageous to constitute an authority under Article 307. It should be an expert body. Being removed from the pressures of day-to-day administration it would be able to formulate objective views, taking into account the long-term perspective, in regard to various intricate problems relating to 23 Sarkaria 24 Sarkaria

Commission, para 18.4.03. Commission, para 18.3.14.

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trade, commerce, and intercourse. Being an expert constitutional body it would also inspire confidence among the various States and other interests. Such an expert body would be eminently suited to strike a proper balance between freedom of trade and the need for restrictions in order to foster development with social justice.”25 The Commission has, in detail, laid down the nature of responsibilities of the probable authority in the following words: “Among other things, such an authority may be enabled to: (a) survey and bring out periodically a report on the restrictions imposed on intraState and inter-State trade and commerce by different governments and their agencies; (b) recommend measures to rationalise or modify the restrictions imposed to facilitate free trade and commerce; (c) examine complaints from the public and the trade in this regard; and (d) suggest reforms in the matter of imposition, levying and sharing of taxes for purposes of Part XIII of the Constitution.”26

4.2 The National Commission on Review of the Working of the Constitution The National Commission on Review of the Working of the Constitution has recommended that “Parliament should by law establish an authority called the ‘Inter- state Trade and Commerce Commission’ under Article 307 to ensure removal of barriers to inter-State trade and commerce.” Another recommendation of the Commission was that “Parliament may be vested with legislative powers to fix the upper limit on taxes on professions, trades, callings and employment under Article 276”.

4.3 Puncchi Commission The Punnchi Commission expressed dismay over “the classification of goods and application of duty rate relevant for a group or sub-group of goods. What makes the whole system more complex is the multiplicity of rates, exemptions and irrational structure of the rates.” The Commission also laid stress on the integration of goods and services for the purpose of taxation under the value-added system. It also suggested that “besides removing the obstacles to trade, lot more work needs to be done to make India a truly integrated market. Massive investments are required in the development of widely dispersed warehousing, improved road/rail network and trucking/rail wagons, skilled manpower for grading, and scientific storage and 25 Ibid.

18.4.05. Commission, para 18.4.07.

26 Sarkaria

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handling.”27 Further, it observed that “there is a need to remove the barriers restricting the smooth flow of goods and services and to put in place a system to ensure a seamless flow of inter-State trade and commerce. The proposed introduction of GST is expected to usher in a common market resulting in the free movement of goods and services without any physical or legal barriers.”28 The Commission lamented that “tax impediments such as a tax on the inter-state trade of goods (CST) and Octroi/entry tax have contributed significantly in the disintegration of the market. These obstructions take away the benefit of the common market and run counter to remove trade barriers. Thus despite the potential, the Indian market continues to remain divided and sub-divided into small economic units. This fragmentation has occurred over the years by multiple tax rates, restrictions on the movement of goods imposed by States and the local bodies.”29 The Commission reiterates the suggestion to establish the authority under Article 307 of the Constitution. It stated that “we are convinced of the need for such an authority and recommend the setting up of an Inter-State Trade and Commerce Commission under Article 307 read with Entry 42 of List-I. This Commission should be vested with both advisory and executive roles with decision-making powers. As a Constitutional body, the decisions of the Commission should be final and binding in all States as well as the Union of India. Any party aggrieved by the decision of the Commission may prefer an appeal to the Supreme Court.”30 Considering the regressive tax as a bottleneck to attain the goal of ‘common market’, the Supreme Court has kept the examination of taxation wide-open against the scheme of Part XIII of the Constitution. The Court has observed that “the contention should be that every law of taxation is a reasonable restriction in public interest. There are no merits in the contention either. It is said that taxation is always in public interest and that it is not possible for any court to ascertain on the material placed before it that a rate is reasonable or not. It is conceded that regulatory taxes or laws of taxation intended to prohibit or restrict an activity and not to raise a general tax in the interest of revenue may be a restriction and a court may be in a position to see whether such laws pass the test laid down in Article 19 (6) of the Constitution.”31 Many of the judicial pronouncements on the matters related to freedom of trade have laid down guidelines on different yardsticks to be followed for examining the validity of the legislative actions.32 Perhaps, the role of the authority envisaged under Article 307 could be to design well-defined policy on the integrated market which has been done by the judiciary since independence. 27 Puncchi

Commission, para 10.3.03. para 10.3.04. 29 Puncchi Commission, para 10.2.3. 30 Ibid. para 10.3.06. 31 Ibid (n. 20) para 49. 32 For instance, Malwa Bus Service (Private) Ltd. v State of Punjab MANU/SC/0263/1983, the court has laid down a guideline that the amount of collection should be proportionate to the cost incurred on facilitating trade; Mrs. Meenakshi v State of Karnataka MANU/SC/0275/1983, the court has observed that enhanced tax does not lose character of being compensatory. 28 Ibid.

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4.4 One-Hundred (Constitutional) Amendment, 2016 (Good and Services Tax)—An Attempt to Create to Common Market The Parliament has recently amended the Constitution with an objective to establish uniform tax structure on goods and services. The unified indirect tax structure has wiped off the multi-layered tax regime prevailing in India. A well-designed Good and Services Tax (hereinafter GST) in India has, arguably, simplified and rationalised the indirect tax regime which would eliminate cascading effect of multi-layered indirect tax and give necessary impetus to economic growth of the country. The uniform tax structure on goods and services has potentially converged a large fragmented market into a single market in India. The new scheme will bring in single tax structure with a equal divide of share between the centre and the states, namely central goods and services tax (CGST) and state goods and services tax (SGST). The CGST revenue will go to the centre whereas SGST will be shared with the states. It is just one tax, but the CGST and SGST are just components of the GST created to make the administration easier. The very objective of Goods and Service Tax is to have a uniform taxation regime that will not put any State in the country in a disadvantageous position and benefit the common man. It has converted the country into unified market, replacing most indirect taxes with one tax. The one tax, replacing multiple taxes and duties imposed at the State and Central level, in fact, replaced around 200 different Acts existed in the indirect taxation system. Further, it provides a common market and achieves balance and at the same time checks tax evasions. This will bring transparency and ensure accountability. In fact, it is a dual taxation method with 50% of tax going to the Centre and remaining 50 to the States. GST is levied both on goods (manufacturing) and services. GST has subsumed a set of central and state taxes. They are central excise duty, service tax and additional customs duties, value-added tax, entertainment tax, luxury tax, lottery taxes and electricity duty. Central sales tax (CST) has been completely phased out. Entry tax or octroi has been subsumed from the start. State taxes on alcohol and tobacco are exempted from the ambit of the GST. The Amendment has rearranged the indirect tax related entries by conferring the law making power on both the centre and the states.33 Parliament poses exclusive power to make law in respect to any item not covered in List II and List III subject to a newly added provision, Article 246A.34 Under Article 249 (1), the Parliament is empowered to make the GST law for the whole or any part of India subject to approval 2/3rd members of each state. In the event of national emergency, Parliament of India 33 “Clause 1 of Article 246 A gives right to parliament and the legislator of every state can make the law in respect of goods and service tax to be imposed by central or state government. This amendment would subsume the taxes like Excise duty, Service tax, Central Sales tax at Central level and VAT, Entry tax, Entertainment tax etc. at State level. Clause 2 brings inter-state trade and commerce is “exclusively” under central government jurisdiction.” 34 Article 248 (1).

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has power to make the laws in respect of any item covered under state list for the whole India or part of the India, including good and service tax. As per Article 269A Goods and Service tax shall be levied and collected by Government of India and apportioned between States in the manner as provided in the law by parliament on the recommendation of GST council. The Amendment has also omitted provisions such as Articles 268 (1) and 268A.35 The Amendment has also added a new constitutional body, Goods and Services Tax Council, which has been entrusted with a power to determine the slabs of taxes to be imposed on different goods and services. The Council, which is body comprises of the finance ministers of the states, shall have the power to recommend the rate of tax, surcharges, exemptions, special provisions for some regions such as North East or any other matter. It has also been conferred upon the authority about bringing petroleum products within the ambit of GST. The quorum of meeting should be fifty percent of the total members. Every decision of council shall be taken by majority of members consisting three-fourth of total weighted votes of members present and voting. The vote of Central government shall have weight of one-third of total vote cast. The vote of State governments together shall have weightage of two-third of total vote cast. The Council is a very large body comprising of the Union Finance Minister, as Chairman and Finance Ministers of the States.36 The Amendment of this Article will require the special majority and the ratification of more than half of the states as envisaged in the Article 368 of the Constitution. Before this Amendment, the distinct feature of the Constitution was a clear divide between the centre and states on taxing powers. The Constitution (One Hundred and First) Amendment Act has realigned the revenue-generating jurisdiction on the matter of goods and services by allowing single tax structure across the country. The unique feature of the amendment is conferment of concurrent jurisdiction to levy tax on goods and services with the federal government and the states. With this amendment, there will be uniform tax rate across the country with dual GST. The amendment brings in a new hope for economic growth and creation of integrated market in the country, however, may compromise the capacity of the states to fulfill the responsibilities entrusted by the Constitution. The original structure of revenue generation model addressed the autonomy in taxing powers of the states and the centre. Also, the GST appears to be treating unequal states equally by ignoring that the level of manufacturing activities in states vary greatly and the proposed framework may not be suitable, keeping in view the heterogeneity and vastness of India. However, it is too early to identify merit and demerit of the new scheme on the revenue generation. The amendment will have serious impact on autonomy of the provinces and their commitment to provide public services to the people.

35 “Article

268 (1) provides the provision of levy of stamp duty and excise duty on medicinal and toilet preparation by union government and collection by state or by union; Article 268A provides power to government of India to levy the service tax and collected and apportioned by government of India and State.” 36 Article 279A.

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5 Judicial Overtures The Apex Court has been time to time elucidating the significance of different parts of the Constitution and their importance in the governance of the country. Part XIII of the Constitution has also attracted the attention of the judges of the highest judiciary of the country since independence. The apex court has underlined the importance of “free trade” for making the country economically sound and sustainable. For integrated market, it is not to be understood only in the sense of freedom of all kinds of impediments, restraint and trade barriers across the country but also closer scrutiny of the economic policy of the state government so that it would impede the national interest.37 Asymmetrical economic development, inter as well as intra region, posed a challenge to the makers of the Constitution. They confronted the two questions: “One question was how to achieve a federal, economic and fiscal integration, so that economic policies affecting the interests of India as a whole could be carried out without putting an ever-increasing strain on the unity of India, particularly in the context of a developing economy. The second question was how to foster the development of areas which were under-developed without creating too many preferential or discriminative barriers. The court emphasized upon the need to draw a balance between the national interest and the urge of regions to make economic advancement.”38 The Court has disapproved the fragmentation of the market into smaller units in the states and referred to the lofty sentiments of Justice Cardozo in Baldwin versus GAF Inc.39 that “it was framed upon the theory that people of several States must sink or swim together and that in the long run the prosperity and salvation are in union and not in division” and that “the ultimate principle is that one State in dealing with another may not place itself in position of economic isolation”. For common market, the larger interests of country and the urge of the state to generate resources for fulfillment of responsibility need to be balanced through parliamentary intervention in case of conflict or crisis arising in any part of India.40 Subbarao, J., elucidates the meaning of ‘throughout the territory of India’ by indicating that ‘barrier-free’ trade strikes at the very base of regional biasness and based on the idea of whole country as one unit.41 Movement of goods was considered as an integral facet of freedom, hence inevitable constituent of the common market.42 The Supreme Court has envisioned common market, in relation to taxing power of the state under Article 286,43 not only in the sense of creating compact economic 37 Ibid

(n. 18) para 38. (n. 20) para 13. 39 (1934) US 511. 40 Express Hotels v State of Gujarat MANU/SC/0179/1989, para 12. 41 (n. 20) para 46. 42 State of Mysore v H Sanjeeviah MANU/SC/0044/1967. The Court has declared that the absolute prohibition of movement against forest produce between 10.00 PM and sun-rise as violative of Article 301. 43 Article 286 reads as “(1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place— 38 Ibid

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unit throughout the territory of India but also to relieve the consumer of the burden of multiple taxation which he was subjected to by the various State Legislatures by having resort to the territorial connection or nexus theory.44 The taxing power of the state has come under the scanner of the Court in relation to the freedom of trade guaranteed under Article 301.45 Sensing the possibility of enactment of discriminatory laws, under the garb of general entries in the Seventh Scheme, to restrict the free flow of trade, the Court has given a liberal interpretation to the language of Article 303 (1). The court has refused to give any concession to the laws restricting trade on the ground of ‘revenuegeneration’ legislation.46 The elucidation made by the Court clearly reflects the ideology of the makers of the Constitution about the establishment of the obstaclefree market at all-India level. Unfolding the meaning of ‘free’ under Article 301, the Court has highlighted the nuances of ‘common market’ to be attained in India. The Court clarified that “the word ‘free’ does not mean freedom from laws or from regulations. Article 301 guarantees freedom of trade, commerce and intercourse throughout the country from any unreasonable trade barriers. The idea underlying was to ensure the economic unity of the country under a federal structure, so that the people may feel that they are members of one nation. One of the means to achieve this object is to guarantee to every citizen the freedom of movement and residence throughout the country. That is achieved by Article 19(1) (d) and (e). No less important is the freedom of movement or passage of commodities from one part of the country to another. The progress of the country as a whole also requires the free flow of commerce and intercourse as between different parts, without any barrier.47 Article 301 obligates to not to put up barriers between two States at the boundary of the States or between two districts, two taluks, two towns or between two parts of a town. The absence of all the barriers which are essential for the establishment of ‘common market’ needs to be (a) outside the State; or (b) in the course of the import of the goods into, or export of the goods out of, the territory of India. 1**** 2 [(2) Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in any of the ways mentioned in clause (1). 3 [(3) Any law of a State shall, in so far as it imposes, or authorises the imposition of,— (a) a tax on the sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce; or (b) a tax on the sale or purchase of goods, being a tax of the nature referred to in sub-clause (b), subclause (c) or sub-clause (d) of clause (29A) of article 366, be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of the tax as Parliament may by law specify.” 44 The Bengal Immunity Co. Ltd. v State of Bihar MANU/SC/0083/1955. 45 State of Madhya Pradesh v Bhailal Bhai MANU/SC/0029/1964, the Court has invalidated sales tax on the sale of imported tobacco imposed by the Government of Madhya Pradesh whereas no such tax was imposed upon the sale of indigenous tobacco. 46 The Automobile Transport (Rajasthan) Ltd. v State of Rajasthan MANU/SC/0065/1962, para 56. 47 Bishambhar Dayal Chandra Mohan v State of Uttar Pradesh MANU/SC/0056/1951, para 36.

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read within the ambit of Part XIII of the Constitution. “Freedom may be impeded by impediments on the individuals carrying on trade or business, on the business itself or on the vehicles, carriers, instruments and labour used in the trade or business.”48 Also, freedom is not only against discriminatory tax but also against rebate of tax extended by any state legislature.49 Removing some of the doubts created in Jindal Stainless Ltd. v. State of Haryana,50 the Supreme Court on a reference in the same name,51 through a 7:2 judgment removed some of the cobwebs relating to the interpretation and application of Part XIII of the Constitution. Holding that Part XIII does not restrict imposition of any tax except to the extent covered in Article 304 (a) and therefore no need to defend any tax as compensatory or regulatory tax. Tax as such is not a restriction on trade and commerce unless it is discriminatory or a barrier as custom duty. Emphasising the need for common market it observed: “Fundamentally the creation of a common market for goods and services requires the removal of obstacles to the free movement of goods, persons, services and capital between the states which constitute the Union of India. These four fundamental freedoms are the foundation of Article 301. These four freedoms guaranteeing the free movement of goods, services, persons and capital among the states, form the basis of the guarantee under Article 301. Commercial transactions by which the free movement of each constituent element takes place fall within the ambit of the freedom.”52 The very need of an authority to establish by Parliament by law under Article 307 could enable it to address the issues which still elude the judiciary on the issue of an integrated market. Had the Authority been constituted, it might not have addressed the issue on purely legalistic phraseology and would have facilitated in designing a pragmatic formula/guidelines to be followed by all the stakeholders in fulfilling the objective of common market.

6 Conclusion Trade and commerce are directly affected due to legislative and executive measures related to licensing, tariffs, taxation, marketing regulations, price controls, procurement of essential goods, channelisation of trade, and controls over supply and distribution. These subject matters are governed through a score of legislative and executive provisions. Due to overlapping or multi-layered measures, many issues of conflict of interests arise everyday. The ideal of integration of market failed to get accomplished due to varied reasons such as regressive legislations, unfair compet-

48 State

of Bihar v Harihar Prasad Debuka MANU/SC/0533/1989, para 14. of UP v Jai Prakash Associates MANU/SC/1085/2013, para 47. 50 MANU/SC/2085/2006, para 41. 51 MANU/SC/1475/2016. 52 Ibid, para 475. 49 State

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itiveness amongst the states to impose multiplicity of taxes and fragmentation of market across the nation. Common market has an advantage of advancing the interest of the citizen in a polity and as a consumer in the set up of the market. Perhaps, the authority envisaged under Article 307 might effectively facilitate in achieving the goal of ‘common market’. The Sarkaria Commission, very aptly, contemplated that “the authority envisaged under Article 307 has got wide power ‘for carrying out the purposes of Article 301, 302, 303 and 304’. It is entirely left to the judgment of Parliament to clothe the ‘authority’ under Article 307 with such powers and duties as may be considered necessary. Such an ‘authority’ may have both an advisory and executive role with decision-making powers.”53 In the 2016, One-Hundred First Constitutional Amendment, the Parliament has realigned the constitutional structure by eliminating the multiple-layered indirect tax structure across the country. The GST has the potential of reducing the complicated tax structure prevailing since independence. The change brought in through this amendment may be a game changer for the economic progress of the country. However, the role of the GST Council and the Authority, mentioned under Article 307, in the creation of common market may come in conflict in case the Authority comes into existence in the future. I believe that the Parliament will create an Authority, at the earliest, to give effect to ‘common market’ which does not only limit to the elimination of cascading effect of indirect tax but also free movement of capital and labour. The idea of common market enunciated in the Part XIII of the Constitution balances the cause of economic integration with the element of provincial sovereignty. Therefore, there is a need to realize the goal of ‘common market’ without compromising the uniqueness of the constitutional schema ingrained in the Part XIII of the Constitution. Post Script: Since the submission of this paper the suggestion given above for making a common law for the country for tax on goods and service (GST), the Constitution has been comprehensively amended by the Constitution (101st Amendment) Act, 2016 under which a common goods and services tax law has been made operative since July 2017. It has been hailed as an historical step in the direction of common market for the promotion of trade and commerce in the country. Also, the paper highlights the significance of pre-amendment position on common market which was envisaged by the makers of the constitution without realigning any power, including revenue-generation, between the centre and the states.

53 Sarkaria

Commission, para 18.4.08.

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References Oates, W. (1999). An essay in fiscal federalism. Journal of Economic Literature, 37(3), 1120–1149. Schwarze, J. (2006). The development of the European Union from a common market to a political union. Ritsumeikan Law Review, 91. Shenfield, A. A. (1965, April). The two faces of common market. Selected Papers No. 6, Graduate School of Business, University of Chicago, Second Printing April 1965, 4. Viner, J. (1950). The customs union issue. New York: Carnegie Endowment for International Peace.

National Treatment Obligation Under Article 3 of GATT Vis-à-Vis Indian Constitution Sanjay Jain

Introduction This paper briefly analyzes the national treatment obligation (hereinafter, “NT Obligation”) cast by Article 3 of GATT 1994 on India, one of the contracting parties. The author is interested to grapple with the analysis of Article 3 in the light of the interface of International Economic Law and Constitutional law. Particularly, the interaction between Article 3 of GATT 1994, and Articles 265, 298 and 301–307 of Indian Constitution requires a close look. Law relating to interstate trade, commerce and intercourse is in flux even intra-nationally in the light of the controversial interpretation of Articles 301–307. Trade and commerce between states is often caught 1 in complex rules and multiple taxation. In such a scenario, it is not easy for the government of India to perform its NT Obligation and enforce it across various 2 States. It is also interesting to study the implications of Art 3 on an otherwise specious 3 taxing power of Indian Parliament. Recently, with the introduction of the GST, India embarked upon the path of a Unified Market. With the adoption of the prin4 ciple of ‘pooled sovereignty ’, the regime of uniform taxation throughout India is put in place. However, GST is still subject to some very important exceptions like 5 6 petroleum and alcohol. Similarly, the local sourcing rules which are conditions precedent for Foreign Direct Investment (hereinafter, “FDI”) in India are also have 1 Jindal

Stainless Ltd v. State of Haryana, 2016 SCC Online SC 1260. Datar (2016). Dileep Nevatia v Union of India MANU/MH/0001/2010 Kulhari and Chatterjee (2017). 3 Constitution (One Hundred and First Amendment) Act, 2016. 4 Fekete (2018). 5 Article 279A (5) and explanation clause 2 of Article 246A. 6 Circular D/o IPP F. No. 5(1)/2017-FC-1 Dated the August 28, 2017. 2 Karan

S. Jain (B) ILS Law College, Pune, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_14

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friction with the letter and spirit of NT Obligation, thereby rupturing the relationship of the Constitution with GATT. Besides, whether the breadth of general treaty making power of the union executive under Article 73, in absence of a legislation by Parliament under Article 253 of the Constitution is expansive enough to embrace the complex dynamics of treaties like GATT, is also a vexed issue. This is apart from the India’s obligations under other bilateral and multilateral free trade agreements. One wonders whether both GATT and GATT-plus obligations amount to a pro-tanto amendment of the Constitution. From a classical perspective, it may be plausible to contest the virus of ratifications of such treaties with the “basic structure” doctrine of the Indian Constitution, yet equally from the standpoint of, ‘Demosprudance’,7 it is arguable that by signing and ratifying unconventional treaties like WTO, the reach of the Constituent power is not confined by its text thereby transcending the dichotomy between Monism and Dualism.8 Due to space constraint, the author would focus on the relationship of NT Obligation vis-à-vis taxing power of the Parliament and its implications on fundamental rights. In section one, the general contours of NT Obligation under GATT are examined. The same is followed by a brief discussion of the limitations of India’s negotiation of challenges brought against it at the WTO. Section two deals with the NT Obligation vis-à-vis the taxing powers of Indian Parliament and the Indian States. Placing reliance on Hartian Jurisprudence and transnational constitutionalism, author seeks to legitimize the WTO obligations as a part of Indian Legal order. In section three, the author offers suggestions focusing on the treaty making process and institutional reforms. The crux of the argument of this paper is that it is unrealistic to disregard the GATT obligations, and rather than falling back on outmoded notion of sovereignty, we must direct out attention to build our capacities to strategically comply with the GATT conditionalities. The author has also invoked articles 39 (b) and (c), read with the Preamble of Indian Constitution, as legitimizing instruments to enable the central government to embark upon an open-access market strategy and to facilitate a congenial environment for a unified market. It is also possible to draw support for this view by invoking the ‘Gandhian ideas’9 of free market, as evolved by contemporary philosophers.

1 General Contours of National Treatment Obligation Under GATT 1994 The principle of non-discrimination in GATT is reflected in Articles II (the Most Favored Nation (MFN) status) and III (the obligation to afford national treatment 7 Baxi

(2014). and Versteeg (2013), Thornhill (2016). 9 The strongest critique of controls was articulated by Gandhi, who remained adamant that controls would have to be dismantled in an independent India. See generally, De (2014). 8 Galligan

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to like foreign goods). The latter obligation requires the regulating state to treat a foreign person, product, or right—such as, a good, a service, a service provider, an investor, an intellectual property right, or a person owning an intellectual property right—like its domestic equivalent.10 In its comprehensive connotation, this obligation implies prohibition of all state measures providing different and unequal treatment—including tariffs, i.e. duties to be paid by the foreign entity because of the crossing of the border of the foreign persons, goods, services, or rights as compared to non-existent parallel obligations for domestic enterprises. This obligation generally comes into play subject to the payment of an import tariff to access the domestic market; whereas no such corresponding obligation is applicable to the introduction of domestic products in its local market. In other words, “Even in modern, treaty-based, international economic law, the right to national treatment is regularly only triggered once the foreign good, service, right, or person has legally entered the market or territory of the host or receiving state”.11 In respect of merchandise in goods, language of Article III categorically amplifies the same by making an explicit reference to ‘imported’ products that are not to be discriminated against. The Appellate body has clarified the scope of this obligation by reading the Ad Note to Article III, “any internal tax or other internal charge” that applies to both domestic and imported products, but which is “collected or enforced” in respect of the imported product “at the time or point of importation”, is “nevertheless to be regarded” as subject to the provisions of Article III.”12 Similarly, it has been held that whether a measure is a “charge” or an “internal tax or other internal charge” to be regulated by Article II:2(a) or the Ad Note to Article III respectively, has to be determined on the basis of the characteristics of the measure and the circumstances of the case.13 In this connection, the distinction between ‘Internal measure’ and ‘border measure’ (to be implied from articles III and II of GATT respectively) is also important. Article III would come into play only when the goods have crossed the borders of a State lawfully, whereas ‘the goods destined for importation to cross the border, are disciplined by ‘border measures’ under Article II of the GATT.14

1.1 Analysis of Article III Article III covers both the measures, favoring domestic products and disfavoring like imported products, thereby mandating contracting parties to create a competitive and 10 Matsushita

et al. (2015). 181. 12 China—Measures Affecting Imports of Automobile Parts, WT/DS339/AB/R, [139–41], [161–5]. 13 India—Additional and Extra-Additional Duties on Imports from the United States, WT/DS360/AB/R, [153]. 14 Horn and Mavroidis (2004). 11 Ibid.

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barrier-free market for such goods. Although Article III does not protect actual trade volumes, it ensures that a contracting party’s expectation of a competitive relationship between its products and those of the other contracting parties is met.15 Article III is attracted by actual and potential, direct and indirect, and both de jure (even if it is facially neutral) and de facto discriminatory measures that adversely affect foreign goods. It is no valid argument to contend that the discriminatory measure is not being enforced or applied. The main justification underlying Article III is to avert a nullification by a dilution of benefits resulting from tariff concessions granted under GATT Article II. A logical corollary of lowering of tariffs must be an expansion of market access for the foreign products.. All tariff reductions are contingent on the guaranteeing of reciprocal trade benefits by contracting parties to one another; it is therefore economically unviable to undo it by the adoption of discriminatory measures. At the same time, it would be mistaken to confine the NT Obligation to the safeguarding of negotiated tariff deals.16 The appellate authority captured the rasion-d’etre of Article III in following observation, “Article III aims at providing ‘effective equality of opportunity for imported products’. In order to achieve this, it covers virtually any measure influencing the competitive relationship between domestic products and (legally) imported products.”17

1.1.1

Breadth of NT Obligation Under Article III

The language of Article III being comprehensive, covers (a) internal taxes and charges; (b) laws, regulations, and requirements affecting the sale, transportation, distribution, or use of products (Article III(4)) and (c) internal quantitative regulations requiring the mixture, processing, or use of products in specified amounts or proportions (Article III(5)).18 Article III:1 constitutes part of the context of Article III:2, in the same way that it constitutes part of the context of each of the other paragraphs in Article III. In other words, being parasitical, Article III:1 operates to the extent that other paragraphs specifically refer back to it.19 The breadth of this obligation is bound to create the apprehension and skepticism that, even legitimate government policies favoring or disfavoring certain goods would have to be undone under the hammer of National Treatment. For example, Can’t measures encouraging energy savings, or reducing the consumption of alcohol or other goods detrimental for human health be frustrated by this Article? It is submitted that GATT law cannot and should not be perceived as tool of intrusion in the legitimate governmental policies in the guise of an NT obligation. 15 Koul

(2018). et al. n. 10 (184). 17 Report of the Panel, US—Section 337 Tariff Act, L/6439 36S/345, [5.11]; Japan—Alcoholic Beverages II, WT/DS8/AB/R, 4 October 1996 [pp. 16–17]. 18 Autar krishen 2018 n. 15 (123–124, 469). 19 Japan Alcoholic Beverages II WT/DS8/AB/R, 1996 (p. 16). 16 Matsushita

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Downplaying the phenomenon of intrusion, the experts, opined that, although, the wording of GATT Article III, ‘like product’ and the injunction, not to grant less advantageous treatment, purports to intrude into the states’ sphere of determination of their public policy, however, its scope is definitely limited, as the NT obligation scrupulously pertains to “equivalent domestic counterparts alone”.20 They opine that, the crux of this obligation is that the member must not extend more unfavorable treatment with regard to the imported product. The author submits that this is abstract and does not adequately assist in answering some poignant questions. Specifically, how is less favorable treatment to be determined? When is it appropriate to assume that a product is ‘like’ or ‘directly competitive and substitutable’?; For example, if one of the contracting parties—with a view to promote the sale of domestic organically produce crops and to discourage the consumers from buying imported genetically modified food—decides to subsidize the former and heavily tax the latter, should these measure be fall under the ambit of the NT obligation? The above questions must be answered in the light of the language of Article III(1). It prevents differential treatment only when same is meted out to afford protection to domestic production’ and the rest of the Government policies having no bearing on affording protection to domestic production must be considered outside the purview of NT obligation.21 Art. III covers in its purview the ‘state–trading monopolies’ and they are exempted neither under Art. III nor Article XVII of GATT. As illustrated by a 1992 preWTO case, Canada—Import, Distribution and Sale of Certain Alcoholic Drinks by Provincial Marketing Agencies,22 a state-trading company violates Article III (4) if it treats imports less favourably than competing domestic products.23 Since, the State can create monopolies under Article 19(6) of Indian Constitution; it would be interesting to scrutinize how this privilege is curtailed by Article III. It is also vital to note that Article III GATT, read with Article 16 (4) of WTO Agreement 1994, takes into its fold ‘regulatory restrictions and taxes imposed by sub-federal governmental entities’. At the same time, it is not a valid justification on part of subfederal governmental entities (e.g. State of Maharashtra in India) that the restrictions imposed on imported products are also imposed on products from other constituent units of the confederation like State of Bihar. GATT Article III must be observed by all local and regional governmental entities of WTO members, regardless of the degree of autonomy they enjoy under the respective constitutional arrangement.24 20 Matsuhshita

(n. 10) 186. (n. 10) 187. 22 Report of the Panel—“Canada—Import, Distribution and Sale of Certain Alcoholic Drinks by Provincial Marketing Agencies” DS17/R, [5.15]. 23 Ibid. 24 Agreement Establishing the World Trade Organization 1994, Article XVI (4) “Each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements”. Explanatory Note—The terms “country” or “countries” as used in this Agreement and the Multilateral Trade Agreements are to be understood to include any separate customs territory Member of the WTO; General Agreement on Tariffs and Trade 1986, 21 Matsuhshita

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However, Ad interpretative Note to Article III(1) somewhat moderates the tone of this obligation, to address the local sensitivities and financial hardships.25 It provides, “the application of paragraph 1 of Article III to internal taxes imposed by local governments and authorities within the territory of a contracting party is subject to the provisions of the last paragraph of Article XXIV. The term “reasonable measures” in the last-mentioned paragraph would not require, for example, the repeal of existing national legislation authorizing local governments to impose internal taxes which, although technically inconsistent with the letter of Article III, are not in fact inconsistent with its spirit, if such repeal would result in a serious financial hardship for the local governments or authorities concerned. However, taxation contrary to the letter and spirit of Article III would fall outside last Paragraph of Article XXIV and have to be eliminated gradually over a transition period, if abrupt action would create serious administrative and financial difficulties.”26 It is interesting to examine whether the establishment of special economic zones (SEZ) under the Special Economic Zones Act 2005, by any person, body corporate or any state in India, to accelerate export of certain products, is in violation of Paragraph 1 of Article III of GATT? Relationship of NT obligation with Article XI of GATT—dealing with certain specific border measures such as quotas, import or export licenses—must also be grappled with. Despite of their operation in distinct fields, the distinction between them might not be free from difficulties., Thus a ban on import can be easily disguised by imposing a total embargo on marketing and consumption of Product.27 1.1.2 Exceptions Like all other obligations, this obligation is subject to number of exceptions: • the general exception28 ; • the security exception29 ; • the balance of payment exception and temporary application of quantitative restrictions in a discriminatory manner30 ; • Waivers.31 There are also some specific exceptions related to NT obligation: 1. Government procurement (GATT Article III(8a))

Article XXIV(12): “Each contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories”. 25 General Agreement on Tariffs and Trade 1986, Article XXIV (11), wherein an exception is carved out in favor of special trading relationship of India and Pakistan. 26 Wolfrum et al. (2007). 27 Matsuhshita (n. 10) Ibid. 213. 28 General Agreement on Tariffs and Trade 1986, Article XX. 29 General Agreement on Tariffs and Trade 1986, Article XXI. 30 General Agreement on Tariffs and Trade 1986, Article XII, XVIII B, XIV. 31 Agreement Establishing the World Trade organization 1994, Article IX (3).

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In the context of government agencies, purchasing products for governmental purposes, advantages or preferences may be accorded to domestic products over imported ones. 2. Subsidies to domestic producers (GATT Article III(8b)) Regardless of possible limitations pursuant to GATT Article III(1) and (4), members may provide certain subsidies to domestic producers derived from the proceeds of internal taxes.32 Since the Italian Agricultural Machinery case,33 this exception has received a narrow interpretation. 3. Internal maximum price control measures (GATT Article III(9)) Members recognize that (internal) maximum price control measures, even though conforming to GATT Article III(4) can have effects prejudicial to the interests of the members supplying imported products and therefore while applying such measures,sensitivity must be shown by the members towards the exporting contracting parties. 4. Cinematographic films (GATT Articles III(10) and 4) As an exception to the national treatment principle, members retained the possibility of giving preferences to goods produced by the national film industry (exposed cinematographic films).

1.2 India and WTO Dispute Settlement Body Actions have been brought against India before Dispute Settlement Body of WTO in several matters by contracting parties alleging the violation of NT obligation. In order to comply with the verdicts of the same, India has made significant policy changes, and effected domestic reforms in certain areas.

1.2.1

Quantitative Restrictions Case

India—Quantitative Restrictions is one of the far-reaching disputes in terms of impact on the domestic trade policy. On account of balance of payment difficulties, India had justified quantitative restrictions on imports of a large number of products for more than three decades. As India lost this matter, she had to eliminate the quantitative restrictions on 1729 products. It was ruled that Balance of Payment

32 Autar

Krishen n. 15 (p. 116). Report—‘Italian Discrimination against Imported Agricultural Machinery’, L/833, Adopted on 23 October 1958, 75/60, para 6. 33 Panel

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constraints were not borne out by the facts.34 The Appellate Body concurred with Panel’s findings.35

1.2.2

Automotive Case

In India—Auto dispute,36 both the European Community and the United States moved the WTO against India’s Public Notice 60 (“PN 60”), issued in 1997. As per this notice foreign investors intending to invest in the passenger car manufacturing sector in India were required to enter into MOU with the Government for the purpose of obtaining import licenses for semi-knocked down (SKD) and completelyknocked down (CKD) kits. Among the undertakings to be given by the manufacturer were a minimum foreign equity of US$ 50 million, an indigenization requirement that would result in a minimum of 50% local content by third year and 70% by the fifth year, and a broad balancing of imports and exports over the period of the MOU. A combined panel was established in November 2000 to deal with the dispute. Illustrating the difference between measures falling within the scope of Article III(4) (internal measures) and Article XI (border measures), the Panel ruled that India acted inconsistently with both these Articles by imposing obligations on automotive manufacturers to use a certain proportion of local parts and components in the manufacture of cars and automotive vehicles and to offset the amount of their purchases of previously imported kits and components, already on the Indian market, by exports of equivalent value.37

1.2.3

Solar Panel Case

This dispute involved legality of the domestic content requirements (DCR) in India’s Jawaharlal Nehru National Solar Mission (JNNSM). The same were declared illegal in violation of Article 2.1 of the TRIMs Agreement and also of Article III(4) of the GATT 1994.38 The main objective of JNNSM programme is to develop an indigenous industry to produce clean and pollution free energy from unconventional sources like 34 ‘India—Quantitative

Restrictions on Imports of Agricultural, Textile and Industrial Products’—Request for Consultations by the United States, WT/DS96/8. 35 Report of the Appellate Body—‘India—Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products’—AB-1999-3, WT/DS90/AB/R. 36 Report of the Panel—‘India—Measures Affecting the Automotive Sector’, WT/DS146/R. 37 Ibid. [7.221], [7.224], [7.296]. Recently, World Trade Organization (WTO) has formed a dispute settlement panel on second request of India to examine the legality of unilateral duties imposed by the US on the imports of steel and aluminium under the US Section 232 security provisions. Available at https://www.livemint.com/Politics/qtBTrIN8teWyZ0kcsqhBeN/India-gets-WTO-nodto-establish-dispute-panel.html last visited 2nd Jan 2019. 38 Report of the Panel—‘India—Certain Measures relating to Solar Cells and Solar Modules’, WT/DS456/R; Report of the Appellate Body—‘India—Certain Measures relating to Solar Cells and Solar Modules’—AB-2016-3-, WT/DS456/AB/R.

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solar energy on a large scale. As a part of this programme, only such Solar Power Developers (SPDs), who used certain types of solar cells and modules domestically produced in India, were eligible to enter into long-term electricity purchase contracts with government of India. Under such contracts, the SPDs enjoyed the assurance of a guaranteed prize for 25 years. Under these agreements, the government was to purchase the electricity from SPDs and sell it to distribution companies, which would ultimately sell the same to the consumers. USA objected to the DCR measures as the government of India afforded favorable treatment to domestic solar cells and modules over the like imported ones.39 India countered that the DCR measures did not amount to less favorable treatment as the same were covered by the exception of government procurement under Article III (8a) and general exceptions under article 20(d) and (j). She further submitted that merely drawing regulatory distinctions or providing different treatment did not make the action unlawful under Article 2.1 of the TRIMs Agreement and Article III (4) of the GATT 1994. Drawing upon the partial coverage and limited extent of the DCR measures, India highlighted the fact that the advantages under the National Solar Mission were available to SPDs using imported cells and modules, and that the latter had a dominant market share overall.40 The contentions raised by India were not sustained by panel and the Appellate body agreed with its findings. Refusing to accord protection to these measures under Article III (8a) of GATT, exempting government procurement, it was held that in order to fall within the teeth of this provision, the relationship between the products must be competitive; Whereas in the instant matter rather than the electricity which is to be procured by the Government, less favorable treatment is meted out to foreign produced solar panel cells and modules vis-à-vis their Indian counter parts.41 The DCR measures were also found extraneous to the general exceptions to GATT i.e. Articles XX (d), XX (j).42 Despite invoking a number of National43 and International instruments.44 India could not prove that DCR are ‘Laws and regulations’ not inconsistent with provisions of GATT.45 Nor could any connection between the DCR measures and the compliance of aforementioned legal instruments be established. It was emphasized by the appellate body that the text of the international instruments is “hortatory, aspirational, declaratory, and at times solely descriptive”.46 Even the 39 Ranjan

(2016). Cells Panel Report (n. 38) [7.90]. 41 India—Solar Cells Appellate Body Report (n. 38) [6.1–6.3]. 42 India—Solar Cells Panel Report (n. 38) [7.100–7.138]. 43 The Electricity Act, read with the National Electricity Policy, the National Electricity Plan and the National Action Plan on Climate Change. 44 (i) Agreement Establishing the World Trade Organization 1994, Preamble; (ii) the United Nations Framework Convention on Climate Change; (iii) the Rio Declaration on Environment and Development and (iv) United Nations General Assembly Resolution, A/RES/66/288 (adopted 27 July 2012). 45 India—Solar Cells Appellate Body Report (n. 38) [5.137]. 46 Ibid. 5.133. It is submitted that the reasoning of the Panel and appellate body is at loggerheads with the approach of the Supreme Court of India, as the former has adopted an analytically incoherent 40 India—Solar

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decisions of Indian Supreme Court like Vishaka47 did not sustain the scrutiny of Article XX (d) GATT, and it was categorically observed “the mere fact that the executive branch takes actions in pursuance of the international instruments at issue is not sufficient, in and of itself, to demonstrate that such international instruments fall within the scope of “laws or regulations” under Article 20(d).”48 Invoking Article XX (j), India purported to justify the DCR measures as being essential to the acquisition or distribution of ‘general or local short supply’ of the solar panel cells and modules. She, inter alia, contended that “any dependence on imports brings with it risks associated with supply side vulnerabilities and fluctuations” and that, since “India’s solar PV installations predominantly rely on imported cells and modules”, this “exposes India to the risks of market fluctuations in international supply”.49 Although, the Appellate body agreed with India that a consideration of potential risks of disruption in supply of a given product may inform the question of whether a situation of “short supply” exists?, it endorsed the Panel’s finding that, India “ha[d] not identified any actual disruptions in imports of solar cells and modules to date”, and that SPDs in India had not “experienced an actual disruption in the supply of affordable foreign solar cells and modules”.50 It refused to entertain the assumptions underlying the contentions of India that all imports, in and of themselves, entail supply-related risks, as mere fact of risks of disruption in the supply of imports to a particular market, does not necessarily correlate as such, as risks may equally exist in case of domestic production. It concluded, “thus in assessing whether products are “available” in a particular area or market, consideration must be given to all relevant factors, such that an analysis of whether a respondent has identified a situation of “short supply” is carried out on a case-by-case basis for each and every source of supply concerned, both foreign and domestic supply.”51 In reaching this result, the appellate body informed interpretation of Article XX (j) with the preamble of the Marrakesh Agreement, establishing the World Trade Organization (WTO Agreement): “the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with [Members’] respective needs and concerns at different levels of economic development”.52 This decision has huge implications for India because it insists on DCR requirements while inviting Foreign Direct Investment in a number of sectors including

stance on the relationship of international law with the Indian legal order. For an excellent analysis of these aspects, Raja Mani (2016). 47 Vishaka and Ors v State of Rajasthan and Ors. AIR 1997 SC. 3011. 48 India—Solar Cells Appellate Body Report (n. 38) [5.148], [5.149]. 49 Ibid. [5.75]. 50 Ibid. [5.76]. 51 Ibid. (5.77). 52 Ibid. [5.72].

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single and multiband retail businesses.53 It is therefore necessary for India to build strong legal capacity to make ample use of Article XX of GATT in future. For example, India should have raised challenge to the DCRs and subsidies provided by eight U.S. states in the renewable energy sector at the time of the initiation of instant dispute brought by the US in 2013. India can still have a fair amount of legroom during the negotiation with the US.54 The author has endorsed the views of Dr. Prabhash Ranjan on this point.55 Besides, India is in locked horns with the US at least in three other major trade disputes on WTO obligations in respect of the astronomical hike in the fees of L-1 and H1 visas for Indian immigrants, the import of poultry products from US to India and levy of countervailing duty on certain hot rolled carbon steel flat products exported from India to US. Thus, the cross sectoral trade relationship of India and US cannot thrive lest both the countries reciprocate in performance of WTO obligations. Such disputes have also generated strategic and creative responses from India. Thus, as a response to the Quantitative Restrictions decision and to regulate a surge in imports, particularly in agricultural products, India evolved a two-pronged strategy. “(A) the govt. raised bound rates on some sensitive agricultural products. This was undertaken, through the process of renegotiating the bound tariffs in accordance with the provisions of Article XXVIII of GATT 1994. As a part of the deal, India had to lower bound tariffs on certain products of interest to some of its key trading partners;”56 (B) The establishment of a “so-called war room for monitoring imports of sensitive products. However, with the exception of a few agricultural products, the apprehension of significant surge in imports across a broad range of products has not yet been witnessed.”57 Similarly, as an aftermath of Auto decision by the panel, the government had in fact made up its mind to move the appellate body. However, taking into account the weaknesses in its policy apparatus, India ultimately withdrew the appeal. In the meanwhile, most of the investors of the ten major auto makers had already complied with the stipulations of the auto policy. A good number even achieving more than 50% indigenization. “By the time the Panel’s decision was finalized and made public and appeal was preferred by India, the auto policy had already been in operation for 53 Recently, govt. of India has revised the FDI policy wide circular D/o IPP F. No. 5(1)/2017-FC-1 Dated the August 28, 2017, and tends to relax the local sourcing norms’ in respect of introduction of certain opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology. The circular also states a committee under the chairmanship of Secretary, DIPP, with representatives from NITI Aayog, concerned administrative ministry and independent technical expert(s) on the subject will examine the claim of applicants on the issue of the products being in the nature of ‘state-of-art’ and ‘cutting-edge’ technology where local sourcing is not possible and give recommendations for such relaxation. See ‘Key changes in consolidated FDI policy 2017’ Bar & Bench September 7, 2017 Columns, Law & Policy News. 54 On 16th June 2017, both parties have agreed at the time of adoption of the report of the Appellate body in this matter that the reasonable period of time to implement the DSB’s recommendations and rulings would be 14 months, i.e. 14 December 2017. 55 Ranjan (n. 39). 56 Das et al. (2016), Kher (2016). 57 Ibid.

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almost 7 years. Although, India withdrew the appeal, it had secured enough time for itself to see that the auto policy had taken roots and desired results were achieved.”58 Moreover, the Government of India—demonstrating strategic innovation—has kept a tariff wall around the auto sector and developed technical regulations providing enough protection to the domestic industry.59 As rightly observed by Rajeev Kher, “the State through a conscious policy intervention facilitated the development of the sector and, despite having lost the dispute in the WTO, maintained a legitimate cover of tariffs and technical regulations to nurture the sector.”60 India also exhibited adjudicatory ingenuity by advancing an argument based on the principle of ‘res-judicata’ in automotive case, contending that since the issue at hand had already been resolved in the Quantitative Restriction case, the claim of the respondents had been barred by res-judicata. Though a claim first of its kind was recognized by the panel, but it distinguished this case from the quantitative restriction matter.61 Similarly, Solar Panel Case is a landmark decision in the sense that the Panel and Appellate body had the occasion to interpret Article XX (j) of GATT for the first time. It has to be also emphasized that strategic sectors like energy cannot be governed solely by economic considerations based on cost efficiency. In such spheres ‘self-dependence and acquisition of technical knowhow’ is politically and constitutionally imperative. To this extent the author begs to disagree with the analysis of Dr. Prabhash Ranjan62 and would advocate for a judicious blend of an interdisciplinary perspective on economic analysis of law.

2 National Treatment Obligation, GATT Vis-à-Vis Taxing Power Under Indian Constitution It is desirable to briefly examine Article 3(2) of GATT before grappling with pertinent questions like whether the Indian Constitution conceives a free and unified market, and whether Article 3(2) of GATT conflicts with the taxing power of the Parliament and State legislatures under the Indian Constitution.

2.1 Article III Clause 2 Article III (2) provides, “The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those 58 Ibid. 59 Kher

(p. 25). (n. 56) 25.

60 Ibid. 61 Das

and Raghuram (2016). (n. 39).

62 Ranjan

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applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.”63 According to the Appellate Body in Japan—Alcoholic Beverages II: [T]he words of the first sentence [of Article III:2] require an examination of the conformity of an internal tax measure with Article 3 by determining, first, whether the taxed imported and domestic products are “like” and, second, whether the taxes applied to the imported products are “in excess of” those applied to the like domestic products.64

2.1.1

Analysis of Sentence One “Likeness”

In order to fall within sentence one of Article III (2), a foreign product must be exactly like the corresponding domestic product. However, it is far from easy to evolve any theory of likeness. In fact, the appellate body has recognized the futility of this exercise and instead regards the notion of ‘likeness’ as relative and beyond any definite conception.65 The main objective underlying the application of the notion of likeness is “to find the aspects and circumstances that establish the existence, degree, and extent of the competitive relationship between the imported good at issue and the like domestic good.”66 Based on the jurisprudence of the GATT panels, the following four broad criteria67 are generally applied to decide whether two products are like products: (1) (2) (3) (4)

The product’s end-uses in a given market; Consumer tastes and habits in a given market; The product’s properties, nature, and quality; and The customs classification of the product and/or the internal regulatory regime of the product.

The Appellate body has clarified that although the investigation about the ‘likeness’ of the products may commence with the examination of the physical properties, none of the four criteria play a superior role. Rather, the panel must apply these criteria to determine “the nature and extent of a competitive relationship between and among the products.”68 Rather the appellate body has continued its quest to evolve innovative parameters to interpret the term ‘Like’ in its jurisprudence as surveyed by the scholars.69 63 For

brief analysis of paragraph 1, Prabhash Ranjan (n. 39). Beverages II. 4 October 1996. 65 See para 47–50 Japan—Alcoholic Beverages II 4 October 1996 (pp. 17–21). 66 Matsuhshita (n. 10) 198. 67 First three criteria were evolved in the Working Party on Border Tax Adjustments 1970 and the last was articulated by the Appellate body in Philippines—Taxes on Distilled Spirits, WT/DS396/AB/R, WT/DS403/AB/R, [para 204–5]. 68 Philippines—Taxes on Distilled Spirits [para 119]. 69 Matsuhshita (n. 10) 200 Et seq., Choi (2003, Chap. III), Qureshi (2015). 64 Japan—Alcoholic

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Firstly, despite the appearance of the term ‘like’ in Article III (2), sentence 1, and Article III (4),70 due to different contexts, it should be interpreted narrowly in former than in later. Secondly, the meaning of the term ‘like’ appearing in Sentences 1 and 2 of article III (2) is context driven. In the light of the Interpretative Note Ad Art. III (2), the appellate body has held that the first sentence of Art. III(2) is concerned with the treatment of ‘like’ products, whereas the second sentence is concerned with the treatment of ‘directly competitive or substitutable’ products, which is a broader category of products than like products.71 Thirdly, despite the ‘narrower’ interpretation of GATT Article III (2), sentence 1, its catchment area is not confined to products that are identical.72 In Philippines—Distilled Spirits,73 the Appellate Body stated: products that have very similar physical characteristics may not be ‘like’, within the meaning of Article III:2, if their competitiveness or substitutability is low, while products that present certain physical differences may still be considered ‘like’ if such physical differences have a limited impact on the competitive relationship between and among the products.…74

Fourthly, Vast Price variation in given products may also be indicative of a noncompetitive relationship.75 [W]here a WTO Member imposes an origin-based distinction with respect to internal taxes, imported and domestic products may be considered as like products, and a case-by-case determination of “likeness” between the foreign and domestic would be unnecessary.76

Appellate body has musically explained the nuance of the term “like” by observing “‘[T]he accordion of likeness is supposed to be narrowly squeezed.”77 The appellate body is also categorical in observing, if the imported products and domestic products are ‘like’ then excess taxation of former is void under Clause 2 irrespective of degree of variation in amount.78 70 General Agreement on Tariffs and Trade 1986, Article III(4) provides, “The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use”. 71 Choi (2003, p. 107). 72 Matsuhshita (n. 10) 200. 73 Philippines—Taxes on Distilled Spirits. 74 Matsuhshita (n. 10) 181. 75 Report of the Panel—‘Dominican Republic—Import and Sales of Cigarettes’, WT/DS302/R, [7.333]; Philippines—Taxes on Distilled Spirits, [7.59]; Thailand—Cigarettes, WT/DS371/R, [7.428]: the Panel limited its analysis of likeness to cigarettes within the same price brand. 76 Report of the Panel ‘Colombia—Indicative Prices and Restrictions on Ports of Entry’, WT/DS366/R, [7.182]; See also Report of the Panel ‘Indonesia—Certain Measures Affecting the Automobile Industry’, WT/DS54/R, [11.113]. 77 Japan—Alcoholic Beverages II, 4 October 1996 [pp. 20–21]. 78 Ibid. (p. 23).

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Analysis of Sentence Two

To reiterate, the term ‘like products’ are interpreted narrowly vis-à-vis sentence one of Article III (2), however, sentence two of this clause deals with a scenario when a domestic product is treated more favourably than an imported product. The same gives rise to the question, what would happen when the imported product is not sufficiently similar to meet the narrow definition of a ‘like product’ in Article III (2) sentence 1? The answer is in the ad note discussed above. “By establishing a concurrent application between the first and the second sentences, as prescribed in the Addendum, the national treatment obligation finally reaches even those product relationships in which the two products in question share absolutely no physical similarity with each other, as long as they appeal to the consumers as ‘directly competitive or substitutable’”.79 In Japan—Alcoholic Beverages II, the Appellate Body developed the three-tier test to be applied under Article III (2), sentence 2 to determine whether an internal tax measure is inconsistent with the same. 1. The imported and domestic products are ‘directly competitive or substitutable’. 2. The domestic and imported products are ‘not similarly taxed’. 3. The dissimilar taxation is applied ‘so as to afford protection’ to domestic production.80

2.2 Analysis of Taxing Power Under Indian Constitution Vis-à-Vis GATT 1947 A close look at the relevant provisions in Indian Constitution is imperative to comprehend whether they are WTO compliant. It is also necessary to grapple with a number of poignant questions: Can plenary taxing power of Parliament of India be fettered under any provisions of the Constitution? Whether the recently introduced GST regime is in tension with ‘NT obligation’? Is it plausible to argue that with the implementation of GST, India will be able to evolve a unified market and tackle the divergence in taxing legislations of the various States, and fulfill its obligation to apply NT Obligation sub-nationally?

Neither the answers to these questions are easy, nor is it worthwhile to merely criticize the decision of the Govt. of India to join WTO, because it is practically impossible to take a U-turn.81 It is submitted that the above questions must be answered realistically and pragmatically. Efforts must be made to refine the capacity of High Courts and the Supreme Court, to deal with challenges against non-compliance with 79 Choi

(n. 71) 110.

80 Japan—Alcoholic 81 See

Beverages II (p. 24). for the staunch criticism of the government, Justice Iyer (1996), Jha (2006).

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WTO principles (for the purposes of this paper, the NT obligation). It is necessary to develop robust and indigenous trade remedies to address the challenges to the Indian position by foreign players and to create incentive against such foreign entities seeking diplomatic protection of their parent States. The same would not only strengthen our judiciary but would also save the political establishment from the charge that it has ceded the power of ‘judicial review’—a feature of the basic structure of the Constitution—to the WTO. It would also strengthen the doctrine of exhaustion of local remedies, which seems to have been stifled by one of the WTO panel reports wherein it was held, “the existence of a remedy in a domestic court did not provide a defense to the violation of an obligation under the GATT 1994”.82 In following pages, the author ventures to propose a blue print of WTO-compliant interpretations of relevant provisions of the Indian constitution pertaining to the exercise of taxing power in particular, and compliance with Article III in general.

2.2.1

Conceiving the Conception of a Free Market Under the Indian Constitution

When we talk about a national treatment obligation and stress on “like treatment” to “like foreign goods”, we have to proceed on an assumption that the Indian Constitution espouses the conception of a free market economy. This assumption is controversial, as a lot of leftwing observers would immediately question it by emphasizing the principle of Socialism enshrined in the Preamble of the Constitution. Focusing on the content of Articles 39 (b) and (c), they would further critique the notion of a free market by invoking the idea of a planned. However, these arguments may be countered by testing their validity against the provisions of the Constitution itself. There is hardly any debate about the fact that the conception of socialism is multifarious. The way its meaning has undergone transformation in China is the best indicator of the same. Moreover, the Directive Principles of State Policy set forth in Articles 39 (b) and (c) are programmatic axioms providing guidance about the shaping of the economy. These principles prescribe the ends to be met. Understood this way, they are futuristic and so is the Preamble. Thus, the means to attain the ends prescribed in Preamble and Directive Principles in Articles 39 (b) and (c) is to be determined by the State through judicial, legislative and executive actions reflected in legislations, policies, schemes and programs initiated from time to time, in the light of Articles 36, 37 and 31C. Let’s now look at these articles. Article 39 (b) lays down “State shall, in particular, direct its policies towards securing the ownership and control of the material resources of the community so as to best sub serve the common good.” It is clear from the reading of this Article that the means to attain the common good is left to the discretion of the State. Of course, 82 Report of the Panel—‘Argentina—Measures Affecting Imports of Footwear, Textiles, Apparel and

Other Items’, WT/DS56/R, [6.66–6.69], cited Report of the Panel—India—Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products—AB-1999-3-, WT/DS90/R, [3.59].

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the Article draws the link between the ownership and control of material resources with the common good. From the aforementioned, it is possible to contend that best means to sub serve the common good may be to establish a free market economy for the equitable allocation of ownership and control of material resources of the community among the people. For the same free play of products and services, both imported and domestic, subject to permissible regulations may be put in place. Article 39 (c) directs the policy of the State to ensure that “the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment.” Read plainly, this provision stipulates that to prevent concentration of wealth and means of production that is detrimental to the common good, the operations of the economic system must be managed to provide free play to the enterprise and to afford equal opportunities to all market players. The best means to attain this goal may be to create a congenial environment for the free competition among the enterprises, both domestic and foreign, subject of course to permissible regulations. This is possible because India has signed WTO agreement, thereby hinting that she would the transform from a mixed economy to a free market economy. The same is also in line with the goal set forth in Article 51 (c), another DPSP, calling for the State to foster respect for the obligations arising out of International Treaties.83 Similarly Article 31C in Part III is a categorical mandate to empower both the Centre and the States to make laws for the promotion of Articles 39 (b) and (c). Parliament has inserted this Article by way of 25th amendment to the Constitution of India, despite there being Article 31B empowering the parliament to insert Fundamental Rights-violating legislations in the Ninth Schedule and immunizing the same from the challenge of Part III. This goes to show that laws enacted by the parliament and State legislatures under article 31C, while promoting the Directive Principles, are not to be necessarily perceived as violations of Articles 14 and 19. Rather, such enactments may be seen as measures to promote NT obligation, striking a balance between the right to free and non-discriminatory enterprise of foreigners, with the right to carry on profession and trade of Indian citizens. the point may be illustrated by the legislations like Special Economic Zones Act (SEZ) Act 2005, Foreign Trade Development Law, and the Competition Act 2002.84 The above discussion leads to the inescapable conclusion that whether the community resources must be managed by State or their management be left to the free market, does not have any plain answer in the text of the Constitution. In fact, it appears that the framers of the Constitution made a conscious choice to leave this task to the judgement and wisdom of the political establishment. Of course, they have provided guidance to the State by way of DPSPs in Articles 39 (b) and (c) of the Constitution. This point has been very tersely made by Mr. Pratap Mehta. He argues that one of the vital elements of Constitutional morality in India is, showing respect for the plurality of views. He emphasizes, “What the parties have to agree to 83 Rao

(1995). enactments are manifestation of Duty of govt. of India under Article 37 read with Article 51(c) to comply with GATT and WTO obligations. 84 These

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as Ambedkar recognizes over and over, is an allegiance to a constitutional form, not an allegiance to a particular substance.”85

2.2.2

Taxing Power of Parliament of India

Having argued for the conception of a free market under the Indian Constitution, it is plausible to extend the argument further and contend that the taxing power of the Parliament under Article 265 is not so unfettered as to compromise this notion Article 265 lays down, “No tax shall be levied or collected except by authority of law.” Should this provision be read conferring plenary taxing power on Parliament, so that discriminatory taxes can be imposed on like foreign products upon their entry in Indian Market? Author submits that such an interpretation of this power is not only incompatible with the Constitutional notion of free market as demonstrated above but also with the NT obligation, as India has already ratified the GATT agreement 1947 (now WTO). The membership of WTO can be read as a limitation on the exercise of the power under article 265. The expression “except authority by law’ may also be employed to circumscribe the taxing powers of the Parliament by contending that any discriminatory taxation on ‘like’, directly competitive or substitutable foreign products is not the result of just and fair legal authority. For the same, reliance may be placed on the principle of the due process of Law, expounded by the Supreme Court in a number of cases.86 Similarly, the power of the Parliament under Article 271 to impose surcharge to enhance its exchequer is subject to the aforementioned limitations. It is also plausible to discipline the aforementioned taxing powers of the Parliament by Article 14 which guarantees to every person ‘the equality before law and the equal protection of the law’. A foreign enterprise with its outlets in India or a subsidiary of a multinational corporation engaged in trading goods and services may raise an Article 14 challenge against discriminatory taxes by filing writ petitions under Article 226 or 32, if it is able to establish that the goods and services traded by it, being ‘like’ or directly competitive and substitutable products with their Indian counterparts, are taxed in excess. This claim is further strengthened by an open ended definition of ‘person’, which also includes foreign entities in Special Economic Zones Act 2005.87 In this connection, reference may also be usefully made to Article 51-C, calling for India to make an endavour to foster respect for international law and treaty obligations in the dealings of organized peoples with one another. For the compliance of the 85 Mehta

(2010). Gandhi v Union of India AIR 1978 SC 597. 87 The Special Economic Zones Act 2005, s 2 (v) provides, ““person” includes an individual, whether resident in India or outside India, a Hindu undivided family, co-operative society, a company, whether incorporated in India or outside India, a firm, proprietary concern, or an association of persons or body of individuals, whether incorporated or not, local authority and any agency, office or branch owned or controlled by such individual, Hindu undivided family, co-operative, association, body, authority or company”. 86 Maneka

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mandate of this Article, the parliament of India has to set an example by adhering to its NT obligation vis-à-vis taxation on foreign goods. Although the foreign companies and firms can seek diplomatic protection from the states of their incorporation against excess tax—thereby transforming a bilateral dispute between Indian firms and foreign companies into multilateral and transnational dispute—by taking the matter to the WTO panel, this is a practical reality to which we have to face as a responsible member of WTO. In order to avert the same, we have to create an efficient and speedy mechanism of domestic trade remedies. As a matter of fact, India has been able to create an effective mechanism to impose antidumping duties to carry out anti-dumping investigations.88 Another strategy might be to use the exceptions to Article III effectively and justify the action under the same. Since trade disputes are not typically adversarial in character, it would be exaggeration to presume that all disputes pertaining to NT obligations would necessarily be agitated before the dispute settlement body of WTO.

2.2.3

Goods and Services Tax and Interstate Trade and Commerce Vis-à-Vis NT Obligation

As has been seen, a duty is cast on the Centre to apply all the WTO agreements, inclusive of GATT, sub-nationally under article 16 (4) of the Marrakesh Treaty 1994, read with XXIV (12) of GATT 1994. However, until recently, in the absence of the GST mechanism, there was a fair amount of divergence in the tax structures of different states, creating stumbling blocks in the way of India being unified market,89 the recently introduced Articles 246A and 269A of Indian Constitution now address this issue substantially. Article 246A confers power on the Union and the states to impose goods and Service tax (GST) by removing the fetters of Articles 246 and 254, provided that the above powers of the state is subject to Clause (2), conferring on Parliament the exclusive power to make laws with respect to goods and services tax where the

88 Rai

(2014). generally, “One Economic India: For Goods and in the Eyes of the Constitution” Chap. 11 “Economic Survey of India 2016–17”, Ministry of Finance, Department of Economic Affairs, Economic Division, Government of India January, 2017. Available at http://indiabudget.nic.in/es201617/echapter.pdf; See generally, “A National Market for Agricultural Commodities—Some Issues and the Way Forward” Chap. 8 “Economic Survey of India 2014–15”, Ministry of Finance, Department of Economic Affairs, Economic Division, Government of India www.indiabudget.nic.in/es2014-15/ echapvol1-08.pdf; Chap. 11 “Powering one India” “Economic Survey of India 2015–16”, Ministry of Finance, Department of Economic Affairs, Economic Division, Government of India Available at http://indiabudget.nic.in/budget2016-2017/es2015-16/echapvol1-11.pdf. These chapters call for abandonment of fragmented approaches by the States in the domains of interstate trade commerce, Intra state agricultural markets and pricing and tarification of Electricity across the State. Economic advisor of India emphasizes on ‘need for fragmented economic India’ catching up with a politically united India. 89 See

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supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.90 Article 269A empowers the Government of India to levy and collect the Goods and Services tax on supplies in the course of inter-State trade or commerce and such tax is to be apportioned between the Union and the States in a manner as may be provided by Parliament by law, on the recommendations of the Goods and Services Tax Council.91 By way of explanation, it is clarified that for the purposes of clause (2) of this Article, supply of both goods and services in the course of import into the territory of India is deemed to be in the course of inter-State trade or commerce.92 To apply the principles underlying both these Articles to interstate taxation in respect of the supply of goods or services taking place—(a) outside the states, and (b) in the course of both the import of the goods and services into, and the export of the goods and services out of, the territory of India, Article 286 has been suitably amended and clause 3 of Article 286—conferring special powers on the State to impose tax on sale and purchase of the goods with the approval of the Parliament—has been repealed.93 A close look at these provisions demonstrates firstly, that being enabling in nature, they would come into operation upon the enactment of Central and State GST legislations.94 Secondly, we have to read Article 246-A clause (2) along with the explanation to clause (2) of Article 269 A, to infer that reference to “in the course of inter-state trade and commerce” in the former covers “supply of both goods, or of services, in the course of import into the territory of India and export outside the India”.95 It is also interesting to note that through the incorporation of the doctrine of “pooled vereignty” into the Constitution, clause (1) Articles 246 A and 269 A read with clause 2 of Article 246 A, Has resulted in a fundamental transformation of classical fiscal federalism, giving concurrent powers to both Centre and State to impose GST on all goods and services prescribed therein except the Goods and Services in respect of Inter-state trade and commerce, and import and exports, which are in the exclusive domain of the Parliament. A new regime has the potential to considerably limit the taxing powers of the States, in the sense that a uniform rate of SGST has to be maintained throughout India, based on the recommendation of the GST Council in accordance with Clause 4 of Article 279 A.96 90 Constitution

of India, Article 246A. of India, Article 269A. 92 It is submitted that the explanation should have also covered Article 246-A (2). 93 Constitution of India, Article 269A. 94 The Central Goods and Services tax Act 2017; Integrated Goods and Services Tax Act 2017 and GST compensation Act have been enacted by Parliament and all states including State of Jammu and Kashmir have enacted State goods and services tax legislations based on Model GST compensation, CGST, IGST, and SGST law approved by GST council in its 10th (18th Feb 2017), 11th (4th and 5th March 2017) and 12th (16th March 2017) meetings respectively the same paved way for rolling out of GST throughout India at Midnight of 30th June 2017. 95 Such a mode of interpretation is in line with principle of ‘Pari materia’. 96 Constitution of India, Article 279A (4). The Goods and Services Tax Council shall make recommendations to the Union and the States on—(c) model Goods and Services Tax Laws… (e) the rates including floor rates with bands of goods and services tax. 91 Constitution

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However to retain the spirit of federalism and to recognize the voices of the States, 2/3rd votes are given to the states in comparison with 1/3rd to the union during the decision making in GST council. Thus, in the radically changed taxing pattern, visà-vis indirect taxes, parliament and the Union Government have been empowered to transform an imperfect and diversified market into unified whole.97 Of course, attainment of this objective is bound to be difficult lest the GST Council functions efficiently with the cooperation of all States with differing political ideologies, and enjoys the command, confidence and respect of the Parliament. If the hitherto working of GST council is any indication then there is room for optimism. With the successful implementation of the GST system, not only will interstate trade and commerce be much more non-discriminatory owing to the incorporation of the ‘destination principle’ of the taxation, but in the changed legal scenario, Parliament is going to have adequate powers to effectively implement the NT obligation vis-à-vis states, as—(a) the notion of interstate trade and commerce now explicitly covers both the supply of goods as well as services, by way of import into India and export outside India, and (b) the rate of GST is expected to be uniform across states. It is submitted that although the above arguments appear to be weighty, they are subject to following caveats: 1. GST, by and large, has subsumed only indirect taxes and therefore the divergence in respect of direct taxes across the States still remains a problem; 2. It is not correct to jump the gun by assuming that all indirect taxes have been exhausted in the subsumed GST. For example, taxes on the sale of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human consumption98 (except such goods and services which are in the course of inter-State trade or commerce or in the course of international trade or commerce99 ) can still be imposed by the states with great deal of divergence. Thus, there is a scope for a discriminatory tax regime in respect of like and competitive foreign alcoholic liquor for human consumption across the states. Paradoxically, clause 5 of Article 279A also includes the aforementioned items, except alcoholic liquor for human consumption, within the domain of GST, as the GST council has been empowered “to recommend the date on which the goods and services tax be levied”100 on these items. Does it not result in double taxation—GST in accordance with Article 279-A (5) and sales tax by States under amended entry 54 List II of the Seventh Schedule—on these items? It hardly addresses the cascading effect phenomenon. Nor does it take into account the rigor of the NT obligation in respect of ‘like foreign goods” The same is very vividly illustrated by two raging disputes between European

97 A

strong critique of GST, Advocate Arvind Datar argues that GST on good and services is not unified as there are number of classification, 5, 12% etc. 98 Constitution of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 54. 99 Constitution of India, Article 246A (2). 100 Constitution of India, Article 279A (5).

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Union and India.101 Both these disputes related to discriminatory character of Additional and Special Additional duty imposed on Indian Made Foreign Liquor (IMFL) by ten states,102 and especially the restrictions on retail sale applied by the State of Tamil Nadu on wines and spirits exported by the EU to India. In November 2006, the EU formally requested the consultations with India on this matter.103 The main grievance of the EU was that IMFL was subjected to two taxes—Additional Customs Duty collected at the customs ports and state excise duty imposed by the state separately on the same products. The Additional Customs Duty was higher than the State excise duties and fees being collected on like domestic products in the states. The records show that “a slew of state excise duty reforms were carried out in different States as a direct consequence of the detailed consultations with the EC in connection with DS 352 as well as DS 380”.104 The above turn of events clearly shows that a similar crisis can be still precipitated by the states in absence of any categorical provision in the Indian legal order to take the NT obligation seriously. It has been already demonstrated that even the GST regime may not provide a fool proof solution to this impending problem. As a matter of fact, it only regulates the supply of goods and services and has no bearing on taxes imposed by the States (provinces) in India on the sale and purchase of goods in their respective territories. This point is crucial because a number of state taxes are still outside the net of GST. Such taxes include duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India: (a) alcoholic liquors for human consumption; (b) opium, Indian hemp and other narcotic drugs and narcotics, but not including medicinal and toilet preparations containing alcohol 101 India—Measures

Affecting the Importation and Sale of Wines and Spirits from the European Communities—Lapse of Authority for Establishment of the Panel—Note by the Secretariat, WT/DS352/7; India—Certain Taxes and Other Measures on Imported Wines and Spirits—Request for Consultations by the European Communities, WT/DS380/1. Both these disputes were ultimately resolved after protracted consultations and did not progress into full-fledged WTO Disputes. In sharp contrast to the approach of the EU, USA escalated the matter into full blown dispute with India before the WTO panel. See—Report of the Panel—India—Additional and Extra-Additional Duties on Imports from the United States, WT/DS360/R. The matter went till the appellate body, Report of the Appellate Body ‘India—Additional and Extra-Additional Duties on Imports from the United States’, WT/DS360/AB/R. USA was not successful because as a complaining party it could not prove that the measures at issue were either Ordinary Customs Duties (OCDs) or Other Duties and charges (ODCs). The Panel and the Appellate body characterized these charges as disciplining the measures imposed at the border in lieu of internal charges on like domestic products under Article II: 2(a). This decision is also a landmark in respect of the principle of burden of Proof. 102 The States of Andhra Pradesh, Assam, Delhi, Goa, Karnataka, Maharashtra, Punjab, Rajasthan, Uttar Pradesh, and West Bengal. 103 State Government officials from the ten States were invited to participate in the first round of consultations with the EU in Delhi by government of India in December 2006, the first occasion ever to have resulted in participation of the State Government officials in a GATT/WTO consultation process relating to dispute settlement in India. See Dasgupta (2016). 104 Ibid. 192.

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or any substance included in sub-paragraph (b) of this entry105 ; (c) taxes on the consumption or sale of electricity106 ; (d) taxes on goods and passengers carried by road or on inland waterways107 ; (e) taxes on vehicles, whether mechanically propelled or not, suitable for use on roads, including tramcars subject to the provisions of entry 35 of List III108 ; (f) taxes on animals and boats109 ; (g) tolls110 ; (h) taxes on professions, trades, callings and employments111 ; (i) rates of stamp duty in respect of documents other than those specified in the provisions of List I with regard to rates of stamp duty.112 Obviously, in respect of all the above taxes excluded from the zone of GST, states may violate the NT obligation in the absence of any explicit provision in the Constitution or any law enacted by Parliament. The problem is further compounded if we take cognizance of the differing political ideologies of state governments, who often indulge in populism to stay in power. Article 301 merely runs like a slogan. Textually, it is rendered rhetorical, if we compare it with the wide powers of the Parliament and then take into account the exceptions to Article 302 itself. Although Parliament can exercise fair amount of control under article 302 on interstate trade and commerce, its effectiveness is seriously undermined because of the extraordinary imbalance of powers in the two houses of Parliament. There is no guarantee that there will not be any impasse in GST. In such a case, State governments may politically embarrass the government at the centre, if the latter is in opposition to the ideology of the former. The best course of action according to the author would therefore be to completely revamp Part XIII and explicitly incorporate the duty of adherence to the National treatment obligation on both Centre and the state vis-à-vis ‘like’ foreign goods.113

2.2.4

Legislating NT Obligation

A close look at legislations like section 9A114 of the Foreign Trade Development and Regulation Act 1992 and Rules 5 and 11 of 2012, incorporating the safeguards agreement of WTO, poses the question—where is the equivalent legislation to incorporate the NT obligation in our legal order? In the Solar Panel case, India lost mainly 105 Constitution

of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 51. of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 53. 107 Constitution of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 56. 108 Constitution of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 57. 109 Constitution of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 58. 110 Constitution of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 59. 111 Constitution of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 60. 112 Constitution of India, Article 246 (2); Constitution of India, Schedule VII List II Entry 63. 113 Unfortunately Supreme Court of India has not taken any definite position in its recent Entry Tax Judgment pronounced by a constitutional bench of nine judges on NT Obligation, rather it has strengthened the taxing powers of the State by characterizing Articles 304 (a) and (b) as disjunctives. Jindal Stainless Ltd. and Ors. v State of Haryana MANU/SC/1475/2016. 114 Foreign Trade Development and Regulation Act 1992, s 9A. 106 Constitution

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because she could not justify the Domestic Contents Requirements under any binding legislation having bearing either on general exceptions under Article XX to GATT or Article II (8 a), qua NT obligation.115 Even if it is assumed that under Art 73, the executive power of the Govt. is coextensive to the legislative powers of Parliament, only the latter has the exclusive authority to make laws “for implementing any treaty, agreement or convention with any other country or countries or any decision made at any international conference, association or other body”, under Article 253 of Indian Constitution. Besides, in the light of the Jawaya116 dicta, “even if the acts of the executive are deemed to be sanctioned by the legislature, yet they can be declared to be void and inoperative if they infringe any of the fundamental rights … guaranteed under Part III of the Constitution.”117 The mere fact of acceptance of the GATT agreement by the executive does not furnish an adequate constitutional justification for impinging the fundamental rights of citizens to carry on trade and business. It is plausible to argue that so far as non-citizens are concerned, the right to carry on trade is not guaranteed under the Indian Constitution and a question may well be posed whether Article 301118 dealing with the freedom of trade, commerce and intercourse,119 can be used to create such a right in favor of non-citizens, when Article 19 by its limiting words expressly confers that right on citizens exclusively? Can’t it be argued that the NT obligation upsets the traction of Article 19(1) (g) by affecting the power of the State to have monopoly over any trade, business, industry or service, whether to the exclusion, complete or partial, of citizens or otherwise?120 Is it not possible to argue that Article 19(1) (g) is a preferred freedom vested exclusively in the citizens over foreigners and affording national treatment to the latter is bound to adversely affect the fundamental rights of the domestic trader citizens as they have to compete with foreigners? Since fundamental rights are immunities121 from the both executive and legislative power, the commitment by the political executive 115 In sharp contrast to the cavalier approach of Indian Parliament USA congress has enacted a very

comprehensive legislation “Uruguay Agreements Act 1994”. Jawaya Kapur v State of Punjab AIR 1955 SC 549. 117 Ibid. [19]. 118 Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. 119 Singh (1985). Professor M. P. Singh, in his magnum opus, demonstrates that both ‘individual rights’ and “total volume” theories are inadequate justifications to characterize article 301 as a right conferring rule. “It is one thing to say that Article 301 is guarantees the freedom of certain activities carried on by an individual but it is a different thing to say that it creates a juristic right in an individual to carry on certain activities.” For a detailed discussion, see Chaps. 3 and 4. 120 Constitution of India, Article 19 (1) (g); Constitution of India, Article 19 (6) (i) (ii). 121 Hohfeld defines immunity only in relation to its correlative disability and its opposite liability, whereas Kamm and Nagel explain why immunity (inviolability is a type of immunity) is indeed an independent value and it is therefore prior to its correlative—disability. See generally, Hohfeld (2001). Drawing on the same, Lorenzo Zucca submits, “The priority of immunity over disability can be used to justify the existence of the constitutional protection of Fundamental Legal Rights. The constitutional status (of persons) is maintained if Fundamental Legal Rights are protected from the arbitrary intrusion of the government.” Zucca (2009), Kamm (2001), Nagel (2002). 116 Ram

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and its endorsement by the Parliament to afford national treatment to the ‘like’ and ‘competitive’ foreign products in the Indian market is bound to destroy this immunity and would also negate the preferential character element of this freedom. As Article 19(1) (g) is not subject to reasonable restrictions on the ground of ‘friendly relations with foreign States’,122 [a limitation on the exercise of the ‘right to freedom of speech and expression’ under Article 19 (1) (a)] affording National treatment to the like’ and ‘competitive’ foreign products in the Indian market amounts to extension of this very restriction on Article 19 (1) (g), which is untenable and textually impermissible. Besides, classification between domestic trade and foreign trade may be said to be reasonable, in the absence of any specific legislation incorporating NT obligations in Indian legal order, under Article 14. In this connection the observations of H. M. Seervai are worth citing, “In the economic field, discrimination in favor of domestic trade would not violate Art 14 for the distinction between ‘domestic’ trade and ‘outside trade’ is based on a rational differentia reasonably related to the object of law, namely to promote domestic trade. Therefore Art 303(1) expressly forbids such discrimination and relaxes that prohibition as provided in Articles 303 (2) and 304 (b). Discrimination by virtue of other entries is not forbidden but it is submitted that a law making such discrimination would have to stand the test of Art. 14, since power to make laws is subject to the provisions of this constitution (art 245).”123 Can’t it be argued on the strength of the above observations that the fetters created by Articles 303 (1) (2) and 304(b) are confined to sub-national units of India (provinces) and do not extend to either cross border trade, or foreign States and entities? It is plausible, therefore, to make a case for the uninhibited power of Parliament and the states to impose taxes in the sphere of foreign trade. In absence of a constitutional prohibition limiting this power, the question of whether Parliament and the states can classify goods based on their origin while imposing taxes is moot. It may be argued that the same does not seem to have been answered even by Article 246-A, because it merely regulates the taxing power on supply. Is an alternative interpretation possible to counter the above questions and arguments?

2.2.5

Alternative Interpretation

A. Hartian Jurisprudence The author suggests an alternative interpretation by invoking the changed context of global politics, trade and commerce and Hartian jurisprudence. Invoking the theory of H. L. A Hart’s “rule of adjudication”, it can well be argued that the ratification of the WTO agreement by India amounts to the addition of a new criterion of validity as part of rule of adjudication,124 enabling the judiciary to take cognizance of it and—by 122 Constitution

of India, Article 19 (2). (1991). 124 Hart (2012). 123 Seervai

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evolving the Vishaka prototype—hold that adherence to WTO obligations (such as those cast by Article III of GATT 1994) is not in conflict with fundamental rights.125 It is also pertinent to bring up the basic structure doctrine, wherein the Supreme Court evolved a limitation on the amending power of the Parliament.126 It is plausible to argue that the accession and ratification of the WTO agreement is an accepted limitation on our sovereignty, as conceded by the government. As the Supreme Court has not declared this decision of the government as a violation of the basic structure, the newly created limitation prevails. Besides, since at any rate, the executive is part of legislature in India, its decision has to prevail unless Parliament decides to vote it down or to vote for opting out of the WTO. As Parliament has not done so, and since it is unlikely that it would do so in the near future, it is not possible to argue that the decision of the executive has attained an ‘internal point of view’ vis-a-vis the legislature and government officials so that they will be self-critical of any deviating actions against WTO obligations on their part.127 B. Fundamental Rights The arguments based on fundamental rights may also be easily countered. The expression ‘in the interests of general public’ in Article 19(1) (g) is broad enough to cover the idea of free trade which is the engine of growth of the modern globe. Therefore, there is no question of extending the restrictions on other freedoms to article 19(1) (g). It is equally possible to argue that the obligation on the state to recognize the freedoms in Article 19 is by and large negative in nature and the action of the State 125 Indeed,

such an interpretation may amount to a very radical interpretation on the relationship of Articles 303(1) and 304(b) read with Art 19 (1) (g). But drawing analogies from decisions like Union of India v Azadi Bachao Andolan [2003] 263 ITR 706 (SC), where Supreme Court attached primacy to the Indo-Mauritious Double Taxation Avoidance Convention, 1983, the above argumentation strategy may be strengthened. The Supreme Court, High Courts and Tribunals have held in number of cases that the OECD and UN Models and their Commentaries represent international tax language. See Sengupta (2012). Mr. Sengupta, inter alia, cited- TVM Ltd v Commissioner of Income Tax (2002)-TII-24; ARA-INTLCommissioner of Income Tax v Vijay Ship Breaking Corporation (2003)TII-133; AHMINTL, Assistant Director of Income Tax v M/s Delta Airlines Inc (2008)-TIOL-646ITAT-MUM. But in Assistant Director of Income Tax v M/s Federal Express Corporation, USA (2009)-TII-36-ITAT-MUM-INTL., the tribunal observed, “where any expression or term is defined then it would be unnecessary to refer to the Commentaries or decisions of foreign jurisdiction as held by the apex court in the case of P. V. A. L. Kulandagan Chettiar”. The author submits that it is necessary to have a clear legislative position on this aspect. 126 Kesavananda Bharati v State of Kerala AIR 1973 SC 1461; Jain and Narayan (2011). 127 Of course, this argument can be counter by contending that the executive is threatening the Parliament with a fait acompli, thereby giving a serious blow to the notion of ‘deliberative and dialogic’ democracy as propounded by J. Habermas See generally, Baxter (2011). Dworkin would also come into play, seeking scrutiny of the above argument in the light of his notions of ‘Law as integrity’ and a ‘Moral reading of the Constitution’. See generally, Dworkin (1996). The author submits that ‘constitutional morality’ cannot be tied down to any dogmatic notion, so as to determine the integrity of Law. Indeed, democratization of processes involving treaty making must be viewed with urgency by all the civilized States but it would be farfetched to characterize the entire WTO regime as antidemocratic.

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in affording equal treatment and equal protection of law to ‘like’ and ‘competitive’ foreign products in the Indian market amounts at the most to ‘damnum sine injuria’ (injury without damage). There is no legal injury in facing competition from foreign players in respect of ‘like’ and ‘competitive’ products.128 Moreover, fair competition would provide an impetus to the domestic players to be more efficient and save India from the charges of patronage and protectionism. So far as power to create state monopolies is concerned, it is merely an enabling clause and in the transformed era of FDI, India is hardly interested in perpetuating monopolies to the exclusion of the private sector and foreigners, barring a few strategic sectors. Besides, Article 14 affords the protections of ‘equality before the law’ and ‘equal protection of law’ to every person, inclusive of both foreigners and Indian citizens, within the territory of India. The same may also implicate the subsidiaries of multinational corporations, as Article 14 uses the word ‘persons’ in contradistinction with citizens. It is possible, therefore, to make out a case against discriminatory treatment to the ‘like’ and ‘competitive’ foreign products marketed by such subsidiaries in India, on the ground of a violation of Article 14. With the evolution of jurisprudence in Maneka Gandhi and after, it is a settled proposition of law that violation of Article 19 would implicate article 14 and vice versa. Therefore promotion of free trade may not any longer be considered as being antagonistic to the fundamental rights guaranteed under Part III of the Constitution of India. So far as the reasonable classification argument advanced by H. M. Seervai is concerned, the same may be easily countered by alluding to the dicta of the Supreme Court in E. P. Royyappa129 to be wary of cribbing, cabining and confining the scope of Article 14 to any particular doctrine or theory. As a matter of fact, arbitrariness being one of newer touchstones of article 14, by invoking the ratification of the WTO, it can be contended that there cannot be anything more arbitrary than to negate the obligations which India has voluntarily assumed to comply with. It must also be borne in mind that even Indian citizens, while exercising their right guaranteed by Article 19 (1) (g), may engage in the occupation of selling 128 The author draws inspiration for this view from the seminal passage from the dissenting opinion

of Justice K. K. Mathew (as he then was) in the Kesavananda Bharati v State of Kerala and Anr. AIR 1973 SC 1461, 1663, “However, I think that Article 13(2) was necessary for a different purpose, namely, to indicate the extent of the invasion of the fundamental right which would make the impugned law void. The word ‘abridge’ has a special connotation in the American Constitutional jurisprudence; and, it is only fair to assume that when the Constitution-makers who were fully aware of the language of the First Amendment to the United States Constitution, used that expression, they intended to adopt the meaning, which that word had acquired there. Every limitation upon a fundamental right would not be an abridgement of it. Whether a specific law operates to abridge a specifically given fundamental right cannot be answered by any dogma, whether of a priori assumption or of mechanical jurisprudence. The Court must arrive at a value judgment as to what it is that is to be protected from abridgement, and then, it must make a further value judgment as to whether the law impugned really amounts to an abridgement of that right. A textual reading might not always be conclusive. A judge confronted with the question whether a particular law abridges a Fundamental Right must, in the exercise of the judicial function, advert, to the moral right embodied in the Fundamental Right and then come to the conclusion whether the law would abridge that right…”. 129 E. P. Royappa v State of Tamil Nadu AIR 1974 SC 555, [85].

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‘like’ and ‘competitive’ foreign products by importing them to India. Therefore, any discriminatory treatment of such traders is bound to implicate Article 14 and, mutatis mutandis, competitive and like products exported by Indian exporters may face discriminatory measures in the markets of other WTO member states. C. Transnational Constitutionalism Last but not the least, in post-Westphalian politics, the notion of ‘absolute sovereignty’ has become outmoded and so is the dichotomy between ‘national and international’. The time is ripe to embrace the notion of ‘transnational constitutionalism’. Thus, the proliferation of quasi-constitutional economic arrangements at the supranational level (WTO, NAFTA, and other regional trade and monetary agreements) is explained by Ran Hirschel “as an attempt to solidify the foundations for a business-friendly global economic order that is largely beyond national political control and the vicissitudes of democratic politics more generally”.130 In a similar vein, Professor Thornhill observes, “At the centre of the constitutional law of global society, on one hand, is an eradication of constituent power. The constitutional law of contemporary society is increasingly formed within the inner corpus of the law, and, at different locations in global society, law is able to generate strong foundations for political inclusion without recourse to any primary or external constituent act. In some cases, for example the WTO (largely) or the EU (to some degree), this selfconstitution of the law might be seen simply to impose a legal order across society, which is relatively closed to particular demands for inclusion. In some respects, however, the self-constitution of the law involves an opening of the law, and it permits contemporary society to establish a system of legal/political inclusion in improbable, spontaneous fashion, in ways that were not conceivable in classically centred societies.”131 In short, the NT obligation has a symbiotic relationship to free market access, and if it is not reciprocated, the erring states have to face the consequences. However, this does not mean that all states can be painted with the same brush, due to vast economic and geographic differences amongst them. The path lies in developing the skills of negotiation and dialogue and to enhance the legal capacity to effectively resort to the exceptions to the GATT.

3 Way Forward In this concluding section, the author offers some suggestions to effectively encounter and interact with the WTO regime so as to build the capacity of India as a unified and strategic player in the arena of international trade. The focus is mainly on refinement in treaty making processes and institutional capacity building.

130 Hirschel

(2013). (2016, p. 382).

131 Thornhill

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3.1 Treaty Making Processes Firstly, there is an urgent need to create democratic filters for the legal and constitutional scrutiny of treaties like the WTO. Even in the UK, where Parliamentary Sovereignty rules the roost, sections 20–25 of the Constitutional Reform and Governance Act 2010 identify the significant role of Parliament vis-à-vis the ratification of international treaties.132 The law has prescribed two cooling off periods133 of 21 days each to facilitate dialogue between the government and Parliament. At the same time, not only have certain treaties been excluded from the purview of the aforementioned laws,134 but section 20 is also not applicable if a Minister of the Crown is of the opinion that, exceptionally, the treaty should be ratified.135 However, the House of Commons can block the treaty if it resolute against its ratification in both the cooling off periods. In such a scenario, the minister of crown cannot insist for its ratification to be fast tracked.136 Whereas, if the same is done by House of Lords, it is possible.137 In sharp contrast to the above systematic procedure, there is almost a complete absence of legal architecture regulating the processes of ratification of treaties in India. To add insult to the injury, she has not even ratified the Vienna Convention on the Law of Treaties 1969. As a matter of routine, treaties are shrouded in secrecy and a parliamentary debate on the same depends on the whims and caprices of the executive. The author submits that the Indian scenario is not only undemocratic, but also contrary to the spirit of federalism.138 Gone are the days when treaties only regulated foreign affairs. With the withering away of geographical boundaries amongst nations and the emergence of liberalization, privatization and globalization, international law standards encompass almost every aspect of our lives. A trade distortion in New Jersey equally affects the scene in New Delhi. It is therefore necessary to re-look at Article 253. The author submits that the treaties affecting federalism must involve a detailed pre-ratification, internal consultation between the Centre and states. To ensure effective safeguards, the treaties may be classified into the following categories—(1) Treaties affecting centre-state relations, (2) Taxation treaties and (3) Human rights treaties. Treaties falling under Category 1 and 2 should be subjected to Parliamentary scrutiny, whereas the executive must be given a predominant role in respect of the third category. Equally, by enacting a law, a procedure must be laid down to have 132 Prior

to this enactment, under the ‘Ponsonby Rule 1924’, the executive in UK was under an obligation to place most of the treaties, barring declaration of war and deployment of British armed forces, under the scrutiny of Parliament for the period of 21 days before their ratification. 133 Constitutional Reform and Governance Act 2010, s 20. 134 Constitutional Reform and Governance Act 2010, ss 22–23. 135 Constitutional Reform and Governance Act 2010, s 22 (1). 136 Constitutional Reform and Governance Act 2010, s 20 (8). 137 Constitutional Reform and Governance Act 2010, ss 7, 20 (4) (b). 138 Vandana Shiva And Ors. v Union Of India And Ors 1995 (32) DRJ 447; The States of Tamil Nadu, Rajasthan and Orissa have raised federal disputes with the Union on the signing and implementing of the GATT treaty.

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in place democratic filters for the scrutiny of umbrella treaties like WTO, executive agreements and MOUs.139 It is submitted that instead of virtually presenting a fait accompli to the Parliament to incorporate and ratify the treaty under the guise of ‘international trade’ (for instance, the incorporation of TRIPS agreements), it is desirable to go for a pragmatic compromise by putting in place a fast-track legislative procedure to deal with international trade issues, on the heels of UK and USA.140 The Trade Act of 1974141 has established fast track legislative procedure to accelerate the process of negotiating and implementing international trade agreements in USA. Under this system, trade legislation goes through two phases. First, Congress statutorily empowers the president to negotiate an international trade agreement and enunciates the president’s general negotiating objectives. In the second phase, Congress has to decide within the limited time span of sixty days, and without the power to suggest amendment, whether to accept or reject legislation proposed by the president to implement these agreements. A number of legislations like those to give effect to the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), have been enacted through this process.142 A somewhat equivalent procedure to fast track legislation already exists in India—namely, the Money Bill.143 Without a great deal of changes in the Constitution, the same may be extended to enact legislations to implement international trade agreements.

3.2 Institutional Reforms On the institutional front, the author endorses the suggestion of Mr. M. N. Jha, “the most suitable institutional framework for India could be the creation of a separate Directorate General of Trade Remedies (hereinafter DGTR), covering all trade remedy actions and also any determination of quantitative restrictions, and free of the administrative control of the Ministry of Commerce and Industry (or any other ministry), for conducting all investigations, and to defend all trade remedy actions by other countries.”144 The author also suggests that, by suitably amending Article 323 B, a tribunal may be constituted to deal with claims brought by foreign companies pertaining to discriminatory treatment to imported products and services. The tribunal must work expeditiously and incorporate relevant WTO jurisprudence into Indian trade law.

139 Ministry

of Law and Justice, Report of the National Commission to Review the Working of the Constitution (2000), Chap. 11 [77]; Dhavan (1997). 140 Thomas (2006). 141 Trade and Tariff Act 1974. 142 Koh (1992). 143 Constitution of India, Articles 109, 110. 144 Jha (2013).

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It is also imperative at this place to emphasize the construction of trade related capacities. Mr. James J. Nedumpara145 offers three dimensions of these capacities: Firstly, Human Capacity – refers to the capacity of the professionals such as competent trade lawyers, economists, negotiators, on whom government can rely for advice on WTO matters. Secondly, Institutional capacity - involves the institutions like customs, national standardsetting authorities, trade remedy authorities, and agencies that represent the country at the WTO or other regional for a on whom government bank upon for trade. Finally, - in trade-related capacity building literature, “stakeholders are referred to as the “third pillar” broadly including business, law, academia and civil society. Since most of such stakeholders are scattered across different parts of the country, the industry bodies have to assume a representative capacity. The stakeholders complement the government’s participation in WTO negotiations and dispute settlement.”146

Conclusion It has been argued in this paper that the NT obligation under Article III of the GATT 1994 is all-pervasive and guards against trade protectionism. It outlaws, inter alia, a discriminatory tax regime on like foreign products and enjoins any less favorable treatment to such products on the ground of origin. At the same time, it has been demonstrated that the GATT itself has a number of exceptions to provide room to the economic diversities and other contingencies. India having signed and ratified the WTO, is duty bound to comply with this obligation, however noncompliance may also be justified if she makes full use of the exceptions. It has been suggested that in order to be fully prepared to meet GATT compliance, both the center and states have to be agile and create new institutions. In order to be sensitive to federalism, and to comprehend the nuances in international trade agreements, the democratization of treaty making processes has been emphasized. Besides, by resorting to Hartian jurisprudence and transnational constitutionalism, how antagonism between fundamental rights and the principle of free trade can considerably be dispensed with is demonstrated. In short, although the threshold for the free market access is ‘like treatment to like products’ ir respective of origins of such goods, what constitutes ‘likeness’ and of ‘likeness’ of ‘what exactly’ are extremely complex questions and it would be in vain to insist upon a ‘one size fits all approach’. Nor would it be any wiser to resort to an adversarial mode alone to resolve trade disputes. The key to achieving the success in trade disputes lies in a candid blend of the ‘carrot and stick’ approach. Is it appropriate to fall back on the outmoded notion of sovereignty in classical constitutionalism? or to advocate for the sovereignty of consumers by ensuring free market access to both foreign and domestic players alike is no longer a serious dichotomy, as the public opinion is clearly tilted in favour of the latter.

145 Nedumpara 146 Ibid.

(2013). (p. 74).

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References Baxi, U. (2014). Demosprudence versus jurisprudence: The Indian judicial experience in the context of comparative constitutional studies. Macquarie Law Journal, 14, 3–23. Baxter, H. (2011). Habermas: The discourse theory of law and democracy. Stanford University Press. Choi, W. M. (2003). ‘Like products’ in international trade law: Towards a consistent GATT/WTO jurisprudence. OUP. Das, A., Nedumpara, J. J., & Singh, S. (2016). Introduction. In A. Das & J. J. Nedumpara (Eds.), WTO dispute settlement at twenty, insiders’ reflections on India’s participation. Springer. Das, A., & Raghuram, J. (2016). One too many: Significant contributions of India to the WTO dispute settlement jurisprudence. In A. Das & J. J. Nedumpara (Eds.), WTO dispute settlement at twenty, insiders’ reflections on India’s participation (p. 83). Springer. Dasgupta, J. (2016). India—Additional import duties: Tax reforms via WTO. In A. Das & J. J. Nedumpara (Eds.), WTO dispute settlement at twenty, insiders’ reflections on India’s participation (p. 191). Springer. Datar, A. (2016). Inter-state trade, commerce and intercourse. In S. Choudhry, M. Khosla, & P. B. Mehta (Eds.), The Oxford handbooks on the Indian constitution (pp. 487–501). OUP. De, R. (2014). Commodities must be controlled: Economic crimes and market discipline in India (1939–1955). International Journal of Law in Context, 10, 277. Dhavan, R. (1997). Treaties and peoples: Indian reflections. Journal of the Indian Law Institute, 1, 39. Dworkin, R. (1996). Freedom’s law: The moral reading of the American Constitution. OUP. Fekete, B. (2018). The limits of sovereignty pooling: Lessons from Europe. In M. Belov (Ed.), Global constitutionalism and its challenges to Westphalian constitutional law (pp. 133–160). Hart Publishing. Galligan, D., & Versteeg, M. (Eds.). (2013). Social and political foundations of constitutions. Cambridge University Press. Hart, H. L. A. (2012). The concept of law (3rd ed.). OUP. Hirschel, R. (2013). The strategic foundations of the constitutions. In D. Galligan & M. Versteeg (Eds.), Social and political foundations of constitutions (p. 173). Cambridge University Press. Hohfeld, W. N. (2001). Fundamental legal conceptions as applied in judicial reasoning. Aldershot: Ashgate/Dartmouth. Horn, H., & Mavroidis, P. C. (2004). Still hazy after all these years: The interpretation of national treatment in the GATT/WTO case-law on tax discrimination. EJIL, 15(1), 39–69. Iyer, K. (1996). Peoples’ commission on GATT: Report on the constitutional implications of the final act embodying the results of the Uruguay round of multinational trade negotiations. Centre for Study of Global Trade System and Development. Jain, S., & Narayan, S. (2011). Basic structure constitutionalism—Revisiting Kesavananda Bharati. Eastern Book Company. Jha, M. N. (2013). India: A three-tier judicial review system. In M. Yilmaz (Ed.), Domestic judicial review of trade remedies: Experiences of the most active WTO members (p. 311). Cambridge University Press. Jha, S. K. (2006). Final Act of WTO: Abuse of treaty making power. Centre for Study of Global Trade System and Development. Kamm, F. M. (2001). Rights. In J. Coleman & S. Shapiro (Eds.), The Oxford handbook of jurisprudence and philosophy of law. OUP. Kher, R. (2016). India’s trade disputes: Implications for public policy. In A. Das & J. J. Nedumpara (Eds.), WTO dispute settlement at twenty, insiders’ reflections on India’s participation (p. 24). Springer. Koh, H. H. (1992). The fast track and United States trade policy. Brooklyn Journal of International Law, 18, 145. Koul, A. K. (2018). Guide to WTO and GATT, economics, law and politics (pp. 117–118). Springer.

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Kulhari, S., & Chatterjee, S. (2017, July). Is India’s federalism a threat to its WTO obligations? Through the prism of Article 253. Indian Law Review, 69–82. Matsushita, M., Schoenbaum, T. J., Mavroidis P. C., & Hahn, M. (2015). World Trade Organization: Law, practice and policy (3rd ed., p. 180). OUP. Mehta, P. B. (2010, November). What is constitutional morality. In: We the People: A Symposium on the Constitution of India after 60 years. Nagel, T. (2002). Personal rights and public space. In T. Nagel (Ed.), Concealment and exposure & other essays (pp. 31–52). OUP. Nedumpara, J. (2013). Naming, shaming and filing: Harnessing Indian capacity for WTO dispute settlement. Trade, Law and Development, 5(1), 73. Qureshi, A. (2015). Interpreting WTO agreements: Problems and perspectives (2nd ed.). Cambridge University Press. Rai, S. (2014). Anti-dumping measures: Policy, law and practice in India. Partridge Publishing. Raja Mani, L. (2016). International law and constitutional schema. In S. Choudhry, M. Khosla, & P. B. Mehta (Eds.), The Oxford handbooks on the Indian constitution (pp. 143–162). OUP. Ranjan, P. (2016, September 28). A case for accepting the WTO ruling. The Hindu. Rao, P. C. (1995). The Indian constitution and international law (pp. 3–7, 124–125). Springer. Seervai, H. M. (1991). Constitutional law of India: A critical commentary (4th ed., Vol. III, p. 2593). Sengupta, D. P. (2012). The relevance of the OECD and UN model conventions and their commentaries for the interpretation of Indian tax treaties. In M. Lang, P. Pistone, J. Schuch, & C. Staringer (Eds.), The impact of the OECD and UN model conventions on bilateral tax treaties (p. 553). Cambridge University Press. Singh, M. P. (1985). Freedom of trade and commerce in India (p. 85). Deep & Deep. Thomas, C. (2006). Constitutionalism, trade legislation and democracy. In R. W. Bauman & T. Kahana (Eds.), The least examined branch—The role of legislatures in the constitutional state (p. 76). Cambridge University Press. Thornhill, C. (2016). A sociology of transnational constitutions. Cambridge University Press. Wolfrum, R., Stoll, P.-T., & Seibert-Fohr, A. (2007). WTO—Technical barriers and SPS measures (p. 3). Leiden–Boston. Zucca, L. (2009). Constitutional dilemmas: Conflicts of fundamental legal rights in Europe and the USA (p. 41). OUP.

Part VI

Market Freedom of Establishment and Free Movement of Capital

Capital Flows into India—Role of Monetary Transfer Provisions in India’s International Investment Agreements Prabhash Ranjan

International Investment Agreements (IIAs) are treaties signed at the bilateral, regional or multilateral level by two or more countries to protect investments made by investors of both the countries. In this chapter, IIAs refer to standalone investment agreements such as bilateral investment treaties and also investment chapters in free trade agreements. IIAs protect investments by imposing conditions on the regulatory behaviour of the host state and thus, prevent undue interference with the rights of the foreign investor. These conditions include restricting the host state from expropriating investments, barring for public interest with adequate compensation; imposing restrictions on host states to discriminate against foreign investment, barring certain circumstances given in the IIA; allowing for repatriation of profits subject to conditions agreed to between the two countries; and most importantly allowing individual investors to bring cases against host states if the latter’s sovereign regulatory mea1 sures are not consistent with the IIA to be monetarily compensated. This is known as the investor-state dispute settlement system. In this chapter, the dispute settlement system along with the network of IIAs is referred as investment treaty arbitration (ITA). 1 For a general discussion on IIAs see Dolzer and Stevens (1995), Sornarajah (2004), McLachlan et al. (2007), Lowenfeld (2008, pp. 467–591), Dolzer and Schreuer (2008), Muchlinski et al. (2008), Newcombe and Paradell (2009), Muchlinski (2007), Subedi (2008), Salacuse (2010), Vandevelde (2010). India has terminated many of its IIAs though due to a grandfather clause these IIAs will continue to operate for next 10 to 15 years. For recent developments in India’s IIA programme including for a discussion on the 2016 Indian Model BIT see Ranjan, Prabhash (2019). India and Bilateral Investment Treaties: Refusal, Acceptance, Backlash (1st edition) New Delhi: Oxford University Press. 2 See Waibel (2009), Salacuse (2010), Kolo and Walde (2008, p. 205), Dolzer and Schreuer (2008), Gallagher (2010) G 24 Discussion Paper Series No. 58 (UNCTAD); Thrasher and Gallagher (2010), Anderson (2009), Turyn and Aznar (2010, pp. 51–78), Muchlinski (2009, pp. 35–61, Vandevelde (2010, pp. 316–33), Salacuse (2010, pp. 256–71).

P. Ranjan (B) South Asian University, Akbar Bhawan, Chankyapuri, New Delhi, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_15

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Monetary Transfer Provisions (MTPs) in IIAs regulate the transfer of funds related 2 to investment in and out of the host country. MTPs are an integral part of the investment treaty based protection offered to foreign investment by the host state. A typical MTP in IIA identifies the ‘transfer’ or ‘payment’ to which the provision applies and also provides the conditions governing such transfers such as whether the transfer is to be made in foreign currency and whether the transfer can be made promptly.3 In most IIAs, MTPs cover all ‘transfers’ or ‘payments’ related to investment.4 Further, depending on the treaty language, MTPs cover both inflows and outflows of funds.5 These ‘transfers’ include—additional capital to maintain and increase investment; net operating profits including dividends; repayment of any loan including interest; proceeds from sales of their shares, etc.6 MTPs are important for foreign investors because they provide the freedom to transfer all funds related to investment for a number of business related needs.7 For example, a foreign investor may need to bring in additional capital to support her existing investment or might need to repatriate capital back to the home country in order to service debts or to pay dividends or to repatriate proceeds of sale of investment, etc.8 Lack of freedom to transfer funds related to investment may result in investment not being made in the first place because foreign investors will be deprived of the benefits accruing from the investment (such as repatriating profits) and will also not have the freedom to work their investment (like bringing in additional capital to support the existing investment).9 Thus, a foreign investor will like to have a broad MTP in an IIA allowing prompt transfer of all funds related to investment in foreign currency with limited or no exceptions to this right. The freedom to transfer funds—in and out of the country will affect the host country’s capital account. Capital account is part of the balance of payments (BoP) account of a country reflecting the net change in asset ownership nationally. The BoP account also has a current account which gives the sum of trade balance, net factor income and net transfer payments.10 The extent of liberalisation of the capital account of a country depends on the capital controls (restrictions that affect the capital account of a country’s BoP) imposed. Lesser the controls on capital flows greater will be capital account liberalisation. When these controls are completely eliminated we have full Capital Account Convertibility (CAC). Imposing capital controls is widely recognised as an integral part of the monetary sovereignty of a country.11 Capital controls can be of different types like quantity 3 Vandevelde

(2010, p. 317).

4 Id. 5 Vandevelde

(2010, p. 319). Model Text for Indian Bilateral Investment Treaty, Article 7. 7 Dolzer and Schreuer (2008, p. 191). 8 Salacuse (2010). 9 Waibel (2009, p. 498), Kolo and Walde (2008, pp. 213–14). 10 Krugman and Obstfeld (2009). 11 Lastra (2006), Qureshi and Ziegler (2011, p. 147). 6 See

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based, price based or even administrative or regulatory in nature.12 Quantity based capital controls include—minimum stay requirement (for example a country may require that foreign capital invested should stay in the host country for a minimum period). Such a capital control is aimed at reducing the volatility in capital flows. Price based capital controls include—taxes on capital inflows, which might help in stabilising the exchange rate—a case in point is Brazil’s taxes on capital inflows imposed in 2009.13 Some capital controls like the unremunerated reserve requirement (URR) falls both under price and quantity capital control.14 One can also have regulatory capital controls such as prohibiting certain kind of foreign investments or not allowing investments in certain sectors or in certain assets. MTPs, per se, do not prohibit the imposition of capital controls. However, the extent to which a host country will be able to impose capital controls on capital account transactions will depend on how the MTP in the IIA has been formulated.15 MTP formulation that allows for prompt transfer of all funds without recognising any exception to this right to transfer, will pose problems in imposition of capital controls by the host state. In other words, if the provision on monetary transfer does not recognise exceptions to transfer of capital, then a capital control measure adopted by the host state can be challenged by the foreign investor in ITA as a violation of the MTP. 250 economists, from around the world, in their letter to the US Secretary of State, the treasury secretary and the US trade representative have drawn their attention to this problem by focusing on America’s trade and investment treaties that restrict the ability of America’s trade partners to impose capital controls.16 The letter said “the ‘capital transfers’ provisions of such agreements require governments to permit all transfers relating to a covered investment to be made freely and without delay into and out of its territory”.17 12 Gallagher

(2010) G 24 Discussion Paper Series No. 58 (UNCTAD); Rangrajan (2000, p. 4424). Bank Research (2009). 14 Gallagher (2010), G 24 Discussion Paper Series No. 58 (UNCTAD) 4. URR is a type of capital control requiring a certain percentage of short term capital inflow to be kept in deposit in local currency for a certain period of time and hence it has the characteristic of both price and quantity based control. 15 See Waibel (2009, pp. 498–99), Kolo and Walde (2008, p. 214), Gallagher (2011). 16 ‘Economists Urge US to Rethink Capital-Control Restrictions’ http://blogs.wsj.com/economics/ 2011/01/31/economists-urge-us-to-rethink-capital-control-restrictions/. Also see the open letter written by more than 100 economists on 28 February 2012 to the trade ministers of nine countries (USA, Australia, Brunei Darussalam, Malaysia, New Zealand, Peru, Singapore, Chile and Vietnam) to consider having provisions for imposition of capital controls in the Trans-Pacific Partnership Agreement http://www.ase.tufts.edu/gdae/policy_research/TPPAletter.html#statement. 17 Ibid. Also see the open letter written by more than 100 economists on 28 February 2012 to the trade ministers of nine countries (USA, Australia, Brunei Darussalam, Malaysia, New Zealand, Peru, Singapore, Chile and Vietnam) to consider having provisions for imposition of capital controls in the Trans-Pacific Partnership Agreement http://www.ase.tufts.edu/gdae/policy_research/ TPPAletter.html#statement. It is also important to note that there are many causes of massive and sudden inflow and outflow of capital. Activities of foreign investors, though important, constitute one of the many factors. Capital inflows and outflows also take place when citizens of the host country transfer money abroad or domestic companies raise money in the international market—also 13 Deutsche

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In this light, the chapter will study MTPs in 73 Indian IIAs to find out whether they can be interpreted in a manner that is supportive of India’s regulatory power to adopt capital controls to meet different policy objectives without breaching the IIA? In order to fully appreciate the relationship between MTPs and India’s regulatory power to impose capital controls, this chapter will start by focusing on the significance of capital controls and the merits and demerits of Capital Account Convertibility (CAC) in the global and Indian context (Sect. 1). Section 2 will study the anatomy of MTPs in Indian IIAs discussing their salient features and the differences that exist in their formulation. Section 3 will focus on two types of MTPs occurring in Indian IIAs—‘free-transfer’ type and ‘regulatory-transfer’ type and will analyse their implications on India’s regulatory power.

1 Global Debate on CAC Whether unrestricted and free mobility of capital is good for countries or whether countries should regulate capital flows are moot questions on which economic opinion is divided. The global financial crisis of 200818 has further intensified the debate on this issue.19 On the one hand, some economists like Stanley Fischer of the IMF have argued that free capital movement will facilitate an efficient global allocation of savings and channelise resources into their most productive uses20 —such as ensuring the flow of capital from developed countries (where the return to capital is less) to capital-scarce developing countries (where the return to capital is high), which in turn, will result in reducing the cost of capital in developing countries and result in more investment and growth.21 On the other hand, free or unrestricted capital movement, in a country, can increase economic volatility due to large and sudden capital inflows and outflows.22 Large infusions of capital can have adverse macroeconomic consequences like appreciation of the country’s currency and hence reducing export competitiveness and widening the current account deficit; it can also result in inflation by increasing the money supply, which, in turn can have other adverse macroeconomic consequences.23 Similarly, large and sudden outflow of capital can called external commercial borrowings or domestic companies invest abroad, etc. In other words, those capital controls that do not affect the activities of foreign investors will fall outside the purview of the IIA. 18 This crisis started as a sub-prime mortgage crisis in the USA and then snowballed into a global financial crisis affecting not just developed but also developing countries—for a detailed analysis of the crisis see—Islam and Nallari (2010), Jones et al. (2008). According to economic historians this is not the first time that a financial crisis has occurred since the 17th century; the world has witnessed 10 major financial crises—Kindelberger and Aliber (2005). 19 Arestis and Singh (2010), Frenkel and Rapetti (2009), Stiglitz (2008, p. 76). 20 Fisher (1998, p. 2). 21 Ibid. Also see Fischer (2003), Rogoff (1999), Summers (2000). 22 Ocompo and Palma (2008, p. 170). 23 Salacuse (2010, p. 256).

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have a run on the foreign exchange reserves of the country resulting in depreciation of the currency and adversely affecting the country’s ability to meet its international financial obligations (such as financing its imports).24 It is for these reasons that noted economists like Dani Rodrik,25 Jagdish Bhagwati26 and Joseph Stiglitz27 have questioned the benefits of capital account liberalisation. Rodrik has argued, on the basis of a sample of 100 countries (for the period 1973–1996) that there is no evidence to show that countries without capital controls have grown faster or invested more or have experienced lower inflation.28 Referring to the East Asian currency crisis, Bhagwati argues, how loosening of the capital account controls by these countries resulted in these countries getting excessively burdened by short term debt capital, which eventually lowered the growth rate of these countries drastically.29 Stiglitz has been a very strong critic of capital market liberalisation and has argued in several of his writings that capital market liberalisation has resulted in more economic insecurity and not economic growth.30 The world has witnessed many currency crises in the last two decades or so, like the East Asian crisis in 199731 ; the Mexican crisis in 199432 ; crisis in Latin America, over the last two decades, due to surges of capital outflows and inflows33 ; and the global financial crisis of 2008,34 with mass inflows and outflows of capital across borders,35 “which has changed the focus from liberalisation to the regulation of capital liberalisation”.36 Many countries have successfully adopted capital controls, as a policy tool, to regulate the inflow or outflow of capital as per their policy priorities. For example, Chile adopted URR to stem the short term volatile inflow of capital and was successful in altering the composition of the capital inflow to medium and long term capital inflows.37 In 2007, Colombia’s capital controls helped it to mitigate 24 See

Footnote 24 (1998, pp. 55–65). 26 Bhagwati (1998, pp. 7–12). 27 Stiglitz (1999), Stiglitz (2000), Stiglitz (2002), Stiglitz (2008, pp. 76–90). 28 Rodrik (1998). 62. In this regard also see—Prasad et al. (2003)—which shows that liberalisation of capital markets in developing countries is not connected with economic growth. 29 Bhagwati (1998). 30 Stiglitz (2008, pp. 76–77). In this regard also see—Henry (2007). 31 For more on the crisis see—Rangrajan (2000, p. 4421). Kawai et al. (2001). 32 The Mexican crisis occurred, inter alia, due to reversal of portfolio flows from a peak inflow of $ 20 billion in 1993 to net outflow of $ 15 billion in 1995—Rangrajan (2000, p. 4423). For a detailed analysis of the Mexican crisis see—Gil-Diaz (1997). Also see Lowenfeld (1988, 2008, pp. 688–94). 33 Ocompo and Palma (2008). 34 This crisis started as a sub-prime mortgage crisis in the USA and then snowballed into a global financial crisis affecting not just developed but also developing countries. For a detailed analysis of the crisis see—Islam and Nallari (2010), Jones et al. (2008). 35 Gallagher (2011). 36 Qureshi and Ziegler (2011, p. 217). Also see Hagan (2010). 37 Le Fort and Lehmann (2003). 25 Rodrik

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some of the adverse effect of the global financial crisis.38 It has also been stated that countries that adopted capital controls in years leading to the financial crisis of 2008 were among the least hard hit by the financial crisis.39 Further, an IMF study shows that certain situations may warrant imposition of capital controls and thus, such controls are an important tool in a country’s policy arsenal.40 The IMF Articles even allow its member countries to impose restrictions on their capital account transactions. Article VI.3 of these Articles provides that member countries may impose controls as are necessary to regulate international capital movement.41 However, the member countries while exercising control on international capital movement have to ensure that these controls are not exercised in a manner that will restrict payments on current account since IMF Articles prohibit such restrictions. Article VIII.2 of the IMF Articles provides that subject to certain provisions42 no member country shall impose restrictions on the payment of transfers for current international transactions.43 If a member country has to impose restrictions on current account restrictions, then it will have to take the permission of the IMF.44 An attempt was made in 1997 to amend the Fund articles so as to outlaw imposition of controls on capital account transactions.45 The purpose was to extend the jurisdiction of the IMF to capital account.46 However, this proposal was abandoned47 due to lack of political consensus.48 38 Coelho

and Gallagher (2010). et al. (2011). Recently, Brazilian President, Dilma Rousseff, rebuked industrialised countries for creating a “liquidity tsunami” of speculative capital, which is being tackled by Brazil by extending the tax on speculative inflows of capital in Brazil—See Gallagher (2012). 40 J Ostry, et al., ‘Capital Inflows—the Role of Controls’, (2010) IMF Staff Position Note SPN/10/04 For a discussion on this note see—Chandrashekar (2010), Subramaniam (2010). Also see ‘IMF Backs Capital Controls in Brazil, India’ The Deccan Herald (Washington 7 Jan 2011) http://www. deccanherald.com/content/127011/imf-backs-capital-controls-brazil.html. Other successful examples of capital controls on inflows are in Malaysia (in 1994); Colombia (in 1993) and Thailand—Magud and Reinhart (2006); IMF (2010). It has also been argued that the economic literature supports capital controls on inflows whereas the evidence of benefits on capital control on outflows is inconclusive—Magud and Reinhart (2006), Gallagher (2010) G 24 Discussion Paper Series No. 58 (UNCTAD). 41 Lowenfeld (2008, p. 608). 42 These provisions are—Articles of Agreement of International Monetary Fund, Article VIII 3(b) and Article XIV2. Also important to note that once a country notifies to the IMF its willingness to accept the obligations contained in Article VIII, there is no going back—Lowenfeld (2008, p. 607). 43 A majority of membership of IMF is now under Article VIII regime—see Qureshi and Ziegler (2011, p. 205). For a detailed analysis of the IMF Articles and capital and current account transactions see—Gold (1971), Edwards (1985), Qureshi and Ziegler (2011, pp. 202–25), Lowenfeld (2008, pp. 606–22). 44 Articles of Agreement of International Monetary Fund, Article VIII 2. 45 Fisher (1998, p. 9). 46 Ibid. 47 Qureshi and Ziegler (2011, p. 217) where it is argued that IMF encouraged capital liberalisation but there is no evidence to support the claim that IMF required capital liberalisation per se. 48 Waibel (2009, p. 501). In this regard also see Holder (1998). 39 Ostry

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1.1 Debate on CAC in India The debate on CAC and whether India should exercise capital controls started with the adoption of liberalised economic policies in early 1990s. India’s approach to opening of capital account has been very cautious and gradual especially because of the BoP crisis that India faced in 1990–91.49 India has used different forms of capital controls like regulatory controls, which are used, for example, to keep foreign investments out of certain sectors like multi-brand retail. It has been argued that this cautious approach and India’s capital controls played an important role in avoiding contagion of the East Asian crisis spreading to India.50 Economists in India have been debating merits and demerits of capital controls and CAC.51 In 1997, a committee was constituted by India’s central bank—Reserve Bank of India (RBI) (the Tarapore committee—hereinafter called Tarapore I) to look at the possibility of fuller CAC in India.52 This committee recommended movement towards CAC in a phased manner provided there was fiscal consolidation, a mandated inflation target and strengthening of the financial system.53 However, this report was followed by the East Asian currency crisis and as a result movement towards full CAC was put on the back burner. In 2006, another committee was constituted to study CAC, under the leadership of SS Tarapore (same person who headed the first committee also called Tarapore committee—hereinafter Tarapore II). This committee also recommended that movement towards fuller CAC will require a better management of the liquidity risk, strengthening of the banking system and also fiscal consolidation.54 Although, over the years, India has certainly opened its capital account, it still imposes different capital controls. Furthermore, since India does not follow a preentry approach in its IIAs any restriction such as outright prohibition on capital inflow like in multi-brand retail is compatible with India’s IIA obligations. The financial crisis of 2008 calls for a cautious approach towards capital accounts liberalisation.55 IMF’s India Sustainability Report of 2011 very categorically states that ‘the full removal of capital controls must, however, be mindful of the risks involved, including a possible increase in domestic interest rates (if Indian financial intermediaries decide to move assets abroad), as well as higher volatility of interest rates which 49 Rangrajan

(2000, p. 4425). (2001, p. 317). 51 Sen (2007, p. 292), Prasad (2009), Barua (2006), Mecklai and Chandrasekhar (2006). 52 Report of the Committee on Capital Account Convertibility (1997). 53 Ibid. 54 Tarapore Committee Report (2007). Apart from this there have been two more committees in India that have discussed the issues of CAC—Report of Committee on Financial Sector Reforms (2007) and Report of High Powered Committee on Making Mumbai as International Financial Centre (2007). Both these committees have argued in favour of CAC. According to these committees unrestricted capital flow will unleash strong competitive forces and bring other benefits—for more on this see—Patil (2010). 55 It has been pointed out that India’s controls on outflows as well as inflows, in wake of the global financial crisis of 2008, contributed to tide the slump—see Epstein (2012). 50 Joshi

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could be damaging for growth. Furthermore, as capital controls strengthened India’s resilience to potentially destabilizing outflows during the recent crisis, authorities must retain sufficient flexibility to put them in place if circumstances dictate doing so.’56 India’s sovereign right to impose controls on capital account for different policy priorities is consistent with India’s obligations under Article VI(3) of the IMF Articles.57 This sovereign right to impose restrictions on capital account transactions has been codified in the Indian law on foreign exchange called the Foreign Exchange Management Act (FEMA Act) enacted in 1999. According to the preamble of the FEMA Act, the purpose of this legislation is—‘an Act to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India’. Section 5 of FEMA Act talks of current account transactions. It states that ‘any person may sell or draw foreign exchange … if such sale or drawl is current account transaction’. Current account transaction is defined in Section 2(j) of the FEMA Act—as a transaction other than a capital account transaction. Apart from this general definition, Section 2(j) also gives an illustrative list of current account transactions: i. payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the ordinary course of business, ii. payments due as interest on loans and as net income from investments, iii. remittances for living expenses of parents, spouse and children residing abroad, and iv. expenses in connection with foreign travel, education and medical care of parents, spouse and children. Section 5 also allows for imposition of reasonable restrictions for current account transactions in public interest. Section 6 of the FEMA Act talks of capital account transactions. Capital account transaction is defined in Section 2(e) of the FEMA Act as ‘a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India…’ The Tarapore I committee defined it as ‘freedom of currency conversion in relation to capital transactions in terms of inflows and outflows’.58 When this freedom is absolute, it will be a case of full CAC. Section 6(1) allows for capital account transactions; however, this is subject to section 6(2), which gives the power to RBI to specify, in consultation with the central government—any class or classes of capital account transactions which are permissible59 and the limit up to which foreign exchange shall be admissible for such trans56 IMF

(2011). In this regard also see an interesting study on interventions made by the RBI to overcome the volatility caused by FII inflows in India—Behra et al. (2008), Kohli (2011). 57 India cannot impose restrictions on current account transactions after it became an Article VIII member country in 1994—IMF (2011). 58 India cannot impose restrictions on current account transactions after it became an Article VIII member country in 1994—IMF (2011). 59 For more on this see Gururaj et al. (2009).

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actions.60 Also, section 6(3) gives power to the RBI to prohibit, restrict or regulate a number of capital account transactions.61 Thus, in other words, the capital account transactions are not free and are subject to a number of regulatory controls. The central bank of India has the power to impose restrictions or adopt capital controls to regulate capital account transactions. However, a twist in India’s tale on CAC and capital controls is provided by the obligations that India has undertaken in its IIAs. The chapter now discusses these issues.

2 Anatomy of MTPs in Indian IIAs This chapter has studied 73 Indian IIAs including the Indian model IIA. All the 73 Indian IIAs studied contain MTPs. In other words, transfers of funds related to investment is an integral part of all Indian IIAs. Article 7 of the 2003 Indian model IIA provides: Repatriation of Investment and Returns (l) Each Contracting Party shall permit all funds of an investor of the other Contracting Party related to an investment in its territory to be freely transferred, without unreasonable delay and on a non-discriminatory basis. Such funds may include: (a) Capital and additional capital amounts used to maintain and increase investments; (b) Net operating profits including dividends and interest in proportion to their share-holdings; (c) Repayments of any loan including interest thereon, relating to the investment; (d) Payment of royalties and services fees relating to the investment; (e) Proceeds from sales of their shares; (f) Proceeds received by investors in case of sale or partial sale or liquidation; (g) The earnings of citizens/nationals of one Contracting Party who work in connection with investment in the territory of the other Contracting Party. (2) Nothing in paragraph (l) of this Article shall affect the transfer of any compensation under Article 6 of this Agreement. (3) Unless otherwise agreed to between the parties, currency transfer under paragraph (1) of this Article shall be permitted in the currency of the original investment or any other convertible currency. Such transfer shall be made at the prevailing market rate of exchange on the date of transfer.

60 Foreign 61 See

Exchange Management Act 1999 (Ind), Section 6(2)(b). Foreign Exchange Management Act 1999 (Ind) Section 6(3), (a) to (j) of the FEMA Act.

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Table 1 Anatomy of MTPs in 73 Indian IIAs

Type

Number of IIAs

‘Free-transfer’ type

58

‘Regulatory-transfer’ type

15

Source Author’s study of 73 Indian IIAs

The MTPs in 73 Indian IIAs follow the same structure. They all provide a general obligation that all funds related to investment can be freely transferred followed by a list of transactions that are allowed. Barring a few exceptions, in all IIAs, this list is inclusive. The MTPs in all these 73 Indian IIAs can be divided in two categories on the basis of exceptions to the right of the foreign investor to freely transfer funds. These two types are “free-transfer” and “regulatory-transfer”. The key difference between these two types is that the “free-transfer” MTPs do not contain any exception to the right of the foreign investor to transfer funds whereas “regulatory-transfer” MTPs recognise exceptions to free transfer of capital. 58 IIAs have “free transfer” MTPs whereas 15 IIAs have “regulatory-transfer” MTPs (Table 5.1). Before discussing these two types of MTPs (in Section 5.3), the chapter will discuss other key features that are common to both types of MTPs (Table 1).

2.1 Coverage of ‘Transfer of Funds’ Coverage of ‘transfer of funds’ relates to two things. First, whether the MTP covers only outflow or inflow of funds or both; and second, whether it includes all funds related to investment to be transferred or is it limited to only certain categories of funds related to investment. Inflows and Outflows The title of the MTP in many of these 73 Indian IIAs is ‘Repatriation of Investments and Returns’. This title connotes that the majority of MTPs in Indian IIAs include only outflow of funds and not inflows. However, the text of MTPs in these IIAs contain the following words ‘all funds of an investor of the other Contracting Party related to an investment in its territory to be freely transferred, without unreasonable delay and on a non-discriminatory basis’. Giving ordinary meaning to these words as per Article 31(1) of the VCLT, one can say that the provision covers both inflows and outflows of funds because of the use of the words ‘all funds’ and not just ‘funds’ related to investment. Further confirmation of this point comes from the following specific transaction provided in the provision on monetary transfer—‘capital and additional capital amounts used to maintain and increase investments’—which means that the investor is allowed to bring in additional capital to maintain his existing investment.62 In this regard, it is important to note that Article 94 of the India-Japan IIA, titled 62 In

this regard also see Vandevelde (2010, p. 319).

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Table 2 Coverage of transfer of funds related to investment in Indian IIAs Non Exhaustive coverage of transfer of funds

Exhaustive coverage of transfer of funds

70 IIAs

3 IIAs

Source Author’s study of 73 Indian IIAs

transfers, specifically states that all transfers can be freely made ‘into and out of its area’ thus expressly stating that the MTP covers both inflows and outflows. All transfer of funds The next issue in ‘coverage of transfers’ is whether MTPs in Indian IIAs cover all kinds of transfers (in and out of the country) or is it limited to specific types of transfers. Out of the 73 Indian IIAs studied, in 70 IIAs, after mentioning that all funds can be transferred, an illustrative list of the transfer of funds is provided. This list in these 70 IIAs is inclusive meaning thereby that the list is open ended or non exhaustive (see Table 5.2). In other words, since the list is illustrative, other transfer of funds, not mentioned in the list, are also included. The only limitation recognised is that the transfer of funds should be related to an investment. Any transfer of funds that is ‘not’ related to investment is outside the scope of the MTP.63 However, in 3 Indian IIAs [India-Denmark—Article 7 (1), India-Italy—Article 7 (1), India-Belgium—Article 7 (1)], the list of transfer of funds is exhaustive. In these 3 IIAs, the word ‘includes’ is not present and hence the argument that the list is exhaustive or closed. For example, Article 7(1) of India-Denmark IIA states that ‘Each Contracting Party shall with respect to investments in territory by investors of the other Contracting Party allow the free transfer of ’. This is then followed by a list of funds that can be transferred. Since the treaty does not mention words like ‘include’ or ‘may include’ arguably a Danish investor from India can transfer only those funds related to investment that are enumerated in the treaty and not transfer any other funds related to investment (Table 2).

2.2 Unreasonable Delay Out of the 73 Indian IIAs studied, 66 of them provide for a transfer of capital without delay (see Table 5.3). Only two Indian IIAs—India-Belgium—Article 7 (1) and IndiaArgentina—Article 7 (1) are silent on whether the funds can be transferred without delay or not. Out of the 66 IIAs, that allow transfer of funds without delay, 62 of them provide that foreign investors are allowed to transfer funds without unreasonable 63 For example, in Continental Casualty v Argentina, ICSID Case No. ARB/03/9 the tribunal held that a transfer that is not ‘related to investment’ was outside the scope of Article V of the USArgentina IIA. Article V of the US-Argentina IIA, like Article 7 of the India model IIA, is broad and covers all transfers related to investments—Continental Casualty v Argentina, Award, paras. 238–42.

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Table 3 Delay requirement in allowing transfer of funds in Indian IIAs Unreasonable delay requirement

Delay requirement

‘Delay requirement’ not mentioned

Unreasonable delay requirement in terms of time duration

62 IIAs

4 IIAs

2 IIAs

5 IIAs

Source Author’s survey of 73 Indian IIAs

delay—thus, further qualifying the delay requirement. In other words, these MTPs allow for a reasonable delay in transfer of capital. However, none of these IIAs, barring five of them, provide any indication as to how to find out whether a delay is unreasonable or reasonable. In five IIAs—[India-Denmark - Article 7 (1); IndiaGermany—Article 7 (1); India-Spain—Article 8 (1); India-Austria—Article 6 (1); and India-Saudi Arabia—Article 6], there is a reference to the time duration. In these five IIAs, if the delay is for more than the stipulated time allowed, then the delay will become unreasonable. The time period in these IIAs varies from one to three months from the date when the request for transfer is made (Table 3).

2.3 Currency of Transfer One of the important issues that will arise each time the foreign investor wishes to transfer capital is in which currency can the foreign investor make the transfer? More specifically, if the foreign investor wishes to repatriate capital back to her home country, then the question will be whether the host country allows her to convert capital into a foreign currency that is accepted at the international level or not. If, the host country does not let the investor undertake this conversion (for example by stopping her from buying foreign currency), then it will frustrate the very purpose of having a MTP in the IIA. On the other hand, in certain situations such as in the event of an external payment crisis or in situations of BoP difficulty, the freedom to choose any currency for transfer could have an adverse macroeconomic impact on India. For example, in case of an external financial difficulty, India will like to avoid a run on its foreign reserves held in US dollars. Thus, in such a situation, India might face difficulty if US dollar is chosen as the currency of transfer by the foreign investor. As evident from Table 4, Indian IIAs have different formulations for currency transfer. 37 IIAs follow the formulation that exists in the Indian model IIA, i.e., transfer in the original currency in which the investment was made or in any convertible currency. However, in this category, there is one IIA (India-Belarus—Article 7.2) which states that any other convertible currency has to be agreed to between the investor and the contracting party. A provision like this gives some flexibility to India in regard to the currency of payment by providing India the possibility of

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Table 4 Currency of transfer in Indian IIAs Currency transfer type

Number of IIAs having this particular formulation

Transfers in the original currency in which the investment was made or any other ‘convertible currency’ (same as model IIA)

38

Transfers in currency of original investment or ‘freely convertible currency’

7

Transfers in freely convertible currency

16

Transfers in convertible currency

9

No mention about currency transfer

3

Source Author’s survey of 73 Indian IIAs

negotiating with the investor from Belarus as to the specific convertible currency.64 However, barring such a provision, the foreign investor will be able to make transfer in currency of her choice—either the currency of investment or any other convertible currency. Some Indian IIAs provide for transfer in either freely convertible currency or a convertible currency but do not contain the option of making a transfer in the currency in which the investment was made. Few Indian IIAs give the meaning of “freely convertible currency”. For example, Article 1(b) of the India-Australia IIA state—“‘freely convertible currency’ means a convertible currency as classified by the International Monetary Fund or any currency that is widely traded in international foreign exchange markets”. Thus, this IIA provides for using the IMF definition for ‘freely convertible currency’. IMF Articles provide a definition of a “freely useable currency” in Article XXX(f). According to this Article a ‘freely useable currency means a member’s currency that the Fund determines (i) is, in fact, widely used to make payments for international transactions, and (ii) is widely traded in the principal exchange markets’. IMF’s Executive board has identified four currencies that meet this standard—US dollar, Japanese Yen, British pound and Euro.65 For those Indian IIAs that do not define ‘freely convertible currency’, one can have recourse to Article XXX(f) of the IMF Articles by relying on Article 31(3)(c) of the VCLT, for those countries who are also members of the IMF. However, there is an interesting point worth noting in this debate. Since Article XXX(f) of the IMF Articles gives the definition of “freely convertible currency” and not “convertible currency”, arguably, the phrase “convertible currency” cannot be limited to just the four currencies mentioned above. Since many Indian IIAs talk of any “convertible currency” and not of “freely convertible currency”, under these IIAs, India allowing for conversion in any other currency outside the four currencies mentioned above, will be consistent with India’s MTPs. Thus, for these Indian IIAs, even Australian dollar or Singapore dollar can be a convertible currency. 64 Salacuse

(2010, p. 264). (2000), 33.

65 UNCTAD

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There are three Indian IIAs that do not mention anything on currency of transfer. These three IIAs are—India-France (Article 7); India-Belgium (Article 7 (1)); and India-Saudi Arabia (Article 6). Thus, on these three issues—coverage of funds that can be transferred, currency in which it can be transferred, and how quickly the transfer can be made—there is a high degree of homogeneity amongst the MTPs in Indian IIAs. Almost all of the Indian IIAs allow for a wide range funds to be transferred in a convertible currency and without much delay. Furthermore, almost all Indian IIAs allow the transfers at the prevailing market rate of exchange. Therefore, a plain reading of these IIAs certainly restrict India’s regulatory power to impose capital controls on foreign investments or in other words, given this broad nature of the MTPs, India cannot impose capital controls without violating the MTPs in its IIAs. In-spite of containing all these broad investor friendly components, the host country’s regulatory power to impose restrictions on capital transfers can be preserved, if the MTPs contain certain exceptions such as allowing the host country to impose restrictions on capital transfers in the event of an external financial difficulty or for any monetary objective such as currency stabilisation, maintaining foreign reserves, etc. We now turn to the issue of exceptions in MTPs in Indian IIAs.

3 MTPs in Indian IIAs and Capital Controls Whether a MTP in an IIA recognises the regulatory power of India to impose capital controls depends on its formulation. A MTP in an IIA can have three types of exceptions to preserve host country’s regulatory power to adopt capital controls or other restrictions on capital transfers for different policy objectives. First, it could contain an exception that allows the host country to restrict transfers in cases of bankruptcy or insolvency, or in cases of criminal or penal offences or in cases of ensuring compliance with adjudicatory proceedings.66 All these exceptions are aimed at enabling host countries achieve different types of regulatory interests. These exceptions are not related at achieving monetary objectives. Thus, we can call these exceptions as “non-monetary” exceptions in MTPs. 66 For

example, Article 94 (3) of the India-Japan IIA provides exceptions to the right of foreign investors to transfer funds in the following terms—‘Notwithstanding paragraphs 1 and 2, a Party may delay or prevent such transfers through the equitable, non-discriminatory and good faith application of its laws relating to: (a) (b) (c) (d)

bankruptcy, insolvency or the protection of the rights of creditors; issuing, trading or dealing in securities or derivatives including futures and options; criminal or penal offenses; ensuring compliance with orders or judgments in judicial proceedings or administrative rulings; or (e) obligations of investors arising from social security, and public retirement or compulsory savings scheme’.

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Table 5 Exceptions to MTPs in Indian IIAs Nature of Exception to MTPs in Indian IIAs

Number of IIAs having such exception

No exception

58

Exception in the form of “subjecting the MTP to domestic law” Exception in the form of specific exceptions in the treaty

5 10

Source Authors’ survey of 73 Indian IIAs

Second, MTPs can also contain exceptions whose main role is to enable the host country to exercise regulatory power in achieving monetary objectives. Thus, a MTP can have an exception that allows host country to impose restrictions on capital transfers for BoP purposes and other macroeconomic objectives like maintaining a stable currency, healthy foreign exchange reserve. These objectives may either be mentioned separately in the IIA or the IIA may be subject to the IMF Articles. For example, Article 10.8 (4) of India-Malaysia IIA after recognising the right of the foreign investors to transfer funds provides the following—‘Nothing in this Chapter shall be regarded as altering the rights enjoyed and obligations undertaken by a Party as a party to the Articles of Agreement of the International Monetary Fund, as may be amended’. This type of exceptions can be called ‘monetary exceptions’. Third, MTPs can also contain exceptions by subjecting the entire MTP to the domestic laws of the host country. Such an exception will enable the host countries to exercise regulatory power for any policy objective and arguably will give a far greater regulatory power as compared to the first two exceptions. This is because an exception of this nature will allow the host country to impose restrictions on transfer of payments for any policy objective and not just those given in the IIA. For example, an Indian policy requires that investments made in developing townships cannot be repatriated for the first three years from completion of minimum capitalisation.67 Such a policy, even if not mentioned in the IIA, will yet be compatible if the MTPs are made subject to domestic laws. However, such an exception can also be misused by the host country, for example by changing the domestic law at will, and thus could tilt the balance in favour of the host country over the foreign investor rather than balancing investment protection with the host country’s regulatory power.68 As mentioned above, out of the 73 Indian IIAs studied, 58 of them do not contain any exception of the type discussed above (free-transfer) (see Table 5). In 5 IIAs MTPs are subject to domestic laws and in 10 IIAs MTPs recognise specific exceptions to the foreign investor’s rights to transfer funds (regulatory-transfer—Section 3.3). Another important point to note is that there is no one common trend or pattern that can be seen in the MTPs in Indian IIAs. For instance, there are examples where an IIA signed at the same time have different provisions like Article 7 (1) of the India-Italy 67 ‘Consolidated

FDI Policy’, Department of Industrial Policy and Promotion, Ministry of Commerce http://siadipp.nic.in/policy/fdi_circular/fdi_circular_1_2010.pdf. 68 Also see Dolzer and Schreuer (2008, p. 193).

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IIA providing that transfers have to be made “in accordance with domestic laws and regulations”,69 whereas the monetary transfer provisions in India-UK (Article 7) and India-Poland (Article 7.1) IIAs do not contain any such qualification. India signed an IIA with Singapore, in 2005, which contains provisions that allow for imposing restrictions on transfer of funds in certain exigencies. Further, it is also not the case that India has negotiated for exceptions in those IIAs where it is a net capital importing country and does not have exceptions with those IIA countries where it is an exporter. For example, there are no exceptions to free transfer of capital in IIAs with countries like UK (Article 7) and Germany (Article 7), who are capital exporters to India. On the other hand, it has exceptions in IIAs with countries like Iceland (Article 7.4) and Slovakia (Article 6.4), with which foreign investments (both ways) are limited. IIAs containing both, “free-transfer” MTPs and “regulatory-transfer” MTPs have been signed at the same time. Thus, in other words, there is no one trend or pattern that can be noted about the structure of MTPs in Indian IIAs. Let us understand the implications of both these types of IIAs on India’s regulatory power.

3.1 ‘Free-Transfer’ Type MTPs in 58 Indian IIAs neither subjects capital transfers to domestic laws and regulations; nor contains any “monetary” or “non-monetary” exceptions. Thus, the “freetransfer” MTPs give an absolute right to the foreign investor to transfer funds related to investment. While this is certainly advantageous for the foreign investors because it gives them maximum freedom to transfer funds related to investment; it will not serve India’s interests as a host nation. Adoption of capital controls by India on those transfer of funds related to investment that fall under these 58 IIAs can be challenged by foreign investors in ITA70 even if such capital controls have been duly adopted under the FEMA Act.71 Important to note that the “free-transfer” MTPs do not prohibit India from adopting capital controls. However, if such controls are adopted, the “free-transfer” MTPs are capable of interpretation where investor’s right to transfer funds will get precedence over India’s regulatory power to impose capital controls because these 58 “free-transfer” MTPs do not recognise any exception to the investor’s right to transfer funds. 69 See

India-Italy IIA, Article 7(1) of. a discussion on what sorts of IIA violations can take place by imposing restrictions on repatriation of funds related to investments see Kolo and Walde (2008, pp. 227–36). 71 The issue of compatibility between MTPs in IIAs (pre accession BITs) and other regulations (EU Treaty or the EC law) has also arisen in EU—see—Commission of EU v Republic of Austria, Case C—205/06 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do? uri=CELEX:62006J0205:EN:HTML (as on 2 October 2010); Commission of EU v Kingdom of Spain, Case C—249/06 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX: 62006J0249:EN:HTML (as on 2 October 2010). 70 For

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Arguably, India can impose restrictions on transfer of funds, even if MTPs allow for free transfer, by relying on other international treaties like the General Agreement on Trade in Services (GATS)72 and IMF.73 IMF Articles establish an international monetary order, whose effectiveness hinges on countries not departing from its foundational element. Thus, in the interest of the stability of this order, arguably, India can impose restrictions on transfer of funds in the ‘free transfer’ MTPs even if they do not explicitly recognise imposing such restrictions. In order to understand whether India can do so, let us look at how an arbitral tribunal interpreted a similar MTP in US-Argentina IIA.74 In Continental Casualty v Argentina, Argentina argued that notwithstanding the absence of any exceptions in the MTP in US-Argentina IIA, it could impose restrictions on capital transfer due to two facts—first, international treaties like GATT, GATS and IMF allow for such imposition; and second, under customary international law countries have the right to regulate monetary transfers as part of monetary sovereignty of states.75 Although the tribunal did not decide on this issue since it had already found that the concerned transfer didn’t fall in the purview of the MTP (Article V) because it was not a transfer related to investment; it did make an important point by saying that the MTP in the USArgentina IIA was lex specialis in respect of the IMF regime and also more liberal than the IMF regime.76 The reasoning of the tribunal was that IMF distinguishes between current and capital transactions whereas such a distinction is missing in the MTP in US-Argentina IIA.77 Although, the tribunal didn’t take this analysis further, a logical extension of this will be that in case of a dispute, the tribunal will rely on the MTP to find out whether any restriction on capital and current account transactions is permitted. In other words, if a MTP does not allow a restriction on capital transfer of funds related to investment, restrictions will be held as a breach of the MTP. An argument that India can impose restrictions on transfer of funds even when none exist in the IIA is also not compatible with the basic canons of treaty interpretation. Giving ordinary meaning to the terms used in the “free transfer” MTPs, in light of the context and object and purpose of the treaty shows that the countries didn’t intend to have any restriction on transfer of funds related to investment. Had India and its IIA partner country intended to such restrictions, they would have clearly provided such exceptions in the treaty. Further, the object and purpose of majority 72 Article XII of GATS allows countries to impose restriction on trade in services in the event of serious BOP problems or external financial difficulties. 73 Turyn and Aznar (2010, p. 72). 74 US-Argentina BIT, Article 5 (1) provides ‘Each Party shall permit all transfers related to an investment to be made freely and without delay into and out of its territory. Such transfers include: (a) returns; (b) compensation pursuant to Article IV; (c) payments arising out of an investment dispute; (d) payments made under a contract, including amortization of principal and accrued interest payments made pursuant to a loan agreement directly related to an investment; (e) proceeds from the sale or liquidation of all or any part of an investment; and (f) additional contributions to capital for the maintenance or development of an investment’. 75 Argentina’s rejoinder in the Continental Casualty v Argentina, para 297. 76 Continental Casualty v Argentina, Award, para 244. 77 Ibid, paras 243–44.

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of Indian IIAs also lends weight to such an interpretation. India agreed not to have restrictions on transfer of funds in majority of its IIAs because it wanted to give assurances to foreign investor that they have all freedom to invest and operate in India, including the right to transfer funds related to investment, with the hope that such an assurance will result in more investment inflows.78 It is doubtful whether the treaty interpreter can borrow the intent of the countries reflected in some other treaty into the primary treaty that has to be interpreted, especially when this very intent is missing from primary treaty. This is not to argue that the treaty interpreter cannot or should not look at other international treaties applicable between the parties—as this is a requirement under Article 31(3) (c) of the VCLT. Indeed, as it has been discussed above, IMF articles can be used to find out the meaning of terms like “freely convertible currency” not defined in a MTP. Even, the Continental tribunal relied on Article XXX of the IMF that defines current account transactions to find out whether the transfer in question was a fund related to investment.79 However, it is disputable whether the treaty interpreter can rely on Article 31(3) (c) to borrow the intent reflected in another treaty into the applicable law, i.e., the IIA. IMF Agreement is about regulating monetary affairs and IIAs are about investment protection. Thus, the context and object and purpose of the two treaties are different. In other words, in cases where the MTPs in IIAs do not mention about the IMF regime, the presumption is that countries wanted to keep the IMF regime outside the IIA.80 Furthermore, in the context of India, this argument will be even more difficult because there are 15 IIAs (discussed in the next section) that allow the host country (India) to impose restrictions on capital transfer. Thus, the argument will be that in the treaties where India wanted to have restrictions on transfer of funds, it provided for such exceptions. Therefore, the IIAs where such exceptions were not put, it clearly means that India didn’t intend to have such restrictions against the foreign investors of those countries. If not IMF articles, arguably India can rely on customary international law to impose restrictions even if such restrictions are not mentioned in the MTPs. For example, India can rely on customary international law defence of necessity given in Article 25 of the ILC Articles to escape liability from a violation of a treaty obligation (like the MTP). However, such a situation will be governed by the strict and limited nature of the necessity defence available in Article 25 of the ILC Articles.81 It has also been argued that general international law considers that in the event of serious balance of payments difficulties—countries may establish regulations on capital transfers82 or more generally that under general international law countries

78 Interview

with an official of the Ministry of External Affairs.?? August 2010, New Delhi (name withheld). 79 Continental tribunal, para 244. 80 Muchlinski (2009, p. 60). 81 For more on the strict nature of Article 25 of the ILC Articles see the chapter 6 on NPM. 82 Turyn and Aznar (2010, p. 74).

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have the power to impose capital controls as part of their monetary sovereignty.83 However, one is unsure whether an ITA tribunal will accept a defence based on general international law. For example, an ITA tribunal, like the Continental tribunal, may decide that the MTP is lex specialis and hence should be given effect to over the defence based on general international law. Stated differently, whether India’s defence based on general international law will be accepted or not depends on arbitral discretion because Indian IIAs are not specific on this point. A violation of the MTP and thus a breach of the IIA can be excused if it falls under any exception clause of the IIA such as a Non Precluded Measure (NPM) provision.84 Majority of NPM provisions in Indian IIAs are defined narrowly and allow deviations from IIA obligations only in cases of essential security interest or in situations of extreme emergency. It is a moot point whether essential security interest can be used to justify imposition of restrictions on transfer of funds related to investment. Even if one were to argue that essential security interest is broad enough to include measures imposed to restrict transfer of funds related to investment in the case of extreme BoP problem; it certainly cannot be used in those situations where an ‘essential’ ‘security interest’ is not at stake.85 For example, India cannot rely on NPM provisions for all kinds of monetary objectives that it might wish to pursue by imposing temporary capital controls like stopping the rupee from appreciating beyond a point in order to remain export competitive.

3.2 ‘Regulatory-Transfer’ Type There are 15 IIAs that contain some sort of qualification for the transfers of funds. Hence, MTPs in these 15 IIAs are described as ‘regulatory-transfer’ type. The ‘regulatory-transfer’ MTP formulation is similar to the ‘free-transfer’ MTP formulation in terms of having same broad provisions that cover all sorts of transfer of funds. However, they differ from the ‘free-transfer’ formulations in one important respect—they recognise some exception to the free transfer of funds. Though, this does not mean that the MTPs in these 15 IIAs have similar formulation. The exception in the MTPs in these ‘regulatory-transfer’ type IIAs are worded differently. The exceptions are of all the three types mentioned above—first, some IIAs state that funds will be repatriated in accordance with domestic laws and policies; second, some IIAs state that India, as a host country, can impose restrictions on the transfers of funds in situations of BoP difficulty (monetary objectives); and third, restrictions can be imposed for other non-monetary objectives. Some IIAs contain both ‘monetary’ and non-monetary’ objectives. 83 See

Lastra (2006), Qureshi and Ziegler (2011, p. 147). provisions in an IIA means those measures, which a country is not prohibited from taking to achieve certain regulatory objectives, even if it means not honouring substantive obligations of investment protection. On this issue also see Kolo and Walde (2008, pp. 217–26); the NPM chapter. 85 On this point also see Kolo and Walde (2008, p. 212). 84 NPM

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Out of these 15, 5 Indian IIAs subject transfer of funds related to investment, to domestic laws and policies (see Table 5.5). For example, Article 7(1) of the India-Russia IIA states—‘Each contracting party shall, in accordance with the laws and regulations of its state, ensure to investors of the other contracting party, the free transfer of payment in relation to investments…’. The other four Indian IIAs are—India-Israel (Article 7.1); India-Italy (Article 7.1); India-Malaysia (Article 10.8.3); and India-Argentina (Article 7.1). In fact, India-Malaysia, subjects the transfers to not just national laws and regulations, but also to national policies.86 In all these 5 IIAs, transfers of funds related to investments are subject to local laws. These IIAs do not contain provisions that allow for imposition of restrictions on transfers on account of any economic crisis or any other non-monetary objective. They also do not mention anything on compatibility with the obligations under the IMF Articles. Hence, if India imposes restrictions or regulates or prohibits capital account transactions as per FEMA legislation, such measures will not amount to violations of MTPs. Provisions such as these have two advantages—first, it ensures that domestic measures on transfers are compatible with India’s IIA obligations; and secondly and most importantly it allows exercise of regulatory power related to transfers of funds provided the exercise of this power is compatible with the domestic law on foreign exchange (FEMA). The other 10 Indian IIAs (India-Slovakia—Article 6.3; India-Iceland—Article 7.4; India-Mexico—Article 8.4; India-Singapore—Articles 6.6.2 and 6.7, India-Korea—Articles 10.10 and 10.11, India-Japan—Article 94.3, IndiaMalaysia—10.8.3, India-Bulgaria—Ad Article 7.4, India-Romania - Ad Article 7.4, and India-Czech Republic—Ad Article 2) contain express exceptions to MTPs. For example, Article 6(3) of the India-Slovakia IIA states ‘notwithstanding paragraphs 1 and 2 above, a contracting party may prevent or restrict transfer through non equitable, non-discriminatory and good faith application of its laws…’. The IndiaSlovakia IIA then provides that this restriction could be for adoption of safeguard measures in circumstances such as macroeconomic or serious BoP difficulties. These restrictions are to be imposed for a limited duration and may not go beyond what is necessary to remedy the BoP situation.87 This IIA also allows the host country to impose restrictions on capital transfer for non-monetary policy objectives like protection of rights of creditors, criminal or penal offences and the recovery of proceeds of crime. However, this IIA does not mention anything regarding the IMF obligations. The MTP in India-Iceland IIA is different from India-Slovakia in the sense that it only allows imposition of restrictions on transfers in case of serious BoP difficulty or the threat thereof.88 It does not recognise situations of macroeconomic difficulty (there could be situations of macroeconomic difficulty different from BoP difficulty like appreciating currency). It also does not recognise other non-monetary objectives

86 India-Malaysia

BIT, Article 6(1). BIT, Article 6.4. 88 India-Iceland BIT, Article 7(4). 87 India-Slovakia

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like the ones given in India-Slovakia IIA. Like the later this IIA also does not mention anything about the IMF Articles. On the other hand, the MTPs in the other three IIAs—India-Mexico, IndiaSingapore and India-Korea, contain both the monetary and non-monetary objectives and also talk of consistency of the measures adopted with the IMF articles. For example, the MTP in India-Mexico IIA allows for preventing a transfer in cases of bankruptcy, insolvency, or the protection of the rights of creditors and similar other situations provided this prevention is applied through equitable, non-discriminatory and good faith application of laws of the country adopting these measures.89 Apart from this, India-Mexico IIA also allows the host country to adopt restrictions on transfers in cases of serious balance of payments crisis or an external difficulty provided the restriction imposed is consistent with the Articles of the IMF; avoid unnecessary damage to commercial interest of the investor; are no more than necessary to deal with the problem; are temporary and are phased out progressively; are applied on an equitable and non-discriminatory basis; and are promptly notified to the other country.90 Similar sort of provisions exist in India-Korea and India-Singapore IIA. Here it is important to mention that India’s IIAs with three countries—Bulgaria, Romania, and the Czech Republic have been amended in 2007, 2009 and 2010 respectively. These amendments by all the three countries have been carried out not on the behest of India but on the behest of these three countries in order to comply with their obligations as member states of the EU.91 One of the key amendments is of the provision on monetary transfer. The MTP in none of these three IIAs recognised any exception to the right of foreign investor to transfer funds. However, after the amendment, all these three IIAs recognise that restrictions can be made on transfer of funds. For example, Article II of the India-Bulgaria protocol adds the following paragraph to Article 7 of their IIA that provides the provision on monetary transfer: “(4) Nothing in paragraph (1) of this Article shall prevent either Contracting Party from applying or enforcing, in good faith and in an equitable and non-discriminatory manner, their laws and regulations aiming for: (a) issuing, trading or dealing in securities, futures, options, or derivatives; (b) adoption of safeguard measures, for a reasonable period of time, which may be taken in exceptional circumstances such as serious macroeconomic difficulties or serious difficulties for the balance of payments for the host Contracting Party or for any customs, economic and monetary union, common market, free trade area or regional economic organization, to which it is or may become a party; (c) implementation of any obligation which is binding on that Contracting Party by virtue of its membership to any customs union, economic and monetary union, common market, free trade area or regional economic organization; (d) enforcing decisions taken in criminal and adjudicatory proceedings.”

89 See

India-Mexico BIT, Article 8(3). India-Mexico BIT, Article 8(4). 91 Protocols amending the IIAs signed between India and the three countries. 90 See

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In other words, the protocol amending the MTP in India-Bulgaria IIA clearly recognises exceptions of both monetary (adoption of safeguard measures at the time of macroeconomic or BoP difficulty) and non-monetary objectives (such as enforcing decisions in criminal and adjudicatory proceedings). Similar amendments have been introduced in the IIAs with Romania and the Czech Republic. Notwithstanding these differences amongst the “regulatory-transfer” MTPs, these few IIAs strengthen India’s regulatory power to adopt measures linked to restrictions on transfers related to investments in cases of an external financial difficulty or for other policy objectives. MTPs, in some of these IIAs harmonise the IIA obligations with the obligations imposed by the IMF Articles and makes Indian domestic law on transfers compatible with IIA obligations.

4 Conclusion MTP is an important provision that allows foreign investors the freedom to transfer funds, which is integral for them to work their investment in the host country. From the discussions above, one can sum up that MTPs in majority of Indian IIAs provide a broad and unqualified right to foreign investors to transfer funds without recognising any restrictions on this right. Only a handful of Indian IIAs contain provisions on monetary transfer that recognise India’s right to restrict transfer of funds in certain monetary and non-monetary related situations. As a result, adoption of capital controls by India can be challenged as a violation of the provision on monetary transfer by foreign investors in 58 out of 73 Indian IIAs.

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Legal Risks in Foreign Direct Investment in India Anil Kumar Rai

1 Introduction: India’s Tryst with State Capitalism Humans have never developed in isolation. Innovation, adaptation and imitation have played a role in the evolutionary dominance of our species. These actions on our part have been driven by the competitive spirit present in majority of us, howsoever miniscule it may be in individual cases. Amongst other drivers of human behavior, the pursuit of comparative prosperity, reduction of uncertainty and competitive advantage has driven change. This pursuit is driven not just by the desire of the alpha members of the society to dominate, but also the survival instincts of the non-alpha members. Fear of possible annihilation, loss of freedom or being driven out of or deprived of known means of sustenance by alpha members of society or the alpha tribes has been one of the greatest motivators for persuading the rest to overcome the inertia and resistance to change. For much of the human history, war has been the main medium by which this advantage was sought. So many advances in social organization, means of production and science were driven by the need of either to seek advantage in the arena of battle or to ensure that there is sufficient surplus for the society to be able to sustain the war efforts. The onset of capitalism slowly changed the arena in which the battle for dominance and survival was fought. It unleashed the forces of creative destruction. It was no longer a tale of seeking goods in short supply, but managing to sell ones produce when there is a surplus going around and creating demand for existing and new products. For roughly forty years after independence, India’s economic policy and management was built on premises that abhorred the fundamental tenets of capitalism, though capitalist class was tolerated and an economic model followed which was variously described as state dominated capitalism, state capitalism or semi-capitalist. The model was first sought to be justified on ground of lack of adequate private risk A. K. Rai (B) National Law University Delhi, Sector 14, Dwarka 110078, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5_16

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capital, but the Fabian socialist bent of policy makers ensured that there was no risk to risk capital and demand was controlled. Two prime engines for development in the capitalist system, forces of creative destruction and creation of demand, were defanged. In politics, legitimacy is more often than not sought by the successors in the name of continuing the legacy. Though empirical evidence had raised enough doubts about the practical and theoretical soundness of the economic model being pursued in India, entrenched interests, reluctance to acknowledge mistakes as it would have a bearing on the political legitimacy, dogma of the by now dominant intellectual tradition and its impaired vision, bureaucratic inertia coupled with its suspicion and proclivity to protect its turf meant that system was sought to be changed from mid-seventies onwards only at the edges, with the stated aim of removing glitches in the working of the system. The situation was not ideal. But having sought votes in the name of perpetuating or making the system more rigid, the political class thought it did not have the political capital to bring about the paradigmatic shift, with the added responsibility of having to justify to the masses who they believed had perhaps come to regard it as a moral issue. The motto was don’t fix it until its broke. The turning point came in 1991. Many factors coalesced in that one year. Political instability was only one. The collapse of Union of Soviet Socialist Republics not only corroborated the doubt which many had about the efficacy of the system, it at the same time delegitimized in the eyes of many the structures built in the management of the Indian economic system premised on the idea that this would shorten the journey time to the communist ideal. The demise of USSR not only weakened the support system of those who pushed the ideals it stood for, but also bought India face to face with a fact that it no longer had the friend it thought it could rely on in times of need. At that time, not only was the country negotiating a loan from the IMF, the economic crisis was perceived as the most serious that country faced in a generation, with the knowledge that there was no bulwark. Moreover, the new reservation policy meant that many educated young were looking for opening up of avenues of non-public sector employment. The consensus amongst the middle class on the need for the public sector to dominate the economic landscape ended. To an extent it was reflected in the rise of the Right.

2 Foreign Capital: Boon or Bane The onset of capitalism was marked by globalization (along with its adjunct colonialism). Cross-border interaction via trade, industry and investment was at its peak at the turn of the twentieth century, but its growth tapered after the World War I. It again picked up after the demise of the USSR, which has also coincided with the formation of World Trade Organization. The national markets are now open as they never were. The result is that competitive advantages are sought and threats to business continuity and survival are perceived not only within the nation’s borders but also from across the borders. Not only is global capital seeking more opportunities across the border

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in its pursuit of bigger markets, but countries also were increasingly setting aside their misgivings about the global capital and were actively courting it. Change in the economic thinking fashion post the demise of the USSR only accelerated a trend which was already gathering pace. Though inhibitions about the courting foreign capital were to wear down one at a time, but the trend was visible in the investment road shows many countries, which were hitherto resistant to foreign capital, held. India was not immune from this new trend. Though, the so called Bombay club (comprising of Indian industrialists) initially resisted the change and the laying of what they termed the red carpet for the foreign capital on the plea that the economy should first be opened for the local capital and it be allowed to grow in scale and competence so as to be able to effectively compete with foreign capital, the gradual pace of the opening, sector by sector, wore down the resistance of some, co-opted some and left a few of the club isolated with their objections not having much relevance in the sectors of the economy they operated in. The change in the economic thinking, driven by the North Block, had its own reasons. The crisis of 1991 had taught the policy makers that the funding of the national current account deficit by sovereign debt or one guaranteed by the sovereign was not a very intelligent solution as creditors, even if they are non-resident Indians, not only have a shorter horizon and are more concerned about the safety of their money, but also if it was non-institutional in nature, as foreign currency deposits of non-residents were, then it would be prone to panic withdrawals or non-renewal as it happened in 1991. It was thought that it would be appropriate that not only the current account deficit be funded not by sovereign debt denominated in a foreign currency, but to an increasing extent it should be funded by those who have their skin in the game, i.e. are not mere lenders but have a stake in the country. They would not be ready to jump the ship on the slightest hint of trouble or market rumour. Even if they did bolt towards the door, they would make a loss, unlike debt where a fixed amount is required to be paid irrespective of any external circumstances. If there were any doubts on this score, the East Asian currency crisis of 1997 put an end to them. Equity capital is usually a lot costlier than debt and credit to sovereign generally is on easier terms than to a private entity. But default by the sovereign puts everyone at risk. Private debt though an option, was also risky if the entity was a systematically important one, as banks, and the debt was denominated in foreign currency as then it would be susceptible to fluctuations in the value of currency, i.e. currency risk. Whatever the entity which took the foreign currency loan, banks would always be exposed as they would in any case be sought for hedging against the currency risk. Equity investor takes the risk of investment turning sour in lieu of possibility of higher return. But this reduces the strain on the system of having to meet the promised return of capital and returns on it so as to maintain the sovereign credibility. It increases the room for manoeuvre as compared to debt financing as in most cases of debt finance, non-renewal of debt will by itself trigger a default.

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3 Different Colors of Foreign Capital and Foreign Direct Investment Equity investment can be of two types, foreign portfolio investment (FPI) and foreign direct investment (FDI). The difference is in terms of the liquidity desired with the investment and the role which the investor has in the management of the investee enterprise. A foreign portfolio investor would invest in securities quoted on the stock market of the investment destination. It seeks liquidity and hence it would perforce limit its exposure to a company and so that it is not caught up in potential violation of the insider trading restrictions, and would avoid a role in the management. The restraints may or may not be there in the regulations of the host country, but are usually observed by the investor as a part of best practices. The investor is usually a fund (institutional investor) or a financial institution with a mandate to manage the investment portfolio of its clients. Some investments of the Sovereign Wealth Funds of capital surplus countries (e.g. Singapore, Norway, UAE etc.) may also come within this category. The emphasis on liquidity means that this type of investor does tend to be footloose, however the fact sudden rush to the exit by all affects the price of equity puts upon it a disincentive in making a sudden exit without a potential buyer of the securities. Foreign direct investment in contrast to a portfolio investment is intended to be long term, though the securities of the investee company may be listed. Since the investment is for the long haul, the investor, if not in control of the management, would definitely want and get a certain degree of say in it which is more than exercising of the voting rights at the shareholders meeting, e.g., board seat, requirement of affirmative votes on certain matters recognized in the articles of association of the company, exit coordination rights vis a vis the promoter or other investors etc. The investment may be in different type of entities and may take different forms. The investor may invest in its wholly owned subsidiary or a mere subsidiary or settle for a minority stake with certain protections as enumerated above, the investment may be by fresh issuance of shares or via buying out existing shareholders. The investors through this route have been diverse. In addition to the multinational corporations (MNCs), the investment has come from individuals, including the non-resident Indians, and a variety of funds which seek a potential upside by their guidance of the investee company e.g., venture capital funds, private equity funds and even sovereign wealth funds. For the policy makers FDI brings certain intangible benefits as opposed to other investment avenues which merely bring in capital. The investee company is able to not only share the intellectual property rights of the investor through license agreements or assignment etc. but also is a beneficiary of the investor’s goodwill. Stake in the management means that the investor many a times seeks to replicate the new management techniques which have been successful in other jurisdictions. MNCs are responsible for a major chunk of international trade. Their investment brings to the table for the investee entity the business networks of the investor, which is not just limited to the potential customers and suppliers. Having come in knowing

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that it would be in it for the long haul, the investor has the ability and willingness to develop the market for its products and is willing to wait for it. FDI creates and increases for investors a stake in the success of the recipient country as its customers need to have surplus for consuming their products and services. They in turn may act as potential lobbyists in their own country for their investment destination (though this may act as a double edged sword in certain circumstances).

4 Regulatory Framework for Foreign Direct Investment Foreign exchange transactions in India, or having implications on foreign exchange, are required to be conducted within the framework provided by the Foreign Exchange Management Act, 1999 and the rules and regulations framed under it. While transactions which are current account in nature would have to be as per the Act and the rules framed by the Central Government in consultation with the Reserve Bank of India (RBI), capital account transactions have to be as per regulations framed by the RBI in consultation with the Central Government.1 Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India) Regulations 2000 govern investment by non-residents in Indian securities, in any form whatsoever. Foreign direct investment in the capital of an Indian entity will be governed by Schedule I of the regulations. In addition there would be sector specific provisions contained in different statutes, most of which do find mention in Schedule I the Regulation. Though the regulations are framed by the RBI, the role of the Central Government is more than a mere sounding board. The Central Government regularly comes up with Press Notes issued by the DIPP, making changes to the FDI framework which usually are a precursor to the amendment of the Regulations by the RBI, and it also has developed a practice for some time to come up with the Consolidated FDI Policy of the Government of India, which ought to be consulted in the event of any ambiguity.

5 Investment Decision Making milieu and the Role of Risk in it It would be worthwhile to enquire as to what is it about an entrepreneur that distinguishes him from another man. An entrepreneur, compared to another person of the same background, tends to be far more optimistic. Most of the successful ones could be classified as incorrigible optimists.2 Most investment options would carry with them risks which would stare in the face of any reasonably intelligent person. If the risks were not there, then as any standard economic text would suggest, there would be rush to explore the investment option reducing the rate of return to investors to 1 Section 2 Daniel

5 and Section 6 of FEMA 1999. Kahneman. Thinking Fast and Thinking Slow, chapter 24.

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no more than what would be there in the most risk free investment avenue—government securities. The entrepreneur either believes that the risk is overrated or his confidence about his own abilities and inherent advantages makes him sanguine about the risks. This is so whether the decision relates to starting a venture, or expanding it or diversifying. While one class of investor is the entrepreneur as traditionally understood, who usually risks some of his own money along with some from those who trust his abilities and may want to share the possible upside with him, and some from lenders, another class which makes investment decisions is not an entrepreneur but a professional who has reached a position of authority in an organization, with the responsibility of making investment decisions. Usually such an individual has reached such a position of authority based on his performance, which many a times has to do with his optimistic disposition in addition to his abilities. He is paid to take risks, but unlike an entrepreneur, the attendant circumstances are different. Since he is not playing with his own money, but of others, he is subject to the hypothetical reasonable man test—how a reasonable man would deal with his own money. Fortunately, or unfortunately, depending upon one’s perspective, the decision making power is sought to be circumscribed by not only the objects of the investor entity, but also having to seek the approval of a committee (supervisory agency) formed for the purpose. It is not only a way of dissipating the responsibility amongst the amorphous group, but also curbs instinctive decision making. The burden of having to justify one’s own decisions before peers by itself makes one more rational and forces one to take into account all aspects of an investment. The committee limits most of the bias found in decision making, but sometimes, under the influence of a dominant personality a bias may be accentuated or ignored. The professional manager may or may not be such a dominant personality, but the necessity of having to justify the investment decision means that he has to take into account the different risks that the investment entails, the countervailing factors and mitigating circumstances which are present and which may make the investment worthwhile, the risk mitigation techniques which are available and their costs and the potential rate of return commensurate with the risk. This is more so if the investment is in another jurisdiction or in an unrelated area of business. The practice of supervision of investment decisions is followed more so in entities set up primarily as investment vehicles (private equity and venture capital funds) and not for routine conduct of business. The risks in relation to the investment may be many, and many of them though have the potential to cause insolvency, they are supposed to be what the enterprise is created to handle. They are pure business risks and a businessman can justify his desire for higher payoffs only by his willingness to handle them. It is no one’s case that that risk can or should be eliminated from commercial undertakings. Risk underpins any undertaking which has been started with a view to generate profits, otherwise the opportunity would already have been exploited or the space would be so crowded as to eliminate any prospect of making reasonable profit. Technology risk, risk of overcapacity, risk of change in consumer preferences etc. are the stuff which businessmen are supposed to anticipate, or be prepared for, or to have taken

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into account. Structures are usually in place to deal with them and the responses have usually been thought out. In contrast to these usual operational risks, there are some risks which are usually not anticipated. Their occurrence is rare so they are not visible in the horizon to be taken into account, though some mitigation technique may be applied for them. So, one does not anticipate a natural calamity to affect the physical infrastructure, though one may take an insurance to mitigate the risk or plan the structure to withstand it to a reasonable degree of severity. The rarity of its occurrence is the reason one is able to insure. Other risk of the same kind, though not necessarily with the ready availability of mitigation means, are political risk and legal risk. The chance of these risks actualizing is rare, the probability is low, but their impact is very high. One has to remember that though the investment may or may not result in visible physical infrastructure, most of the foreign investment is in corporate vehicles and through the medium of buying shares. Foreign direct investment in sole proprietary concerns or partnership firms is restricted and opening of branch offices do require prior permission of the RBI. Hence, we observe that the medium of investment (share) is a financial product which along with the vehicle of investment (the investee company) is a creature of law. Because of this the investment tends to be very fragile because successful legal challenge denies its existence. Because of its fragile nature, whenever legal risk is visible on the horizon, it will soak in a disproportionate amount of management time and effort. Successful defence may not restore the status quo ante. Other than the legal fee for defence and sapping the management energy, leaving it vulnerable to market place challengers, the episode may, due to fourth estate vigilantism, destroy/damage the reputation of the investor, and hurt the morale and initiative of the senior management. The sympathetic and ambitious professional, who pushed for the investment in a new jurisdiction, may lose the support of the group supervisory body, thus disabling him from providing additional support to the investee company, financial or otherwise. While many a times the legal risk may be manageable, affecting the enterprise but not mortally wounding it, allowing it to recover and resume business, if not as usual, sometimes it is not so. There are times when it has a grave effect on the enterprise, dealing it a blow from which it would be difficult for it to recover. Such cases are when the business model or business practices of the enterprise are challenged or either leads to large or uncertain liabilities or the liabilities crystallize rapidly, not giving it an opportunity to take remedial measures.

6 Legal Risk As Goode cogently articulated the reasonable expectations which men of commerce have of law, pointing out that they do not expect that positive law shall shackle reasonable business practices which have developed taking into account law as understood. They reckon that men of law and drafters will take into account as to how they perceive the legal nature of the contract and its incidents, giving them a role in estab-

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lishing ‘law by practice’. This is how English law in various branches of commerce evolved.3 Considerations of public policy are not excluded from the purview. Commercial law depends upon public authorities for enforcement and necessarily has to be subservient to public policy. But it needs to be compelling and apparent to a reasonable man acting prudently. No one, more so a businessman who has laid out capital and altered his position irrevocably, welcomes legal and regulatory surprises. The courts have recognized this expectation and it has also been accorded statutory recognition in a way. Therefore, per the principles of interpretation, a statute is only prospective in its application and not retrospective unless it is explicit or the legislative intention is evident. This principle in a limited way is also reflected in section 6 of the General Clauses Act as per which vested rights are not disturbed by the repeal of a Central statute. Similarly, interpreting the power to delegate in delegated legislation, the courts do not readily infer that the delegate has the power to enact a legislation with retrospective effect unless the parent legislation expressly gives it the power. The question arises what do we understand by the term LEGAL RISK. The terminology has gained currency in the financial community of late. Depending upon the context the meaning would vary. Attempts to define it have followed two different strands. While some have sought to define it in terms of cause, others have sought to define it in terms of effect. The difficulty that one faces in what to cover or ignore in defining the term has compelled some to opine that there is no necessity of defining the term as one can recognize an elephant when one sees it. The difference in approach is partly the result of which sub-sector of the economy one is dealing with. It would be inappropriate that illegal action, deliberate or otherwise by the company or its servants be considered as legal risk as the consequences are, usually in such situations, anticipated and factored in and it is the consequence of an one’s own acts and not of third parties. After perusing the different definitions by various authorities, including International Bar Association, Financial Services Authority and others, and factoring in that most aspects of the definitions, enumerative or explanative, relate to legal risk in lending activities,4 common sense dictates that legal risk for the purposes of this paper should at least comprise the following. (a) Possibility of change in law, (b) The applicable law does not provide for predictable solution either because the issue is not addressed by law or it is subject to differing interpretations, without an authoritative precedent to guide, (c) Legal provisions complicate or burden a transaction making it complex and prone to mistakes, including possible non-compliance with procedural requirements, (d) Unexpected interpretation of a statutory provision by courts or regulatory bodies, especially if it is contrary to prior precedents or established practices, (e) Elements of a transaction which are vulnerable to subjective judgements, e.g. valuation of shares, determination of what constitutes control of an entity by 3 Roger 4 Id.

McCormick, Legal Risks in Financial Markets [2nd edition, OUP], p. 29. Chapter 17.

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another, etc. and therefore could be opened up by the authorities and therefore leaving the company open to initiation of penal action.

7 Sources of Legal Risk It is no one’s case that the Law be static. The social, economic and political relations and roles in a polity keep on evolving and Law has to keep pace with it. The dynamism in the polity will be and ought to be reflected in its laws. The shackling of courts is neither feasible in our constitutional scheme nor desirable if it were. But there is a threshold which needs to be kept in mind by the courts and the legislators which affects individual initiative and risk appetite. What is important is not change, which anyway is inevitable, but whether it was something which could be factored in by the entrepreneur and whether official rule making/deciding bodies took into account the circumstances of the entrepreneur, which he placed himself is based on his legitimate expectation of ‘legal’ continuity. While one can always say that legal risk in form of new/amended legislation and judicial overruling is something which ought to be always on the horizon of calculations of the entrepreneur or corporate decision maker, many a times the legal risk arises due to the very nature of Law, legal system and human behavioral tendencies. Law, especially statutory law, is not and cannot be defined wholly in terms of stark black and white. There are always grey areas which one comes across and needs to resolve. The grey areas would depend on many factors, identifying them and utilizing them is the stuff that legal practice is based on. A statutory provision is never read in isolation. Its meaning is a result of reconciliation with not just the provisions of the same statute but also provisions of other statutes. The extent of harmonization and reconciliation and its final result is a question of judgement and no amount of legal training and competence can help one predict with certainty the contours of relationship between different provisions which would withstand judicial scrutiny. A statute which is on the statute books for some length of time, without many amendments, has usually been provided ample flesh by the judiciary. Such statutes, like the Contract Act, either limit themselves to laying down rights and duties of parties, or like Evidence Act or Civil Procedure Code lay down procedures for common application. Legislations which deal with regulation, especially sectoral, are usually not only of recent vintage but are also constantly evolving. They are not the product of settled legal principles or custom, but experimentation. Coupled with lack of judicial precedents it becomes difficult to state with certainty which provision overrides another and the extent to which it does as well as the extent to which one provisions meaning is even otherwise affected by the other. Similar problems crop up when a statute is repealed and its provisions are re-enacted in another statute without much debate (something quite common nowadays). The original statutory provision might have had a settled meaning, but that was in one context. When the context changes, it is a moot question whether the legislator intended the settled meaning or reading of the provisions in its new context.

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This is more so if the language of some of the provisions are tweaked, even so at the edges. Legal community abhors any change in its settled ways, but interpretation of re-enacted and codified provisions does quite often take one by surprise. Even if we want to read a provision in isolation, there would always be differences in one’s perception of what is the core meaning of a provision and what is the ‘penumbra of uncertainty’. Usually in such circumstances one turns to judicial precedents. And it is always a matter of judgement as to whether and to what extent judicial precedent in another statute as to the meaning of a term will be applicable. We have to remember that even a judicial precedent on the issue may not be of help. The art of distinguishing, the bread and butter of legal practice, and the reality that no two cases can be same on facts makes it difficult to anticipate the result when a challenge is mounted in a law court. One needs to remember that it is not just the interpretation of the statute in question which poses a risk due to uncertainty. These issues get exacerbated in recent times as nowadays most important legislations are rushed through in the legislature without much debate. Demand for debate and scrutiny is perceived as opposition and obstructionary tactics and the statute is steam rolled through the legislature with all its defects, with the perception that the reading of the draftsman could be sole intended meaning. This puts a great deal of responsibility on the draftsman, but reading of most recent statutes suggests that rarely have they risen to the challenge, putting a lot more responsibility upon the courts to reconcile the inherent contradictions. As if that were not enough, many a times it is the game changing interpretation and declaration of law in a completely unrelated statute which poses a risk as it may upturn what everyone considered settled. Where there is a lack of judicial precedent, the entrepreneur would many a times enquire about the market precedents. A continuous widespread practice is a useful guide, acknowledged by the courts too in many a case. Widespread unchallenged practice does benumb the entrepreneur but is not necessarily sanctified by the courts in the event of their challenge. Some of the sources of legal risk could be said to be external to the operation of the legal system, though driven by the players. One of the perennial conundrums of the interpretation of law, as to what it permits and what it forbids, has been the debate between the form of the law versus the spirit of the law. First of all there is the difficulty of determination of legislative purpose and the ambit of its ambition, then after there is a clarity on the same, one needs to determine the legislative intention in individual provisions. While it is quite easy to enumerate the two broad principles of interpretation, strict and purposive, we would have to acknowledge that trying to predict which principle would be applied in a particular case is like playing dice. On the other end the person affected by the statutory provision, unless he is paranoid, tends to read it in a way which is favourable to him. It is not just the spirit of optimism which guides him. It is innate to our perception of law, that is unless the act could be regarded as mala in se, law normally permits the act and the statute if it wants to prohibit or regulate it would be specific. While an individual acting alone may be more circumspect, two factors push him to test the limits of law, both contradictory to each other. One is the herd instinct of many entrepreneurs. A rumoured opportunity or success would draw others like ants. Observing how others conduct business openly

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and without legal challenge persuades others of the legitimacy of the methods which in turn spawns its own set of imitators. Problem is that when there are few who go by the form rather than the spirit, to the regulator intervention may appear undesirable because the regulatory body may not want the provision tested in a law court. It may be comfortable with the air of uncertainty which may be inducing the majority to act in a particular way. But in the corporate boardroom, a precedent is not just a justification, it also becomes a valid excuse if things turn awry. It is difficult to find fault with an executive if it is not just his mistake but of most who are in his shoes. Acting contrary to the herd, howsoever valid the objections might be, may not be good enough to save him if a particular course of action or interpretational fashion persists for long unless the executive is an icon. Soon what could be said to be a strategic regulatory forbearance so as not to smother innovation and to retain its aura results in the statutory purpose losing much of its breadth. The second factor, in contradiction to the first [herd instinct] is the competitive spirit—the desire to find a new way to do business so as to either make what was unviable viable or to increase the margins or find legal advantages. This search for competitive advantage means that the boundaries of the law are pushed. These legal entrepreneurs have through ages played a vital role in the evolution of legal concepts and institutions. Our laws have been enriched by their efforts, howsoever much we may feel that they have gone against the spirit of the law. The concept of trust, floating charge, equitable mortgage etc. are pursuant to these individuals desire to test the limits of law so as to puncture the spirit behind it. While one source of legal risk is imitation of others, another source is the urge to repeat a tried and tested model. This is especially so if the investment is by a fund. Many a times the general partners of a fund or its managers have the license to invest provided the investment satisfies certain guidelines. It’s not that further clearances may not be required [it would depend on the terms of investment in the fund by the limited partners], but the adherence to the guidelines makes it easier to get the sanctions within the fund. In the case of Sovereign Wealth funds the room for manoevre is minimal. In private equity or venture capital funds there is a lot more scope for experimentation, but then one needs to convince the oversight committee and be ready to be hauled over the coals in case the departure from generic guidelines is a failure. For the oversight committee it is not just a question of persisting with what they are familiar with but also fewer investment models make it easier for them to understand and provide guidance in the future. The guidelines for investment are based on tried and tested structures evolved in light of business models in other jurisdictions. Even if the jurisdiction belongs to the same legal system family, say common law, the fine print of the law will vary from jurisdiction to jurisdiction and which may have a bearing on the legal viability of the model. An example is the limitations on capital account transactions in India. Perforce the model has to be tweaked while seeking to retain the basic model. This attempt to persist with a tried and tested investment structure and business model does many a times lead to assuming a particular view of statutory provision if a contrary judicial precedent is absent. There is an inevitable urge to fit the law in the model unless the red flag is too obvious to be ignored. Even if the investor is not a fund, we need to understand that

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any cross jurisdictional investor would normally seek the advice of an international law firm in addition to the local one. The foreign lawyers would always peddle a structure that they have already advised on and about which they are comfortable. Though unlike a fund investment we may not have fixed guidelines, giving greater flexibility in theory, the experience of the foreign lawyer acts as a constraint and we end up with the same result. Here we are ignoring that many a times there may be a violation of regulations which are static and the initial investment was completely above board, and despite the foreign investor not being at fault. The local partner’s adherence to conditions of approval or regulatory green light is not something the foreign investor can control. While in most cases legal risk arises from the enterprise testing the limits of statute, it is not unknown that sometimes the source of risk is sectoral regulator testing the boundaries of the statute. Between different regulators there are usually regulatory overlaps. This is more so in the financial sector. A regulator many a times perceives its role not just in terms of regulating the entities which it regulates directly about also in terms of protecting their turf and financial health. In the first half of 2010 we saw a flare up between the Insurance Regulatory and Development Authority and the Securities Exchange Board of India over the regulation of unit linked insurance policies [ulips]. The regulator by experimentation may bring within its ambit entities not originally envisaged to be regulated by it. Ever jealous of its regulatory privileges, sometimes the regulator changes its perception based on its view of its ability to effectively regulate an entity in a given circumstance. The Reserve Bank of India, in conflict with the guidelines relating to investment by foreign banks in Indian banks, threw a fit on the investment by HSBC in UTI Bank [Axis Bank as known now] forcing HSBC to abandon its attempt and sell its stake later. The change in stance was after it had allowed ING, a Dutch financial conglomerate, to take a majority stake in Vyasa Bank. The regulated entity and its shareholders find it wise not to contest the regulator for many a reasons. They want to retain the goodwill of the regulator as they may need its accommodation and forbearance anytime in the future.5 Further many a times the regulator has the legislative, executive as well as certain amount of judicial power for effective regulation. Though there may lie appeals available to the entity, but the interim order usually does the damage with the entity hobbled or reputation of the entity besmirched in the marketplace. And even if it were not so, the penalties are small for the organization not wanting to appeal but affecting the executive involved in the decision. Most of the provisions provide for a maximum penalty few multiples of the amount involved, but the regulator reserves the right to compound if the corporate acknowledges its mistake and requests the offence be compounded, at which the amount imposed as penalty may be nominal. The difference in maximum penalty prescribed by statute and the nominal one if one apologizes means that this, apology, is the preferred option when hauled by the legislature even where the 5 Reliance Industries Ltd. and British Petroleum were granted permission to develop the new KGD-6

block under the new policy allowing pricing freedom after RIL withdrew the arbitration notice on the pricing restrictions on gas drawn and evacuated from the adjacent KG basin over which it had development rights.

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regulator may be out of sync with the plausible interpretations of the provision. This also allows it to establish a market perception of precedent, forcing others to fall in line when they may not necessarily want to. Sometimes the regulatory body uses the power of compounding when the statute does not even give it the power. One must take into account that these changes in regulatory perceptions discussed here are in addition to changes in perception due a practice becoming widespread which was originally hoped by the regulator to be miniscule.

8 Common Legal Risk Mitigation Techniques Faced with legal risk, how does any reasonable sized investor manage it? Legal risk management strategy of different types of legal risks would depend a lot on the perception of their importance and the corporations position as a whole. Management of legal risk is usually a confluence of different steps, not one being exclusive. One essential step most take is to have an internal legal compliance cell which usually will have it’s own check lists to make sure that the investment satisfies the minimum criterion. The problem is that the check list, howsoever detailed it may be, will be based on experience. New jurisdictions and new investment models throw up issues on matters never anticipated. They are also meant for mechanical/ministerial application which does not involve much discretion, bringing into limelight the importance of clarity in legal provisions. The compliance teams are not equipped to deal with provisions which are ambiguous, whether at the core or at the edges. In interpreting the compliance check list and its application to a given fact situation, the teams tend to be conservative, as being low in the corporate hierarchy, it is it which would bear the brunt of the blame game if things turn awry. Also, the teams and the check list are not equipped to anticipate that which has been represented as a settled legal position, has the potential of soon becoming unsettled. The second method to manage legal risk, which has nowadays turned very popular, is the seeking of legal opinions from the law firms managing the transaction. The practice of seeking a legal opinion from a lawyer started in USA in the nineteenth century in the context of corporations wanting to raise debt from the capital market. It satisfied those not involved in the negotiations relating to the loan and its documentation that the transaction was above board. Soon the practice spread, and was no longer limited to debt issuances but also equity issuances, and are now mandated by regulations in most capital markets around the world in public issuances. While the origins may have to do with providing comfort to an investor/lender/buyer of securities as it may not have been involved in the due diligence of the borrower/investee or participated in the negotiations or documentation, practice has now widened and it is something which almost every significant lender or investor [of course if the investee company is controlled or under some degree of control of another] seeks. It is difficult to say what additional benefit the practice brings to the table in private investment arrangements. The lawyer who has done the due diligence will always be responsible for it. In relation to documentation and investment structure, the liability

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of the lawyer is there only in the event it’s proved that either he was incompetent or negligent. Forming a view on an ambiguous situation or provision will not be negligence. Further, the trail of communication between the investor and the lawyer would many a times reveal that the investor was made aware of the risk. The issue of competence would come in only if the firm misrepresented what transactions it was hired previously for legal advisory roles. While the solicitor’s job is definitely subject to liability for loss to the consumer if minimum service standards are not fulfilled, instances when damages are awarded are very rare. The only effective remedy is seeking disqualification with the professional body. Here one must take into account that legal opinions are usually replete with qualifications, inserted with dexterity, finesse and subtlety that would make any player of words proud, virtually recanting every statement on which the lawyer has a doubt. This can be buttressed by the fact that professional liability cover taken even by the big law firms in India are miniscule compared to the value of the deals they are involved in. In fact, the main motivation for their reluctance to issue legal opinions more freely is their reputation. Even in matters where there is slightest ambiguity, many a times the firms hide behind another opinion issued by either a retired judge of a court of record or a reputed senior counsel. Compliance formalities and legal opinion by the advising lawyer/law firm are methods by which the decision maker of the investor not only reduces risk of mistake, but also protects his back. They don’t rectify the situation especially if the legal risk fructifies due to circumstances arising subsequent to the investment. One popular method to try to counter it is through a clause in the investment agreement on the choice of law and forum of dispute resolution. Most investment agreements between the foreign investor and Indian partner would usually have English law as the law governing the investment, while some choose the New York law. The investment vehicles are incorporated in one of the tax havens, the investment routed through Mauritius, Singapore, Netherlands, Seychelles or Cyprus depending upon the investment structure and instrument of investment. But the object of investment and the instruments in which it is made is a creature of Indian law. This being so most of the important aspects of the investment would in any case be governed by Indian law. The governing law will be applicable only on tertiary aspects, bilateral matters relating to interse rights and obligations of partners not covered by the Indian law. Aware of this limitation, the disputes between parties are made subject to arbitration with the seat of arbitration being the country whose courts are sought to be given exclusive jurisdiction. Indian law is now something which needs to be proved in the foreign court, if its difference is pleaded. Not an impossible task, but difficult one if the court is unsympathetic to one trying to wriggle out of contractual obligations on grounds of being contrary to local Indian laws. When making investments, the foreign investor may structure its investment in such a way that it derives benefits through bilateral investment protection treaties that have been entered into by India. It would be beyond the scope of this paper in investigating the efficacy of this, but it is a fact that sometimes investments are sought and made taking this into account. A few observations would be appropriate. Under the very structure of investment treaties, the disputes are with the sovereign.

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A serial foreign investor, like the various funds, would not want to have a festering dispute with the government of country it is investing in or has invested in. The investments may be in many entities and no one wants to jeopardize rest of the investments for the sake of getting justice in one. Also no one wants to forfeit the possibility of regulatory accommodation or forbearance in the future when one needs it. Sometimes the benefit of a new policy may be linked to the withdrawal of legal proceedings. Even otherwise, removal of ambiguity would not even remotely come within their scope and most of the trouble emanates there. While most of the measures to deal with legal risk seek to reduce it or seek to provide for legal remedies in the event the unthinkable occurs, some seek a remedy of substitution. The investor usually in this case would require in the investment agreement or in a separate agreement that the local partner or its foreign affiliate would buy out the foreign investor’s Indian investment or the foreign vehicle via which the investment was routed on the occurrence of certain predefined events at a predetermined price. The details would depend upon the legal impediments foreseen on the enforcement of such a clause.

9 Could the State meet halfway to mitigate Legal Risk When we look at what are the major legal risks, then we observe they can mainly be divided as four (a) Legislative intervention or change in law as traditionally understood, (b) Judicial pronouncement which alters the meaning of a provision as traditionally understood and applied, (c) Regulatory intervention by administrative agencies or regulatory bodies, either on issues of subjective judgement like valuation of shares, or on their view on statutory provisions and their application without being goaded by judicial pronouncement on it which changes the rules of the game, (d) Shortcoming on the part of the enterprise or investor. Legal risk on the ground of shortcoming on the part of the enterprise or investor cannot be helped, howsoever innocent the mistake may be. Law cannot afford leniency, other than extent of penalty, in such a circumstance as then there would be premium placed on the ability to cut corners rendering legal goals impossible to attain. In the same vein one cannot countenance limitation on the power of legislature to intervene, other than the limitations prescribed in the Constitution. The law cannot afford to be static and needs to evolve to meet changing social and economic dynamics. Some of the interventions may appear to be bereft of any noble aims of solving any social and economic problem and may appear to be more guided by considerations of settling personal scores or hurt institutional ego, especially after losing the battle in a court of law. Possibility of a hidden agenda cannot be a ground for shackling the legislature. Legislatures do usually take into account the inconvenience they cause in settled transactions and many a times, especially in taxation statutes,

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do have grandfathering provisions protecting settled transactions from the change in legal regime. But one has to acknowledge that it ought to remain its discretion whether to grant this facility or not. Constraining it by this requirement in all legislations would be a remedy worse than the disease it seeks to cure. In the same vein, one does not advocate the shackling of the legislative powers of the administrative bodies to frame subordinate legislation. However, one must remember that in addition to the limitations under the Constitution, they are also subject to the framework of the parent legislation and the extent of the powers delegated under it which would also imply that the powers cannot be exercised for a malafide purpose. Legislation which is expropriatory in nature would have to overcome the hurdles posed by the bilateral and multilateral investment protection treaties. The uncertainty and legal risk posed by unpredictable judicial interpretation of a statutory provision and regulatory somersaults can be handled in a limited way without affecting their independence. Any attempt to constrain judicial independence would be counterproductive. What ought to be attempted is finding the mechanisms and leeways available within the existing justice delivery system to deliver predictability. One of the methods commonly used in the lower courts is declaratory suits. Unfortunately, these subordinate courts are not courts of record and so their views do not have any value as a precedent, even of a persuasive kind. Moreover, most of the issues on which the disputes may arise, these usually relate to income tax, companies, foreign exchange regulation etc. are usually no longer within their jurisdiction. Indian Income Tax Act, has adopted a mechanism prevalent in many jurisdictions, of Advance Ruling. In chapter XIX-B of the Income Tax Act, sections 245N to 245V deal with the Authority of Advance Ruling, the procedure and jurisdiction of the same. The ruling can be sought mainly in relation to transactions involving nonresidents, their liability or the liability of residents in the context of their dealing with non-residents [tax deduction at source etc.]. The decision of the Authority would, on the facts and law, be binding on the Commissioner of Income Tax and the applicant who sought the advance ruling. Though the ruling is made only on the facts of the case, since they have been made by bench comprising a retired Supreme Court judge and senior members of the Indian Revenue Service and Indian Legal Service and the decision is arrived at by following a judicial process, the decisions are studied as laying the law and applied in planning unrelated transactions. A similar mechanism must be evolved for other branches of law which have a substantial bearing on the foreign direct investment. In the case of issues involving Foreign Exchange Management Act and the regulations framed under it, Reserve Bank of India and the concerned administrative ministry, up to the first few years of twenty first century did provide a mechanism for guidance, though they were without any statutory backing. The Department for Industrial Policy and Promotion used to have a limited online window/portal for asking questions on interpretation of the regulations relating to interpretation of the regulations relating to FDI. The answers given by the deputed person were never binding, but the answers were noted and gave an inkling as to the thinking of the nodal department. Similar queries were posed by parties, the difference being that they were not on hypothetical facts but

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real facts, with the officials of the Department of Industrial Policy and Promotion [DIPP], and they usually got a written reply. In both of the above cases, giving of the reply was the discretion of the official and had no binding value or legal sanctity. But it did give an inkling of official thinking and the latter was privately circulated in the limited circle of some consultancy and law firms so as to form an opinion on the legal sustainability of a transactional structure. Subsequently this method of guidance stopped. The reasons could only be speculated upon. Perhaps they were prone to misuse and abuse. While it could only be speculated whether statements by mid-level officials, with no sanction in the body of law to make it, could bind the regulator/government on grounds of promissory estoppel or legitimate expectations, it was certainly undesirable that a view could be formed on such issues by a person not trained to interpret, without a discussion on rival view points and the opinion not being a reasoned one and private. Guidance of the DIPP is still available, but it is now on an informal basis with the officials being unwilling to commit themselves on paper. But till the time there was one nodal department and body to deal with, there was a continuity and certain degree of consistency in the government views. With the dissolution of the Foreign Investment Promotion Board, it is now perhaps for each individual ministry to read as it wants the conditions relating to the grant of approval or the fulfilment of conditions in cases were the investment is not through the automatic route. Granted such cases form a very small proportion of the total foreign direct investment, but arbitrariness and inconsistency in application of principles of approval, even if they relate to different sectors and ministries vitiates the atmosphere and diminishes the goodwill so necessary to attract others. It is in light of this that the need is felt to provide for some authority under Foreign Exchange Management Act on the lines of Advance Ruling Authority under the Income Tax Act to give a reasoned opinion on the validity of a transaction proposed between a resident and a non-resident, on questions of fact or law. Of course, just like the rulings of Advance Ruling Authority are subject to change in law, the rulings of the proposed authority too would be, thereby not constraining the future actions of the government or the RBI. The authority may be constituted for a limited period of time in anticipation of possibility of Indian rupee being made convertible on capital account. Another area of uncertainty is the Companies Act, 2013. As the year of its enactment suggests, the statute is young. While the new statute has been enacted and its provisions are being bought in force in a piece meal fashion, the some of the provisions of the Companies Act,1956 are still in force. While the interpretation of many of the provisions of the old Act were settled, the new one is still going through the phase where the parties are discovering ambiguities. While some are sought to be removed by rules enacted under the Act, many the Ministry of Corporate Affairs seeks to resolve by regularly coming up with clarifications. The clarifications are virtually contemporaneous with the enacted statute and are being issued by the ministry involved with its drafting and so may be saved by the contemporanea expositio rule of interpretation. But for how long could we say that the courts would indulge the ministry on the basis of this rule, if they do so, is uncertain. For greater clarity, the National Company Law Tribunal has to adjudicate on a dispute to give a view on a provision. There needs to be a mechanism for referring to the tribunal for advi-

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sory opinion or declaration potential issues between parties which would be binding on parties which approached the tribunal by consensus, and serves as a persuasive precedent in other cases.

10 Conclusion Foreign Direct Investment in India is soaring with some claims that it is the highest recipient of FDI. As pointed out before, it is not just a means of bridging the current account deficit, but also getting access to new technologies, developing new capabilities and deepening the stakes which others may have in the success of the country. High figures of FDI may breed a sense of complacency and induce the policy makers to take burgeoning FDI numbers for granted. A view may go around, common in government, don’t fix it until it is broke. To a certain extent the view is based on the fact that we don’t know what is clicking. But sometimes one or two disputes spiral out of control and they are then cited as the templates of countries receptivity to FDI. While disputes between the foreign investor and the authorities cannot be ruled out, what is necessary that there be general consensus amongst the investing community there is a rule of law with a predictability of the meaning of the written words whose meaning is not dependent upon who the disputing parties are and the circumstances in which the dispute arose—in short a sense of fair play. Surprise, by one with coercive powers, which drives a big hole in the pocket is perceived as penal. Though legally it may not qualify as subject to constitutional protection against ex-post facto laws, but in the perception of those affected it is just as much unfair and hence according to them lacks the moral fiber which law ought to have for its popular acceptance and unquestioned submission to it by those affected by it. Popular perception would matter in deciding how much of a corporate group’s responsibilities are transferred on its Indian affiliate but also what are the rates of return expected of their present and future investments in India. As it is said—there are no free lunches.

Brief Valedictory Remarks Upendra Baxi

It is a great privilege to share something precious—the spirit of critical solidarity that we all shared in these last two days. On all accounts, this has been a considerably important event and pragmatically one hopes that the Indo-German treaty proposals for further cooperation for mutual development will at last take a final shape in the coming years. The obstinate conception of development was discussed a good deal. I agree with Phillip Dan that development and equality should have been discussed. Both our legal cultures, each in its own way, promote the basic values of human dignity and social inclusion. I believe that the Indian Constitution inaugurates at least four key postcolonial conceptions: development, governance, rights and justice. An approach that looks only at constitution as a juridical text—namely, for the production of legal meanings—remains oblivious of these key notions and therefore of the production of social meanings. The co-operation and conflict of the melange of these meanings is at once both creative and destructive. Robert Cover was to name these, respectively, as jurisgenerative and jurispathic. Niklas Luhmann was to describe these in terms of ‘horizon of expectations’ and ’horizon of experience’: his special point being not only that law creates as well destroys expectations, but that contingent expectations perish with disappointment whereas normative ones (like the proverbial Phoenix) survive their betrayal. It important for future progress for all to realize that the legal orders comprise (like capital) the creative destruction (a term which Joseph Schumpeter introduced in discussing capitalism) of the existential, and

Upendra Baxi University of Delhi, New Delhi, India e-mail: [email protected] University of Warwick, Coventry, United Kingdom © Springer Nature Singapore Pte Ltd. 2019 M. P. Singh et al. (eds.), Open Markets, Free Trade and Sustainable Development, https://doi.org/10.1007/978-981-13-7426-5

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imperishabilty of the normative expectations—this merry or sorry go round of the production of legal as well as social meanings. I agree with Ranjan that we need growth, but I also agree with Neeraj that we must ask what kind of growth. We need to recall that growth for the sake of growth is the ideology only of a cancer cell! I recall that the Soviet Union had only two brands of toothpastes and high dental health; today, modern Russia has about a hundred and fifty brands and an indifferent dental health! The story can be universalized, so great are the forces of hyper-globalization. I agree with M. P. Singh when he says that the European Union is founded on the notion of social justice; so does normatively the Indian constitution. But histories determine the production of impoverishment and human sightlessness. We in India have made slow but steady (some would call it very slow) progress towards being a decent and just society. But to the idea of human rights, all nations and peoples come as relative strangers and the tasks of development are really those that promote human rights education or the social learning of human rights. We may learn a great deal from the constitutional wonders performed by the Constitutional Court in Germany, as from social action litigation initiated and developed by the Supreme Court of India. Both have normatively pursued the image of human dignity as the cornerstone of national development—the idea of the right to be and to remain human, those who have the ‘right to have rights’ (in the felicitous words of Hannah Arendt). We were reminded preciously by Professor Jorg Luther that: ‘what we can do depends very much on who are.’ As academics, we wield no power but seek to influence power; and the distinction, while important does tell us when and where that often people with power are not easily influenced by what we chose to say. How to become the masters of influence so that we can influence those who wield power is the enduring question that informs the modern secular theology of all law teaching and research. We learnt from Professor Kremer on how we can shape ‘the architecture of universality’. No question and problematic can perhaps be more crucial than this, both for wielding of power and exercise of influence. Alian Badiou was right in his Hegelian insistence (in The Theory of the Subject) that one must always discover and respect the forms of reason’ while recalling at the same time the Marxian maxim that: ‘A whole is always the death of a One’. Professor Philip Dann sounded early the question of the proposed Indo-German treaty as a prism through which the exercise of influence may become more productive, although he richly drew our attention to the fact that that the goal of poverty alleviation was entirely absent from its agenda. And Professor Markus Kaltenborn spoke of the shift in EU-India development cooperation from project-oriented approach to a sector-oriented approach. There is already evidence of cooperation in sectors such as education (Sarva Shiksha Abhiyaan) and health (National Rural Health Mission). India emerging as a “new donor” suggested possibilities of regional cooperation for developing trilateral development programmes between emerging economies (like India), the EU and poorer developing countries.

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We learnt from Dr. Shalini Singh and Professor Schmalenbach about FTA and human rights. Do we have to choose between Americanisation or Europeanization? Or, is there another—a third way—to reconcile human rights norms and standards with trade and commerce? The suggestion made by Professor Kaltenborn, to take the Ruggie framework in Indo-EU treaty in particular and FTA in general, needs to be followed up. Indeed, no multinational impunity may go hand in hand with core human rights and international trade. How to reshape/rectify constitutions is also an important matter. Professor Ranbir Singh raised the important question of how do we study poverty or impoverishment (I call the latter as making social and political choices that will make people poor) and drew our attention to ‘trickling up’ rather than ‘trickling down’ impacts. The negative remark by Professor MP Singh about the paucity of law and economics studies stood happily contradicted by the presentations of Drs. Pritam Baruah, Sanjay Jain, Risham Garg, Avirup Bose, Needampura, and Yogesh Pai. Sudhir Krishnasawmi raised the important question whether the Indian constitution knows the alphabet of social markets. Dr. Jain raised, on a different level, the question of dissonance between normative constitutionalism and the world of trade. He specially raised the question of capacity building of would be lawyers and justices against the onslaught of FTA. Professor Kamala Sankaran drew attention to the increasing rate of casualization of workers, formalization of the informal, erasure of distinction between work and employment, the self-employed, who are not considered workers in industry but whose labour power is used by the free market, and services rendered by care-givers. The important question is whether sustainable development and human rights pursuit can be posed as if capital was altogether free of labour. The issue of cultural diversity was well posed by Professor Markus Kotzur throuh the prism of cultural sciences and the philosophy of free markets. He spoke about the interplay between ‘invisible hands’ and ‘visible cultures’. Trade and commerce can of course foster cultural diversity; but business can also restrict this. It is this interplay that we should consider closely. The question, reframed in my terms, is: if unity in diversity is the constitutional nomos, is unity in perversity the nomos of free trade? If I may say so, all of us have lived under either of two holy trinities—Hobbes, Locke and Rousseau on the one hand and Marx, Freud, and Nietzsche, on the other. The two mark and map many a crucial difference between progressive eurocentrism and regressive Eurocentrism. To be sure, the A-to-Z fellowship (Agamben to Zizek thinkers) represent the progressive face of Eurocentrism. The question that interested people may want to pursue in the future was whether there were indigenous African, Latin-American, or Asian trinities of thought. There are many other questions that we need to pursue further. First, there is the question of state-formation, or rather state formative practices in Germany—and the EU as a whole—and India. If the universalizing mission of capital was (as Vivek Chibber maintains in his work Postcolonial Theory and the Spectre of Capital) not to frame a world hegemonic project but rather ‘the reliance on producing absolute

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surplus values’, capitalism proved highly ‘coercive and violent’ in the colonial era, whereas in ‘the advanced world … the production of relative surplus value…caused a switch to a less personalized, more formal regimes of profit making’. If so, it is how absolute surplus value is extracted, and distributed, by state-formative practices (the law being a primary means to this end) that would determine the nature of the state in the EU and India. In that case, secondly, privatising the state and the privatization of global governance will have to be further analysed and explained. Thirdly, there is the ever-important question: What is to be done in the face of the New Empire of Capital? Do we have host states or states held hostage by late capital? How do we study its contradictions? Do we have a theory of contradictions? May I end this random summation by dwelling a bit on the need for a theory of contradictions? Manifestly, no social formation is a smooth surface free of contradictions and there is no social change without a sense of contradictions that we decide, for the time being in the ways of living on, ways that shape ‘life-forms’ and ‘lifeworlds’ (to recall Jürgen Habermas here). Contradictions may be material, ideological, normative, institutional, cultural, civilizational, ethical, non-antagonistic or antagonistic (as Chairman Mao said), or hermeneutic (in the images of Heidegger). What might one say about the meanings of each and about how they relate to the other also reconstitutes the narrative of law in and law and development. Maybe a future Indo-German dialogue can engage this very issue?