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Free to trade?

One India One People | 2 July 2016

Free to trade?

by Shalini Bhutani

India is part of many international trade agreements, and continues to negotiate with other agencies and countries. Shalini Bhutani gives us a sense of what these trade agreements are.

To trade means to buy and sell goods and services. Indians are free to do that within the country, subject to the national laws made on this subject under the Constitution of India.

Article 301 of the Constitution of India states:
Trade, Commerce and Intercourse throughout the territory of India shall be free.
(This freedom is restricted by the conditions imposed by Articles 302-305.)

But what rules apply when India has to trade across international borders? For example, if Basmati rice grown in India is to be sold in European countries, or when professionals from India are to provide their services to the United States, or when a foreign mining company wants to establish operations in India? The international law is constantly developing in this area. Globally, the nature of trade and investment liberalisation is undergoing continuous changes.

Previously, India was more inclined towards protecting its interests as a developing country, and maintaining its voice as that of the Global South. Today, aside from continuous autonomous liberalisation (that has reduced border protection through reduction of import duties, easing foreign investment norms, etc.), India is now more inclined to shift its own trade and investment policies along global lines. Towards that end, India has made rapid advances in bilateral/regional free trade agreements (FTAs), and bilateral investment treaties (BITs).

These engagements are all interwoven and multilayered, and their collective effect impacts all aspects of our lives in significant ways. But not all these agreements come before the national Parliament, as the decisions around these FTAs/BITs, etc., are made in the exercise of executive power of the Centre. The negotiating texts are not made open. This forecloses possibilities for a social impact assessment of these trade agreements. Non-transparency also makes it difficult for people to engage in any dialogue with negotiators.

Article 253 of the Constitution of India states:
Notwithstanding anything in the foregoing provisions of this Chapter, Parliament has power to make any law for the whole or any part of the territory of India 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.

Trade rules depend very much on economic and other interests as well as on the diplomatic relations that countries already have, and want to have with each other. A country can impose an embargo – a partial or full prohibition of trade, with a particular country for political reasons as well. A typical example of that is the United States embargo on Cuba.

The history

The first set of global trade rules are contained in the General Agreement on Tariffs and Trade (GATT). These came into existence after the Second World War (WW II). GATT was signed by 23 nation states in Geneva on 30 October 1947, and came into effect on 1 January 1948.

Though the idea behind GATT was to aid in the economic recovery after WW II, it became a way to institutionalise rules for global trade. It was hoped that trade would be a means to maintain peace amongst nations. Yet, trade relations can themselves create hostilities amongst nations, particularly, if and when trade agreements are violated.

Then WTO

The original text of GATT is the foundation of what is now the WTO (World Trade Organisation) framework. The WTO established on 1 January 1995 is today the world’s largest intergovernmental organisation, where countries decide the rules for trade. It is headquartered in Geneva, Switzerland.

WTO’s many agreements form the basic set of rules for global commerce for its 162 member countries (as of March 2016). These are agreed upon through discussions called ‘rounds’ of trade talks. The current ongoing round is the Tenth Round, which began in Doha in 2001. The WTO negotiations, where India had often taken a so-called “pro-development” stance, have been facing an impasse since 2008. At the last meeting of WTO at Nairobi, Kenya, in December 2015, there was no consensus amongst member-states to take forward the Doha Development Agenda. Instead, developed countries that feel trade liberalisation is going slower than they expected, are now both adding ‘new issues’ to the WTO agenda, and also looking outside WTO to further their trade agenda. For this, FTAs/BITs become an important tool to make trading partners go beyond the WTO.

More bilaterals

Outside of the WTO, India is also in several new agreements, either signed or in the making between different countries (see Table). These are being negotiated either at the bilateral (with one other country) or at the plurilateral level (between many countries, more than two but less in number than the multilateral WTO).

GATT/WTO terms:
MFN – Most favoured nation; this implies that the host country will give the same treatment to all its trading partners. If one country is given better terms of trade, then all others will also be given the same favourable terms.
NT – National treatment; this means treating foreign and local traders/enterprises/persons equally. In other words, it implies that a government cannot treat locally-produced goods and foreign-produced goods differently.

One of the most important ‘mega regional’ that India is in talks for is the 16-country Regional Comprehensive Economic Partnership (RCEP). The RCEP aims to reach the high standards of some of the other large and ambitious FTAs being negotiated in the Asia Pacific region, such as the Transpacific Partnership Agreement (TPPA). It thus becomes ‘WTO-plus’.

Apart from the FTAs, India is also readying itself for a new generation of BITS. The relevant departments of Governement of India (GoI) are not only working to liberalise trade in goods, but also in services, investments and other areas of economic co-operation. When the economic reforms were rolled out in 1991, India had designed its first Bilateral Investment Promotion and Protection Agreement (BIPPA) template. Last year, the Ministry of Finance, GoI, prepared and made public a draft Indian Model Bilateral Investment Treaty text to replace the old one.


The general trend is to push for ‘free trade’ and encourage foreign investors. This is done essentially at the back of large corporate interests. For they want the market forces to play their course, without any tariffs (also called import/export duties) and quantitative restrictions. It is about creating the ultimate open market.

But words like ‘free’ and ‘open’ can be misleading. Freedom to corporations does not automatically mean that the well-being of people is achieved. Unfettered trade also has ecological implications in its being based on relentless exploitation of natural resources. The ultimate test is what the ‘free trade’ agreements mean for the many freedoms of ordinary people, other than simply being free to trade. Public policy has to balance the diverse interests that sit across the table in trade deals. The future of our societies and that of the planet depends on it.

Shalini Bhutani is a legal researcher and analyst based in Delhi. She works and publishes on a wide range of issues including how free trade and its rules impact communities and conservation. She was a faculty member at the Centre for Environmental Law, WWF-India, and is now guest faculty on legal and regulatory affairs at various universities. She is the legal counsellor for the Apna Beej network and supports the Indian Alliance for Seed Sovereignty. Previously she has worked with several NGOs, both national (such as Navdanya) and international (GRAIN). She can be contacted at: [email protected]

 source: One India One People