WT/TPR/S/33 Trade Policy Review
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II. TRADE AND INVESTMENT REGIMES
(1) Introduction
1. Thegeneral direction ofIndian trade andinvestment reforms initiated in1991, andalready
veryevident atthelastTrade Policy Review ofIndia inDecember 1993, hasbeenmaintained by
successive Governments, although there isreason tobelieve thatthisprocess hasslowed inthelast
fewyears. There hasbeenagradual opening upoftheeconomy asitems under quantitative import
restrictions havebeenmoved totheSpecial Import Licence (SIL) listandtothelistoffreely importable
goods. Foreign direct investment (FDI) hasalsobeenallowed inmostsectors, withvarying restrictions
ontheshare ofequity thatcanbeheldbyforeigners. Theapplication procedure forFDIhasbeen
streamlined, andmade moretransparent although theprocess stillprovides acertain amount ofdiscretion
totheapproval authority. Thegoals ofthepresent Government include afurther liberalization intariff
andnon-tariff barriers andinFDIrestrictions.
2. Onallmatters relating tointernational trade andinternational trade agreements orbodies, the
Indian Constitution confers jurisdiction ontheParliament. Indiacanbecome aparty toallagreements
andtreaties, including international trade agreements, withtheapproval andratification ofthetreaty
bytheCouncil ofMinisters. However, where India'sinternational obligations require amendments
toexisting lawsortheintroduction ofnewlaws, Parliament mustenact allsuchlegislation. Sectoral
matters arewithin thejurisdiction oftheStateLegislatures, requiring consultation between theIndian
Government (theCentre) andtheStates before national policy canbeformulated andimplemented.
3. India wasafounding contracting party oftheGATT andisafounding member oftheWTO.
Itscommitments under theWTO include binding 62percentofitstariff linesonindustrial products
(Chapter III).Indiahasalsobound itsagricultural tarifflines, mostranging from100to300percent,
withafewatzeropercent.1Inaddition toitstariff commitments, India willamend itslawson
intellectual property rights tobring them intoconformity withitsWTO obligations, buthasuntilthe
year2000 inwhich todothisformostcases (Chapter III(4)(vii)).2Inaddition, India'santi-dumping
andcountervailing legislation hasbeenamended inlinewiththerelevant WTO Agreements.3India
hasalsomade commitments under theGeneral Agreement onTrade inServices (GATS) insixservices
sectors, including financial services, telecommunications, business, tourism andsome aspects of
engineering andhealth services.
4. Indiaisaparticipant intheSouth Asian Preferential Trading Area(SAPTA), which isexpected
todevelop intotheSouth Asian FreeTrade Area(SAFTA). India alsohasregional orbilateral trade
agreements withanumber ofitstrading partners intheregion andCommonwealth trade preferences
continue tobegranted tothree countries.
1GATT (1994). Onaverage, developing countries bound 73percentoftheir industrial tariff lines and
100percentofagricultural lines. Thiscovered approximately 61percentofindustrial imports and100percent
ofagricultural products, ascompared to21and22percent respectively before theconclusion ofthe
Uruguay Round.
2India hasatransition period until 2005 forsome areas oftechnology towhich itdoesnotextend product
patent protection onthegeneral dateofapplication oftheWTO Agreement. (Article 65oftheAgreement on
TRIPS.)
3These have been notified totheWTO Secretariat.India WT/TPR/S/33
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5. Aswithtrade, India'sforeign investment regime hasbeenconsiderably simplified. Indiagrants
automatic foreign direct investment (FDI) approval forshareholding upto51percentofequity in
48priority sectors andforupto74percentinnineothers.4Anemphasis hasrecently beenplaced
onattracting foreign investment ininfrastructure5,where theGovernment hopes toincrease annual
FDIfrom itspresent levelofUS$3 billion toUS$10 billion inthenextfewyears.
(2) TheLegislative Structure
(i) Legislative andexecutive branches oftheGovernment
6. ThePresident, whoserves afiveyearterm, isHead ofState. ThePresident iselected byan
electoralcollegeconsistingoftheelectedmembersofbothHousesofParliamentandtheelectedmembers
oftheState Legislative Assemblies.6TheVicePresident iselected foratermoffiveyears byan
electoral college comprising members ofbothHouses ofParliament.7TheVicePresident, intheevent
ofthePresident 'sdeath, resignation orremoval assumes theoffice ofPresident untilanelection can
beheld.
7. ThePrime Minister ofIndia isappointed bythePresident andheads theCouncil ofMinisters.
Members oftheCouncil, whomustbemembers ofParliament, areappointed bythePresident onthe
advice ofthePrime Minister. TheCouncil iscollectively responsible totheHouse ofthePeople and
provides "aidandadvice tothePresident".8
8. Parliament consists ofthePresident andthetwoHouses, theRajya Sabha (theCouncil ofStates)
andtheLokSabha (theHouse ofthePeople). TheRajya Sabha, which cannot bedissolved, consists
ofnotmore than238representatives oftheState Legislative andUnion Territory assemblies plus
12members appointed bythePresident andwhoareknowledgeable inliterature, science, artandsocial
services.9Onethird oftheseats oftheRajya Sabha arerotated every twoyears. Thechairperson
oftheRajya Sabha istheVicePresident. Membership oftheLokSabha should notbemore than
535members elected onthebasis ofnational suffrage andnotmore than20representing theUnion
Territories.10Themembers oftheLokSabha areelected forafive-year term, unless itisdissolved
bythePresident within thatperiod.
4Upto50percentofforeign equity participation isalsoautomatically approved inthemining sector.
5Land andwater transport, electricity generation andtransmission andstorage andwarehousing services are
among thesectors recently made eligible forautomatic FDIapproval forupto74percentforeign equity holding.
6StateshereincludetheNationalCapitalTerritoryofDelhiandtheUnionTerritoryofPondicherry(Government
ofIndia, 1996g, Art.54b).
7Constitution, Art.66(1).
8Constitution, Art.74(1).
9Constitution, Art.80.
10Constitution, Art.81.WT/TPR/S/33 Trade Policy Review
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(ii) TheJudiciary
9. TheSupreme Court isIndia'shighest judicial body; itiscomposed oftheChief Justice and
notmore than26other judges. Thecurrent number ofSupreme Court judges is24.TheSupreme
Court hasoriginal jurisdiction inalldisputes between theCentre andStateGovernments orbetween
StateGovernments.11TheCourt alsohasappellate jurisdiction inallcriminal andcivilmatters arising
from India'sHigh Courts.12Thelegaldecisions oftheCourt arebinding.13
10. EachStatehasaHighCourt, composed ofaChief Justice andjudges appointed bythePresident
ofIndia. Inaddition, district judges, whoserve insubordinate courts areappointed bytheGovernor
oftheState inconsultation withtheHigh Court oftheState. Control overthesubordinate courts is
withtheHigh Court.14
11. International obligations, including those relating toWTO provisions must beformally
incorporated intodomestic lawsbefore theycanbeinvoked before national Courts. According tothe
authorities, however, inthecasethatthereisnorelevant Indian law,WTO provisions maybeenforced
through theIndian Courts iftheyarenotinconflict withanyother treaty obligations.
(iii) Thelegislative process
12. AttheleveloftheUnion, alllegislation hastobepassed bybothHouses ofParliament inorder
tobecome law. Money billscanonlybeintroduced intheHouse ofthePeople and,oncepassed,
aresenttotheCouncil ofStates foritsrecommendations. Suchabillmustbereturned totheHouse
ofthePeople within aperiod of14daysfrom itsreceipt intheCouncil ofStates. TheHouse ofthe
People maychoose tore-pass thebillwithorwithout anyoftherecommendations oftheCouncil of
States.15Allother billsmaybeintroduced ineither House.16Changes inabillcanbemade byeither
House, butmustbeaccepted bybothHouses before passage. Abillpending ineither House willlapse
upon thedissolution oftheHouse ofthePeople.
13. Once abillhasbeenpassed bybothHouses, itmust besigned bythePresident tobecome
law. ThePresident cannot vetoanybillpassed bytheHouses butcanrecommend changes, except
11Constitution, Art.131.
12Constitution, Art.132-134.
13Constitution, Art.141.
14Constitution, Arts. 214-237.
15Constitution, Art.109.
16AMoney Billisdefined asdealing with: "(a)theimposition, abolition, remission, alteration orregulation
ofanytax; (b)theregulation oftheborrowing ofmoney orthegiving ofanyguarantee bytheGovernment
ofIndia, ortheamendment ofthelawwithrespect toanyfinancial obligations undertaken ortobeundertaken
bytheGovernment ofIndia; (c)thecustody oftheConsolidated Fund ortheContingency Fund ofIndia, the
payment ofmoneys intoorthewithdrawal ofmoneys from anysuch Fund; (d)theappropriation ofmoneys
outoftheConsolidated Fund ofIndia; (e)theincreasing oftheamount ofanysuchexpenditure; (f)thereceipt
ofmoney onaccount oftheConsolidated Fund ofIndia orthepublic account ofIndia orthecustody orissue
ofsuchmoney ortheaudit oftheaccounts oftheUnion orofaState; or(g)anymatter incidental toanyof
thematters specified insub-clauses (a)to(f)"(Constitution, Art.110(1)).India WT/TPR/S/33
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inthecaseofMoney bills. Once thebillhasbeenreconsidered bytheHouses andresubmitted tothe
President forsignature, withorwithout therecommended changes, thePresident mustsignthebill.
14. ThePresident maypromulgate Ordinances during recess periods ofthetwoHouses. An
Ordinance hasthesame force andeffect asanActofParliament butmust bepassed bytheHouses
within sixweeks oftheirreassembly. Ifitisnotpassed during thisperiod, theOrdinance automatically
lapses; ifitispassed, theOrdinance isenacted.
15. Ministries playanimportant roleinthelegislative process. Legislation isframed through a
processofconsultationbetweentheMinistrysubmittingthelegislationandallotherconcernedMinistries.
AnyagreementsordisagreementsareincorporatedintotheproposedlegislationbytheMinistryconcerned
andsubmitted forconsideration bytheCabinet. Once adecision hasbeentaken tointroduce the
legislation inParliament, thematter isreferred totheLegal Affairs andLegislative Department of
theMinistry ofLawwhere adraftbillisprepared. Thedraftisintroduced inParliament bytheMinistry
concerned.
16. Once thebillhasbeenpassed bytheHouses, andthePresident hasassented, theoriginating
Ministry becomes responsible forimplementing theAct.Parliament alsosupervises theimplementation
oflaws, forexample, through parliamentary consultative andstanding committees.17
(a) Trade policy legislation
17. TheIndian Constitution confers onParliament theexclusive power tomake lawsthatconcern
theUnion onanymatter provided inListIoftheSeventh Schedule (referred toasthe"Union List").
StateLegislatures make lawsthatconcern matters provided inListIIoftheSeventh Schedule (known
asthe"State List")18,while bothParliament andStateLegislatures canmake lawsonmatters concerning
ListIIIoftheSeventh Schedule (known asthe"Concurrent List").19TheUnion Listincludes, interalia,
allmatters relating to"trade andcommerce withforeign countries; import andexport across customs
frontiers; definition ofcustoms frontier" (Art. 246(41))aswellas"Inter-State trade andcommerce"
(Art. 246(42)).20Thus, oninternational tradepolicy, legislation isenacted byParliament. However,
17Trade matters forexample arediscussed byaStanding Committee onCommerce.
18Parliament mayhowever enact legislation inareas normally reserved fortheStates inListIIifatleasttwo
thirds ofthemembers oftheCouncil oftheStates declare byresolution thatitisnecessary andexpedient inthe
national interest todoso(Constitution, Article 249(1)).
19Incaseofconflict between thelawsofaState andthose passed byParliament, Parliamentary legislation
willprevail onmatters relating totheConcurrent Listhowever (Art. 251). Inthecaseoflegislation relating
tointernational trade relations, Parliamentary legislation prevails unless theState lawhasbeenconsented toby
thePresident (Constitution, Art.254).
20Other keysubjects under theUnion Listinclude allmatters relating tothedefence ofIndia, thearmed forces,
atomic energy, prevention ofcrime within India andonthehighseasorintheair,immigration andcitizenship,
communications, currency andcoinage, theReserve bank ofIndia, banking, insurance, national standards and
regulation oflabour andindustrial disputes concerning union employees. TheState Listcovers public order
andpolicing, public health, communications notspecified intheUnion List,agriculture, animal husbandry, water
supplies andirrigation, landrights, fisheries, state industries andtheincorporation, regulation andclosure of
companies, andtaxes relating toland, excise, electricity etc.TheConcurrent Listincludes matters relating to
criminal lawandinternal security, commercial andindustrial monopolies, trade unions, industrial andlabour
(continued...)WT/TPR/S/33 Trade Policy Review
Page 24
because State Legislatures havejurisdiction overitems mentioned intheState List,theyhavetobe
consulted onsuchmatters before anylegislation isenacted byParliament inorder toensure itssmooth
implementation bytheStates.21
18. InternationaltradelegislationoramendmentstoexistingtradelawsareintroducedintoParliament
bytheMinistry ofCommerce. Once suchlegislation isinplace, theDirectorate General ofForeign
Trade canmake minor changes, forexample, totariffrates, aslongasthose tariff ratesremain within
thebounds established bytheCustoms andTariff Act.Parliament hastobenotified ofallsuchchanges.
(b) Legislation relating totheWorld Trade Organization
19. India'sinstrument ofratification oftheAgreement Establishing theWorld Trade Organization
wasdepositedon30December1994.Parliamentwasnotifieduponratification.Anysubsequentchanges
intrade-related legislation required inorder forIndia tomeetitsUruguay Round commitments, are
enacted byParliament inorder tobecome national law. Inthisinstance, because oftherelationship
between Parliament andState Legislatures onmatters relating totheUnion List, Parliament has
competence toenact oramend alllawsrelating totheimplementation ofIndia'sobligations, evenin
matters falling within thecompetence oftheState Legislatures.
(3) Objectives ofTrade Policy
20. In1991 India initiated awide-ranging programme oftrade liberalization andeconomic
deregulation. Intheprevious decades policy hadsought improved living standards through
self-sufficiency infoodandmanufacturing; thishadledtofar-reaching protection ofIndian industry
andagriculture. Since 1991 policy hasbecome more outward oriented withtheobjective nowof
achieving stable, sustainable growth, inpartby"integrating theIndian economy more closely with
theworld economy".22India'scurrent tradepolicy objectives include theacceleration ofthecountry 's
transition toa"globally oriented vibrant economy"; thestimulation ofsustained economic growth
through theprovision ofaccess toessential rawmaterials, capital andconsumer goods; thetechnological
improvement ofproduction inorder toincrease efficiency andattain internationally acceptable quality
standards, andtheprovision ofhighquality products atreasonable prices toconsumers.
21. Thus theEighth Five-Year Plan(1992-97), called forthemovement ofIndia'strade policy
regime "towards greater openness andtoreapthefullbenefits ofinternational trade".23Thisistobe
achieved through: (i)areduction ofthe"negative" listofimports andexports and(ii)agradual reduction
inthelevelanddispersion oftariff rates. Thefirststepsincluded areduction inthepeaktariffs rates
frommore than300percentto150percentinthe1991/92 Budget andto110percentinthe1992/93
Budget.
20(...continued)
disputes, working conditions andlabour welfare, education, price controls andtrade andcommerce insome goods
including foodstuffs, cattle fodder, cotton andjute.
21Forexample,allmattersrelatingtoagricultureandagriculturalpricingaresubjecttoStatelaw.Anynational
lawrelating tointernational andinter-state trade inagricultural products would therefore have aneffect onthe
States andwould have tobeimplemented bytheStates.
22Government ofIndia (1996o).
23Government ofIndia (1992), p.85.India WT/TPR/S/33
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22. During theperiod oftheEighth PlantheGovernment targeted afurther reduction intariffs,
tobring theaverage ratedown toaround 25percentwithin fouryears andtoeliminate tariffs onraw
andintermediate capital goods atafaster ratethantariffs onconsumer goods. Tariffs onimports of
consumer goods weretoberemoved asthedomestic industry became more resilient.24Thenegative
listwasalsotobepruned anditwasenvisaged thatbytheendoftheEighth Planperiod, thelistwould
contain onlythose items banned forsafety orenvironmental reasons.25Over 70percentofproducts
according totarifflinesarenowfreely importable. Thenumber ofcanalized goods bybroad category
isnowsixforexports andeight forimports, compared toseven eachin1993 (Chapter III(2)(vii)(d)
and(3)(v)(d)).
23. Afurther keychange inIndia'strade policy since 1991 hasbeenthegreater emphasis now
given toexport facilitation, which, according totheauthorities isusedtocounter import charges,
especially onimported inputs usedintheproduction ofexports. TheGovernment provides anumber
ofexport incentives including income taxexemptions, theimport ofcapital goods atconcessional rates
ofdutyforexporters, andspecial privileges toexport-oriented units andexport-processing zones.
Thenegative listforexports hasalsobeenshortened andthenumber ofexport products requiring a
licence hasbeenreduced.
24. India'stradepolicy objectives areaimed atconsolidating thegains made under theliberalization
programmes sofar.Thisincludes continued trade liberalization, especially through reductions inthe
negative listofimports andgeneral tarifflevels ensuring alsothatthegainsfromliberalization strengthen
theeconomy andgenerate higher levels ofemployment.
(i) Participation intheWTO26
25. India actively participated intheUruguay Round andisafounding Member oftheWTO.
Theauthorities strongly favour themultilateral approach totrade relations andIndia grants atleast
mostfavoured nation (MFN) treatment toallitstrading partners including those notMembers ofthe
WTO.27India'sviewonregional groupings isthattheymustfullyconform withandsupport therules
ofthemultilateral system. Inthiscontext itparticipates inregional groupings suchastheSouth Asian
Association forRegional Cooperation (SAARC) andhasexpressed aninterest inparticipating inAPEC
WorkingGroupsonEnergy,IndustrialScienceandTechnology,andTradePromotion.Indiaparticipated
inthemeeting oftheWorking Group onEnergy inthePhilippines inOctober 1996.
26. While India isgenerally pleased withtheresults oftheUruguay Round andthesubsequent
Singapore Ministerial Meeting, ithasfrequently expressed concern about anumber ofmarket access
issues. These relate primarily totheAgreements onTextiles andClothing (ATC), Agriculture, and
onTrade-Related Aspects ofIntellectual Property Rights (TRIPS). India isconcerned about theslow
paceofelimination ofrestrictions under theATC, andonthecontinued prevalence ofagricultural
subsidies inindustrialized countries. India alsofeelsthatadistinction should bemade between those
countries thatareprimarily exporters andtherefore haveapotential todistort international market prices
24Government ofIndia (1992), p.86.
25Thenegative listforimports nowincludes 58items thatareprohibited and168items thatarerestricted.
26Thissection isinpartbased onastatement byDr.B.B.Ramaiah, Minister ofCommerce attheMinisterial
Conference inSingapore, 9December 1996 (WT/MIN(96)/ST/27).
27Fiji, withwhich India hasnodiplomatic relations, isanexception tothis.WT/TPR/S/33 Trade Policy Review
Page 26
bysubsidizing theirproducts, andthose suchasIndia thatprimarily catertotheirownmarkets and
provide subsidies toprotect theirpoorfarmers andtoachieve self-sufficiency infoodproduction.
Similarly, because theTRIPS provisions require India toprovide stronger patent protection inthe
pharmaceutical sector, there isafearthatthiswillbecostly toIndia, mainly intheform ofhigher
royalty payments, administrative costsandperhaps monopoly control which mayhaveadverse effects
onIndia'saccess totechnology. There isalsoconsiderable debate domestically ontheharmonization
oflegislation relating toTRIPS andIndia'sobligations under theConvention onBiological Diversity.
27. According totheauthorities, another potential source ofworry toIndia, andperhaps other
developing countries, istherising incidence ofnon-tariff barriers suchastemporary safeguard measures
andanti-dumping cases, especially against exports fromdeveloping countries. Indiaisalsoconcerned
thatthespecial consideration ofdeveloping country members called forinArticle 15oftheAgreement
onAnti-Dumping Measures, Article 10oftheAgreement onSanitary andPhytosanitary Measures
andArticle 12oftheAgreement onTechnical Barriers toTrade isnotbeing adequately addressed.
(ii) India'sWTO commitments
28. Asaresult oftheUruguay Round, India bound 67percentofallitstariff lines; bound rates
range from0to300percentforagriculture and0to40percentforotherproducts. Before theRound,
only6percentofIndia'starifflines(4percentonindustrial products) werebound. India'sSchedule
under theGeneral Agreement onTrade inService (GATS) covers 33activities. According tothe
authorities,thephasingoutoftariffbarriersincompliancewithWTOcommitmentsbeganinMarch1995
following adeclaration bytheFinance Minister inthe1995/96 Budget thatallnon-tariff measures
restraining imports would betariffied. Thephase-out istobeimplemented insixannual instalments.
Inthecaseoftextiles andclothing, tariff reductions tobetween 25and40percentaretobeachieved
overaten-year period beginning inMarch 1995. According totheauthorities, iftheintegration process
envisaged under theATC isdelayed, India'stariffs ontextiles andclothing products willrevert to
levels prevailing at1January 1990.
29. Anti-dumping andcountervailing legislation became operational inIndia in1985, withan
anti-dumpingauthorityestablishedintheMinistryofCommercein1986.InJuly1997,Indiaintroduced
Safeguard Rules under theCustoms Tariff Act,1975withaDirector General ofSafeguards established
intheMinistry ofFinance.28Legislation onanti-dumping, andsubsidies andcountervailing measures
hasbeenamended tobring itintoconformity withtheresults oftheUruguay Round.29
30. India isalsocommitted toamending itsintellectual property rightlegislation incompliance
withtheTRIPS Agreement. Asadeveloping country, India hasafive-year transitional period for
anumber ofthese changes andanadditional fiveyears toextend product patent protection toareas
oftechnology notprotected sofar.Forsome, however, notably Articles 70.8and70.930,India's
28WTO document G/SG/N/1/IND/2, 14January 1998.
29WTO documents G/ADP/N/1/IND/2, 15August 1995, G/ADP/N/1/IND/2/Corr.1, 9January 1996 and
G/ADP/N/1/IND/2/Suppl.1, 23December 1996.
30Articles 70.8refers totheobligation ofaMember country thatdoesnotpresently provide patent protection
forpharmaceutical andagricultural chemical products toprovide ameans bywhich patent applications forthese
products canbefiledandtoapply thecriteria forpatentability aslaiddown intheAgreement from thisdate.
Article 70.9 requires thatthesubject ofthepatent application referred toin70.8 shall begranted exclusive
marketing rights foraperiod offiveyears after obtaining marketing approval inthecountry.India WT/TPR/S/33
Page 27
obligationsbecameeffectivewiththesigningoftheWTOAgreement;Indiahasnotyetpassedlegislation
todoso.31Oncopyright, India amended itslegislation in1994 incompliance withtherequirements
oftheTRIPS Agreement. With regard totrade marks, industrial designs, geographical indications
andprotection forplant varieties, India plans tomake useofthetransitional period before making
therequired amendments.
31. India, asother developing countries, hasatleastuntiltheyear2000 toremove alldirect and
indirect trade-related investment measures inconformity withtheUruguay Round Agreement on
Trade-Related Investment Measures (TRIMs).32These include measures such aslocal content
requirements.IndiahasnotifiedTRIMsmaintainedbyitunderArticles2and5oftheTRIMsAgreement
andtheillustrative listannexed totheAgreement.33Substantial modifications havealready beenmade
totheforeign investment regime, increasing thenumber ofsectors where foreign investment cantake
placeandalsoincreasing theforeign equity limitontheseinvestments. Indiahasalsoremoved dividend
balancing inanumber ofsectors andcontent requirements fornewsprint.
(4) Trade Laws andRegulations
32. India'smainlegislation relating tointernational trade istheForeign Trade (Development and
Regulation) Act,1992, which repealed theImports andExports (Control) Act,1947. TheActprovides
forthedevelopment andregulation ofIndia'sforeign trade. TheCustoms Act,1962 allows the
Government torestrict imports orprohibit tradeinanygoodbyofficial notification andalsoempowers
theGovernment toadminister andcollect thecustoms tariff.
33. TheCustomsTariffAct,1975andtheCustomsTariffRules,1977determineIndia'sadministered
tariff ratesandrulesoforigin, andtheCustoms Valuation (Determination ofImported Goods) Rules,
1988andtheCustomsValuationAmendmentRules,1991arethemainlawsrelatingtocustomsvaluation.
Guidelines onForeign Investment wereapproved byParliament in1991. Subsequently, amendments
weremade tothenewIndustrial Policy Statement, 1991, incorporating these guidelines. India'smain
trade related lawsarenoted inTable II.1.
31According totheauthorities, although thelegislation hasnotbeenpassed byParliament, India hasprovided
ameans toreceive patent applications forpharmaceuticals andagricultural chemicals through administrative
instructions. Apanel decision (DS50/R), followed byanAppellate Body decision (DS50/AB/R) concluded that
India'sadministrative instructions were inconsistent withArticle 70.8(a) oftheTRIPS Agreement, andthatby
failing tohave amechanism inplace toprovide forthegrant ofexclusive marketing rights effective from the
dateofentry intoforce oftheWTO Agreement.
32Article 2oftheAgreement onTrade-Related Investment Measures requires that"nomember shall apply
anyTRIM thatisinconsistent withtheprovisions ofArticle IIIorArticle XIofGATT 1994" which refer to
national treatment andquantitative restrictions respectively (WTO, 1995a).
33WTO documents TRIMS/N/1/IND/1, 11April 1995 andTRIMS/N/2, 24February 1997.WT/TPR/S/33 Trade Policy Review
Page 28
Table II.1
Indian legislation relating totrade
Area Law
Customs Tariff TheCustoms Act,1962 empowers theIndian Government tocollect andadminister the
customs tariff. Thefirstschedule oftheIndian Customs Tariff Act,1975, contains
India'sadministered tariff rates.
Customs Valuation TheCustoms Act,1962 andtheCustoms Valuation (Determination ofImported Goods)
Rules, 1988
Countervailing duty Indian Customs Tariff Act,1975
Import regulations Section 11oftheCustoms Act,1962 empowers theCentral Government torestrict or
prohibit trade inanygoods byofficial notification; TheForeign Trade (Development
andRegulation) Act,1992 alsogives theCentral Government powers torestrict or
regulate imports andexports.
Export regulations Section 11oftheCustoms Act,1962; TheForeign Trade (Development and
Regulation) Act,1992.
Standards Bureau ofStandards Act,1986; Prevention ofFood Adulteration Act,1954
Sanitary andphytosanitary measures Drugs andCosmetics Act,1940 (lastamendment in1988); Prevention ofFood
Adulteration Act,1955 (lastamendment in1994); theInsecticides Act,1968
Marketing andlabelling Standards ofWeights andMeasures Packaged Commodity Rules, 1977 (lastamended
on26October 1997)
Government procurement Governed byprovisions oftheIndian Sales ofGoods Act,1930 andtheIndian
Contracts Act,1972; theIndian Arbitration andReconciliation Act,1996. Government
departments areguided intheirpurchases bytheGovernment 'sGeneral Financial
Rules, andbyIndia-specific World Bank Standard bidding documents forWorld Bank
assisted projects.
Anti-dumping, countervailing and
safeguard measuresTheIndian Customs Tariff Act,1975.
Pricing andmarketing arrangements Nosingle Central Government legislation; several Central Government Actsprovide
powers totheGovernment forpricing andmarketing regulations, including the
Essential Commodities Act,1955; theStandards ofWeights andMeasures packaged
Commodity Rules 1997.
Competition Law TheMonopolies andRestrictive Trade Practices Act,1969 (lastamendment in1991).
Intellectual Property Rights TheIndian Patents Act,1970; theIndian Copyrights Act,1957 (amended in1994);
theTrade Marks andMerchandise Act,1958; theDesigns Act1911.
Foreign Investment There isnoseparate lawforforeign investment. TheIndustries (Development and
Regulation) Actof1951 outlines licensing procedures forindustries. Foreign
investment policy wasincorporated inthisActtotarget industries inwhich foreign
technology andforeign exchange wasdesirable.
Source: Government ofIndia.
(i) Changes totrade legislation
34. ThemajormodificationstoIndianlawstoensurecompliancewithitsWTOcommitmentsinclude
changes totheIndian Customs andTariff Act,1975, specifically Sections 9,9Aand9Bdealing with
subsidies andcountervailing duties andwithanti-dumping measures.
(ii) Notifications totheWorld Trade Organization
35. Asallother Members oftheWTO, India isrequired tomake notifications ofchanges in
legislation andtrade measures totheSecretariat. Table II.2below provides alistofIndia'smajor
notification requirements totheWTO andthecurrent status ofthese notifications.India WT/TPR/S/33
Page 29
Table II.2
Status ofselected notification requirements totheWTO, asatFebruary 1998
WTO
AgreementDescription of
requirement PeriodicityDocument No.ofmost
recent notif. (ifnone,
dateofscheduled
notification) Comments
Agriculture
(Art. 18.2;
DS:1+)Domestic support Annual, 90days
afterendofFY(endJune1996)
Agriculture
(Art. 18.2;
ES:1+)Export Subsidies Annual, 90days
afterendofFY(endJune1996)
Textiles and
Clothing
(Art. 3.1)Quantitative
RestrictionsOnce before
1March 1995G/TMB/N/72
April 1995
G/TMB/N72/Add.1
June1996India maintains import restrictions on
consumer goods, including textiles and
clothing, under Art.18,Section Bof
GATT. Restrictions onfibres, yarns
andindustrial fabrics listed inthis
notification were recently lifted.
Textiles and
Clothing
(Art. 6.1)Safeguard decisions Once before
1March 1995G/TMB/N/21
March, 1995India retains therighttousethe
safeguard provisions ofArt.6.
Textiles and
Clothing
(Art. 2.6/2.7)FirstIntegration Once G/TMB/N/48
March, 1995
G/TMB/N/48/Add.1
June1996Notification ofproducts thataccount
fornotlessthan16percentofIndia´s
imports ofproducts listed inAnnex
toATC.
Textiles and
Clothing
(Art. 2.11)Second Integration Once G/TMB/N/224
February 1997Notification ofproducts accounting for
notlessthan17percentofIndia's
imports ofproducts listed inAnnex to
ATC.
Import
Licensing
(Art. 7.3)Laws andRegulations Annual G/LIC/N/3/IND/1
January 1996Imports intoIndia areregulated by
means ofaNegative Listofgoods,
which aredeclared intheExport and
Import Policy.
Subsidies
(Art.25.1)Specific subsidies Annual G/SCM/N/3/Add.1/Rev.3
January 1997
Subsidies
(Art. 32.6)Laws andregulations Once by15March
1995, thenchangesG/SCM/N/1/IND/2/
Suppl.1 December 1996
Subsidies
(Art. 25.11)Countervailing duty
actions takenTwice annually Referenced in
G/SCM/N/19/Add.1
October 1996Nocountervailing dutyaction was
taken byIndia until30June1996.
Anti-dumping
(Art. 18.5)Laws andregulations 15March 1995
andsubsequent
changesG/ADP/N/1/IND/2/
Suppl.1
December 1996
Anti-dumping
(Art. 16.4)Actions taken Twice annually G/ADP/N/16/IND
September 1996
G/ADP/N/16/IND/Corr.1
April 1997Until 30June1996, India hadinitiated
21anti-dumping cases ofwhich
13cases faced definitive duties.
Safeguards
(Art. 12.7)Pre-existing Article
XIXmeasuresMarch 1995
andsubsequent
changesG/SG/N/2/IND-
SG/N/3/IND August 1995India doesnotmaintain anysafeguard
measures relating tothisarticle.
Safeguards
(Art. 12.6)Laws andregulations Once andthen
changesG/SG/N/1/IND/2
January 1998
Sanitary and
Phytosanitary
measuresMeasures taken Adhoc G/SPS/N/IND/1-8 India hasnotified 8measures.
Table II.2(cont'd)WT/TPR/S/33 Trade Policy Review
Page 30
WTO
AgreementDescription of
requirement PeriodicityDocument No.ofmost
recent notif. (ifnone,
dateofscheduled
notification) Comments
Preshipment
Inspection
(Art. 5)Laws andregulations
which putthe
Agreement intoforceOnce andthen
changesG/PSI/N/1/Add.4
October 1996
TBT
(Art. 15.2)Laws andregulations Once upon entry
intoforce
TBT(Art. 2) Technical Regulations Adhoc India hasnotified 12
measures in1995 and22
in1996
TBT
(Annex 3(c))Acceptance ofCode Once andthen
changesG/TBT/CS/N/26
January 1996TheBureau ofIndian Standards has
accepted theWTO Technical Barriers
toTrade Agreement 'sCode ofGood
Practice.
Rules of
Origin
(Annex II,
para4)Preferential rules of
originOnce andthen
changesReferenced inG/RO/N/1
andG/RO/N/1/Add.1India haspreferential rules oforigin
relating totheGSTP, SAPTA, the
Commonwealth preferences system and
toBhutan andNepal.
GATT 1994
(Art. 17(4)(a))State Trading
ActivitiesAnnual G/STR/N/1/IND
January 199611canalizing agencies granted
monopolies onexport andimport of
essential goods. Government maygrant
licences toprivate parties toimport or
export anyofthecanalized goods.
GATT
Council for
Trade in
Goods
G/L/59Non-tariff measures Every twoyears
beginning
January 1996G/MA/NTM/QR/1/Add.2;
October 1996Fullnotification available inSecretariat.
GATT 1994
(Art. VII)Customs Valuation
(Art. 22.1)Once andthen
changesG/VAL/N/1/IND/2
March 1996India´slegislation notified under the
Tokyo Round Customs Valuation
Agreement, remains valid under the
WTO Agreement.
GATS
(Art. III)Changes tocertain
lawsandregulationsAnnual (January 1996)
TRIMs
(Art. 6.2)Publications inwhich
TRIMS maybefoundOnce andthen
changes(February 1997)
TRIMs
(Art. 5.1)Investment Measures March 1995 and
subsequent
changesG/TRIMS/N/1/IND/1/
Add.1 January 1996
G/TRIMS/N/1/IND/1/
Add.2 May1996India maintains TRIMs intheconsumer
goods sector andinthecaseofsome
pharmaceutical products.
TRIPS
(Art. 70)Laws andregulations Within 30days
oftheWTO
agreementIP/N/1/IND/1
March 1995Notification ofamailbox facility.
Thenotification hashowever lapsed
since itwasnotapproved bytheIndian
Parliament.
Note: FY=Fiscal year, which inthecaseofIndia runsfrom 1April to31March.
Source: WTO documents.
(5) Execution ofTrade Policy
(i) TheExecutive
36. TheDepartment ofCommerce, within theMinistry ofCommerce, isthemainbodyresponsible
forIndia'strade policy formulation andallmatters connected withit,including commercial relations
withtrading partners, statetrading, export promotion andthedevelopment andregulation ofexportIndia WT/TPR/S/33
Page 31
oriented industries andproducts. TheDepartment ofCommerce isheaded bytheSecretary for
Commerce. TheDepartment isassisted bytheDirector General ofForeign Trade whoisthehead
oftheImport-Export Trade Control Organization which executes allexport-import related policies
oftheGovernment ofIndia. Since therecent changes intrade policy, theDirector General 'srolehas
become oneof"export promotion andfacilitation ofimports".34TheDirectorate General ofCommercial
Intelligence andStatistics istheprimary government agency forcollecting, compiling andpublishing
trade andcommercial statistics. TheDevelopment Commissioners incharge ofIndia'sseven export
processing zones arealsopartoftheMinistry ofCommerce.
(ii) Autonomous andadvisory bodies
37. TheMinistry ofCommerce isalsoassisted byanumber ofautonomous andadvisory bodies.
TheBoard ofTrade, constituted in1989, provides animportant input intotrade policy formulation;
itsmembership includes theGovernor oftheReserve BankofIndia(RBI), Secretaries oftheMinistries
ofCommerce, Industry, Finance, andTextiles, theSpecial Secretary fromthePrime Ministers Office
andthepresidents ofvarious industrial andexport councils andspecialists. TheCommerce Minister
istheChairman oftheBoard, andtheDirector General ofForeign Trade istheMember Secretary.
TheBoard normally meets twoorthree times ayear.
38. TheIndian Institute ofForeign Trade isanautonomous body which performs training and
research ininternational trade andmarketing. Other autonomous bodies include theIndian Institute
ofPackaging, theIndian Diamond Institute, Indian Council ofArbitration, and20export promotion
councils forseveral sectors andproducts, including apparel, basic chemicals, pharmaceuticals and
cosmetics, cashew nuts,carpets, chemicals andallied products, cotton textiles, electronics andcomputer
software, engineering, gems andjewellery, handicrafts, handlooms, silk,leather, construction, plastics
andlinoleum, shellac, sports goods, synthetic andrayon textiles, wool andwoollens andpowerloom
development.
39. There arealsosixstatutory Commodity Boards, responsible respectively fortheproduction
andexport oftea,coffee, rubber, spices, tobacco andcoir. TheExport Inspection Council isastatutory
body fortheenforcement ofquality control andisincharge ofpreshipment inspection ofallIndian
exports.
40. TheDepartment ofCommerce alsotakesintoaccount theviews ofvarious advisory andreview
bodies thatmaybeestablished fromtimetotime, andofacademic institutions andindustrial associations
suchastheFederation ofIndiaExporters 'Organization (FIED), theConfederation ofIndian Industries
(CII), theFederation ofIndian Chambers ofCommerce (FICCI) andtheAssociated Chambers of
Commerce (ASSOCHAM). ThePresidents ofFICCI, ASSOCHAM, andCIIalsorepresent industrial
interests intheBoard ofTrade.
34Government ofIndia (1996o).WT/TPR/S/33 Trade Policy Review
Page 32
(6) Trade Relations
(i) Multilateral agreements
41. India wasanoriginal contracting party totheGATT andbecame afounding member ofthe
World Trade Organization inJanuary 1995. Asamember oftheWTO India hasobserver status in
theAgreements onGovernment Procurement, Trade inCivilAircraft andalsointheInternational Dairy
andBovine Meat Arrangements, which expired attheendof1997.
42. India isamember ofallthemajor multilateral economic fora, including theInternational
Monetary Fund, theWorld Bank andtheAsian Development Bank.
(ii) Regional agreements
43. TheSouth Asian Association forRegional Cooperation (SAARC), hassought toexpand trade
andeconomic relations between itsmembers, namely, India, Bangladesh, Bhutan, Maldives, Nepal,
Pakistan andSriLanka. Itsmajor achievement in1995wastheconclusion ofthenegotiations ontrade
preferences within theframework oftheAgreement oftheSAARC Preferential Trading Arrangement
(SAPTA). SAPTA became operational on7December 1995andincludes preferential tariffconcessions
on226items andproduct groups. India hasoffered tariff concessions on106items, ranging from
10percentto90percentofpresent tariff levels (Chapter III(2)(iii)). Tariff concessions forleast
developed countries range from 50percentto100percentonmany ofthese products.35
44. Asecond round ofSAPTA trade negotiations waslaunched inJanuary 1996 tobroaden tariff
concessions. Indiagranted concessions on902tarifflines, effective 1March 1997. Tariff preferences
ranging from 25percentto50percentweregranted on512linesexclusively totheleastdeveloped
members ofSAARC; tariff concessions ranging from 10percentto40percenton390lineswere
granted toallSAARC members. Athirdround oftrade negotiations commended inJuly1997. The
goalistocontinue theSAPTA process withtheultimate aimofhaving aSouth Asian FreeTrade Area
(SAFTA) bynotlaterthantheyear2001.36
45. India isamember oftheBangkok Agreement, originally signed in1975, andwhich nowalso
includes Bangladesh, theRepublic ofKorea, theLaoPeople 'sDemocratic Republic, Papua NewGuinea
andSriLanka.37TheAgreement provides fortheliberalization oftariffandnon-tariff barriers between
35WTO document WT/COMTD/10, 25April 1997. Theleastdeveloped countries intheagreement include
Bangladesh, Bhutan, theMaldives andNepal.
36Thetarget dateforaccomplishing freetrade wasmoved forward from theoriginal dateof2005 atarecently
concluded summit meeting between theseven heads ofState intheMaldives (International Herald Tribune,
15May 1997).
37According tothenotification (GATT document L/6718) alldeveloping countries intheESCAP region are
eligibleformemb ership.ThePeople'sRepublicofChinahasrecentlyappliedformemb ershipandisintheprocess
ofacceding totheAgreement (Government ofIndia, 1996o).India WT/TPR/S/33
Page 33
itsmembers. Atotalof104products arecovered innational listsofconcessions, including 15special
concessions granted totheLaoPeople 'sDemocratic Republic (Chapter III(2)(iii)).
46. TheIndian Ocean RimAssociation forRegional Cooperation wasrecently formed along
with13other countries intheregion.38TheCharter oftheAssociation wasadopted inMarch 1997.
Economic cooperation isexpected totakeplace intrade facilitation, promotion andliberalization,
promotion offoreign investment, promotion ofscientific andtechnological cooperation, tourism, the
movement ofnatural persons andservice providers, andthedevelopment ofinfrastructure andhuman
resources. Anenabling clause toidentify other areas ofcooperation isalsoincluded intheagreement.
Indiahasalsosigned sub-regional agreements withNepal, Bangladesh, Myanmar andBhutan andmore
recently withBangladesh, SriLanka andThailand. Details oftheagreement known asBISTEC are
presently being formulated.
(iii) Bilateral agreements
47. India hassigned bilateral agreements withtwoneighbouring countries, Bhutan andNepal, to
provide them withpreferential access. Theagreement withBhutan signed in1984 provides transit
facilities tothatlandlocked country andtradeisconducted inIndian rupees andBhutanese ngultrums.
Indian trade withNepal isconducted onapreferential basis forarange ofproducts, andIndia also
provides transit facilities forNepal. More limited agreements havebeensigned withBangladesh, which
receives thepreferential treatment India accords toleastdeveloped countries under SAPTA, andwith
Myanmar. AMemorandum signed in1991 under theSino-Indian Border Agreement allows limited
border trade across twopoints along theIndia-China borders (Chapter III(2)(iii)).
48. Commonwealth preferences continue tobeextended toMauritius, Tonga andtheSeychelles.
(iv) Other
49. India'sbanontradewithSouthAfricanotifiedunderArticleXXXVwasliftedinOctober1994.39
India continues tomaintain nodiplomatic ortrading relations withFiji.
50. Indian exports receive preferential treatment under theGeneralized System ofPreference (GSP)
schemes ofAustralia, Bulgaria, Belarus, Canada, theCzech Republic, theEuropean Union, Hungary,
Japan, NewZealand, Poland, Norway, Russia, Switzerland, Slovakia andtheUnited States. GSP
treatment onexports from India andforanumber ofother developing countries also,aregradually
being phased outbyanumber ofcountries including theEU,theUnited states andAustralia.40India
isalsoamember oftheGlobal System ofTrade Preferences among Developing Countries (GSTP),
agreed in1988, which haspresently beenratified by41countries. India offered tariff concessions
38Theothermemb ersareAustralia,Indonesia,Kenya,Madagascar,Malaysia,Mauritius,Mozambique,Oman,
Singapore, South Africa, SriLanka, Tanzania andYemen.
39GATT (1994); anddocument L/7547.
40TheEU,forexample, allows fortariff ratestobevaried according tothesensitivity ofproduct categories:
Australia'sGSPschemeisgraduallybeingphasedoutformostdevelopingcountries(WTO,1997andWTO,1998).WT/TPR/S/33 Trade Policy Review
Page 34
ranging from between 10and50percenton31products during thefirstround ofnegotiations, and
preference margins between 10and100percenton27tarifflinesatthesix-digit levelduring thesecond
round. Negotiations toconclude thesecond round arebased onfurther tariff concessions ona
product-by-product basis andareyettobeconcluded.
(v) Dispute settlement
51. Under theGATT, Indiawasinvolved inonedispute, withPoland. Indiarequested consultations
under Article XXII:1 ofGATT 1947, concerning amodification ofPoland 'stariff structure onmotor
carimports fromcountries outside theEuropean Economic Community. Formal consultations began
on22June1993 andIndia requested theestablishment ofapanel under Article XXIII:2 (DS40/2) in
October 1994. Apanel wasestablished inDecember 1994 andIndia withdrew itsclaim under
GATT 1947 (DS40/4), torequest consultations withPoland onthesame issue pursuant toArticle 4
oftheUnderstanding onRules andProcedures Governing theSettlement ofDisputes and
ArticleXXXIII:1ofGATT1994(WT/DS/9/1)inOctober1995.Amutuallyagreedsolutionwasnotified
inSeptember 1996 (WT/DS19/2).
52. IndiahasusedtheWTO 'sdispute settlement mechanism fourtimes.41Inthecaseofacomplaint
byIndia against transitional safeguard measures usedbytheUnited States affecting imports ofwoven
woolshirts andblouses (WT/DS33), thePanel found infavour ofIndiainJanuary 1997(Table II.3).42
Panels havealsobeenestablished inthecaseofimport prohibitions bytheUnited States oncertain
shrimp andshrimp products, under Section 609ofU.S. Public Law101-60243;andinthecaseof
Turkish restrictions oncertain imports oftextiles andclothing, where India claims aviolation of
Articles XIandXIIIofGATT 1994andofArticle 2oftheAgreement onTextiles andClothing. India
wasathird party toasimilar complaint brought byHong Kong against Turkey. Inaddition, in
early 1996apanel wasestablished onanIndian complaint regarding U.S.measures onimports ofcertain
woolcoats; thepanel wasnotconstituted, following termination oftheU.S.measures inApril 1996.
41ContainedindocumentsWT/DS32,15March1996,WT/DS33,24February1997,WT/DS34andWT/DS58,
14October 1996.
42TheReport oftheAppellate Body inMay1997, similarly, found thatthemeasures imposed bytheUnited
States hadviolated theprovisions oftheWTO Agreement onTextiles andClothing.
43Thiswasajointcomplaint brought totheWTO 'sDispute Settlement Body byIndia, Malaysia, Pakistan
andThailand.India WT/TPR/S/33
Page 35
Table II.3
Disputes involving India intheGATT andWTO
Description Raised by/against Actions Outcome
Duty exemptions for
automobiles originating
from theEUIndia/Poland Consultations requested
under Art.XXIII:2 byIndia
on20May1993 (DS40/1)
India requests panel under
Article XXIII:2 in
October 1994 (DS40/2)
Panel established Dec1994
(C/M/276)India withdrew claim in
October 1995 (DS40/4)
Duty exemptions for
automobiles originating
from theEUIndia/Poland Consultations requested under
Art.XXIII:1 inOctober 1995
(WT/DS/19/1)Mutually agreed solution
notified inAugust 1996
(WT/DS19/2)
Measures affecting imports
ofwomen 'sandgirls'wool
coatsIndia/USA Panel established under
Art.XXIII:2 andArt.8.10and
other relevant provisions of
theAgreement onTextiles
andClothing inMarch 1996
(WT/DS32/1)India requested termination
offurther action inlightofthe
decision taken bytheUSA to
remove thesafeguard measures
inApril 1996
Measures affecting imports
ofwoven wool shirts and
blousesIndia/USA Panel established under
Art.XXIII:2 andArt.8.10and
other relevant provisions of
theATC inMarch 1996
(WT/DS33/1)
Panel established June1996
(WT/DS33/2)Panel found infavour ofIndia
inJanuary 1997.
India appealed some aspects of
thedecision inFebruary 1997
(WT/DS33/3). Appellate body
upheld thedecision ofthe
panel inApril 1997
(WT/DS33/AB/R).
Restrictions onimports of
textile andclothing productsIndia/Turkey Consultations requested under
Art.XXIII:1 inMarch 1996
(WT/DS34/1)
Establishment ofpanel
requested inFebruary 1998
(WT/DS34/2)
Import prohibition ofcertain
shrimp andshrimp productsIndia/USA India joined governments
ofMalaysia andThailand
asaco-complainant, requesting
panel inFebruary 1997
(WT/DS58/8). DSBagreed to
establish andincorporate panel
withpanel already established
forCo-Complainants
(WT/DS58/9).
Inadequate patent protection
forpharmaceuticals and
agricultural chemical productsUSA/India Request forconsultations
inJuly1996 (WT/DS50/1)
Establishment ofpanel
requested inNovember 1996
Panel established in
November 1996 (WT/DS50)Panel found thatIndia had
failed tocomply with
Articles 70.8and70.9of
theTRIPS Agreement in
September 1997
(WT/DS50/R). India appealed
thedecision inOctober 1997.
TheAppellate Body Report
supported some aspects of
thePanel'sdecision on
Articles 70.8and70.9butnot
onArt.63oftheTRIPS
Agreement (WT/DS50/AB/R).
Inadequate patent protection
forpharmaceuticals and
agricultural chemical productsEC/India Request forconsultations in
April 1997 under Art.XXII
ofGATT 1994 (WT/DS79/1).
Panel requested in
September 1997 andestablished
November 1997 (WT/DS79/3).
Table II.3(cont'd)WT/TPR/S/33 Trade Policy Review
Page 36
Description Raised by/against Actions Outcome
Quantitative restrictions on
imports ofAgricultural,
Textile andIndustrial productsUSA/India Consultations requested under
Art.XXII:1 ofGATT 1994,
Article 19oftheAgreement on
Agriculture andArt.6ofthe
Agreement onImport Licensing
Procedures (WT/DS90/1) in
July1997. Panel requested by
theUSinOctober 1997. Panel
formed inNovember 1997.
" Australia/India Consultations requested under
Art.XXII:1 ofGATT 1994
(WT/DS91/1).Mutually agreed solution in
November 1997a
" Canada/India Consultations requested under
Art.XXII:1 ofGATT 1994
(WT/DS92/1) inJuly1997.Mutually agreed solution
reached inNovember 1997a
" NewZealand/India Request forconsultations under
Art.XXII:1 ofGATT 1994
(WT/DS93/1).Mutually agreed solution
reached inNovember 1997a
" Switzerland/India Consultations requested under
Art.XXII:1 ofGATT 1994 in
July1997 (WT/DS94/1).Mutually agreed solution
reached inNovember 1997a
" EU/India Requested consultations under
Art.XXII:1 ofGATT 1994
(WT/DS96/1).Mutually agreed solution
reached inNovember 1997a
a Yettobenotified totheWTO Secretariat.
Source: WTO documents.
53. Inamatter regarding Indian action, theUnited States requested consultations onIndian patent
protection forcertain pharmaceuticals andchemical products. Failing aresolution, apanel was
established toinvestigate theU.S.complaint inNovember 1996. Thepanel ruled inSeptember 1997
thatIndia hadnotcomplied withitsobligations under theTRIPS Agreement toprovide amechanism
forapplication forproduct patents forpharmaceutical andagricultural chemicals andtoprovide asystem
forgranting exclusive marketing rights. Indianotified anappeal totheAppellate Body inOctober 1997.
TheUnited States alsorequested theestablishment ofapanel toexamine India'sremaining quantitative
restrictions. Apanel under Article 6oftheDSU with"standard" terms ofreference wasestablished
inNovember 1997.44Mutually agreed solutions werereached, following consultations incases brought
onthesame issue, with Australia, Canada, New Zealand, Switzerland, Japan andtheEU
(Chapter III(2)(xvii)).45
44According totheUnited States, India'squantitative restrictions appear tobeinconsistent withitsobligations
under Articles XI:1andXVIII:11 ofGATT 1994 andArticle 4.2oftheAgreement onAgriculture; theimport
licensingproceduresandpracticesoftheGovernmentofIndiaareinconsistentwithfundamentalWTOrequirements
asprovided inArticle IIIofGATT 1994 andArticle 3oftheAgreement onImport Licensing Procedures
(WTO document WT/DS90/8, 6October 1997).
45WTO document DSB/M/39, 7January 1998.India WT/TPR/S/33
Page 37
(7) Investment Policy
54. Policy onforeign investment inIndia wasguided inthepastbyindustrial considerations,
investment having beenchannelled intothose industries where foreign technology andforeign exchange
wasdeemed necessary foreconomic growth. Foreign equity participation wastightly regulated, usually
toalimitof40percentoftotalequity. Since 1991, there hasbeenarelaxation ofthispolicy and
theforeign technology requirement hasbeendiscontinued. Thenumber ofsectors open toforeign
investment hasbeenenlarged andupto100percentforeign equity participation isallowed inanumber
ofindustries.
55. India doesnothaveaseparate lawforforeign investment, largely because oftherelatively
lowimportancegiventoforeigninvestmentinpreviousdecades.Instead,withindustrialgrowthregulated
through theIndustries (Development andRegulation) Act,1951, which outlined industrial licensing
procedures forindustries, foreign investment ruleswereincorporated inthisAct; foreign investment
wasusually channelled intothose sectors orindustries considered important forIndia'sindustrial
development.
(i) Foreign direct investment
56. TheCommon Minimum Programme (CMP) oftheIndian Government isaimed atattracting
foreign direct investment (FDI) inflows ofUS$10 billion ayear. Atpresent, totalannual inward FDI
isaround US$3 billion. Aswithtrade policy, radical reforms havebeenintroduced intheareaof
investment policy since theearly 1990s, although thepolicy remains discretionary insome respects.46
TheGovernment hassignificantly relaxed foreign investment regulations since theearly1990s aswell
assectoral restrictions, bothforFDIandforforeign institutional investors (FIIs). Themaincomponents
oftheprogramme toliberalize FDIincluded:
(a) Automatic approval bytheReserve Bank ofIndia(RBI) forupto51percentofforeign
equity participation in48priority sectors oftheeconomy47;upto50percentinthe
caseofthemining sector; andupto74percentinninesectors (Table II.4). Inthese
ninesectors forproposals relating totechnical collaboration ortechnology transfer,
theRBIcangrant automatic approval forinvestment inallsectors aslongastheymeet
therequirement thatlump sumpayments donotexceed Rs10million; royalties do
notexceed 5percentondomestic salesand8percentonexports; andtotalpayments
donotexceed an8percentceiling oftotalsalesoveraperiod oftenyears from the
dateofagreement orseven years fromthecommencement ofcommercial production.
TheRBInormally gives automatic approval toproposals thatconform tothese
requirements within aperiod oftwoweeks. Non-resident Indians (NRIs) andoverseas
corporate bodies inwhich NRIs holdatleast60percentoftheequity, caninvest up
to100percentinthesesectors through theautomatic route. Noapproval isnecessary
46Theguidelines fortheapproval offoreign investment projects bytheForeign Investment Promotion Board
(FIPB) were issued onlybytheGovernment inJanuary 1997. Prior tothatthere were noguidelines forcases
where foreign investors could notfindappropriate Indian partners andinthecasethattheIndian partner was
unable tofindtheresources fortechnological upgrading. Although these guidelines havemade theprocess more
transparent, itstillleaves room fortheFIPB toconsider "recommendations based onother criterion itconsiders
relevant" (Economic Times, 21January 1997).
47UntilDecemb er1996amaximumforeignequityparticipationofupto51percentwasallowedin35sectors.WT/TPR/S/33 Trade Policy Review
Page 38
foranFDIinflow ofupto24percentoftheequity inanyIndian firm48andupto
20percentinanynewprivate bank(40percentforNRIs). Investment limits apply
toseveral sectors, including 49percentintelecommunications (basic, cellular and
paging) services; 40percent(100percentforNRIs) indomestic airtaxioperations
orairlines, and51percentinthepharmaceuticals sector fortheproduction ofbulk
drugs.
(b) Theestablishment ofaForeign Investment Promotion Board (FIPB) andtheSecretariat
forIndustrial Approvals (SIA), toexamine FDIproject proposals thatinvolve more
thana51percentforeign equity holding inpriority industries andallother industries.
Inthecasethatforeign investment applications donotconform totherequirements
forautomatic RBIapproval aslisted above, theyarereferred totheFIPB ortheSIA
forapproval. These proposals areexamined onacase-by-case basis anddiscretion
exists tograntpermission. Ingeneral, theFIPB willapprove upto100percentforeign
equity incases where aforeign company hasbeenunable tofindasuitable Indian
partner forajointventure, subject tothecondition thattheforeign investor disinvest
atleast26percentofequity toIndian companies within three tofiveyears; where
aholding company istobeestablished andalldownstream investments needprior
approval; where proprietary technology issought; where atleast50percentof
production isexported; andforconsultancy services andprojects inthepower,
roadways, ports andindustrial towns andestates sectors. Upto100percentforeign
equity investment canalsobeallowed bytheFIPB forfirms engaged inexports, bulk
imports, cash-and-carry wholesale trading andimports ofother goods andservices,
provided thatatleast75percentofoutput orimports isfortrade among firms ofthe
samegroup.Theywouldnormallycleartheforeigninvestmentproposalwithinaperiod
offourtosixweeks.
57. AForeign Investment Promotion Council (FIPC) hasbeenestablished toincrease therateof
investment inpriority sectors.
48Investment inthesmall-scale sector isfreely allowed uptoaforeign participation of24percentofthe
equity,butgovernmentapprovalisrequiredthroughtheForeignInvestmentPromotionBoard(FIPB).Investment
isalsorestricted inthesixsectors reserved forthepublic sector, including arms andammunition andallied items
ofdefence equipment, including defence aircraft andwarships, atomic energy, coalandlignite, mineral oils,
mineral specified intheSchedule totheAtomic Energy (Control ofProduction andUse)Order, 1953, andrailway
transport.India WT/TPR/S/33
Page 39
Table II.4
Sectors eligible forautomatic foreign technology andforeign equity approval
50percentforeign equity participation
Mining ofironore Mining ofnon-metallic minerals notelsewhere classified
Mining ofmetal oresother thanironore
51percentforeign equity participation
Metallurgical industries Welding electrodes other thanthose forwelding mildsteel
Boilers andsteam generating plants Industrial synthetic diamonds
Prime movers (other thanelectrical generators) Extraction andupgrading ofminor oils
Electrical equipment Pre-fabricated building material
Transportation Soya products
Machine tools andindustrial robots andtheircontrols and
accessories.Certified highyielding seedandsynthetic seeds andcertified
highyielding plantlets developed through plant tissue culture
Earth moving machinery andconstruction machinery and
components thereofAllfoodprocessing industries other thanmilkfood, malted
foods andfloura
Industrial machinery andequipment Allitems ofpackaging forfoodprocessing industriesa
Agricultural machinery Hotels andtourism related industry
Industrial instruments Electronics software
Nitrogenous andphosphatic fertilizers Manufacture offoodproducts
Chemicals (other thanfertilizers) Manufacture ofcotton textiles (spinning, weaving and
processing inintegrated millsector)
Scientific andelectromedical instruments andlaboratory
equipmentManufacture ofbasic chemicals andchemical products (except
products ofpetroleum andcoal)
Drugs andpharmaceuticals (according tomodified drug
policy, 1994)Manufacture ofwool, silkandmanmade fibretextiles
Paper andpulpincluding paper products Manufacture ofbasic chemicals andchemical products (except
products ofpetroleum andcoal)
Automobile tyres andtubes Manufacture ofrubber, plastic, petroleum andcoalproducts
Plate glass Manufacture ofmetal products andparts except machinery and
equipment
Ceramics forindustrial uses Manufacture ofmetal products andparts except machinery and
equipment
Cement products Land transport (support services)
High technology reproducts andmultiplication equipment Water transport (support services)
Carbon andcarbon products Services incidental totransport notclassified elsewhere
Pretensioned highpressure RCC pipes Renting andleasing notclassified elsewhere
Rubber machinery Business services notclassified elsewhere
Printing machinery
74percentforeign equity participation
Mining services Construction
Basic metals andalloy industries Land transport
Other manufacturing industriesbWater transport
Electric generation andtransmission Storage andwarehousing services
Non-conventional energy generation anddistribution
a Excluding items reserved forthesmall-scale sector.
b Including NICcategories 380,381and388.
Source: Government ofIndia (1996e), Manual ofPolicy andProcedures Governing Industrial Approvals, NewDelhi andGovernment
ofIndia (1997a), Press Note No.2 1997 series, Ministry ofIndustry, NewDelhi.
58. Dividend balancing, which waspreviously required forallsectors where foreign investment
occurred, isnowrequired onlyin22specified industries, including foodandfoodproducts, wood
products, leather, footwear, automobiles, entertainment electronics andwhite goods (Table AII.1).
Forthe22specified industries, dividend payments made bytheforeign investor mustbebalanced by
export earnings onthefollowing basis:
(i) dividend balancing isrequired overaperiod ofseven years from commencement of
production andnotafterthisperiod;WT/TPR/S/33 Trade Policy Review
Page 40
(ii) remittance ofdividend should becovered byearnings from theexport items covered
bytheforeign collaboration agreement, orthrough theexport ofitems notmentioned
intheagreement provided theseareinthelistofindustries eligible forautomatic foreign
investment approval.49
(ii) Portfolio investment
59. Policies onportfolio investment, byforeign institutional investors (FIIs) and/or bymeans of
Global Depository Receipts (GDRs), havealsoundergone significant changes since 1991. Investment
inthestock market wasopened uptoFIIsinSeptember 1992. Toinvest, FIIsarerequired tobe
registered withtheSecurities andExchange Board ofIndia (SEBI). Inorder todothis,theyhaveto
beregistered intheirhome country orcountry oforigin. FIIinvestment byasingle investor canbe
upto10percentoftheshare capital, raised recently from a5percentlimit, orupto30percent
byallFIIsasagroup; itcanalsotakeplace innon-listed companies, provided thattheBoard of
Directors ofthecompany approves thelimitandaspecial resolution tothiseffect ispassed bythe
general bodyofthecompany.50TheSEBI alsorequires thatthefunds brought intoIndiaforinvestment
mustbeacollective fund.51Inaddition, FIIsarepermitted toholdupto100percentoftheequity
indebtfunds andtheycaninvest ingovernment securities. There arenorestrictions onrepatriation
ofprofits onportfolio investment, subject toIndia'sforeign exchange regulations.
60. Afurther form ofportfolio investment isthrough Euro-market issues ofGlobal Depository
Receipts andForeign Currency Convertible Bonds (FCCBs). Aspartofthereform programme, Indian
companies havebeenallowed since February 1992 toaccess theinternational capital market through
placing suchEuro-equity issues.
(iii) International investment agreements
61. Indiaisamember oftheMultilateral Investment Guarantee Agency (MIGA). Fullsubscription
andmembership rights became operational inJanuary 1994. Allforeign investment approvals granted
bytheGovernment aretherefore insured byMIGA against expropriation andnationalization. India
isalsoaparty tothe1958 NewYork Convention ontheRecognition andEnforcement ofForeign
Arbitration Awards.
62. Indiahasbilateral treaties forthepromotion andprotection ofFDIwithanumber ofEuropean
countries, including Denmark, Germany, Italy, theNetherlands andtheUnited Kingdom. Similar
agreements havebeenfinalized withFrance andtheRepublic ofKorea andIndiaispresently negotiating
agreements withAustralia, Canada, Sweden andSwitzerland. Indiaalsohasagreements withanumber
ofcountries toavoid double taxation.52
49Government ofIndia (1996e).
50Government ofIndia (1997a).
51According totheauthorities, thisrestriction istoprevent money laundering activities.
52These countries areAlgeria, Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Ethiopia,
Finland,France,Germany,Greece, Hungary,Indonesia,Italy,Japan,Kenya,Kuwait,Libya,Malaysia,Mauritius,
Nepal,NewZealand,Norway,Oman,Philippines,Poland,Singapore,Slovakia,SriLanka,Sweden,Switzerland,
Syria, Tanzania, Tunisia, Thailand, theUnited Arab Emirates, theUnited Kingdom, theUnited States, countries
oftheformer Soviet Union andZambia.