Reading the ordinance shows that (a) these points are explicitly covered, and (b) these apprehensions are either a genuine misunderstanding, or actual misrepresentations. 2 This leads one to wonder whether such objections arise because of the imprecise terms and opaque language of the regulations, or as reactions to interpretations (for example,
http://icrier.org/ICRIER_Wadhwani/Index_files/Policy_Report_1.pdf), or if they are disingenuous advocacy without factual basis.
Indian manufacturers need supportive policies because, to quote from the first article cited above, "In high-technology procurement, large international vendors, of whom there are relatively few, form long-term relationships with the relatively few large buyers in oligopolistic markets in telecommunications or electricity. This holds whether the buyers are government entities, state-owned enterprises, or private sector companies. Often, the international vendors have strong home government support. This is why domestic manufacturers [in India] need mandatory access to break into a closed circle. There is no ambiguity in this, nor is it protectionist, and there are no price preferences - in contrast to the 15 per cent allowed by the World Bank, or 10 per cent for minority-owned businesses in the United States".
In any case, Article III:8 of the General Agreement on Tariffs and Trade (GATT) excludes government procurement. As for private procurement, Article XII enables a country's actions "to safeguard its external financial position and its balance of payments" with certain provisos (XII:2(b), "to apply quantitative restrictions for balance of payments purposes in a manner which takes full account of the continued high level of demand for imports likely to be generated by their programmes of economic development"); Article XVIII allows for governmental assistance to economic development; and Article XXI permits security exceptions, as in the US' blocking of Huawei and ZTE.
If this reasoning is correct, and a number of advanced economies, including the US, nurture local capacity building, why the hostility? Does self-interest dictate a biased advocacy position for the US and other countries, or could there be a genuine misunderstanding?
While GATT ordinarily prohibits market access restrictions such as quotas on imports, it limits domestic policies and regulations only when they are discriminatory or more restrictive than necessary, while allowing exceptions for developing economies. So the first requirement is the need to distinguish between "domestic regulation" and "market access restrictions". An article in the World Trade Review in 2005 about the US' ban on online gambling illustrates a case in which the terms/language concerning domestic regulatory actions were misperceived as restrictive practices.5 The relevant point is that the ban was subsequently found not to be a prohibited "market access restriction", but a "domestic regulation" not subject to proscription.
It's possible that advanced economies may seek to preserve their market shares when a large developing economy like India attempts to build its own manufacturing capacity. Therefore, such initiatives may fare better if due care is exercised in developing and articulating policies as well as in communicating them, so that they are not construed as being protectionist. The two areas in our approach to domestic high-technology products that need improvement are:
As for India's efforts to develop high-technology manufacturing capacity, the need is compelling, because of the massive imports of these products on the scale of our energy imports, as well as for security reasons. This requires taking stock of the status without delay, and developing and executing an approach that persuasively articulates our needs and plans. The thrust could be changed from preferential market access to something like a "domestic high-technology manufacturing mission". The government needs to provide strong leadership and coordination in this process as soon after the elections as possible.
Shyam Ponappa at gmail dot com
1 Stephen J Ezell, March 2014: http://www2.itif.org/2014-why-india-pma-harm-global-economies.pdf
3 "The Value of Preferential Market Access", Marco Fugazza and Alessandro Nicita, June 2010: wto.int/english/res_e/reser_e/gtdw_e/wkshop10_e/nicita_e.pdf" target="_blank">http://www.wto.int/english/res_e/reser_e/gtdw_e/wkshop10_e/nicita_e.pdf
4 "Foreign Direct Investment in LDCs: Lessons Learned from the Decade 2001-2010 and the Way Forward": http://unctad.org/en/docs/diaeia2011d1part1_en.pdf
5 "Rien ne Va Plus? Distinguishing Domestic Regulation from Market Access in GATT and GATS", Joost Pauwelyn, April 1, 2005: http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1725&context=faculty_scholarship