In this blog post, Sreeraj K.V and Pranav Sethi studying at the NMIMS School of Law in Navi Mumbai. This article explains international trade law’s general principles, cross-border transactions, dispute settlement mechanisms, and India’s foreign trade policy.
This article has been published by Sneha Mahawar.
International trade laws are those areas of law that deal with certain rules and customs regarding the handling of trade between countries. It is also used for trade between two private sector companies in two countries. This branch of law has now become independent as almost every country is now a member of the World Trade Organisation (WTO). The General Agreement on Tariff and Trade (GATT) has been the backbone of international trade laws since 1948. It contains a provision relating to rules of ‘unfair’ trade practices, dumping and subsidies. In 1994, World Trade Organisation (WTO) was established to take the place of GATT. This is because GATT was meant to be a temporary fix to trade issues and the founders needed something more which was concrete.
The legislation governing global trade is known as International Trade Law (ITL). It has both public and private components. The public component of ITL, which is a subset of public international law, aims to regulate state governments’ business policies. The private part of ITL regulates cross-border business dealings between citizens of various nations. The majority of this is protected by private international law. Additionally, organisations like the United Nations Commission on International Trade Law have been working to create standard rules on a variety of topics related to international business transactions. Also, governments are expected to adopt these laws into their legal frameworks.
ITL was established to promote international trade. In this context, “free trade” refers to the right of individuals to freely exchange goods across international borders. In other words, a person should have the freedom to purchase a good from wherever in the globe they can buy it for the best value. Similarly, they ought to have the freedom to negotiate the maximum price for his goods wherever they are sold. Article 301 of the Indian Constitution states that trade, commerce, and intercourse shall be unrestricted within the boundaries of India.
United Nations Commission on International Trade Law (UNCITRAL)
United Nations Commission on International Trade Law (UNCITRAL) is the main legal body of the United Nations in the area of international trade law and was founded in 1966. It is a legal organisation with global participation working to improve the practice of commercial law. The goals of UNCITRAL are to coordinate and standardise international trade laws.
It is important to distinguish UNCITRAL from the World Trade Organization (WTO), which was established in 1995 and continues the work of the GATT (General Agreement on Tariffs and Trade). In terms of international procedures, UNCITRAL offers the legal principles relevant to private law topics and is thus incapable of dealing with issues about relations between countries such as the fight against dumping, countervailing duties, or import quotas. The WTO deals with trade policy issues such as trade liberalisation, the removal of trade barriers, and unfair business practices.
The International Institute for the Unification of Private Law (UNIDROIT), founded in 1926 and headquartered in Rome, should not be confused with UNCITRAL. UNIDROIT’s mission is to research ways and techniques to modernise, harmonise and keep a check on the practice of private law, specifically commercial law among states and to achieve this goal by creating unified legal mechanisms, and guidelines for the same. Each of these types does have a specific function to perform in International trade law.
UNCITRAL Model Law on International Commercial Arbitration
It was on June 21st, 1985, at the time when the Commission’s 18th annual session concluded and the UNCITRAL Model Law on International Commercial Arbitration was adopted. The Model Law encourages the parties to select the legal principles that will apply to the facts of the dispute, and they are no longer required to select any particular legal framework of any nation. The identified principles overall make the Model Law more practical and flexible.
Due to the flexibility, it provides to states in developing new arbitration laws, the application of a model law was selected as the driver for cooperation and improved performance. Following the model as precisely as possible would represent the biggest contribution to the preferred seat of arbitration and be in the best interests of international arbitration participants, which are mainly foreign participants and their lawyers.
The UNCITRAL Model Law provides a useful foundation for dispute settlement because it contains all of the essential and applicable regulations to make sure that arbitration proceedings run smoothly. Model Law recognises 5 main principles under which international commercial arbitration is ruled. Party Autonomy, Separability, Competence-Competence, Territorial Principle, and Enforceability are the aforementioned principles. The following are explained below:
Arbitration provides a much more neutral forum for discussion in which each party thinks it will receive a fair chance in the proceedings. Furthermore, the functionality of tailoring the dispute resolution procedure to the requirements of the groups as well as the option to identify arbitrators who are competent in the subject matter of the dispute makes the arbitral award so passed after hearing both parties more convincing. Arbitration provides parties with independence and procedures that will be used to settle their disputes. This is especially meaningful in international commercial arbitration since parties do not want to be subject to the rules of the opposing party’s court system. Each side is concerned about the other’s “home court advantage.”
Parties are free to choose the arbitrators, who are generally one or three, i.e., selected by parties to the dispute in odd numbers. Parties also determine whether the settlement will be managed by an international arbitral institution or ad hoc, which implies no institution will be engaged. The rules that implement them are the rules of the arbitral institution. The parties are free to select the applicable substantive law. In general, international arbitral law allows parties to a contract comprising an arbitration clause to select the substantive law that will enforce disputes. It is through this arbitration clause that parties are further compelled by default to enter into an arbitration agreement.
The UNCITRAL Model Law considers the arbitration clause as separate from the main contract for the objective of granting the arbitral tribunal the authority to determine its regulatory authority. Article 16(1) provides mainly two interpretations. The first interpretation states that the arbitration clause shall be dealt with as a standalone agreement from the main agreement, and it must have the implication of limiting a party from proceeding to court and challenging the applicability of the main agreement. Now, this interpretation implies that any argument on the relevance of the main agreement would also be a counter-argument to the arbitration clause.
The agreement to arbitrate provided in an arbitration clause is considered a separate agreement from the remaining portion of the contract among both parties under the autonomy doctrine of the arbitration clause, and thus it may remain in force when the contract has come to an end for any other reason. The arbitration clause withstands the termination, void nature, or invalidity of the main contract. The principle of separability refers to this “staying alive” function of arbitration clauses. Many international trade disputes are resolved through arbitration rather than approaching the court because it helps create a win-win situation for both parties in the arbitration matter.
Competence is a commonly recognised principle in current international arbitration that enables the arbitral tribunal to determine its jurisdiction, such as by asserting any arguments to the existence or applicability of the arbitration agreement or requiring final assessment by a competent court of law. The competence-competence principle has the beneficial impact of allowing arbitrators to rule on their own jurisdiction, as extensively recognised by international treaties and the latest statutory provisions on international arbitration. Besides this, the negative impact is similarly relevant. It is to permit the arbitrators to serve as first judges of their territory rather than the sole judges. In other words, it is to allow them to decide on their jurisdiction before any court or other judicial power, limiting the function of the judiciary to review the award.
The territorial principle’s application only comes into relevance when Model law in a given State appears to apply and only if the venue of arbitration would be in the territory of such a State as elaborated under Article 1(2). Despite this, there are still some provisions that provide for exceptions. There are crucial exceptions to the rule that certain articles apply whether the arbitration takes place in the state that enacted them, somewhere else, or even before the location of the arbitration is decided. According to territorial principles, every jurisdiction has the authority to supervise the people and events that take place inside its borders, but no jurisdiction has the right to restrict the people and events that take place beyond its boundaries.
In cross-border transactions, it’s important to make sure that the decision to settle the dispute is enforceable in all the nations involved in the exchange. The decision should be enforceable to such an extent that in all of the nations where the losing party has assets, those assets can be attached to fulfill the credit of the winning party.
GATT – the General Agreement on Tariffs and Trade
The General Agreement on Tariffs and Trade (GATT), a free trade agreement involving 23 nations, reduced tariffs and boosted global trade. Between January 1, 1948, and January 1, 1995, GATT, the first global multilateral free trade agreement, regulated a large amount of international trade. When the World Trade Organization (WTO) replaced it, the agreement came to an end.
It has since been improved, finally leading to the World Trade Organization (WTO) being established on January 1, 1995, which replaced and expanded it. Trade agreements at this point covered 90% of world trade and had 125 signatories. The GATT was supervised by the Council for Trade in Goods (Goods Council), which is made up of members from every WTO member state. The current chair is Ambassador Didier Chambovey (Switzerland). There are ten committees on the council that deals with issues like anti-dumping laws, access to the market, and farming.
GATT was established to get rid of exploitation through trade restrictions. During the Great Depression, this caused a 66% decline in international trade. Following the destruction of the Great Depression and World War II, the GATT helped the world’s economy recover.
World Trade Organisation (WTO)
International trade is governed by the World Trade Organization (WTO), an intergovernmental body. By offering a foundation for negotiating trade agreements and a dispute resolution procedure intended to enforce participants’ conformance to WTO agreements, which are agreed to be signed by officials of signatory countries and approved by their parliaments, the WTO regulates trade between participating nations. The majority of the WTO’s current concerns originate from earlier trade discussions, particularly the Uruguay Round (1986–1994).
Following the creation of other fresh multilateral frameworks devoted to global economic cooperation, such as the World Bank (founded in 1944) and the International Monetary Fund, the General Agreement on Tariffs and Trade (GATT), the forerunner of the World Trade Organization (WTO), was established in 1947 by a multilateral treaty of 23 nations (founded in 1944 or 1945). Since the United States and other signatories did not approve the founding treaty, the International Trade Organization, a parallel international institution for trade, was never established, and GATT gradually grew into a de facto international organisation.
Basic principles of International Trade Law
Most-Favoured Nation Treatment
The most-favoured-nation (MFN) concept is one of the fundamental principles of the GATT of 1994. MFN entails that all trade agreements must be subject to the same tariff treatment by each member state. Another fundamental declaration of the GATT of 1994 is “national treatment,” which limits favouring imported goods over goods produced domestically when it comes to internal taxation or other forms of regulatory policy. The WTO Agreement allows the assistance of trade remedy policies, although, on one hand, the GATT and WTO require equal treatment and non-discrimination. On the other hand, the WTO Agreement allows the application of trade remedy mechanisms to offer exceptions.
According to the GATT, particular agreements include precise principles that have also been implemented into the national laws of the WTO members. With effect from January 1st, 1995, the Customs Tariff Act, 1975, read with the Customs Tariff (Identification, Assessment, and Collection of Anti-dumping Duty on Dumped Articles and for Determination of Injury) Rules, 1995, was amended by adding a procedural set of principles to the beginning and execution of trade remedial investigations and judicial review. All trade remedial investigations in India are carried out by the Directorate General of Trade Remedies (DGTR), which is part of the Ministry of Commerce and Industry and is led by the Designated Authority (DA). India opened 938 anti-dumping investigations between 1995 and 2019. Overall, from July 2018 to December 2019, India initiated around 53 anti-dumping investigations and 255 investigations pertaining to anti-dumping duties.
National treatment Principle
Treating both foreign nationals and residents respectfully by way of exchanging goods through imports and exports and forming a system of bilateral or multilateral trade wherein trade is free from any barriers and sanctions. The same ought to hold for domestic and international trademarks, copyrights, and patents. The three main WTO agreements (Article 3 of GATT, Article 17 of GATS, and Article 3 of TRIPS) all contain the concept of “national treatment,” however, each of these Articles differ in terms of the interpretation taken up by countries.
Only when a service or a product of intellectual property has hit the market does national treatment take place. Therefore, even if locally produced goods are not subject to an equal tax, the imposition of customs duties on imports does not constitute an infringement on national representation.
Negotiation for free trade
One of the easiest ways to promote business is to lower restrictions on trading. Customs taxes, or tariffs, and restrictions on certain quantities, like import bans or quotas, are included in the list of trade barriers.
Trade negotiations have taken place from 1947 to 1993 in eight rounds total since the GATT was established in 1947–1948. The Doha Development Agenda’s ninth round had started. These first aimed to cut tariffs (customs duties) on imported goods. Due to discussions, in the middle of the 1990s, industrial countries’ and industrial products’ tariff rates had consistently decreased.
However, by the 1980s, non-tariff barriers on commodities as well as brand-new categories like services and intellectual property were included in the negotiations. Opening new markets can be advantageous, but modifying strategies in the same market is sometimes necessary. The WTO agreements permit nations to implement adjustments gradually through “progressive liberalisation.” Developing nations typically receive more time to fulfill their responsibilities and goals.
Supporting the idea of fair competition
Although the WTO is commonly referred to as a “free trade” organisation, that description is not wholly accurate. Tariffs and other types of protection are permitted under certain conditions. It is a set of regulations intended to promote fair, impartial, and unbiased competition.
Fairtrade conditions are ensured by the non-discrimination, MFN, and national treatment rules. Those on providing goods supply by trying to export below cost to increase market share and subsidies are also valid. The rules attempt to define what is fair or unfair and how governments can react appropriately by specifically levying additional import duties determined to make up for harm caused by unfair trade.
Other WTO accords, such as those in the areas of agriculture, intellectual property, and other services, all seek to promote the idea of fair competition. The agreement on government procurement (known as a plurilateral agreement because only a small number of WTO members have signed it) expands the application of competition laws to purchases made by several government bodies across nations.
World trade and intellectual property rights
The agreement establishing the World Trade Organization (WTO Agreement) included the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which went into effect in 1995. The Paris Convention for the Safeguarding of Industrial Property and the Berne Convention for the Protection of Literary and Artistic Works, two primary intellectual property treaties dating back to the 1880s that are monitored by the World Intellectual Property Organization (WIPO), were incorporated into and expanded on by the TRIPS.
The importance of intellectual property rights on a worldwide scale has increased as innovation has become a key indicator of global competitiveness. The Agreement on Trade-Related Aspects of Intellectual Property Rights, sometimes known as the TRIPS Agreement, was established during the Uruguay Round of the trade negotiation process to safeguard intellectual property rights.
The TRIPS Agreement created a minimum standard of security for the intellectual property of many other WTO members. It includes topics including secret information, architectural and structural ideas, geographical indications (GI), copyrights, trademarks, and patents (trade secrets). The long-term goal of protecting intellectual property rights was to promote innovation and creativity. The WTO Doha round of trade negotiations discussion includes intellectual property problems as well (launched in November 2001). The Doha mission instructs members to “discuss the implementation of a multilateral system of notification and registration of geographical indications for wines and spirits” and to “interpret the TRIPS Agreement in a manner supportive of public health.”
TRIPS Agreement as a combination – Berne and Paris-plus agreement
There is a link between the TRIPS Agreement and the Conventions on Biological Diversity. Also, the degree of GI protection provided to wines and spirits under the TRIPS Agreement was expanded to a wide variety of items. The two more unresolved operational difficulties (agricultural and non-agricultural alike) were now in question as to whether these two topics should now be subject to negotiation.
All of these conventions’ major substantive clauses were included by reference, with the exception of those in the Berne Convention for the Protection of Literary and Artistic Works. It constitutes duties under the TRIPS Agreement between TRIPS Member Nations. Articles 2.1 and 9.1 of the TRIPS Agreement, which refers to the Paris Convention and the Berne Convention, respectively, contain the applicable clauses. Secondly, the TRIPS Agreement introduces a significant number of new duties in areas where the earlier treaties are silent or were deemed insufficient. As a result, the TRIPS Agreement is occasionally referred to as a Berne and Paris-plus agreement.
A cross-border transaction is a transaction in which at least one party is situated across the world, or an activity where the monetary exchange takes place in international trade between two or more countries outside the geographical bounds of a country. Major types of cross-border transactions include:
The term refers to any financial arrangement that crosses national boundaries. It includes loans, letters of credit, banker’s acceptance, bank guarantees, depository receipts, etc.
Buying or selling products or services
It refers to buying and selling of products and services. Both may have different features on infrastructure, establishment, producing product service outside the jurisdictional limits, trading across borders, bridging between local resources and outside supply, etc.
Combined research/shared services etc.
Business entities are now being equipped with shared services. For that, joint research programs are being introduced as one cartel or chamber of commerce. Such shared services are concerned with matters of international trade if those shared service centres are providing services across borders scattered in different locations.
Important aspects for entering a cross border transactions
While entering a cross-border transaction, different countries should keep in mind that as per international trade law one should also follow legal compliances, any precedent rulings, and state contracts in case of reciprocating territories they have entered into. Adding more to this, indirect and direct taxation matters, corporate tax planning, accounting, and financial planning issues have also to be considered for the smooth functioning of cross-border transactions. This will help in maintaining harmony between countries and ensuring that confusion in transactions is avoided.
Corporate records necessarily to be maintained as a due diligence checklist
Some of the important documents required to be attached with the due diligence report should have details about the institution’s formation prior to incorporation as well as about acquisitions, reorganizations, restructurings, bankruptcies, placements, buybacks, and modifications in various forms. It should also be noted that information pertaining to the company’s bylaws, articles of association (AOA), and any revisions to them should also be mentioned in the due diligence report that has been drafted. For conducting successful due diligence, it is required to maintain a summary of panel sessions, which include written consents, executive committee resolutions, and resolutions from shareholders and members. Further mailings, solicitations, financial statements, and registration papers are then sent to shareholders. After this, contracts about option plans, securities issuance, securities acquisition, and investment options are further introduced for the facilitation and maintenance of transparency in cross-border transactions.
Any agreement, plan, or documentation that incorporates provisions preventing a transfer of ownership, as well as all documents connected to anti-takeover procedures, are also required to be disclosed. Lastly, details in case of any organisational diagrams displaying the ownership, organisational structure, along with details on subsidiaries, divisions, joint ventures and a certificate of legal conformity from each relevant department in the jurisdiction of incorporation have to be disclosed for the effective legal compliance and taking into account other parties also know some very important details for further formalities to be done while closing a transaction.
Under international trade law, there are different provisions for dispute settlement which is done with the help of WTO and GATT. It was governed by Articles XXII and XXIII of the GATT, which set up a system of consultation for the settlement of disputes among the member nations. The dispute settlement system evolved over time, and there were additional documents, and legal instruments were created to incorporate changes. Even with certain changes, the dispute resolution mechanism was not considered satisfactory.
Among the current international tribunals and bodies, the institution of the WTO’s dispute settlement mechanism has evolved as one of the most reliable and enforceable systems. Its legitimacy is based on several enhancements that were made possible by the approval of the Dispute Settlement Understanding (DSU), which improved the prior dispute resolution system established under the GATT. This element refers to ideas like reverse consensus to illustrate how the WTO’s current dispute resolution mechanism has developed.
It is regarded as one of the most reliable and trustworthy methods of dispute resolution. The system’s awards have a binding nature, which is what makes them enforceable. But to claim that such a structure just emerged in 1995. The new WTO dispute resolution process has assimilated fifty years of experience in resolving trade issues under the GATT. Although the present system has made several additions and improvements to the previous one, it is GATT 1947 that is primarily responsible for its inception. Article 3.1 of the Dispute Settlement Understanding (DSU) is relevant in this situation.
GATT 1947 wasn’t intended to be a global trade organisation. It naturally did not include a comprehensive dispute resolution system and only had two brief provisions—Articles XXII and XXIII—relating to dispute resolution. These clauses allowed GATT members to seek adjudication for three types of claims: violations, non-violations and situational concerns. The General Agreement on Trade and Tariffs (GATT) is one such agreement that was adopted in 1947 by 100 nations to lessen trade restrictions, lower tariffs, and promote international trade in the years following World War II.
Another outcome of trade negotiations under the GATT is the World Trade Organization. The WTO is a global organisation with the responsibility to create effective trade laws, serve as a venue for further discussions to lower trade restrictions, and serve as a forum for resolving disputes.
International Trade laws deal with certain subjects which are inclusive to all the member nations under the WTO. It includes:
Negotiating trade agreements
Agreements of accession to the WTO, general trade agreements, and regional trade agreements.
- Tariffs and quotas
- Administration of customs laws
- Government subsidies, anti-dumping, countervailing duties and other trade remedies.
- Technical standards for industrial and agricultural products.
- Intellectual property protection
- Understanding and utilizing various provisions of the WTO for trade enhancement for developing countries during domestic adjustments integrating into the rule-based trading system.
- Laws regulating foreign investments
- Government procurement laws and anti-corruption measures.
India’s Foreign Trade Policies
It will be clear when we look into India’s economy before the 90’s. Till then, India was a closed economy where average tariffs exceeded 200 percent, quantitative restrictions on imports were very extensive, and there were strict regulations on foreign investments. India started to reform during the 1990’s as it opened up the economy so that there will be a flow of foreign investments and an increase in the foreign trade policies of the country as well. Since then, foreign trade showed a remarkable change. India’s percentage of GDP increased drastically, and the economy is now one of the fastest-growing economies in the world. India is now aggressively pushing for more liberal global trade management. It has gained a leadership role among developing nations in global trade negotiations.
Recently, India has signed various trade agreements with neighbouring countries as well as the United States. Its regional and bilateral trade agreements are at different levels of development.
- India – Sri Lanka Free Trade Agreement
- Trade agreements with Bangladesh, Bhutan, Maldives, China, and South Korea.
- India – Nepal Trade Treaty.
- Comprehensive Economic Cooperation Agreements (CECA) with Singapore.
- Framework Agreements with the Association of South East Asian Nations (ASEAN), Thailand and Chile.
India is now, one of the largest trading partners with the US, which imports major items such as IT services, textiles, machinery, gems, chemicals, etc. The US have also made notable investments in India’s power generation, telecommunication, ports, roads, petroleum exploration and processing, and mining industries as well.
While looking for the cases involving international trade, we can see that almost all the cases deal with issues involving any private sector business organization on one side and the concerned Government business authority on the other. In the case of Suntec Industries v. the United States, the court was of the opinion that the issue regarding granting of defendants motion for summary judgment would be denied due to the failure of producing evidence for proving their part, and hence the court decided the case for the defendant. Hence it will be clear that for cases involving international trade practices, submission of strong evidence against the concerned parties must be necessary so that they realizes the fault on their part and the correctional mechanism will be implemented accordingly. Or else the case may likely lead to certain international trade disputes among the concerned nations. While looking through India’s use of the WTO dispute resolution mechanism, we can see that the nation is actively involved in all spheres including disputes and also in negotiations and reviews as well. India also had many cases against its international trade partners and won many among them and even considered to be a landmark in this field. The majority of the cases are involved in measures regulating textiles and clothing exports, which is one of the prime areas of India’s international trade. Mainly the United States is the other party in many of such suits. Overall, India was able to make a consistent remark in the field of dispute resolution mechanisms under WTO in order to pursue issues that matter to it.
The WTO’s Dispute Settlement Body (hereinafter referred to as the “DSB”) adjudicates problems involving international commerce amongst its members. The WTO’s dispute resolution mechanism, as outlined in the Dispute Settlement Understanding, requires disputing members to first engage in consultations targeted at peacefully settling problems. If this is not possible, then the complainant country may seek the DSB to constitute a dispute settlement panel. Such professional panelists may only be established by the DSB, which also has the sole right to accept or reject the panel’s decisions or the outcomes of an appeal after they have considered a matter.
India has been a prominent real concern before the DSB and has so far brought up 24 disputes. Additionally, India has been the target of 32 claims brought by other member countries. Three of the disputes out of the twenty-four WTO cases that India filed have already progressed at this stage.
Disputes filed by India in pursuance of trade remedy
Except for Canada, Mexico, Australia, Argentina, South Korea, Brazil, and countries in the European Union, the US levied additional import taxes of 25% and 10% on specific steel commodities and metal products from all other nations in 2018. India filed the case US – Steel and Aluminium Products (India) to oppose the levying of an extra import tariff and asked the DSB to appoint a group. Eight other WTO members, including Canada, China, the EU, Mexico, Norway, Russia, Switzerland, and Turkey, also have filed disputes against the United States because the selective imposition of additional duties distorts international trade, and nearly 30 other members have reserved their right to participate as third parties.
The panel was set up by the Director General in January 2019 to resolve the conflict. Due to the complexities of the problems and the panelists’ commitments to numerous procedures, the panel subsequently communicated in November 2019 that it would be unable to produce a panel report well within a given timeframe.
Signatory Countries who have filed Disputes against India
The United States brought the case of India – Solar Cells in 2013, and both the panel and the Appellate Body determined that the government of India’s new policies violated both Article 2.1 of the TRIMs Agreement and Article III of the GATT of 1994. India informed the DSB of its intention to execute the order by December 2017, but the United States asserted that India had disrespected the order and asked for the termination of the concessions granted to India. India then asked the DSB to set up a panel in 2018 to settle the dispute between India and the United States. The government launched a safeguard examination in 2015 into shipments of “hot rolled flat items” and levied a 20% excise tax safeguard duty. Japan, which was offended by this decision, filed a dispute against India—Iron and Steel Products with the DSB and claimed that the safeguard measures were implemented in breach of several agreements on safeguard requirements as well as Article 2 of the GATT 1994. The DSB panel came to the opinion that India’s approach violated Articles 3.1 and 4.2(c) of the Agreement on Safeguards because it lacked reasoned opinions on all relevant factual and legal problems. Following that, both India and Japan informed the Appellate Body that they would be appealing this decision. The Appellate Body hasn’t released its report yet since there aren’t enough members to make a decision.
India’s Foreign Trade Policies
India began to reform in the 1990s as it opened up its economy to allow for an increase in international investment and the expansion of its foreign trade policy. Since then, there has been a noticeable change in global trade. India’s GDP share expanded significantly, and the country’s economy is currently one of the world’s most rapidly growing. India is currently making a strong push for a more open approach to managing global commerce. In international trade discussions, it now has a leadership position among emerging countries.
The US now trades with India, which imports significant goods including IT services, textiles, machinery, diamonds, chemicals, etc. The US has also made significant investments in India’s mining, petroleum processing, ports, telecommunications, electricity generation, and transportation sectors.
The Ministry of Commerce is concerned with making India a prominent player in international markets and implying a prominent function in global trade organisations that is compatible with the country’s growing significance. In the mid-term, the department is responsible for making commodity and great national strategies, and in the long term, it develops a strategic plan/vision and India’s Foreign Trade Policy. Multilateral and bilateral corporate contacts, special economic zones (SEZs), state trading, export growth and trade clearance, and the establishment and supervision of specific trade businesses and materials are all responsibilities of the Department.
The Foreign Trade Policy (FTP) of India establishes the planning and strategy frameworks for encouraging shipments and trade. It is updated regularly to keep up with changes in the domestic and foreign environment. India’s Foreign Trade Policy (2015-20) aims to increase India’s competitive position in the marketplace and commodities while also discovering new consumer goods in the business sector. In addition, India’s Foreign Trade Policy envisions assisting manufacturers in maximising the beneficial effects of GST (goods and services tax), carefully monitoring export performances, boosting cross-border trading ease, raising revenue from agriculture-based export markets, and boosting exports from MSMEs and labour-intensive industries.
India signatory to other countries for trade agreements
India had even signed various trade agreements with neighbouring countries as well as the United States. Its regional and bilateral trade agreements are at different levels of development.
- India – Sri Lanka Free Trade Agreement
- Trade agreements with Bangladesh, Bhutan, Maldives, China, and South Korea.
- India – Nepal Trade Treaty.
- Comprehensive Economic Cooperation Agreements (CECA) with Singapore.
- Framework Agreements with the Association of South East Asian Nations (ASEAN), Thailand and Chile.
While looking for the cases involving international trade, we can see that almost all the cases deal with issues involving any private sector business organization on one side and the concerned Government business authority on the other. In the case of Suntec Industries v. the United States, the court was of the opinion that the issue regarding granting of the defendants’ motion for summary judgment would be denied due to the failure of producing evidence for proving their part, and hence the court decided the case for the defendant. Hence it will be clear that for cases involving international trade practices, submission of strong evidence against the concerned parties must be necessary so that they realise the fault on their part and the correct mechanism will be implemented accordingly.
Analysis of Foreign Trade Policy of 2015-2020
The foreign trade policy of 2015-2020 is a policy aimed at facilitating international trade by lowering money transfer costs and times while also boosting the profitability of Indian exports. For the benefit of import and export trade stakeholders, the administration has prioritised trade between countries and implemented steps in this regard through the terms of this policy.
Strengthening the “Make in India” initiative – under the 2015 – 2020 foreign trade policy, the first key step planned to be taken was under the Export Promotion Capital Goods (hereinafter referred to as EPCG) scheme, where the aim was to decrease Export Obligation (EO) for domestic purchasing. In promoting domestic capital goods production, the targeted export responsibility under the EPCG scheme, which was reportedly 90 percent of the usual export obligation (six times the duty recovered sum), was lowered to 75 percent in cases where capital goods were obtained from indigenous builders. The Merchandise Exports from India Scheme (MEIS) awards export commodities with an increased household composition and quality enhancement at a superior stage. It is suggested that commodities with increased domestic content and added value be rewarded more generously than items with a high import content and little added value.
Two new schemes have been introduced, namely the Merchandise Exports from India Scheme (MEIS) for the sale of defined commodities to selected markets and the Services Exports from India Scheme (SEIS) for the increased export of registered facilities. The MEIS programme offers incentives ranging from 2% to 5%. The specified services would be awarded at 3% and 5%, respectively, under SEIS. Under the EPCG system, initiatives have been implemented to encourage the purchase of capital assets from indigenous producers by lowering specified export obligations by 25%. With the MEIS, agricultural and village industry commodities will be subsidised at levels of 3% and 5% globally, respectively. With MEIS, prepared and manufactured agriculture and food commodities will receive a better amount of funding.
Scope of improvements
- The primary objective is to enhance Indian export performance by utilising innovation and manufacturing.
- Numerous low-cost, low-quality goods, particularly from China, have entered the market as a result of mismanagement and insufficient quality management. These are harmful to India’s economy, ecosystem, and balance of trade.
- Logistical challenges are another major hurdle to Indian exporters. India’s leading access points, such as Kochi, have timeframes that are two to three times lengthier than Chinese ports.
- India falls far short of its prospects in trying to attract foreign direct investment (FDI), which is critical for increasing exports.
Modifications proposed in Foreign Trade Policy of 2021-2026
With the 60 percent drop in Indian exports and the 59 percent drop in imports as a result of COVID-19, the government established and continues to update a long-term strategy that takes such circumstances into account. This is one of the main reasons why the new Foreign Trade Policy 2021-2026 should include goods delivery. Parliamentarians, officers, merchants, exporters, and others provided input to the FTP 2021-2026 throughout its planning phase.
Main objectives to be met from the FTP 2021-2026
Under this, the government needs beneficial investments to be made in infrastructure development, which will help improve trade as per the FTP 2021-2026. India may learn from China as well because China is well-ranked for its exports, which will help India in the growth and development of its existing ports, warehouses, certification centres, etc. Under this FTP, it is recommended that the Trade Infrastructure for Exports plan that was approved in 2017 be expanded further.
More focus on increasing exports
As per Financial Year 2020, Subsidies are less expected to perform a significant impact on enhancing global trade. In this approach, factors such as quality, manufacturing size, and innovation will be game-changers. This approach was likewise agreed upon by the majority of industry specialists. Similarly, trade policy can also include benefits focused on research and development. The Amended Technological Upgradation Fund Scheme, which was created to improve production, investments, export markets, and performance in the manufacturing industry through technology modifications, can now be applied to other industries.
Tax benefits in compliance with world trade organization – RoDTEP
The DGFT (Directorate general of foreign trade) had proposed the Remission of Duties or Taxes on Export Products (RoDTEP) Scheme that replaced the MEIS (Merchandise Exports from India Scheme), and the scheme came into effect on January 1, 2021. The scheme would guarantee that exporters obtain reimbursements for previous non-recoverable underlying charges and taxes. The initiative was implemented to increase export volume, which had previously been low.
Relaxation in credit access
As per this, MSMEs (micro, small, and medium enterprises) will be offered easy access to credit under the FTP of 2021 – 2026. Earlier, it was difficult for MSMEs to get loans from formal institutions. Fortunately, the FTP of 2021 – 2026 will open Alternate Credit Avenues.
E-Commerce and digitalization
India needs improved trade procedures as Covid-19 hinders established supply channels. E-commerce and digitization may be able to help in this direction. Digitization can play a key role since it eliminates the need for manual operation in slow-moving import-export operations. Nasscom, an apex government agency, proposes a web-based platform for Import-Export Code holders to update basic information such as email addresses and phone numbers. The digitalization procedure makes the entire import and export procedure automated and online. This contributes to increased transparency in global trade.
On the whole, international trade gives an opportunity for the buyers and the sellers to be exposed to a new market environment as well as to new products. Industrialization, advanced technology, globalization, multinational corporations, as well as outsourcing, receives a major impact on the area of international trade and commerce. Hence, there lies utmost importance in the area of international trade so that there are effective laws and statutes in this sector which are applicable and convincing to each and every member nation under the WTO as well as various other international trade federations. According to the World Bank, around twenty-four developing countries have gained higher income growth, an increase in revenue and various other developmental aspects solely through the way of increase in international trade relations among their member countries. Various economic theories also state that international trade raises the standard of living and eventually, a drastic change from a closed economy to an open economy will be visible then.
Globally speaking, trade provides opportunities for both buyers and sellers to experience new items and market environments. Globalisation, multinational firms, industrialization, advanced technology, and outsourcing are all significantly impacted by international trade and commerce. Therefore, there must be efficient regulations and statutes in the sphere of international commerce that are relevant to and persuasive to all members of the WTO as well as several other international business organisations.
The FTPs (Foreign Trade Policies) are updated every five years to set new objectives and take into account developments that can be incorporated into the Policy for the betterment of the country. They play a very important role in promoting trade and business in the country on a worldwide platform by focusing on the most critical areas. By supporting export-related advantages and reimbursements of duties and GST (Goods and Services Tax), the FTP for the period of 2015 to 2020 placed a strong emphasis on increasing the Indian market share and adding new inclusive products to the Indian market.
There are high hopes for the FTP 2021–2016, which got delayed because of the COVID-19 pandemic. But it appears that the government has adopted a highly comprehensive stance and has included all relevant parties in the decision-making process. The FTP 2021–2026, which became effective on January 1, 2021, appears to exhibit encouraging development and results, particularly against the framework of the recovery from the COVID–19 pandemic.
Frequently Asked Questions (FAQs)
What is the main purpose of International trade law?
The main purpose for which international trade law has been formed is to regulate the trade system among developed, developing, and transitional economies in the world. Export controls and sanctions are two domestically imposed measures that affect international trade. To remedy imports that are seriously harming domestic industries due to unjustified foreign prices and/or foreign state subsidies, the government may use trade measures. An illustration of a trade remedy is the imposition of antidumping duties by the International Trade Commission (“ITC”) in response to dumping. This happens when a foreign company offers an item in the United States for less than it does in its “home market,” harming American business.
The transfer of protected hardware, software, and information for purposes associated with foreign policy goals and national security is regulated by export control legislation. Every nation has its department setup that is responsible for keeping a check on the exchange of material goods and information with other countries. In India, we have the Ministry of Commerce and Industry, and under it, two departments were formed. First is the Department of Commerce, and another one is the Department for Promotion of Industry and Internal Trade. These departments have the power to impose penalties for not complying with export control legislation that can be both civil and criminal.
On the subject of international treaties, businesses may want guidance regarding the World Trade Organization’s (“WTO”) regulations, a formally recognised international body that governs trade. The North American Free Trade Agreement (“NAFTA”) and bilateral investment treaties are further important agreements.
While some law firms have relatively limited practice groups that cover all facets of international commerce, others have very broad practice groups that concentrate on all aspects of the law (such as anti-dumping). Since what is legal varies widely across nations, the laws governing the transfer of data and personal concerns are expected to grow in importance in the future.
How does WTO enforce International trade policy?
Actions at the WTO are “member-driven,” meaning that all participating states must agree on them. The membership, to its full extent, makes all significant judgments, either through ministers (who meet at least once every two years) or through their ambassadors or delegates (who meet regularly in Geneva). Consensus is typically used to make decisions.
The WTO differs from certain other international institutions like the World Bank and International Monetary Fund in this regard. The leader of the organisation or a board of directors does not have any authority in the WTO. The result of discussions with WTO members is that regulations place limitations on countries’ actions. The members voluntarily enact the regulations following specified procedures, which may include trade sanctions. However, those penalties are applied by member nations and approved by the entire membership. This is very unique to other organisations whose bureaucrats, for instance, can affect a nation’s policies by threatening to reject credit.
It can be challenging to decide on the 150 members. The biggest benefit is that everyone can agree on the judgments made in this manner. And yet, some very spectacular deals have been struck despite the challenges. However, there are occasionally calls for the formation of a more concentrated executive structure, maybe along the lines of a board of directors with each member serving a different group of nations. But at the moment, the WTO is a consensus-driven or member-driven organisation.
What are the main legal barriers in International trade law?
The improvement of developing nations’ capacity for domestic services is one of the goals of the GATS as stated in Article IV (1) (a) and (b). Furthermore, this goal is hampered by a wide range of obstacles. Stringent import licensing, widespread government contracting, stringent recruitment and foundation standards, selective taxes, caps on equity involvement, and insufficient technological requirements are a few of the general hurdles mentioned in the framework of finance as a whole. The following are some specific obstacles that affect the trade in banking activities, particularly in a rapidly developing economy:
- entry rules that forbid financial firms from having any kind of representation and impose strict capital standards that are higher than those applicable to financial institutions;
- equity involvement, which involves the authority of domestic authorities to assess whether foreign capital in a small bank complies with the restrictions on the purchase of a majority interest by foreigners working set forth by the country’s interest,
- restrictions on domestic markets of firms under foreign ownership, including the prohibition of foreign banks’ security-related operations (such as issuance);
- prohibitions on cross-border transactions that prevent foreign banks from being accepted or restrict taking out loans through foreign banks.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.