In the wake of the ongoing global pandemic, SILP in collaboration with the SJA hosted Mr Deepak Raju for an interactive online lecture on May 26, 2020. The lecture was part of the ongoing NUJS Online Lecture Series, a digital alternative to the traditional classroom, initiated with an aim to stimulate the process of learning despite the limitations imposed by the unprecedented global calamity.

Mr. Raju completed his B.A.LLB at NUJS before moving on to complete his masters at Cambridge University. He is presently a Senior Associate (Global Arbitration, Trade, and Advocacy) with Sidley Austin LLP. The online session was moderated by Ms. Pramiti Parwani, who is also an alumna of NUJS and is currently an LLM candidate at Graduate Institute, Geneva. The talk started with an introduction of the guest speaker and a broad outline of the discussion to follow, given by Ms. Parwani.

Mr. Raju started the lecture by acknowledging that the global pandemic has brought forth extreme conditions which are having and will continue to have adverse effects in the arena of International Trade. He also gave a brief introduction to the World Trade Organisation and its role in facilitating trade around the globe. He explained that the WTO does not fix the level of trade flow or trade volume between countries but rather guarantees free trade between its member nations. Additionally, it stipulates conditions under which countries can restrict the free flow of trade and also provides for redressal mechanisms in cases of breach of WTO law.

Further, he categorised policy responses of various nations to deal with the economic and trade fallout of the COVID-19 pandemic, into two heads- primary and secondary responses. The primary responses are the immediate responses undertaken by nations across the world to contain the spread of infections and provide critical medical help to the affected population. These steps include announcing lockdowns, transit stoppage, travel restrictions, import liberalisation and export restrictions on supplies of food, pharmaceuticals, protective equipment, etc. These responses are mostly temporary and are likely to be abolished once normalcy is restored. However, the secondary responses are more structural and long term in nature intending to revive the domestic economy. These include measures which are directed to help businesses, producers and industries cover up their losses and regain their market positions.

He remarked that both these policy responses could violate certain provisions of WTO law such as Article V and XI of GATT and Article XVI of GATS. Article V mandates freedom of transit and puts a responsibility on each member nation to provide unrestricted, non-discriminatory and convenient passage to the flow of goods. Further, Article XI prohibits restrictions on import and export of goods by imposing quotas and specifications but allows some specified tariffs (maximum limits) which can be put in place to regulate the flow. Additionally, Article XVI (GATS) provides for free cross border movement of people for providing as well as consuming services and also mandates market access for the same.

However, he noted that the first set of policy responses would not attract violations of WTO law as certain exceptions under the same law will cover them. For example, Article XX(b) of GATT and Article XIV(b) of GATS empowers member nations to formulate policies that are necessary to protect human, plant, animal life or health. However, restrictions imposed under these exceptions are subjected to fulfilment of certain tests and conditions. The preamble to Article XX and Article XIV upholds the spirit of good faith and requires that such restrictions should not be arbitrary, unjustified or merely a disguised restriction on free trade.

Mr. Raju observed that policy measures under the second category were much more susceptible to challenges and might be violative of WTO law. Therefore, there was a need to scrutinise them independently. He claimed that though WTO, in some conditions, allowed the restriction to protect the domestic economy, such exceptions must be narrow and specific and cannot be used generally to shield the domestic economy from global competition. Thus, member nations should carefully shape their stimulus packages and should not allow any financial contribution, which is violative of WTO law. He explained that Agreement on Subsidies and Countervailing Measures lists any grant, loans, loan guarantee, purchase of goods or any other financial incentive as ‘financial contributions’. However, for a ‘financial contribution’ to be termed as a ‘subsidy’, it is required that it made by the government or a public body and should also confer a ‘benefit’. A ‘benefit’ is said to occur when a business, producer or a service provider receives financial contribution which is better than what the market conditions would have enabled him to earn.  Such subsidies can take various forms as and though not all are prohibited, any aid which gives money for exporting goods or usage of domestic materials in production do attract prohibitions under WTO law.

Next, Mr Raju spoke about some specific policy measures rolled out by the Indian government, such as the closure of automatic-route FDI for land bordering nations. This step was taken by the Indian government to deter Chinese investors from buying-out local businesses, taking advantage of the economic ruin brought about by the severe lockdown and the accompanying economic slowdown. He noted that though WTO does not directly deal with investments, the above policy measure might be violative of Articles II and XVI of GATS. Article II mandates that any country cannot be more favourable towards similar service providers from different countries and Article XVI mandates that the establishment of service providers’ commercial presence in countries where such services are to be consumed should be provided in a non-discriminatory manner.

Lastly, he talked about the implications of the policy statement of the Indian government- “Vocal for Local”. Though a mere policy statement cannot be challenged, concrete steps taken to fulfil this end might be violative of WTO law. He gave an example, i.e., the decision to sell only locally manufactured products in army canteens. Such a decision may be violative of Article III of GATT, which provides for national treatment of all goods, i.e., non-discrimination between domestic and foreign goods, but is unlikely to be challenged because of its narrow impact. However, he stated that future policy decisions to actualise the policy statement should be taken keeping in mind the provisions of WTO law.

The discussion was followed by Mr. Raju answering some of the question raised by the virtual participants. Concerning the discussion on the local-only army canteens, a question was raised as to whether such a step will get the protection of Article XXI(b)(iii) of the GATT. Mr. Raju explained that this provision grants member nations the power to make policies in the interest of ‘national security’ and policies adopted on this basis have remained mostly unchallenged over the years. However, there has recently been an increasing trend in challenging policy measures which seek refuge under this provision. He noted that the government could validly claim that such measures are required to keep the army supplied but also displayed his reservations on the ability to explain why a domestic-only restriction is essential.

Another question was raised about whether there is a scope for member nations to abuse general exceptions in the current crisis. Answering the question, Mr. Raju brought our attention to the legislative history under Article XX of the GATT. He explained that even though some policy measures validly fit under one of the exceptions provided, they tend to fail the tests provided for in the preamble. Thus, policy measures seeking justifications under Article XX have failed in the past because of their arbitrary, discriminatory or disguised nature. Therefore, though there is always a scope for abuse, WTO law has usually been cognizant of tackling violative policy measures.

This was followed by a question on whether the Preferential Trade Agreements (PTAs) or Regional Trade Agreements would be a good site for facilitating trade and what may the challenges faced by such PTAs be in this regard. In reply to the question, Mr. Raju explained that PTAs are generally agreements which are undertaken between a subset of WTO members who commit to trade more liberally and favourably amongst themselves. However, dispute redressal under these agreements are at a very nascent stage, and the institutional framework is mostly underdeveloped in comparison to the dispute redressal mechanism provided under WTO. Therefore, violations of FTA rules would be much more likely to get unchecked in comparison to the violation of WTO rules.

Replying to a question about whether China’s role in WTO’s dispute settlement would be affected because of COVID-19, Mr Raju replied in the negative. Additionally, talking about the post-COVID scenario in dispute settlement, he was of the opinion that would be premature to take a position on whether challenges under WTO would increase or decrease. Also, he opined that any global actions against China, aiming to fix responsibility for the spread of the pandemic would not come involve questions of trade law unless such actions are routed through trade measures.

The session concluded with a final question on labour rights. Mr Deepak Raju clarified that WTO law does not have any provisions related to labour rights and leaves it to member states to have their labour law policies. Therefore, as long as labour issues are not entangled with any other areas on which WTO imposes mandates, such as import and export of goods, WTO law would not have any negative consequences.

 

This synopsis has been prepared by SILP member Anshum Agarwal