The American government has challenged the protection given to domestic manufacturers by the Indian government in the areas of information technology and telecom, as breaching World Trade Organisation (WTO) rules.
It has raised these questions as part of the fifth trade policy review of India by the Trade Policy Review Body as mandated in the WTO agreement. It contends the procurement guidelines for preferential market access imposes purchasing requirements not only on government agencies but also on central government licencees, such as private telecom operators.
If the guidelines are implemented, the US says, it would establish a 30 per cent preference for the procurement of domestically produced electronic products.
A Telecom Regulatory Authority of India (Trai) recommendation of April 2010 imposes similar obligations on telecom licensees and characterises their purchases as government procurement. “Could India clarify how this preference regime for domestic purchases carried out by private sector enterprises qualify as product purchases for governmental purposes, so as to constitute government procurement under the terms of the GATT (General Agreement on Tariffs and Trade) articles?” asks the US government .
It has also noted that in April this year, Trai issued a recommendation to promote domestic telecom equipment manufacturing. Trai said that a certain percentage of the equipment purchased by telecom operators should be manufactured in India.
“How will India ensure that they (such a protection ) do not conflict with trade obligations?” is the US query. It has also asked for details on the steps taken by the Indian government to give these the force of law.
The US has also bought up another contentious issue. Foreign telecom operators in India, it says, are precluded from selling direct to home satellite capacity to customers. Instead they must sell it to Indian Space Research Organisation (Isro), which in turn resells it to customers. “What is the purpose of this policy…and does India have plans to address this barrier of satellite services in India?” the US government has asked.
DoT policy
With one key area of focus in the new telecom policy being that of protecting and encouraging manufacturing within the country, the department of telecommunication (DoT) has worked on a policy under which 30 per cent of all purchases by telecom operators in the first year has to be sourced from domestic equipment manufacturers. DoT said by the eighth year purchases from such players should go up to 80 per cent but the manufacturer will have to match the price of the first lowest bidder.
The move, it is expected, would prompt foreign telecom manufacturers to set up base in India with a research and development (R&D) facility. For Indian manufacturers, the R&D rights will remain with the company. Commercial activities from the product’s intellectual property (IP) shall be carried out by the Indian company and the revenues and commercial value derived from the global sales of the product or the IP will accrue to the company.
The value addition for Indian products will be 40 per cent for the first year and will go up to 60 per cent by the fifth year.
For products assembled or manufactured in India but the product IPR belongs to a company registered outside India or that was developed abroad, the value addition will be 25 per cent for the first year and go up to 45 per cent by the fifth year. DoT will amend the Unified Access Service Licence (UASL) conditions to include the provision of market access, value addition and auditing in terms of domestic products.
According to Trai’s estimates, the market for telecom equipment is expected to grow from $12.5 billion in 2009-10 to $40 billion in 2020.
At present, locally manufactured telecom equipment hardware contributes 12-13 per cent of mobile operators’ needs and Indian firms account for only three per cent of this.
The note from DoT said a service provider procuring over 10 per cent of the requirement of telecom equipment from Indian products should get a discount of 10 per cent of its licence fee for the year. However, if the service provider fails to meet the criteria, then it would have to deposit an amount equal to 10 per cent of the shortfall in the value of the equipment in the telecom research fund or telecom equipment.
