- Triplet 20 - Our Constitution defaced and fefiled under WTO Regime

Triplet 20

Our Constitution defaced and fefiled under WTO Regime

By Shiva Kant Jha

August 7, 2009

THE WTO regime has greatly impacted on our constitutional polity, our taxation system, even on the judicial sensibility which conditions and controls the judicial attitudes to the socio-economic problems which we face in this phase of Economic Globalization. In the three leaves of this Triplet I intend drawing up their short account. First, something about what seems to have defaced and defiled our Constitution. This topic is examined with reference to (i) w rongful change in primary governmental functions; (ii) w rongful assignment of the legislative power of Parliament: (iii) wrongful assignment of the judicial power: and (iv) the wrongful amendment done to our Constitution.

Wrongful Change in Primary Governmental Functions

By accepting commitments under the Uruguay Round Final Act (that sets up the WTO as the umbrella organization), our Executive government breached the commands of the Preamble to the Constitution, and the provisions of the Fundamental Rights read with the Directive Principles. A constitution is written by citizens to establish the government they live under. The prime purpose of a constitution is to delineate how government will operate and function. A constitution is sacred to a nation because of its three fundamental purposes: it organizes government, prescribes how it should function, and mandates how the legally protected rights of citizens should operate. The commitments of our government under such a treaty have the direct and inevitable effect of subverting our Fundamental Rights. Articles 14 or 21 are designed to survive only in a Welfare State. But the realities being shaped under the neo-liberal reforms protocol, being prescribed by the WTO, go counter to our constitutional policies and commitments. Some illustrative ideas being promoted under the WTO agenda are set forth here:

(i) The Welfare State is bidden a good-bye. The role of the government is narrowed to act merely as the protector and facilitator of the neo-capitalists believing in, as Gailbraith says,:

(ii) tax reduction to the better off,

(iii) welfare cuts to the worse off

(iv) small, ‘manageable wars' to maintain the unifying force of a common enemy, the idea of ‘unmitigated laissez-faire as embodiment of freedom', and

(v) a desire for a cutback in government.

(vi) The government may break new grounds for resourced by granting lands to the corporate zamindars, by granting right to exploit our resources by conferring licenses and franchises.

(vii) It is mandated that the planning which promotes socialism should be given up. But Government through its policies promotes the interests of big corporation who work under oligopolistic situation by establishing a symbiotic relationship between the government and the business.

(viii) The government is fast becoming the protectors and the facilitators for the super-rich and the corporate world; in effect the government is fact becoming a bunch of lath it's (the lathe wielders).

Wrongful Assignment of the Legislative Power of Parliament

The terms of Uruguay Round of GATT require the Members to ensure that their laws, regulations, and administrative procedures must conform to the obligations under the Final Act as agreed. The Agreement establishing the WTO establishes a procedure, whereby, if member nations are unable to negotiate a mutually satisfactory solution to a dispute or controversy, the Disputes Settlement Body (DSB) is entitled to adopt a solution as recommended to it by its Panel. This adopted ruling is legally binding upon the disputing parties, and all other member nations of the WTO. Therefore, when a Panel ruling is adopted by the DSB, it in effect performs a legislative act, and also acts as the supreme tribunal. Our Supreme Court in Kesavananda's Case (AIR 1973 SC 1461) determined certain features of our Constitution constituting basic structure; these are—

(1) Supremacy of the Constitution;

(2) Republican and Democratic form of Government;

(3) Secular character of the Constitution.

(4) Separation of powers between the legislature the executive and the judiciary

(5) Federal character of the Constitution.

These basic features, read with the provisions of Articles 79, 107, 245 and 246 of the Constitution of India, have the express and implied effect of suggesting that the legislative powers of our Nation are constitutionally earmarked only for the nation's democratic body, our Parliament. If rulings adopted by the DSB have legislative effects, then a part of the legislative power is alienated by depriving our Parliament to that extent. In effect, it stands assigned to the WTO. Nowhere in the Constitution there is any authority granted to the government to assign Parliament's or Judiciary's powers to any other institution, much less to a foreign institution being a creature of a dubious treaty made under an Opaque System. The Parliament under Article 81 of the Constitution of India is a body of representatives we have elected to frame law, and to hold the Executive under accountable and responsible to it. This objective cannot be jeopardized. As the Government violated the mandatory constitutional norms, its participation in the WTO as member is ex facie repugnant to our Constitution.

If the legislative power, vested in Parliament, is allowed to be divided between Parliament and the WTO, then a fundamental constitutional principle would stand violated. The Indian citizens do not vote for the WTO representatives. The citizens have elected our representatives to make law in consonance with our Constitution. We have neither empowered Parliament, nor the Executive to shed off legislative functions to any body else. Article XVI (4) makes the WTO the highest legislative and judicial body. This Article says:

“Each member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the Annexed Agreements.”

The Uruguay Round of GATT (Article II, Paragraph 1) states that, “the WTO shall provide the common institutional framework for the conduct of trade relations among its Members in matters related to the agreements and associated legal instruments included in the Annexes to this Agreement". This is clearly a Wrongful Assignment of the Power to Regulate Commerce with Foreign Nations. In contrast, entry 41 of the Seventh Schedule to the Constitution of India grants to Parliament power to frame law pertaining to “Trade and commerce with foreign countries; import and export across customs frontiers; definitions of customs frontiers”. It is also evident that these Agreements under the Final Act would have an impact on Part XIII of the Constitution (Trade, Commerce and Intercourse within the Territory of India). Nowhere in our Constitution is the Executive, or even Parliament, given authority to assign its power to regulate commerce to foreign nations, or alien bodies. For these reasons also our membership of the WTO is repugnant to our Constitution.

Wrongful Assignment of the Judicial Power

The A rticle XVI (4) of the WTO Charter mandates that each “ Member shall ensure the conformity of its laws, regulations, and administrative procedures with its obligations as provided in the annexed Agreements”. This undermines the Rule of Law. The Understanding on Dispute Settlement mandates a procedure sans transparency, sans judicial control, sans all the trappings of procedural fairness and moderation considered sacrosanct under civilized jurisprudence. There is not much distance between retaliation or cross-retaliation, and retortion and reprisal.

The WTO regime brings about and aggressively fosters a sort of diarchy: one system having supremacy on matters within the domain carved out for the WTO, and the other under the gaze of the national institutions. The history of British India had seen how two systems were crated, one for the natives and the other for the imperialists. The East India Company and their English employees secured control over the administration and management of the civil courts, leaving the administration of criminal law in the hands of the Nawab.. The English believed that with the control over the administration of civil justice they could protect their person and property better; and they could carry on their arbitrariness and the loot of the land without any effective judicial control. The colonialists had followed this approach in all the countries which came under their sway. In China somewhat similar situation was brought about by obtaining the privileges including the most-favoured-nation (MFN). Later on the colonial powers obtained certain benefits of extraterritoriality also. This had the effect of exempting them “from the application or jurisdiction of local law or tribunals.” How close is this to Article XVI (4) of the Agreement Establishing the WTO which obligates :

“ Each Member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed Agreements.”

And Article III (3) prescribes:

“The WTO shall administer the Understanding on Rules and Procedures Governing the Settlements of Disputes …in annex 2 of this Agreement.”

Article 23 (12) of the Disputes Settlement Understanding, deals with strengthening of this Multilateral System. Under the Uruguay Round of GATT regime we have agreed that we shall ensure our law's conformity with the WTO norms. Therefore, DSB adopted rulings resulting in the repeal of the Indian law. The decision of the Appellate body becomes final. In effect the Articles quoted above declare that the DSB is the super Supreme Court. Nowhere in the Constitution is the Executive or Parliament given authority to assign the judicial power to any other body. The Executive was not competent to ratify such noxious provisions as it was not authorized by the Constitution or ‘We, the People'.

Our Constitution wrongfully Amended

Our Constitution prescribes a procedure for amending its provisions imposing rigorous conditions. Besides, there are basic features of our Constitution which cannot be amended even by exercising constituent power. But the effect of our adoption/acceptance of the Final Act, establishing the WTO, is to bring about vital changes in our Constitution even in matters we consider basic and fundamental. To say the obvious, under our polity no amendment can be brought about to subvert the Rule of Law or to rob our Parliament or Judiciary of the granted powers. The Executive Government is accustomed to forget it. .


WTO and Direct Taxes

The purpose of this short leaf is just to tell my readers that even in the sphere of Direct Taxes, the WTO regime has an impact. Our tax-gatherers and all others must know this fact. as this would have great effect on our polity, Constitution, and socio-economic management. It this leaf can stimulate the readers to go deeper into such issues, my this love's labour would not go invain.

The General Agreement on Tariffs and Trade 1994 ("GATT 1994") consists of the G eneral Agreement on Tariffs and Trade (GATT 1947). When the GATT 1947 was signed none thought that the regime sought to be established thereunder would have any impact on Direct Taxes. The same position was existing when the Uruguay Round Final Act was signed in 1994 creating its umbrella organization in the WTO. Several years passed over which none felt it appropriate to drag Direct Taxes under the WTO regime. But three things happened to promote an activist approach of the WTO and of its other associate organs. They are:

(i) The activist approach of the Uruguay Round of Multilateral Negotiations rode roughshod over the objections of various governments, and shepherded them to the track that the corporate imperium prescribed under the treaty terms. May new areas of commerce and trade were annexed to the WTO province: viz. the Trade Related Intellectual Property Rights (TRIPs), the Trade Related Investment Measures (TRIMs) Agreement on Agriculture (AoA), ), the Agreement on Subsidies and Countervailing Measures (SCM), and General Agreement on Trade in Services (GATS). This expansive approach of the corporate imperialism grew over later years; and this strategy was promoted with a stratagem of pressure and deception unknown in history for their aggressive efficacy. .

(ii) This expansive approach was further adopted and developed by the WTO and its associates organs carrying forward their agenda of secretive economic exploitation.

(iii) Even the WTO's Disputes Settlement Body and the Appellate Forum adopted in their judicial decision-making an expansively creative approach to make the DSB virtually the World's most powerful judicial tribunal rendering the national superior courts as the subordinate courts with residuary powers!

Efforts to annex Direct Taxes to the WTO regime were been made in various ways, but the most patent ways were through the interpretation of Articles III (National Treatment on Internal Taxation and Regulation ) and Article XVI (Subsidies) of GATT 1947, and Article XIV and XXII of General Agreement on Trade in Services (General Exceptions and Consultation). It is not possible in this short leaf to analyze these provisions with reference to the subsequent cases. To illustrate how things moved I would discuss in brief only the provisions of Article III of GATT 1947 and Article XXII of the GATS.

The Article III of GATT 1947 prescribes mandatory provisions requiring the members of the WTO to provide “National Treatment”. No more fvourable domestic protection can be given to domestic products. “The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.” The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use….” This Article was not originally considered to induct in its province Direct Taxes. These provisions were considered to apply only to product specific taxes. The GATT 1997 was concerned with trade and tariffs which came within the purview of Indirect Taxes. The linguistic analysis of Article III bears out this view. But things changed; and Direct Taxes too were dragged in under the WTO regime. It is a long story, but Mr. Gary Clyde Hufbauer of the Institute of International Economics has well summarized it: to quote—

“The FSC Panel Report issued in January 2002 and largely affirmed by the Appellate Body gave a more expansive reading the Article III, especially Article III(4). Finding no explicit exclusion of income tax measures, the Panel reasoned that they were subject to the same national treatment regulation as indirect taxes. While this holding was a minor feature in the FSC case, it represented a major judicial leap. All national tax systems, as well as other national regulatory systems (e.g., labeling requirements, food and drug standards), are now subject to scrutiny when they discriminate against imported products. It may be a long time before WTO cases are brought against the tax practices of Papua New Guinea or Paraguay, but discrimination by the United States or the European Union is sure to attract legal attention.”

The General Agreement on Trade in Services grants an effective role to the the Council for Trade in Services. in solving certain core points in the settlement of disputes pertaining to the treaties relating to the avoidance of double taxation. The provisions pertaining to the Mutual Agreement Procedure prescribe settlement of tax disputes by the competent authorities specified in the double taxation avoidance agreements. They grant the tax treaty beneficiaries extra-statutory, and extra-constitutional remedies. The MAP provisions, as explained in the CBDT's Instruction No 12 of 2002 (dated Nov. 1, 2002 F. No. 480/3/2002- FT) and the rules in Part IX-C of the Income-tax Rules, 1962, subvert the statutory appellate control, even oust judicial review by the superior courts. This clearly offends our Constitution and it is a gross violation of the Constitution's Basic Structure as judicially expounded. But worst has happened through the often unnoticed interstices of Article XXII of General Agreement on Trade in Services. It says:

A Member may not invoke Article XVII, either under this Article or Article XXIII, with respect to a measure of another Member that falls within the scope of an international agreement between them relating to the avoidance of double taxation . In case of disagreement between Members as to whether a measure falls within the scope of such an agreement between them, it shall be open to either Member to bring this matter before the Council for Trade in Services. The Council shall refer the matter to arbitration. The decision of the arbitrator shall be final and binding on the Members. ”[ Italics supplied]

It prescribes that under certain circumstances the tax disputes can be shifted to an international forum to be decided by an international body. In effect, it links the dispute settlement with the disputes settlement procedure under the WTO system.   A dispute between the two countries as to whether a measure falls within the scope of DTAA can be brought before the Council of Trade in Services by either country. The impact of the jurisdiction of the Council for Trade in Services must not be lost sight of. The reach of the scope of a tax treaty would be interpreted under the WTO regime. Whether the third State residents (the country which is no party to a bilateral tax treaty) is entitled to avail of the benefits by floating a paper company in a tax haven or an offshore centre can be decided by invoking the provisions of GATS quoted above. With this happening the core issue pertaining to the treaty-shoppers, which was the subject-matter of litigation before the Supreme Court in Azadi Bachao Andolan [ 2003] 263 ITR 706 –SC], can get easily shifted to the international fora.

A critical role is played by the T rade Policy Review Mechanism of the WTO. Its purpose is “ to improved adherence by all Members to rules, disciplines and commitments made under the Multilateral Trade Agreements and, where applicable, the Plurilateral Trade Agreements,…. Accordingly, the review mechanism enables the regular collective appreciation and evaluation of the full range of individual Members' trade policies and practices and their impact on the functioning of the multilateral trading system…..” Its periodic reports on trade practices are very comprehensive and often identify questionable Direct Tax practices. . The effect of all this scrutiny is to subject domestic jurisdiction to the continuous gaze of the WTO.

Under the trends of recent thinking the age old distinction between the Direct Taxes and the Indirect Taxes is vanishing. The WTO measures the provisions not only of the Indirect Taxes but also the Direct Taxes to see if they have any trade distorting effect or cause or domestic protection in derogation to the WTO's assumptions. They justify their approach on the ground of ensuring a level playing field to all the players.

But before I end it I must tell the readers that Article 265 of the Constitution of India never contemplated any subversion of the Parliamentary control of taxation. The tax treaties are wholly administrative arrangements. They are never brought before Parliament; and are never discussed in public before signing them. The authority to enter into tax avoidance agreements, as provided in Section 90 of the Income-tax Act, 1961, is brief and subject to mandatory pre-conditions. It is also well established that whilst generic treaties are framed under Article 73 of the Constitution, tax avoidance agreements are made only under Section 90. Any provision of a tax treaty that goes beyond the statutorily conferred power is ultra vires.  


An analysis of certain constitutional assumptions

The critical comments in the first two leaves of the Triplet are founded on certain fundamental constitutional assumptions: these are---

That Sovereignty of the Republic of India is essentially a matter of constitutional arrangement which under our polity provides structured government, and grants power under express limitations to the organs it creates to exercise public power;

That the Executive does not possess any “hip-pocket” of unaccountable powers”, and has no carte blanche even at the international plane;

That the executive act, whether within the domestic jurisdiction, or at the international plane, must conform to the constitutional provisions governing its competence ;

That the direct sequel to the above propositions is that the Central Government cannot enter into a treaty which, directly or indirectly, violates the Fundamental Rights and the Basic Structure of the Constitution; and if does so, that act deserves to be held domestically inoperative ;

That the Executive's signing and adoption of the Final Act of the Uruguay Round Final Act in 1994 was a blatant violation of some of our fundamental rights, and certain vital features of the Basic Structure of our Constitution, besides that went counter to well recognized social, economic and cultural rights in utter derogation to the provisions of the Universal Declaration of Rights;

That the signing and adoption of the Final Act bypassed the democratic process as it was neither presented for discussion, nor approval before our Parliament despite the fact that the imposed provisions grossly derogated from national laws and constitutions: thus our democracy suffered because of gross dereliction of the Executive shown in the handling of the Uruguay Round Final Act, and mindless granting of commitments under the treaty having the widest reach and framed in the protocol of pactum de contrahendo subjecting us to unending obligations under all that can be done in the on-going process of the negotiations under the Final Act;

That under the Final Act established a ‘totalitarian' intergovernmental body, and constituted, in breach of international law, the World's highest Legislative Body and a Judicial Court for the benefit of the MNCs and other economic gladiators who have succeeded in establishing, through strategy and stratagem, the Rule of Market (Pax Mercatus);

That this treaty is, in effect, worse than the Treaty of Versailles which the victors of the World War I inflicted on the vanquished Germany as a device of total subjugation, or, nearer home, the Treaty of Allahabad under which the Great Mughal surrendered honour and sovereignty to the East India Company;

That the Uruguay Round Final Act virtually subjects our Parliament to morbid coercion and crypto-psychic pressure to legitimize the provisions which the Executive made fait accompli. Without even comprehending,; and subjects our Superior Judiciary to a most gruesome ignominy by subverting the Rule of Law as it makes that, in effect, mere subordinate courts having residuary jurisdiction, or merely courts of execution for the awards and directives emanating from foreign fora;

That the terms of the Final Act are adroitly made to ‘police' country level economic and social policies thereby making criminal trespass on our nation's sovereign space reserved for our national government; and

That many pernicious acts are being done under pressure and persuasion by the WTO and the corporate Mephistopheles ruling the roost as stand illustrated by what have been, (or are being done) in the matters of the collusive intellectual piracy by MNCs, ‘the derogation of plant breeders rights, the genetic manipulation by the biotechnology giants., the patenting of life forms including plants, animal, micro-organisms, genetic material and human life forms under the TRIPs agreement'.  

I have always believed that “the ultimate touchstone of constitutionality is the Constitution itself and not what we [court] have said about it” (per Frankfurter J quoted with approval in Bengal Immunity AIR1955 SC 661 at 671 para 13 ). The provisions of the Constitution, whereon some of the key assumptions are based, emerge from Articles 53, 73, 245, 253, 265, 363, . 372, 375, 395, and the 7 th Schedule. The combined effect of these Articles is that the Executive Government under our Constitution possesses no unbridled power: neither in the domestic sphere nor at the international plane. Our Government, whether it acts in Delhi or Detroit, is subject to the limitations imposed by the Constitution. Words of prohibition are specific under the aforementioned Articles. This is not so under the U.S. Constitution. As Article 253 is often invoked in support of such treaties, it is worthwhile to write a few words about it.

Article 253 of the Constitution

Constitutional limitations on Parliament's legislative power emanate from Articles 245 and 246; Art. 253 contemplate a valid treaty. It must be valid in accordance with the customary norms of international law. But it should also be valid under our Constitution. The Executive as the authorized agent of the State must not transgress the ambit of brief given to it under our Constitution. Art 253 enlarges the Parliament's legislative power under certain circumstances. Art 253 conceives of “ implementation ” [ Implementation means, to quote COD, “ Law performance of an obligation”] of the obligations enlarged in terms of the Article. Articles 73 grants extension to that power alone which is analytically executive. Hence the word implementation in Art 253 would mean ‘a legislative implementation'. The Executive is permitted to encroach only on that realm in Art 253 which is essentially executive . Besides, the effect and ambit of ‘implementation' under Constitution is much different from those under the British law. The view there taken in Parlement of Belge is not adopted adopted under our Constitution. : It may not be out of place to quote Arvind P. Datar ( Commentary on the Constitutional Law of India (227 second ed. at p. 1490):

“A legislative measure may not be necessary for entering into a treaty and this may be done under executive power conferred under Att. 73. But implementation of a treaty, irrespective of whether it affects rights of citizens or not must be an Act of Parliament. Article 253 does not make any distinction between a treaty that affect the rights of citizens and that which does not .” [italics supplied]

Under the British system every effort is made to ascertain the view of Parliament before a treaty is ratified. Oppenheim explains this point thus in his International Law 9 th ed Vol I at pp. 60-61:

“….the normal practice is for Parliament to be given an opportunity to approve treaties prior to their ratification and, if changes in the law are required, for the necessary legislation to be passed before the treaty is ratified.”

Besides he has noted at p. 58 fn. 23 of the referred book certain special cases “where constitutional practice requires legislation even if private rights or the existing law are not directly affected (e.g. treaties involving a cession of territory); and conversely where legislation is probably not required even if private rights are affected (e.g. treaties affecting belligerent rights: Porter v Freudenberg [1915] 1 KB 857, The Dirigo [1919] P 204 (see McNair, Law of Treaties (1961), pp 89-91; or treaties extending the area of the Crown's territorial sovereignty: Post Office v Estuary Radio Ltd [1968] 2 QB 740, 756. By 6 of the European Assembly Elections Act 1978 any treaty increasing the powers of the Assembly can be ratified by the UK only after approval by an Act of Parliament.” [ Oppenheim ibid p. 58 fn 23].

The Executive Government erroneously believes that it possesses plenum dominium. No superior court of country has decided upholding such obnoxious claims. There certain obiter dicta in certain cases. We all know that such dicta do not declare law. Precisely for this reason that the “ Consultation Paper on Treaty-Making Power under our Constitution” ( which had been placed before the National Commission to Review the Working of the Constitution) states thus:

  “ Judiciary has no specific role in treaty-making as such but if and when a question arises whether a treaty concluded by the Union violates any of the Constitutional provisions, judiciary come into the picture. It needs no emphasis that whether it is the Union Executive or the Parliament, they cannot enter into any treaty or take any action towards its implementation which transgresses any of the constitutional limitations….. I am sure that if and when any such question is considered by the Supreme Court, it will be considered in greater depth.” - Links on Shivakantjha - Links on Shivakantjha

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