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15 February 2017 Question bank

 

15th FEBRUARY 2017 

QUESTION BANK

(1 Questions)

 

Answer questions in NOT MORE than 200 words each. Content of the answer is more important than its length.

Links are provided for reference. You can also use the Internet fruitfully to further enhance and strengthen your answers.

 

GS II : GOVERNANCE

1.    Discuss the pros and cons of imposing a blanket ban on foreign direct investment (FDI) in the tobacco sector.

http://www.thehindu.com/opinion/op-ed/Sharpening-the-fight-against-tobacco/article17302601.ece

http://www.thehindubusinessline.com/economy/policy/commerce-ministry-for-blanket-ban-on-fdi-in-tobacco-sector/article9354119.ece

·         Towards the end of 2016, the Commerce Ministry sent a note to the Cabinet proposing a blanket ban on foreign direct investment (FDI) in the tobacco sector.

·         The Commerce Ministry’s proposal, which NITI Aayog has opposed, would put an end to all kinds of participation of foreign companies in the tobacco sector.

FDI in tobacco in India:

·         The American tobacco giant, Philip Morris International (PMI), has invested in the Indian tobacco market through a licensing agreement with Godfrey Phillips India.

·         Additionally, the Swiss affiliate of PMI has also entered into a joint venture with some Indian companies to form a wholesale trading group involved in selling tobacco products.

·         PMI, keen to maintain a foothold in the $11 billion Indian tobacco market, has written letters to the Commerce Minister and to NITI Aayog arguing that such a ban would be ‘discriminatory’ and ‘protectionist’.

Pros:

1.      Although India banned FDI in tobacco manufacturing in 2010, foreign tobacco companies are allowed to invest through technology collaboration, licensing agreements and by forming a trading company. This initiative will plug all loopholes through which FDI can come into the manufacturing of tobacco products in the country.

2.      The World Health Organisation (WHO) Framework Convention on Tobacco Control (FCTC), makes it obligatory for India is under an obligation to reduce high consumption of tobacco products which pose a grave public health danger.

Con:

Risk of investor-state dispute settlement claims

·         It is quite possible that PMI might challenge any such blanket ban under India’s bilateral investment treaties (BITs). This is especially so given the two recent instances of PMI opposing anti-tobacco measures of two countries under BIT’s investor-state dispute settlement (ISDS).

·         First, Philip Morris Asia (PMA) challenged Australia’s plain packaging regulations under the Hong Kong-Australia BIT. However, the ISDS tribunal refused to hear this case for lack of jurisdiction.

·         Second, PMI challenged Uruguay’s regulation requiring tobacco companies to put pictorial warnings on 85% of the area on cigarette packets, under the U.S.-Uruguay BIT. The arbitration tribunal, rejecting the claim of PMI, held that it was within the sovereign regulatory powers of Uruguay to impose such restriction to protect public health.

·         Though PMI cannot bring a BIT case against India because there is no India-U.S. BIT, its Swiss affiliate could surely bring a claim under the India-Switzerland BIT, which protects not just direct investment but also shares, stocks and other forms of participation in a company.

·         As PMI has already indicated, the FDI blanket ban could be challenged as being discriminatory by favouring domestic tobacco investors over foreign investors.

·         India might be asked why it didn’t consider adopting other less foreign investment-restrictive regulatory measures to meet the objective of reducing tobacco consumption. The reported termination of this BIT by India will not impact any such claim because the treaty contains a survival clause promising protection to existing foreign investment for the next 10 to 15 years.

Other measures needed:

1.      Phasing out existing investments by domestic companies

·         Some argue that the objective of discouraging tobacco consumption cannot be served by only a ban on FDI.

·         Domestic players could occupy the market freed up by foreign players.

·         A decision also needs to be taken on phasing out existing investments in the sector made by domestic companies.

2.       Plain packaging regulation

·           FCTC specifically talks about countries adopting packaging and labelling requirements to create better awareness about the harmful effects of tobacco consumption.

·           Thus, even if Philip Morris or any other investor were to challenge a plain packaging regulation, India would be on a much stronger legal wicket in defending it than defending a complete ban on FDI.

·           In the past, some efforts have been made to introduce plain packaging regulations in India. In 2012, Baijayant Panda introduced a bill in the Lok Sabha to amend the Cigarettes and Other Tobacco Products Act (COTPA) proposing plain packaging of cigarettes in India. However, the bill failed.

·           In 2014, the Allahabad High Court allowed a petition on plain packaging regulation and said that the Central government must implement it.

·           In 2016 petition on this was also filed in the Supreme Court.

3.      Increasing taxes on tobacco products

·         Though taxes on tobacco products have increased in India over the years, some studies argue that overall taxes on cigarettes in India are still low relative to other countries.

·         Also, for strange reasons, bidis have often been exempted from increase in excise taxes despite being the most commonly used tobacco in India.

 

4.      The 85% pictorial warning requirement on cigarette packets.

·           Despite notifying this regulation in October 2014, the government didn’t implement it because it was ostensibly red-flagged by Parliament’s committee on subordinate legislation, which had the owner of a bidi empire as one of its members!

·           This notification was finally implemented from April 1, 2016 after the Supreme Court’s intervention.

·           In sum, the government needs to demonstrate strong political will and carefully choose policies to deal with the menace of high tobacco consumption.

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