1. Why has the U.S. delayed tariffs under digital services tax?

Relevant for GS Prelims & Mains Paper III; Economics

During the past week, the United States announced and then immediately suspended a 25% tariff on $2 billion of imports from six countries, including India, as a retaliatory measure against each of these countries’ imposition of a digital services tax impacting the giant tech corporations of Silicon Valley, including the likes of Alphabet, Amazon, Apple, Facebook and Microsoft. The purported logic of suspending the tariff for up to 180 days after announcing it is to allow time for ongoing international tax negotiations to continue, and, in the words of U.S. Trade Representative (USTR) Katherine Tai, seek “a multilateral solution … while maintaining the option of imposing tariffs under Section 301 if warranted in the future”. Other than India, the countries slapped with this tariff proposal are Austria, Italy, Spain, Turkey, and the United Kingdom.

What is the basis of the U.S. action?

The essence of the argument made by the USTR office is that a “Section 301” investigation initiated by the Trump administration in June 2020 found digital services taxes imposed by each of these countries to be discriminatory against U.S. tech firms. The Biden administration was likely aware that the deadline for authorising tariff action based on these investigations would have lapsed this week, thus necessitating the approval of the 25% tariff.

The immediate suspension of the tariff is likely in part a recognition of the fact that the six countries potentially impacted are limping through a feeble post-COVID-19 recovery and opening a new trade war front could be damaging not only to them, but also to the broader global economy. The combination of depressed economic activity owing to the effects of the pandemic and tectonic shifts in global supply chains engendered by the Trump administration’s trade war with China has already left many economies in a weakened condition.

Why is Section 301 significant?

Under Section 301 of the Trade Act of 1974, the USTR enjoys a range of responsibilities and authority to investigate and take action to enforce U.S. national interests under trade agreements and respond to certain foreign trade practices. Until recently, this facility was used by multiple administrations to build cases and pursue dispute settlements at the World Trade Organization (WTO).

Under former President Donald Trump, however, this authority was used to promote what his administration considered to be “free, fair and reciprocal” trade, specifically to close the gap or balance of trade between the U.S. and foreign governments in cases where the latter had deployed trade practices that allegedly disadvantaged or discriminated against U.S. firms. To a great extent, the Trump administration trained its Section 301 guns on China, leading to an escalating tariff war that ultimately engulfed the final years of its tenure. Now, the Biden administration appears to be unwilling to walk back Trump-era 301 investigations in their entirety; rather, it appears to be seeking a middle path of waving the stick of the USTR while allowing some space for continued tax negotiations with the nations concerned.

How will it affect India?

The Finance Bill, 2021, introduced an amendment imposing a 2% digital service tax on trade and services by non-resident e-commerce operators with a turnover of over ₹2 crore. According to reports, early estimates by the USTR suggest this tax could yield approximately $55 million annually. Negotiations with Washington that may result in the scaling back of this tax would imply that a part of this revenue would be lost to the exchequer, depending on the final rate agreed.

On the other hand, close to $118 million of India’s exports to the U.S. would be subject to the tariff proposed by the USTR, impacting 26 categories of goods, including basmati rice, cigarette paper, cultured pearls, semi-precious stones, certain gold and silver jewellery items and specific types of furniture products.

India will have to consider its options carefully at this juncture. On the one hand, it would seek to avoid getting into any escalating matrix of retaliatory taxation with the U.S., as that would damage its growth prospects at a crucial point in its laborious recovery. However, it will also not be able to simply abandon its articulated intent to tax global tech firms, which have generally enjoyed low-tax operations across numerous jurisdictions.

Source: The Hindu

2. What is indemnity, and how will it affect COVID-19 vaccine pricing and availability in India?

Relevant for GS Prelims & Mains Paper III; Science & Technology

The Union government is in talks with foreign manufacturers of COVID-19 vaccines on their demand for indemnity from liability as a condition for selling their vaccines to the country. Pfizer, which supplies the Pfizer-BioNTech mRNA vaccine, is said to have requested that the government indemnify it from any claim that may arise from vaccine users in the future based on any adverse effects after getting the jab. No decision has been made yet on the request. However, it has already given rise to a similar demand from domestic vaccine-maker Serum Institute of India (SII), which says all players should be treated the same way.

What is indemnity and why is it sought?

Indemnity is a form of contract. The law on drugs in India does not have a provision for indemnity related to the grant of approval for any new drug or vaccine in the country. If at all any indemnity is to be granted to any company for a particular drug or vaccine, it can only be in the form of an indemnity bond executed on behalf of the government of India, or a clause or set of clauses in any contract that the government may sign with the supplier. There appears to be no precedent for any company getting such indemnity in India for any drug.

Section 124 of the Indian Contract Act, 1872, defines a contract of indemnity as one by which one party promises to save the other from any loss caused to the latter. Once the government of India grants such indemnity to the vaccine manufacturer or importer, it would mean that if a particular vaccine is perceived to have caused death or any lasting damage to a recipient, any claim of compensation arising from it will have to be met by the government, and not by the company. In the event of a court ordering payment, the company will be in a position to recover the amount from the government.

Is the demand for or grant of indemnity a standard practice?

Indemnity is essentially a contractual matter between the supplier and recipient, and therefore, a good deal of confidentiality is attached to such agreements. Pfizer is believed to have obtained such indemnity from several countries, including the United Kingdom, from which it has received supply orders. However, it has declined to discuss the issue in public.

Normally, it is the company applying for approval of a new drug or vaccine that submits itself to various conditions, processes and regulations. Approvals in most countries come with stringent conditions regarding conformity to national guidelines, quality standards, safety assessments and requirements regarding various phases of clinical trials. For imported drugs, a local clinical trial may not be required if it has been approved and marketed in countries specified by the Central Licensing Authority and if no major adverse events have been reported.

However, given the peculiar global situation arising out of the COVID-19 pandemic, and the severe shortage of vaccines faced by countries such as India, which urgently needs to inoculate hundreds of millions of people, some vaccine suppliers may be in a position to set conditions.

What have the overseas companies got so far?

The Drugs Controller-General of India has already taken a big step towards fast-tracking the import of vaccines by dispensing with the need for local trials. Earlier, the Centre had decided that foreign-produced vaccines that had been granted emergency approval for restricted use by regulators in the U.S., the U.K., the European Union and Japan, or those included in the WHO’s Emergency Use Listing, would be granted Emergency Use Authorisation in India. The condition was that there would be a post-approval parallel bridging trial. However, this condition was waived a few days ago and no bridging trial is now necessary. The significance of this exemption is that both the delay attached to such trials and the risk of adverse events to participants have been avoided.

The New Drugs and Clinical Trial Rules, 2019, set down stringent regulations for grant of approval as well as for trials. The Rules provide for payment of compensation by the sponsor of the trial or its representative to any participant who dies or suffers disability as a result of such trials. Exemption from these trials has reduced the risk to overseas manufacturers. However, companies probably fear that they would still be liable under the ordinary law of tort, arising from future claims by anyone adversely affected after receiving the shot.

What does India gain by giving indemnity?

In the absence of indemnity, overseas manufacturers may load the risk onto the price of the vaccines, making each dose more expensive. By indemnifying the companies in respect of these vaccines, the government of India may be able to negotiate lower prices and higher volumes. It may help accelerate India’s national vaccination drive. On the flip side, the government may be forced to make it a level playing field for local manufacturers, too, by extending indemnity to them, and thereby inviting upon itself the entire risk associated with more than a billion vaccine shots.

Source: The Hindu

3. Why has the China-backed Colombo Port City project come under attack from the Opposition and citizens?

Relevant for GS Prelims & Mains Paper II; International Relations

Last month, Sri Lanka passed the controversial Colombo Port City Economic Commission Bill, which governs the China-backed Colombo Port City project worth $1.4 billion, amid wide opposition to the creation of a “Chinese enclave” in the island nation.

Why is the project surrounded by controversies?

The Colombo Port City has grabbed headlines in Sri Lanka in recent months even as the relentless third wave of the COVID-19 pandemic sweeps through the country. Almost an artificial island, the territory coming up on 2.69 square kilometres of land reclaimed from Colombo’s seafront has stirred controversy since its inception. Those backing it see in that patch of land their dream of an international financial hub — a “Singapore or Dubai” in the Indian Ocean. But sceptics claim that it could well become a “Chinese colony”, with the Bill, which is now an Act, providing the Port City and the powerful Commission that will run it substantial “immunity” from Sri Lankan laws, besides huge tax exemptions and other incentives for investors.

Pitched as a “world-class city for South Asia”, the development is envisioned under five distinct “precincts” — the Financial District, the Central Park Living and the Island Living to come up as residential areas, The Marina, which is planned as a leisure destination, and the International Island, which would include educational institutions and convention centres. The Port City project is scheduled for completion by 2041.

When was it launched?

The project was launched in September 2014 by Chinese President Xi Jinping during a visit to the island nation under the Mahinda Rajapaksa administration’s second term. After President Mahinda Rajapaksa was ousted in January 2015, the successor “national unity” government of Maithripala Sirisena and Ranil Wickremesinghe went ahead with the project after briefly halting it. On returning to power in November 2019, the Rajapaksas vowed to expedite the project. The Sri Lankan government says the project will bring in around 83,000 jobs and $15 billion initially.

What is the extent of China’s involvement?

The project is financed chiefly through Chinese investment amounting to $1.4 billion, via CHEC Port City Colombo, a unit of the State-owned China Communications Construction Company (CCCC). In return, the company will receive 116 hectares (of the total 269 hectares) on a 99-year lease.

The Colombo Port City — separate from but located adjacent to the Colombo Port, the country’s main harbour — is the third major port-related infrastructure project where China has a significant stake. China Merchants Port Holdings has an 85% stake in the Colombo International Container Terminals Ltd. (CICT) at the Colombo Port, under a 35-year ‘Build Operate and Transfer’ agreement with the Sri Lanka Port Authority.

In 2017, the Sirisena-Wickremesinghe administration, unable to repay the Chinese loan with which it was saddled by the previous government, handed over the Hambantota Port in the Southern Province to China on a 99-year lease.

Effectively, China has substantial control over two key infrastructure projects in Sri Lanka for a century.

These projects are within the ambit of China’s ambitious Belt and Road Initiative, in which it sees strategically located Sri Lanka as a trusted partner. In March this year, Mr. Xi told Mr. Gotabaya Rajapaksa that the two countries must “steadily push forward” in major projects and promote “high-quality collaboration in jointly building the Belt and Road”, Xinhua reported.

What are the concerns?

Since its launch, the Colombo Port City project has faced opposition from environmentalists and fisherfolk, who feared that the project would affect marine life and livelihoods. However, in the absence of wider political and societal support, their resistance did not dent successive governments’ resolve to pursue the project.

The more recent opposition was specific to the Colombo Port City Economic Commission Bill. The resistance came from Opposition parties and civil society groups, including many who do not oppose the project per se, but rather its governance by “an all-powerful commission answerable to no one”. Significantly, a section of Buddhist monks, wielding much influence in Sri Lankan politics and the Sinhala society, also opposed the Bill and said that it eroded Sri Lanka’s sovereignty.

During a heated parliamentary debate, Opposition MPs said the Bill paved the way for a “Cheelam” or “ChiLanka”, referring to China’s “control” over the Colombo Port City. Trade unions resisted too, contending that labour rights had no protection under the new physical and legal entity. For the first time, there was widespread resistance to a Chinese-backed project from within the Rajapaksas’ support base.

As many as 19 petitions challenged the Bill in the Supreme Court, leading it to recommend a few amendments, which some Opposition legislators termed “cosmetic changes”.

The government accepted these promptly to avert the constitutional requirement of a two-thirds majority in Parliament and/or a referendum of people. The amended Bill received a parliamentary majority.

Source: The Hindu

4. What does the World Health Organisation say about H10N3 bird flu, and is there a reason to worry?

Relevant for GS Prelims & Mains Paper III; Science & Technology

China has confirmed the first instance of human infection from H10N3, a rare strain of a virus that normally infects poultry. On Tuesday, the National Health Commission of Beijing reported that a 41-year-old man in the eastern Jiangsu province had been infected with the rare strain but no details were given as to how he caught it.

What do we know so far about H10N3?

Chinese authorities said the 41-year-old man was the first human case of an infection with the strain. They said the person was hospitalised on April 28 and was diagnosed with the strain after a month. The Beijing-based National Health Commission said the strain has low pathogenesis — the ability to cause disease — among birds, implying that the virus did not spread easily among poultry and was likely to be restricted to limited populations. “As long as avian influenza viruses circulate in poultry, sporadic infection of avian influenza in humans is not surprising, which is a vivid reminder that the threat of an influenza pandemic is persistent,” Reuters quoted the World Health Organization (WHO) as saying.

What is avian influenza?

H5N1 is the most common virus causing bird flu, or avian influenza. Though largely restricted to birds, and often fatal to them, it can cross over to other animals, as well as humans. According to the WHO, the H5N1 was first discovered in humans in 1997 and has killed almost 60% of those infected. Though it is not known to transmit easily among humans, the risk remains.

There are several subtypes of the avian influenza virus. Since 2003, these avian and other influenza viruses have spread from Asia to Europe and Africa. In 2013, human infections with the influenza A(H7N9) virus were reported in China. An outbreak of the H7N9 strain killed around 300 people in 2016 and 2017. The U.S. Centers for Disease Control and Prevention says, “All known subtypes of influenza A viruses can infect birds, except subtypes H17N10 and H18N11, which have only been found in bats. Only two influenza A virus subtypes (i.e., H1N1, and H3N2) are currently in general circulation among people. Some subtypes are found in other infected animal species. For example, H7N7 and H3N8 virus infections can cause illness in horses, and H3N8 virus infection cause illness in horses and dogs.” So far, the H10N3 appears mild and not very transmissible, and hence, its categorisation status remains unclear.

What are the typical symptoms of an avian influenza infection?

According to the WHO, avian, swine and other zoonotic influenza virus infections in humans may cause disease with symptoms like mild upper respiratory tract infection (fever and cough), early sputum production and rapid progression to severe pneumonia, sepsis with shock, acute respiratory distress syndrome, and even death. Conjunctivitis, gastrointestinal symptoms, encephalitis and encephalopathy have also been reported in varying degrees depending on the subtype.

Why are bird flu viruses a cause of concern?

Speculation about the origin of the SARS-CoV-2 has heightened worries about animal- and bird-borne viruses. The emergence of new strains, particularly among domesticated animals and birds, is a story of evolution and inevitability, and sporadic reports of new viruses infecting humans abound. An outbreak of the H5N8 virus in birds led to hundreds of thousands of poultry being culled in various European countries. In February, Russia reported that seven poultry workers in a plant were infected by the H5N8 strain. All of them recovered. India, too, faced an outbreak of the virus in flocks of poultry in January and undertook culling.

Source: The Hindu

5. What is a global minimum tax and what will it mean?

Relevant for GS Prelims & Mains Paper III; Economics

Finance Ministers from the Group of Seven (G7) rich nations on Saturday reached a landmark accord setting a global minimum corporate tax rate, an agreement that could form the basis of a worldwide deal.

The deal aims to end what U.S. Treasury Secretary Janet Yellen has called a “30-year race to the bottom on corporate tax rates” as countries compete to lure multinationals.

Why a global minimum?

Major economies are aiming to discourage multinationals from shifting profits — and tax revenues — to low-tax countries regardless of where their sales are made.

Increasingly, income from intangible sources such as drug patents, software and royalties on intellectual property has migrated to these jurisdictions, allowing companies to avoid paying higher taxes in their traditional home countries.

With its proposal for a minimum 15% tax rate, the Biden administration hopes to reduce such tax base erosion without putting American firms at a financial disadvantage, allowing competition on innovation, infrastructure and other attributes.

Where are the talks at?

The G7 talks feed in to a much broader, existing effort.

The Organization for Economic Cooperation and Development has been coordinating tax negotiations among 140 countries for years on rules for taxing cross-border digital services and curbing tax base erosion, including a global corporate minimum tax.

The OECD and G20 countries aim to reach consensus on both by mid-year, but the talks on a global corporate minimum are technically simpler and less contentious. If a broad consensus is reached, it will be extremely hard for any low-tax country to try and block an accord.

The minimum is expected to make up the bulk of the $50 billion-$80 billion in extra tax that the OECD estimates firms will end up paying globally under deals on both fronts.

How would a global minimum tax work?

The global minimum tax rate would apply to overseas profits. Governments could still set whatever local corporate tax rate they want, but if companies pay lower rates in a particular country, their home governments could “top-up” their taxes to the minimum rate, eliminating the advantage of shifting profits.

The OECD said last month that governments broadly agreed on the basic design of the minimum tax but not the rate. Other items still to be negotiated include whether investment funds and real estate investment trusts should be covered, when to apply the new rate and ensuring it is compatible with U.S. tax reforms aimed at deterring erosion.

What about that minimum rate?

Talks are focusing around the U.S. proposal of a minimum global corporation tax rate of 15% – above the level in countries such as Ireland but below the lowest G7 level.

Any final agreement could have major repercussions for low-tax countries and tax havens.

The Irish economy has boomed with the influx of billions of dollars in investment from multinationals. Dublin, which has resisted EU attempts to harmonise its tax rules, is unlikely to accept a higher minimum rate without a fight.

However, the battle for low-tax countries is less likely to be about scuppering the overall talks and more about building support for a minimum rate as close as possible to its 12.5% or seeking certain exemptions.

Source: The Hindu

6. Two states, one brand: how Kerala won battle against Karnataka for KSRTC trademark

Relevant for GS Prelims & Mains Paper III; Economics

For decades, the neighbouring states of Kerala and Karnataka have used the same abbreviation for their respective State Road Transport Corporations — KSTRC. After a seven-year legal battle for the trademark, Kerala has announced that the Trade Marks Registry’s final verdict on Wednesday gave it the right to use the abbreviation KSRTC, its emblem, and even the nickname ‘Anavandi’, which means elephant vehicle.

Karnataka has said it has not yet received the order and that it is exploring legal options.

Side by side

In Kerala, the erstwhile Travancore State Transport Department was re-established as Kerala State Road Transport Corporation on April 1, 1965. And in Karnataka, the Mysore Government Road Transport Department (MGRTD), started in 1948, became Karnataka State Road Transport Corporation in 1973.

The Kerala RTC is the state’s largest public sector employer, with 28,000-odd permanent employees and 38,000-odd pensioners (2020). But trade unionism and mismanagement have caused it major losses. The previous LDF government spent Rs 5,000 crore in five years to meet salary and pension bills.

The two RTCs have been operating services to each other’s states for decades. They use the same space for parking, operations and booking offices.

How trademarks are registered

The Office of the Controller General of Patents, Design and Trade Marks is the apex body in charge of supervising the working of regulations related to patents and trademarks and advising the government on these matters. It comes under the Department for Promotion of Industry and Internal Trade.

The Controller General heads the offices of the Trade Marks Registry, created to administer the Trade Marks Act, 1999. While the Controller General functions as the Registrar, from time to time, he can assign this function to other officers. The current Controller General is DPIIT joint secretary Rajendra Ratnoo, given this role as an additional charge.

How Kerala won

In 2014, Karnataka State RTC applied for registration of the KSRTC trademark with the office of the Trade Mark Registrar, in Chennai. After getting it registered, it served a notice to the Kerala RTC against the use of the trademark. The Kerala RTC approached the state Trade Mark Registrar, which pointed out the name has already been registered by the Karnataka RTC.

Kerala eventually won by relying on Section 34 of the Trade Mark Acts deals with the “first user” rule. It provides that a proprietor of a trademark does not have the right to prevent the use by another party of an identical or similar mark where that user commenced prior to the user or date of registration of the proprietor. As Kerala RTC was the first user (from 1965), it got the right established to use that trade mark.

Kerala RTC furnished photographs of old buses, bus depots, pages from memoirs of former Transport Ministers, write-ups and reports. Among the evidence presented was visuals from a Malayalam film of 1969, Kannur Deluxe, showing a KSRTC (Kerala) bus plying between Kannur and Thiruvananthapuram.

What now

Kerala Transport Minister Antony Raju’s office issued a press statement saying the Registrar of Trademarks has ruled in the Kerala RTC’s favour. On Friday, Karnataka SRTC issued a statement, saying the “reports are factually incorrect as we have not received any such notice or order from the Central Trade Mark Registry as claimed until today”.

Karnataka Deputy Chief Minister and Transport Minister Laxman Savadi said: “Without any notice from the Controller General of Patents Design and Trade Marks we can’t go ahead with Kerala’s claim. We will discuss with our KSRTC legal team and explore all possibilities.”

Source: The Indian Express