We
associate globalization with the free movement of capital, labour, goods and
services across national borders. However, these parameters of economic globalization
cannot be viewed in isolation from other aspects such as the free exchange of
ideas and practices. Especially from the viewpoint of developing nations, the
benefits of increasing foreign investment in any particular sector should be
assessed not only in terms of capital-flows and wealth creation but also in
terms of technology-transfer and the infusion of know-how and best practices.
From this perspective, the legal systems in various countries have a lot to
learn from each other, both100
in terms of institutional design and the evolution of substantive laws.
However, there have also been some arguments made against120 the free exchange of ideas and practices
between legal systems of different countries. In this note, I would like to140 briefly comment on the linkages between
increasing globalisation and the law. One approach for examining these linkages
is to survey the160 legal
challenges thrown up by the changing socio-economic conditions. With increasing
trade and investment across borders, it is important for all nations to be
sufficiently invested in the multilateral processes of rule-making and
dispute-resolution while at the same time200
offering a balanced response to the resulting complexities through our domestic
legal systems.
The
reverse linkage is of course the impact of globalisation on our respective
legal systems. In the age of the internet and frequent international travel-
judges, lawyers,240 academics
and even law students from different countries have a lot of opportunities to
interact, collaborate and learn from each other’s experiences. In particular, I
would like to comment on the growing importance of fields such as comparative
constitutional law.280 Until a couple of years ago, much of discourse
about the legal challenges arising out of economic globalisation was centred300 on the multilateral efforts to promote
international trade and investment. In this regard, there has been considerable
scholarship on the320 dispute resolution
functions of the World Trade Organisation as well as the role of arbitral
institutions which facilitate dispute-resolution in the event of commercial
disputes between private parties located in different national jurisdictions.
There has also been some attention given360
to the settlement of investment disputes between foreign investors and host governments.
Hence, themes such as international trade law and investment law have become
quite prominent in legal exchanges. However, the collapse of several financial
institutions in recent times highlights400
the need for paying more attention to strengthening our domestic legal and
regulatory systems before shifting the focus to multilateral420 negotiations and rule-making. In India,
the retention of stringent governmental controls over the banking sector has
mitigated the impact of the recession, but many export-dependent sectors have
indeed faced some difficulties.
For
a country like ours where financial sector reforms began only in the 1990s,
there is an obvious need to adopt a pragmatic approach towards international
trade and investment.480 There
is no doubt that the progressive lowering of restrictions on foreign investment
and private enterprise has led to the500
expansion of several sectors such as banking, telecommunications, information
technology, broadcast media and infrastructure among others. The inflow of
foreign capital and firms in these sectors has undoubtedly created many jobs,
shaped an environment of competition and increased the choices available to
consumers. The expansion of these sectors has also created ‘regulatory gaps’
which have been addressed through the creation560
of independent regulatory agencies. The task of these independent regulatory
agencies is to assist in the formation of policies and devise rules to ensure a
fair balance between the interests of service-providers, consumers and the
government. Several specialized tribunals have600
also been set up for sectors such as telecom, securities regulation and
competition law to expeditiously decide disputes relating to these areas.
However, there is no consistent correlation between the quantitative growth of
foreign trade and investment on one hand640
and the indicators of social welfare and inclusive development on the other
hand. Many economists have argued that the progressive financial sector reforms
have only benefited the traditionally elite sections of society and that the
‘trickle-down’ benefits for the masses have been negligible. Some have even
argued that the forces of economic globalisation have actually widened the
existing socio-economic inequalities.700
A glaring symptom of the same is the rapidly increasing rates of migration
between the rural areas and the urban720
centres. Cities such as Delhi, Mumbai, Bangalore and Hyderabad among others
have grown exponentially on account of the expansion of the services sector,
which creates both well-paying jobs for qualified professionals as well as
low-end jobs in the informal sector.
Millions
of people leave their country-side homes each year with the hope of better
employment prospects. Instead, many of them end up living in even worse
conditions in the cities where the infrastructure has not kept up with the rise800 in population. Our persistent failure to
provide quality education and healthcare to a large part of our population
further exacerbates the socio-economic inequalities in our society. There is a
wide gap between the opportunities available to those who can speak840 the English language and operate
computers as opposed to the rest of our people. Such inequity sometimes results
in localized conflicts between the ‘haves’ and the ‘have-nots’, which are often
reinforced by traditional social divisions based on caste, religion and
regionalism. On account of such complex social realities, it becomes very
difficult to gauge the substantive benefits of foreign trade900 and investment. In such a scenario, the
onus is on the Government and the legal system to devise strategies for
ensuring a more equitable distribution of the pie. It is the concern with the
prospects for our agricultural exports in foreign markets, which has prompted
India’s vehement stand against the policy of export-subsidies given to farmers
in some Western countries.960
There is no principled opposition to the reduction of tariffs and other trade
barriers which will enable more foreign firms980
to trade in goods and services in India. However, Western governments should
also be willing to reciprocate by removing the1000
unfair advantages given to their respective agricultural sectors. If the same
is done, Indian farmers will be able to improve their earnings from exports and
the same will translate into meaningful development for our rural communities.
Even though the negotiations at the World Trade Organization seem to have been
stalled at the moment, there is no ambiguity about the merits of free trade. The
only condition is that both the developed and developing nations should be
equally committed to the1080
reduction of trade barriers. The construction of several large infrastructural
projects as well as increasing investment in sectors such as steel manufacturing
and mining has also created several legal complications. Especially in forested
areas populated by tribal communities, several disputes1120 have arisen from forcible
land-acquisition. Sometimes, companies take advantage of the lack of awareness
and bargaining power on part of tribal communities to displace them from their
traditional lands. In fact, the use of deception and coercion to displace local
communities from their lands is a practice that can be traced back to the
colonial period. Such disputes that involve questions of adequate compensation,
rehabilitation and even environmental protection in some cases, are amongst the
foremost challenges for the Indian1200
legal system today. Policy-makers and judges are frequently called upon to walk
a tightrope between the competing interests of promoting economic growth and
protecting the rights of local communities. Even though the state exercises
‘eminent domain’ over land and natural resources, sometimes it is not
appropriate to rely on utilitarian considerations to decide disputes involving
the same. Due weightage must1260
be given to the customary rights as well as the ‘right to livelihood’ of local
communities, even if the same1280
results in the loss of some investment opportunities. Another area which
requires rigorous analysis and interventions in India’s domestic legal system
is that of corporate governance standards and bankruptcy protection. Reports of
accounting fraud in some leading companies have drawn attention to aspects such
as the role of directors who serve on the board of publicly-held companies as
well as the need to ensure independence on part of firms which perform auditing
and accounting functions for such companies. The separation between ownership
and control is a characteristic feature of modern corporations, and hence their
functions are dominated by the managers instead of the shareholders. In the
pursuit of profits, the managers often make short-sighted decisions which prove
to be detrimental1400 to the
interests of shareholders, employees and consumers. In such cases, there is a
governmental interest in regulating the functions of business entities through
robust disclosure norms. There is also an urgent need for large publicly-held
corporations to realize that1440
they are accountable not only to their shareholders and creditors but to
several other stakeholders in society. In the context of encouraging foreign
investment and cross-border trade, the devices of Bilateral Investment treaties
and Free Trade Agreements are now being routinely used to safeguard the
interests of firms which invest in foreign countries. Such treaties lay down
obligations on part of host governments to ensure fair and equitable treatment
for foreign investors, favourable tax and regulatory schemes as well as
safeguards against unjust expropriation. However, economists have made the
point that sometimes the governments of developing nations accept unfavourable
terms in these investment treaties on account of desperation to attract foreign
investment.1552
