This zippergate is different

The Supreme Court has delivered a body blow to the small scale and swadeshi sector in India by its judgment in Zippers Karamchari Union v...

The Supreme Court has delivered a body blow to the small scale and swadeshi sector in India by its judgment in Zippers Karamchari Union vs. Union of India. It has held that reservation of articles for the small-scale sector can be legally negatived by permitting large investment integrated plants for the manufacture of the same article.

Hence the small-scale sector doing decentralised manufacturing of the several parts of a zip narrow fabric, interlocking elements, sliders, pullers and end parts can be confronted by the Union Government by a massive plant manufacturing all the parts under one roof to compete for the sale of the same final article, namely, zip fasteners. When this is read with the other parts of the judgment, it is clear that the apex court has given a green signal for wiping out the small-scale sector whenever ruling politicians feel it to be worthwhile.

The three-judge bench of the apex court has upheld the sanction granted by the Foreign Investment Promotion Board to the 100 percentJapanese multinational YKK subsidiary to manufacture integrated zip fasteners at its factory in Haryana. While doing so the court has sent out a loud and clear message that it will not examine the question whether the advisory committee for dereservation from the small-scale industry 8220;considered8221; that an integrated plant would be such that it would 8220;provide access to high technology or world markets.8221;

Instead, from the 8220;worldwide reputation8221; of the product of the multinational, the court will conclude that it would provide access to the world market. By this criteria no industrial product of any developing country can be protected from a multinational, especially giv-en the fact that no domestic industry can finance politics and pol-iticians to the extent that a multinational can.

The Advisory Com-mittee is set up under Section 29B 2-B of the Industries Development amp; Regulation Act. The Industrial Policy Statement of the Union Government under Para 39-BV required the setting up of the FIPBto negotiate with a number of large international firms and to approve direct foreign investment in select areas to attract substantial investment that would provide access to 8220;high technology and world markets.8221; The employees union of the small-scale manufacturers had, according to the apex court, squarely raised the contention that the FIPB had not considered whether approving YKK8217;s 90 crore integrated zip fastener plant would provide access to 8220;high technology and world markets.8221;

The court first stated that the test should be access not both to high technology and world markets but high technology or world markets. This loaded the dice further against the small-scale indigenous sector by asking a multinational to meet one instead of two simultaneous tests in addition to the pro-multinational requirement in para III of the industrial policy that stated that non-high priority industry foreign equity proposals need not be accompanied by foreign technology agreements.

But the most tragic blow to thesmall-scale sector was the apex court8217;s refusal to examine whether the FIPB did or did not consider 8220;access to world market8221; test. Without any such material before it the court instead gave its own opinion that, considering to the quality and worldwide reputation of YKK zip fasteners, it would be reasonable to conclude that it would provide access to the world market. This leaves the domestic industry to the whim and fancy of the FIPB whose conduct will not be examined by the apex court.

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The Advisory Committee on whose recommendation the apex court has leaned heavily, categorically spoke of 8220;foreign collaboration8221; for integrated units of large investment to ensure quality. The apex court simply ignored this part of the advisory committee report while upholding the FIPB clearance for a hundred percent Japanese-owned subsidiary. Can the apex court rely on one portion of a report and ignore another relevant portion in relation to the specific arguments put before it?

Worse, the separate concurringjudgment mentions that the main judgment has set out the details of the constitution of the advisory committee but no such details are found in the main judgment which does give the advice tendered by the Committee. This was crucial to find the expertise of the Committee members.

Lastly, the employees had filed a note of the Minister of State for Industry M. Arunachalam, dated September 5, 1995, recommending that the July 7, 1995 sanction granted to YKK be amended to include a 75 percent export commitment. The apex court accepted the contention of the Union government that such a note subequent to the sanction could not be taken into account.

But the apex court took into account the subsequent guidelines of July 17, 1997 for the FIPB to state that no condition could be imposed after the approval. But the crucial question was whether such a note was written and what the then Union Industry Ministry has done about it. The court has sent out the signal that it will not call the Union government to accountwhen it says that 8220;the file in which the note is said to have been written is not available.8221; If the zip loses it s teeth, how shall it be fastened?