Transcript Services Negotiations at the WTO: 2nd May, 2006 New Delhi

Services Negotiations at the WTO
August 11, 2006
Petroleum Federation of India, New Delhi
Presentation
by
Shri Amit Yadav, Director
Deptt of Commerce
Government of India
PART I:
Introduction
SERVICES - STATISTICS
•World trade in commercial Services in 2004 - $2100 billion (roughly 1/4th of
merchandise trade).
•India’s Services Exports grew by 106% from $25 billion in 2003-04 to US $ 51
billion in 2004-05
•Share of India’s exports in world trade of services - 1.9%.
•India’s Imports – 2004-05 - $36.7 billion
•Services accounted for 54.1% of GDP in 2005-2006 in India.
•Services Exports account for 39% of total exports in 2004-05.
• NASSCOM/McKinsey Report of 2002: India’s IT exports to grow to US$ 57
billion by 2008 and employment (direct and indirect) by 4 million.
• NASSCOM/KPMG Report of 2004: Offshored IT services to grow by 30-40% in
the ‘next few years’.
•It is this strength and global competitiveness that has guided the Govt’s
stance in the GATS negotiations at the WTO.
VALUE OF WORLD TRADE IN
SERVICES BY MODE (PERCENT)
1% ($18Bn approx.)
28% ($504 Bn
approx.)
57%
($1025 Bn
approx.)
14% ($252 Bn approx.)
Mode 1 (Cross Border Supply)
Mode 2 (Consumption Abroad)
Mode 3 (Commercial Presence)
Mode 4 (Movement of Natural Persons)
Cont’d
 Strong revealed comparative advantage in
services relative to goods: RCA index for
services rose by 74% and that for goods
declined by 15% between 1996 and 2000.
 This has been possible because of high growth
in software exports and BPO/ITES
Study by Boston Consulting Group
• 40 Million new Services jobs, $200 Billion revenue to be generated by 2020 in
India.
20 Mn
Direct Jobs
Mode 1 (Remote
Services)
6 Mn Jobs
$170 -175 Bn
revenue
40 Mn new
Services Jobs
20 Mn
Indirect Jobs
Mode 2
(Import of
Customers)
14 Mn Jobs
$25-30 Bn
revenue
Indirect to Direct employment creation 1:1
Possibilities of gains from Mode 4
liberalization
 Study by Winters and Walmsley (2002) and Rodrick
(2002) suggests that the annual gains from Mode 4
liberalization could range between $150 billion and $200
billion.
 Study estimates that the impact of an increase in
developed country quotas on inward movement of
workers from developing countries is equivalent to 3% of
the developed countries total labour force.
 NASSCOM/McKinsey Report of 2005: India’s IT exports to
grow to US$ 60 billion by 2008 and employment (direct
and indirect) by 4 million.
 NASSCOM/KPMG Report of 2004: Offshore IT services to
grow by 30-40% in the ‘next few years’.
MARKET ACCESS NEGOTIATIONS: INDIA’S
OBJECTIVES
 To facilitate the movement of professionals who have
got a contract to supply services abroad.
 Delink movement of such professionals from the
requirement to set up an office / firm in foreign country
 To bind the current level of commitments prevailing in
developed country markets to facilitate supply of
services remotely (BPO, ITES etc)
 To request countries to do away with Economic Needs
Test and Labour Market Test which hamper effective
market access
 Enter into discussions for having Mutual Recognition
Agreement for educational qualifications and licensing
requirements and procedures.
 Disciplining Administrative Measures
 Exemption from social security contributions.
Professional Services: Importance
for India
India has a huge pool of professionals which can offer their services at
a fraction of the cost in developed countries. However hurdles
include:
 Requirement of licensing or accreditation
 Professional Services mainly constitute accredited professions
(e.g. lawyers, doctors, accountants, architects and engineers)
 Practice if Non-accredited or free exercise professions like
advertising etc is based on market acceptability and is subject to
general business regulations though some professional services
need to obtain certification to provide services.
 Globally, there is a trends towards concentration and big firms
from the US and UK dominate the market in Accounting, Legal and
Management Consulting services
 Issues to be tackled are transparency and necessity of domestic
regulations. Developing elements for disciplines in domestic
regulations are required for addressing these issues
India’s Imports: Region-wise
30000
25000
2003-04,
April Dec
US $ Million
20000
2004-05,
April Dec
15000
10000
5000
0
West
Europe
East
Europe
CIS and
Baltic
States
Russia
Asia and
Ocenia
Africa
America
Latin
American
Countries
India’s Exports: Region-wise
30000
25000
US $ Million..
20000
2003-04,
April - Dec
15000
2004-05,
April - Dec
10000
5000
0
West
Europe
East
Europe
CIS and
Baltic
States
Russia
Asia and
Ocenia
Africa
America
Latin
American
Countries
Article 1

Four modes of supply:







Mode
Mode
Mode
Mode
1
2
3
4
or
or
or
or
Cross Border Supply
Consumption Abroad
Commercial presence
Movement of Natural Persons
Choice of sectors and modes of supply while offering
commitments as well as scope for listing limitations on
Market Access and National Treatment.
Negotiations for progressive liberalisation of trade in
Services began on 1.1.2000 and scheduled to be concluded
by 31.12.2005. While the initial offers of most important
countries are already on the table, revised offers are
supposed to be filed by 31.5.2005.
Inbuilt flexibility favouring developing countries to enable
offer of fewer commitments while seeking greater access
from developed countries.
GATS
(Contd.)
 GATS applies to all Government Measures at all levels
– Central, State and local authorities
 Also applies to NGOs, to whom governmental
authority has been delegated
 All “Services” except those in exercise of Government
authority (i.e. those services supplied neither on a
commercial basis nor in competition with one or more
service suppliers) are covered by the Agreement.
General Obligations and Disciplines
Article II: MFN Exemptions
 Obligations – General (MFN,Transparency) vs. Conditional (Market
Access, National treatment)
 MFN exemptions made possible in the Uruguay round.
 Exemptions only temporary: around 70 countries took MFN
exemptions: mostly developed countries.
 India may have lost market access because of these MFN exemptions
by developed countries
 India has taken MFN exemptions in four areas: Maritime,
entertainment, audiovisual and telecom.
 Isn’t it time for them to go?
 At present, under Article II, MFN exemptions aren’t easily granted and
when granted, it is only at the time of accession.
Other Important Articles
 Article III: Transparency: Essentially sets out rules to
ensure that domestic laws, regulations or
administrative guidelines and the changes therein are
well disseminated through CTS and enquiry points.
 Article IV: Provisions to facilitate increasing the
participation of developing countries. This is however
a best endeavor clause and does not place
responsibility on members to achieve this objective.
 Article V: deals with economic integration and enables
members to set up FTAs and Customs Unions.
However, the requirement of “substantial sectoral
coverage” has been left undefined. However, it does
mandate the inclusion of all four modes of supply
Cont’d
Cont’d
 Article VI: deals with domestic regulation and seeks to
ensure that commitments made by a member are
administered in an impartial manner. Also seeks to
develop disciplines for various sectors
 WPPS: Accountancy sector disciplines developed. Also
work on MRAs ongoing
 Article VII: Recognition. Linkage with Art. VI.
Particularly important for India since it is related to
Mode 4.
 Problem with Mode 4: Not to do with trade but with
labour market tests and immigration laws.
 India should strive to delink the temporary movement
from labour market tests and immigration laws.
Emergency Safeguard Measures
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
Article X: Deals with emergency safeguard measures. Negotiations not
yet concluded even though deadline long past.
Basically because of the complexities involved and the reluctance on
part of both developed and developing countries
Main proponents ASEAN countries; main opponents US, EC etc
US point: Interpreted “question of emergency safeguard measures” as
asking whether such measures are needed at all.
Arguments for ESM
 May result in more liberal commitments
 Creates a mechanism for emergency action to prevent injury in
case of unforeseen developments
Arguments against ESM
 Not necessary: sufficient flexibility in GATS
 Not desirable: Creates uncertainty about the value of commitments
 Not feasible: Conceptual and statistical problems
India: Ambivalent position due to doubts about feasibility. Difficult to
use against mode 3 but easy to use against Mode 4
Government Procurement
 Article XIII deals with this issue
 MFN, MA or NT not to apply to laws or
regulations governing procurement of
services by government
 However, this article does call for start of
negotiations in this area before 1996
 India’s stand: MFN, MA and NT do not apply
to government procurement in services.
 Developed countries (excluding the USA)
that they apply to government
procurement.
Subsidies
 Article XV deals with subsidies
 Recognises that subsidies may have a
distortive effect on trade in services.
 Also that subsidies are necessary for
development programs of developing
countries
 To address this negotiations are necessary.
 Negotiations under way in WPGR.
 India would like subsidies to continue in
certain important sectors: ICRIER study to
be submitted soon.
GATS: SECTORAL COVERAGE
12 Sectors and 162 Sub-Sectors
• Business Services
• Communication
• Construction
• Distribution
• Education
• Environmental
Services
• Health Related Services
• Financial Services
• Tourism
• Recreation, Culture,
Sports
• Transport
• Other Services
Scheduling and Listing under GATS
 Positive list approach involving Choice of :
- Services sectors in undertaking commitments
- Modes of Supply in undertaking commitments
- Horizontal Commitment or sectoral commitments
 Negative Listing of Limitations on :
 Market Access (Art XVI):six types of restrictions
 National Treatment (XVII): number and nature of
restrictions not defined
 Additional Commitments under Art XVIII to cover those
measures not subject to scheduling under Articles XVI and
XVII
Mandated Negotiations under GATS
•Market Access - Negotiations on Specific commitments
for liberalisation of Trade in Services mandated under
Article XIX of GATS.
•
Rules - Negotiations mandated under GATS on
- ESM
- Government Procurement
- Subsidies
- Domestic Regulations
Specific calendar for each aspect, but indicative in nature
Part III: Run up to
Hong Kong
India’s interests in Market Access
 Commitments in categories de-linked from
commercial presence like CSS/IP
< Increased duration of stay
< Facility for renewal
< Removal of ENTs and clear specifications of criteria,
duration etc.
< Not using absolute wage parity as pre-condition
< Sufficient Sectoral coverage
 Transparency of Mode 4 commitments for
scheduled categories
India’s interests (continued)
 Commitments in Cross-Border Supply across a range
of commercially meaningful sectors/sub-sectors
< Professional Services
< Computer Related Services
< Other Business Services,
< Health and Education
< Tourism
< Financial Data Transfer
 Similar Commitments, wherever possible, for Modes 1 & 2
 Providing for rapid technological changes through use of
two-digit, listing of new activities, etc.
 In particular, professional services are of great importance
to India
Evaluation of offers in terms of
India’s interests
 Mode 4, partial recognition of
categories de-linked like CSS/IP
< Members have included like EC, Australia, New
Zealand, Korea, Canada
< Status quo in US and minor changes in Japan
< Use of Categories Paper by number of developing
countries like India, Chile, Brazil, Peru
 Sectoral coverage poor, duration of
stay inadequate, ENTs still remain in
many schedules, absolute wage parity
used
Evaluation (Continued)
 Gaps in Mode 1 & 2 commitments
particularly for Health, Education,
R&D
 Positive movement of two digit
coverage
in
Computer
Related
Services
 Improvements in coverage in other
Business Services but gaps in
Telephone Answering Services, Other
Support Services etc.
Expectations from India

Primary interests in Mode 3

Cross-border
supply
–
Financial/Telecom/Audio-Visual
(Domestic Sensitivities)
Do away with MFN exemptions in Telecom, Shipping, AudioVisual services
Categories of ICTs and Business Visitors in Mode 4


<
<
<
<
Removal/increase of foreign equity caps
Removal of restrictions on legal entity
Removal of quantitative limits in banking, telecom, etc.
Target Anti-competitive practices/cross-subsidization in Telecom, Postal
and Courier
< Specific transparency disciplines in Financial Services
< Opening up sectors like Legal, Accountancy, Retail Trade, Energy
(pipeline transport), Multi-modal transport and Services auxiliary to them
like cargo-handling, storage and warehousing where domestically not
open currently.

Extend duration and coverage
State of Play in Services Negotiations prior to
Hong Kong
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In all about 30 countries have filed their Revised Offers including the
QUAD, Australia, New Zealand, Korea etc.
No change in the US offer in respect of Movement of Natural
Persons (Mode 4)
Marginal movement forward by EC, Canada and Australia in Mode 4
On the positive side, except the USA, these countries have offered
commitments on Contractual Service Suppliers and Independent
Professionals. They have also granted access for these categories in
some sectors.
In the case of cross border supply a number of sectors and subsectors have still not been offered by these countries in their
Revised Offers eg. various support services, R&D services, Medical
and Dental Services etc.
In all, the quality of Revised Offers and Initial Offers is very poor and
does not offer any new openings for trade. In the words of the
Chairman, Council for Trade in Services-Special Session: “it is
widely acknowledged that the overall quality of initial and revised
offers is unsatisfactory and that few, if any, new commercial
opportunities would ensue for service suppliers”
Questions pondered over in the
run-up to Hong Kong
 Whether the Request-Offer approach needs to be
complemented with other approaches
 Whether assessment of offers through a quantitative
and/or qualitative method impart momentum to
services negotiations
 Whether a formula approach can work for services
 How to achieve equivalent specificity with NAMA and
Agriculture
 How to assess offers vis-à-vis various domestic
regulations such as qualification and licensing
requirement and procedures and technical standards
 Whether our professional associations have initiated
discussions with their counterparts for entering into
MRAs: the problems therein
Use of Complementary Approaches

Gap between expectations and offers cannot be met by R/O
approach alone
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Need for plurilateral and
supplement bilateral R/O
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Such approaches must preserve basic architecture of GATS
and NGP

Would imply higher levels of commitments for Members

Possible approaches multilaterally being explored

Apprehensions amongst developing countries regarding loss
of flexibility and policy space
Better chances of offensive interests being fulfilled?

multilateral
approaches
to
Complementary approaches (contd)

Multilateral approaches
< Binding of autonomous liberalization
< Providing for multilateral targets in terms of
number of sectors/sub-sectors to be bound
including for unbound sectors/sub-sectors
< Leveling off based on best offers on the table
< Assessment based on scoring including U/R
commitments
 Plurilateral approach
< Using Friends Groups to define levels of ambition –
Reference Papers, Model Schedules
< Critical Mass needed for success
Part III: Hong
Kong and After
What was discussed at Hong Kong
 Members to explore all negotiating methods
available within the parameters of Article XIX
of the GATS and the Negotiating Guidelines,
i.e. bilateral, plurilateral and multilateral
approaches.
 Annex C on Services issues was discussed at
length
 In the area of domestic regulation, develop
disciplines for licensing and qualification
requirements and procedures, technical
standards etc. within a time frame
Deadlines at the Hong kong
Ministerial
Hong kong Ministerial Declaration deadlines
 Plurilateral Requests – 28th February, 2006
 Further Revised Offers - 31st July 2006
 Schedules of commitments – 31st October
2006
BROAD STRATEGY
•India’s major interest in Services negotiation is in
liberalization of Modes 1 (Cross Border Supply) and 4
(Movement of Natural Persons)
•We want Developed countries to bind their existing
regime in all sectors in Mode 1 (barring sensitive ones)
and offer commitments for Contractual Service suppliers
and Indpenedent Professionals under Mode 4. Removal of
various limitations existing in Mode 4 movement is another
major issue to be addressed.
BROAD STRATEGY – contd.
• In Mode 4, large potential exists, due to workforce
shortages in developed countries arising from ageing
population
•We seek market access for the categories de-linked from
commercial presence viz.,Contractual Services Suppliers
and Independent Professionals
• Several impediments being faced in free movement of
natural persons
• Qualification and licensing procedures in various
countries are not transparent, this needs to be rectified.
What we got at Hong Kong
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Modal objectives inscribed in the text (para 1): probably the most
important para from India;s perspective.
Specifically, our concerns in Modes 1 and 4 addressed.
Modes 1and 2: all Members to bind their existing commitments
Mode 4: New or improved commitments on the categories of
Contractual Services Suppliers, Independent Professionals and
Others, de-linked from commercial presence, to reflect inter alia:

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removal or substantial reduction of ENTs
indication of prescribed duration of stay and possibility
of renewal, if any
Removal or substantial reduction of MFN exemptions
The need for plurilateral approach recognised (para 7b)
A time frame for developing disciplines in domestic regulations setto conclude before the end of the current Round.
Plurilateral Negotiations: Basic
Information
 Unique in that this has happened for the
first time since the WTO was set up
 About 35 countries involved in the
discussions in a limited number of
sectors/areas
 Has facilitated intensive and detailed
discussions since the numbers are smaller
 Discussions held with a positive approach
with all countries exchanging information
on their policy regimes and explaining the
extent to which they could meet the
requests
Plurilaterals Basic Information
(cont’d)
 Twenty-One plurilateral groups in all namely: Air
Transport, Maritime Transport, Logistics, Legal,
Energy, Environment, Education, Cross Border
Supply, Mode 4, Mode 3, Financial, Telecom, MFN
(General), MFN (Financial), MFN (Audio-Visual),
Audio-Visual, Architecture/Engineering/Int.
Engineering, Construction and Related Engineering,
Computer and Related Services, Distribution
Services, Postal and Courier
 India is the coordinator of the Cross Border Supply
and Mode 4. India is also the co-sponsor of
Computer and Related Services and Architecture,
Engineering and Integrated Engineering
Salient Issues Discussed in
Plurilaterals
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India has received Requests in 14 sectors/areas in all
including Telecom, Finance, Distribution, Legal, Postal and
Courier, Energy, Education etc.
The receiving countries sought detailed clarifications on
what the requests entailed, described their current policy
regimes and indicated the extent to which the request could
be met
Most countries have indicated a willingness to consider the
requests favourably provided there was a consideration of
their requests as well.
All Requesting Members were also deemed recipients,
except in the Mode 4 group.
Expectedly, the discussions were intense and detailed since
only 30-35 countries with a serious stake in the services
negotiations were involved.
India’s response to Requests
 India has met the requests substantially in a
number of sectors such as Construction and
Related Engineering services, Logistics,
Energy, Maritime.
 The expectation from India would be to meet
the request primarily in Telecom,Finance,
parts of Energy (services incidental to mining
and related scientific and technical consulting
services), Distribution (retail), and Courier
including Express Delivery.
 India will not be able to meet the requests in
Legal Services, Retailing Services, Education
and Audio-Visual at this stage.
Way Forward
 Another round of plurilateral discussions are
currently on in Geneva, 2006.
 These meetings will further clarify the
requests and help Members decide on how
to respond in the July Revised Offers.
 All Members would be beginning domestic
consultations with stakeholders seeking
inputs on how to move forward.
 India has indicated that it has already put
an ambitious Revised Offer on the table and
her ability to respond further would depend
on the response to our requests.