WTO Negotiations on Trade in Services

1. WTO Negotiations on Trade in Services Sumanta Chaudhuri

2. Statistical Trends Services – 2/3rd of world production & employment  Share in world trade 1/5th (BOP Statistics)  2006 – Commercial Services $2.7 trillion, Merchandise - $ 11.78 trillion.  Annual % growth in services trade - 95 – 00 5 2000 – 06 11  Share of developing countries exports  -14% in 85-89; 18% in 95-98; 21% in 2000- 05

3. Leading exporters and importers in world trade in commercial services, 2006(Billion dollars and percentage)

4. India  Share in GDP – 48% in 2001; 61% in 2006  2006 – Exports - $74b; Imports - $64b 2001 - Exports - $20b.  2.7% share of world trade in 2006;1.5%in 2001  Rank 10 in exports in 06  Annual % growth - 36% in 2006, highest in world Rate of growth much higher in Services compared to Goods.

5. Framework for International Trade • Bilateral -FTAs / RTAs  Multilateral - GATS – new agreement in Uruguay Round of WTO in 1994  Provides for progressive liberalization of trade  Schedules of commitment for each member  Very modest results in Uruguay Round - At best status quo - Gap between commitments & actual policy  Virtually, no fresh liberalization except - Extended negotiations on Basic Telecom - Financial Services

6. Characteristics of Services Trade  Intangible  Physical presence of producer and consumer often needed  No tariffs and other border measures  Importance of domestic regulations

7. Four Modes of Supply of Services Mode 1: Cross Border:- From territory of one member into the territory of any other member e.g. Consultant’s report architect sends blue prints, soft ware in computer diskettes. Mode 2 : Consumption abroad:- Cross-border movement of consumers to purchase a services abroad e.g. Tourism, repair of ship in another country.

8. Four Modes of Supply of Services Mode 3 : Commercial presence:- Supply of a service via establishment of a territorial presence e.g. Bank Branch in other country. Mode 4 : Presence of natural persons:- Entry and temporary stay of foreign residents to supply a services abroad, individual professional (does not include immigration and permanent citizenship abroad

9. Important General Obligations  MFN Treatment • Treat foreign service suppliers and service products from different countries in the same way • Possibility of listing MFN exemptions  Transparency requirements : • Establishment of Enquiry Points • General Information requirement • Notification Requirement

10. Schedules of specific commitments • Negotiated under Article XIX • 12 sectors and 160 sub-sectors  Positive List approach for choice of • Sectors • Modes of Supply • Horizontal versus Sectoral Commitments  Negative Listing of Limitations on above - Market Access - National Treatment Additional Limitations (Licensing, Standards & Qualifications)

11. Market Access  Permissible Limitations as per Article XVI • Number of suppliers • Value of transactions / assets • Number of operations / output • Number of natural persons • Types of legal entity • Foreign share-holding

12. National Treatment : Article XVII Unless relevant limitations are listed in the schedule, each member shall accord to services and service suppliers of any other member treatment no less favourable than it accords to its own like services and service suppliers which means no discrimination in favour of national suppliers Differential tax treatment Residency conditions

13. Modes of Supply - % of Trade Mode 1 - 35% Mode 2 - 10 – 15% Mode 3 - 50% Mode 4 - 1 – 2% Source : WTO, 2005

14. Barriers to Trade  Substantial barriers still exist Mode 2 – least barriers Mode 1 – Citizenship/Residency/Commercial Presence Mode 3 – Limitations on foreign equity, type of legal entity, Quantitative limits - Discriminatory taxes Mode 4 – Maximum barriers  Even actual policy not multilaterally committed  Potential for trade substantial if barriers lifted

15. Issues in GATS Negotiations • Market Access • Bilateral approach • Plurilateral approach • Domestic Regulations • Development of disciplines under VI:4 • GATS Rules • Subsidies, Government procurement, Emergency Safeguard Measures (ESM) • Development dimension • LDC Modalities • S and D • Technical assistance

16. State of play post Hong Kong • HKMD resulted in detailed instructions from Ministers • Indication of levels of ambition through specifying objectives for negotiations • Modal, MFN exemption removal, Scheduling and classification issues • Endorsement of plurilateral approach for market access • Supplement bilateral • GATS architecture and flexibility preserved • Deadlines for market access • 28 February-submission of collective requests • 31 July-submission of revised offers • 30 October-draft schedule of commitments

17. Post Hong Kong scenario • Mandated development of disciplines in VI:4 before end of round • Coverage of disciplines • Qualification requirements and procedures (QRP) • Licensing requirements and procedures (LRP) • Technical standards • GATS rules –own mandates and timelines • LDC modalities-development of mechanism • Technical assistance

18. Major demands of other trading partners  Opening up Retail Trade(only single brand allowed at present  Enhancement of foreign equity limits - Insurance (49%) – 26% allowed in Act - Banking, Telecom – Binding AL - Asset management Services - Energy Services • Removal of quantitative limits bank branches, number of licenses in telecom

19. Major demands of other trading partners  Legal Services - Practice by foreign lawyers not allowed in domestic law - Basic interest in international corporate law; permission for JVs with Indian law firms  Courier Services - 100% FDI allowed - Draft Bill proposes  in FDI, definition of parcels to be firmed up (150gms ?)

20. Likely responses to demands  India’s revised offer(RO) submitted in August, 05 - offered binding of some AL undertaken - gaps still remain between the RO & AL - value of binding for foreign investors obvious  No movement on Retail, Legal & Accountancy  Negotiating chips for gaining access – Modes 1 & 4

21. Mode 4 under GATS  Only small sub-set of International Migration of Labour  Limiting features - Only temporary movement - For delivering specific services (Agricultural/Seasonal labourers excluded) - Not covering entry into labour market. (Immigration/Permanent citizenship excluded)

22. URUGUAY ROUND COMMITMENTS  Developed Countries have not provided meaningful market access in mode 4  Present commitments in mode 4 restricted: - Covers largely business visitors and intra corporate transferees - Categories of professionals not adequately covered - Linked to commercial presence - Economic needs test (ENT) to determine requirements - Wage parity measures - Social Security Payments

23. EXPORT POTENTIAL SECTORS  Professional Services - Accountancy Services - Medical & Dental Services - Architectural & Engineering Services  Computer and related Services  Construction and Engineering Services  Tourism Services  Health Services  Audio-Visual Services

24. India’s Request in Mode 4 Include categories de-linked to commercial presence - Contractual Services Suppliers (CSS) e.g. WIPRO earns contract from US firm and sends employees posted in India to fulfill it - Independent Professionals (IP) e.g. Doctors, Architects, etc.

25. India’s Request in Mode 4  Coverage of sectors of interest  Elimination or reduction of ENT  Minimum stay (one year) with renewal  Wage Parity not to be used as absolute barriers – average salary threshold possible

26. India’s Requests & Responses Demands basically on developed world US, EU, Canada, Australia, New Zealand, Switzerland, Japan  Strong alliance of developing members led by India - China, Thailand, Egypt, Brazil, Argentina, Mexico  Deliberately low skilled labour not highlighted - No-go in multilateral forum  Most developed countries except US responsive, some even support these demands – Canada, EU?

27. Cross-Border Supply  Most Striking phenomenon of last 5 years in services trade  Changing non-tradeability of various services - Medical transcription, Distance Education  Technology driven– ICT Revolution  Global CBT to  from 18% of global GDP in 90 to 30% by 2015  Between 1994-2003,  in Ex of Business Services for developing countries substantial India – 700% Brazil, China & Argentina > 200% Mauritius, China & Argentina > 100%

28. Outsourcing/off-shoring  NASSCOM-Mckinsey Report (2005) - Global market in IT & BPO - $300b - By 2010, only 40% likely to be realized - Till date, only 10 – 12% realized  Dominated by India, China, Canada, Philippines, Ireland - India-43% of IT outsourcing revenues worldwide.

29. Gats Commitments on Mode 1  Mode 1 kept unbound in many sectors – technological infeasibility [hotels, hairdressing etc.]  Largest % of unbound amongst all 4 modes  Limitations on market access comparatively fewer  In actual practice, liberal but not locked in  Major regulatory concerns relating to jurisdiction issues, consumer safety  Blatant protectionism also - Backlash against outsourcing in US & partially UK - Legislations planned against Govt. procurement outsourcing in some US States.

30. State of Play in CBS  India leads group on CBS to secure commitments across commercially meaningful sectors - attempt to secure non-discriminatory MA - removal of commercial presence requirements  New activities sought to be covered • Telephone Call Centres • Two-digit classification for Computer Related Services  Positive response in computer, professional services, business services  Defensive in Health, Education, Culture.

31. Broad Trade-offs in MA Negotiations  Major developed countries want commercial presence in developing markets - India, Brazil, Argentina, Egypt, ASEAN etc.  AL in Mode 3 in many of these developing markets, Not bound in WTO Hence, large water available  Offensive interests in Modes 1 & 4 Target markets often same developed markets

32. GATS Rules • Mandate for rules different as compared to DR • No binding on disciplines before end of round • Major divergences continue in all three areas • Progress in all three slow and plagued by fundamental differences in ambition levels and actual demand • ESM, political dimension but could be linked to extent of commitments undertaken • GP, experience of Singapore issues which involved only Transparency and not MA a pointer • Subsidies- actual description of problem still sketchy • Information exchange has not taken off

33. Domestic Regulations • Market access in Mode 4 impeded because of lack of verification & recognition of qualifications, complicated visa & work permit procedures etc. • QRP & LRP most significant for India • Clear mandate at HKG to develop disciplines by this round • Main proponents India, HKG, Chile, Mexico, Chinese, Taipei, Switzerland, New Zealand, Thailand • Chief opposition from US, Canada & partly Japan, EC • Main thrust is to have clear procedures for verification including deficiency assessment, opportunity to meet deficiency in home/third country.

34. Development Issues • LDC Modalities • Implementation of modalities-reporting and monitoring mechanism in CTS –positive • Development of a mechanism for providing special priority to LDC’S • Major divergences in interpretation of mandate • Preferential mechanism in GATS against MFN principle? • Basically operate in Mode 4 –quotas • Legal amendment needed or not? • TA and CB more promising but links with Aid for Trade etc need to be worked out

35. Thank you