Services Negotiations at the WTO August 11, 2006 Petroleum Federation of India, New Delhi

1. Services Negotiations at the WTOAugust 11, 2006 Petroleum Federation of India, New Delhi Presentation by Shri Amit Yadav, Director Deptt of Commerce Government of India

2. PART I: Introduction

3. 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.

4. VALUE OF WORLD TRADE IN SERVICES BY MODE (PERCENT) ($18Bnapprox.) ($504 Bnapprox.) ($1025 Bnapprox.) ($252 Bn approx.)

5. 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

6. Study by Boston Consulting Group • 40 Million new Services jobs, $200 Billion revenue to be generated by 2020 in India. Mode 1 (Remote Services) 6 Mn Jobs $170 -175 Bn revenue 20 Mn Direct Jobs 40 Mn new Services Jobs Mode 2 (Import of Customers) 14 Mn Jobs $25-30 Bn revenue 20 Mn Indirect Jobs Indirect to Direct employment creation 1:1

7. 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’.

8. 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.

9. 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

10. India’s Imports: Region-wise

11. India’s Exports: Region-wise

12. Article 1 • Four modes of supply: • Mode 1 or Cross Border Supply • Mode 2 or Consumption Abroad • Mode 3 or Commercial presence • Mode 4 or 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.

13. 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.

14. 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.

15. 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

16. 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.

17. Emergency Safeguard Measures • 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

18. 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.

19. 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.

20. GATS: SECTORAL COVERAGE12 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

21. 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

22. 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

23. Part III: Run up to Hong Kong

24. 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

25. 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

26. 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

27. 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.

28. Expectations from India • Primary interests in Mode 3 < 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. • Cross-border supply – Financial/Telecom/Audio-Visual (Domestic Sensitivities) • Do away with MFN exemptions in Telecom, Shipping, Audio-Visual services • Categories of ICTs and Business Visitors in Mode 4 • Extend duration and coverage

29. State of Play in Services Negotiations prior to Hong Kong • 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 sub-sectors 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”

30. 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

31. Use of Complementary Approaches • Gap between expectations and offers cannot be met by R/O approach alone • Need for plurilateral and multilateral approaches to supplement bilateral R/O • 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?

32. 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

33. Part III: Hong Kong and After

34. 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

35. 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

36. 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.

37. 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.

38. What we got at Hong Kong • 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: • 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 set-to conclude before the end of the current Round.

39. 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

40. 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

41. Salient Issues Discussed in Plurilaterals • 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.

42. 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.

43. 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.