MUMBAI, June 12, 2006: Since the 2001 WTO Doha Ministerial Conference there has been a fundamental shift in India's position on services. From leading the opposition during the Uruguay Round it is today in the driver's seat in moving forward the GATS (General Agreements on Trade in Services) agenda. In August 2005, India submitted one of the most ambitious revised offers. During the Hong Kong Ministerial in December 2005 India broke ranks with its long-standing allies and supported, and in fact drafted, key sections of the infamous Annex C that sanctioned the plurilateral method (a group of countries jointly demanding market opening from trading partners) of services negotiations. It has coordinated aggressive plurilateral requests made in cross-border supply of services (Mode 1) and movement of labour (Mode 4). India's alliances in services are now commercial, not political.
As negotiations move towards the impractical December 2006 deadline, reports from New Delhi indicate that India will continue to lead from the front towards wrapping up both a revised services agreement and a new set of market access commitments. This short note provides an overview of the India game plan on services.
WHERE IS THE OFFENSIVE COMING FROM?
Services is today the dominant sector in the Indian economy and estimates from the Ministry of Commerce and Industry claim that it contributes five per cent of GDP. India's share in world trade of commercial services is increasing at a fast pace; in 2005 it ranked among the top ten exporters of commercial services. Indian services companies are now aggressive exporters of software, health, telemedicine, call centers, medical and legal transcriptions and other knowledge based services. It is the global competitiveness of this small section of Indian business that has driven and determined the Indian offensive interest in services. On the issue of agriculture, politics and farmers groups largely drive the trade policy agenda. This is not surprising because much of the electoral base of India's politicians is agriculture and they cannot afford to listen to demands of agribusiness and the bureaucracy. In services, however, because of lack of opposition from services trade unions, the Commerce Ministry has been able to bulldoze through an aggressive agenda with the active support of Indian services companies. During the Uruguay Round it was American Express and Citibank that set the services agenda. Today it is Indian information technology companies such as Infosys, Tata Consultancy Services and Wipro that are the prime GATS movers. The mercantilist goals of these companies now successfully masquerades as the "national interest" in services. The excessive sense of optimism pervading the sector is hard to fathom as data calls for a less sanguine approach: the entire IT/ BPO (business process outsourcing) industry in India employs only about 1.3 million people, out of a workforce of more than 400 million. Over 60 per cent (600 million) of the population continues to depend on agriculture for their livelihood.
What is also unprecedented about India's services stratagem is Minister Kamal Nath leading from the front. In the history of the WTO no developing country minister has been gung ho about GATS. Minister Nath has often stated that an ambitious outcome on services has the ability to tilt the balance of the Doha round in India's favour. At a recent meeting in Delhi, senior trade officials bemoaned that there was no political will and no private sector leadership in the north to move forward the services agenda!
AGGRESSIVE INTERESTS IN MODE 4
Temporary movement of labour to supply a service, or Mode 4, has traditionally been an area in which India has taken an aggressive interest. But there has been no movement from the key target country – the US – which has not budged from its miserly Uruguay Round cap of 65,000 H-1B visas (these are temporary work permits for highly skilled professionals).
The US inflexibility in this area is a reflection of the political and regulatory problems in linking movement of labour to free trade agreements such as GATS. India will continue in its attempts to convince the US Congress that Mode 4 is a win-win situation for both countries and is not tantamount to immigration and it will forge partnerships with the US private sector to work around the US Congress opposition. Indian lobbying efforts partially bore fruit when the US Senate approved a bill on May 25 2006 that provided for doubling H-1B visas from the present 65,000 annually to about 115,000 and with a 20 per cent increase on an annual basis.(1) Various software and technology majors such as Microsoft and Intel have been pressuring the US government by threatening to move jobs abroad if it does not raise the cap on H-1B visas and allow more skilled workers into the country. But Public Citizen, a group that closely monitors US trade policy, thinks otherwise. Lori Wallach, director of its Global Trade Watch Program says, "It is extremely unlikely that such a bill will be completed in Congress. Anyway what India has requested is that the US binds in its GATS schedule a larger visa number. The US Congress will not approve a WTO agreement that has any immigration provisions in it."
India's demands on Mode 4 include:
– Expansion of coverage to include contractual service suppliers (CSS) and independent professionals (IP)
– De-linking of Mode 4 commitments from Mode 3 (commercial presence)
– Removal of conditions such as wage parity
– Abolition, or at least expansion of, quotas
– Removal of economics needs test (ENT) or make them transparent
– Disciplining domestic regulation
India claims some improvement in horizontal offers (that is, offers which apply across all sectors) received in Mode 4. The revised EU offer has been expanded to include some categories of CSS and IP. Requirements of economic needs and labour market tests have been relaxed, albeit only for intra-corporate transferees. The Canadian and New Zealand offer has extended the period of stay for business visitors, executives and senior managers.
The US response (or lack of) has been frustrating for India. Commerce Ministry officials stated recently in Delhi that if nothing was forthcoming from the US, India would contemplate scaling down the ambitious offer it was formulating to meet the July 31, 2006 deadline. "We have finished much of our homework on our offers. Whether we will put them on the table depends on the feedback we get from our trading partners," said a senior trade official at a meeting organised by the ministry and a neo-liberal think tank on July 6-7 in New Delhi. Officials said they were not fooled by US rhetoric that Mode 4 will happen irrespective of the GATS and there was no need to bind quotas in schedules. The Indian demand is removal of various obstacles that Indian companies face in sending their professionals abroad and for legally binding de-regulation and a higher quota.
WIDE RANGING DEMANDS IN MODE 1
In cross-border supply of services (primarily business process outsourcing), India's plurilateral requests make the following demands to its trading partners (both developing and developed):
– Commitments across a wide range of sectors including professional services, computer-related services, health services and education
– Similar commitments, where possible, for Mode 1 and Mode 2 (consumption abroad)
– Removal of commercial presence requirements.
– Ensure that commitments address the inadequacy of GATS classification list to cover all Mode 1 and Mode 2 services and takes into account technological developments in future.
India sees domestic regulation as the main market access impediment on cross border supply. Its attempt in the negotiations will be to ensure that regulations on data privacy, jurisdiction, standards, recognition and government procurement keep "market access" open in Mode 1 and do not undermine commitments.
RULE MAKING NEGOTIATIONS
The GATS has an in-built mandate (under Article VI: 4) for the development of disciplines on domestic regulation. The Hong Kong declaration calls for an intensification of this process and has a specific mandate for developing disciplines before the end of the Round. India is actively involved in these negotiations. Its logic is to ensure that the market access it gets in Mode 1 and 4 is not nullified by domestic regulations but rather complemented by it. Ministry officials cited the case of US domestic regulations in banking which were successfully used to stymie the efforts of ICICI, a major Indian private bank that wanted to set up a branch in New York. "The US claims to have one of the most liberal FDI policies in services but when you try to access the market it uses complex regulatory requirements to impede access," stated a ministry official.
Ministry officials claim that there has been significant momentum in the last six months on the rule-making front. They claimed that the chair of the services negotiations, Ambassador Fernando de Mateo (Mexico), is in the final stages of presenting a draft text that will result in the amendment of the GATS text from its present form. They also clarified that the understanding among member countries is that the resulting new disciplines on services will apply only to sectors where commitments have been undertaken.
IRONING OUT THE ANOMALIES
Officials claim that one of the key reasons for India's confidence is due to the level of autonomous liberalisation in services that has taken place over the last 15 years. "Our trading partners should recognise that we have never gone back on our autonomous liberalisation. In fact we have steadily gone ahead and bound them in the GATS," said a senior official. Earlier this year, delegates to the World Economic Forum arriving at Zurich airport were greeted with a billboard (2) that proclaimed, "15 years, six governments, five prime ministers, one direction". This underscores the commitment of all Indian central governments to this agenda.
Despite the government's buoyancy there are a few sectors in which India will not be able to make any GATS commitments in the coming round. These include retail, legal services, education, water distribution and audio-visual services. As yet, India does not have autonomous FDI policies in these sectors. Officials stated that they were in the process of "educating vociferous stakeholders" to change their stand and see the benefits of GATS.
The Indian rhetoric now is that there is no alternative to developing countries getting proactively engaged in the negotiations. Officials said they recognised that some developing countries and least developed countries (LDCs) are being left out of the process. India will attempt to bridge this divergence by a) spreading the awareness of GATS benefits; b) building the analytical capacity of LDCs to engage in proactive negotiations; and c) helping LDCs in the process of autonomous liberalisation. "LDCs need to be convinced that there is no such thing as a round for free. They have much to gain from GATS," said an official. They also cited the danger that if GATS fails to get market access, it will be achieved bilaterally. The EU's aggressive agenda in the economic partnership agreement (EPA) with Africa was cited as a case in point.
LDCs have an interest in Mode 4 but, unlike India, they are more interested in less skilled and semi-skilled movement. India might attempt to bring them on board as negotiations speed up by highlighting this aspect of Mode 4.
NO REASON TO CHEER
Indian negotiators are convinced that GATS is India's trophy from the Doha round, especially as there is little to gain from agriculture and non-agricultural market access (NAMA). The losses from the latter will be skillfully obscured amidst the rhetoric of massive gains in GATS. Even if its attempt to finish the round by December 2006 fails, the Indian juggernaut on services will continue. The comprehensive economic partnership agreement (CECA) with Singapore has a strong services component and the free trade agreement with Thailand and the Gulf Cooperation Council (GCC) will be avenues for services market access. Also in the offing are trade agreements with ASEAN, Malaysia, Korea, Japan and China and ministry officials are studying the feasibility of trade pacts with strong services components with the EU and US.
* Benny Kuravilla is a research associate with Focus on the Global South, based in Mumbai India. He can be reached at [email protected]
1. 'US Senate approves doubling H1 B visas', Financial Express, Mumbai, 26 May 2006.
2. The billboard was part of the 'India Everywhere' campaign, launched at the WEF. This is an ongoing campaign jointly run by the Indian Government and the Confederation of Indian Industry. Commerce Minister Kamal Nath and Finance Minister P Chidambaram are in charge of taking this message to the world.