WTO Negotiations on Trade in Services

Sumanta Chaudhuri

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

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

Rank Exporters Value Share Annual percent--age change

Rank Importers value Share Annual percent-age

change

1 United States 388.8 14.1 10 1 United States 307.8 11.6 9

2 United Kingdom

227.5 8.3 11 2 Germany 219.1 8.3 7

3 Germany 168.9 6.1 12 3 United Kingdom 172.0 6.5 8

4 Japan 122.5 4.4 14 4 Japan 144.0 5.4 9

5 France 114.5 4.2 0 5 France 108.8 4.1 4

6 Spain 105.5 3.8 12 6 China 108.3 3.8 21

7 Italy 97.5 3.5 10 7 Italy 98.4 3.7 11

8 China 91.4 3.3 24 8 Ireland 78.4 3.0 12

9 Netherlands 82.5 3.0 5 9 Netherlands 78.1 2.9 8

10 India 73.8 2.7 36 10 Spain 77.9 2.9 17

11 Hong Kong,China

72.7 2.6 14 11 Canada 71.7 2.7 11

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

worldRate of growth much higher in Services compared

to Goods.

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

Characteristics of Services Trade

Intangible

Physical presence of producer and consumer often needed

No tariffs and other border measures

Importance of domestic regulations

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.

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

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

Schedules of specific commitments

Negotiated under Article XIX 12 sectors and 160 sub-sectors Positive List approach for choice of

SectorsModes of SupplyHorizontal versus Sectoral Commitments

Negative Listing of Limitations on above - Market Access- National Treatment

Additional Limitations (Licensing, Standards & Qualifications)

Market Access

Permissible Limitations as per Article XVINumber of suppliersValue of transactions / assetsNumber of operations / outputNumber of natural personsTypes of legal entityForeign share-holding

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

Modes of Supply - % of Trade

Mode 1 - 35%

Mode 2 - 10 – 15%

Mode 3 - 50%

Mode 4 - 1 – 2%

Source : WTO, 2005

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

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

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

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

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 limitsbank branches, number of licenses in telecom

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 ?)

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

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)

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

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

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.

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

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?

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%

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.

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.

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.

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

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

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.

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

Thank you