Download - WTO Negotiations on Trade in Services
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