India has an uphill task of securing strong commitments on Mode 4 services from the US, EU
On September 23, India circulated a concept note to members of the World Trade Organisation (WTO) to consider a Trade Facilitation in Services (TFS) agreement that, according to New Delhi, is comparable to the Trade Facilitation Agreement (TFA) concluded in 2013.
In the two-page document circulated among WTO’s Working Party on Domestic Regulation (WPDR), India has emphasised “a need for a counterpart agreement in services, which can result in reduction of transaction costs associated with unnecessary regulatory and administrative burden on trade in services”. The idea is to smoothen out bottlenecks that impede global trade in services and will focus on crucial issues such as “transparency, stream-lining procedures, and eliminating bottlenecks”.
“The TFS agreement could be based on the TFA in goods, with suitable modification and adaptation to the services context, as required,” it said.
The scope of the proposed TFS agreement will cover cross-cutting measures across all the four modes of supply under the General Agreement on Trade in Services (GATS) and will include special and differential treatment provisions for developing and poorest countries like in the TFA, the Indian paper said.
Some of the cross-cutting issues for deliberation mentioned in the proposed TFS agreement include:
1. Disciplines on taxes, fees, charges and other levies on supply of services.
2. Special and differential treatment for developing countries and LDCs (least developed countries).
3. Opportunities for discussion before entry into force of measures affecting trade in services.
4. Publication and availability of information, including automation and international electronic exchange of trade data.
5. Ensuring administration of measures affecting trade in services in a reasonable, objective and impartial manner.
6. Transparency in application of all measures of general application affecting trade in services.
7. Procedures and timelines for consideration of applications from service suppliers, as well as for appeal and review.
8. Institutional arrangements.
9. Consultations and cooperation among relevant authorities.
GATS provides for four modes of international supply of services:
- Mode 1 is cross-border supply that refers to a situation where services flow from one country to another akin to cross-border trade in goods. For instance, a teacher can send her teaching materials to students of another country or a doctor can advise patients living in another country.
- Mode 2 is a situation of consumption abroad when a consumer moves across a border to avail a service, for instance, an Afghan patient comes to India to avail medical services.
- Mode 3 is commercial presence that implies that service suppliers of a member country establish a territorial presence (a legal presence) in another member country, as in the case of a joint venture, with a view to providing their services.
- Mode 4 deals with the presence or movement of natural persons or the export of manpower through which service is delivered through persons temporarily entering the territory of another country, that include independent service providers like, doctors, engineers, etc. However, GATS covers only issues around temporary movement and not citizenship, residence or employment on a permanent basis in foreign country.
The current Indian paper on the proposed TFS agreement covers measures related to these mode-specific issues:
Mode 1: Facilitation of free flow of data across borders to ensure the smooth facilitation of flow of Mode 1 services.
Mode 2: Facilitation of these services, including through streamlining temporary entry formalities, such as visa processing fees, procedures, timelines for consumers seeking entry into another country to avail services, cross-border insurance portability for availing of medical services in a foreign country, for instance.
Mode 3: Facilitation of supply of Mode 3 services, including through measures such as single window clearance for setting up commercial presence and disciplines on measures relating to taxation, fees/charges, discriminatory salary requirements, social security contributions in relation to temporary entry, etc. to ensure no discrimination towards foreign service providers.
Mode 4: Facilitation of supply of Mode 4 services through clarity in work permits and relevant visas under categories of Mode 4 commitments and simplification for temporary entry and stay.
“A well-structured TFS will significantly enhance the potential for trade in services for all [WTO] members,” India has argued. “[The proposed TFS agreement will require] careful deliberation in order to enable the development of a framework that can effectively address the main concerns of all members,” it further stated.
Background on services trading
The creation of GATS that entered into force in January 1995 was one of the landmark achievements of the Uruguay Round and had the same line of objectives as the General Agreement on Tariffs and Trade (GATT) – to have a credible and reliable system of international trade rules; ensuring fair and equitable treatment of all participants; guaranteed policy bindings; and progressive liberalisation.
GATS covers all services except services provided by national governments to the public and services in the air transport sector, traffic rights and all services directly related to the exercise of traffic rights.
The Doha ministerial conference gave further direction to services negotiations in 2001. The progressive-liberalisation objective of GATS has been inscribed under the Doha Development Agenda (DDA) as part of the ‘single undertaking’ rule – implying that all items of the DDA were to be concluded at the same time. Agreements in service, thus, could not be completed until more controversial issues under non-agricultural market access (NAMA) reached consensus among negotiators. The Hong Kong ministerial conference held in 2005 took stock of the Doha Round of Trade Talks and opened the way for negotiations on plurilateral agreements on services.
Though there is a need to reform and update GATS with some experts calling it the “unfinished business” of the Uruguay Round, there is much ground to be covered in terms of achieving consensus on the level of ambition undertaken under GATS and the actual level of services liberalisation (so-called “water”). World trade in services has grown significantly – the growth in the export of global commercial services was 8 percent or $4,625 billion and in the import of commercial services it was 4 percent or $4,340 billion. Trade in services account for nearly 30 percent of all international trade and its growth has exceeded both the growth in agriculture and manufacturing.
Subsequently, countries started their own plurilateral negotiations in service since DDA appeared to be in a logjam. An ad hoc coalition of countries, peculiarly called ‘Really Good Friends of Services’, launched the controversial plurilateral trade negotiations – Trade in Services Agreement (TiSA). The 23-member TiSA group remains a trade conversation primarily between developed countries. Apart from the 28-nation EU bloc, participants in the TiSA negotiations include Australia, Canada, Chile, Taipei, Colombia, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mauritius, Mexico, New Zealand, Norway, Panama, Pakistan, Peru, South Korea, Switzerland, Turkey and the US.
None of the emerging economies or the African nations are participating in the talks. China’s interest to join the negotiating table was vetoed by the US in 2013. The BRICS, which includes India, has been critical of pursuing trade liberalisation outside the purview of the WTO, basically negating the ‘single undertaking’ principle. Experts have also questioned the legality of pursuing these talks as an economic integration agreement pursuant to article V of GATS, though the ultimate aim is to multilateralise the rules at a later stage.
The TiSA group launched its 20th round of negotiations on September 19 hoping for an outcome by the end of this year. However, gauging the amount of issues that still need consensus, and the looming US elections with its anti-immigration rhetoric affecting Mode 4 in services, a final TiSA by this year seems a far-fetched possibility. Moreover, multilateralising TiSA would require the broad support of WTO members – it remains to be seen whether the final agreement would suit the needs of emerging economies and LDCs and if countries like India would support TiSA, if indeed, it is concluded and multilateralised.
India’s services sector has increased substantially in the post-reforms period. While the country had a negative trade balance in services in the 1990s, it ranked sixth as the biggest global exporter accounting for 3.2 percent of the global trade and the ninth largest importer of services accounting for 2.8 percent of the global trade in 2014. Predictably, the IT/ITeS industry remains India’s biggest contributor to services export – 90 percent of these exports are directed to the US and the EU. India’s trade services with the US have increased from $14.7 billion in 2010 to $20.8 billion in 2014 in exports and from $4.4 billion in 2010 to $5.6 billion in 2014 in imports. Similarly, though at a slower rate, exports to the EU in services increased from $11.7 billion in 2010 to $12.1 billion in 2014 and imports from $10.8 billion to $12.3 billion.
With its large English-speaking young population and robust services capabilities, India has been seeking significant commitments in Mode 4 from its trading partners, particularly the US and the EU. But the US has been reluctant on granting much latitude under Mode 4 in services – temporary movement of person for delivering services in its territory.
On March 3, India initiated dispute proceedings against the US for measures that have increased the fees for L-1 (L1A and L1B) and H-1B categories of non-immigrant temporary visas into the US and, measures related to numerical commitments for H-1B visas. Both H-1B and L-1 visas are temporary work visas that allow employers to hire foreign workers.
According to India, the US is according less favourable treatment to juridical persons from India having a commercial presence in the US as compared to juridical persons in the US, engaged in providing like services in sectors such as the computer and related services – this is a sector in which the US has taken commitments in its Schedule of Specific Commitments under GATS.
Further, it affects the movement of natural persons seeking to supply services in a manner that is inconsistent with the US’s commitments under GATS, i.e., the Movement of Natural Persons Supplying Services provision, India has argued.
The TFA – aimed at harmonisation of customs rules and implementing provisions that are in place in the developed countries to developing countries aimed at better facilitation of goods across borders – will primarily help the developed countries like the US. It was included in the July 2004 framework agreement in return for addressing core issues under the DDA under the pillars of market access, trade-distorting domestic support, and export competition, which are of particular importance to developing countries like India and China and LDCs. However, in 2009, the TFA was separated from negotiations on the DDA, due to strong lobbying by the US and some other developing countries, despite protests from others, including India, arguing that the outcome of the Doha negotiations should be treated as part of a single undertaking under the Doha work programme. The DDA negotiations, crucial for India, have been all but shoved into the background after the tenth ministerial conference in Nairobi in December last year. Though a permanent solution for public stockholding programmes for food security for poor farmers remains hanging, India ratified the TFA this year.
The US has reportedly questioned India’s paper on a TFS agreement. The US has warned that the proposal might again become a developed-versus-developing-country fight and the special and differential flexibilities India’s proposal will prolong time periods for implementing the agreement. (The TFA took over nine years to conclude in December 2013).
However, the EU, China and some African nations have said that the Indian proposal is a good basis for further negotiations on addressing challenges under the global trade in services.
India has already intensified its liberalisation of Mode 3 through its domestic reforms – the government has increased FDI limits in railways, defence, insurance and other sensitive sectors. This move will stand to benefit many of its trading partners, particularly the US. The American interests lie in expanding Mode 1 and 3 in services but are reluctant on Indian interests in allowing easier access of professionals into the US market. It remains to be seen what quid pro quo India manages in securing from the developed countries after its Mode 3 services liberalisation.
The immigration-phobic climate in the US and in large swathes of the EU, especially after Brexit and the current refugee movement, will make negotiating on Mode 4 in services a challenging task for India. The western countries are already shutting their borders on short-term services providers from emerging economies.
Cecilia Malmström, the EU’s trade commissioner, has stated that electronic commerce, services, fisheries subsidies, domestic farm subsidies, and digital trade are likely negotiating topics for the WTO’s eleventh ministerial meeting next year. Notwithstanding, the uphill task cut out for India in pulling forward its proposal on trade in services, it is likely to be one of the important negotiating agendas in Buenos Aires next year.
(The article appears in October 16-31, 2016 edition of Governance Now)