Cooperation among Developing Countries in Services Trade Presentation by Dr Krishna Gupta Director Deptt of Commerce Government of India

PART I: Introduction

World trade in commercial Services in $2100 billion (roughly 1/4 th of merchandise trade). Most developed countries have more than 60% of GDP being accounted for by Services. Even developing countries are increasingly become services-oriented with services accounting for 50% or more of GDP (Malaysia-57%, Thailand-55%, Bangladesh-50%) In India, Services accounted for 54.1% of GDP in Global services trade is a win-win situation for both developing and developed countries leading to better allocation of resources and increased efficiencies. SERVICES - STATISTICS

Cont’d  Further gains from liberalization in services trade are possible  In the spirit of Article XIX of GATS, many developing countries have autonomously liberalized their service sectors and offered to bind this liberalization in their Revised Offer  However, this liberalization should be across all Modes and Sectors.  At the same time such liberalization should give enough flexibility to developing countries to pursue their national policy objectives.  For this, negotiations should proceed as per the Negotiating Guidelines and Procedures, which provides for flexibility to developing countries.

Cont’d  For developing countries, liberal commitments from developed countries in Modes 1,2 and 4 will not only lead to solid gains for both sides, but will also be a strong facilitator to a successful completion of this Round.  There is ample evidence that liberal commitments from developed countries will lead to all round gains.

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/KPMG Report of 2004: Offshore IT services to grow by 30-40% in the ‘next few years’.  However, there is a worrisome indication of a lack of movement in Mode 4 as the following chart shows: Mode 4 contributes only 1% of all services trade globally. This imbalance needs to be corrected.

VALUE OF WORLD TRADE IN SERVICES BY MODE (PERCENT)

Asymmetries and Developing Country Objectives  As noted above, there are stark asymmetries in services trade, with Mode 4 accounting for the least trade  It is also the least committed Mode by Members  With technological developments and new ways of doing business, all Modes are required to supply services. Hence such asymmetries only raise transaction costs of supplying services  Developing country interests in Mode 4 are to get binding commitments from developed countries in categories such as Contractual Service Suppliers and Independent Professionals, which are delinked from the requirement to set up an office in the importing country.  To request developed countries to do away with Economic Needs Test and Labour Market Tests which hamper effective market access

How to Realise Developing Country Objectives  Predominantly, services trade of developing countries takes place with developed countries.  However, increasing integration of developing countries with the global economy has thrown up opportunities of cooperation between developing countries.  Such Cooperation can be realized at the bilateral, plurilateral and multilateral level.  In particular, large developing countries such as Brazil, China and India can pool their resources with smaller developing countries (the ACP group, Africa group and other small economies) to supply services to developed countries.

Cooperation among developing countries  This is readily possible in Mode 1 where the global delivery model has made it possible to break up the outsourcing supply chain into segments and then put it together as a final product at one place.  This is also possible in Mode 4, where developing countries have a large skilled work force, which is available at competitive wages as compared to wages in the developed world.  The cooperation at the bilateral level can take the form of technical assistance by larger developing countries to the services desks of smaller developing countries  Cooperation is also possible through experience sharing of sector-specific

Cooperation (Cont’d)  Some sectors in which, the smaller developing countries have a comparative advantage are: -Tourism (Maldives, Mauritius, Thailand) -BPO and IT services (Philippines, Sri Lanka) -Health (Thailand)

Cooperation at the WTO  At the multilateral level, there is a coordination of actions among developing countries-both large and small.  The areas in which such cooperation has evolved are: -Co-sponsoring of Mode 4 proposals -Coordinated strategy in developing disciplines in domestic regulation to ensure that such regulations do not hinder effective market access, as per the mandate under Article VI:4 of GATS and the mandate given by Ministers at Hong Kong  Developed countries are requesting developing countries not only for binding the autonomous regimes but go well beyond this regime in a number of sectors. However, even the developed countries have only bound their autonomous regimes.  Ensuring flexibility to developing countries in taking commitments in line with GATS is another area of cooperation.r

Part II: Run up to Hong Kong

Issues discussed  Hong Kong was preceded by intensive discussions wherein developing countries made a strong pitch for Mode 4 Commitments and their Transparency as noted above.  Developed countries wanted more liberal Mode 3 commitments in sectors such as Telecom and Finance and at least binding of the autonomous regimes  Both developing and developed countries wanted a binding of Mode1 and 2 commitments  There was also a broad consensus on developing disciplines in domestic regulations before the end of the current Round

Evaluation of offers of developed countries  In Mode 4, partial recognition of categories like Contractual Service Suppliers/Independent Professionals delinked from commercial presence  However, the US did not show any improvements over its Uruguay Round commitments in Mode 4.  Even where some improvements were seen, sectoral coverage was poor, duration of stay inadequate, ENTs still remain in many schedules and absolute wage parity used  Gaps in Mode 1 & 2 commitments particularly for Professional Services (including Health, Accounting etc.), Other Support Services (including Call centre services, Credit Reporting services, Mailing List Compilation services etc.) Other Business Services, R&D Services.

State of Play in Services Negotiations prior to Hong Kong  Inspite of these efforts, there was a perception that services negotiations were struck in a low- level equilibrium.  The perception was that the quality of Revised Offers and Initial Offers was very poor and did not offer any new openings for trade. In the words of the then 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”

Part III: Hong Kong and After

What was decided at Hong Kong  For more substantive engagement and greater negotiating efficiency, it was agreed that all negotiating methods available within the parameters of Article XIX of the GATS and the Negotiating Guidelines, i.e. bilateral, plurilateral and multilateral approaches, would be explored.  In the area of domestic regulation, disciplines for licensing and qualification requirements and procedures, technical standards etc. would have to be developed before the end of the current Round.  Removal or substantial reduction of MFN exemptions was agreed to.  More liberal commitments in all sectors and modes to be provided.

Deadlines at the Hong kong Ministerial Hong kong Ministerial Declaration deadlines Plurilateral Requests – 28 th February, 2006 Further Revised Offers - 31 st July 2006 Schedules of commitments – 31 st October 2006

Plurilaterals Basic Information  Twenty-One plurilateral groups were constituted  Both developing and developed countries have been participating actively.  Developing countries have received requests in Telecom, Finance, Distribution, Legal, Postal and Courier, Energy, Education etc.  Developing countries, predominantly interested in Mode 4  Both developed and developing countries co-sponsored requests in Computer and Related services and Cross Border Supply  Two Rounds of plurilateral negotiations have been concluded

Way Forward  The second round of plurilateral discussions was concluded in May,  These meetings have further clarified the requests and help Members decide on how to respond in the July Revised Offers.  As noted above, an indication of liberal commitments from developed countries in Modes 1,2, and 4 will strongly incentivise negotiations for developing countries and enhance the latter’s ability to respond to plurilateral requests. This would also address the issue of asymmetry of offers.  However, flexibility to developing countries in taking commitments has to be recognized. This is necessary since a number of developing countries are in various stages of regulatory reform.

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