Services Negotiations in Doha Round: Concerns of South Asia

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Services Negotiations in Doha RoundConcerns of
South Asia

• WTO Doha Round and South Asia Linking Civil
  Society with Trade Negotiations
• National Consultations on
• 12th, 15th, 17th, 19th and 22nd September 2005,
  at
• Islamabad, Dhaka, Delhi, Kathmandu and Colombo.
• By
• Pranav Kumar
• CUTS Centre for International Trade, Economics
  Environment, India
• Email pk_at_cuts.org

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Presentation Coverage

• Global trade in services
• Services sector in South Asia
• Services trade S. Asian strength
• Major market access barriers
• Services negotiations S. Asia approach
• Services trade a win-win situation
• Possible negotiating strategy

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Global Trade in Services (some features)

• Trade in services has grown faster than
  merchandise
• 60 of global output
• 30 of global employment
• 20 of global trade
• World services trade growth 155 between
  1990-2002 mfg. 97 and Ag. 40

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Global trade in services (contd.)

• The composition of FDI has shifted towards
  services
• Early 1970s one-quarter of the world FDI
• 1990 less than one-half
• 2002 two-third of total FDI
• The composition of services FDI is also changing

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Global Trade in Services (contd.)

• Developing countries share has increased
• In last 15 years - a four fold increase in
  services export from developing cts.
• Increase in share in global services exports
  14 in 1985-89 to 20 in 2000.
• Share in global outward FDI in services climbed
  from 1 in 1990 to 10 in 2002.

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Global Trade in Services

• Holds an immense potential in terms of further
  expansion of world trade
• By 2050 the world services exports would exceed
  merchandise
• In case of USA this situation would come much
  earlier by 2037

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Services Sector in South Asia

• In terms of its contribution to national economy
  follows global pattern
• Services exports no uniformity across five
  countries
• India emerging as one of the leading exports of
  services in world, others are lagging behind

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Services Sector in South Asia

• Share in GDP and Total Exports (2003)

Total exports are merchandise and services
together world average is 20
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Services Sector in South Asia

• Services Ex. (mn.US) and its Share () in World
  Ex.

Source Int. Trade Stat. 2004, WTO Figures in
brackets indicate share in world services export
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Services Trade South Asias Strength

• Greatly endowed in semi-skilled and unskilled
  labours
• Natural comparative advantage in providing
  labour-intensive services
• Vast pool of professional service providers
  health care, accountancy, engineering, legal,
  architecture etc.
• Cross-border trade - BPOs

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Services Trade South Asias Strength

• In Terms of GATS Framework (Mode-wise)
• Mode 1(Cross-border trade) business process
  outsourcing India is strong
• Mode 2 (Consumption abroad) tourism, medical
  tourism India, Sri Lanka and Nepal have
  advantage
• Mode 4 (Movement of natural persons) All South
  Asian countries

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Outsourcing India an Emerging Force

• India ranks 6th among the world top recipients of
  outsourcing business

Source IMF, BOP Statistics Yr. Book
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Outsourcing India an Emerging Force

• India is also one of biggest outsourcers. With
  value of 11bn ranked 11th in the world in 2002.
• Exhibits a strong revealed comparative advantage
  (RCA) in services relative to goods.
• This increase in RCA index in services is on
  account of the computer, information,
  communications and other commercial services.

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Outsourcing India an Emerging Force

• Indias RCA in Services

Source WTO Staff Working Paper ERSD 2004-06
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Outsourcing India and Emerging Force

• Strong RCA in selected sub-sectors reflected in
  changing composition of Indias exports in favour
  of software.
• Between 1997-98 and 2001-02, the share of
  software in services exports increased from 19 to
  34.
• Within the software, there was a shift from ITS
  to BPO and off-shoring became the dominant mode
  of delivery.

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Outsourcing India an Emerging Force

• Changing Composition and Mode of Delivery of
  Indias Software Exports

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Outsourcing India an Emerging Force
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What Contributed to this BPO Revolution?

• Strengths
• India has a relatively young, well educated,
  english-speaking population
• A plethora of software engineers and a pipeline
  of 60,000 professionals entering the system every
  year
• Cutting edge technology, rapidly improving
  infrastructure, reducing telecom costs, and
  superior process and project ,management skills
• Support from the government and private sector

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What Contributed to this BPO Revolution?

• Opportunities
• Worldwide IT spending will exceed US1 trillion
  by 2008
• Estimates suggest that a greater portion will
  come in the form of off-shoring

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What Contributed to this BPO Revolution?

• Projections
• Exports of IT related services from India are
  expected to increase from US7.9bn in 2001-02 to
  US57bn by 2008-09 NASSCOM McKinsey Report
• Global market in off-shore financial services
  could be as large as US356bn by 2008-09 of which
  a large share would go to India Deloitte
  Research Report
• India will remain the most preferred destination
  for outsourcing Forbes and Merrill Lynch
  Reports

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Mode 2 Consumption Abroad

• Tourism is a traditional foreign exchange earning
  sector.
• In South Asia, tourism sector is contributing
  significantly to India, Nepal and Sri Lanka
  economies.
• India is also fast emerging as one of the leading
  destination of medical tourism.

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Mode 4 Temporary Movement of Natural Persons

• Despite the dev. in tech. for electronic
  delivery, mode 4 remains imp. for a range of
  services delivery.
• Given that there is really no substitute for
  human labour, at least in some occupations (e.g.,
  the caring, personal services and a range of
  prof. services), the demand for mode 4 is likely
  to increase over time.

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Mode 4 Temporary Movement of Natural Persons

• All major South Asian countries have comparative
  advantage in supplying the services of low and
  semi-skilled workers.
• India, Bangladesh and Pakistan have interest in
  supplying both skilled and unskilled workers but
  more so in later category.

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Mode 4 Temporary Movement of Natural Persons

• Current Trends Bangladesh
• Primary orientation towards the Middle East and
  the concentration of semi-skilled and unskilled
  categories.
• Mainly engaged in construction worker, domestic
  maids and nurses.
• Increasingly, Bdeshi maids and nurses are also
  going to SE Asia. An estimated stock of around
  250,000 Bdeshi workers in Malaysia.
• Flows to Ind. countries are mostly permanent in
  nature and restricted to high- and semi-skilled
  workers.

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Mode 4 Temporary Movement of Natural Persons

• Current Trends India
• There is a considerable amount of evidence on
  migration from India in IT and health services.
• Industry sources estimate - out of 132,986 new IT
  professionals in 2001-02, about 64,350 left India
  to provide on-site services abroad.
• There has been a decline in this trend in the
  recent years because of outsourcing.

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Mode 4 Temporary Movement of Natural Persons

• Unlike IT prof., movement of Indian health care
  workers is towards ind. and Middle East and Gulf
  countries as well.
• Estimated 60,000 and 35,000 doctors of Indian
  origin in the UK the US respectively.
• Nurses migration has been much lower than
  migration of physicians.
• For low and semi-skilled workers the main
  destinations have been Middle East Africa.

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Mode 4 Temporary Movement of Natural Persons

• Current Trends Pakistan
• Temp. migr. has mainly been to the Middle East,
  for contract-based work.
• Bulk of this movement is in unskilled categ.
  Prof. migrants constitute less than 10.
• Pak exports labour to other regions like North
  America, Europe, the Far East and Australia.
• Data indicates that most of Pak labour flows to
  developed countries has been in the skilled and
  prof. Categories.

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Mode 4 Temporary Movement of Natural Persons

• Current Trends Sri Lanka
• An estimated 1.2mn SL workers abroad. 70 is
  estimated to be in Middle East over 60 are
  female migrants.
• In addition to the Middle East, other
  destinations include Singapore, Malaysia, Canada,
  US, UK and Australia.
• The most striking feature of migration from Sri
  Lanka is the dominance of the housemaids category
  56 of all departures in 2001.
• Migration of skilled laborers are mainly
  permanent in nature.

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Major Market Access Barriers

• Cross-border trade
• Legislation is pending in many US States that
  will introduce an outsourcing ban with respect to
  govt. contracts.
• By April 2004, 36 States introduced in excess of
  100 bills aimed at restricting outsourcing.
• Public procurement and other public contracts be
  performed within the US. Some states go even
  further, requiring that only persons authorised
  to work in the US perform the contract.

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Market Access Barriers

• Tem. Movement of Natural Persons (TMNP)
• Economic Needs Test
• Strict visa procedures
• Non-recognition of professional qualifications
• Imposition of discriminatory standards or
  burdensome licensing requirements
• Wage-parity requirement
• Payment of social security without corresponding
  benefits
• Requirement of registration with or membership of
  professional organisation

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Market Access Barriers

• TMNP Some Empirical Facts
• South Asian doctors must pass the Educational
  Council for Foreign Medical Graduates (ECFMG)
  exam in the US.
• Medical graduates wanting to go to US have to
  clear the US Medical Licensing Exam. (USMILE)
• In the UK they are required to take a PLAB
  (Professional and Linguistic Assessment Board)
  exam.
• South Asian nurses are required to pass the
  Commission on Graduates of Foreign Nursing
  Schools (CGFNS) exam.

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Market Access Barriers

• TMNP Some Empirical Facts
• In Australia, the ENTs are conducted by advert.
  the position in newspapers and empt. agencies.
  Employers must provide info. on who responded to
  the advert. and why the applicants were not
  hired.
• In the UK, employers must demonstrate that the
  post cannot be filled by a UK or EEA national by
  proving that the post has been advertised widely
  in the previous 6 months and no satisfactory
  response has been received.

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Services Trade LiberalisationA Win-Win
Situation

• TMNP
• Temporary workers are to work in those sectors
  where there is shortage of labour. For instance,
  nursing, teaching at lower level.
• Secondly, they are not competing with the locals.
  Will work in those sectors where locals are not
  interested.
• GATS visa addresses the concerns of both
  developed and developing countries

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Services Trade LiberalisationA Win-Win
Situation

• Off-shoring
• Of the approximately 1.45-1.47 of value derived
  from every dollar spent offshore, US firms
  receive 1.12-1.14, while foreign firms receive
  only 33 cents of the value McKinsey Report

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Commitments in Mode 4 Under GATS Framework

• Commitments are horizontal rather than sectoral.
• Bias towards higher skill categories. Includes
  business visitors, personnel engaged in setting
  up commercial presence (intra-corporate
  transferees) and specialty occupations.
• Plethora of restrictions attached to commitments
• Lack of clarity and definitions at various
  levels.

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Services in July Package

• Fresh deadline for submission of revised offers
• Stress on high-quality offers, particularly in
  sectors and modes of export interest to DCs
• Special attention to be given to LDCs
• Emphasis on mode 4
• To intensify efforts on rule-making under GATS
• Targeted technical assistance to DCs

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South Asias Strategy in Doha Round

• An year before the Doha Round, India made a
  comprehensive submission on Mode 4 in Nov. 2000
• India has been very proactive. Made its initial
  conditional offer in January 2004. Revised
  further as per July Agreement.
• Sri Lanka also made its initial offer in
  September 2003.
• Bangladesh and Nepal are exempt from making any
  offers.
• Pakistan too revised its initial offer as per
  July Agreement.

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South Asias Strategy in Doha Round

• India, Pakistan with other developing nations
  made submissions on liberalisation under Mode 4
• Bangladesh too supported India, Pak proposal on
  mode 4
• India, Pakistan and Sri Lanka through different
  group submissions demanded effective
  implementation of Art IV of GATS
• India signed a joint statement with 15 other
  countries urging CTSSS to accelerate services
  negotiations

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Future Negotiating Strategy

• On Mode 4
• Expansion of commitments in categories de-linked
  with Mode 3
• Elimination or easing of variety of restrictions
  attached to mode 4 commitments
• -- elimination of ENTs
• -- multilateral guidelines for
  recognition and requirement of
  qualifications.
• Stand alone multilateral agreement on Mode 4
  separate from GATS

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Future Negotiating Strategy

• Possible elements of stand alone agree.
• Introduction of a short-term GATS visa
• No economic needs tests
• Relying on the supplying nations for
  qualification recognition
• Strict provisions for return migration
• Put more responsibility on supplying nations

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Future Negotiating Strategy

• On Implementation of Article IV
• Immediate operationalisation of commitments made
  under LDCs modalities
• Provide SDT to developing countries through
  specific commitments
• Ensure tangible increase in DCs participation in
  world services trade
• Facilitating strengthening of domestic service
  industry and providing policy flexibility

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Future Negotiating Strategy

• Role of Stakeholders
• Industry to industry alliance between developing
  and developed nations is very important.
• Both US Coalition of Services Industry and
  European Services Forum supports developing
  countries stand on Mode 4
• Business chambers in South Asian countries should
  take initiative to form similar coalitions
• In India FICCI is setting up coalition of
  services industries.

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Future Negotiating Strategy

• Some Systemic Issues
• Negotiations proceed through a laborious process
  of requests and offers.
• The present approach seems to be leading us
  nowhere
• Definitional Issues in Mode 4 lack of uniform
  definition, statistics not compiled according to
  mode 4 criteria, time-period of temporary movement