Cooperation among Developing Countries in Services Trade

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Cooperation among Developing Countries in
Services Trade

• Presentation by
• Dr Krishna Gupta
• Director
• Deptt of Commerce
• Government of India

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PART I Introduction
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SERVICES - STATISTICS

• World trade in commercial Services in 2004 -
  2100 billion (roughly 1/4th 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
  2005-2006
• Global services trade is a win-win situation for
  both developing and developed countries leading
  to better allocation of resources and increased
  efficiencies.

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Contd

• 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.

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Contd

• 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.

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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.

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VALUE OF WORLD TRADE IN SERVICES BY MODE
(PERCENT)
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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

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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.

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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

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Cooperation (Contd)

• 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)

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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 VI4 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

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• Part II Run up to Hong Kong

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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

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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, RD Services.

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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

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• Part III Hong Kong and After

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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.

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Deadlines at the Hong kong Ministerial

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

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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

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Way Forward

• The second round of plurilateral discussions was
  concluded in May, 2006.
• 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 latters
  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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THANK YOU