Quid Pro Quo

Updated: Mar 19 2004, 05:30am hrs
As expected, anti-outsourcing legislation figured during US Secretary of State Colin Powells visit to India. In this debate, the distinction between welfare gains from free trade and compatibility with WTO provisions often gets blurred.

Anti-sourcing legislation is against free trade principles, usually propagated by the US. And protectionism, through visa restrictions or prohibitions on outsourcing, hurts US companies and consumers.

However, with reciprocity built into WTOs framework, the US expects India to open up as a quid pro quo. That India should open up on goods as well as services is beyond dispute.

Arguably, the first flush of liberalisation in the 1990s offered Indian consumers greater choice in goods, particularly manufacturing. In contrast, service sector liberalisation is as yet incomplete, barring obvious ones like telecom.

Consumer choice, which should also happen through foreign entry, is missing in legal or accountancy services or even in higher education.

Mr Powell has harped on opening up the first two as a price for the US toning down its anti-outsourcing legislation. Such quid pro quo is part and parcel of WTOs service sector negotiations. Service sector liberalisation is intimately linked to mode of service delivery.

Traditionally, the dichotomy has been for India to push for liberalising delivery through cross-border movements of labour and the developed countries pushing for liberalising delivery through a corporate presence abroad.

Just as the US agreed to a minimum H1-B commitment of 65,000 visas per year during the Uruguay Round, it is logically possible to extract commitments on additional visas or liberalised outsourcing provisions, although there are also links with the government procurement code.

Barring trade facilitation and transparency in government procurement, the other two Singapore issues have effectively been thrown out. With investment out, it logically follows that the US will exert pressure on India to open up services through a corporate presence in India. And in this agenda, legal and accountancy services have figured prominently in developed country priorities.

From a consumer perspective, there is no reason why such liberalisation shouldnt happen. Nor is the spectre of Indian chartered accountants and lawyers (or firms) being unable to survive believable, although both sectors require substantial internal restructuring and shakeouts.

However, service sector liberalisation is linked to reciprocity, which doesnt mean visas alone, but also mutual recognition of qualifications, including in the US. For both law and accountancy, this is a messy area.

And the Chartered Accountants Act and the Advocates Act require changes to allow for competition. This review and revamp should be done independent of external pressure. Otherwise, India will be caught on the wrong foot.

After all, the writing on the wall is clear, even if the Bombay High Court judgement has temporarily removed the threat of foreign competition. It is unlikely that American lawyers will begin to practise in Indian lower courts.

For both accountancy and law, the creamy corporate clientele will be the focus. While insisting on mutual recognition, India should be prepared for this.